THE ECONOMICS OF
CLEAN AIR
ANNUAL REPORT
OF THE
ADMINISTRATOR OF THE
ENVIRONMENTAL PROTECTION AGENCY
TO THE
CONGRESS OF THE UNITED STATES
In Compliance with
Public Law 91-604
THE CLEAN AIR AMENDMENTS OF 1970
February 1972
-------
PREFACE
This report, the fourth submitted to Congress, complies with
Section 312(a) of Public Law 91-604, the Clean Air Amendments of
1970, and is the second submitted by the Administrator of the
Environmental Protection Agency. Section 312(a) reads as follows:
"Sec. 312(a) In order to provide the basis for evaluating
program* authorized by this Act and the development of new
programs and to furnish the Congress with the information
necessary for authorization of appropriation* by fiscal
years beginning after June 30, 1969, the Administrator.,
in cooperation with State, interstate, and local aiA
pollution control agencies, 6hall make a detailed
estimate of the cost of carrying out the provisions
0(J this Act-, a comprehensive study of the cost of
program implementation by affected units 0(J government;
and a comprehensive 6tody of the economic impact of
air quality standard* on the Nation'* industries,
communities, and other contributing sources of pollution,
including an analysis of the national requirement* for
and the cat of controlling emissions to attain such
standard* of air quality as may be established pursuant
to this Act or applicable State law. The Administrator
shall submit such detailed estimate and the results
of such comprehensive study of cost for the five-year
period beginning July 1, 1969, and the results of such
other studies, to the Congress not later than January 10,
1969, and shall submit a re-evaluation of such estimate
and studies annual thereafter."
ii
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TABLE OF CONTENTS
Page
PREFACE ii
TABLE OF CONTENTS iii
LIST OF TABLES v
LIST OF FIGURES viii
Chapter 1: Summary 1-1
I. PURPOSE AND SCOPE 1-1
II. SUMMARY OF COSTS AND IMPACTS 1-1
III. BENEFITS OF AIR POLLUTION CONTROL 1-7
IV. CONSIDERATION OF OTHER ABATEMENT STRATEGIES i-H
Chapter 2: Governmental Programs 2-1
I. INTRODUCTION 2-1
II. NATIONAL PROGRAM 2-1
III. REGIONAL PROGRAMS 2-4
Chapter 3: Mobile Sources 3-1
I. INTRODUCTION 3-1
II. EMISSIONS 3-2
A. Nature and Source of Emissions 3-2
B. Emission Levels With and Without Standards 3-3
III. STATE-OF-THE-ART OF CONTROL TECHNOLOGY
FOR MOBILE SOURCES 3-7
A. Conventional Engine Control 3-7
B. Unconventional Power Sources 3-15
C. New Vehicle Testing and Factory Surveillance 3-17
IV. COSTS OF COMPLIANCE WITH THE 1970 CLEAN AIR ACT 3-18
A. Types and Sources of Costs 3-18
B. Unit Costs of Control on New Vehicles 3-20
C. National Costs through 1977 3-23
Chapter 4: Stationary Sources
I. INTRODUCTION 4-1
II. SOLID WASTE 4-4
A. Introduction 4-4
B. Emissions and Control Techniques 4-4
iii
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TABLE OF CONTENTS (Cont'd)
Page
C. Scope and Limitations of Analysis 4-5
D. Cost of Control 4-5
E. Economic Impact 4-6
III. STATIONARY FUEL COMBUSTION 4-7
A. Introduction 4-7
B. Residential, Commercial, Industrial, and
Small Utility Boilers 4-9
C. Steam-Electric Power Plants 4-14
IV. INDUSTRIAL PROCESSES 4-20
A. Introduction 4-20
B. Asphalt Batching 4-25
C. Cement 4-35
D. Coal Cleaning 4-43
E. Grain Handling 4-53
F. Iron Foundries 4-61
G. Iron and Steel 4-69
H. Kraft (Sulfate) Pulp 4-77
I. Lime 4-84
J. Nitric Acid 4-96
K. Petroleum Refining and Storage 4-105
L. Phosphate Industry 4-112
M. Primary Aluminum 4-121
N. Primary Copper, Lead, and Zinc 4-129
0. Secondary Nonferrous Metals 4-140
P. Sulfuric Acid 4-157
V. CONCLUSIONS 4-169
Chapter 5: Aggregate Price Impact 5-1
I. INTRODUCTION 5-1
II. THE PRICE MODEL 5-3
III. PROJECTED PRICE INCREASES 5-5
A. General 5-5
B. Impact on Consumer Prices 5-5
C. Impact on the Other Components of Final Demand 5-10
APPENDIX A: Assumed Emissions Standards A~l
iv
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LIST OF TABLES
Table
Page
1-1 National Emission Reductions and Costs Under Assumed
Standards for Fiscal Year 1977 1-4
1-2 Projected National Annual Damage Costs By Pollutant
in 1977 1-9
1—3 Projected National Annual Damage Costs By Source Class
in Fiscal 1977 1-10
1-4 Projected National Annual Benefits (Damage Cost Reduction)
By Source Class in Fiscal 1977 1-12
2-1 Estimated Funding of EPA's Air Program 2-2
2-2 Estimated Regional Funding of Air Pollution Control
Programs, Fiscal 1972 and 1973 2-6
3-1 Growth of Vehicle Population 1967-77 3-4
3-2 Effects of Controls on Emission Levels all Vehicles 3-6
3-3 Control Techniques and Estimated Investment Costs For
Mobile Source Emission Controls 1967-77 3-9
3-4 Heavy Duty Vehicles 3-12
3-5 Annualized Unit Cost Increases for Light Duty Vehicles 3-22
3-6 Annualized Unit Cost Increases for Heavy Duty Trucks 3-22
3-7 National Costs For Mobile Source Compliance 3-24
3-8 National Costs of Mobile Source Control and Emission
Reductions From 1967 Baseline 3-26
4-1 Stationary Sources - Estimates of Potential and Reduced
Emission Levels and Associated Costs in 1967 and 1977 4-2
4-2 Estimated Emission Levels for Stationary Fuel Combustion
Sources Nationally [Calendar Year 1967] 4-8
4-3 Stationary Fuel Combustion Sources - Estimates of Potential
and Reduced Emission Levels and Associated Costs 4-10
4-4 Summary of Estimated Capacity, Fuel Use, and Emissions, 1967 4-11
4-5 Summary of Estimated Projected Capacity Fuel Use and
Emissions, 1977 4-13
4-6 Electrical Energy Production and Fuel Consumption 4-15
4-7 1967 Statistics for Industrial Process Sources (National) 4-21
4-8 Industrial Process Sources - Estimates of Potential and
Reduced Emission Levels and Associated Costs
(National) 4-22
v
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LIST OF TABLES (Cont'd)
Table Page
4-9 1977 Expected Annual Control Costs for Industrial Process
Sources Relative to Capacity, Production, and Value
of Shipments 4-23
4-10 Model Asphalt Plant Financial Analyses 4-32
4-11 Basic Description and Income Statements for Model Cement
Plants 4-40
4-12 National Production of Larger Coal Firms 4-44
4-13 Size Distribution of Coal Cleaning Plants 4-45
4-14 Major Markets for Coal 4-46
4-15 Model Elevator Description 4-58
4-16 Model Income Statements 4-59
4-17 Model Plant Financial Analysis 4-66
4-18 Model Plant Process Units 4-82
4-19 Number and Production of Domestic Plants - 1967 4-86
4-20 Lime Sold or Used in the United States, 1967 4-88
4-21 Basic Description, Lime Plants 4-91
4-22 Income Statements, Lime Plants 4-92
4-23 Basic Plant Description, Nitric Acid 4-102
4-24 Annual Income Statement 4-103
4-25 The Petroleum Refining and Storage Industry, 1967 4-108
4-26 Fertilizer Industry Statistics 4-117
4-27 Basic Description, Fertilizer Plant 4-118
4-28 Annual Income Statement, Fertilizer Plant 4-118
4-29 Particulate Emission Capture by Cell Hoods 4-123
4-30 Primary (Cell Hood) Emission Control Systems 4-123
4-31 Average Cost of Control - Secondary Nonferrous Metals 4-155
4-32 Model Sulfuric Acid Plants 4-165
5-1 Projected 1977 Price Increases in Stationary and Mobile
Sources 5-6
5-2 Projected Increases in Consumer Prices, 1977 5-8
A-l Allowable Rate of Particulate Emissions Based on Process
Weight Rate A-4
vi
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LIST OF TABLES (Cont'd)
Table Page
A-2 Current and Projected Emisaion Control Requirements for
Automobiles and Light Trucks C6000 lb. GVW or L4ss) A-5
A-3 Current and Possible Emission Control Requirements Heavy
Duty Vehicles COver 6000 lb. GVW) A-6
A-4 Motor Vehicle Production (Domestic Production plus
Net Imports) A-7
vii
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LIST OF FIGURES
Figure Page
2-1 Environmental Protection Agency regional offices
within Standard Federal Regions 2-5
3-1 Approximate Distribution of Emissions by Source for a
Vehicle not Equipped with any Emission Control Systems
Systems 3-2
5-1 Distribution of 1970 Gross National Product in Billions
of Current Dollars 5-7
viii
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Chapter 1: Su«™«ary
A. Purpose and Scope
Section 312(a) of the Clean Air Act Amendments of 1970 requires
an annual report on the prospective costs and Impacts of governmental
and private efforts to carry out the provisions of the Act. This
report is the fourth submitted under the Act.
Cost estimates computed for the first time on a national level
are given in this report for controlling major air pollutants from
most (but not all) stationary and mobile source types. For mobile
sources three pollutants are covered: carbon monoxide (CO), hydrocarbons
(HC), and nitrogen oxides (N0X)• For stationary sources five pollutants
are covered: particulates, sulfur oxides (SO^), CO, HC, and NO^. Three
general classes of stationary sources are considered: solid waste
disposal (open burning and incineration), stationary fuel combustion
(heating and power generation), and industrial processes (seventeen
types). Mobile source types include light duty and heavy duty road
vehicles only. Stationary source control costs are projected for the
five fiscal years 1973-1977. Mobile source control costs are given
for the 1968-1977 model years to show the relative Impact of
increasingly more stringent Federal Standards since 1967.
B. Summary of Costs and Impacts
A private outlay of about $42 billion is estimated over the
period fiscal 1973-1977 to implement the stationary and mobile source
emissions reductions postulated in this study (see Appendix). Mobile
source controls are projected to cost $24.7 billion for the 1973-1977
model years ($26.9 billion for the 1968-1977 model years). The cost
of controlling the stationary source types considered in this report
is projected to be $17.2 billion. All cost estimates are in 1970
dollars.
The Environmental Protection Agency air program budgets for
Fiscal 1972 and 1973 are estimated to be $134.2 million and $158.7
million, respectively. From these totals, grants to state and local
agencies during those two years are expected to be, respectively,
1-1
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$42.9 million and $51.5 million. State and local funding for those
years Is estimated at $56.8 million and $64.5 million, respectively.
In last year's report a total private outlay of about $10.5
billion was estimated for mobile ($4 billion) and stationary source
($6.5 billion) controls for the five year period Fiscal 1972-1976.
These amounts differ widely from the corresponding totals in this
report for the following reasons:
The $10.7 billion increase to $17.2 billion in the 5-year
cost of controlling the emissions of the stationary
source types studied directly reflects increasing the
number of plants in each source type to the national total
in this report. This is in contrast to the number of plants
existing only in the 298 metropolitan regions studied in
last year's report. This extension is compatible with the
national scope of the 1970 Clean Air Act Amendments, but
does not recognize possible differences in emission
control levels sufficient to achieve national primary
and secondary ambient air quality standards under
abatement implementation plans submitted by States pursuant
to Section 110 of the Act.
The $20.7 billion Increase to $24.7 billion in the 5-year
cost of mobile source controls in this report results
from the higher expected cost of emission controls to
meet the more stringent automobile emission standards
mandated by the 1970 Clean Air Act Amendments for
implementation in 1975 and 1976. Specifically, Alternative 1
in Table 3-3 is assumed in the cost analysis as the
combination of emission controls adopted by automobile
manufacturers. Under this assumption, for example, the
Fiscal 1976 mobile source control costs in this report
(Table 3-3) amount to $7.16 billion while the costs
reported last year for 1976 were $3.94 billion.
Table 1-1 compares the source emission reductions achieved in
Fiscal 1977 under the emission standards assumed in the Appendix with
1-2
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potential emissions from these source tyt>es if no controls were
implemented beyond those normally found In practice.
Comparison with last year's report will show that four
industry types (brick and tile, elemental phosphorus, rubber tires,
and varnish) were not included in this report. The brick and tile,
and the elemental phosphorus industries are mainly sources of
fluoride, for which no new information is available to justify
further reporting at this time. A reexamination of last year's
data on the rubber tire industry indicates that too little
quantitative information is available from which to generate
reliable cost estimates. The varnish industry is not included this
year because information shows it. to be a minor and disappearing
source of HC due to declining market conditions.
Also given in Table 1-1 are estimated pollutant emissions
in 1977 from all other Industrial and miscellaneous classes for
which controls were not studied In this report. The "Industries
Not Studied" group in Table 1-1 accounts nationally for about
28 percent of the particulate, 3 percent of the SO^, 4.5 percent
of the CO, 4 percent of the HC, and a negligible amount of NO^.
These excluded industries account for about the following amounts
of the 10.2 million tons of particulate attributed to them in
Table 1-1:
Crushed stone;, sand and gravel . . 5.8 million tons
Other steel processes
1.0
VI
Clay products
0.6
VI
Lime crushing and screening . .
0.3 "
II
Ferro-alloys
0.2
II
Forest products
0.2
II
Carbon black
0.1
II
Subtotal
8.2
It
Other small sources
2.0
II
Total 10.2 million tons
1-3
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TABLE 1-1. - NATIONAL EMISSION REDUCTIONS AND COSTS UNDER ASSUMED STANDARDS FOR FISCAL YEAR 1977
(COST IN 1970 DOLLARS)—^
Emission Reductions and Cost Under
Assumed Standards
Emission Level _. Total Control
Source Class . without further control— Decrease of Emission Cost (Millions of_,
Type (Thousands of Tons Per Year) Level (Percent)— Dollars in FY 77)—
Part
S0X
CO
HC
NO*
Part
so*
CO
HC
NO*
Investment
Annual
4/
Mobile Sources-
450
1,490
165,000
28,000
9,900
4/
4/
66
72
44
$
7/
$ 8.385^
Solid Haste Disposal
1,830
260
6,720
2,530
510
96
0
92
86
0
$
472
$
224
Stationary Fuel Combustion:
Small & intermediate boilers
2,330
7,660
4,800
84
83
0
$
879
$
1,116
Steam-electric power
5.600
27.600
—
—
6,000
49
90
—
—
0
$
4,660
$
1.360
TOTAL
7,930
35.260
—
—
10,800
72
88
—
—
0
$
5,539
$
2,476
Industrial Process Studied:
Asphalt Batching
Cement
403
908
—
—
::
—
86
93
_
$
$
272
89
$
$
63
35
Coal Cleaning
342
—
—
—
—
97
$
21
$
9
Grain Plants: Handling
1,430
—
—
—
—
93
$
395
$
83
Feed
362
—
—
—
—
94
$
19
$
4
Gray Iron Foundries
260
—
3,800
—
—
88
—
94
—
—
$
348
$
126
Iron and Steel
1,991
—
—
—
—
96
$
841
$
306
Kraft (Sulfate) Pulp
536
—
—
—
—
85
—
—
—
—
$
132
$
40
Lime
609
—
—
—
—
94
$
29
$
7
Nitric Acid
—
—
—
—
230
—
—
—
—
89
$
37
$
14
Petroleum Products & Storage
—
—
—
1,349
—
—
—
—
78
—
$
378
$
73
Petroleum Refineries
241
3,010
12,100
197
—
59
99
99
94
—
Phosphate
350
—
—
—
—
54
—
—
—
—
$
31
$
15
Primary Nonferrous Metallurgy:
Copper
Lead
314
39
3,335
213
—
—
—
9
33
84
86
$
$
313
65
$
$
100
16
Zinc
71
555
—
—
—
0
75
$
41
$
18
Aluminum
49
—
—
—
—
89
$
923
$
256
Secondary Nonferrous Metallurgy
Sulfuric Acid
34
38
920
—
—
.
83
74
81
mmmm
^ ,T
$
$
32
169
$
$
9
39
TOTAL
7,977
8,033
15,900
1,546
230
86
89
98
80
89
$
4,135
$
1.213
Industries Not Studied
10,150
1,530
9,750
1,610
—
0
0
0
0
0
$
0
$
0
Miscellaneous Sources Not Studied 5/
7,940
280
19,740
7,750
5,250
0
0
0
0
0
$
0
$
0
National Total 6]
36,280
46,850
217,110
41,440
26,690
39
81
57
17
60
$10,146
$12,298
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TABLE 1-1. - FOOTNOTES
1/ Assumed standards given In Appendix. Blanks In the table Indicate that emission levels
meet applicable regulators or that emissions are negligible or do not exist.
2/ Emission abbreviations are: particulates (Part), sulfur oxides (SO ), carbon
monoxide (CO), hydrocarbons (HC), nitrogen oxides (NO^).
3/ Projected costs are the initial Investment expenditures for purchasing and
installing control equipment (total investment) and the continuing annual costs for
interest, property taxes, Insurance, depreciation, etc., and for operating and maintaining
of equipment (ultimate annual cost). Cost of government programs is not included.
kf Includes light duty and heavy duty road vehicles only. Control of particulate and
sulfur oxides from mobile sources was not considered in this study.
5/ Forest fires, structural fires, solvent evaporation, agriculture burning, natural
gas production and transmission, coal refining, etc.
6/ To nearest 10,000 tons.
Tj All mobile source emission control investment costs are assumed to be expended in
Fiscal 1977. Annual costs are based on Alternative 1 in Table 3-3 for meeting 1975 and
1976 vehicle emission standards.
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The "Miscellaneous Sources Not Studied" account nationally for
about 22 percent of the particulate emissions. These come mainly
from forest fires and structural fires and are not subject to the
same kind of control programs applicable to the other sources discussed
above.
Some or all of the controllable sources of emissions mentioned
above may be subject to control under abatement Implementation
plans developed by states to meet the national ambient air quality
standards. The Inclusion or exclusion of source types in this report
is not to be construed as a recommendation for Inclusion or exclusion
of these source types In state plans submitted to EPA for approval
under Section 110 of the Act.
The Fiscal 1977 costs of the control technology likely to be used
by the sources studied are given both as total investment in that
year (purchase plus installation cost) and as annualized cost
(capital charges plus operating and maintenance costs). Federal,
state and local subsidies (accelerated amortization, Investment tax
credit, etc.) have not been considered in calculating private
industrial emission control costs.
The aggregate price Impact of private investment in air pollution
control Is projected to result in less than a one percent cumulative
increase in consumer prices through 1977, with over half of the
Increase caused by a 10 percent rise in the price of new automobiles.
Other key price Increases projected are 4 percent for electric power,
and 2.5 percent for iron and steel, cement, and sulfuric acid.
The remaining projected Industrial price Increases are 1.5 percent
or less.
An examination of the impact on families of different income
levels indicates that middle income groups would be affected
relatively more than low or high income groups.
New construction is the investment activity most heavily affected
by projected price increases. New public utility construction is
affected most because of Increased prices for copper, electricity,
iron and steel, iron castings and passenger cars and trucks.
1-6
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Higher passenger car and truck prices will increase investment costs
for transportation. Projected price increases will also raise prices
for machinery, electric industrial equipment and apparatus, and
communications equipment.
Export prices for agriculture products, chemicals and chemical
products, and passengers cars and trucks would increase, but the
net impact on exports and balance of payments is difficult to predict
because the relationship of demand to projected price increases is
unknown.
Thus, the net adverse economic Impact of the stipulated air
pollution controls is projected to be small. The economic effects
of the concurrent costs for water pollution control, solid waste
disposal, noise abatement, and aesthetic improvements, will be
considered in a separate EPA report now in preparation.
C. Benefits of Air Pollution Control
The direct and indirect costs of pollution control should be
judged in comparison with the direct and indirect costs of the
damage which could be mitigated by such control.
Quantitative scientific information on the extent of damage
caused by these pollutants to health and welfare is substantial
enough to indicate the need for Federal, state, and local abatement
programs, but still far short of the level of detail needed to assess
monetary damage costs with the same precision as control costs.
Nevertheless, it is possible to develop very crude estimates of the
pecuniary costs of air pollution damage to health, materials,
vegetation, and property values. Extrapolating from data presented
in a 1970 study by Barrett and Waddell—^ for the Public Health
Service, the total U.S. emission levels, without application of
the standards assumed in the Appendix, shown in Table 1-1 imply
1977 direct costs of human mortality and morbidity in the
neighborhood of $9.3 billion annually, damage to property values
around $8 billion annually, for a total annual damage cost of
— "The Cost of Air Pollution Damages: A Status Report" by Larry B.
Barrett and Thomas E. Waddell, Public Health Service, Department of
Health, Education, and Welfare, July 1970.
1-7
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about $25 billion. Hie extrapolated damage costs are given lit
Table 1-2. The Barrett-Waddell study did not include health costs
ascribable to CO, HC, NO , and oxidants (0 ) because of an almost
' ' x x
complete lack of data upon which to base any estimates. (Oxidants
are irritant components of smog produced in the atmosphere by the
interaction between HC, NO^, and sunlight.) When, in addition,
the as yet unestimaced pecuniary costs of air pollution effects
on industrial, commercial, and cultural property, aesthetics,
visibility, odor, soiling, etc., are considered, the $25 billion
total appears rather conservative.
Table 1-3 attributes projected 19 77 damage costs by source
class, assuming strict proportionality between the total weight
of a pollutant emitted by a source class (Table 1-1) and the
damage cost of that pollutant assigned to the source class in
Table 1-2. On this basis, stationary fuel combustion ranks as the
most damaging source class, while solid waste disposal (incineration)
is the least damaging.
It should be understood that this method of allocating damage
cost by source class assumes that a unit of emission of a certain
pollutant from one source is as uniformly damaging as a unit of
emission of the same pollutant from another source. In the case of
mobile sources, it is possible these assumptions considerably under-
state attributable health damages. This possibility derives from
the fact that auto exhausts are so near to people's breathing level
and autos are so concentrated where urban populations walk, work,
and drive.
If reductions in damage are equated to benefits, then it is
possible to compute from the foregoing assumptions and data a crude
estimate of the value of benefits obtained from the emission reductions
summarized in Table 1-1. Table 1-4 gives the projected national
annual benefits (damage cost reduction) attributable to these
emission reductions in Fiscal 1977. Under the assumptions made,
computed total benefits in 1977 of $14.2 billion are generated by
the $12.3 billion estimated to be spent in that year for emission
1-8
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TABLE 1-2. - PROJECTED NATIONAL ANNUAL DAMAGE COSTS^
BY POLLUTANT IN 1977
(1970 DOLLARS IN MILLIONS)
Damage Class Pollutant Total
2/
Part. SO 0 - NO CO
X X X
Health $3,880 $ 5,440 $ 3/ $ 3/ $3/ $ 9,320
Residential Property 3,330 4,660 31 3/ 3/ 7,990
Materials and Vegetation 970 3,680 1,700 1,250 Q4/ 7,600
TOTAL $8,180 $13,780 $1,700 $1,250 $ 3/ $24,910
1/ Based on "lite Cost of Air Pollution Damages: A Status Report" by Larry B.
Barrett and Thomas E. Waddell, Public Health Service, Department of Health, Education
and Welfare, July 1970.
If Assumed proportional to HC emissions.
3/ Not available due to lack of data.
4/ Assumed to be negligible.
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TABLE 1-3. - PROJECTED NATIONAL ANNUAL DAMAGE COSTS-
BY SOURCE CLASS IN FISCAL 1977
(1970 DOLLARS IN MILLIONS)
Source Class Damage Class Percent
Health Residential Materials and Total
Property Vegetation
Mobile
$ 220^
$ 190
$1,740
$ 2,150
8.6
Solid Waste
230
190
200
620
2.5
Stationay Fuel Combustion
4,950^
4,240
3,650
12,840
51.5
Industrial Processes Studied
1,780
1,530
920
4,230
17.0
Industries Not Studied
1,260
1,080
460
2,800
11.2
Miscellaneous
880
760
630
2,270
9.1
TOTAL $9,320 $7,990 $7,600 $24,910 100.0
1/ Based on "The Cost of Air Pollution Damages: A Status Report" by Larry B. Barrett and
Thomas E. Waddell, Public Health Service, Department of Health, Education and Welfare, July 1970.
2/ Health damage costs due to CO, NO , and 0 not included due to lack of data. Entry is
health damage cost ascribed only to minor amounts of vehicle-related particulate and SO and,
therefore, considerably understates probable health damage costs due to mobile source emissions.
3/ Health damage costs due to NO from stationary fuel combustion not Included due to lack
of data.
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control, a benefit/cost ratio of over one-to-one. When It Is
considered that due to lack of data the value of the health benefits
generated by reductions in CO, 0^, and NO^, have not been Included
in Table 1-4, even though the costs of control for these pollutants
are included in the $12.3 billion total annual control cost in
Table 1-1, then the one-to-one benefit/cost ratio appears conservative.
The lack of data on the health damage costs of CO, Ox, and NO^
seriously biases the results in Table 1-4 against the efficacy of
mobile source emission controls. However, in 1977, without the
controls mandated by the Clean Air Act, mobile sources would
produce nationally 76 percent of the CO, 37 percent of the NO^ and
would contribute about 67 percent of national 0^ (smog) formation.
Research sponsored by EPA now underway is expected to lead
eventually to better data for ascribing damage costs to different
pollutants and their Interactions. Presently, however, the
assignment of damage cost to pollutants lacks a solid empirical
basis. Accordingly, the cost-benefit results presented above
should be considered as very tentative.
D. Consideration of Other Abatement Strategies
i • - - -¦¦¦"¦
In August 1971, EPA published (40 C.F.R. 51) guidelines
for the states in developing regional abatement Implementation
plans for achieving the national ambient air quality standards for
the pollutants studied in this report. The emission reductions
simulated in this report are based on the same emission limitations
given in the guidelines, but no attempt was made to relate these
reductions to regional changes in air quality.
Ideally, strategies could be developed which achieve the national ambient
air quality standards by the legal deadlines at the least net cost to the
region affected. To do this, however, requires a detailed emission
inventory of sources in each region where the ambient air
quality standards are violated plus very detailed information
on the cost and efficiency of control techniques and fuels available
to those sources. The use of computerized meteorological dispersion
models would then be needed to translate emissions from these sources
1-11
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TABLE 1-4. - PROJECTED NATIONAL ANNUAL
BY SOURCE CLASS IN
(1970 DOLLARS IN
BENEFITS (DAMAGE COST REDUCTION)
FISCAL 1977
MILLIONS)
Source Class
Benefit Class
Total
Benefit
Control Cost
(Table 1-1)
Health
Residential
Property
Materials and
Vegetation
Mobile
Solid Waste
Stationary Fuel Combustion
Industrial Processes Studied
Industries Not Studied
4/
Miscellaneous—
1/
172
3,812
1,413
0
0
2/
1/
145 -
3,267
1,302
0
0
$ 945
119
$2,366
734
0
0
945^
436
9,445
3,350
0
0
37
$ 8,385^
224
2,476
1,213
0
0
TOTAL BENEFIT—^
$5,397
$4,615
$4,164
$14,176
$12,298
1/ Value of benefits from reducing CO, N0X> and HC emissions not available due to lack of data.
2/ Health damage cost due to NO , from stationary fuel combustion not included due to lack of
data. X
3/ Based on Alternative 1 in Table 3-3 for meeting the 1975 and 1976 vehicle emission standards.
4/ Benefit computation based on proportional reduction of damage costs in Table 1-3 excluding
"miscellaneous" source damage costs since these are generally not controllable and, therefore,
can not become benefits.
-------
into average concentrations at points within the region where standards
are being violated. Once the meteorological importance of each
source to these points is estimated and the cost to each source to
achieve certain levels of emission reduction is also estimated,
then it would be possible to compute the set of source emission
reductions which achieves the air quality standards at least cost
to the region.
The implication of least cost strategies is that some sources
would be required to abate their pollution to different degrees than
others because of differences in location and process efficiency.
The emission controls for stationary sources given in the
Appendix are probably more representative of strategies expected
to be proposed in state abatement implementation plans than any
other set of controls which could be postulated for a nationwide
estimate. Yet in many cases the actual regional approach implemented
will be less expensive than that assumed in this report, and in a
few selected regions more costly methods will be employed and still
not succeed in reaching air quality standards by 1975.
In some regions the critical pollutants are those associated
with mobile sources. Since new car emission standards are set nationally,
little latitude is available to a state in controlling mobile source
pollutant.
This situation suggests that if a region is not or will not be
in violation of the national ambient air quality standards for CO,
HC, N0x, or 0 , then consumers in that region will pay for auto
emission controls not required to meet national ambient air quality
standards in the region. Theoretically in such situations a
"two-car strategy" would be more economically efficient; only
controlled vehicles would be permitted to be registered or escape
penalties in polluted regions, but in unpolluted regions relatively
uncontrolled vehicles would be permitted. While this strategy has
a certain appeal from an economics point of view, it assumes more
perfect knowledge than we now have on the contribution of automobiles
to ambient conditions; also its attendant administrative and enforce-
ment problems are overwhelming at present.
1-13
-------
Chapter 2: Government Programs
I. INTRODUCTION
This chapter provides estimates of the cost of Agency programs
for Fiscal 1972 and 1973 by program objective. Agency grants by
region are also given for these years.
II. NATIONAL PROGRAM
Fiscal 1972 and 1973 Agency funding by program objective is
given in Table 2-1. Following is an explanation of each program
objective.
A. Research and Development
1. Pollution Effects
Studies to determine the effects of air pollution on man,
animals, plants, materials, and the general environment; to
investigate natural phenomena associated with air pollution;
and to develop improved monitoring and analytical methods
and equipment for measuring air quality and emission
characteristics.
2. Pollution Control Technology
Development and demonstration of new and improved air
pollution control technologies and methods for preventing
and abating air pollution.
B. Abatement and Control
1. Standards, Regulations and Guidelines
Activities encompassing the development and promulgation
of anbient air quality standards, stationary and mobile
source performance standards, and hazardous material emission
standards, including development of regulations and guide-
lines for implementation of those standards.
2-1
-------
TABLE 2-1. - ESTIMATED FUNDING OF EPA'S AIR PROGRAM
(DOLLARS IN THOUSANDS)
Fiscal
1972 1973
Research and Development
Pollution Processes and Effects $ 23,416 $ 31,065
Pollution Control Technology 34,715 39,647
Abatement and Control
Standards, Guidelines and Regulations 9,691 9,708
Monitoring and Surveillance 8,759 11,756
Planning — —
Control Agency Support 42,930 51,548
Technical Information and Assistance 6,807 7,278
Federal Activities 902 847
Manpower Planning and Training 5,632 4,575
Enforcement 1,353 2,320
$134,205 $158,744
Note: The above estimates do not include the prorata share of the
Agency's program management and support costs and facilities
costs that can be charged to the air program. The prorata
share amounts to approximately $8,800,000 in 1972 and
$9,500,000 in 1973.
2-2
-------
2. Monitoring and Surveillance
Activities related to the continuing assessment of ambient
air quality and emissions from stationary and mobile sources
in order to support development of standards, enforcement,
and state and local air pollution control planning. Includes
operation of a network of Federal air monitoring stations
which augments state and local monitoring stations, centralized
collection, storage and processing of monitoring data, and
provision of technical assistance to state and local
monitoring efforts.
3. Control Agency Support
Provision of matching grants to state, territorial,
regional, and local air pollution control agencies to help
support planning, development, improvement, and maintenance
of their programs.
4. Technical Information and Assistance
Guidance and assistance to state and local air pollution
control agencies in development and operation of air pollution
control programs and in preparation of implementation plans
for national ambient air quality standards. Includes develop-
ment of air quality management guidelines, direct consultation
by EPA staff, provision of statistical data and technical
publications, and review of implementation plans.
5. Federal Activities
Efforts directed to ensuring that Federal agencies, in
their own operations and activities, produce a minimum air
pollution effect and do not violate or cause violation of
prevailing standards. Includes development and issuance of
guidelines, compilation of data on Federal installations,
direct consultation with Federal facility staffs in develop-
ment of their air pollution control programs, and review of
environmental impact statements prepared by other Federal
agencies.
2-3
-------
6. Manpower Planning and Training
Direct technical training of non-EPA air pollution control
personnel, grants to universities to support undergraduate
and graduate training in air pollution control, fellowships
for graduate study in air pollution control-related subject
areas, and surveys and analyses to define air pollution
control manpower needs.
C. Enforcement
1. Enforcement
Activities directed toward achieving compliance with
ambient air quality standards and emission and performance
standards for stationary and mobile sources. Includes technical
assistance to states In carrying out enforcement responsibilities
delegated to them and direct EPA enforcement actions such as
issuing notices of violation, issuing abatement orders,
convening air pollution abatement conferences, and initiating
court actions.
III. REGIONAL PROGRAMS
EPA has established ten regional offices in the United States.
The headquarters and regional boundaries for these offices are shown
in Figure 2-1. These offices are responsible for execution of
regional EPA programs. The regional office is EPA's principal
agent for contract and relationships with Federal, State, interstate,
and local agencies, industry, academic institutions, and other private
and public groups.
Table 2-2 gives regional estimates of Agency Federal grants
and State and local funding for air pollution control programs
in Fiscal 1972 and 1972.
2-4
-------
ro
I
wi
ALASKA
Seattle
WASH
MONT.
N. DAK.
MINN.
OREG.
s ton
IDAHO
MASS
E.I.
CALIF.
NEV.
an Francisc
hiladelphia
COLO.
VII
UTAH
DEL.
IOWA
OHIO
Kansas City
KANS.
TENN.
r® \ s.c
Atlanta
OKLA.
N. MEX.
miss:
VIRGIN ISLANDS
Dallas
€
c?
p
PUERTO RICO
HAWAII
FLA.
Figure 2-1. Environmental Protection Agency regional offices within Standard Federal Regions.
-------
TABLE 2-2. - ESTIMATED REGIONAL FUNDING OF AIR POLLUTION
CONTROL PROGRAMS, FISCAL 1972 AND 1973
(DOLLARS IN THOUSANDS)
Region
Fiscal 1972
Fiscal
1973
Federal
State & Local
Federal
State & Local
I
$ 2,593
$ 3,433
$ 3,218
$ 4,029
II
6,389
8,459
7,803
9,770
III
5,714
7,566
6,155
7,706
IV
5,797
7,675
6,931
8,678
V
9,514
12,597
12,073
15,116
VI
3,481
4,609
4,284
5,364
VII
1,996
2,643
2,425
3,036
VIII
1,012
1,340
1,109
1,389
IX
4,498
5,956
5,556
6,956
X
1,905
2,522
1,962
2,456
$42,899
$56,800
$51,516
$64,500
2-6
-------
Chapter 3: Mobile Sources
I. INTRODUCTION
This chapter analyzes the cost of complying with current and pro-
jected Federal standards for motor vehicle air pollution emissions and
presents estimates of the cost to purchasers and users of motor vehicles
due to air pollution control for Fiscal 1967 through 1977. The analysis
covers only automobiles and on-the-highway trucks and buses. Other en-
gines and transportation forms are excluded. The cost estimates are based
on current and anticipated standards and other available data as of
August 15, 1971The standards cover or will cover emissions of hydro-
carbons, carbon monoxide, and nitrogen oxides from motor vehicles. Smoke
for diesel vehicles is also covered by standards.
This chapter compares projected emissions under the anticipated
standards with potential emissions which would be expected if no standards
were in effect. Comparison is also made of emissions under standards with
1967 conditions. The estimates and projections of emissions contained in
this chapter are different from previously published estimates due to
changes resulting from the Clean Air Act of 1970. The costs of meeting
the standards are expressed in terms of additional initial costs to vehicle
consumers, increases in operating and maintenance costs, and an annualized
combination of increased operating and maintenance costs. Only costs di-
rectly associated with control of vehicular emissions are included. Costs
or price increases from controls on supplier industries, such as steel-
making, are considered in Chapter 5. Costs in the form of government pro-
grams are discussed in Chapter 2. Costs due to use of unleaded gasoline
have been included in total costs presented in this chapter.
J7 EPA announced on February 11, 1972 that the 1973 heavy duty vehicle
standards proposed on October 5, 1971 were being withdrawn and that new
standards would be imposed for the 1974 model year instead. There was
insufficient time to change this report to reflect either this new
effective date or likely changes in the technical nature of the
control requirements.
3-1
-------
II. EMISSIONS
A. Nature and Sources of Emissions
Motor vehicles are a major source of air pollution in the United
States. The four major pollutants from motor vehicles are hydrocarbons
(HC), carbon monoxide (CO), nitrogen oxides (N0X), and particulate mat-
ter. In 1967, motor vehicles accounted for approximately one-half of
the hydrocarbon and two-thirds of the carbon monoxide emissions to the
atmosphere in the United States. Motor vehicles also contributed about
one-third of the nitrogen oxides and nine-tenths of the lead-bearing
particulate matter to the total national emissions of these pollutants.
[FUEL TANK
CARBURETOR EVAPORATION
/ HC 157,
' "\-'X
/*;v fjrx
-j uLVSJ's :j:jj
{/ ^----=
/"•••• %..p»
EXHAUST
CRANKCASE
BLOWBY
HC 15%
Figure 3-1. - APPROXIMATE DISTRIBUTION OF EMISSIONS BY SOURCE FOR A
VEHICLE NOT EQUIPPED WITH ANY EMISSION CONTROL SYSTEMS.
-------
Emissions from gasoline-powered vehicles occur in several ways. Hydro-
carbon emissions from evaporation in fuel tanks and carburetors, blowby, and
leakage in engine crankcases are present In exhaust gases. Incomplete com-
bustion is the source of hydrocarbons in the exhaust gases and also produces
carbon monoxide. In the Internal combustion engine some of the atmospheric
oxygen and nitrogen combine to form nitrogen oxides which are emitted in the
exhaust. Unfortunately, conditions which favor more complete and efficient
combustion (thereby reducing exhaust emissions of hydrocarbons and carbon
monoxide) tend to increase the formation of nitrogen oxides. Figure 3-1 il-
lustrates the sources and approximate relation of these emissions.
The emissions from diesel engines are principally nitrogen oxides and
smoke. The nitrogen oxides are a natural result of the high combustion
temperatures in diesels. Diesel engine smoke consists almost entirely of
small carbon particles. Based on present knowledge, the total amount of
emissions from diesel engines represents much less of an environmental prob-
lem than that from gasoline engines. Diesel smoke, however, may be highly
visible and produce soiling because of its sooty nature. For these reasons
(and because of odors), public attention is drawn to diesels.
B. Emission Levels With and Without Standards
As has been previously noted, changes have been made In the standards
and measurement techniques in effect for Fiscal 1968 through 1977. In the
emission estimates reported herein, corrections have been made so that the
data are comparable for the entire period.
Crankcase emission controls were already standard on new automobiles
at the beginning of the time frame considered here. The crankcase contri-
butions of the older vehicles which are not equipped with blowby control
devices are included in the emission estimates presented here.
1. Potential Emissions without Standards
Table 3-1 gives the expected number of automobiles, trucks, and
buses in use for Fiscal 1967 through 1977. This table indicates the
potential problem which could be expected if no control regulations
or standards were in effect. The total number of vehicles in use
shows an expected growth of approximately AO percent. Total annual
emissions would Increase approximately the same percentage without
controls.
In Table 3-1, the vehicle populations have been projected on
3-3
-------
TABLE 3-1. - GROWTH OF VEHICLE POPULATION 1967-77
Millions of Vehicles
Percent Controlled
Gasoline-Powered
Diesel-
lowered
Gasoline
Diesel
Fiscal
Year
Autos
and
Light
Duty
Trucks
Heavy
Duty
Trucks
Buses
Heavy
Duty
Trucks
Buses
Autos
and
Light
Duty
Trucks
Trucks
and
Buses
Trucks
and
Buses
1967
81.8
5.6
0.28
0.46
0.06
-
-
-
1968
84.6
6.0
0.29
0.50
0.06
9.0
-
-
1969
88.1
6.3
0.30
0.55
0.07
20.5
-
-
1970
91.1
6.6
0.30
0.60
0.07
31.5
7.5
_y
1971
93.8
6.8
0.31
0.65
0.07
42.0
17.0
-
1972
96.8
7.1
0.32
0.70
0.07
52.0
26.0
-
1973
100.1
7.5
0.33
0.77
0.07
61.0
34.5
-
1974
103.5
7.8
0.34
0.84
0.07
69.0
42.5
-
1975
106.9
8.3
0.35
0.91
0.08
76.0
49.5
7.5^
1976
110.5
8.7
0.36
0.99
0.08
82.0
55.5
17.0
1977
114.2
9.1
0.37
1.08
0.08
87.0
61.0
26.0
A/ Smoke control began in 1970 for diesels. Since some prior model ve-
hicles meet standards with careful operation (and perhaps in-service
modifications) percent controlled is applied only to gaseous emissions.
U Assume same age distribution for diesels as for HD gasoline trucks.
the basis of the best information on the number of vehicles actually
in use rather than on the number of vehicle registrations. This
method eliminates multiple counting of some vehicles due to redundant
registration transactions. Vehicle growth has been based on popula-
tion projections of the Census Bureau and historical trends in growth
of total vehicle numbers and vehicles per capita.
The vehicles shown in Table 3-1 are divided into two basic cate-
gories; the first comprises automobiles and light-duty trucks. Light
duty (LD) trucks are 6,000 pounds or less in gross vehicle weight (GVW),
and the second category, heavy duty (HD) vehicles, consists of those
over 6,000 pounds GVW. The vehicle data shown include diesel trucks
3-4
-------
and buses of Che gasoline and dlesel varieties. Based on Che besC
data available, buses (of all Cypes) and dlesel trucks constitute a
small fraction of the total vehicle population. Diesel trucks con-
tribute less than A percent of the Nation's annual vehicle travel
mileage. Buses contribute less than 0.5 percent of the annual vehicle
miles. Since these small percentages are difficult to discern in ef-
fects on national emissions and control costs within the accuracy of
available data, buses are Included with HD trucks under the proper
engine categories.
2. Emission Levels with Standards in Effect
Table 3-2 illustrates the effects of anticipated controls on
emissions for Fiscal 1967 through 1977. In making the projections shown
in Table 3-2, current and anticipated standards detailed in the Ap-
pendix were used. These standards either have been promulgated or are
under consideration by EPA. The anticipated 1975-77 standards for
heavy duty vehicles are still under study and development. It has
been assumed that all standards will be met by Fiscal 1977.
Table 3-2 shows projected emissions as percentages of the un-
controlled potentials. Approximately 82 percent of the motor vehicles
in use should be controlled to some degree by Fiscal 1977. In project-
ing emissions and the percentages of vehicles under control, the age
distribution of vehicles in use has been considered with older vehicles
being removed from service and new vehicles being added with time. Age
and use distribution within the vehicle population are based on 1969
data. It is assumed that a comparable distribution will hold through
Fiscal 1977.
The emissions level of nitrogen oxides with controls Is expected
to rise above the uncontrolled level for a period of several years.
This is due to the fact that the controls for hydrocarbons and carbon
monoxide, which were Implemented earlier than those for nitrogen oxides,
tended to produce an increase in nitrogen oxides. This effect has been
partially offset by reductions in engine compression ratios beginning
with .'971 models. The first Federal standards for nitrogen oxides take
rffe-: Ln Fiscal 1973. With these standards in effect, the levels of
nitrogen oxides emitted by new vehicles will begin to show a decline.
However, not until the last 3 years of the time period will national
J-5
-------
TABLE 3-2. - EFFECTS OF CONTROLS ON EMISSION LEVELS
ALL VEHICLES
Fiscal
Potential Emissions With-
out Controls in Effect
(Thousands of Tons)
Emissions with
Controls in Effect
(Thousands of Tons)
Controlled Emissions as
Percent of Potential
Without Controls in Effect
Year
HC
CO
NO
X
HC
CO
NO 1/
x —
HC
CO
NO *
X
1967
20,000
118,000
7,000
20,000
118,000
7,000
100.0
100.0
100.0
1968
20,800
122,000
7,400
19,200
114,000
7,400
92.5
93.5
100.0
1969
21,700
127,000
7,700
18,500
111,000
7,800
85.5
87.5
101.5
1970
22,400
132,000
7,900
17,300
105,000
7,900
77.0
79.5
100.0
1971
23,300
138,000
8,200
16,000
100,000
8,000
69.5
72.5
97.5
1972
24,000
142,000
8,500
14,600
93,000
7,900
61.0
65.5
93.0
1973
25,000
147,000
8,800
13,200
89,000
7,600
53.0
60.5
86.5
1974
25,600
151,000
9,100
12,000
84,000
7,300
47.0
55.5
80.5
1975
26,500
156,000
9,400
10,500
74,000
6,900
39.5
47.5
73.5
1976
27,400
161,000
9,600
9,000
65,000
6,200
33.0
40.0
64.5
1977
28,000
165,000
9,900
7,700
57,000
5,500
27.5
34.5
55.5
1/ NOx emissions are increased through 1972 as a side effect of HC and CO controls. NO^ controls
are planned to begin in 1973.
-------
vehicular emissions of nitrogen oxides actually fall below those ex-
pected if hydrocarbons and carbon monoxide are not being controlled.
In projections in Table 3-2, consideration was given not only to
the age distribution within the vehicle populations each year, but
also to the usage of vehicles according to age. Based on total mile-
age estimates and the number of cars In use, the average mileage
driven per year Is about 10,800 miles; for HD vehicles, the average
is about 12,500 miles (however, the usage of certain classes of HD
vehicles deviates greatly from the average). Based on Bureau of Public
Roads surveys, the trend is for annual mileage to decrease with the
age of the vehicle. Thus, newer vehicles contribute a significantly
larger portion of the total mileage and fuel consumption than the
older vehicles.
III. STATE-OF-THE-ART OF CONTROL TECHNOLOGY FOR MOBILE SOURCES
A. Conventional Engine Control
1. General
During the past year no dramatic Innovations have been observed
in control technology for conventional Internal combustion engines.
Some progress has been made, but in general the concepts and ap-
proaches appear the same as previously reported. The ability of in-
dustry to meet the 1976 nitrogen oxides standards Is still In question.
Even proposed unconventional engines may not be capable of meeting
this stringent requirement in vehicular service. There is considerable
confidence that the 1975 hydrocarbon and carbon monoxide emission stand-
ards can be met, although possibly with penalties in driveability and
economy.
Problems in driveability and fuel economy have significance be-
yond questions of mere comfort, convenience, and the user's budget.
Driveability problems can include starting difficulties, poor or un-
certain acceleration, hesitation and stalling. To the extent that
driveability affects safety In traffic these problems influence se-
lection of control techniques. To some degree fuel economy must also
be considered in control technique development. Since automobiles
comprise a large portion of the nation's petroleum consumption, unduly
large Increases in vehicle consumption rates would constitute a drain
3-7
-------
on national resources. Thus the total effects of various approaches
must be considered in achieving control of emissions.
Plans for accommodating unleaded gasoline, which were Introduced
after last year's report was assembled, have influenced control tech-
nology and necessitated engine design changes. Manufacturers are mak-
ing changes in design and materials for valves and valve seats to pre-
vent damage when using unleaded gasoline. The use of unleaded gaso-
line will be a necessity for any type of catalytic reactor system.
In addition, unleaded gasoline will make exhaust gas recirculation sys-
tems more reliable and trouble free. Unleaded gasoline will also re-
duce the expense of maintaining exhaust systems since corrosion prob-
lems will not be as severe. Some engine components give longer life
and require less maintenance with unleaded gasoline.
2. Light-Duty Vehicles
The chief developments in control technology for 1971 models ap-
pear to lie in the areas of new techniques for regulating carburetion,
choking, and engine ignition characteristics. For further progress in
this area manufacturers will employ new electronics technology in ig-
nition systems and control of carburetion or fuel injection processes.
Manufacturers feel that this is necessary for them to reduce the
maintenance requirements for automobiles In order to meet the govern-
ment's requirement for a 50,000 mile warranty of emission control per-
formance. One manufacturer has stated that his goal Is a "sealed
hood" vehicle which would require n6 service or maintenance of the en-
gine or associated components for at least 50,000 miles. This would
require special lubricants and cooling fluids as well as stable, long-
life Ignition and fuel systems. This goal has not been met yet, but
seems possible in light of current technology.
Table 3-3 summarizes the typical control techniques and engine
changes expected as a result of emission control requirements from
Fiscal 1967 through 1977. The technology is well established and manu-
facturers are committed to certain approaches through 1974. However,
in order to meet the stringent 1975 and 1976 standards, certain techni-
cal problems must be resolved. Three alternative possibilities for
meeting these standards are shown in Table 3-3.
3-8
-------
TABLE 3-3. - CONTROL TECHNIQUES AND ESTIMATED IMVISIHEOT
COSTS FOR MOBILE SOURCE EMISSION CONTROLS 1967-1977
Autcs and Light Duty Trucks
Additiooal
Emissions Per Vehicle
Coati/
Total Coat—/
aa
Percent of 1967
Per New
Per Vehicle
Vehicle Level
Model
Vehicle
(Cumulative)
Year
Typical Changes or Controls Added
(Dollars)
(Dollars)
HC
CO N0„
1967
None
0.00
0.00
100
100 100
1968-
Closed PCV system, carburetor changes, ig-
5.40
5.40
53
45 111
1969
1970
1971
1972
1973-
1974
!¦/; 5
1976-
1977
1975
1976-
1977
1975
1976-
1977
7.40
19.70i/
2.00
48.00
163.50
nltlon tining changes, Inlet air tempera-
ture control
Additional carburetor changes, Idle con-
trol solenoid, ignition timing changes
Evaporative esiasion control, improved Idle
control solenoid with overheat protection
(Including transmission spark control), low
compression ratios, additional carburetor
changes
Valve and valve seat changes for unleaded
gasoline
Exhaust gas recirculation lor N0X control,
speed controlled spark timing
Catalytic oxidation of HC and CO (includes
long-life exhaust system), unitized Ignition
systems for 50,000 mile service-free per-
formance, sir injection for catalytic unit
Dual catalyst units for HC, CO, and N0X; or
tandem S0X and C0-HC catalytic units; modi-
fied manifold reactors to reduce catalyse load
Cumulative 1974
Extremely lean fuel mixtures (unitized elec- 160.00
tronic ignition with electronic control of
¦park timing), electromechanical fuel in-
jection, special valves and intake design
Low temperature NOK decomposition catalyst
unit
Cuoulatlve 1974
Catalytic oxidation of exhaust HC and CO, 133.00
105.00
2/
85.00
2/
¦3 atr injection to assise catalytic unit
U
5 Exhaust gas' recirculation increased to
2 maximum for NO,, control. Modulation of
recirculation
14.00?./
TT No Federal Excise Tax Included
2/ Above the costs of controls or simpler eyseem replaced
12.80 40 32
32.501/ 25 32
34.50
351.00
2/
82.00
249.00
334,00—^
82.00
215.00
229.001/
20
12
12
3
28
82.50 20 28
246,00 12 16
16
85
85
69
42
42
42
16 42
3-9
-------
Alternative 1 requires progress in the development of both
an oxidizing catalytic reactor and a reactor for decomposing
nitrogen oxides.
Alternative 2 requires research and development work in
the use of extremely lean fuel mixtures. The literature reports
progress in this area during the last year and offers hope that
this approach is not yet exhausted. Extremely lean operating
engines would probably use some type of fuel injection system
along with improved ignition systems. This second alternative
requires progress in development of a satisfactory nitrogen
oxide decomposing catalyst which can work with a lean operating
engine. It will be necessary to have a catalyst system such
that water as well as nitrogen oxides, ammonia will be produced
in the exit gases. If carbon dioxide is reduced, carbon monoxide
will be produced in the exit gases or carbon may be formed in
the reactor, causing it to eventually malfunction.
Alternative 3 is based on expected developments in oxidizing
catalyst reactors and the extension of known principles in exhaust
gas recirculation for reduction of nitrogen oxides. Thus, Alterna-
tive 3 is the most achievable of the three alternatives considering
current technical knowledge. However, it seems unlikely that Alterna-
tive 3 can meet the 1976 nitrogen oxides standard even with an elabo-
rate exhaust gas recirculation system. It is likely that a level of
0.8 to 1.0 grams per mile of nitrogen oxides is the minimum level
that can be reached with this appraoch. This is approximately twice
the level permitted by the 1976 nitrogen oxides standards using pro-
posed test cycles. With the exhaust gas recirculation, a catalytic
oxidizing unit would be necessary to achieve the 1975 standards for
hydrocarbons and carbon monoxide.
The projected controls shown in Table 3-3 may not be applied by
all manufacturers, especially on exactly the same time schedule.
There are differences of opinion among the manufacturers on the suit-
ability of controls for the 1975-77 period. However, the techniques
3-10
-------
tabulated here can be considered typical prospects. Current
consensus among domestic manufacturers appears to lean toward
Alternative 1 or some variant. Foreign manufacturers seem to
show greater expectations for Alternative 2 than are U. S.
manufacturers at present; but this may change. In any case,
as the most suitable control techniques develop, competitive
pressures will tend to make the technology and costs fairly
uniform among manufacturers.
3. Heavy Duty Vehicles (See footnote, page 3-1)
a. Gasoline Engine
ii iii ........... ¦¦ . ..fifc... .
Although the assumed emission standards through Fiscal '77
for heavy duty gasoline-powered vehicles do not appear as stringent
as those for automobiles, considerable effort will be required for
1975-77 model compliance. The fact that heavy duty vehicles operate
at near full power much of the time increases the problems of emis-
sion control. Most U.S. automobiles have considerable power reserve
which is seldom used. As a result, small losses in performance may
be of little concern. In a heavy duty vehicle, a small loss in per-
formance may make an engine Inadequate for previous applications.
This problem could be accentuated by proposed DOT standards for
horsepower-to-weight ratios or acceleration capabilities for trucks.
Thus operators of heavy duty vehicles may be forced to move up in an
engine line through use of supercharging or larger displacement engines.
Assumed emission standards for heavy duty gasoline vehicles
through Fiscal 1977 are given in the Appendix. Table 3-4 lists the
anticipated controls through Fiscal 1977. Exhaust emission standards
for heavy duty gasoline vehicles can be met through 1974 by minor
modifications to current design engines. Such modifications include
carburetion improvements, operation with leaner fuel mixtures, and
changes in the timing of valve and ignition operation. Some loss in
maximum power output may result.
Evaporative emission standards, which are assumed to become
effective in 1973, can be met with relative ease. The control system
will be very similar to that for automobiles with differences due to
3-11
-------
TABLE 3-4. - HEAVY DUTY VEHICLES-''
Model
Year
Gasoline Trucks and Buses
Changes or Controls Added
Additional
Cost U
Per New
Vehicle
(Dollars)
Total Cost;?/
Per Vehicle
(Cumulative)
(Dollars)
Emissions Per Vehicle
as Percent of 1967
Vehicle Level
HC CO N0X
1967-69
None
0
0
100
100
100
1970-72
Lean operating carburetion, ignition
timing changes
9
9
67
62
100
1973-74
Evaporative emission controls
32
41
32
33
100
1975-77
Exhaust gas recirculation for NOx,
plus air injection for HC, CO,
15-25% increased displacement
Diesel Trucks and Buses
201
242
13
23
35
1967-69
None
0
0
100
100
100
1970-74
Improved fuel injectors and careful
operation to prevent excess smoke
0
0
100
100
100
1975-77
Extensive derating of operational
horsepower range. Larger engines
required for some applications
compared to previous engines.
Injection system design modifications.
1000
1000
48
100
48
— See Footnote, page 3-1.
2/ No Federal Excise Tax Included.
-------
fuel system layout and multiple tanks on trucks.
Assumed exhaust standards for 1975-77 are expected to com-
bine hydrocarbons and nitrogen oxides as a composite total limit.
The assumed standard is expressed in terms of emission weight per
unit of engine work (grams per horsepower hour). This expression
takes into account the fact that heavy duty vehicles make greater
utilization of engine work potential than do automobiles and that
trucks are powered according to load needs rather than subjective
motivations. With exhaust gas recirculation, air injection in ex-
haust manifolds will be needed to hold down hydrocarbon and carbon
monoxide emissions. The use of exhaust gas recirculation for 1975-77
models will cause a loss in performance and fuel economy,
b. Diesel Engine
Diesel engines operate with an excess of air in the com-
bustion cylinders. This accounts largely for diesel engines' lower
emissions of hydrocarbons and carbon monoxide, compared with gaso-
line engines. The air-fuel ratio is varied by the driver rather
than being controlled by carburetor design, as in a gasoline engine.
Smoke from diesel engines is a function of the engine load-
ing, speed, the air-fuel ratio, combustion chamber, and fuel injector
design. Since some of these factors are the control of the diesel
operator, many diesel engines now on the road may be able to meet
smoke standards through 1976 if properly maintained and operated.
Design changes, such as improved fuel injectors, are currently being
incorporated into diesel engines to further improve the performance
in terms of smoke and odor emissions. Engine manufacturers are mak-
ing available smoke reduction kits (with improved fuel injectors)
as retrofits which may be required by state regulation.
Possible standards for the 1975-77 period, shown in the
Appendix, will require additional efforts in diesel control. The
possible standards in the Appendix are included for completeness,
but, at this writing, are illustrative only. As with heavy duty
gasoline vehicles, the assumed 1975 standard for diesels contains a
limit of the sum of the hydrocarbon and nitrogen oxides in terms
of mass per work done. Opinions vary among diesel manufacturers on
the difficulty of meeting the 1974 standards, tending to reflect
the experience with the manufacturer's own engine line.
3-13
-------
Some dlesel engine designs can be modified to achieve 1975
standards shown in Table A-3 (in the manufacturer's opinion). Meeting
the standards with these engines would involve derating or operating
engines below their full potential output (in the absence of control
requirements). To maintain a given power level in specific application,
it will be necessary to go to a larger engine (25-30% greater displacement)
or to use supercharging (with engines engineered for low emissions).
Simply adding supercharging or using a bigger engine does not guaran-
tee lower emissions; other factors must be controlled also. New "pre-
chamber" diesel engines now under development appear capable of meet-
ing the 1975 hydrocarbon nitrogen oxides standard. However, these
engines are presently more smoky and use more fuel than comparable
direct injection types. The "prechamber" engines are expected to be
more expensive to manufacture than comparable displacement engines
using direct injection.
Emissions of carbon monoxide are not considered a serious
problem with diesels. Little difficulty is anticipated in meeting
standards through Fiscal 1977.
Diesel engines are finding steadily increasing application
are are virtually supplanting gasoline power in long-haul vehicles
over 20,000 pounds GVW. There has been a trend to larger diesel en-
gines in these vehicles, with ratings over 200 horsepower becoming
common. On the other hand, a trend is also developing for applica-
tion of diesels in "medium" size trucks. The result of both trends
will be more diesels on the road unless control costs shift the
trends.
4. Unleaded Gasoline
It appears that sufficient unleaded gasoline of 91 to 93 re-
search octane can be made available for automobiles equipped with
catalytic reactors for 1975 and beyond. Automobile manufacturers
have already lowered compression ratios to permit nominal acceptance
of 91 octane fuel, but not all 1971 models operated satisfactorily
at this octane level. As a result of the lower compression ratios,
fuel economy, performance, or both must be compromised. Manufac-
turers have struck different compromises here, with fuel economy be-
ing the predominant loss overall. Table 3-7 is illustrative of possible
operating cost increases.
3-14
-------
B. Unconventional Power Sources
There appear to be two widely polarized opinions concerning the po-
tential for development of unconventional power sources through Fiscal 1977.
The minority opinion, holding hope for new engines in use by 1975, is held
by several groups of inventors and manufacturers, most of whom are outside
the automotive industry. The major automotive manufacturers hold that un-
conventional power sources can have no significant impact through Fiscal 1977.
Major design changes in vehicles require 3 to 5 years of leadtlme for pro-
totype testing, production engineering, and tooling. This is the case with
well-developed concepts. At present most of the unconventional power
sources would require several additional years of preliminary development.
Therefore, unconventional power plants will be discussed only for informa-
tion purposes.
Although hybrid power systems consisting of Internal combustion en-
gines with electric driving motors represent a combination of well-
developed technologies, the problems of the internal combustion engine
still exist in this system. Meeting the 1975-76 Federal standards with
any internal combustion engine, hybrid or otherwise, will be difficult.
Considerable work is required for developing the controls and auxiliary
equipment of such a hybrid vehicle. Considering the time required for
prototype testing, tooling development, and production setup, it would
probably be early eighties before hybrid systems could be brought into
significant service. This view Is reflected in the deemphasls of hybrids
in Federal R&D programs.
Gas turbine engines are probably the most well developed and poten-
tially imminent of the alternative power sources. (Indeed, demonstration
vehicles powered by turbines have been prepared in previous years by vari-
ous segments of the auto industry). However, problems still exist with the
gas turbines, the chief being high manufacturing costs and poor fuel econ-
omy at partial load. In addition, it has not been proven that turbines can
meet 1976 nitrogen oxides standards. If the reciprocating internal combus-
tion engine is able to achieve the required 1975-76 emission levels, it is
unlikely that the additional control costs will be great enough to offset
the higher prices of gas turbines for automobiles.
It is likely that gas turbines may find their first application in
3-15
-------
heavy duty vehicles where the long life and low maintenance requirements of
the turbines will make them more competitive with reciprocating engines.
Commercial truck users are conservative in their approach to new equipment.
A thorough demonstration of reliability and operating and maintenance
economies is needed before wide acceptance is achieved. Engine manufac-
turers are currently planning to expand the use of turbines in stationary,
marine, and off-road applications to build confidence for truck use. It is
doubtful that turbine trucks will present a significant national impact
through Fiscal 1977.
One manufacturer in particular is investing heavily in development of a
small steam turbine engine which he feels could be brought into mass production
before Fiscal 1975. There are, however, engineering refinements needed to
%
make the power plant usable by the general public. This company is following
the approach of building a direct interchange unit for use in vehicles
basically designed for conventional reciprocating engines. Such an approach
is the only one which would offer any hope for radically new engine design being
brought to production through Fiscal 1977. Major redesign and new concepts in
structural components require a leadtime of as much as 5 to 7 years. Al-
though there is some possibility that the steam turbine engine may be
brought into production by 1975 or 1976, it does not appear that a major
impact would be felt in the automotive industry by Fiscal 1977.
Another area of new engine design involves the Wankel rotating in-
ternal combustion engine. The basic design of this engine has been avail-
able for a number of years, but the engine has not found significant pro-
duction application due to problems with its internal seals. Progress is
apparently being made in overcoming these problems, however. A Japanese
manufacturer has released a production vehicle in the United States with
a Wankel engine. For the past several years a European manufacturer has
been producing a limited number of Wankel powered cars. Another highly
respected European manufacturer is nearing production with Wankel engines
for its luxury-priced sports cars; this manufacturer reportedly feels the
seal life problems have been solved. Major American manufacturers have
been investing millions of dollars in licenses for the right to develop and
sell Wankel engines. This is an indication of the seriousness with which
3-16
-------
Che engine is being examined in Che auCo industry.
Ic may be possible Co produce Che Wankel engine ac a somewhat lower
cose due Co iCs mechanical simpllciCy, compared Co a reciprocating engine.
Also, Che Wankel engine is much smaller for a given horsepower Chan Che
convencional reciprocaCing engine. This would provide more vehicle room
for new safeCy and emission concrol feaCures which will be required on
aucomobiles.
The Wankel engine is noC inherently a low emission engine. In general,
its nicrogen oxides emissions are somewhac less Chan a reciprocaCing engine,
buC its hydrocarbon and carbon monoxide emissions are considerably higher.
The automocive industry, however, is approaching Che Wankel engine wich a
higher degree of confidence (Chan oCher new concepes) because of iCs simi-
larities Co oCher internal combustion engines and Che face ChaC much of Che
same emission concrol technology appears applicable. Ac Che presenc, Che
ouCcome of Che developmenC work on Che Wankel engine Chrough Fiscal 1977
cannoC be predicCed.
C. New Vehicle Tescing and Faccory Surveillance
The purpose of moCor vehicle assembly line testing is Co insure ChaC
motor vehicles as manufactured meet emission standards. SecCion 206 of Che
Clean Air Ace provides for Che cescing of new vehicles or engines being
manufaccured, Co deCermine whecher chey conform wich Che regulaCions pre-
scribed under secCion 202 of Che acC.
Assembly line testing is actually a program of qualiCy concrol and
assurance wich Cwo essential parts: Che concrol and assurance program car-
ried ouc by che manufacCurers and Che surveillance funcCion carried ouc by
EPA. Federal requiremenc of assembly line Cescing may begin wich che 1973
model year. Requiremenc of some form of assembly line cescing will con-
tinue chrough 1977 and beyond.
Ic is assumed ChaC automobile manufacturers, boch foreign and domes-
Cic, will conduce Cheir own qualiCy concrol and assurance work Co insure
ChaC Chey are in compliance wich emission sCandards. EPA's staff will ap-
prove Che cesc mechods and procedures, sec standards, and monitor Che as-
sembly lines by independenCly selecCed samples and CesCs, in addicion Co
audiclng test data from the manufacturer.
3-17
-------
IV. COSTS OF COMPLIANCE WITH THE 1970 CLEAN AIR ACT
A. Types and Sources of Costs
Costs for mobile source compliance with the 1970 Clean Air Act are of
three broad types. First is the Increase In prices of new vehicles due to
emission controls. Second is the cost of compliance assurance for new ve-
hicles. (This Includes factory testing and inspection and regulatory agency
monitoring of factory testing.) Both types may be reflected in increased
purchase prices for consumers. A third category is increased costs for
maintaining and operating vehicles.
Several difficulties are encountered in determining price increases
due to emission regulation. One source of difficulty is the differing
pricing policies and cost accounting procedures among automobile manufac-
turers. Variations may occur for example in the allocation of overhead,
development costs, and profits to control equipment. The final company de-
cisions in these areas will be dictated by competitive pressures, the com-
pany's profit levels and financial position, and government requests for
cost information on a uniform comparable basis.
Costs for controls cannot a priori be equated to prices for automobile
consumers, even if costs are passed on to the consumer. The response of
prices is determined by price elasticity of consumer demand for the basic
vehicle and optional features. The basic utility of a low-priced, 5-
passenger sedan is the same as that of a 5-passenger luxury car with every
novelty and convenience feature. Thus consumers may choose fewer optional
features in automobiles to offset the cost of emission controls, thereby
holding their vehicle purchase price nearly constant. This would cause
the impact to occur as shlft6 within the product mix of industry. Alternatively,
consumers may extend the useful life of vehicles (i.e., buy fewer) or buy
smaller vehicles. Although estimates of demand elasticity may be made, only
experience will determine the actual response of consumer prices.
Research and development (R&D) for emissions control in the auto indus-
try is another source of costs. Industry reports to EPA claim large R&D
expenditures for emission control. The reported expenditures cannot now be
properly evaluated since the methods of accounting and reporting the figures
are not fully explained or uniform from company to company. R&D costs can
3-18
-------
Chapter 4: Stationary Sources
I. INTRODUCTION
The impact of air pollution controls on 20 categories of stationary
sources is discussed in this chapter. The analyses of each category
cover the significant combustion and process steps, the emissions by
type and quantity, the methods of controlling emissions to comply with
standards established under the Clean Air Act of 1970, the expected
costs of controls, and the economic impact of these costs. The assumed
standards are those presented in Appendix B of the instruction for
preparation of state implementation plans. If states adopt other
emission standards the actual costs will vary accordingly.
The 20 categories of stationary sources are grouped under three
headings—solid waste disposal (section II), stationary fuel combustion
(section III), and industrial processes (section IV). Five types of
emissions discussed are particulates, oxides of sulfur, carbon monoxide,
hydrocarbons, and oxides of nitrogen. Table 4-1 summarizes the quanti-
ties and control costs for the five emission types and the three source
groupings. Control costs shown are the total investment requirements
through Fiscal 1977 and the annual costs for sources estimated to be
operating in Fiscal 1977. Annual costs, including both operating and
capitalization expenses, are those forecast under the assumption that
the standards established under the Clean Air Act will be fully
implemented.
The year 1967 was selected as the data baseline so that costs and
changes in emissions would be those occurring after the passage of the
Clean Air Act and, therefore, are assumed to be attributable to the
economic impact of program implementation. All dollar amounts are ex-
pressed in 1970 prices and constant 1970 dollars.
By using 1967 as a data base, emission and cost estimates for
Fiscal 1977 for solid waste disposal and for residential, commercial,
industrial, and small and intermediate utility boilers were computed
using projected growth of the source capacities and fuel use trends.
For all other sources (steam-electric and industrial processes), emissions
and cost estimates for Fiscal 19 77 were computed using projected growth
for source production and capacity, respectively, 6ince it was not
possible to determine accurately whether growth would result from
4-1
-------
TABLE 4-1. - STATIONARY SOURCES - ESTIMATES OF POTENTIAL AND REDUCED EMISSION LEVELS AND ASSOCIATED COSTS
IN 1967 AND 1977
Quantity of Emissions— Control Costs
(Thousands of Tons per Year) (Millions of Dollars)
Source
Year
Part
SO
X
CO
HC
NO
X
Investment
Annual
Solid Waste Disposal
1967
1,210
170
4,440
1,670
34 Oi7
FY 77 W/O^
1,830
260
6,720
2,530
510
FY 77
65
260
512
360
510
472
224
Stationary Fuel
Combustion
1967
FY 77 W/0
7,710
7,930
23,900
35,000
7,2001/
10,800
FY 77 W
3,180
4,020
10,800
5,539
2,476
Industrial Processes
1967
6,620
6,280
12,500
1,190
145
FY 77 W/0
7,980
8,030
15,900
1,550
230
FY 77 W
1,050
939
279
308
25
4,135
1,213
Total
1967
15,500
30,300
17,000
2,860
7,690^7
FY 77 W/0
17,700
43,300
22,600
4,080
11,500
FY 77 W
4,300
5,220
791
668
11,300
10,100
3,900
— Emission abbreviations are: particulates (Part), sulfur oxides (SO ), carbon monoxide (CO), hydrocarbons (HC),
and nitrogen oxides (NO ). Blanks in the table indicate the emission levels meet the applicable regulation
(Appendix I) or that emissions are negligible or do not exist.
2/
1''
4/
These estimates are included herein but are discussed no further in Chapter 4,
Estimates without implementation of the Clean Air Act, as amended.
Estimates with implementation of the Clean Air Act, as amended.
— An additional 2,300,000 tons of NO were emitted in 1967 from natural gas production and its transmission,
es ite iro ed e 3 ",,5c" ' 'jns 19 7"*
-------
as the fuel consumption penalties. The changes in national average gaso-
line prices are not as great as might be expected because the drop in de-
mand for premium gasoline tends to offset both the cost and demand in-
creases for unleaded regular gasoline.
National costs given in Table 3-7 are only those directly resulting
from Federal requirements. Costs from State activities and indirect costs
due to Federal expenditures are not included. Cost changes for vehicles
or fuel due to emissions control in supplier industries are also not in-
cluded. Possible interrelationships with costs of Federal safety standards
are not included.
Table 3-8 shows the reductions in national mobile source emissions
compared to 1967 levels and gives the costs of achieving these reductions.
This table illustrates that improvements will be achieved compared to 1967
conditions and not just relative to the potential emissions from vehicle
population growth through Fiscal 1977.
3-25
-------
TABLE 3-8. - NATIONAL COSTS OF MOBILE SOURCE CONTROL
AND EMISSION REDUCTIONS FROM 1967 BASELINE 1/
Reduction from 1967
National Mobile
Source Eaissions Level
(percent)
National Costs 27
of Controls
(Millions of Dollars)
Year
HC
CO
NO
X
For Year
Cumulative
1967
—
—
—
—
1968
4.0
3.5
( 5.5) ~f
82.1
82.1
1969
7.5
6.0
(11.0)
150.1
232.2
1970
13.5
11.0
(12.5)
273.2
505.4
1971
20.0
15.0
(14.0)
652.2
1,157.6
1972
27,0
21.5
(12.5)
1,040.3
2,197.9
1973
34.0
25.0
( 8.5)
1,888.6
4,086.5
1974
40.0
29.0
( 4.0)
2,425.2
6,511.7
1975
47.5
37.5
1.5
4,794.6
11,306.3
1976
55.0
45.0
11.5
7,163.9
18,470.2
1977
61.5
53.0
21.5
8,385.0
26,855.2
J7 See footnote, page 3-1.
2/ No Federal Excise Tax Included In costs.
3/ Figures in parentheses are increases.
3-26
-------
heavy duty vehicles extends through several engine replacements. Replace-
ment engines may also carry some cost changes as a result of emission con-
trols, but data are not sufficient for evaluation. Interest values or
value of capital have not been Included in heavy duty vehicle annual costs
because of these amortization complications.
Tables 3-5 and 3-6 also show annual figures for maintenance cost in-
creases. Maintenance cost increases are based on 1970-dollar value esti-
mates of labor and parts requirements. In some cases maintenance cost off-
sets are expected (as previously explained). No Inflation factors are in-
cluded.
To provide perspective on the annualized cost increases shown in
Tables 3-5 and 3-6, comparisons may be made with present costs of vehicle
purchase and operation. An average 1970 model, U.S.-made automobile re-
tailed for about $3,470, including federal tax, accessories and other costs
except state taxes and fees. For an automobile of this price, the Bureau
of Public Roads (BPR) has estimated an Individual owner's annual costs at
$2,060 for the first year and $1,470 for the second, decreasing to $1,140
for the ninth year of vehicle life. The BPR data includes depreciation,
maintenance, operating costs, garaging costs, taxes, fees, insurance, and
all other costs directly attributable to automobile ownership and use,
except financing costs or value of capital.
In 1970 heavy duty dlesel truck tractors In the 18- to 38-ton rating
range, ready for road hauling, typically were priced at $19,000 to $24,000.
A representative 20-ton diesel dump truck (with dump body) cost $22,000 in
the same year. Gasoline engine trucks typically cost $4,000 to $5,000 less
than comparably rated diesel trucks, and weigh about a ton less. (Few new
gasoline trucks In the sizes above 13 tons are anticipated in the next few
years, however.)
C. National Costs Through 1977
Table 3-7 summarizes national costs by vehicle class through Fiscal 1977.
Investment costs are purchase price increases for new vehicles during the
indicated year. Annual operating and maintenance costs are the increased
costs due to controls for all controlled vehicles in use for the specified
year. Gasoline price increases due to unleaded gasoline cover all vehicles
and consider the projected change in demand patterns due to controls as well
3-23
-------
TABLE 3- 7. - NATIONAL COSTS FOR MOBILE SOURCE COMPLIANCE
(Millions cf Dollars)
"——Fiscal Vear
Cost Type ' '—•
(Increases)
1968
1969
1970
1971
1V2.
,jl92j. _
19~'<
1975
1976
1977
Totals, .afJ
Through 1977
Light Duty Vehicles
New Investmenti'
40.6
52,9'
114.6
267.5
369.5
809.5
954.0
2,528.0
4,061.0
4,463.0
13,660.6
Assembly Line Testing-?/
2.5
34.8
35.4
36.3
36.9
37.8
183.7
Annual Operating and
Maintenance
41.5
97.2
154.4
379 .3
662.6
1,016.1
1,394.7
1,916.8
2,581,6
3,267.3
11,511.5
L.D. Total
82.1
150.1
269.0
646.8
1,034.6
1,860.4
2,384.1
4,481.1
6,679.5
7,768.1
25,355.8
Heavy Duty Gasoline
Vehicles 3/
New Investment 1/
4.2
5.4
5.7
22.9
28.6
147.1
185.2
195.0
594.1
Annual Operating and
Maintenance
5.3
12.5
72.6
153.4
236.6
480.4
H.D. Gas Total
4.2
5.4
5.7
28.2
41.1
219.7
338.6
431.6
1,074.5
X t ""
Gasoline Price— Increases
due to Lead Removal
10.7
22.3
34.8
67.8
Total all Gasoline
Vehicles
62.1
150.1
275.2
652,2
1,040.3
1,888.6
2,425.2
4,711.5
7,040.4
8,234.5
26,498.1
Heavy Duty Diesel
Vehicles 3/
New Investment.!/
68.0
92.0
101.0
261.0
Annual Operating
15.1
31.5
49,5
96.1
H.D. Diesel Total
83.1
123.5
150.5
357.1
All Vehicles Total
82.1
150.1
273.2
652.2
1,040.3
1,888.6
2,425.2
4,794.6
7,163.9
8,385.0
26,855.2
1J No Federal Excise Tax included in investment costs,
2/ Assumes inspection program (partially implemented 1972) with 3 percent of production tested beginning 1973, average
cost $3.00 per vehicle produced (includes foreign and domestic production for U.S. consumption).
V See footnote, page 3-1.
y Considers changes in demand patterns and fuel penalties as a result of controls as well as added costs of producing
gasoline.
-------
another complication. Cost data given here are based on estimates of typi-
cal sales markups rather than list prices.
Because actual response of prices has not been determined, costs for
value of capital and interest charges on investment are not included in the
cost reported here. It should be noted that truck purchasers have less
ability to maintain prices by rejecting options than do automobile pur-
chasers. For this reason interest values should be considered in a de-
tailed cost analysis when better data are available.
2/
Tables 3-5— and 3-6 give estimated unit cost increases for operation
and maintenance of light and heavy duty vehicles respectively. The in-
creases in operating costs are due to increased fuel consumption. For
light duty vehicles, annual fuel consumption is based on a reference of
760 gallons per vehicle. The baseline for fuel consumption comparisons is
Model Year 1967. Consumption increases are estimated to be 6 percent be-
ginning Model Year 1971, an additional 2 percent beginning Model Year 1973,
and an additional 7 percent beginning Model Year 1975.
For heavy duty gasoline vehicles, increases are based on annual av-
erages of 1,380 gallons of fuel with a 15-percent increase in consumption
beginning Model Year 1975. Price changes for gasoline are reflected in
later tables and not here. For heavy duty diesel vehicles, fuel cost in-
creases are based on an annual average of 10,660 gallons of fuel with an
8-percent increase in consumption beginning Model Year 1975.
In evaluating operating costs for heavy duty vehicles, it should be
noted that the averages include two greatly different groups of vehicle
users. The averages are loaded at the low end by a large fraction of
trucks used only in urban and short haul applications. These vehicles
have low annual mileages. The other group (usually larger and heavier)
of heavy duty vehicles comprises the interurban, long haul services.
Although these vehicles are a small fraction numerically, they contribute
large annual mileages per vehicle, with 100,000 to 200,000 miles not un-
common.
Annualized investment costs, which may be of greater concern to cor-
porate truck owners than to private automobile owners, are shown in Table 3-6.
The amortization schedule is somewhat arbitrary since the life of many
Alternate 1, Table 3-3, for 1975-76 model light duty vehicles, is assumed
in all calculations and estimates presented.
3-21
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TABLE 3-5. - ANNUALIZED UNIT COST INCREASES FOR LIGHT DUTY VEHICLES
(Dollars)
Model
Year
Cost
Type
1968 1969 1970 1971 1972 1973 1974 1975 1976 1977
Increased
Fuel Use
Maintenance
Maintenance
Offsets
15.90 15.90 21.50 21.50 40.60 40.60 40.60
6.10 6.10 6.10 12.70 12.70 15.50 15.50 50.10^ 60.40^ 60.40^
2/ 2/ 2/
-36.30^' -36.30— -36.30^'
Total Annual
Operating
and
Maintenance
6.10 6.10 6.10 28.60 28.60 37.00 37.00 54.40 64.70 64.70
Based on average of Alternative 1 for 1975-77 shown in Table 3-5.
2/
—Offsets for reduced requirements for present type tune-ups and exhaust system
maintenance.
TABLE 3-6. - ANNUALIZED UNIT COST INCREASES FOR HEAVY DUTY TRUCKSU
(Dollars)
Model
Cost Year
Type
1968-69
1970-72
1973
1974
1975
1976
1977
Gasoline Engines
Increased Fuel Use?/
None
68.40
68.40
68.40
Maintenance
None
9.90
9.90
31.70
31.70
31.70
Total Operating and
Maintenance Penalties
None
9.90
9.90
100.10
100.10
100.10
Annualized Control
Investment Costs 3/
None
1.80
8.20
8.20
48.40
48.40
48.40
Total Annualized
Cost Increase
None
1.80
18,10
18.10
148.50
148.50
148.50
Diesel Engines
Increased Fuel Use hJ
None
None
None
222.00
222.00
222.00
Annualized Control
Investment Costs .3/
None
None
None
200.00
200.00
200.00
Total Annualized
Cost Increase
None
None
None
422.00
422.00
422.00
1/ See Footnote, page 3-1.
2/ Based on average of 1380 gal. of fuel per year as baseline, fuel at 33c/gal.
V Based on 5 yr. engine life, annualized straight line basis, no Federal Excise tax
included,
kj Based on average of 10,660 gal. of fuel per year as baseline, fuel at 26c/gal.
3-22
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reasonably be expected to rise over the next few years in response to the
major 1975 and 1976 deadlines. As mentioned in the preceding paragraph,
manufacturers' policies in recovering these costs cannot be predicted at
present. In the absence of some external equalization factors, the R&D
burden will obviously lie unevenly on manufacturers according to size and
profitability.
Another source of costs for new vehicles is the quality assurance as-
pect of emission standards. These costs Include testing and certification
of engines and vehicles, inspection and testing of vehicles under produc-
tion, and government efforts in factory surveillance, enforcement and moni-
toring. Certification represents an additional development cost for ve-
hicles. Testing is an additional cost per unit of production. Government
enforcement costs are transferred to the public through taxes.
Increases In the continuing expenses of operating and maintaining ve-
hicles are the remaining major compliance cost area. Operating cost In-
creases are due to increased fuel consumption rates and Increased prices for
fuel. Maintenance cost Increases are due to service required by control
equipment or to otherwise keep a vehicle at the emission levels permitted
by age and design.
Section 207(b) of the Clean Air Act of 1970 requires that manufac-
turers warrant the emission performance of vehicles for their "useful life".
(A proposed definition of "useful life" was given in the Federal Register,
May 11, 1971.) This and related provisions of the act are being variously
interpreted by industry. Regardless of the final mechanism for providing
warranty service, it is likely that the purchaser will pay for maintenance
and service either at the time of purchase or during the warranty period as
mandated by warranty stipulations. Of course, maintenance expenses will
continue beyond the warranty period when the federal cognizance stops
(under the current act provisions). However, in some cases responsibility
for enforced maintenance will devolve to the State level.
EPA has recently completed a study of the feasibility of various time
schedules for reducing the lead content of gasoline. Several schedules con-
sidered reasonable were examined. Consumer prices did not show a great
sensitivity to choices among the most likely schedules. The price for un-
leaded 93 octane gasoline was estimated to range from 1.1 to 3.5 cents per
3-19
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gallon higher than leaded 94 octane regular over the 1972-1980 period.
However, approximately 40 percent of the gasoline now sold Is premium
grade. The need for premium will steadily decline. The basis of cost com-
parison should be the national average price per gallon (combined premium
and regular). On this basis it was indicated that the national average
price per gallon would Increase slightly less than 2 cents.
Certain benefits (other than emissions reduction) or negative costs
can be expected as a result of control measures for gasoline engines. Ex-
haust systems, spark plugs, and certain other components will have longer
lives with the use of unleaded gasoline. Engine oil change intervals can
also be extended. The use of electronic (breakerless) ingition and fuel
control systems will reduce the frequency of tuneups and will improve en-
gine reliability. A final benefit, difficult to evaluate in dollars, is
the stimulus to improve overall manufacturing quality control and to in-
novate in design and production methods in the automotive industry.
B. Unit Costs of Controls on New Vehicles
Estimated unit control costs (per vehicle) are given along with an-
ticipated controls in Table 3-3 for light duty vehicles and in Table 3-4
for heavy duty vehicles. The tables give the incremental costs for con-
trols added through Fiscal 1977 and the cumulative or total cost attribut-
able to control features for each model year. Costs are at retail level
and in 1970 dollars. As pointed out in the previous discussion of control
technology, the 1976-77 costs are least well defined for light duty vehi-
cles. For the heavy duty vehicles, the 1975-77 costs are least well de-
fined, especially for dlesels. None of the costs consider combined effects
of emission controls and possible new safety requirements which may increase
vehicle weights and cause other costs.
Control cost estimates are based on interviews with industry repre-
sentatives, published prices where available, and engineering estimates of
specific features. Estimates for 1968-71 vehicles have been revised on the
basis of new information available.
Cost information available directly from manufacturers is presently
very limited. In addition, variations in pricing and cost accounting, as
previously mentioned, make cost and price data difficult to assess. The
fact that industry list prices do not reflect actual selling prices is
3-20
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expansion of 1967 plants and Installations or from construction of new
facilities. For all source categories, it was assumed that new capaci-
ties coming into existence after 1967 would (without requirements of the
Clean Air Act) be operated in 1967 control levels, so the control costs
attributable to the Act would be only those required to go from 1967
control levels to the levels implemented under the Act. The approach
described implicitly assumes that equipment costs and operating expenses
remain unchanged, expressed In 1970 prices. Within the limits of these
assumptions, this approach provides a reasonable approximation of the
increased emissions and costs associated with real economic growth
from Fiscal 1967 through Fiscal 1977.
Some of the tables in this chapter include a column headed
"Associated Emission Control Level." The percentages shown in this
column reflect estimates of the extent to which potential emissions
are controlled. For example, in Table 4-3, pertaining to fuel combus-
tion sources, the 4,310,000 tons of particulate emissions from small
and intermediate boilers in 1967 are estimated to be about 56 percent
of potential emissions of particulate matter. That is, if there had
been no control, the emission level would have been 7,750,000 tons.
Thus, the level of associated emission control is 44 percent (100 per-
cent minus 56 percent).
The discussions of solid waste disposal and stationary fuel combus-
tion (sections II and III) emphasize the amounts of emissions and the
controls necessary for their abatement. The discussion of industrial
processes (section IV), in addition to emissions and controls, emphasizes
the economic impact of control costs on each industry or group of indus-
tries studied. Consideration is given to the probable effects on
individual firms in each industry, to potential changes in prices,
profits, and the structure of the industry, and to market changes. Finally,
section V summarizes the conclusions derived from the economic analyses.
4-3
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II. SOLID WASTE DISPOSAL
A. Introduction
It was estimated In 1967 that 364 million tons of solid waste were
generated in the United States by households, institutions, and commercial
and industrial enterprises. The amount generated appears to vary in
proportion to population and is generally predicted as a per capita
rate. In 1967 total solid waste equalled 10.2 pounds per day per capita
for a population of just under 196 million. By 1977 the rate is expected
to increase to 13.7 pounds per day per capita. If the population is
222 million, the total will reach 554 million tons.
In 1967 it was estimated that, for each 10.2 pounds of waste
generated, 5.5 pounds were collected and disposed of by municipal
systems and 4.7 pounds by nonmunicipal systems. The latter included
industrial incinerators and dumps, building incinerators, and open
burning or dumping by households and farms. Municipal systems took the
form of incineration (10 percent), open burning (44 percent), and others
(46 percent), including sanitary landfill, ocean dumping, and composting.
Air pollution emissions resulted from open burning and from incinerators.
B. Emissions and Control Techniques
Open burning and incineration of solid waste result primarily in
air pollutant emissions of particulates, hydrocarbons, and carbon
monoxide. It is estimated that the 1967 totals in the United States
amounted to 1,207,000 tons of particulates, 1,670,000 tons of hydro-
carbons, and 4,438,000 tons of carbon monoxide. If the disposal practices
existing in 1967 continued unchanged through Fiscal 1977,the projected
level would reach 1,829,000 tons, 2,530,000 tons, and 6,720,000 tons,
respectively.
For the purpose of estimating control costs and reduction efficiencies,
the following control techniques were designated: (1) all of the open
burning by existing municipal systems would be discontinued—25 percent
would be disposed of in new municipal incinerators and 75 percent in
sanitary landfills; (2) all open burning by private disposal agencies
would be discontinued; (3) all municipal incinerators and 80 percent
of the large commercial incinerators would be equipped with electrostatic
4-4
-------
precipitators to control particulate emissions; (4) all of the existing
small residential and commercial incinerators would be either replaced
by reallocating to sanitary landfills (25 percent) or upgraded by adding
electrostatic precipitators, scrubbers, or other control devices.
Implementation of these controls would, it is estimated, reduce
particulates to 65,000 tons, hydrocarbons to 360,000 tons, and carbon
monoxide to 512,000 tons in Fiscal 1977. These reductions would
represent 96.4 percent control of particulates, 85.8 percent control
of hydrocarbons, and 92.4 percent control of carbon monoxide.
C. Scope and Limitations of Analysis
There are several sources of emissions, such as open burning of
leaves, burning at construction sites, and disposal of wood wastes
in wigwam burners, which have not been Included in this analysis.
The trend among State and local regulatory agencies is to prohibit
such practices, resulting in up to 100 percent control. Since there
are several alternatives for each type of disposal, it is difficult
to project an ultimate disposal pattern and the costs (if any) which
are involved.
Costs and emissions considered in this analysis are limited to
collected municipal refuse (incinerated and open burned), other open
burning dumps, and on-site incinerators.
D. Cost of Control
For the Nation as a whole, the 1967 level of waste generation would
require a capital investment of approximately $311 million to Implement
the control plan, and holding prices at the 1970 level, the growth of
solid waste by Fiscal 1977 would Increase the capital investment to
approximately $472 million. The annual operating cost of these controls
would be approximately $147 million in Fiscal 1967 and is estimated
to rise to $224 million by Fiscal '77.
The public share of the costs required to implement these controls
by Fiscal 1977 would be $354 million for capital Investment and $165
million for annual operating expenses, including interest and depreciation.
Private households, institutions and businesses would bear the remaining
$118 million for capital investment and $59 million for annual operating
expenses.
4-5
-------
The significances of these figures may be indicated, in part, by the
investments and annual costs required for specific installations and
operations. For example, applying controls to a small incinerator,
such as one in an apartment building, will require a capital investment
of approximately $1,115 per ton of daily capacity, and an annual operating
cost of $295 per ton of daily capacity. To provide sanitary landfill
as an alternative to incineration or open burning would require an annual
operating cost of $0.46 for each ton of waste. Controlling an existing
municipal incinerator would require a capital Investment of $225 to
$600 per ton of daily capacity and an annual cost of $350 to $410 per
ton of daily capacity.
E. Economic Impact
If the municipal costs shown are averaged over the entire U.S.
population for 1977, an investment of approximately $6.40 per family
and annual costs of approximately $3.00 per family are indicated.
Such figures are somewhat misleading, however, since actual costs
will vary widely from one community to another. Sanitary landfills
are generally considerably more economical for smaller communities
outside major metropolitan areas, but incinerators will probably prove
less costly for large cities, the break-even point between incineration
and landfill, relative to municipal population, is determined by the
cost of the disposal facilities in combination with such other factors
as availability and price of land, distances over which waste must be
transported, population density, and the possibility of sharing facilities
with other municipalities. The current analyses do not include all
these factors.
4-6
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III. STATIONARY FUEL COMBUSTION
A. Introduction
Stationary fossil fuel (coal, oil, and gas) combustion sources
analyzed in this study are residential, commercial, industrial, and
steam-electric power plants.
The opportunities for abatement control are quite apparent in
fossil fuel combustion because these sources account for a substantial
majority of the most significant pollutants, in terms of their economic
damages. The relative magnitude of emissions of fossil fuel combustion
are shown in Table 4-1. Carbon monoxide and hydrocarbon pollutants
are not emitted in significant quantities when the combustion equipment
is operating properly. No reliable basis was available for estimating
costs of N0x pollutant reductions. Table 4-2 indicates the amount
of particulate matter and sulfur oxides contributed by each combustion
source.
Two standards were selected as the bases of estimating the cost
of controlling emissions from fuel combustion sources. The first is
the combustion regulation, which limits particulate emissions to 0.10
pound per million B.t.u. input (based on the source test method
described in the appendix). The second limits sulfur oxide emissions
from fuel combustion sources to 1.50 pounds per million B.t.u. input.
In the past it has been assumed that the control of particulate
and sulfur oxide emissions from stationary fuel combustion sources could
be achieved by switching fuel—that is, to use low sulfur oil in place
of other fuels. Further study has indicated that the availability of
low sulfur oil and natural gas should satisfy the present and future require
ments for small and intermediate boilers. However, for steam-electric
power plants, a complete switch from high sulfur coal and oil to low
sulfur oil is not feasible because of long-term fuel supply and demand
requirements. Accordingly, a mix of alternatives was assumed including
dependence to a large degree on the use of stack gas cleaning devices
for the control of both sulfur oxides and particulate emissions.
Limited fuel switching has been included for the control of smaller
boilers only—below 50 megawatt ratings—and located in power plants
with a total rated capacity less than 200 megawatt.
4-7
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TABLE 4-2. - ESTIMATED EMISSION LEVELS FOE STATIONARY FUEL
COMBUSTION SOURCES NATIONALLY
[Calendar Year 1967]
Source
Total Number
of Boilers
1/
Quantity of Emissions—
(Thousands of Tons per Year)
Part
SO
NO
Residential, Commercial,
and Industrial Heating
Plants
31,300,000
4,310 8,480
3,200
Steam-Electric Power
2/
Plants—
2,600
3,400 15,400
4,000
Total
7,710 23,880
7,200
— Emission abbreviations are: particulates (Part), sulfur oxides (SO ), and
nitrogen oxides (NO ).
2/ X
— Power plants shown are investor and municipally owned plants of 200
megawatts and larger.
4-8
-------
As noted In Table 4-1, the control plan projected to Fiscal 1977
in this study would reduce the potential particulate emissions from
7,930,000 to 3,180,000 tons and sulfur oxide emissions from 34,960,000
to 4,020,000 tons—reductions of 59.9 percent and 88.5 percent, respect-
ively. Total investment for Fiscal 1977 for this control plan would be
$5,539 million and annual costs would be $2,476 million. The Impact of
the control plan on each fuel combustion source is shown in Table 4-3
and discussed in the sections that follow. Section B covers small
and intermediate stationary combustion sources. Section C covers the
large steam-electric utility sources.
B. Residential, Commercial, Industrial, and Small Utility Boilers
1. Introduction
Residential, commercial, industrial, and small utility
boilers are further divided between the residential sector and
the others which will be called intermediate boilers. The
intermediate boiler sector includes all steam-raising equipment,
hot water heaters, and hot air furnaces used for space heating.
The capacity ranges from 200,000 B.t.u. per hour to 500,000
pounds per hour of steam (approximately 50 megawatts (electric]).
All sources which could be subject to a fuel switching emission
control scheme are discussed. In the residential sector gas ranges,
air conditioners, clothes driers, and other appliances, are fuel
consumers which are not included because they contribute a very small
portion of the emissions and are not amenable to any control scheme.
Utility boilers in the 25-to-50 megawatt (electric) size range, which
are located at plant sites with a total capacity of 200 megawatts
(electric) or more, are included in the steam-electric section
since we assume that these boilers will be controlled by flue gas
cleaning rather than by fuel switching.
2. 1967 Summary
Table 4-4 shows the 1967 summary of estimated capacity, fuel
use, and emissions from the residential sector and from intermediate
boilers. The capacity estimate is a result of a survey of sales data
and other statistical data on lifespans for the various boiler types.
The fuel use and emission estimates were calculated from capacity,
4-9
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TABLE 4-3. - STATIONARY FUEL COMBUSTION SOURCES - ESTIMATES OF POTENTIAL AND
REDUCED EMISSION LEVELS AND ASSOCIATED COSTS
Source
Year
Quantity of Emissions
(Thousands of Tons
per Year)
Part S0X
1/
NO
X
Associated Emission
Control Level 1/
(Percent)
Part S0V NO
x X
Control Costs
(Millions of Dollars)
Investment Annual
Small and
Intermediate
Boilers
1967
4,310
8,480
3,200
45
0
0
FY
77 W/0 -1
2,330
7,360
7,100
58.9
0
0
FY
77 W -
380
1,260
7,100
93.3
83
0
879 1,116
Steam-Electric
Power Plants
1967
3,400
15,400
4,300
78
0
0
FY
77 W/0
5,600
27,600
7,200
78
0
0
FY
77 W
2,800
2,760
7,200
98.5
90
0
4,660 1,360
1/
2/
3/
Emission abbreviations are: particulates (Part), sulfur oxides (SO^), and nitrogen oxides (N°x)•
Estimates without (W/0) implementation of the Clean Air Act are shown.
Estimates with (W) implementation of the Clean Air Act are shown.
-------
TABLE 4-4. - SUMMARY OF ESTIMATED CAPACITY, FUEL USE, AND EMISSIONS, 1967
(RESIDENTIAL AND INTERMEDIATE BOILERS)
Capacity
Fuel
Use
Emissions
Residual
Distillate
SO
X
NO
X
Particulates
Sources
Coal
10^ Tons
Oil
Oil
106 Bbl
Gas
1012 cf
LO6
106
106 Tons
10^ pph
106 Bbl
tons
tons
Potential
Actual
Residential
2,117
355
3.15
0.24
0.2
0.09
0.09
Intermediate
Boilers
3,290
148
340
120
3.87
B.24
3.2
7.66
4.22
-------
load factor, boiler efficiency, collector efficiency, emission
factors, and fuel-heating value information. The capacity numbers
were further broken down by user, fuel, size, firing type, and
age.
The residential sector was dropped from the analysis for the
following reasons: (1) coal is rapidly declining as a residential
fuel —^ due to "natural attrition," and emissions from other
residential fuels (distillate oil and gas) fall within the standards;
and (2) essentially all new growth in the residential sector is
expected to use gas or electricity for heating. Thus no costs were
attributed to control of residential heating units.
3. Projections for Fiscal 1977
Table 4-5 shows the estimated capacity in Fiscal 1977 and the
estimated fuel use patterns and emissions with and without the
effect of the Clean Air Act. The projections are based on past
trends, without placing supply limitations on fuels. Capacity was
derived from correlations of boiler sales with economic indicators
such as GNP, and the fuel use pattern, with the Clean Air Act, was
based on the fuel-switching strategy discussed below.
4. Control Strategy
Fuel switching is the most cost-effective strategy for reduc-
ing emissions from intermediate boilers. The best alternate
approach appears to be alkaline scrubbing of the flue gas, but
this approach is not as effective in reducing emissions and the
capital cost is nearly twice as high as for fuel switching.
The basic approach of fuel switching is to replace coal and
high sulfur residual oil with gas, distillate oil, or low sulfur
residual oil depending on the feasibility for each boiler. The
costs of the fuel switching strategy for 565,000 boilers will result
in total reductions of sulfur oxides and particulates by 84 percent.
The investment cost is $879 million and the annual cost is $1,116
million, based on 1967 fuel prices and 1967 dollars in capital
costs.
The rapid decline in the use of coal as a residential fuel has
been going on for a number of years and the cause should not be
attributed to the Clean Air Act.
4-12
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TABLE 4-5. - SUMMARY OF ESTIMATED PROJECTED CAPACITY FUEL USE AND EMISSIONS, 1977
(RESIDENTIAL AND INTERMEDIATE BOILERS)
!
Capacity
Fuel
Use
Emissions
Sources
Steam
Coal
Residual
Oil
Distillate
Oil
Gas
12
10 cf
SO
X
106
NO
X
106
Particulates
10^ Tons
106 pph
10® Tons
106 Bbl
106 Bbl
tons
tons
Potential
Actual
Intermediate
Boilers
M/O the
Act
4,530
102
530
220
7.43
7.36
3.2
5.67
2.33
Intermediate
Boilers
with the
Act
4,530
0
714
245
8.80
1.26
3.2
0.92
0.31
-------
Several important assumptions were made in determining the
feasibility of the fuel switching strategy. The 1967 price structure
for the various fuels was used, and no restrictions on fuel supply
were assumed, although at the present time the future supply and
price level of fuels is somewhat uncertain. As the supply of
"clean fuels" becomes more restricted and the prices rise, the
advantage of fuel switching over flue gas cleaning will become
less. However, fuel switching still appears to be the most feasible
solution for intermediate boilers in the near future. In order for
flue gas cleaning to become attractive by Fiscal 1977, fuel prices
for oil and gas will have to rise to twice the 1967 levels.
5. Costs
The costs, as stated above, to implement the fuel-switching
strategy include capital costs for converting the boilers to burn
a different fuel and additional operating costs for burning more
expensive fuels. The capital cost includes costs for burner
modifications, fuel supply system changes, and necessary fuel
storage facilities. The annual cost includes the annualized
capital cost based on 15 years straight line depreciation and
eight percent interest and the additional fuel costs.
C. Steam-Electric Power Plants
1. Introduction
In 1967, there were 940 steam-electric utility stations
representing 397 companies, both investor and municipally owned.
In that year, these plants produced some 970 billion kilowatt-hours
of energy for sale in the United States. In addition, utility
companies produced some 220 billion kilowatt-hours by hydroelectric
and nuclear generating stations. Trends in electric energy pro-
duced by fossil fuels consumption are shown in Table 4-6 for the
most recent five years for which data are available.
2. Present and Projected Emissions
Recent trends and projected plans for fossil fuel power plants
suggest that coal and residual oil consumption should grow at an
annual rate of about 6 percent. Thus, the 1967 level of 3.40
million tons of particulates, 15.4 million tons of sulfur dioxide
4-14
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TABLE 4-6. - ELECTRICAL ENERGY PRODUCTION AND FUEL CONSUMPTION
Year
Net Gereration,
Billion KKH
Energy Consumed,
Quadrillion ITU
(1015) Btu
Fuel Consumption
Mix, Percent
Coal
Oil
Gas
1965
837
8.7
65.9
7.7
26.4
1966
928
9.7
64.5
8.6
26.9
1967
970
10.2
63.4
9.5
27.1
1968
1067
11.2
61.9
9.6
28.5
1969
1151
12.2
59.0
12.3
28.7
Source; National Coal Association
4-15
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and 4 million tons of nitrogen oxides should increase to 5.60 million
tons of particulates, 27.6 million tons of sulfur dioxide, and
7.1 million tons of nitrogen dioxides by Fiscal 1977 without imple-
mentation of the Act. This projection assumes no control of sulfur
dioxide and a collection efficiency of 78 percent for particulates
in the base year 1967. By Fiscal 1977, steam-electric utilities are
projected to emit 64 percent of all sulfur dioxide emissions (without
Implementation of the Act).
Average sulfur content of coal and residual oil consumed by
utilities in 1967 was 2.5 percent. Indications are that sulfur
contents in these fuels have been increasing because of increased
demands for low-sulfur fuels by other consumers (i.e., metallurgical
coal buyers and industrial and commercial power plants) and because
of the distance of the western states and Alaska from the sources
of low sulfur coal. The higher trends in sulfur contents are not
reflected in the projected 1977 emissions.
Implementation of the Clean Air Act would reduce particulates
to 2.80 million tons and sulfur dioxide to 2.76 million tons by
Fiscal 1977. No control of nitrogen oxides is postulated.
3* Control of Emissions and Estimated Control Costs
Utilities will be able to choose among alternative control
schemes in attaining S0X emission standards. Their decisions will
weigh heavily on the relative economics of the options available
to them. Rather than attempt to arrive at a national cost estimate
by means of delineating the option each plant would follow, the
national cost was approximated using only two options. It was
assumed that large plants would employ flue gas desulfurizatlon
and that small plants will employ fuel switching. This approach
yields a realistic approximation of the national expenditures
expected to be made by utility companies.
For power plants having a rated capacity in excess of 200
megawatts and with an overall plant load factor in excess of
30 percent, the assumed control strategy was the installation of
wet limestone injection scrubbing systems to provide simultaneous
control of particulates and sulfur oxides. Depending on the
number and size of individual boilers within each plant, several
scrubbers may be required along with a central waste disposal
4-16
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system. Such technology is presently being tested on a small
number of existing and new installations throughout the United
States. Model plant costs used in developing industry estimates
for retrofitting of equipment were:
Model Plant Size Investment Cost Annual Cost
200 raw $ 6.08 million $1.77 million
1000 mw $19.10 million $5.83 million
All coal and oil-fired utility plants through 1977 requiring lime-
stone scrubbers were assumed to be built without sulfur removal
equipment and therefore, would incur the retrofit costs. Federal
Power Commission data indicates that the great majority of new
plants built by 1975 will not have sulfur removal equipment. Costs
are based on commercial availability of scrubbing. They do not
take into account operational problems that are coincidental with
pilot and proto-type plant testing. Some recent experience with
actual plant operators indicates that 150 to 200 megawatt units
are experiencing costs twice the above figures, because of problems
with equipment scaling, inadequate foundation support, and equip-
ment oversizing.
Based on limestone-injection scrubbing, the steam-electric
utility industry would have to invest $4.66 billion in equipment
and incur an annual expense of $1.36 billion for full implementation
by Fiscal 1977. These costs are based on a ten year depreciation
schedule and eight percent interests.
For high sulfur coal and for residual oil-burning power plants
of less than 200 megawatts, switching to low sulfur fuels will
be cheaper. These plants and their costs of compliance are
discussed in section B for small and intermediate boilers.
4. Impact of Nuclear Fuel Generators
As of 1970, one percent of electric utility generation was
produced by nuclear reactors. Some 120,000 megawatts of light-
water, nuclear reactor, generating capacity will be added during
the 1971 to 1980 period. This compares with the 200,000 megawatt
capacity of fossil fuel fired power plants. Considering the
delivery lag time of nuclear plants, the high investment for
nuclear reactor plants ($350 per kw versus $200 per Vcw for coal),
4-17
-------
and the environment problems, acceleration of new nuclear plants
cannot be expected to replace any of the existing or proposed
coal- or oil-fired power plants. Fast breeder reactor technology,
which can utilize uranium concentrates more efficiently than
light-water reactors, is not due to have any significance until
the 1990's.
5. Impact on the Utility Industry
During the 1960's, the utility industry enjoyed steady fuel
prices. Through increased fuel conversion efficiency, utilities
were able to produce cheaper electricity. For example, the
following table shows this decline in the average price per kwh
for three classes of consumers (sales by privately-owned Class A
and B utilities):
Residential, Commercial, Industrial,
Year cents/kwh cents/kwh cents/kwh
1965 2.39 2.18 1.00
1966 2.34 2.13 0.98
1967 2.31 2.11 0.98
1968 2.25 2.07 0.97
1969 2.21 2.06 0.98
Starting in 1967 with the acceleration of general inflation,
increased construction costs and higher interest rates on borrowed
money had an impact on the utilities. Large schedules for financing
new plant capacity, high debt-to-equity ratios, and re-financing of
maturing low-interest loans increased operating costs for the
industry. The shortage of coal production in 1969 and 1970 raised
general coal prices by 50 percent or better. Contributing factors
to this shortage were shortage of skilled labor, decreased productiv-
ity at mines because of requirements of the Federal Mine Safety Act,
the pessimistic attitude of the coal mining Industry toward mine
expansion as a result of reading too much into trends toward nuclear
reactors, and the depletion of economical minable reserves in the
eastern U. S. Some substitution to residual and crude oil and
natural gas has occurred, but supplies of gas are now so tight in
many areas that any further purchases are not possible.
As a result of all these factors, increased electric rates on
4-18
-------
the order of 10 to 20 percent have been granted to some companies
in recent months. It is still too early to document any price trends
on the national average for the years 1970 and 1971. However, all
forms of energy are expected to rise in price, including natural gas.
It is doubtful that any significant substitution from electricity
to other energy forms will occur.
For an individual model plant (800 to 1000 nrw) , expenditures
of $30 per kw for air pollution control amount to 15 percent of
overall plant investment. The full cost increase of 0.90 mills
per kwh for pollution control compares significantly to the industry-
wide fuel costs of 2.65 mills per kwh in 1967 and 2.77 mills in
1969. Capital investment ($4.66 billion) in sulfur dioxide control
amounts to 5 percent of total electric utility investment projected
($90 billion) for the 1970-1975 period. In this perspective, the
required investment does not represent a significant impact.
6. Impact on the Consumer
The impact upon the electric power industry of full implementa-
tion would be most severe in the coal competitive regions of the
United States. In these areas the average price of a community's
electric bills (a mix of residential, commercial, and industrial)
would increase by 5.8 percent, based on a 1967 price of 1.56 cents
per kilowatt-hour (total electrical revenues divided by kilowatt-
hours sold). Regions such as California and the Pacific Northwest
would be exempt from this penalty. Nationwide, the impact of
implementation would call for an increase of 4.3 percent in the
average price of electricity (1.56 cents/kwh).
It is anticipated that utility companies will pass on the full
cost of air pollution control as rate increases. Based on past
experience, utility companies have obtained increases readily from
State regulatory authorities and the Federal Power Commission
(having jurisdiction over Intrastate and interstate utility pricing,
respectively) for such reasons as more costly fuels, increased
plant costs, and increased interest rates.
4-19
-------
IV. INDUSTRIAL PROCESSES
A. Introduction
The economic impact of the Clean Air Act of 1967, as amended, on
17 industries or industry groups is presented in this section. Cover-
age includes plants in operation in 1967 and additional facilities
expected to be functioning by the end of Fiscal 1977.
Industry statistics on the number of sources, capacity, production
and value of shipments for calendar year 1967 are shown in Table 4-7.
Table 4-8 gives a comparison emission for Fiscal 1967 and 1977, with
and without implementation, along with associated costs of control.
These estimates vary, sometimes significantly, from the report of
last year due to revisions of emission factors and to the nationwide
scope of this report. Table 4-9 presents ratios relating annual abate-
ment control costs to capacity, production, and value of shipments for
facilities operating in Fiscal 1977. These ratios indicate the general
economic impact of emission control.
For each industrial category, a detailed analysis of the financial
impact of emission controls is presented. Estimates of the annualized
costs and investments required to achieve compliance are superimposed on
a description of the economic setting, breadth, and unique characteris-
tics of each group. Where there is sufficient information on size,
operation, and financial variables, a model plant (or plants) is con-
structed to show the potential impact of control costs on company
operations. Emphasis is placed on the issue of whether the industry
must absorb control costs or whether costs can be passed on as higher
product prices. This issue is discussed in relation to the competitive
patterns of the affected industry, the distribution of market strength
among sellers and buyers, and the trends of prices, production, and
capacity through Fiscal 1977. When appropriate expected changes in
product price, sales, company profit, and the number and size of firms
in the industry are presented.
4-20
-------
TABLE 4-7. - 1967 STATISTICS FOR INDUSTRIAL PROCESS SOURCES (NATIONAL)
•C-
I
N3
Emission
Source
Aspahlt Batching
Cement
Coal Cleaning—7
Grain: Handling
Milling
Cray Iron Foundries
Iron and Steel
Kraft (Sulfate) Pulp
Use
Nitric Acid
Petroleua:
Products and Storage
Keflnerlaa
Phosphate
Primary Nonferrous
Metallurgy:
Aluminum
Copper
Lead
Zinc
Ntwber of
Sources
4,000
178
181
9,173
2,364
1,730
142
116
209
83
29,039
256
42 (J-1
24
19
6
15
Unit of
Keasurement
, 1/
Capacity—
(Millions of
Unlta p
-------
TAKE 4-1, - INDUSTRIAL P10CESS SOURCES - ESTIMATES OF POTENTIAL AND REDUCED
EMISSION LEVELS AMD ASSOCIATED COSTS (NATIONAL)
Quantity of biiilonA— AHOcl«t«4 taluloa
(ThowiD^a of Too* Control Laval
ger Y<«) CParcant)
Source Yaar fcert SO^ do HC"" NO^ Part SO^ CO HC
Aaphalt Batching
1967
FY 77
FY77
w/o*
W_3/
243
403
56
95
95
99
272
63
Ceoent
1967
FY77
FY77
W/0
w
813
908
65
92
92
99
89
35
Coal Cleaning
1967
r*77
rY77
w/o
w
225
342
9
58
58
98
21
9
Grain! Handling
1967
FY 7 7
PY77
W/0
W
1,
1,
,014
,430
99
28
28
95
395
83
Feed
1967
F*77
FY 77
W/0
w
256
362
22
42
42
95
19
4
Cray Iron
Foundries
1967
Ff 77
Ff 77
W/0
u
217
260
30
3,
3,
,200
.800
230
12
12
90
18
18
95
348
126
Iron and Steel
1967
PY77
PY77
w/0
w
2,
1
, 310
,991
89
55
55
98
841
306
Kraft (Sulfate)
Pulp
1967
FY 77
Ff 77
W/0
w
380
536
80
85
85
98
132
40
Lisa
1967
FY77
rr 77
W/0
w
393
609
32
72
72
*8
29
7
Nitric Acid
1967
Pf 77
FY77
W/0
w
145
230
25
0
0
90
37
14
Pecrolem:
Product a and
Storage
1967
PT77 W/0
PY77 W
1,038
1,349
296
50
50
89
Refineries
1967
FY77 W/0
PY77 W
185
241
98
2.310
3.010
21
9,300
12,100
49
153
197
12
20
20
6*
37
37
100
20
20
100
20
20
95
378
73
Phoephoto
1967
PY77
FY77
W/0
w
260
350
160
89
89
95
31
15
Prinary Nonferroua
Metallurgy•
Almlnm
1967
PY77 tf/O
FY77 tf
32
49
S
73
73
98
923
254
Cop par
1967
PY77 W/0
FY77 W
243
314
286
2,5*0
3,335
535
55
55
59
19
19
87
313
100
Lead
1967
FY77 W/0
PY77 W
34
39
26
185
213
29
82
82
88
26
26
90
65
16
Zinc
1947
PY77 W/0
f*77 w
57
71
71
446
555
138
93
93
93
59
59
90
41
18
Secondary Non-
ferroua
Metallurgy
1967
PY77
FT77
W/0
V
24
34
6
66
66
95
32
9
Sulfuric Acid
1967
PT77
FY77
w/0
w
25
38
10
600
920
170
45
49
••
97
97
100
169
31
— Eklaaloae abbrerletad arm particulate* (Part), ^ilfur oxltea (SO.), c«rtoa unoildt (CO), hydrocarbons (HC),
«4 nltroftCD axldaa (V0-). Blaki In th« (abU li41eat« du itiMlai llvtla «Mt tbm applicable rt|ulatltt
(Af|i
-------
TABLE 4-9. 1977 EXPECTED ANNUAL CONTROL COSTS FOR INDUSTRIAL PROCESS SOURCES RELATIVE TO CAPACITY, PRODUCTION, AND VALUE OF SHIPMENTS^'
(NATIONAL)
Source Totals
Annual
Control
Cost
(Millions
of
Dollars)
Cost Ratios
Source and Unit of Measure
Capacity—
(Millions
of Units)
2/
Production—
(Millions of
Units)
Vslue of
Shipments
(Billions
of Dollars)
Cost per Unit
of Annual Cap.
(Dollars per
Unit)
Cost per Unit
of Annual Prod.
(Dollars per
Unit)
Cost per
Dollar of
Shipment
(Percent)
Aaphalt Batching tons
of paving mixture^
714
357
2.1
63.0
0.09
0.18
3.0
Cement
barrels
572
477
1.6
34.6
0.06
0.07
2.2
Coal Cleaning
tons
bushels^
160
125
N/A—^
9.3
0.058
0.074
«./**'
Grain: Handling
8,548
14,360
N/A*'
83.0
0.006
0.01
N/A*'
Milling
tons
tons of castings^
98
64.1
6.3
4.0
0.041
0.062
0.1
Cray Iron Foundries
20.7
17.4
3.8
126.0
6.10
7.24
3.3
Iron and Steel
tons of raw steel
203
163
17.0
306.0
1.51
1.88
1.8
Kraft (Sulfate) Pulp
tons
45.3
33.7
5.08
40.0
0.88
1.19
0.8
Lias
tons
34.43
29.27
0.41
7.2
0.21
0.25
1.8
Nitric Acid'
tons
11.6
9.83
»/i&
14.0
1.21
1.42
KM*'
Pstroleua:
barrel®^
barrels
Products and Storage
Refineries
278
5,473
2,435
4,654
29.25
26.39
| 73.3
W/A^
N/A*'
HlK-'
«./**'
Phosphate
tons
10.0
7.1
1.48
15.0
1.50
2.11
1.0
Primary Nonferrous
Metallurgy: Aluminum
Copper
Lead
Zinc
tons
tons
tons
tons
5.84
2.12
0.57
1.94
5.80
1.90
0.52
1.17
3.36
2.13
0.15
0.32
256.4
100.0
15.6
17.7
43.9
47.2
27.4
9.1
44.2
52.6
30.0
15.1
9.4
4.7
10.4
5.5
Secondary Nonferrous Metallurgy
tons
4.10
3.40
2.16
8.7
2.12
2.56
0.4
Sulfuric Acid
tons
43
N/A*'
39.0
0.91
1.18
N/A—^
—' Estimated costs for controlling particulate, sulfur oxide, carbon monoxide, hydrocarbon and nitrogen oxide emissions froa facilities expected to
be operating in fiscal year 1977. *
2/
3/
4/
5/
6/
Capacity and production are In millions of units (tons, etc.) per year unless otherwise noted In footnotes.
Capacity is calculated assuming 1,000 operating hours per year.
Capacity is in million bushels of storage space; production, million bushels of throughput.
Cspaclty Is In million barrels of gasoline and crude oil storage space; production, million barrels of gasolina and crude oil handled.
Not applicable.
-------
Several assumptions and approaches underly the analyses. The
year 1967 was used as the data base for all industry statistics.
All costs are shown in 1970 dollars. Model plants either depict
industry averages, or show a representative distribution of industry
characteristics. Sales figures for the models are normally generated
by multiplying production by 1970 average product prices. General
operating and other expenses are based upon industry averages
generated as a percentage of sales. Investment costs reflect not
only equipment outlays but also expenses related to installation and
start-up. Annualized costs are the summation of three items: oper-
ating and maintenance, depreciation of the original investment, and
capital costs (such as interest, taxes and insurance) on the original
investment. Depreciation was assumed to be straight-line over the
life of the control equipment. Unless otherwise specified, the follow-
ing control equipment lives were assumed: scrubbers-10 years, pre-
cipitators-15 years, baghouses-20 years. Capital charges were assumed
to be 10 percent per year unless specified.
Along with other financial variables, "cash flows" and "rates of
return" are intermittently presented throughout the discussions when
possible. For the sake of clarity, cash flow, in this report is net
earnings plus depreciation and/or depletion. When compared with control
costs, cash flow gives some indication of the capability of the company
to meet annualized control expenses from internally generated funds.
"Rate of return" is the interest rate which equates cash outflows
(e.g., plant investment) with discounted cash inflows (e.g., yearly
cash flows from operations). Rate of return before control, calculated
for most model plants, shows the return for the plant before any abate-
ment steps are taken. Rate of return after control is calculated
assuming no product price increases. Comparison of the two provides a
measure of the effect to be expected on the long-run profitability of
the plant if abatement costs were to be absorbed.
4-24
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B, Asphalt Batching
1. Introduction
a. Nature of Product and Process
Asphalt concrete is a mixture of crushed stone
aggregate and asphalt cement that is used for paving roads,
driveways, parking lots, etc. In general, the crushed stone
makes up about 95 percent by weight of the mixture. The
material is transported by truck from the batching plant to
the paving site where it is loosely spread while still hot and
then compacted or rolled into a smooth surface.
At the batching plant, the following operations are
performed; (1) cold aggregate is conveyed from storage bins by
means of a belt and an elevator; (2) the aggregate is heated and
demoisturized in a rotary kiln dryer; (3) the heated aggregate
is conveyed by a bucket elevator to a vibrating screen; (4) the
course and fine fractions are separated and stored in a com-
partmented bin; (5) weighed quantities of the sized aggregate
are blended with hot asphalt and mineral filler in a paddle-type
mixer; and (6) the hot mix is discharged into trucks for delivery
to the paving site.
b. Emissions and Cost of Control
The primary air pollution problem in the industry is
the emission of particulates from the rotary dryer. The dryer
is exhausted by an induced draft fan to remove gases from fuel
combustion and to remove water vapor from the crushed stone. Some
of the fines in the aggregate are inevitably entrained in the
exhaust. The type and size distribution of the particulate emissions
vary with rotation rate, air mass velocity, feed rate, and feed
composition.
Secondary sources of particulates include the aggregate
elevators, vibrating screens, storage bins, weigh hopper, mixer,
and transfer points. It is common practice to combine the dryer
exhaust with the ventlines from the secondary sources into a single
collection and fan system. Virtually all plants are equipped
4-25
-------
with cyclone collectors which economically return material to the
process and also preclean the exhaust before it reaches more effi-
cient air pollution control devices.
Particulate emissions from the industry in 1967 were esti-
mated at 243,000 tons. If the 1967 control level of 95 percent
were maintained, emissions would increase to 403,000 tons by Fiscal
1977. The assumed process weight regulation could best
be achieved through the installation of high efficiency, venturi
scrubbers in smaller plants (less than 150 tons per hour capacity) and
of fabric filters in larger plants (150 tons per hour or greater
capacity). This would reduce emissions to 56,000 tons in Fiscal 1977
and would require an investment of $272 million with an annual
cost of $63 million in that year.
c. Scope and Limitations of Analysis
Data for this report were derived from trade associations,
trade journals, government reports, and financial documents. No
trade association or government agency tabulates statistical infor-
mrtion for the entire industry and, therefore, information regarding
industry size, production, and capacity should be considered
approximate. Financial analysis was hampered by the fact that
most firms are small and locally oriented in nature, causing great
variations in operating parameters from firm to firm.
2. Industry Structure
a. Characteristics of the Firms
In 1967, the industry was comprised of some 1300 firms
operating an estimated 4000 plants. Approximately one-third of
the firms operated a single plant and most of the remainder less
than five plants.
Integration of activities varies widely from firm to
firm. The following shows how firms are Involved in operations
supplemental to asphalt batching:
4-26
-------
Activity % Firms Engaged
Lays asphalt concrete 86
Contractor for road construction projects 84
Contractor for other construction projects 55
Operates gravel pit or quarry 46
Produces Portland cement concrete 18
Distributes liquid asphalt 18
About 75 percent of the plants are permanently installed
and the remainder are portable. Permanent plants are primarily
located in urban areas where there is a continuing market for new
paving and resurfacing work. Portable plants are usually involved
in highway paving projects. These plants may be disassembled and
relocated to shorten hauling distances as highway construction
proceeds.
Plant capacities generally fall within the range of 50 to
300 tons per hour with an average capacity of 150 tons per hour. The
average plant employs four persons. The trend in recent years has
been toward the construction of larger plants with a greater degree
of automation.
b. Operating Characteristics
Based on production and capacity figures for a 35 percent
sample of plants, it is estimated that the industry operated at 49
percent of capacity of 1967. Capacity in this case was based on
the normal maximum plant operation. Due to the seasonal nature of
the paving business, the average plant operates 150 days per year
at 8 hours per day. Inclement weather, inefficiencies in truck sche-
duling, time consumed in relocating portable plants, and the fact
that the industry operates on a project basis are factors that con-
tribute to the low-operating ratio in this industry.
c. Resources
The raw materials used in the production of asphalt paving
are generally grouped into three classes: aggregate, filler, and
asphalt. Aggregate is the mixture of course mineral material such
as sand, stone and gravel which serves as the load-bearing constituent
of asphalt paving.
4-27
-------
Fine mineral filler consisting of either fly ash, lime-
stone, hydrated lime or portland cement is added to the mix to fill
spaces between larger aggregate particles. The proportions of the
above materials employed vary with the grade of asphalt desired
for particular end uses. Asphalt cement (finally added as the bonding
agent) usually constitutes 3 to 7 percent of the mix by weight.
The availability of these resources is important
to the asphalt batching industry. While aggregate and fill
materials are available almost anywhere, there is an acute short-
age of asphalt itself, an indirect result of current efforts
to control air pollution. The demand, and consequently the
price, for low sulfur fuel oil has Increased markedly in the
piast year since it emits less pollution than coal. However,
fuel oil competes with asphalt for the last fractions of
crude oil, so an increasing number of suppliers are squeezing
all possible fuel oil out of their crude, leaving little
or no asphalt. Many suppliers have curtailed asphalt production
altogether since it is economically unattractive at current
market prices.
While adequate supplies of asphalt are available in the
oil-producing regions—Texas, California, and adjoining states—the
number of asphalt producers on the east coast has declined from eight
to two. The Midwest and other regions are also experiencing shortages.
Total national production has fallen below total national demand.
Consequently, steps are being taken to increase import quotas on
both asphalt and asphalt-rich crude oil.
In reaction to the shortage, asphalt prices have risen
sharply across the country. For the nation as a whole, the average
price has increased 33 percent in the past year. The average
price has risen more than 10 percent in California where no
shortage exists, hut eveD greater price increases are essential to
induce the production of sufficient asphalt to meet demand. "Therefore
prices of both fuel oil and asphalt are expected to continue to
rise rapidly as the enforcement of air pollution control regulations
continues to increase the demand for fuel oils.
4-28
-------
As a result of the shortage, many asphalt batching plants
are being forced to reduce operations or close down completely. In
certain areas highway construction projects are being halted or
slowed and other demands are not being met. However, after the
shortage is overcome, the consequent increase in asphalt prices
will have little impact on the demand for asphalt paving, as asphalt
constitutes only 2.5 percent of the final cost of a highway paving
contract.
3. Market
a. Major Markets
Highway paving accounts for about 70 percent of the hot-
mix asphalt market, parking lot paving accounts for another 24 per-
cent and airports and private paving make up the remainder. The
interstate highway system, which has expanded rapidly during the
past decade, currently accounts for 15 percent of asphalt paving
consumption. Upon completion of the system, state highway depart-
ments are expected to turn their attention to secondary highway
construction and maintenance which have been de-emphasized during
interstate construction. Thus, the loss of interstate demand should
be partially compensated.
b. Competitive Products
The only alternative product to asphalt paving is portland
cement. But it is 20 to 40 percent more costly per mile than asphalt
paving, and consequently accounts for only 10 percent of all highway
mileage. However, it has superior wear characteristics and thus
has been used extensively—60 percent of the mileage—in the inter-
state highway system. Cement may further displace asphalt in this
market if the asphalt shortage persists forcing states to contract for
concrete construction. Cement is also able to compete with asphalt in
the private market when special promotion campaigns are undertaken.
Otherwise, upon completion of the interstate system, there will be
little competition between the two products.
4-29
-------
c. Competition Among Firms
A major limiting factor in competition between asphalt firms
is the limited radius which a plant can serve due to transportation
costs and the necessity of delivering the asphalt mix while still
hot. Permanent plants cannot generally compete on jobs outside
of a radius of 50 miles from the plant. Mobile plants can, of course,
move to the site of major jobs thus increasing their potential market
radius to about 500 miles.
Most highway and commercial projects are contracted on a
competitive bid basis to a general contractor. While many general high-
way contractors own asphalt batching plants, some subcontract the asphalt
concrete production to another firm again on a competitive bid basis.
In large urban areas, numerous asphalt batching firms contribute to
aggressive competitive bidding. However, in small municipalities
served by only one or a small number of firms, there is little competi-
tion except an occasional large job which warrants an outside plant
moving to the area.
4. Trends
Since 1961, hot-mix asphalt sales have grown at an annual rate
of 6.5 percent. The industry experienced two periods of asphalt
shortage in the past 10 years, during which no growth occurred—one
in 1966-1967 and the other in 1970-1971. The interim years
realized very rapid growth, expanding by 13 percent per year for 1967
to 1970.
As the interstate highway system nears completion, growth is not
expected to exceed 2 percent per year at least through 1975. More
rapid growth will probably resume in the long run, as the automobile
population continues to grow at over 3 percent per year requiring addi-
tional highway mileage and replacement of dirt and gravel roads.
5. Economic Impact of Control Costs
a. Impact of Plants
"Model" plants have been developed from aggregated Internal
Revenue Service data to depict the financial operations of small,
medium, and large asphalt batching plants before and after implementa-
tion of air pollution control. Lack of detailed data on individual
4-30
-------
plants made it impossible to determine the compatibility of the data.
However, the aggregated data on model plants presented in Table 4-10
should suffice to indicate the order of magnitude of impact.
Also given in Table 4-10 are the added costs attributable
to air pollution control. The range of control costs is not great,
varying only from $0.15 to $0.26 per ton, representing 2.7 to 4.6
percent increases in value of shipments. Such minimal economies of
scale for larger plants indicate that control costs will affect
plants relatively uniformly. However, these cost increases will
reduce net profit by 30 percent for large firms and 60 percent for
small firms if costs cannot be passed on in higher prices. Likewise,
the rate of return would decrease considerably, although it would not
decrease below attractive levels except for small plants.
Due to heavy depreciation charges within the industry, cash
flows are reduced very little. Since depreciation represents such a
major portion of cash flews, the remaining accounting life of a given
plant is important. Plants near the end of their accounting lives will
probably be closed and replaced with new plants regardless of size or
ability to pass control cost on. Conversely, relatively new plants
will probably control and continue to operate because of large cash flows.
The decision to close a plant rests not only on the remaining
accounting life and the required control investment but on the salvage
value and tax writeoff attainable upon closing the old plant. Finally,
the internal rate of return on an alternative investment (possibly a
new batching plant) must exceed the rate attainable on the old plant
after control. Such a determination must be made by each old plant con-
sidering closing. The information necessary to determine the number of
plants which would close or new plants to be built was not available.
However, many plants older than 10 years will probably find it economic
cally advantageous to close,
b. Impact on Firms
For firms engaged solely in asphalt batching, the impact would
be identical to the impact on individual plants. However, most firms
which operate batching plants are involved in general contracting,
4-31
-------
TABLE 4-10. - MODEL ASPHALT PLANT FINANCIAL ANALYSES
Small
Plant
Medium
Plant
Larp.e Plant
Operating
Characteristics
Before
Control
After
Control
Before
Control
After
Control
Before
Control
After
Control
Capacity (tons/hr)
68
68
134
134
194
194
Plant Investment ($10^)
78
78
126
126
134
134
Other Investment ($10^)
18
18
70
70
96
96
Control Investment ($10"*)
23
56
94
3
Net Investment C$10 )
96
119
196
252
230
324
Sales ($103)
154
154
474
474
668
668
Cost of Goods Sold
88
88
355
355
460
460
Control Cost
0
7
0
14
0
18
Cross Income
66
59
119
105
208
190
Administrative Cost
54
54
87
87
146
146
Income Before Tax
12
5
32
18
62
44
Income Tax
2
1
6
3
7
5
Net Income
10
4
26
15
55
39
Cash Flows
26
22
38
33
82
71
Control Cost/Ton
—
.26
—
,17
—
.15
Control Cost (% Sales
—
4.6
—
3.0
—
2.7
Z Reduction of Income
—
60
—
42
—
29
Rate of Return—^
20
5
17
8
28
16
101
10
3
13
6
24
15
— Assumes an average selling price of $5.60 per ton FOE plant. Both the price
and model plant data are for the year 1969,
2!/Assumes a remaining useful life of 15 years. Fixed investment is written off
on a straight line basis at the depreciation rate indicated by the IRS data
for each plant size.
4-32
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Portland cement manufacture, petroleum refining, or other diversified
operations. In each case the impact of air pollution control would
be less than for an independent batching plant. However, the extent
of impact would vary with the proportion of total revenues and invest-
ment which asphalt batching plants represented.
c. Elasticity of Demand and Cost Shifting
The total demand for paving materials is determined by long-
range plans for highway and commercial construction. Asphalt paving
enjoys a considerable economic advantage over its only close substitute,
concrete. This economic advantage will be little effected by air
pollution control as both industries incur control costs of similar
magnitude. Also, since asphalt concrete constitutes only 20 to 40 per-
cent of highway construction costs, small changed in its price will
probably have little effect on demand.
In view of such relatively inelastic demand, most firms
will be able to pass on the full cost of control. Firms in more
isolated and less competitive areas will be able to adjust prices regard-
less of their control costs. In more competitive metropolitan areas,
the price of hot-mix asphalt will probably reflect the average cost of
control for firms within the area. Only the relatively small plants
would have to absorb a portion of their control costs.
d. Impact on the Industry
An average price increase for the industry of about $0.17 per
ton (3 percent) is expected. The small model plant faced with an average
market price increase would have to absorb $0.09 per ton of its control
cost. While this represents only a 1.6 percent price increase, it
results in a reduction in profits of almost 20 percent. Such a decline
in profits would not be devastating even for a small firm. However,
it might reduce the income of a sole proprietor below the level at which
he preferred to live, and induce him to sell the plant to a larger firm.
Although for most firms there will be no reduction in profits
as a result of pollution control, many firms will experience diffi-
culty in acquiring the necessary capital for the control investment
which may be as great as 50 percent of net worth for some individual
4-33
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plants. Large multi-plant firms and plants owned by general contrac-
tors, Portland cement manufacturers, refineries, and other related
industries will have little difficulty acquiring capital due to their
diversity and greater financial stability. However, smaller firms
having only one or two batching plants will encounter considerable
difficulty unless they are very sound financially.
Both the need for capital and the cost of control will
accelerate the trend toward merger and acquisition within the industry.
Few, if any, new plants will close as a result of air pollution control
regulations. Only those plants near the end of their accounting lives
will close rather than control. Many of these, however, will be
replaced by new plants, and little displacement of employees will
result.
4-34
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C. Cement
1. Introduction
a. Nature of Product and Process
Portland cement, which accounts for approximately 96
percent of cement production in the United States, is a blend
of various calcareous and argillaceous materials such as chalk.,
clay, limestone, and shale. As the binder in concrete, portland
cement is the most widely used construction material in the United
States and the world.
The four major steps for producing portland cement are:
(1) quarrying raw materials and reducing their size, (2) grinding
and blending these materials to obtain proper composition and
uniformity, (3) heating the materials in a rotary kiln to liberate
carbon dioxide and cause fusion, and (A) fine grinding the
resultant clinker, which is sold in bulk or bagged. All portland
cement is produced by either a wet or dry process with the chief
difference being whether the raw materials are introduced into the
kiln as a dry mixture or as a wet slurry.
b. Emissions and Cost of Control
Particulate matter is the primary emission in the manu-
facture of portland cement. Emission sources include: (1) raw
material crushing; (2) raw material drying and grinding; (3) kiln
operation; (A) clinker cooling; (5) finish grinding and packaging;
and (6) various other points such as material conveyance and
storage. Sulfur oxides are also formed from the combustion of
fossil fuels during kiln operations, but these are mostly eliminated
through combination with calcined lime within the kiln.
The raw drying-grinding mill (dry process only), the
rotary kiln, and the clinker cooler are the major points of
emission. Other sources are already controlled to high degrees
for economical reasons as the collected material is usually returned
to the process. For 1967, the portland cement industry is estimated
to have controlled particulate emissions to an overall level of
91.5 percent. Emissions from the three processes considered total
an estimated 813,000 tons. Rotary kilns were controlled to an
4-35
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average of 91 percent, raw material dryers to an average 95 percent,
and clinker coolers to an average of 91 percent In 1967.
Projected growth within the cement industry would push
Fiscal 1977 emissions to an estimated 908,000 tons if the 1967
control level were maintained. With installations of fabric
filters at 99.5-percent efficiency on raw drying mills, clinker
coolers, and dry process kilns and with installations of electro-
static precipitators at 99-percent efficiency on wet process
kilns, it is estimated that an overall control level of 99.3
percent could be achieved reducing total emissions to 65,000 tons
by Fiscal 1977. This would require an investment of $89 million
with an annual cost to the industry of $34.6 million for Fiscal 1977.
c. Scope and Limitations of Analysis
This analysis was based on data from government, trade,
and financial reporting sources. Financial data were available
only for a limited number of firms. Many firms engage in other
business activities, such as the sale of readymix concrete and
cement blocks, or are parts of conglomerates. Without more
detailed information, it was not always possible to estimate
the portion of revenues, costs, profits, or taxes attributable
to cement alone in such firms. For this and similar reasons, the
relationships assumed for the financial variables should be
considered approximations.
2. Industry Structure
a. Characteristics of the Firms
The cement industry is estimated to have 58 firms and
178 plants in the United States in 1967. Approximately 45 percent
of the firms operated more than one plant, and approximately half
of those firms had capacities of over 10 million barrels of cement
per year. In recent years there has been a significant increase
in the rate of Integration, mergers, and diversification among
firms to reduce their dependence on the cyclical cement and
construction business.
Cement plants in recent years have added large kilns,
computerized their operation, and improved integration of equipment
4-36
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to increase operating efficiencies. The range of capacities for
all plants listed in operation in 1967 was from 0.5 to 16 million
barrels per year, with the average plant having a capacity of
approximately 2.5 million barrels per year.
b. Operating Characteristics
The United States capacity for the cement industry was
502 million barrels in 196 7. With production at 369 million
barrels, the industry operated at 73.5 percent of capacity.
Operation at 85-90 percent tends to produce maximum profits,
but the industry has operated between 70 and 80 percent of capacity
over the past 10 years and has been faced with a chronic excess
capacity.
c. Resources
The raw materials used in manufacturing cement are
abixidant and widely dispersed throughout the country, and material
costs are stable because most companies own their sources and have
ample reserves. However, the rising costs of fuel, labor,
and transportation, the other major cost variables, in recent
years have coupled with an inability to raise prices proportionately
and accounted for the generally below average profit of this industry.
Labor accounts for approximately 20 percent of total cost.
Producers have tried to reduce labor costs by switching to higher
capacity equipment combined with automated computerized controls.
Although output has regularly increased, the number of employees,
particularly production workers, has steadily decreased. As of
1967 the cement industry employed 32,400 people, down from 39,400
in 1960.
3. Market
a. Distribution
Since raw materials for cement production are widely
distributed throughout the coisitry, cement plants generally locate
close to major markets. Normally, cement is not shipped more than
200 to 300 miles from the plant, because transportation costs tend
to price a firm out of more distant markets.
4-37
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Cement sales are historically related to construction
activity; therefore* the performance of the cement industry will be
set by the general performance of the construction industry.
Cement purchases represent about 1 percent of the dollar inputs
of the construction industry, based on the 1963 input-output
relationships. The distribution of cement sales by purchasers
for 1967 were:
Ready-mixed concrete producers 60%
Concrete product manufacturers 13%
Highway contractors 10%
Building materials dealers 8%
Other contractors 5%
Miscellaneous users (including government) 4%
b. Competition
Portland cement is a standardized product, thus competition
among sellers depends on small price differentials within a clearly
defined price pattern. Most customers can choose among a number
of cement producers and price shading and partial freight absorption
by the producers may be necessary to clinch a sale. This competitive
pressure has caused many firms to close their less efficient plants
or to modernize them in order to maintain profits.
External competition in general does not cause extensive
pressures (see Asphalt Batching - Competitive Products) . However,
for some uses (building and structural materials), the consumer
has considerable choice and cement does compete with brick, steel,
and aluminum. Foreign trade has never assumed much national
importance. Imports and exports of cement account for less than
5 percent of the United States market and are significant only in
markets on the Atlantic Coast and the Canadian border.
4. Trends
a. Capacity and Production
For over a decade the cement industry has been plagued with
overcapacity. However, producers have begun to achieve a better
operating ratio and this is expected to continue through the
seventies. For the next five years, net capacity should grow at a
rate of 1 percent to 2 percent per year.
4-38
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Production and shipments have been increasing an average
of 2.2 percent yearly. 1970 was a discouraging year—actual shipments
decreased 5 percent to 388 million barrels from the record 1969
total of 407.5 million barrels. Prospects look better, and most
companies are beginning to report optimism as construction activity
increases. Growth of both production and shipments from the cenent
industry over the next five years should approximate 3 percent per
year.
b. Price, Sales, and Profits
Prices declined slowly from a 1961 average level of $3.35
per barrel at the mill to $3.05 per barrel in 1966 but have since
risen gradually to $3.25 in 1970. Less than optimum operating
ratios, a slowly growing market and competition with other building
materials will probably keep prices rising at a slow rate through
1977. Profits are expected to show improvement and prospects for
1972 and later look reasonably optimistic.
5. Economic liigiact of Control Costs
a. Industry Composite
Plants built since 1960 have, almost without exception,
been equipped with high efficiency control equipment. It is the
older plants, therefore, that will feel the greatest effects of
the costs for air pollution control. It is estimated that by 1967
the portland cement industry had already invested approximately
$50 million in equipment for control of kilns, raw mills, and
clinker coolers and were experiencing an annual cost of $18 million.
b. Impact on a Plant
The impact of the additional cost of air pollution control
is developed using "model" plants, constructed to represent typical
operating patterns. The plants described (Table 4-11) do not actually
exist, but are based on average characteristics within the industry.
The relationships shown in Table 4-11 indicate the
magnitude of air pollution control costs for both a wet and dry
process "model" plant of average capacity. The "model" assumes
no pre-existing partial control. Therefore, full costs are shown.
These cost figures indicate the impact which may be expected for
4-39
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TABLE 4-11. BASIC DESCRIPTIONS AND INCOME STATEMENTS
FOR MODEL CEMENT PLANTS
"Model" Plants (Wet and Dry Process)
Capacity (Thousands of BBL per year)
Kilns (Number and Size)
Plant Construction Cost, Without Control, 1967
Production (Thousands of BBL per year)
Average Mill Price per BBL
Control Investment, Wet Process
Annualized Control Cost, Wet Process
Control Investment, Dry Process
Annualized Control Cost, Dry Process
Income Statement
(Thousands of Dollars)
Without Control
Wet and Dry
With Control
Dry Process
With Control
Wet Process
Sales
$6,500
$6,500
$6,500
Cost of Goods Sold
5,543
5,543
5,543
Added Control Cost
0
244
126
Net Income Before Tax
957
713
831
Income Tax
431
321
374
Net Earnings
526
392
457
Cash Flow
1,194
1,095
1,158
Net Earnings/BBL
$0,263
$0,196
$0,229
Cash Flow/BBL
0.597
0.548
0.579
Control Cost/BBL
0
0.122
0.063
Rate of Return
5.08%
3.34%
4.40%
2,500
1-520 ft.
$16.7 mil.
2,000
$3.25
$0,660 mil.
$0,126 mil.
$0,707 mil.
$0,244 mil.
4-40
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single plant firms. The above costs have also been calculated
without giving credit for recovered materials. Such an allowance
is difficult to estimate, but should, in the normal case, produce
some savings .
c. Impact on the Firm
The majority of cement manufacturers are conglomerates
in the building materials industry, deriving income from broad
product lines including concrete blocks, piping, wallboard, and
related items. Pollution control costs will hamper earnings, but
the effect will be diluted for most firms because of their
diversification and a brighter outlook for the whole Industry.
Although capital requirements are increased roughly 5-10
percent per new plant installation due to particulate control,
it appears that the capability of most firms to raise necessary
capital has not diminished. Most firms have continually invested
substantial amounts of money in modernizing and replacing outmoded
facilities, and they should be able to continue to do so in the
future.
d. Demand Elasticity and Cost Shifting
To the extent that demand for cement is derived from the
demand for public and private construction, which Is not highly
elastic vith regard to price , the overall demand for cement would
not be very sensitive to small price changes. In recent years
cement has had a fairly advantageous price position relative to
competing building materials, and price increases for cement and
cement products may effect substitution somewhat. However, cement
is a basic, unique product, and the cement industry should loose
little of its market in the construction area, assuming the added
control costs are passed on.
Within the industry, an attempt by some firms to raise
prices as a means of shifting control costs would almost certainly
lead other cement firms to move into the market. The market for
any one firm is usually small geographically. Selective price
increases in some local markets will encourage large firms to expand
their selling radii.
4-41
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For the past decade, demand for cement has fallen short
of supply. Competition for sales has been stiff, prices have been
low, and consequently air pollution control costs have generally
been absorbed by the industry. For the future, however, demand is
expected to increase and prices should rise.
Average control cost per barrel amounts to $.07, indicating
a price increase of 2.2 percent based upon an existing price of
$3.25 per barrel. With a favorable outlook, it is expected that by
1977 the cement industry in general should be able to shift most
of this control cost into product prices,
e. Effect on Industry
Many individual plants are still obsolete both from an
operating and a pollution point of view. Many of the older plants
are estimated to have labor costs per barrel 3 times that of the
newer (usually computerized) mills. Strict enforcement of pollution
legislation and regulations could cause closings in the years
immediately ahead.
Pollution control has proceeded at a rapid rate within
the industry during the past several years. 19 70 set an all
time record when at least 17 precipitators and seven baghouses
were installed, most of them on kilns. There was also a sharp
increase in the number of smaller collectors added. These
expenditures are purely costs of production and do affect earnings,
but in no case does it appear that these costs alone have or will
cause a firm to fail.
The cement industry has made considerable progress in
combatting several of its major handicaps. There should be an
appreciable increase in shipments in the immediate future. Price
increases made early in 19 70 held up fairly well throughout the
country. Overcapacity has been lessening and there should be good
improvement in the production/capacity ratio. Pollution control,
then, may hold down industry growth and profits to some extent,
but the effect is expected to be small.
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D. Coal Cleaning
1. Introduction
a. Nature of Product and Process
Coal cleaning removes undesirable materials such as
sulfur compounds, dirt, clay, rock, shale, and other inorganic
impurities from raw, mine-run, bituminous and anthracite coal.
Cleaning improves the quality of the coal by reducing ash and
sulfur content and increases the B.t.u. output per pound of
coal.
Coal cleaning may be accomplished by washing with air
or water. Air washing is generally done in pneumatic cleaners.
Wet washing techniques sometimes use thermal driers to decrease
the moisture content of the final product. Approximately 7 percent
of the coal cleaned in the United States is produced in pneumatic
cleaners; the remaining 93 percent is cleaned by wet washing.
Approximately 21 percent of the wet washed coal is dried in
thermal driers—predominately the flash or fluidized-bed type.
b. Emissions and Cost of Control
Particulates in the form of dust are the major emission
from coal cleaning plants. Emissions result from handling,
cleaning, and drying operations. The major emission sources
are the thermal driers and pneumatic cleaners.
Available data on the current level of control indicate
that 87 percent of the thermal coal driers and 16 percent of the
pneumatic cleaners are controlled at an efficiency of 80 percent
resulting in a composite control level of 58 percent for the
industry. At this control level, it was estimated that 1967
emissions totaled 225,000 tons. If that level were maintained
through 1977, the estimated total would be 342,000 tons. With the
application of venturi scrubbers to thermal driers and pneumatic
cleaners, it is estimated that an overall control level of 98.A
percent would reduce 1977 emission to 9,300 tons.
Because of the coal dust content of the off-gases from coal
cleaning, a fire and explosion hazard exists. For these reasons,
4-43
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wet scrubbers raCher than baghouses are the preferred control devices.
Venturi scrubbers of 20, 15, and 10 Inches pressure drops were assumed
for fluidized-bed driers, flash driers, and pneumatic cleaners,
respectively. Due to the sulfur content of the particles collected,
it was assumed that these scrubbers would be of stainless steel
construction. With these assumptions, it was estimated that an
investment of $21 million would be required by 1977 with annual
costs of $9.3 million.
c. Scope and Limitations of Analysis
Although there is a relatively large number of coal
cleaning plants in the United States, data on plant locations,
capacities, and production are available. However, it was not
possible to determine the coal cleaning process used in each plant.
For this reason, cleaning plants were grouped according to size,
average values applied to production and capacity, and control
costs were based on model plants for each size range. Financial
and market data for the industry were fairly complete.
2. Industry Structures
a. Characteristics of the Firms
Coal cleaning is an integral part of the coal-mining
industry. Although currently there are approximately 5,300 active
coal mines controlled by approximately 3,800 firms, the majority
are small operators. During recent years, the trend has been to
larger mines and consolidation of companies into relatively large
groupings of mines to effect greater efficiencies In management,
mechanized operation, and marketing. The concentration of industry
production in the largest operating groups can be seen in Table 4-12.
In 1967, the coal industry produced 553 million tons of coal having
a value of shipments of $2.6 billion.
TABLE 4-12. NATIONAL PRODUCTION OF LARGER COAL FIRMS
Percent
Operating Groups
of National Production
largest 50
69
largest 15
52
largest 2
22
4-44
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Generally only the larger mines and operating groups under-
take coal cleaning. Consolidation of the production from one large
mine or a group of neighboring mines into one large cleaning plant
is so prevalent that the 471 plants which existed in 1967 processed
81 percent of all raw coal mined. (The Minerals Yearkbook for 1967
reports the production of 334 million tons of cleaned coal or 62.3
percent of the total tonnage mined. However, 81 percent of all raw
coal that underwent cleaning yielded 17.8 percent refuse.) The distri-
bution of outputs indicates that the largest plants again account for
a disproportionate share of total output (Table 4-13).
TABLE 4-13. SIZE DISTRIBUTION OF COAI. CLEANING PLANTS
Plant Output Range
Tons/Year
Percent of
All Plants
Percent of National
Production
>1,500,000
7
30
500,000-1,500,000
23
39
100,000-500,000
50
27
<100,000
20
4
Most of the thousands of small mines and mining companies
which produce less than 100,000 tons per year undertake little or
no coal cleaning. At most they may sort coal by size, but frequently
it is sold "mine run" or unsorted.
b. Resources
About two-thirds of the U.S. coal reserves are low sulfur.
Unfortunately, less than 10 percent of the known reserves of low sulfur
coal lie east of the Mississippi, and a large portion of that
is earmarked for special use such as making metallurgical coke.
Transportation is the largest element in the cost of coal
to the consumer, on average exceeding the value of coal at the mine.
Labor costs are the second largest element of cost amounting to 40
percent of the FOB value of coal. Labor costs have risen more
rapidly than any other cost element and are projected to increase
further.
4-45
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3. Market
a. Major Markets
Table 4-14 presents the major markets for coal, the
proportion of coal consumption for which each accounts, and the
proportion coal represents of the value of shipments for each
sector.
TABLE 4-14. MAJOR MARKETS FOR COAL
Market Sector
% of Total
Coal Demand
Coal as % of Sector
Value of Shipments
Electric Utilities
59
35
Steel
19
4.5
Chemicals
4
<1
Pulp and Paper
3
<1
Cement
1
5.5
Other Domestic Sectors
4
-
Exports
-
Total
100
The largest and fastest growing market for coal is the
electric utility industry. The electric industry utilizes over half
of the coal production, and coal accounts for almost 35 percent of
the value of the electric power produced. The second largest market,
steel, utilizes 19 percent of coal production, but coal comprises
only 4.5 percent of the value of steel production. In only one other
major market does coal comprise more than 5 percent of the value of
shipments—cement industry—where about 5.5 percent of the input
is coal.
Coal is essential to production in both the electric power
and steel industries to such an extent that many firms in these
industries own coal companies to provide their supplies. Long term
contracts, some as long as 20 years, are also used for this purpose.
4-46
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b. Competitive Fuels
As the basic uses of coal are for heat and power, it has
faced competition in all of its markets from other energy resources.
Principal among the competitive energy resources are fuel oil,
natural gas, and nuclear power. In large-volume commercial markets
coal has to compete intensively on the basis of price, efficiency
in utilization, and convenience.
Despite a continued increase in the demand for coal,its
share of the total energy market has declined substantially reflecting
the increasing interchangeability among energy sources. Recent air
pollution regulations requiring the use of low sulfur fuels have
accelerated the utilization of both natural gas and low sulfur fuel
oils,especially by most small users who cannot employ stack gas
cleaning methods. However, the rapidly rising co9t of these alterna-
tive fuels, their limited supply and the high cost of conversion are
expected to restrict further growth by these fuels.
Nuclear power generation has the greatest potential for pro-
viding low cost electrical energy in the future. At this time,
however, nuclear power contributes less than 1 percent of the
nation's electric generating capacity.
The extent of utilization of alternative fuels varies greatly
by region. The region east of the Mississippi accounts for 80 per-
cent of all coal consumptions, whereas, the Southwest and Pacific
coast regions produce negligible amounts of coal and rely almost
entirely on natural gas or oil. West North Central states produce
and consume small amounts of coal, with over half of their consumption
being imported from the Eastern region.
c* Competition Among Sellers
The concentration of an industry's output in a few large firms
tends to create an oligopolistic market where individual firms
can influence market price. Firms in such industries may either
consciously collude on price levels or follow the price levels
established by one or more leading firms or trade associations in
the industry. Failure of such overt or tacit price agreements fre-
quently leads to open price warfare during periods of slack demand,
driving prices down to unprofitable levels.
4-47
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The coal industry to a large degree faces an oligopolistic
market in which competing firms face a kinked demand curve. Small
upward price changes generally result in large tonnage shifts away
from the firm that is raising prices. Below the going price, a
firm's demand curve is inelastic; that is, lower price offers are
met by competitors anxious to retain their market shares. The
industry has largely overcome its price-cutting practices of the
fifties and tends, within each regional market, to conform to
price levels established by the major producers or associations.
However, the sizeable number of large firms and many competitive
small firms within the industry insure a considerable degree of
competition within the industry. The bargaining strength of large
industrial and utility consumers as well as the availability of
alternative fuels lends further competition to the market.
4. Trends
a. Price Trends
Rising costs of labor and materials, largely compensated
by increasing productivity during the late fifties and early sixties,
resulted in an actual decline in the price of coal. By 1967,
expanded utilization of continuous mining and mechanical loading
in underground mines, and increased application of surface mining
had increased output per man-day from 6.8 tons in 1950 to 19.2 tons.
However, no further breakthroughs in technology are expected which
would enable productivity to keep pace with Increases in costs.
In fact, the average price of coal reversed its downtrend in 196 3
and had risen from $4.39 per ton to $6.20 in 1970.
The most slgpifleant factor affecting future coal prices
is the Mine Health and Safety Act of 1969, whereby mines can be
closed down if they do not comply with safety standards. The
Imposed standards will not only require considerable Investments
in safety equipment and supplies but will require far more rigid
operating practices, which will result in reduced productivity,
at least in the short run. Coal prices are expected to rise by $1.50
to $2.50 per ton as a direct result of compliance with the new
regulations. On the basis of these mine safety costs and projections
of current trends in labor, material, productivity, and other cost
4-48
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factors, the price per ton of coal in the year 1980 is expected
to be $9.55 compared to $6.20 in 1970.
b . Demand Growth Trends
The demand for coal has been projected by the Bureau of
Mines through the year 2000 to reflect the range of possible
growth rates for each market sector. The range of compound annual
growth rates for coal demand is from 3 to 5.3 percent. The high
demand forecast reflects the production of large volumes of
synthetic gas from coal, the solution of air pollution problems
related to coal burning and severe limitations on the supplies
of alternative fuels. None of these assumptions apply to the
immediate future. Instead, the role for coal is likely to be
curtailed during the next 5 years by sulfur content restrictions.
Replacement of high sulfur coal with low sulfur coal from western
mines will require new mine developments and the expansion of coal
transportation facilities. Fuel costs, even to midwestern
utilities, will increase substantially. Other approaches to the
clean utilization of coal, gasification and stack-gas cleaning
are now being developed, but are at least 5 to 10 years from
widespread commercial applications. The lower growth forecast
is therefore more relevant to the conditions of the time period
through Fiscal 1977.
c. Production Trends
To meet a 3 percent annual growth rate in demand the
coal industry would have to increase production to 610 million
tons by 19 77. At the 19 70 average price of $6.26 per ton, the
value of shipments would be $3.8 billion.
Capacity will have to be increased at an even faster
rate than demand growth since requirements for low sulfur coal
have significantly reduced the available productive capacity and
will in time precipitate further reductions by effectively closing
high sulfur mines as regulations become more widespread.
Coal desulfurization through extensive cleaning may be
more widely applied to reduce the sulfur content of coal from
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existing mines and to thereby retain their productive capacities.
However, desulfurization is limited to those coals which are of
sufficiently low sulfur content (<1.5 percent) and high washability
to be cleaned below the 1 percent sulfur level. Less limited
cleaning techniques have yet to be developed. Only after commercial
development of stack-gas cleaning devices will many high sulfur
coal mines again be productive. In the short run, development
of new low sulfur coal reserves is essential.
More conventional coal cleaning practices will continue
to be employed due to the economic benefits to be derived through
increasing the B.t.u. content of coal. The percentage of coal
cleaned has declined since 1965 from 63.7 to 59.7 percent in 1969,
and yet the absolute tonnage of raw coal undergoing cleaning has
not declined significantly. Whether the recent downtrend represents
a reversal of the long-term trend of expanding coal cleaning or
whether it is merely a short-term adjustment is uncertain. Therefore,
for purposes of this analysis, it is assumed that coal cleaning
will account for approximately a constant share of total coal
production.
Because of the trend of consolidation in the industry,
coal cleaning will be carried out by fewer but larger plants.
The total number of coal cleaning plants has declined from 535
in 1960 to 435 in 1968, while the annual tonnage of coal cleaned
increased from 270 to 335 million short tons.
5. Economic Impact of Control Costs
a • Elasticity of Demand and Cost Shifting
The demand for coal is derived from the demand for the
end products in which it is used. As a result, changes in coal
prices have little effect on the demand for coal. The extent this
relatively inelasticity prevails depends on the markets under
consideration. Demand is less price-inelastic in utility markets
than in manufacturing industries where coal costs represent a
smaller percentage of total production costs. Cross elasticities
among alternative fuels are moderately high, but they are modified
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by the increasing scarcity of natural gas and fuel oils, and by
contract arrangements that distort the picture,
b. Impact on the Industry
Control costs are incurred by only 28 percent of all coal
cleaning plants—those using pneumatic cleaning or thermal drying.
Also, since coal cleaning is undertaken predominately by large
mines and consolidated corporations, the many small mines and
mining companies within the industry are unaffected.
The average control cost per ton of coal is only 7.4 cents
or 1.2 percent of the average 1970 market price of $6.20 per ton.
This is insignificant compared to the cost increase associated with
the Mine Safety Act, and is less than the average annual increase
in labor costs. The coal industry should be able to easily pass
on these additional costs, especially in view of the relatively
inelastic total demand for coal.
Even the relative competitive position of firms should
be little affected, as control costs are only 7 and 12 cents per
ton for the largest and smallest size plants, respectively. Large
plants realize some economies of scale in air pollution control
costs, but the differential will have little impact on the trend
toward fewer and larger cleaning plants.
The investment required to open a new optimum size mine
is $10 to $20 million. The requirement of an additional investment
of $200,000 for control equipment will hardly inhibit the develop-
ment of new mining capacity.
Of far greater significance to the coal Industry are the
recent restrictions imposed by many states on sulfur content of
fuels. In such states consumers of high sulfur coal will find it
necessary to switch to alternative low sulfur fuels until stack-gas
cleaning can be employed. The markets of many high sulfur coal
mines will thereby be restricted or even eliminated, forcing them
to close. Many intermediate sulfur coal mines will have to implement
more extensive and costly coal cleaning technologies to desulfurize
their coal sufficiently. Since existing low sulfur mines and coal
cleaning technology cannot meet the growing demand for low sulfur
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coals, the restriction of supply will result in higher prices of
coal and consequently greater profits for surviving mines.
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Grain Handling
1. Introduction
This section will focus upon country and terminal elevators.
Elevator operators have the responsibility for handling, cleaning,
and storing of grains, and provide the distribution link between
the farmer and various grain processors or the export market.
Two processing industries, flour milling and feed milling,
were also surveyed but will not be discussed extensively. Emissions
from flour production are well controlled and will not need a
significant additional cost outlay. Modern flour mills are normally
flanked by a battery of wheat elevators, which can be a pollution
source, so these storehouses have been included in the terminal
elevator category. The formula feed industry is covered only in
the section concerning emissions and cost of control. The industry
will require additional particulate abatement, but the cost burden
involved is small and the economic impact upon prices and industry
earnings is minimal. Briefly, to meet the assumed standards an
average control cost of 8.4 cents per ton of feed is expected.
This amounts to only 0.1 percent of a precontrol 1970 selling price
of nearly $84 per ton. Such a small cost increase should eventually
be passed on to the consumer.
a. Nature of Product and Process
The bulk of cash crops (normally wheat, corn, oats, barley,
rye, or soybeans) is transported from the farm to the country
elevator operator. Grain is unloaded from farm trucks, weighed,
inspected, and transferred to a storage bin. Once a buyer has been
found, the grain is loaded (normally by spouting) into a prepared
railroad car, truck, or barge. The function of the elevator is not
primarily to store, but to hold the grain until a market can be
found in the large centers of accumulation—at processing plants,
large mills, and terminal elevators. The physical process is quite
simple.
If the grain is not sold to a local mill, exporter, or
other outlet, it is transferred to the terminal elevator operator.
Terminals are very large elevators generally located at significant
grain trade cities. The function of a terminal merchant is to
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store the grain without deterioration in quality and to bring it
to commercial grade ®o as to conform to the needs of buyers.
Handling parallels that at the country location, but terminal
merchants are the first to thoroughly clean, dry, separate, and
store the grain at proper temperature and humidity. Grain moving
out from terminals is ultimately used for food, feed, export,
or industrial purposes.
b. Emissions and Cost of Control
Large quantities of particulates are airborne during the
handling of grains, principally due to mechanical abrasion between
kernels and the loosening of adhered dirt from the field. Because
operations are normally located in rural areas, there has historically
been little emphasis placed on air pollution control practices
which exceed the level required for economical recovery of materials,
reduction of explosion hazards, and general good housekeeping.
Consequently, low efficiency cyclone separators have been the most
commonly employed control devices in the industry.
For this analysis, it has been assumed that country elevators
are only responsible for unloading, weighing, storing, and loading
grain and that terminal elevators do the cleaning, drying, blending,
and occasional turning to prevent deterioration. From these
assumptions, particulate emissions from both elevator types were
estimated to be 1,014,000 tons in 1967, and if the 1967 control
level of 28 percent were to be maintained, emissions would increase
to 1,430,000 tons by 1977. The assumed process weight limitation
could best be achieved by the installation of fabric filters; such
practice would reduce 1977 emissions to 99,000 tons and would achieve
a control level of 95 percent. The investment cost is estimated to
be $395 million with an annual cost of $83 million in that year.
Thorough cleaning, dehydration, grinding, blending, and
pelletizing occur at formula feed mills along with extensive
conveyance of materials. These operations generate dust. Particulate
emissions were estimated to be 256,000 tons in 1967. If the 1967
control level of 42 percent were maintained, emissions would reach
362,000 tons by 1977. Fabric filters are assumed to be the most
feasible means of achieving the process might code; this would
reduce 1977 emissions to 22,000 tons at an investment of $19 million
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farmers do not show the propensity to shop around for better prices.
Com»etition, then, is partly on service and partly on price, with
customer loyalty providing a certain moderation.
4. Trends
Although erratic, national output of food grains has been
growing at an approximate rate of 3.5 percent per year. It is
expected that grains handled by country and terminal operators
have and will continue to follow this sane pattern.
The number of elevators decreased through the forties and fifties;
then construction began to increase and the number of facilities
increased at a relatively slow rate of 2 percent per year during
the sixties. Many elevators are still relatively old, but it is
expected that they will be replaced by modern units more rapidly
than in the past. Many recent country elevator additions have
been large (storage capacities of 200 to 500 thousand bushels),
and there is some concern that excess capacity may become a major
problem.
Profits have been historically low. Inefficient operations,
poor hedging policies, underutilization of facilities, and erratic
changes in the futures market can cause losses. A survey of the
operating results of some 50 cooperative elevators during the
period 1965-67 showed an average net savings at 3.5 percent of
sales. Profit levels for the next 5 years are expected to remain
at the same level.
5. Economic Impact of Control Costs
a. Impact on a Plant
Operating statements for three model elevators—A, B,
and C—were constructed. Table 4-15 shows the first two plants
(A and B) with rated storage capacity at 100,000 and 260,000
bushels, as representatives of small and medium-large country
elevators, and the third model as representative of a typical
terminal operator. The operating statements for the three models
are based on six assumptions: (1) The turnover rate for Models
A and B (country elevators) equals 2.4 times storage capacity;
(2) Country elevator volume is 58 percent wheat and 42 percent
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TABLE 4-15. MODEL ELEVATOR DESCRIPTION
Elevators
Characteristic
Model A
Model B
Model C
Capacity (Bushels)
100,000
260,000
2,500,000
Grain Throughput (Bushels)
240,000
624,000
4,250,000
Plant Investment Cost
$120,000
$300,000
$3,000,000
Control Investment Cost
$ 10,560
$ 27,456
$ 264,000
com—wheat is bought at $1.39 per bushel and sold at $1.50;
com Is bought at $1.05 per bushel and sold at $1.16 and both
buy prices were estimated at average nationwide levels received
by farmers in 1967, with the cash basis profit at 11 cents per
bushel; (3) Operating costs, fixed and variable, were estimated
at 8.8, 6.0, and 4.0 cents per bushel for Model A, B, and C,
respectively; (4) The turnover rate for Model c (terminal
elevator) is 1.7 times storage capacity; (5) Terminal volume
is entirely in wheat, purchased at $1.50 per bushel and sold
at $1.59 for a cash basis profit of 9 cents per bushel; and
(6) Results of the statements are in terra of savings—that is
income before taxes. Many elevators are cooperatively owned and
savings are normally refunded to patrons. Results of the operating
statements, based on these assumptions, are shown in Table 4-16.
b. Impact on the Firms
Most country elevators have interests in marketing a
wide variety of farm supplies; grain handling often amounts to
only 25 percent of terminal volume. However, most country elevators
are relatively small companies operating at very low profit margins.
If the burden of control is not passed on in the form of price
increases, it would normally lower grain-handling income by some
20 to 40 percent, and in the worst situations, could compound
existing losses from precontrol operations. Terminal elevators,
because of their larger sizes, financial strengths, and/or captive
ties to major processors, should feel less Impact.
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and an annual cost of $4 million for that year for a control level
of 95 percent.
c• Scope and Limitations of Analysis
This analysis was based on data available from govern-
ment, trade, and financial reporting sources. Because of the large
number of firms involved in grain handling, data descriptive of
industry size, production, and capacity should be considered
approximate. Separation of country from terminal elevators was
accomplished by dividing elevator capacity data above and below
the 1 mi Hi on-bushel point. Cash grain prices and operating
results vary widely, and the relationships assumed for financial
variables should be considered averages.
2. Industry Structure
a. Characteristics of the Firms
Country elevators of commercial importance numbered
8,003 in 1967. Although scattered throughout 48 of the 50 States,
these were concentrated in the major grain-producing areas. The
capacities ranged from 10,000 to 1 million bushels with an average
of approximately 260,000 bushels; some 2,000 of small sizes
(capacities of less than 5,000 bushels, or equivalent to storage
found on many farms) were not included.
Ownership of country elevators can be cooperative,
independent, or line. Cooperative ownerships are established
by laws and controlled by farmer associations. Independent
elevators are owned by individual merchants. Line ownerships are
chains of elevators owned by large handling or processing firms.
For 1967, 4,85 3 country elevators (61 percent of the total) were
controlled by 2,579 cooperative associations. A majority of the
remaining 3,150 elevators were independently owned; a small number
were line elevators controlled from a central office.
Terminal elevators numbered 1,170 in 1967. Ownership
is difficult to trace, but it is expected that control belongs
to some 600 companies, chiefly the large grain merchandisers,
processors, and firms oriented toward the export market. The
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capacity range for terminals in 1967 was 1 to 18 million bushels
with an average storage capacity of over 2.5 million bushels.
b. Operating Characteristics
Total country elevator storage capacity was estimated
at 2.10 billion bushels in 1967. The amount of grain and soybeans
sold from farms amounted to 6.06 billion bushels; approximately
83 percent of wheat and feed grains sold off farms went directly
to country elevators—5.03 billion bushels. With capacity at
2.10 billion bushels, the average industry turnover rate was
2.4 times. Terminal capacity was approximately 3.01 billion
bushels, grain through-put 5.15 billion bushels, and turnover
rate of 1.7.
In many areas the country elevator derives a large part
of its revenue from sideline businesses and customer services.
Considerable revenue is also received from government price-support
programs since virtually all elevators are registered under the
Uniform Grain Storage Agreement and are eligible to store Government-
owned grains and oilseeds. Several surveys conclude that gross
income from marketing grain make up only 25 percent of total gross
income from all sources.
3. Market
Depending upon location, country elevators sell grain to terminals,
to exporters, and/or to processors. If there is a choice of more
than one market, it is necessary for the operator to have contacts
in several directions, although often one cash-grain commission
merchant keeps him informed on alternative outlets. This gives
the elevator operator advantages in buying, for he can pay prices
in accordance with the best outlet and attract more grain to his
elevator.
Competition between elevators can be classified as moderate.
In grain-producing areas there are normally several elevators within
a county and most farmers are within easy transportation distance
of two or more elevators. Nevertheless, there are product, service,
and location attributes which can insulate a country elevator from
the competition of others. Empirical studies have found that most
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TABLE 4-16. MODEL INCOME STATEMENTS
Elevators
Item
Model A
(Dollars)
Model B
(Dollars)
Model C
(Dollars)
Sales
326,000
847,600
6,757,500
Grain Purchase Cost
299,600
778,960
6,375,000
Operating Cost
21,120
37,400
170,000
Annualized Control Cost
2,218
5,767
55,450
Savings Before Control
5,280
31,200
212,500
Per Bushel
0.022
0.050
0.050
Savings After Control
3,062
25,433
157,050
Per Bushel
0.0128
0.0408
0.037
Control Cost Per Bushel
0.0092
0.0092
0.013
c. Demand Elasticity and Cost Shifting
Country and terminal elevators have historically been an
Integral part of the Nation's grain distribution system. As such,
demand for their handling and storage services would be Inelastic
with regard to price. It Is expected that elevator owners should
be able to shift most of the control cost on to consumers. This
conclusion Is supported by several considerations: (1) All
elevators have been or will be affected by pollution control,
and costs per bushel are reasonably constant for most elevators
(approximately 1.0 cents per bushel handled); (2) The Industry
In general would not be able to tolerate the relatively severe
effect on earnings; and (3) Competition Is considered moderate,
with many elevators Isolated from competitive pressure.
There Is some question about whether costs would pass
upward to grain consumers or downward to the farmer. Historically,
cost increases in the grain distribution system have been passed
forward, as in the case of increased transportation expenses, and
farmers have been partly protected by government price support
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programs. Some 60 percent of all country elevators are farmer-
controlled cooperatives. Thus, it Is expected that costs will
be passed on to the consumer.
With respect to international grain trading, the effect
of price increases on American exports must be viewed relative
to the policies of the U.S. Government. Because the current
level of domestic grain prices would necessitate a selling price
well above that which could be offered by other competitive exporting
countries, the Federal government has instituted two general types
of programs to encourage commercial exports: (1) The first involves
sales by the Government from grain stocks acquired under the domestic
price support program; such sales are made to private exporters
at levels below the domestic market price; (2) The second involves
direct financial assistance in the form of export payments. In
general, then, the export market is being subsidized, and the
Government would be expected to assume the price increase due to
air pollution control. Based on the 1967 export volume of grains,
such costs should amount to approximately $17 million. Relative
to the current level of Federal support for grain export programs,
this additional burden is minimal.
d. Effect on Industry
Many elevators are old and inefficient from a profit
and volume point of view and may be replaced if faced with control
costs. Replacements will probably be larger units, which may
cause some excess capacity pressures.
On the other hand, several industry journals^ have indicated
that air pollution control may increase operating efficiencies in the
long run. Compliance with standards can help reduce the dangers of
explosion and thereby reduce insurance premiums, can lower grain
wastage, can reduce maintenance and cleanup costs, can improve rodent
control, and can improve work force efficiency through better
plant environment.
"How We Are Meeting the Challenge of Air Pollution", Thomas H. Anderson,
Feeds Illustrated, August 1967, p.12-14. "Clean Air is Profitable," Feeds
Illustrated, August 1967, p.15-16. "Prevention of Dust Explosion in
Terminal Grain Elevators", National Board of Fire Underwriters, Pamphlet
61B and 61C, New York, New York.
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F. Iron Foundries
1. Introduction
a. Nature of Product and Processes
Iron foundries produce castings, such as machine and
automobile parts, from gray iron, pig, and scrap. The industry
utilizes four types of furnaces to melt iron for casting—electric
arc, electric induction, reverberatory, and cupola furnaces.
Cupolas currently account for over 85 percent of all castings,
with electric arc and induction accounting for most of the
remainder. Electric induction and reverberatory furnaces emit
relatively small quantities of pollutants and thus require little
or no air pollution control expenditures. Since electric arc
furnaces account for less than 5 percent of industry production,
an analysis of their control costs is not presented.
The report focuses on control of pollutants from
cupola furnaces. Cupolas are vertical, cylindrical furnaces in
which the heat for melting is provided by burning coke in direct
contact with the metal charge. Most foundry emissions emanate
from this metal-melting operation.
b. Emissions and Costs of Controls
Particulates, in the form of dust and smoke, and carbon
monoxide are the significant emissions from cupolas. Particulates
arise from fines in the coke and flux charge, from metal fuming,
and from dirt and grease introduced with scrap.
In 1967, foundries with cupolas emitted 217 thousand
tons of particulates and 3,200 thousand tons of carbon monoxide.
With Industry growth, these emissions would increase to about
260 and 3,800 thousand tons respectively in Fiscal 1977.
Implementation of controls would reduce them to 30 thousand
tons of particulates and 230 thousand tons of carbon monoxide
in Fiscal Year 1977.
Carbon monoxide emissions can be reduced by the use of
afterburners which oxidize it to carbon dioxide. Afterburners
in combination with gas-cleaning equipment, such as wet scrubbers
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or fabric filters, can achieve compliance with stringent process
weight regulations for particulates and a 95 percent removal rate
for carbon monoxide. The regulations selected for this report
would require the industry to increase its present average removal
efficiency of 12 percent for particulates to 90 percent and control
of carbon monoxide, from 18 to 95 percent.
Of the control equipment capable of particulate removals
at or above the 90 percent level, only high-energy wet scrubbers
have been used on cupolas without difficulty. Several foundries,
especially in the Los Angeles area, are using fabric filter bag-
houses with some degree of success. Fabric filter systems, when
successful, require afterburners, gas-cooling equipment, high-
temperature filtration material, and decreased filtration
velocities; their maintenance costs are high; and the costs of
using them are greater than for wet scrubbers except in the case
of very small cupolas.
The total investment required to meet the proposed
standards by Fiscal 1977 using wet scrubbers, would be $348 million.
The corresponding annual cost would be $126 million,
c. Scope and Limitations of Analysis
This report is limited to control of the melting operations
because nonmelting operations within foundries are consistently
controlled with high efficiency equipment.
The analysis of economic impact is limited to independent
jobbing foundries, since the financial structure of captive
foundries is indistinguishable in publicly available data from
that of their parent company. Impact on a captive foundry
cannot therefore be determined and its control costs are passed
on to purchasers through the final product(s) of the parent company.
2. Industry Structure
a. Characteristics of the Firms
The iron foundry industry consisted of approximately 1,730
plants in 1967 with 2,250 cupolas. The total national capacity for
the industry was 17 million tons of castings per year. Production
was 14.3 million tons per year with a value of shipments of $2.7
billion.
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Although there are many small establishments In the
industry, production is dominated by a few large firms. The four
largest companies accounted for approximately 27 percent of the
Industry's value of shipments in 1967, and the eight largest
accounted for 37 percent.
f
Many of the largest firms are "production foundries",
which have the capability of economical production of large lots
of closely related castings. Most of their output is captive
(owned and controlled by other businesses); in fact, almost half
of all iron comes from captive plants which do not generally
produce for the highly competitive open market.
Iron foundries range from primitive, unmechanized hand
operations to heavily equipped plants in which operators are
assisted by electrical, mechanical, and hydraulic equipment.
Captive plants are more likely to be mechanized and better
equipped with emission control equipment than are noncaptive
plants.
The nature of the iron foundry industry is such that
foundries can be found in almost all urban areas. The economies
of scale for the industry do not prohibit the continued existence
of relatively small foundries. Since many foundries are operated
in conjisiction with steelmaking facilities, they are concentrated
in the "steel states": Pennsylvania, Ohio, Michigan, Illinois,
and Alabama.
3. Market
a. Competition Among Sellers
The iron foundry industry is characterized by intense price
competition among the many small jobbing foundries which has spurred
a drive for lower operating costs and productivity gains. Other
areas of increasing competition are casting quality along with
engineering design services available to the customers. Unforunately,
many (smaller) foundries have had capital only for additions to
capacity; investments in cost-saving and quality improvement
facilities have been bypassed or postponed. Larger foundries
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also have competitive advantages in that they usually can offer
the services of better sales and engineering staffs, are more
mechanized, and have more sophisticated quality control equipment.
The net effect of these conditions is that many small
foundries that cannot cope with increasing needs for capital,
demands for better quality and service, and rising labor costs
are being forced out of business, but the larger, more stable
firms are increasing their capacities in order to reduce isiit
costs and absorb the additional demand. Also, an increasing
number of large purchasers of castings are establishing captive
foundries in order to gain a ready supply of quality castings;
however, since these additions to capacity have been unable to
keep pace with the expansion of demand and the loss of capacity
caused by closed foundries, users are finding it increasingly
difficult to obtain an adequate supply of specialty iron castings.
b. Customer Industries
The major customers of the iron foundry industry are also
major constituents of the national economy. The health of the
industry is therefore closely related to the health of the gross
national product (GNP). The major markets for foundry castings
include motor vehicles, farm machinery, and industries that build
equipment for the construction, mining, oil, metalworking, railroad,
and general industry markets; these industries are considerably
larger and more powerful than the iron foundry industry. Each
customer firm has many times more assets than the foundries from
which it buys. With financial strength and generally greater
management expertise, such firms can play many small foundries
against each other to maintain severe price competition even under
conditions of high demand for castings.
c. Foreign Competition
Direct imports of castings as well as castings in
imported machine tools, autos, textile machinery, and diesel
engine parts do enter the American market. However, Department
of Commerce statistics indicated a volume of only $2.25 million
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for direct imports in 1967. This is estimated by the industry as
approximately one-quarter of the actual total. Even if a total
import volume of $9 million is assumed, imported castings and
component castings would have been equivalent to less than one
percent of the $2.7 billion total value of shipments in 1967.
Imports, therefore, do not constitute a major threat to the
American iron-casting market. The high cost-per-ton of shipping
compared to the relatively low cost-per-ton of production is
probably the most significant barrier to imports.
4. Trends
The number of iron foundries in the United States has
declined from about 3,200 in 1947 to 1,670 in 1968, with a trend
of reducing by about 70 installations per year. From 1967 to
1969, the net decrease slowed to 42 annually. In accordance with
the historic trend, the number of iron foundries is projected to
be approximately 1,100 by 1980; in addition, the average size of
iron foundries has been Increasing steadily, with average annual
production per foundry increasing from 3,800 tons in 1947 to
8,700 tons in 1969, and by 1980, the average annual production
per iron foundry is projected to be approximately 16,500 tons.
The tonnage of malleable iron castings is expected to remain
relatively constant. Ductile iron tonnage has increased every
year and is expected to double the 1969 tonnage by 1980. Total
production of iron castings, excluding ingot molds made directly
from blast furnace iron, has been projected to about 17 million
tons per year by 1980, an average growth rate of 2 percent per
year.
From 1958 to 1967, the average price of gray iron castings
rose steadily at the rate of 2 percent per year. At the same
time, the prices of the two major raw materials—pig iron and
scrap iron—have fallen at an annual rate of 2.3 percent.
However, while material costs have declined, labor costs have
advanced more rapidly than the prices of castings and kept a
continued upward pressure on prices.
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5. Economic Impact of Control Costs
a. Impact on Plants
21
Model plants have been developed in a separate study=-
to demonstrate the impact on foundries if control costs cannot be
passed on in higher prices. The results of this analysis are
presented in Table 4-17.
TABLE 4-17. MODEL PLANT FINANCIAL ANALYSIS
Operating Size Range by Value of Shipments ($ million)
Characteristics .5 .5-1 1-2.5 2.5-10 10
Melt Rate (tons/hr)
4
6
8
12
20
No. of Cupolas
1
1
1
2
2
Production
(ton/yr)
1,050
3,000
6,300
12,900
40,000
Control Cost
($/ton)
14.60
9.50
6.50
4.90
2.60
Control Cost
(Z Sales)
2.9
3.2
2.8
1.6
.7
Reduction in Income
(%)
59
49
41
23
11
Control Investment
(% Net Investment)
19
30
26
12
5
Air pollution control costs would increase the value of
shipments for large foundries by about 0.7 percent, and for small
single-cupola foundries, as much as 3.2 percent. To small foundries,
control costs represent an income reduction of about 60 percent,
while margins for larger firms would be reduced by only 11 percent
if costs could not be passed on to customers. Investment in control
equipment would equal approximately five percent of the value of
capital for the largest firms and as much as 30 percent for small
firms.
—' "Economic Impact of Air Pollution Controls on Gray Iron Foundry
Industry". National Air Pollution Control Administration publication
AP-74.
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While large foundries will be affected less severely by
pollution control costs than will small foundries, the industry
generally can little afford a reduction in profit rate, since
its 6.8 percent return on investment is already below the overall
manufacturing average of 8.1 percent.
Because the investment in control equipment is large
compared to the book value and profitability of many foundries,
a serious problem is how to finance the investment. This applies
particularly to the small Independent jobbing foundry which cannot
generate sufficient capital internally. The foundry industry
generally is not an attractive investment in stock or bond markets
due to its low rate of return and its slow profit growth. Neither
is it a good risk for commercial banks due to the high ratio of
control investment to book value and the low cash flows of many
small foundries. The Small Business Administration (SBA) is
currently the only source of funds available to many foundries;
it prefers to guarantee loans made by banks, but it will loan
funds directly in some cases, but not for firms with insufficient
cash flows.
b. Demand Elasticity and Cost Shifting
The economic impact of pollution control costs varies
with the industry's ability to pass cost on to the consumer in
higher prices. This ability is largely dependent on elasticity
of demand for the product—the degree to which the volume of sales
declines in response to price increases. Demand for castings
is relatively inelastic—in that demand will not decline appreciably
with increases in price—because most castings are inputs for the
production of more complex final products and thus constitute a
small portion of the cost of the final product. However, possible
substitute products, (e.g., aluminum, steel, and other metals) are
somewhat more costly than iron castings and are usually subject
to similar upward price pressures such as rising labor and pollution
control costs. Thus, a small price increase due to pollution
control will have little effect on the market for gray iron.
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c. Impact on the Industry
Despite inelastic demand, sharp competition among the
many jobbing foundries will make price adjustments difficult
for those that experience higher than average control costs.
Large mechanized firms will incur lower control costs than will
smaller or older foundries. To the extent that they compete for
the same market sectors, the lower-cost foundries will establish
price levels that prevent the less efficient firms from raising
prices sufficiently to fully cover their control costs. The
average price of castings is expected to increase by about 2.7
percent in response to stringent air pollution control regulations;
such a price increase would leave approximately one-fourth of the
firms in the industry with reduced profit margins, and many of
these firms would be forced into marginal or submarginal financial
positions.
The nonuniformity of control costs, along with the lack
of investment capital, will force most foundries to postpone imple-
mentation of control for as long as possible. Many small foundries,
faced with reduced profit margins and an inability to raise
investment capital, will be forced to merge or to go out of business.
Some remaining firms will continue to operate at reduced profit
rates. However, the large, more stable foundries will increase
capacities to meet expanding demand, will improve efficiency, and
will continue to operate profitably. In effect, the costs of
pollution control will accelerate the trend toward fewer and larger
foundries. It is apparent that the iron foundry industry will
be among those industries most severely affected by air pollution
control.
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G. Iron and Steel
1. Introduction
The iron and steel industry consists of hundreds of firms
engaged in one or more of the processes involved in transforming
iron ore into fabricated steel products. These processes include:
coking, in which coal is reduced to coke in coke ovens; sintering,
in which iron ore is beneficiated and prepared for charging into
blast furnaces; smelting. In which pig iron is produced from iron
ore, coke and limestone in blast furnaces; refining, in which iron
ore is refined into steel (and alloyed if desired) in open hearth,
basic oxygen, or electric furnaces; rolling, in which raw steel
is shaped into blooms, billets, 6labs and other basic shapes;
finishing, in which basic shapes are rolled, drawn, coated, or
otherwise treated to produce sheet, strip, tin plate, pipe, wire,
and other products for use in manufacturing; and fabrication of
finished products. Blast furnaces are always well controlled to
prevent the emissions of particulates, iriiile the gaseous emissions
are fully utilized in the production of process heat. At present,
very little is known about the emissions or present control patterns
for the scarfing machines that are used to clean the surface of
billets before rolling. Control of coking operations at existing
facilities, which constitute significant sources of both particulate
and gaseous emissions, does not appear to be either technologically
or economically feasible before Fiscal 1977. There does not appear
to be adequate technology to significantly reduce particulate
emissions during coal charging and coke pushing operations from
byproduct coking. Required technology consists of sealed ovens
and offgas collection of particulates vented to scrubbers, such
as are installed on modern coke ovens. However, most older ovens
are not structurally designed for this approach. Therefore, total
replacement of many coking plants would be required. The steel
industry expects technological developments in a few years to
improve the coking process itself ("third generation" technology)
which will require large amounts of new capital. This is a deterrent
to Investing heavily in modern facilities which will become obsolete
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within a few years. Cost estimates of $1 to $1.5 billion for
control of current facilities have been mentioned by various
sources, but these estimates are of questionable reliability.
For these reasons, control cost and emission estimates for
coking have not been included in this report.
This report focuses on the emissions and air pollution
control costs of the sintering and steelmaking operations.
2. Emissions and Costs of Control
This analysis deals only with emissions and controls for
particulates from sintering and furnace operations. Carbon
monoxide is essentially completely controlled in blast furnaces
by process air preheating and in basic oxygen furnaces by flaring.
Because sintering is gradually being replaced by the pelletizing
process in the industry, it declined more than 10 percent over
the last 3 years even though production of pig iron increased
by slightly more than 10 percent. This trend will lower potential
emissions over the next 5 years and reduce the required investment
and annual costs correspondingly. Neither emissions nor control
costs for pelletizing have not been included in this analysis,
nor have the costs been added, due to the lack of some of the
data essential to these calculations.
Based upon the best available data, the average level of
particulate control in 1967 Is thought to have been about 55
percent for sintering and steelmaking operations. To comply with
the Clean Air Act by Fiscal 1977, an average level of particulate
control of 98 percent will be required to reduce particulate emissions
from a potential of 1,991 thousand tons In Fiscal 1977, with the
same controls as in 1967, to 89,000 tons, with the 98 percent
control and the decline in sintering.
To implement the required increases in air pollution control
levels by Fiscal 1977, it is estimated that an investment of $841
million will be required, and that total annual cost will be
$306 million.
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3. Scope and Limitations of Analysis
This analysis focuses on integrated basic steel firms which
produce nearly all the raw steel made and account for more than
90 percent of steel output. Air pollution emissions that exceed
the standards assumed for this study are produced primarily by
the sintering plants and open hearth or basic oxygen furnaces of
basic steel producers. Electric furnaces are also emission sources
to a lesser extent. However, when used by secondary steel producers
making specialty high alloy steels, electric furnaces are normally
controlled to a high level of efficiency to avoid loss of valuable
alloying metals, and therefore, are not generally faced with
additional control costs.
Data on the operations of the steel Industry are more available
than for most industries. Nevertheless, the steel market is
complicated by the vast variety of distinct products and the
variations in product mix from one company to another, so
comparison of the impacts of changes in the cost of producing
raw steel, as they affect different companies is difficult.
Detailed data are not available on such aspects of financial
management as depreciation policy, net value of Investment,
pricing policy, and tax accounting; thus it is especially
difficult to estimate profit potentials for these firms.
4. Industry Structure
In 1967 there were 142 steel plants in the United States
with a total capacity, production, and value of shipments of
165 million tons, 127 million tons, and $13.3 billion, respectively.
There were 86 steel firms in the United States in 1967. Of
these, 21 accounted for more than 90 percent of production; they
Included all of the largest integrated firms in the industry,
with outputs ranging from just under 1 million to more than
30 million tons and with sales varying from $85 million to more
than $4 billion, and with profits ranging from $172 million for
one firm to a loss of nearly $7 million for another. Of the 21,
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Che two largest firms produced 40 percent and eight produced over
75 percent of the industry output.
5. The Market
The steel industry is usually described as an oligopoly
characterized by administered prices and price leadership.
Typically, list prices are virtually the same for all firms
and remain unaffected by minor changes in market conditions.
Individual prices may be shaded through the use of special
discounts or premiums, but primarily firms adjust prices to
short-term market changes by varying output. When price changes
do occur, they are usually initiated by one of the largest firms
and all other firms quickly follow the pattern. Competition
emphasizes product quality and customer service more than price.
Steel is sold to customers in every major industrial sector
of the economy. The major purchasing industries, however, are
motor vehicles, heavy equipment and machinery, containers, and
appliances. These industries strongly follow the swings of the
business cycle, and as a result cyclical changes in the national
economy tend to have magnified effects on the market for finished
steel. The basic position of steel in the economy also indicates
the probability that the long-run trend of the domestic market for
steel will be steady expansion and gradually rising prices.
The steel industry is subject to significant foreign
competition. During the sixties, foreign participation in the U.S.
steel market increased and posed a real threat to the market for
some products, because the export market for U.S. steel did not
balance imports. This competitive pressure was eased by the
signing of an informal agreement in December 1968, with the
Japanese Iron and Steel Exporters Association and with the
Association of Steel Producers of the European Coal and Steel
Community to limit exports to the U.S. to not more than 5 percent
Increases annually for 1969 through 1971.
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6. Trends
Investment in new steel capacity has been heavy over the last
decade and is predicted to continue at a high level, but with a
slower rate of growth. The trend is away from the older open
hearth furnaces in favor of more efficient basic oxygen and
electric arc furnaces.
The trend of profits is difficult to determine because net
income after taxes for steel firms varies substantially from
year to year. Among the factors causing these fluctuations are
the heavy "startup" costs for new facilities, the impact of
strikes, the changes in accounting and tax practices, aAd the
tendency of firms to change output rather than price in response
to short-term market changes.
In the past several years the steel industry has experienced
difficulty in maintaining a satisfactory rate of profit due to
the general economic slowdown of the nation, the strong foreign
competition, and the competition from other materials. Prices
have continued strongly upward, while production has been below
the optimum rate of 85 percent of capacity. Both reactions to
lower-than-desired overall sales indicate the oligopolistic
character of the steel market.
The basic competitive pattern of the steel market is not
expected to change during the seventies, although lesser changes
are occurring and will persist thrfough Fiscal 1977. The largest
firms will continue to dominate and to set price patterns.
However, the pattern of price leadership by one or two firms
seems to have been weakened, and more flexible prices and more
open price competition may be expected.
Foreign competition is increasing and may become considerably
stronger when the voluntary agreement limiting exports to the
United States from Europe and Japan expires at the end of 1971.
Even with this agreement, competition has been increasing,
especially in the speciality steels and high profit items.
Lower average profits on sales have resulted for U.S. firms
and have caused some to abandon markets for particular items.
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Steel faces strong competition from other metals and plastics
in many uses, also. This, combined with the foreign competition,
largely explains the fact that the annual growth rates projected
for the industry through Fiscal 1977 of 2.07 percent for capacity and
2.46 percent for production are lower than those used in last
year's report.
7. Impact of Control Costs
The required investment and annual costs of air pollution
control for each steel firm will vary depending on the number and
sizes of its plants and on the types and capacities of its
steelmaking furnaces. Cost estimates are calculated on the
following equipment designations: high energy wet scrubbers
for 50 percent of open hearth and basic oxygen furnaces, and
electrostatic precipitators for 50 percent; fabric filters for
electric arc furnaces; medium energy wet scrubbers for sintering
machine windboxes and discharges.
Both the required investment and the annual costs for each
control device vary in relation to the capacity of the furnace
or machine and have been costed on the basis of data specifying
individual capacities. Other than capacity, a major determinant
of cost differences among plants and firms is the number of each
type of furnace in use. It appears that basic oxygen furnaces,
in the range of sizes most commonly used, cost substantially less
to control per unit of production than open hearth or electric
furnaces. Costs for basic oxygen furnaces amount to about $1.00
per ton of annual production with utilization at 85 percent of
capacity. Medium-sized open hearth furnaces may require annual
costs of about $1.50 per ton of annual production at 85 percent
utilzation. Very large electric arc furnaces may be expected
to approximately match the annual cost per ton of open hearth
furnaces, but will probably be somewhat more expensive to control
when a number of small electric furnaces are used.
The Impact of control costs on firms may be shown by comparison
of three hypothetical examples designed to show the range of costs
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per ton of steel production. A steel company with total annual
capacity of 9 million tons and production of 6.4 million terns of
finished steel per year in 1970, one-third from basic oxygen
furnaces and two-thirds from open hearth furnaces, would incur
estimated costs as follows: total investment, $30 million;
total annual cost of $9.8 million; annual cost per ton of raw
steel $1.30; and annual cost per ton of finished steel $1.53.
Estimated costs for a small firm having an annual capacity of
2.24 million tons and production of 1.58 million tons of finished
steel, entirely from open hearth furnaces, shows an investment
requirement of $8.4 million and a total annual cost of $2.9 million,
or $1.83 per ton of finished steel. Similarly, a small firm
producing 1.7 million tons of finished steel in 1967 with a
capacity of 2.3 million tons, using only basic oxygen and
electric arc furnaces, would have an estimated investment of
$7.0 million and an annual cost of $3.5 million, or $2.03 per
ton of finished steel; for this firm, the high cost per ton
of finished steel results from the use of 19 small electric
furnaces.
Comparison of these cost estimates indicates that the
impact of control costs will probably be greatest on firms using
many relatively small electric arc furnaces, great for firms
producing primarily with open hearth furnaces, and gradually
less as the percentage of basic oxygen furnaces increases. The
estimated costs are small in relation to the price of finished
steel ($170 per ton in 1967), but cost differentials of the size
indicated may accelerate the existing trend in the industry to
retire older open hearth furnaces.
The trend of prices in the steel industry and the characteris-
tically oligopolistic pricing pattern strongly suggest that
control costs will be almost entirely reflected in price soon
after they are felt by the firms. The result may be to limit
sales slightly below the level that could have been obtained
at lower prices. This effect would be very small. A price
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increase of $1.50 Co $2 per Con Is small relative Co a selling
price of $170 upward, per ton. The impact of control cost on
Che profitability of firms will depend largely on the general
state of Che economy at the time and will be significant
only in a tine of depressed demand for steel.
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H. Kraft (Sulfate) Pulping
1. Introduction
a. Nature of Product and Process
The pulp industry manufactures pulp from wood and other
materials for use in making paper and related products. The meth-
ods used to produce pulp from wood may be classified as chemical or
mechanical; only the chemical methods cause significant air pollu-
tion problems, and two of these, the sulfite and sulfate (kraft)
methods, account for approximately 75 percent of the total industry
output. Sulfite pulping is a potentially serious source of sulfur
dioxide when waste liquor incineration without chemical recovery is
practiced. In some cases, control costs can be offset by the valu-
able recovery of heat and chemicals. Only kraft pulping, which ac-
counts for approximately 64 percent of the industry output, is con-
sidered in this report.
In the kraft process, woodchlps are cooked in a liquor
composed of sodium hydroxide and sodium sulfide to separate the
llgnln from the cellulose. Pulp is produced from cellulose. The
lignin is burned as a fuel in the recovery furnace. This satisfies
the energy requirements for the pulping process. The chemicals re-
covered from the salt cake solution (black liquor) are recycled.
b. Emissions and Cost of Control
In the kraft pulping industry, three main processes emit
significant quantities of particulates: recovery furnaces, lime
kilns, and bark boilers. The level of sulfur dioxide emissions from
the main source, the recovery furnace, generally does not exceed 500
parts per million.
The economics of the kraft pulping method depend upon rec-
lamation of chemicals from the recovery furnace and lime kiln; hence,
emissions from these processes are controlled to minimize losses of
chemicals. Particulates from the bark boiler are also controlled,
but controls fall short of the assumed standards in this study.
Based on a total emission factor of 34 pounds of particulates per
ton of air-dried pulp, the total emissions for the kraft industry
were 380,000 tons for 1967. Based on a growth rate of 3.5 percent
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annually from 1967, the emissions in Fiscal 1977 without the Act
would be 536,000 tons. With controls adopted In this study, the
level of emissions would be 80,000 tons.
By Fiscal 1977,the kraft industry will have expended
$132 million in air pollution control investments for scrubbers
added to furnace facilities, lime kiln venturi scrubbers, and
multi-tube cyclones for bark boilers; annualized costs will be
$40 million.
c. Scope and Limitations of Analysis
Data sources include government, trade, and financial
publications. Analysis was aimed primarily at the entire kraft
paper industry because most pulp production is captive and finan-
cial statements for independent producers of market pulp are gen-
erally not detailed enough to warrant meaningful impact analysis.
Impact analysis was limited by the degree of horizontal integration
in some firms within the industry and by lack of information on the
type and quantity control expenditures since 1967.
Analysis of control requirements was limited to abatement
of particulates emissions. Odor pollution has been recognized in
this industry; however, at the present time no odor standards have
been promulgated by the EPA so no realistic analysis could be made.
2. Industry Structure
The kraft pulping industry is a segment of the kraft pulp and
paper industry, which is part of the pulp and paper industry. Many
kraft pulping firms do have papermaking facilities and some have
mills and plants for producing nonkraft types of pulp and paper.
In 1967, there were 116 kraft pulp mills representing the U.S.
pulping capacity of 72 firms. Over half the firms operated only
one pulp mill and the seven largest firms accounted for over 40 per-
cent of productive capacity. Despite the high degree of concentra-
tion, competition in quality, service, and price was keen, and these
relationships are generally the same today.
For this report, kraft pulp mills are classified into three
classes: capacity of 500, 1000, and 1500 tons of air dried-pulp per
day. The classification Is useful to show variations in needed air
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pollution control expenditures and devices. Most of today's capacity
Is In ollls producing about 1,000 tons of alr-drled pulp per day; 500
ton mills are next, followed by those with 1,500 tons. The trend In
size and location has been toward the small to medium sized mills lo-
cated In the southeast.
a* Operating Characteristics
The average operating rate for the production of paper
grade kraft pulp for 1959 through 1969 was about 92 percent. The
operating rate In 1967 was 88 percent. It rose to 92 percent again
in 1968 and then to 94 percent in 1969. For 1970, it declined to
89 percent.
The relation of operating rate to price, and thus to prof-
Its, is clouded. Prices exist only for market pulp and 92 percent
of kraft pulp production is captive. However, higher prices for
market kraft pulp appeared usually the same year or the year after
an operating rate that was between 88 and 92 percent,
b. Resources
Kraft mills are located primarily In the northwest and
the southeast near the raw materials of wood and water. For wood,
the quality of trees and the length of growing time are Important.
The typical firm has its own forest reserves, thereby
controlling this portion of materials' cost and In some instances
exploiting it. However, the cost of labor and required chemicals
are not entirely within the industry's control. Attempts to off-
set the increases in them have been seen in product price rises
and in adoption of techniques, such as computerized controls, which
increase operating efficiency.
3. Market
Most kraft pulp production is captive. The eight percent that
is marketed comes from firms without papermaking facilities and
from integrated firms producing surplus for market.
Kraft pulp is produced in three forms: bleached, semibleached,
and unbleached. Unbleached pulp finds uses in wrapping and bag
paper, shipping sacks, and llnerboard; semibleached in printing
papers; bleached in sanitary food board.
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Competitive products include plastic containers and wrappings,
glass containers, aluminum foil, and In some Instances recycled pa-
per. The kraft industry should maintain its share in most markets.
Fewest problems are expected in sanitary food board markets where
virgin paper is required. Continued stiff competition, first re-
alized in the sixties, is expected to continue in the folding car-
ton market.
«
Demand for kraft pulp is derived from the demand for kraft pa-
per and paper products which are related positively to the demand
for consumer nondurables. While demand for some kraft paper prod-
ucts which are necessities is better explained by such indicators
as population, demand for other kraft products follows more closely
the indicators of economic activity such as unemployment rate and
real disposable income.
Foreign trade exists in the kraft paper and products as well
as the kraft pulp markets. The U.S. is and should continue to be
the major exporter of kraft paper and board used for packaging;
this is explained not only by rising economic activity trends
abroad but also by the lack of adequate forest reserves in some na-
tions. The U.S. is, however, a net importer of newsprint, most of
which comes from Canada, and a net Importer of market sulfate pulp,
even though the U.S. exports about AO percent of its market pulp.
Market sulfate pulp imports provide about 7 percent of this country's
sulfate pulp requirements. The market sulfate pulp exports are ex-
plained primarily by the increased level of economic activity and
the limited quantity and inferior quality of forest reserves in
the importing nations. Sulfate pulp Imports into the U.S., 98 per-
cent of which come from Canada, are explained mainly by the sub-
stantial investments that some American firms have in Canadian
pulp mills.
4. Capacity. Production, Prices, Sales, Profits, Trends
In the past, the industry has been characterized by the investment-
price cycle. After heavily investing in new facilities to meet
actual and anticipated growth In demand, the industry was faced with
overcapacity. Firms tried to run plants at least at break-even
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levels, but prices declined especially as firms continually tried
to produce at economic production levels and thus added to the over-
supply problem. As a result of the lower prices, profits declined
and the Investment was cut back. With demand increasing fairly
steadily, the relationship between supply and demand tightened,
prices Increased, profits rose, and new Investment was undertaken.
Although the Industry appeared to be In the rlslng-prlce
phase of the cycle In 1969 and 1970, recent capital outlays have
not expanded production capacities as they did In past cycles.
Capital outlays were made In cost reducing processes of production
and distribution, along with outlays for product diversification
and pollution control facilities. This has reduced the growth In
supply. In the face of a steadily growing demand, this will main-
tain a closer relationship between supply and demand, and should
reduce the cyclic variations In prices and profits.
Product diversification has been Instigated by the realization
that land and forest reserves could be another source of revenue.
Firms have entered the recreation, real estate, and lumber markets.
On the other hand, pulp and paper products hold promise for those
outside because firms in the lumber and plywood Industries, along
with some producing competing container products, have diversified
Into pulp and paper products.
5. Economic Impact of Control Costs
a. Impact on Plants
To determine the control costs and financial Impact for
the kraft Industry, model plants were derived for mills of 500,
1,000, and 1,500 tons per day. The assumptions for the model
plants Include the number of process units shown in Table 4-18.
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TABLE 4-18. MODEL PLANT PROCESS UNITS
Process Units
Model Plant Size
(Tons Alr-Drled Pulp/Day)
500 1000 1500
Recovery Furnaces - Smelt Tanks
Lime Kilns
Bark Boilers
2
1
1
2
2
1
3
2
1
To determine control costs for the model plants, the re-
covery furnace was assumed to be the only source where the present
control equipment, operating at an economic optimum of 90-percent
efficiency, was kept intact; venturl scrubbers were the assumed re-
quired equipment additions. Control equipment for lime kilns, smelt
tanks, and bark boilers were considered replacements of existing gas
cleaning equipment.
The cost parameters for the model plants are:
Model Plant
(Tons Per Day Pulp)
500
1000
1500
Investment Annual Cost Unit Control Cost
($ Per Ton of Pulp)
$ 590,000 $212,000 1.28
$1,020,000 $373,000 1.13
$1,300,000 $576,000 1.16
The basis for the unit control cost is 330 operating days per year,
24 hours of production per operating day.
b. Impact on Typical Firm
The sample of firms from which the analysis in this sec-
tion was made came from firms with disclosed financial statements.
Since these were primarily large firms, the analysis of firm Impact
may have a built-in bias. Cash flows for each firm were approxi-
mated in the following manner. First, net income was subtracted
from net Income before taxes to determine the level of taxes; then
the tax figure was subtracted from operating income to determine
cash flow. Based on the number of plants existing In 1968 and the
model which each approximated (i.e., 500, 1,000, or 1,500 tons per
day), the annualized and investment control costs were determined.
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Then these were related to cash flows for each firm. From these,
average relationships were developed.
Because of the relatively large magnitude and recent vin-
tage of many long term debt issues in the capital structures of
sampled firms, cash flows were related not only to annualized costs
but also to the initial investment costs. Annualized costs as a
percentage of cash flows averaged 2.0 percent and ranged from 0.3
percent to 4.2 percent. The investment costs as a percent of cash
flows averaged 5.4 percent and ranged from 0.9 percent to 10.9.
It is apparent that sufficient cash flows could be gen-
erated to meet the estimated cost of pollution control. The effect
of costs on growth (net additional annual productive capacity) is
expected to be small. Assuming that Investment in control equip-
ment is at the expense of other Investment, the estimated decrease
In growth would range from 0.07 percent to 0.17 percent depending
on whether the annualized cost or the initial Investment cost
figures are applied.
c. Industry Composite
The most severe Impact of control costs probably will be
borne by the uncontrolled, marginal, nonintegrated firms. These
firms are relatively few In number and are not among the larger
producers in the industry.
d. Demand Elasticity and Cost Shifting Effect on the Industry
The weighted average cost of control per unit of product
produced is $1.20, or about 0.7 percent of the selling price of
$167.30 per ton of air-dried pulp. Although no quantitative analy-
sis of the responsiveness of supply and demand functions to a
change in cost and price of this magnitude has been attempted, a
qualitative analysis of responsiveness has been made. Recent capi-
tal outlays have had the effect of reducing the growth in supply.
Moreover, some kraft products are necessities and Insulated, for
the most part, from fluctuations in economic activity. These fac-
tors, along with vertical Integration from tree cultivation to final
products, the market outlook, and the nature of pulp production as a
captive operation, Indicate the control cost will be passed on to
the consumer.
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I. Lime
1. Introduction
a. Nature of Product and Process
Limestone consists primarily of calcium carbonate or com-
binations of calcium and magnesium carbonate with varying amounts
of impurities. The most abundant of all sedimentary rocks, lime-
stone is found in a variety of consistencies from marble to chalk.
Lime is a calcined or burned form of limestone, commonly divided
into two basic products—quicklime and hydrated lime. Calcination
expels carbon dioxide from the raw limestone, leaving calcium oxide
(quicklime). With the addition of water, calcium hydroxide (hydrated
lime) is formed.
The basic processes in production are (1) quarrying the
limestone raw material, (2) preparing the limestone for kilns by
crushing and sizing, (3) calcining the feed, and (4) optionally pro-
cessing the quicklime further by additional crushing and sizing and
then hydration. The majority of lime is produced in rotary kilns
and shaft (vertical) kilns; both can be fired by coal, oil, or gas.
Rotary kilns have the advantages of high production per man-hour
and a uniform product but require higher capital Investment and have
higher unit fuel costs than most vertical kilns. The open market
lime industry shows a trend toward installation of larger rotaries
with a far higher capacity than vertical kilns.
b. Emissions and Costs of Control
Air pollution in the lime industry consists primarily of
particulate emissions in the form of limestone and lime dust. The
main source of these emissions is the calcination process; the pe-
ripheral processes of crushing, pulverizing, sizing, and conveying
of the feed material are also significant potential sources. Since
most modern plants adequately control the peripheral processes for
economic and industrial hygiene purposes, only the kiln emissions
will be considered in this analysis .
Approximately 80 percent of the lime produced in the United
States is calcined in rotary kilns. The kilns vary in capacity from 50
to 700 tons per day and it is estimated that In the absence of control
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10 percent by weight of the lime produced in rotary kilns is re-
leased to the atmosphere as particulate matter. Most rotary kilns
are equipped with dry mechanical collectors which remove an average
of 75 percent of the particulate effluent. The application of low-
energy venturi or two-stage dynamic scrubbers to the smaller rotary
kilns (less than 500 tons per day) and fabric filters to the larger
rotary kilns (500 tons per day and larger) would allow this segment
of the Industry to achieve the assumed process weight rate standard
at an overall control efficiency of 98.9 percent.
Vertical shaft kilns account for virtually all of the re-
maining lime production. These kilns tend to be smaller in capacity
and to emit significantly less dust, about 1 percent of the lime pro-
duced. Few, if any, vertical kilns are presently equipped with con-
trol devices. The assumed process weight rate standard could be met
by adding cyclonic scrubbers, resulting in an 88.5 percent overall
control efficiency.
Particulate emissions from the lime industry in 1967 were
estimated at 393,000 tons. Predicted growth of the Industry would
increase emissions to 609,000 tons by 197 7 if control levels re-
mained unchanged. Achievement of the assumed emission limitation
by the industry would reduce 1977 emissions to 32,000 tons. The
Investment required to accomplish this is estimated at $28,600,000,
with an annual cost in 1977 of approximately $7,200,000.
c. Scope and Limitation of Analysis
The technical and cost analysis in this section deals with
the entire lime industry except plants captive to the paper industry.
The analysis of economic Impact Is focused on those firms in the
open market, since it is here that the economic effect is moBt clearly
defined. Financial data were available for a limited number of firms;
thus the financial Impact of air pollution control costs had to be
stated in somewhat general terms. Lime plants are almost invariably
either small, closely held companies or divisions of large, highly
diversified corporations. With the former, information is private;
with the latter, Information concerning the lime division cannot be
readily segregated and analyzed.
4-85
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2. Industry Structure
a. Characteristics of the Finns
The United States lime industry is conventionally divided
into two sectors—open market and captive. For 1967 approximately
75 firms sold lime commercially from 121 active plants (one in Puerto
Rico). Very small pot kiln plants that operate sporadically and on
a local basis were not considered. Open market production for the
year amounted to 11.46 million tons of lime, or nearly 64 percent of
the output for the entire industry. The captive sector of the lime
industry was represented by 104 active plants in 1967. Captive pro-
duction totaled 6.51 million tons for the year, equaling 36 percent
of total output.
The sizes of plants in the lime industry, classified using
production records for 1967 by the U.S. Bureau of Mines, are shown in
Table 4-19. The numbers of commercial (121) and captive (104) plants
are not additive, since 16 plants produce for both sectors.
TABLE 4-19. - NUMBER AND PRODUCTION OF DOMESTIC PLANTS - 1967
Annual Production
(Short Tons)
Number
of Plants
Production
(1000 Tons)
Percent
of Total
Less than 10,000
56
284
2
10,000 to 25,000
37
604
3
25,000 to 50,000
29
1,020
6
50,000 to 100,000
29
1,890
10
100,000 to 200,000
25
2,810
16
200,000 and over
33
11,366
63
TOTAL
209
17,974
100
Some of the larger producers have been covered in the trade
journals and several have reported capacities of 1,000 to 1,500 tons
per day, with the largest known at 3,000 tons per day (over 900,000
tons per year). Very small plants are seldom mentioned in the lit-
erature, but it is almost certain that some of these plants operate
with only a single, small capacity (5 to 20 tons per day) vertical
kiln. The average plant for 1967 produced approximately 86,000 tons
per year (roughly 275 tons per day). Average plant size has increased
4-86
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throughout the sixties, and for 1969 It had Increased to 100,000
tons per year (330 tons per day).
b. Operating Characteristics
Based upon production and capacity figures for a sample
of 42 plants, It Is estimated that lime producers operated at slightly
over 85 percent of capacity In 1967. This is a healthy operating rate,
especially considering that quicklime Is quite perishable and should
be consumed within a month or two dfter manufacture.
Before 1962, the Industry normally faced excess capacity
(65 to 70 percent operating ratio) and low profitability. With the
massive introduction by the steel industry of the basic oxygen pro-
cess, however, lime for steel flux usage nearly tripled and In gen-
eral lime producers recorded a prosperous decade.
c. Resources
Raw limestone occurs in virtually every State of the United
States, and the country's supply is so vast that a total Is incalcu-
lable. However, the deposits of some States lack the necessary qual-
ity or economic accessibility and do not warrant further processing.
Both captive and open market lime were produced In 41 States in 1967.
Most lime producers own their sources of supply and have ample re-
serves, but the cost of obtaining stone or kiln feed varies widely
and is an Important segment of overall manufacturing costs.
Labor costs represent on the average slightly under 20
percent of sales. Rising wages in recent years have caused a trend
toward capital lntensiveness and automation, a trend that is expected
to continue. In 1960 the open market sector employed 6,200 workers
at an average wage per man-hour of $2.35. For 1967, these figures
were 5,800 and $3.02. Over the same period, production rose from
8.2 to 11.5 million tons.
3. Market
a. Distribution
Since raw materials are widely distributed and transporta-
tion costs can quickly become prohibitive for a low value-to-bulk
produce, lime plants tend to locate near major markets. In contrast
to cement, for example, most lime is shipped directly from the plant
4-87
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Instead of from distribution terminals. Normally, lime is shipped
not more than 200 to 300 miles from the plant. A few firms have de-
veloped cheap water transportation, and shipments from the Mississippi
River to East and West Coast cities occur.
Lime, now regarded as a basic industrial chemical, is used
for a variety of purposes. The distribution of output by consumers
for 1967 is shown in Table 4-20 below.
1/
TABLE 4-20. - LIME SOLD OR USED IN THE UNITED STATES, 1967~~
(Thousand of Short Tons)
Use
Open Market
Captive
Total
Percent
of Total
Agriculture
174
0
174
1
Construction
1,433
2/
1,433
8
Chemical & Other Industrial
1,593
4,369
5,962
33
Metallurgical
4,452
1,148
5,600
31
Paper and Pulp
878
92
970
5
Sewage Treatment
322
49
371
2
Sugar
27
536
563
3
Water Softening & Treatment
1,019
4
1,023
6
Refactory Lime
1,565
315
1,880
10
TOTAL
11,461
6,513
17,974
100
— Totals may not add because of rounding.
2/
— Data withheld to avoid disclosing individual confidential data.
b. Competition
Traditionally, the lime Industry has been reported to be in-
tensely intracompetltlve. There are several possible reasons to ex-
plain this condition: (1) Historically, the industry often functioned
at low operating rates (65 to 70 percent of capacity) and this in-
variably led to higher costs per ton of output and a "buyers' market";
price wars, even to the extent of prices falling below the cost of
production, have been documented. (2) Because quicklime is reactive
to atmospheric moisture and should be used quickly—within a month
or two after manufacture—or become waste, the firms faced some
pressure to dispose of it. (3) Variance in quality and consistency
4-88
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of che final lime product from producer to producer Is an added
factor In the competitive picture.
External competition Is minimal. Lime has few contenders.
For 1ts use as an alkaline reagent In chemical production, as a
flux In steelmaklng, and as a cheap source of carbon dioxide, there
are no alternate materials to replace lime or limestone within a
comparable price range. In the construction sector, however, lime
has lost considerable ground to cement, gypsum plaster, and gypsum
wallboard, and finely crushed limestone has largely replaced lime
in agricultural uses because It lasts longer In the soil and re-
quires less frequent application.
Foreign trade has little importance to the U.S. lime
Industry. Net Imports for 1967 amounted to only 70,000 tons (less
than 1 percent of the market). Trade is significant only near the
Canadian and Mexican borders.
4. Trends
a. Production
Excluding a slight decline in 1967, the lime Industry has
set a record level for production in every year over the past decade.
For 1970, output stood at an estimated 21.15 million tons, an im-
pressive Increase of nearly 64 percent from the 1960 level of 12.94
million tons—a compounded growth rate of just over 5 percent an-
nually. Open market production has led the way with a 5.5 percent
Increase per annum; captive tonnage meanwhile Increased 4.5 annually.
This remarkable record In the sixties was spurred by several new
and expanded uses of the product, chief of which was the change to
the basic oxygen furnace In the steel Industry. Open hearth fur-
naces require about 20 pounds of lime for each ton of steel produced;
the basic oxygen furnaces require about 150 pounds. Increased usage
of lime was also seen In soil stabilization, sewage and water treat-
ment, and water softening. Optimism prevails in the Industry—
open market production Is expected to continue to grow at a healthy
pace Into the seventies.
b- Price, Sales, and Profits
Lime has always been a low-price product, and rapid
4-89
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Increases in price have not occurred. The average F.O.B. plant
price per ton on a bulk basis stood at $13.35 in 1960. Small in-
creases occurred yearly until a peak of $13.87 was reached in 1965.
Average price then dipped back down to $13.27 in 1966, and since
then has risen back up to $13.89 per bulk ton in 1969. The 1966
depression in the price level may partially have been the result
of hard bargaining by steel firms for lower prices, or that a
number of new efficient plants went on line during this period, as
well as new and larger capacities at established firms. Continua-
tion of depressed prices is unlikely, considering a strong demand
and rising production.
5. Economic Impact of Control Costs
a. Industry Composite
Many of the older, less efficient plants in the industry,
which have not Installed high efficiency control equipment, are ex-
pected to feel the greatest effect from the outlays for pollution
abatement. It is estimated that by 1967 the lime Industry had al-
ready Invested approximately $10 million in equipment for control
of kilns and was experiencing an annual cost of $2.7 million.
b. Impact on a Plant
The Impact of the added costs of air pollution control
was analyzed for four model plants, constructed to represent typi-
cal operating patterns over a wide range of capacities with a va-
riety of kiln combinations. The plants described here do not nec-
essarily exist, but are based on known characteristics within the
lime industry.
4-90
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TABLE 4-21. - BASIC DESCRIPTION, LIME PLANTS
Model Plants
Characteristic
Plant 2
Plant 2
Plant 3
Plant 4
Capacity (Tons per
year)
Construction Cost,
Without Control,
1969
Kilns (Number,
Type, Size in
Tons/Day)
Production at 90
Percent Operating
Rate (Tons/Year)
Average Price Per
Ton (F.O.B. Plant,
Bulk, 1969)
Control Investment
Cost
Annualized Control
Cost
89,100
$2.0 mil.
3-Vertical-
90
80,190
$13.89
$51,000
$18,600
89,100
1-Rotary-
270
80,190
$13.89
173,250
6-Vertical-
50
1-Rotary-
225
155,925
$13.89
$115,000 $170,000
$ 25,200 $ 45,000
330,000
$2.6 mil. $4.3 mil. $7.7 mil.
1-Vertical-
400
1-Rotary-
600
297,000
$13.89
$385,000
$ 86,500
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TABLE 4-22. - INCOME STATEMENTS, LIME PLANTS
(Thousands of Dollars)
Plant 1 Plant 2
Before After Before After
Control Control Control Control
Sales 1,114 1,114 1,114 1,114
Cost of Goods Sold 1,068 1,068 1,066 1,066
Added Control Cost 0 19 0 25
Taxable Income 46 27 48 23
Income Tax 12 7 12 6
Net Earnings 34 20 36 17
Cash Flow 134 125 166 159
Net Earnings/Ton 0.424 0.249 0.449 0.212
Cash Flow/Ton 1.671 1.559 2.070 1.983
Control Cost/Ton 0 0.237 0 0.312
Return on Investment 2.97% 1.96% 2.45% 1.56%
Plant 3 Plant 4
Before After Before After
Control Control Control Control
Sales
2,166
2,166
4,125
4,125
Cost of Goods Sold
2,000
2,000
3,879
3,879
Added Control Cost
0
45
0
86
Taxable Income
166
121
246
160
Income Tax
55
35
91
52
Net Earnings
111
86
155
108
Cash Flow
326
318
540
511
Net Earnings/Ton
0.712
0.552
0.522
0.364
Cash Flow/Ton
2,091
2.039
1.818
1.721
Control Cost/Ton
0
0.289
0
0.290
Return on Investment
4.34%
3.62%
3.46%
2.35%
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The relationships shown in the preceding income state-
ments indicate the magnitude of air pollution control costs for
lime plants with vertical kilns (Plant 1), a rotary kiln (Plant 2),
and various kiln combinations (Plants 3 and 4). These figures in-
dicate the impact which may be expected for the large number of
single plant firms. Multiple plant firms may be approximated by
multiplying individual plant costs by the number of plants,
c. Impact on the Firms
Approximately 20 percent of the firms in the open market
sector of the lime industry have interests in other areas such as
construction materials, cement, gypsum, chemicals, and drugs. How-
ever, the vast majority (80 percent) are relatively small companies
which base most of their sales on lime and lime products. If not
passed on in the form of price increases, the added costs of air
pollution control would in general have a detrimental effect on the
earning power of these smaller firms due to low profit margins (3
to 5 percent of sales before control is shown in the examples of
the preceding section), and quite a few of the firms occasionally
show losses from operations. The additional burden of air pollu-
tion control would normally lower income by at least 20 to 40 per-
cent and, in the worst situation, could swallow all profits. The
captive sector of the industry would probably feel less effect as
their lime plants are only small parts of much larger operations.
Based on a study of the balance sheets of approximately
20 open market firms, it does not appear that most companies will
face difficulties in raising the necessary capital for pollution
control. The typical balance sheet shows a strong current ratio,
adequate working capital, and low levels of debt. Line producers
have several ways to raise funds including cash flow from opera-
tions, term loans, and bank revolving credit agreements; most com-
panies have reasonable credit arrangements and good relations with
their bankers. There are some, however, who do appear unprofitable,
have poor credit relations, and would probably have trouble raising
the necessary capital.
4-93
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d. Demand Elasticity and Cost Shifting
Lime is one of the starting materials for a wide variety
of products. Because lime is essential in the manufacture of chemi-
cals, metals, and thousands of other industrial products, its de-
mand is not highly elastic with regard to price; therefore, the
lime industry should loose little of its market to substitute prod-
ucts, even if the entire added costs of pollution control are passed
on to purchasers.
Intraindustry competition is normally characterized as
severe, and selective price Increases by some firms would likely
cause others to move into the market. There are exceptions; for
example, in some marketing areas, Isolated producers face little com-
petition and should be able to pass on the added costs. With a rise
in prices, lime producers in general would find their marketing areas
expanding or contracting depending upon the efficiency of their op-
erations .
For the past several years the demand for lime has been
strong and output has been increasing, and these trends are expected
to continue. With a favorable outlook for the coming decade, it is
expected that by 1977 the lime industry in general should be able
to shift most of the control cost into price. This conclusion is
bolstered by the following considerations: (1) all lime producers
will be affected by pollution control, and the annual cost per unit
of output is reasonably constant for most plants (i.e., in the
range of $0.25 to $0.30 per ton); (2) with the costs of control
having a moderate to severe effect upon the earnings of most firms,
the industry in general should not be able to tolerate the decline
in Income; (3) if the cost of control were to be passed on, the re-
sulting price Increase would be rather small (about 2 percent per
ton, based upon the 1969 average bulk price at the mill of $13.89
per ton); (A) price Increases would be little affected by external
competition and substitution; and (5) competition within the industry
is keen but by no means uniform throughout the country. To the ex-
tent that some firms are larger and more efficient, they may be bet-
ter able to raise prices.
4-94
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e. Effect on Industry
Many of the older or very small plants are obsolete from
both efficiency and profit points of view and may be abandoned if
faced with high control costs. To compensate, production should
increase from the larger kilns and the industry operating ratio
would thereby increase. Firms which have been operating close to
capacity may launch expansion programs as a result of Increased
demand.
A second effect of control may be a renewed Interest in
vertical kilns. The lower relative costs associated with controlling
the large vertical kilns coupled with their excellent thermal prop-
erties and lower investment costs may make them more attractive in
some applications. The trend toward high capacity rotaries may be
slowed somewhat.
The open market sector of the lime industry may benefit
by the imposition of control costs. The added expense may make
captive production less desirable for those industries needing
large amounts of lime—most notably steel and pulp and paper.
It should also be noted that the lime industry could bene-
fit greatly from the national concern for the environment. Speci-
fically, the power industry may require large amounts of lime by
1980 In the form of an additive to control sulfur oxides from the
burning of fossil fuels. Although the amounts to be used are far
from certain, It is possible that such pollution control efforts
will make a significant new market for the lime industry.
4-95
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J. Nitric Acid
1. Introduction
a. Nature of Product and Process
Nitric acid is an important material in the manufacture
of fertilizer-grade ammonium nitrate and explosives. The acid is
produced by oxidation of ammonia, usually under high pressure and
temperature over a platinum catalyst, forming nitrogen dioxide
(NO^) and nitric oxide (NO). The gaseous products are removed
from the reactor, cooled to form more NO^, and are sent to an
absorption tower to form the acid product. The process forms an
acid of approximately 60 to 65 percent strength, which is sufficient
for ammonium nitrate production, and may be upgraded to 99 percent
strength by one of several concentration processes. Both the
anmonia reactor and the absorption tower are operated under high
pressure, which favors heavy production of NO and NO^ with minimum
amounts of equipment. Oxidation of ammonia and final reduction
of tail gas compounds are highly exothermic reactions which
produce the heat and energy needed to satisfy demands in other
parts of the plant.
b. Emissions and Cost of Control
Nitrogen oxides, the primary pollutants of concern in
the production of acid, are essentially emitted from the absorption
tower. The purpose of this tower is to absorb NO^ with water in
countercurrent flows. The original gas stream, containing about
8 percent NO^, possesses 0.3 to 0.5 percent N0£ and NO combined on
leaving the tower. The balance of the gas contains 2 to 4 percent
oxygen and 95 to 9 7.5 percent nitrogen.
Many plants practice partial pollution abatement
(decolorization) in accordance with local regulatory agencies.
The NO^, which produces a characteristic reddish-brown plume,
is reduced to NO by reaction of the tail gas with methane or propane
over a catalyst. Abatement of NO is required by the assumed emission
standard. Uncontrolled emissions before decolorization are 45
pounds of NO^ per ton of product. The assumed emission standard
4-96
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is 5.5 poinds per ton of acid produced for existing plants.
New plants are assumed to perforin at least as well.
Nitric acid plants emitted 145,000 tons of NO^ in
1967. Without the Act, the emissions would be 229,500 tons
in Fiscal 1977 based on a 4.5 percent growth rate through 1970,
4nd 5 percent thereafter. Implementation of the Act would
::educe the emissions to 25,000 tons by Fiscal 1977. The nitric
acid industry would be required to spend $37 million for
investment and $14 million for annual expenditures for full
implementation by Fiscal 1977. These estimates are based on
catalytic reduction technology. For many pre-1960 plants, it
is doubtful whether this technique will be used. More likely
such plants will be shut down.
2. Industry Structure
a. Characteristics of the Firms
Nitric acid is almost entirely a captive industry,
producing an intermediate for manufacturing fertilizers, commercial
explosives, and other goods. In addition, the Federal government
owns many plants for producing ordnance products. Present ownership
of acid plants (1970) is 80 percent controlled by large, integrated
firms—chemical producers and oil and gas companies. The remaining
20 percent are owned by farm cooperatives and small, chemical
fertilizer-oriented companies.
As of 1970, there were 87 commercial plants owned by 35
firms. Many plants are owned by firms with ammonia and ammonium
nitrate facilities. Companies producing fertilizer often have
urea and ammonium phosphate plants as well as nitric acid and
ammonium nitrate facilities at the same location. Urea is produced
directly from amnonia, by-passing the acid process, and its
use provides flexibility to a firm's fertilizer operations. Thus,
horizontal and vertical integration is evident in the character
of the firms owning acid plants.
4-97
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b. Operating Characteristics
The nitric acid industry maintained a balance between
productive capacity and output from 1960 to 1968. Profits were
maintained with operations running at 80 to 90 percent of capacity.
During the sixties expansion grew at an annual rate of 9.5 percent,
in step with demand for ammonium nitrate. Additions to capacity
surged in 1967, with a 13.7 percent increase over 1966. However,
sales of fertilizers sagged in 1968 and 1969, and the industry
was faced with idle facilities. Apparently, sagging prices for
grains and bad weather were responsible for the slowdown in sales.
c. Resources
Ammonia is the most important compound in the production
of nitric acid. Based on a price of $35 per ton, ammonia constitutes
51 percent of the manufacturing costs. Availability of ammonia
at low cost depends on the hydrocarbon fuel source used in Its
synthesis. Natural gas, refinery off-gas, and naptha are the
important feed sources used in this country. Inproved technology
geared to large production of ammonia through the application of better
catalysts and turbine-driven centrifugal compressors has lowered
the costs of manufacture; these vary from $35 per ton produced in
an economical captive plant to $75 per ton for the delivered,
merchant product.
Catalysts of platinum-rhodium formulations are used in
the oxidation of amnonia and the reduction of tail gas nitrogen
oxides. Catalyst losses as a result of the ammonia oxidation
may vary from $0.40 to $2.20 per ton of acid. Based on the
manufacturing cost of acid at $19.50 per ton, catalyst losses may
vary from 2 to 11 percent of the manufacturing cost, plus interests
and renewal costs. The impact of abatement adds significance to
the catalyst requirements, as catalysts for nitrogen oxides must
be carefully monitored during process operation. In addition,
the catalyst units for abatement must be renewed at least once
every two years.
Fuel, utilities, and labor appear to be insignificant
items in the acid manufacture itself. Transportation costs are
4-98
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important. For the firm producing both ammonia and nitric acid,
it is much cheaper to ship anaonia; one ton of 57 percent nitric
acid requires only 0,17 tons of ammonia. Hence, an ammonia plant
located near feedstock sources and nitric acid facilities located
near end use points would result in transportation savings.
3- Market
a. Distribution
Synthetic amonia is normally produced near oil and gas
fields in California and the gulf coast of Texas and Louisiana.
Ammonia is usually stored in pressure tanks as a liquid. It is
more easily stored and it Is cheaper to ship to end use points
than nitric acid.
The distribution of nitric acid consumption is as follows;
Anmonium nitrate fertilizers 62,4%
Ammonium nitrate explosives 8.0%
Miscellaneous fertilizers 2.4%
Dinitrotoluene (urethanes) 1.4%
Nitrobenzene (rubber chemicals,
urethanes, etc.) 1.4%
Commercial explosives and
propellants 16.8%
Miscellaneous direct uses 5.2%
Miscellaneous compounds 2.4%
Nitric acid plants for the most part are concentrated near markets
in the Midwest for nitrate fertilizers. Plants often convert
the acid directly, at the same location, into ammonium nitrate.
Prilled nitrate can be mixed with granulated concentrates of
phosphate and potash to produce complete fertilizers.
Fertilizer-grade ammonium nitrate can be converted into
explosives for commercial uses such as coal mining, all types of
construction, mining, and quarrying.
Nitric acid destined for final industrial consumption
goes into manufacture of urethane foane, both rigid and flexible;
aniline for rubber, chemicals, dyes, pharmaceuticals, and hydro-
quinone; and nitrous oxide for anesthetics and food aerosols.
4-99
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b. Competition
Nitric acid is not a merchant chemical of any significant
volume; that is, approximately 10 percent is sold in a competitive
market. The marketability of its end products determines the degree
of competition for the industry.
Use of ammonium nitrate in fertilizer seems to be the
most competitive area. A very close substitute is urea. It is
high in nitrogen content, can be prilled for intimate mixing with
other fertilizer materials, and is not as subject to leaching as
ammonium nitrate. Therefore, nitric acid usage in fertilizers
is price competitive with urea. Nitric acid is used to a small
extent in acidulation of phosphate rock; however, its use on a
large scale is limited due to an abundant supply of sulfuric acid
at much lower cost than for nitric acid.
Nitric acid usage in the fertilizer business seems limited
due to the growing use of anhydrous ammonia applications in mixed
liquid fertilizers. As liquids gain more acceptance with farmers,
anhydrous ammonia can be used directly in preparing a liquid
application, thus foregoing the expense of acid production.
In the industrial applications of nitric acid, there
seems to be little potential for substitution. Products such
as explosives, dyes, and the urethane foams can be produced only
from nitric acid derivatives.
4. Trends
a. Capacity and Production
Since 1967, the nitric acid industry has been faced
with excessive capacity due to overexpansion of capacity and a
sagging market for fertilizers. Few new plant additions are
expected during the next 5 years as the industry is expected to
rationalize the present imbalance in supply and demand.
Although demand for acid is expected to grow at an
annual rate of 5 percent, growth in capacity is expected at an
annual rate of only 1 percent. Demand for fertilizers and
explosives will be consistent with the 5 percent growth pace.
4-100
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Urethane demand is expected to grow at a rate of 25 percent
through 1975; however, its portion of the acid market is small.
Above average growth rates are expected for dyes, pharmaceuticals,
etc., but again these absorb only a minor portion of acid production.
If nitric acid remains available at present low prices,
possible new uses may become a reality. Because of its chemical
reactivity, nitric acid does offer itself as a potential in
formulating new plastic products.
b. Prices, Sales, and Profits
Prices for nitrogen nutrients paid by farmers have steadily
declined during the 10 years ending in 1970. Ammonium nitrate,
for example, has dropped from $2,44 per unit (1 unit - 20 lbs.)
in 1960 to $1.79 in 19 70. Most of this price erosion has been due
to the Increasing availability of cheap ammonia through Improved
technology, but nitric acid price erosion in the late 1960's has
been due to overcapacity. Prices for ammonium nitrate, as paid
by farmers, are a good barometer of trends in nitric acid prices.
As the. operating ratio of the industry improves, prices
and profits should recover during the next 5 years. In 1969, output
was only 72 percent of capacity. The break-even point occurs when
production runs at about 80 percent. Assuming that nitric acid
sales grow by 5 percent and annual capacity by 1 percent, industry
production should exceed the 80 percent operating ratio sometime
in 1972 or 1973.
5. Economic Impact of Control Costs
a • Impact on Plant
Since a viable nitric acid market does not exist, the
impact of control must be related to the end products. For purposes
of illustration, anmonium nitrate was selected because it comprises
two-thirds of the market for nitric acid.
The impact of added costs for pollution control was
determined for a 380 tons per day ammonium nitrate facility with
its own captive nitric acid support facility (300 tons per day)
under two options. One option (Plant A) represents an existing
acid plant requiring a high temperature combustor addition to the
4-101
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original plant. The second option (Plant B) assumes a new acid
plant designed for required abatement via high temperature
combustion. Although not shown here, other designs in combustion
technology, such as the dual stage combustion system may be expected
to perform effectively at comparative cost.
The control costs per ton of nitric acid under the two
options are shown below in Table 4-23:
TABLE 4-23. BASIC PLANT DESCRIPTION, NITRIC ACID
Nitric Acid - Ammonium Nitrate Systems
Plant A Plant B
Nitrate Capacity (Tons/Yr)
125,400
125,400
Nitrate Production (Tons/Yr)
112,900
112,900
Plant Investment
§5
,400,000
$5
,400,000
Control Investment
$
400,000
$
50,000
Added Control Cost—^ ($/Ton
Ac id)
$
1.34
$
(0.05)-/
1/ Includes depreciation and Interest charges calculated at 20 percent
before taxes on control investment.
2/ Steam credits will more than compensate for capital and catalyst
changes.
The existing acid plant would incur an added cost of $1.34 per ton
nitric acid versus no cost for a new plant.
The impact of pollution control on the ammonium nitrate-
nitric acid complex under the two options is shown in the following
income statement exhibited in Table 4-24.
The cash flow decreases only by a negligible amount as
a result of added control costs. This is important to an industry
which already experiences a low return on investment (on the order
of 5 percent after taxes). The significant drop in earnings for
the facility with an existing acid plant will certainly discourage
similar firms from upgrading existing facilities, especially older
acid plants with little or no book value.
4-102
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TABLE 4-24. ANNUAL INCOME STATEMENT
(THOUSANDS OF DOLLARS)
Plants A&B
(Without Control)
Plant A
(After Control)
Plant B
(After Control
Sales
$4,853
$4,853
$4,853
Cost of Goods
Sold
4,470
4,590
4,531
Added Control
Cost
0
120
(4)
Net Income Before
Tax
384
264
388
Income Taxes
173
119
175
Net Earnings
211
145
213
Cash Flow
751
725
758
Net Earnings/Ton
Product
$2.05
$1.28
$2.05
Change in
Earnings,%
0
-29
0
Control Cost,
% of Sales
0
2.5
0
b. Impact on Firm
Well over 80 percent of the firms involved in nitric acid
production have Interests in many other areas including oil, natural
gas, and a wide variety of chemicals. Because of this diversification
and the size and financial strength of the firms involved, abatement
costs should have little impact on total earnings.
c• Demand Elasticity and Cost Shifting
Fertilizers in general and nitrogen fertilizers in
particular have been among the hardest hit of the chemical categories
over the past few years. Overcapacity and retarded sales have combined
to produce poor returns and restricted profits. The future is
expected to be a little better, but producers remain pessimistic
and there seems little hope for substantial improvement before 1973.
4-103
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For the past several years, demand for nitric acid and
ammonium nitrate has fallen short of supply capabilities. Competition
has been stiff, prices have been at a low level, and consequently,
air pollution control costs have generally been absorbed by the
manufacturers. With an uncertain future ahead, it is expected that
abatement costs will continue to be absorbed. Demand for ammonium
nitrate is elastic with regard to price, because the farm community
can be expected to switch to substitutes such as anhydrous ammonia
and urea if amnonium nitrate prices increase relatively; in fact,
production and consumption patterns of nitrogenous fertilizers
in the past several years have shown a movement toward such
substitues. Amnonium nitrate and nitric acid both face strong
competition and must be expected to absorb pollution control
expenses.
d. Effect on Industry
Pollution control equipment including catalytic reduction
has been included in virtually all new nitric acid expansions in
the past few years. Added expenses for catalysts and capital
changes for the most sophisticated designs are more than compensated
for by heat recovery. On the other hand, upgrading pre-1960 plants
may prove uneconomic. Costs for these plants will be in excess
of estimates shown in Table 4-23 and Table 4-24; hence, many such
plants will be shut down. Plants built since 1960 that incorporated
partial abatement (decolorization) will incur costs similar to the
estimates shown in this analysis for existing plants.
The fertilizer supply and pricing situation of the past
few years has had severe financial effects on the smaller producing
companies, and a spate of mergers and takeovers has followed to
consolidate and rationalize the industry. It is expected that
obsolete plants will be replaced with new modern plants capable
of meeting the assumed emission and new source performance standards.
4-104
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K. Petroleum Refining and Storage
1. Introduction
Three processes in petroleum refining have been identified as
the major sources of atmospheric pollutant emissions. These are
storage of crude oil or refined products, combustion processes,
and catalyst regeneration. In addition, significant emissions are
released by certain bulk storage tanks where petroleum products
are stored for distribution. The analysis in this section is
limited to the nature, control, and costs of these four sources.
2. Emissions
Both crude oil and refined products, especially gasoline,
tend to give off hydrocarbon emissions due to evaporation while
in storage tanks and in transfer. Other hydrocarbon emissions
result from the operation of catalytic crackers.
For simplicity of analysis, all storage of refined products,
whether at the refinery or at bulk terminals, has been grouped.
The hydrocarbon emissions from these sources were estimated to be
1,038,000 tons in 1967, allowing for 50 percent existing control.
At the same control level these would rise to 1,349,000 tons by
Fiscal 1977. Installation of floating roofs on all uncontrolled
storage tanks by Fiscal 1977 would reduce these emissions to 296,000
tons, equal to 89 percent control.
Refinery emissions of hydrocarbons from catalytic crackers
and regenerators were estimated at 153,000 tons in 1967, at 20
percent control. Industry growth would increase this to 197,000
tons by Fiscal 1977 if control practices remained unchanged. Use
of carbon monoxide-hydrocarbon boilers on crackers could effect
a 95 percent control level, reducing emissions to 12,000 tons in
Fiscal 1977.
Sulfur dioxide (SO^) emissions in refineries may occur from
many sources including internal combustion engines for compressors,
boilers, catalyst regenerators, acid plants, hydrogen sulfide
incinerators, and sulfur plants.
Engines and boilers are commonly fueled by sulfur-bearing
gases or liquids that cause scattered, relatively dilute, sulfur
dioxide emissions. Catalyst regenerators have sulfur oxides in
4-105
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exit gas streams, depending on the sulfur content of the coke
deposited on the catalyst. Spent alkylation acid (H^SO^) sludge
may be shipped away for regeneration, but if it is regenerated
at the refinery, the emissions of sulfur oxides should be similar
to those for other nonsulfur-burning acid plants. Hydrogen
sulfide (H^S) incineration, at refineries producing H^S not used
for acid sludge regeneration or sulfur plant feed, is a large
concentrated source of SO^ emissions; when sulfur plants are
used on the H^S stream (in place of incineration), they are strong
sources of SO^ emissions.
The primary source of SO^ in most refineries results from
processing the H^S-rich stream generated from various desulfurization
and sweetening processes. The H^S stream Is most commonly produced
in the regeneration of spent amine scrubbing liquors used to
sweeten product, process, or exhaust streams. The stream may be
incinerated, sent to a spent acid regeneration plant, or sent to
a sulfur recovery plant. All three processes result in significant
emissions of sulfur oxides. Incineration of hydrogen sulfide to
sulfur dioxide is normally controlled by recovery as sulfuric
acid; these and spent-acid plant emissions are Included in section
P on sulfuric acid. Sulfur plants and their tail gas streams are
considered below. The H^S-rich stream is amenable to partial
recovery by conventional Claus sulfur plants.
Hydrogen sulfide emissions in refineries are best controlled
by use of sulfur recovery plants. The available data indicate
that many of the refineries had sulfur plants in 1967 and that
overall these provided control of 37 percent of emissions. Thus,
the plants emitted 2,310,000 tons of sulfur oxides per year and
it is estimated that industry growth would increase this to
3,010,000 tons by Fiscal 1977 with the same sulfur contents and
level of control. Installation of sulfur plants and tall gas
cleaners on all refineries could reduce the Fiscal 1977 emissions
of sulfur oxides from these sources to 20,800 tons per year,
which is a 99.5 percent level of control. There are additional
sulfur oxide emissions that result from operations involving
4-106
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the combustion of natural gas and/or fuel oils for process purposes.
These are not generally amenable to control.
Regeneration of the catalysts used in catalytic cracking units
results in emission of catalyst fines (particulates) and carbon
monoxide. An estimated 240 pounds of particulates per thousand
barrels of total feed are emitted from fluid catalytic cracking
unit regenerators in the absence of air pollution control equipment,
and an estimated 12.5 pounds per thousand barrels of total feed
from thermofor and houdriflow unit regenerators. Installation
of electrostatic precipitators provides the maximum control now
available, and should easily meet the assumed process weight rate
standard. In 1967, the regenerators in the refineries emitted an
estimated 185,000 tons of particulates at an average industry
control level of 20 percent. Normal growth of the industry
would increase this to 241,000 ton9 by Fiscal 1977. Installation
of precipitators in all plants would reduce Fiscal 1977 emissions
to 98,000 tons, at 67 percent control.
Carbon monoxide in the exit gas of regenerators was controlled
by carbon monoxide boilers in many refineries in 1967, but there
was still as estimated 9,300,000 tons emitted in that year (20 per-
cent controlled). The carbon monoxide boiler burns the carbon mono-
xide into carbon dioxide (and also burns hydrocarbon emissions from
the catalytic cracking unit) and provides a substantial source of
heat for process use in addition to controlling pollution. Installed
in all the subject refineries, they would control all but a negli-
gible amount of carbon monoxide and hydrocarbon emissions from the
cracking process. Without this control, it is estimated that carbon
monoxide emissions would increase to 12,100,000 tons per year in
Fiscal 1977.
3. Scope and Limitations of Analysis
. i jfc ¦ I ¦ - ¦» » nw. ¦ rn I .PI ¦!—— HI INI l« ¦¦¦ ¦¦
Analysis of refinery emissions and control equipment was, in almost
all cases, based on data for each refinery involved. Control costs have
been estimated on a less rigorous basis, as indicated below, by two
model firms, but are representative of actual cost expectations.
Because the total annualized cost is not estimated to be large enough
to influence prices, no analysis of market patterns is presented.
4-107
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4. Industry Structure
Nearly all bulk storage plants are owned by producers of petro-
leum products. Although approximately 256 plants are listed as petro-
leum refiners, the industry Is concentrated in 30 to 35 firms; of these,
16 are fully integrated international corporations making up the so-
called "large majors" of the industry, another eight firms are fully
integrated "small majors", and the remainder are somewhat smaller and
either not fully integrated or operative in a limited market. Statistics
concerning the petroleum industry are in Table 4-25.
Petroleum is an oligopolistic industry characterized by sharp
retail competition that usually concentrates on competitive adver-
tising at the retail level, but it experiences frequent price wars as
well. In its purchases of crude oil from independent producers, it
is much less likely to compete on price.
The entire industry is subject to foreign competition, but at
present this is minimized through quotas under the oil Import program.
The effect of the quota system is to set a base price higher than would
probably be set, were unlimited imports permitted.
TABLE 4-25. - THE PETROLEUM REFINING AND STORAGE INDUSTRY, 1967
Refining Plants
Storage Plants
No.
Capacity
Production
Value of
Shipment
(billions)
No.
Capacity
Production
Value of
Shipment
(billions)
million bbl
million bbl
256
4,210
3,580
$ 20.29
.8,123
214
1,873
$ 22.50
5. Economic Impact of Control Costs
a. Cost Factors
Floating roofs for refinery tanks are estimated to require an
Investment ranging from $12,000 to $111,000 each, with most costing less
than $18,000. Since this control reduces vapor loss of a valuable pro-
duct by more than 90 percent, there is a saving that more than offsets
the total operating and maintenance costs. The impact of the annualized
capitalization costs are minimal.
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Sulfur recovery plants vary in coat depending on size,
which is a function of the dally quantity and the sulfur content of
crude oil refined. For those refineries not listed as having sulfur
recovery plants in 1967, this cost was calculated on the basis of
plant size necessary for the listed capacity of the refinery and on
its estimated sulfur oxide emissions. Sulfur recovery plants of 4 tons
per day capacity of larger were considered economically feasible;
these require investments ranging from slightly over $100,000 for 4
tons capacity to $630,000 at 100 tons. Annual costs were considered
to be offset by the value of sulfur produced. The value of
sulfur is, of course, subject to change if large additional supplies
are marketed. However, since it appears that the sulfur recovery
plants now is use at petroleum refineries are operated at or above
the break-even point, it is assumed for this analysis that additional
plants could produce revenues at least equal to annual costs.
The tail gas from the sulfur plant contains some sulfur
oxide which must be removed by a cleaner. For the average sulfur
plant this is estimated to require an investment of $370,000 and
annual cost of $103,600.
Electrostatic precipitators for control of particulate
emissions from catalyst regenerators on fluid catalytic cracking units
vary in cost depending on size. It is estimated that the average
refinery would invest approximately $642,000 for each precipitator.
The total annualized cost per precipitator is estimated to average
$128,000.
Carbon monoxide boilers to control carbon monoxide and hydro-
carbon emissions from catalyst regenerators were estimated on the
basis of the heat content of the gas stream for each affected refinery
and the price of boilers. The average investment required would be
approximately $3 million per boiler, of which 50 percent is charged to
air pollution control, since the steam-generated is usable in the normal
operating processes of the refinery. Similarly, the operating and main-
tenance costs may properly be considered production cost rather than
cost of pollution control.
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b. Aggregate Industry Cos.ts
For the petroleum industry as a whole, installation of the
controls specified in this analysis would require, by the end of
Fiscal 1977, a total investment of $378 million. Given the assumptions
stated above, annual cost to the industry would, however, amount to
only an estimated $73.3 million per year upon completion of installa-
tion of controls in Fiscal 1977.
c. Two Model Firms as Examples of Economic Impact of Control
Costs
Two hypothetical petroleum companies are used to illustrate
the impact of the investment requirements and the annual costs
explained above.
Description of Model Firm A
A fully integrated national producer, operating 10 refineries
Total crude oil refining capacity: 877,000 b/cd.
Gasoline production of crude oil: 52.6 %
Capacity utilization: 88.6 %
Gross revenue, $7,860 million
Net income, 640 million
Costs for Air Pollution Control Equipment
Equipment
No.
Investment
Annual Cost
Carbon monoxide boiler
4
$7,200,000
$ 720,000
Sulfur plant
12
7,560,000
756,000
Tail gas cleaner
20
9,800,000
2,740,000
Electrostatic precipitator
9
6,350,000
1,270,000
Storage tank (crude) roofs
40
530,000
53,000
Storage tank (gasoline) roofs
441
7,100,000
710,000
TOTAL
$38,540,000
$6,249,000
Description of Model Firm B
A small independent partially integrated firm, operating one
refinery
Total crude oil refining capacity: 53,000 b/cd.
Gasoline production of crude oil: 51 %
Capacity utilization: 85 X
Gross revenue, $57 million
Net income, 11 million
4-110
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Costs for Air Pollution Control Equipment
Eauipraent
No.
Investment
Annual Cost
Carbon monoxide boiler
1
$1,500,000
$ 150,000
Sulfur plant
2
960,000
96,000
Tail gas cleaner
2
740,000
207,000
Electrostatic precipitator
1
550,000
110,000
Storage tank (crude) roofs
3
40,000
4,000
Storage tank (gasoline) roofs
28
453,000
45,000
TOTAL
$4,243,000
$ 612,600
d. Impact on the Industry
If the total annualized cost of air pollution control for the
petroleum industry, as estimated here, were added to the price of gas-
oline production projected for Fiscal 1977, it would increase that price
by approximately $0,022 per barrel($73.3 million * 3,300 million barrels).
Costs of this magnitude are not likely to affect the final prices of
petroleum products or to reduce the profits of the refiners.
More significant is the magnitude of the investment. It
appears that this industry will be required to invest $378 million by
Fiscal 1977. At the same time, it appears that there will be a substan-
tial excess of demand for petroleum products so producers will be under
pressure to expand their exploration expenditures and to increase pro-
duction capacities. Some small companies may find it difficult to raise
the capital essential to their total investment program. In general,
total control investment costs probably do not, at the most, exceed
10 percent of any company's annual investment outlay, and are generally
much less. Considering the general pattern, low debt-to-equity ratios
in this industry and considering that its return on investment is higher
than that of the average industrial firm, the costs indicated are not
likely to threaten the financial stability of the industry.
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L. Phosphate Industry
1. Introduction
a. Nature of Products and Processes
Phosphate rock is processed into many products used in the United
States. Chiefly, these are agricultural fertilizers (75 percent), animal
feed supplements, elemental phosphorous, and phosphoric acid.
Complete or balanced fertilizers involve the production of 1*2^5
("phosphate") from phosphate rock and mixing this chemically and/or
mechanically, with nitrogen and potassium nutrients. Plant foods are
produced in various NPK (nitrogen, phosphorus, potassium) grades to fit
varying soil requirements.
The manufacture of the phosphate for fertilizers begins with the
preparation of rock for processing. Ground rock is treated with sulfuric
acid to produce either normal superphosphate fertilizer (20 percent
P2O5) or wet process phosphoric acid. This acid intermediate (about
54 percent ^2^5^ ma^ use<^ to produce diammonium phosphate (18 percent
nitrogen and 46 percent or tr*Ple superphosphate (46 percent ?2°5^ *
Superphosphoric acid (about 70 percent ^2^5^ Pr°duce<* by dehydration
of wet process phosphoric acid and used in the preparation of mixed
liquid fertilizers for direct application to the soil.
b. Emissions and Costs of Control
Dusts, acid mists, sulfur dioxide, fluorides (gaseous and parti-
culate), and ammonia are emitted from various processes in the phosphate
fertilizer industry. Dusts are emitted from drying and grinding of phosphate
rock, calcination, drying and cooling in the granulation process (the
major source), and conveying, bagging, and other handling operations.
Sulfur dioxide is emitted from the sulfuric acid plants owned by some
major phosphate processors that produce wet process phosphoric acid.
(sulfuric acid production is discussed in detail under Section P; the
control costs described in that section have their major economic impact
on the fertilizer industry). Although fluorides and ammonia are emitted,
they are not considered in this study; primary producers of concentrated
phosphates have been affected by state statutes limiting fluoride emissions
to such an extent that they have installed the most stringent controls
in the industry.
4-112
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For 1967, the phosphate fertilizer industry emitted about
260,000 tons of particulates, with an overall control level of 89 per-
cent . Of this amount 170,000 tone cane from drying and cooling steps
following granulation, and another 45,000 tons came from phosphate rock
preparation. Growth of demand for phosphate products in fertilizers is
estimated to be 4.2 percent annually. Extrapolation of industry trends
show that emission of particulates would increase at a lower rate than
production due to shifts toward liquid fertilizers and diammonium
phosphate production and away from normal superphosphate, triple super-
phosphate, and the aramoniator-granulation processes. Due to implementa-
tion of the Act and these changing industry trends, the particulates
loading should level out at about 160,000 tons in 1977. Without the
Act, the emissions would probably increase to 350,000 tons by 19 77. To
control drying and cooling processes in granulation plants, the phosphate
industry will have to invest about $31 million for additional control
equipment and spend $15 million annually for full implementation of the
assumed emission controls.
c. Scope and Limitations of Analysis
This analysis was based on data available from government,
trade, and financial reporting services. Financial data are available
only for a limited number of firms—mostly conglomerates deriving major
portions of their revenues from nonfertilizer-related businesses. Data
were sparse for firms which rely heavily on the fertilizer business.
Without more detailed information, estimation of revenues, costs, profits,
and taxes attributable to fertilizer was not possible. For this reason,
the relationships assumed for the financial variables depict the general
condition of the industry, and do not relate to any specific enterprises.
2. Industry Structure
a. Characteristics of the Firms
The phosphate processing industry included approximately 60 firms
in the United States in 1967. These firms owned 22 triple superphosphate
plants, 54 ammonium phosphate plants, and 350 granulated NPK plants. In
addition there are some 3,000 bulk blend fertilizer plants, many of which
were owned by the same firms operating the chemical processing plants
subject to air pollution control. Most of the firms engaged in fertilizer
4-113
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production are well established in other operations, such as petroleum
products, gas production, nonphosphate-related chemicals, animal feeds
and supplements, meat packing, and diverse agricultural supplies such as
rope, wire, machinery, machinery parts, and hardware.
The trend of the phosphate industry in recent years has been
toward production of concentrated phosphates, triple superphosphate, and
diammonium phosphate—which can be shipped greater distances economically—
and away from production of normal superphosphate, which cannot. Plant
capacities of the concentrated phosphates are on the order of 300,000
tons per year. Many of the NPK plants which operate with normal super-
phosphate production have an annual capacity of about 30,000 tons. These
NPK plants, located in farming areas all over the country, generally
operate at full capacity only A to 6 months per year, due to the seasonal
nature of the business.
b. Operating Characteristics
Excess capacity exists for all segments of phosphate processing.
Production of phosphoric acid, which is an important intermediate for
phosphate fertilizers, is currently running at about 70 percent of
capacity. Ammonium phosphates and triple superphosphate are nearly
the same. Major producers, most of whom own phosphate rock reserves,
manufacture wet process phosphoric acid and concentrate phosphates near
their mine sources. These phosphates, approximately 46 percent in
content, effect savings over lower analysis products in transportation
costs to far distant markets.
Useful extracted from phosphate rock with sulfuric acid.
Approximately one ton of sulfuric acid is needed to produce one ton of
fertilizer purchased by the farmer, such as 5-10-10 (5 percent nitrogen,
10 percent ^2^5* percent potassium oxide). There is no economically
priced substitute for sulfuric acid.
3. Market
a. Distribution
Most of the phosphate fertilizers are consumed in the North
Central States, primarily for corn and wheat grain production. The
P^O^ content for fertilizers consumed in this region is above the
national average. Most of the normal superphosphate (low analysis
P^O^) is consumed in the southeast. An advantage of normal superphosphate
4-114
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over its higher analysis rivals is its high sulfur content, a necessity
for tobacco soils.
Operations of NPK granulation plants are especially designed to
chemically mix fertilizer materials, mainly for local use. They pur-
chase phosphoric acid, run-of-pile triple superphosphate, phosphate rock,
run-of-pile normal superphosphate, ammonia, potash, and sulfuric acid
and various other raw materials. Their product is a highly vater
soluble, balanced plant food of guaranteed analysis in nitrogen,
phosphate, and potash ingredients. These NPK plants serve as a dis-
tributor of products from the primary phosphate producers.
Another group of distributors are the bulk blenders. Bulk blender
operations mechanically mix granulated products, whereas NPK plants
chemically mix and granulate. They, like NPK plants, offer special
recipes mixed for the individual farmer and thus guarantee a complete
plant food in terms of nitrogen, phosphate, and potash,
b. Competition
The fertilizer industry markets some thousand grades of products
throughout the country. Distributors with bulk blending operations
will favorably compete with NPK producers because of the low investment
required for blending equipment, low operating cost of bulk blenders,
and the ability to offer both liquid and dry fertilizers. The NPK
producer could do the same but would still have heavy fixed costs in his
chemical dry-mix plant.
From the primary producer's view competition is severe as the
result of overexpansion in phosphoric acid and concentrated phosphate
capacities. Only those firms with both large processing facilities and
vertical integration with ownership of rock and/or sulfur resources can
have a price advantage. The co-operatives enjoy a special situation—
they have a captive market and they have certain tax advantages. In
the late 1960's, exports have served as an outlet for surplus production:
in 1968, exports accounted for 30 percent of triple superphosphate produced
and 32 percent for ammoniated phosphates.
4. Trends
a. Capacity and Production
Since 1965, the phosphate industry has been plagued with over-
capacity. Growth in production between 1960 and 1965 was substantial
4-115
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for the concentrated products—notably, wet phosphoric acid, .triple
superphosphate, and ammoniated phosphate. (Normal superphosphate
sharply declined during the same period). Growth was stimulated by
advances in wet phosphoric acid technology and by government restriction
on land under cultivation. The restriction on cultivation sharply
increased demand for concentrated nutrients for increased crop yields.
Indications of overcapacity in wet phosphoric acid is shown in the
following data:
Year
Production
(1000 Tons P205)
Operating Ratio
(Percent)
Capacity
(1000 Tons P205)
1961
1,213
61.0
1,981
1965
2,682
52.0
5,148
1969
3,067
60.5
5,979
1970
4,165
69.5
5,979
Apparently at the expense of the ammoniated phosphates, triple
superphosphate, which had grown rapidly through the early 1960's,
topped out in 1965 and declined through 1970. Its use in mixed ferti-
lizers has sharply declined but by bulk blenders is still rising. The
rise in ammoniated phosphates has been good for both NPK and bulk blenders
since both groups deal in this product. Bulk blenders seem to be gain-
ing in their share of the markets. Statistics for two comparable years
show that bulk blenders rose in number from 200 in 1950 to 4,140 in
1968.
Because of the low price of ammonia and improvement of phosphoric
acid technology, ammoniation of phosphates will continue to increase for
some time in the future. As a partial supplier of available nitrogen,
diamraonium phosphate will cut into nitric acid production for nitrate
fertilizer, discussed elsewhere in this report,
b. Price, Sales and Profits
Prices have declined for all phosphate fertilizers during the
1960's. Diammonium phosphate fell from $120 per ton in 1962 to $94
in 1970; triple superphosphate, from $84 per ton in 1967 to $75 in 1970;
phosphoric acid, from $79 per ton in 1963 to $55.50 in 1970. Price
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declines, also present in nitrogen and potash, have obliterated profits.
According to the Fertilizer Institute, basic fertilizer producers
(excluding distributors) suffered losses from 1967 through 1969. In
1970, the industry finally turned the corner to making a profit. A
comparison of financial facts for 1969 and 1970 from the Institute is
shown in Table 4-26.
TABLE 4-26. - FERTILIZER INDUSTRY STATISTICS
~1969 1970
Net Sales (millions) $1,430 $1,680
Gross Profit (millions) 175 308
Selling, general and administrative
expenses (millions) 253 317
Other Income (millions) 7 24
Net earnings before interest and
taxes (millions) -70 15
as percentage of sales -4.3% 0.8%
Average retail price per ton 53.26 56.25
Average time between sale and
payment (days) 116 119
5. Economic Impact of Control Costs
a. Impact on a Plant
To show the impact of air pollution control costs, a model
plant approach was used to typify operating patterns of two competitive
situations—namely, an NPK plant and a diammonium phosphate plant.
The latter sells its product directly to a distributor (fertilizer,
feed, and grain dealer) or to a bulk blender. The former may be its
own distributor. The basic model plant discriptions are shown in
Table 4-27, and abbreviated income statements are shown in Table 4-28.
The magnitude of air pollution control costs is shown in the
income statements for two model plants. Both plants are assumed to
purchase necessary raw and intermediate materials from outside sources.
The NPK plant may be representative of many granulation plants—
granulating either run-of-pile normal or triple superphosphate. The
diammonium phosphate model plant may typify an efficient, large plant;
however, integrated firms with corporate reserves of raw materials would
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TABLE 4-27. - BASIC DESCRIPTION, FERTILIZER PLANT
Plant Type
DORR-OLIVER TVA
Product
12-12-12
16-48-0
Capacity, Tons/hour
17.5
25
Construction Cost, without Dust Control
1966*
$1
,700,000
$1,950,000
Control Investment
$
75,000
$
125,000
Production, Tons/year
$
50,000
120,000
Average Price to Distributor, 1970
$
58.70
$
86.70
Farmer's Price, 1970
$
66.00
$
94.00
Excludes land, off-site facilities, and railroad siding
TABLE 4-28, - ANNUAL INCOME STATEMENT, FERTILIZER PLANT
(Thousands of Dollars)
NPK
Diammonium Phosphate
Without
With
Without
1 With
Control
Control
Control
' Control
Sales
2,935
2,935
10,400
10,400
Cost of Goods Sold
2,910
2,910
9,985
9,985
Added Control Cost
0
34
0
64
Net Income Before Tax
25
-9
415
351
Income Tax
12.5
0
207
175
Net Earnings
12.5
-9
208
176
Cash Flow
182.5 i
168.5
403
383.5
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show better profitability than the model plant.
c. Impact on the Firm
A few large firms, possibly a dozen, produce the majority of
concentrated phosphate fertilizers in this industry. These firms are
usually involved in natural resource exploration and development, in
support of their phosphate production. Depletion allowances for the
resources used provide a source of funds over and above production
activities. Their need to raise capital for emission control equipment
does not pose a serious problem.
The smaller firms engaged heavily in the mixed fertilizer
business may be seriously hampered. Much of the older, inefficient
equipment will be shut down. (This trend was noted in recent experience
in the questionnaire survey of the phosphate industry.) NPK plants in
general will face the brunt of the economic impact of air pollution
control requirements for the industry. Whether or not they continue
operations will depend on the financial resources of the firms owning
the plants. Many of said firms, including regional co-operatives, are
involved in other agricultural operations such as marketing of commodi-
ties and distribution of agricultural goods. They usually operate on
a county or statewide basis and control prices in the areas they serve.
Their financial positions would allow them to support investments for
emission control for existing operations or to convert existing facili-
ties to bulk blending, which is not a significant pollution source.
d. Demand Elasticity and Cost Shifting
The aggregate demand for phosphate fertilizers appears bright
for the future. As population increases, acreage for cultivation will
decrease as urbanization takes up much of the land suited for high crop
yields; remaining usable land will require larger nutrient additions.
Thus, because no substitutes exist for readily available, water soluble
phosphate, nitrogen, and potash, the future of the mixed fertilizer
business looks good.
Air pollution control costs will be shifted to the farmer to
the extent reflected in the full increment for diammonium phosphate—
namely, $0.53 per ion of fertilizer or the equivalent of $0,008 per
unit of nutrient (1 unit equals 20 lbs.). This will result in a price
increase of only 0.5 percent for average commercial fertilizer products.
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Triple superphosphate and granulation operations will have to absorb
at least half of the added cost of control due to the capacity growth of
diammonium phosphate as new diammonium phosphate plants replace triple
and normal superphosphate plants,
e. Effect on the Industry
Normal superphosphate is declining significantly. Since the
cost of pollution control is minimized by incorporating it into a
concentrated product, diannnonium phosphate, economic benefits should
accrue to the bulk blenders and eventually the farmer. This will re-
inforce the present competitive advantage bulk blending has over gran-
ulating NPK. According to the Bureau of Census manufacturers' data
for 1967, the average price of mixed goods sold by bulk blenders was
$54.20 per ton. Mixed goods produced by NPK plants sold for $55.19
per ton.
Prices of products rose in 1970 for the first time in 4 years;
thus, the overcapacity situation in the industry is improving, although
profits may be slow in following. As long as supplies of raw materials
remain in abundance, pollution control should not restrict the industry
from regaining former profitability.
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Primary Aluminum
1. Introduction
a. Nature of Product and Process
Aluminum does not occur naturally in metallic form, but
as an oxide in a wide variety of ores. Although it can be produced
from almost any ore, bauxite is most economical and virtually all
aluminum is produced from this source. The ore is processed to
remove impurities and chemically combined with water, leaving alumina
(aluminum oxide), from which aluminum is produced by an electrolytic
process.
Metallic aluminum Is produced by passing an electric
current through a molten bath of alumina dissolved in cryolite
(Na^AlFg) which serves as the electrolyte. This is accomplished
in a large carbon-lined steel pot holding the alumina solution,
with carbon anodes suspended from above and extending down into
the solution. The carbon combines with the oxygen in the alumina,
gradually consuming the anode. The aluminum gathers at the bottom
of the pot and is periodically syphoned off. The pots are run
continuously over long periods of time with alumina added as
necessary to maintain the necessary solution and the anodes
gradually lowered Into the bath to maintain the required position.
Three types of pots are employed, distinguished by
the type of anode and the location of the spikes through which the
current Is fed to the pot. Prebaked systems use anodes that are
carbon blocks separately formed and baked before use. In the
Soderberg system an unbaked carbon paste is fed into a casing in
which it is baked by the heat of the process as it is lowered, with
additional paste feeding in constantly from above. Two types of
Soderberg pots are used: horizontal spike, with the spikes on the
side of the pot, and vertical spike, with the spikes on the top.
All three types of pots are currently in use in the
Industry, Their differences are noted here because they directly
affect the rate of pollutant emissions and the efficiency and cost
of control. The pots are operated in large cell rooms containing
lines of up to 180 pots arranged in a row or loop to provide close
spacing for economical electrical connections.
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b• Emissions, Controls, and Cost of Control
Particulates are the only emissions considered in this
study. Particulate emissions from the potlines in primary aluminum
plants in 1967, with 73 percent control, were 31,800 tons. At
the same level of controls, there would be 48,700 tons of particulates
emitted by Fiscal 1977.
The emission control systems required for even close
approach to the applicable standard are very complex because of
the extremely fine nature of the particulates and the large gas
volumes which must be handled. Each pot must be hooded and vented
to a primary collection system to capture as much of the emission
as possible with minimum gas flow. The proportions of particulates
captured by the best possible hooding systems are shown in Table
4-29 for each pot type. Also shown in the table are the overall
control efficiencies attainable for each pot type. These provide
an average control of 97.2 percent for the industry. To meet the
applicable standard each plant should achieve an overall removal
efficiency of approximately 98 percent. As the table shows,
only newer prebaked plants will do so.
The type of pot in use determines what type of primary
control system is required; these systems and the associated removal
efficiencies, are listed in Table 4-30. For the remaining emissions
the pot room itself acts as a hood and is vented to a secondary
control system. All pot rooms require use of cross flow packed
bed wet scrubbers with appropriate water treatment, achieving a
90 percent removal of entrained particulates.
Costs of control for Soderberg pots are significantly
higher, even at the lower overall efficiencies shown in Table 4-29,
because the hooding is relatively inefficient. In addition,
gaseous hydrocarbons from the anode slurry are driven off as the
anode bakes during pot operation. These hydrocarbons must be
flared to avoid fouling the emission control systems, thereby
greatly increasing gas handling problems. These hydrocarbons also
affect the fluorides in the gas stream; only fluorides recovered
from prebaked pots are reusable. Cost savings from reuse of these
fluorides are included in the control costs presented below.
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TABLE U- 2% Particulate Emission Capture by Cell Hoods
Amount of particulates captured Overall control efficiency
Pot Type by best available hooding (Z) attainable (Z) *
New prebaked 95 98.2
Older prebaked 79 97.1
Vertical spike
Soderberg 50 94.5
Horizontal spike
Soderberg 80 97.2
*0nly systems on new prebaked potlines are capable of meeting the
process weight rate standard.
TABLE 4-30. Primary (Cell Hood) Emission Control Systems
Removal
Pot Type Control Systems Efficiency (!!!)
Prebaked
fluidized-bed dry scrubber
99
Vertical Spike
Soderburg
dry electrostatic precipitator
followed by cross flow packed-
bed wet scrubber*
99
Horizontal Spike
Soderburg
wet electrostatic precipitator
followed by cross flow packed-
bed wet scrubber*
99
~Scrubbing water must be treated for water pollution control.
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At the control levels Indicated, it is estimated that
particulate emissions from the primary aluminum industry would be
5,090 tons in Fiscal 1977.
Required investment and annualized control costs have
been estimated, by company, on the basis of projected Fiscal 1977
capacity and summed for the industry as a whole. The required
investment through Fiscal 1977 is estimated to total $922.8 million,
and the annual cost of control for that year is estimated to total
$256.4 million.
Net annual control cost per ton of capacity, after
allowance for recovery of valuable materials from the control
devices, is lowest for firms using the prebaked process—vertical
spike Soderberg cells cost 1.6 times as much per ton and horizontal
spike cells cost 2.8 as much. Depending on the proportions of
systems used, firms with some Soderberg cells will experience an
average annual control cost ranging from 10 to 100 percent higher
per ton of capacity than those required of firms using prebaked
cells only.
For the industry as a whole, annual control cost per ton
of production in Fiscal 1977 is estimated to average $44.14. For
firms using only the prebaked process, it is estimated to be $14
per ton less.
c. Scope and Limitations of Analysis
The engineering and control cost data summarized above
give a firm basis for estimating the costs of control of particulate
emissions for individual firms and the total industry. Besides
particulates, there are other significant pollutant emissions from
aluminum plants (e.g., flourides), but because they are not at this
time subject to specific emission standards, they have not been
included. Adequate financial data on which to base the estimation
of the impact of these costs on firms and the markets are also
available, however, because relatively few firms are involved,
hypothetical model firms were not used to illustrate cost impact.
To avoid specifying costs for actual individual firms (a procedure
which may involve factors such as the overall financing program
of the firm and the intricacies of its tax position not considered
in this study), the impact is discussed in relation to general
trends and patterns which are expected within the industry and the
markets. 4-124
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2. Industry Structure
In 1967 there were eight primary producers of aluminum operating
24 plants. Between 1967 and 19 71, five firms entered the industry
and a sixth is scheduled within the next year. Each of these new
firms will operate only one plant during the period covered by this
study, according to their announced plans.
Plant capacity ranges from 35,000 to 335,000 tons per year.
Plants using the prebaked process cover the whole size range;
horizontal spike Soderberg plants range from 195,000 to 220,000
tons per year, and vertical spike Soderberg plants range from
100,000 to 195,000 tons per year.
The industry continues to be dominated by the three largest
primary producers, but their share of productive capacity has fallen
from more than three-fourths in 1967 to less than two-thirds in 1971
and may approach one-half by 1977. Among the new firms entering
the market since 1967, are several that are primarily engaged in
the production of other nonferrous metals, strongly indicating
continuation of the trend toward an integrated nonferrous metals
industry. Mo re steel firms are also entering the industry. Several
other new firms are wholly or partly owned by major foreign producers
of aluminum.
New construction and expansion of existing facilities caused
a rapid expansion of capacity in 1969 and 1970. A strong but some-
what slower expansionary trend is indicated through 1977. The
average growth rate for 1967 to 1977 in capacity has increased to
5.25 percent annually from the previous 4.4 percent. The growth
rate for production remains unchanged at 5.8 percent annually.
3. Market
Market growth for aluminum has resulted from the development
of new aluminum-using products and from intensive competition to
replace other metals with aluminum in traditional uses. However,
aluminum faces strong competition from various plastics in some
uses. A major factor in the sales growth of aluminum has been its
ability to deliver a fully satisfactory substitute for copper or
steel at a significant cost reduction.
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Important markets for aluminum include automobiles, construction,
electrical products, consumer durables, and containers. In each
of these industries, aluminum has significant advantages in cost
and technical factors for certain uses, but seldom has sufficient
advantage to forestall competition from other materials. Therefore,
despite its concentration, the industry faces a highly competitive
market with substantial price sensitivity.
The major areas of strong competition between aluminum and
plastics are motor vehicles and equipment and miscellaneous
transportation equipment (primarily small boats). Aluminum and
plastic usage in motor vehicles is growing at the expense of
various other metals, textiles, hardboard, glass and nonmetal
materials. Applications of aluminum include trim, motor blocks,
housings for differentials, transmissions and generators, power
steering and brake assemblies and radiators. Plastics are used,
or are expected to be used, for gas tanks, steering wheel housings,
engine oil pans, battery trays, fan blades, lights aid lenses,
cowel panels, glove compartment doors, fender extensions, exterior
trim, wheel covers, and air intake filters. The greatest competition
between aluminum and plastic is for interior and exterior trim items.
The miscellaneous transportation industries include ship and
boat building and repairing and the railroad equipment industries.
More aluminum is expected to be used because of its high strength
to weight ratio. Currently plastics and aluminum account for over
90 percent of all materials used in small boats. A continuation
of the upward price trend for aluminum and the downward trend for
plastics will cut into this market for aluminum.
Exports account for approximately eight percent of shipments
of aluminum. This market is not expected to grow in the next
five years because capacity in other countries is expected to
increase about 60 percent. Imports have risen sharply this year
and a trade deficit of about 900 million pounds is projected.
This compares to a surplus of 296 million pounds in 1970.
It is anticipated that the use of aluminum will again increase
as the total economy picks up strength. In addition, it is
anticipated that the price of primary aluminum would continue
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to rise over the next 6 years, even in the absence of control
costs, following the trend set in the 1960's. Because this
pattern of price increases has been more moderate than that for
copper and steel, aluminum has enjoyed a competitive price
advantage that has been reflected in the substitution of aluminum
for other materials, particularly in the electrical and automobile
industries. Continuation of thi9 pattern justifies the projection
of a higher rate of growth of production of aluminum than for copper,
particularly, through Fiscal 1977.
Within the industry, prices tend to be very similar from
firm to firm, since four firms in the United States and Canada
control approximately 65 percent of the world's output.
A. Economic Impact of Control Costs
Many of the firms in the aluminum industry have recently been
operating as much as 20 percentage points below their best operating
ratio of close to 100 percent, indicating excess capacity for the
present market. For these firms, profit levels are well below
normal. It is probable that these conditions will persist for
several years, until demand more nearly matches capacity, which
will depend in part on how rapidly the general economy improves.
For this analysis it has been assumed that the industry will
be back on its long-run growth curve before Fiscal 1977. Implementation
of controls will probably take place between Fiscal 1973 and Fiscal
1975, so until then, profits of some firms may be temporarily
depressed. In the longer run, however, it is expected that most
firms will shift the major share of annual control cost into
price. The history of the industry clearly indicates that cost
increases are translated into price increases, usually within 3
years, reflecting substantial market power of these firms.
One factor acting against too rapid a price increase for
aluminum is its competitive position with other metals and with
plastics. Steel and copper in particular are competitors in
several markets for aluminum and the price advantage which
aluminum has enjoyed in electrical products and certain structurals
has contributed to the growth of aluminum sales more than propor-
tionately to the 25 to 30 percent of the aluminum market that
they represent. The percentage increase in the price of aluminum
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depends on the percentage rise in the price of copper. In steel-
competitive markets, aluminum prices will probably not rise as much
as in copper-competitive markets. These are reasons why the increase
in aluminum price is expected to be less than the average control
cost per pound of metal.
Other factors may limit price increases in the aluminum
market. The differential cost of production processes is such
that a company operating prebaked cells would need a price increase
of only $0,018 per pound to maintain its revenue from sales.
Since plants of this type dominate the industry, it is unlikely that
the price of aluminum can increase by $0,024, the average control
cost for the Industry. Without an increase of at least this
magnitude, however, it appears that at least two major firms will
find earnings from one-third to one-half of their production
significantly cut and their overall profits thereby reduced.
These firms have significant production capacity in horizontal
spike cells which are expensive to control relative to other cell
types.
The worldwide nature of the aluminum market is also a factor
militating against price increases in excess of those induced by
market demand. Foreign producers may Increase marketing in the
U.S. to an extent sufficient to limit price Increases.
The most likely conclusion of this analysis is, therefore,
that by Fiscal 1977 the price of aluminum will rise by not more
than $0.02 per pound over the price that otherwise would prevail.
This price increase may have a significant adverse effect on the
competitive position of aluminum versus competing materials and
at the same time will not permit all firms to recover their control
cost. All the firms involved appear to be strong enough, however,
to absorb a part of the required cost and adjust to market changes
without the necessity of basic changes in structures or operations.
All firms also appear able to absorb the required control investment
outlays into their investment programs without substantial financial
difficulties.
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N. Primary Copper, Lead, and Zinc
1. Introduction
a. Nature of Product and Process
Primary copper, lead, and zinc metals are produced from
beneficiated mineral ores through process steps involving roasting,
high temperature smelting, oxidation, and finally, refining. The
mineral ores contain the metals in very small quantities—natural
mineral cupric sulfide ores in the U.S. contain about 1.0 percent
metallic copper—and are beneficiated to produce metal concentrates
for the economic extraction of the respective minerals. Copper ores
also contain iron, sulfur, silica, and minute quantities of arsenic,
cadmium, antimony, bismuth, gold, and silver. Lead and zinc ores
contain a higher percentage of the metal and less impurities.
For this study the process considered is extraction or
smelting. In copper extraction, the smelter consists of a
reverberatory furnace and converters (some smelters also have
roasters). The reverberatory furnace melts the metal charge to
form copper matte containing silica and iron along with the copper.
In the converters, air charges blown into the liquid matte separate
the remaining iron and produce resulting blister copper, 99 percent
pure, which is either cast or shipped to other plants for final
refining.
Zinc sulfide concentrates are roasted in Ropp, multiple-
hearth, or other type roasters to separate the sulfur from zinc.
In the roasting step, the zinc sulfide is converted to zinc oxide
calcine. Sintering machines are then used to agglomerate the
calcine material. Recycled dusts and other valuable materials
are added to the sintering to produce the final zinc-bearing
agglomerates. Metallic zinc is extracted by electrolytic
deposition or by distillation in retorts or furnaces. Electrolytic
deposition requires a preliminary step of leaching zinc calcine
with sulfuric acid to form zinc sulfate for the electrolysis step.
Primary lead smelting is similar to zinc smelting in that
the first treatment is sintering for separation of sulfur from the
desired metal. The sintered product is lead oxide, which is reduced
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to lead in a blast furnace and further purified in a lead refining
furnace.
b. Emissions and Cost of Control
Sulfur dioxide is the primary pollutant emitted from the
smelting of copper, lead, and zinc ore concentrates. Sources of
emission are roasters, reverberatory furnaces, converters, and
sinter machines . The emissions are characterized by heavy mass
rates and relatively weak flue gas concentrations from reverberatory
furnaces and uneven pulsating flows from converters. In addition,
the flows are contaminated with small quantities of materials
harmful to human health, such as arsenic, bismuth, cadmium, and
mercury. These factors also make the collection of sulfur
pollutants difficult and costly.
COPPER SMELTERS - Generally, sulfur dioxide emissions
from reverberatory furnaces and converters are uncontrolled.
Control techniques depend on the size of the furnaces, gas flows,
emission rates, plant condition, and degree of obsolescence of
present smelters. (Average age of existing smelters is 40 years.)
For some plants, reverberatory furnaces may have to be replaced
with flash smelters; flue ventilation systems will have to undergo
extensive modification, and converters may have to receive oxygen
enrichment to produce gas volumes sufficiently small for less
expensive control facilities. Control techniques costed for this
report take into account the costs of calcium sulfate and sulfuric
acid recovery and modifications of dry precipitators and flue
gas flows. Other production and process improvements are not
included.
The Investment required for copper smelters is $313
million. Annual costs are $100 million by Fiscal 1977 with full
implementation of controls. Assumed for all three primary nonferrous
industries was depreciation of 15 years, interest rate of 8 percent,
and taxes arid Insurance of 2 percent. No credits were assumed for
collected by-products for any of the three industries.
The 1967 emission level of 2.58 million tons of sulfur
dioxides will increase to 3.34 million tons in 19 77 without new
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controls; full implementation will reduce the level to 535,000 tons.
The 1967 emission level of particulates of 243,000 tons will
increase to 314,000 tons in Fiscal 1977 without net controls;
full implementation of the abatement strategy for sulfur dioxides
will reduce particulates to 286,000 tons.
LEAD SMELTERS - The emission of sulfur oxides is
primarily from sinter machines which account for about 98 percent
of total lead smelter emissions. The gas volume flow is steady
from the sinter machine and is of sufficient sulfur dioxide
strength (about 5 percent) for acid recovery. Unlike the copper
industry, lead smelters have sufficiently efficient particulate
collectors already installed; hence, their replacements are not
included in the cost estimates.
The investment for sulfur acid recovery plants to control
emissions in the lead industry is estimated to be $65 million,
and annual costs are estimated at $15.6 million for full implementation
by Fiscal 1977.
In 196 7, lead smelters emitted 185,000 tons of sulfur
oxides. As a result of abatement, the industry's emissions should
decrease from a projected 213,000 tons to 29,000 tons annually
by Fiscal 1977. The 1967 level of particulates was 34,000 tons.
Particulates should be reduced from a potential 39,000 tons in
Fiscal 1977 to 26,000 tons as a result of implementing the
abatement strategy for sulfur dioxide.
ZINC SMELTERS - The emissions of sulfur oxide from zinc
smelters are basically from those plants that emit dilute off-gas
from roasters and sinter machines. These gas streams usually
contain about 0.5 to 1.0 percent in sulfur dioxide strength.
Recovering sulfuric acid from such a diluted gas is costly.
(Zinc plants that do recover sulfuric acid have concentrated
sulfur dioxide gas streams.) Like the lead industry, dry collectors
are not included in the cost estimates, and it is assumed that the
limestone scrubbers used for removing sulfur dioxide emissions will
also sufficiently remove particulates. Investment required for the
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zinc Industry amounts to $40.7 million, and annual costs under
full implementation are estimated to be $17.7 million by Fiscal 1977.
The assumed controls should reduce the estimated Fiscal 1977
emission level of 555,000 tons of sulfur dioxide to 138,000 tons.
(Emissions for 1967 were 446,000 tons.) Particulates emitted In
1967 were 57,000 tons; the Fiscal 1977 level of 71,000 tons will
not be affected significantly by the abatement strategy for sulfur
dioxide.
c. Scope and Limitations of Analysis
Data for this report were obtained primarily from trade,
industry, financial, and government documents, journals, and
newspapers. Financial analysis of firm Impact was hampered by
the diverse nature of firms within the industry, and by the failure
of integrated firms to disclose profit by product. Because of the
variance of integration—degree as well as kind—within the industry,
construction and incorporation of a model firm to gauge financial
impact was not included in this report. In Its place are conclusions
drawn from a firm-by-firm financial analysis which included
examination of capital structure and cash flows.
2. Industry Structure
a. Characteristics of the Firms
In 1967 there were 19 copper smelters, 6 lead smelters,
and 15 zinc smelters in the United States. At present (1971) there
are 16 copper smelters representing the U.S. smelting capacity of
8 firms; 7 lead smelters representing the U.S. smelting capacity
of 6 firms; and 8 zinc smelters representing the U.S. smelting
capacity of 7 firms. Estimation of smelting capacity is hindered
by variations within the industry of the quantity and quality of
ores, roasting and sintering capacity, and blast furnace capacity
at Individual smelters.
The annual mill capacity in terms of materials handled
for U.S. copper smelters for 1970 was 8,689,000 short tons. Copper
smelter annual capacities for 1967 ranged from 16,000 to 330,000
tons and averaged 101,000 tons. U.S. capacity In 1970 in terms
of materials handled for smelters of non-Missouri lead was
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1,530,000 tons. Plant capacities range from 300,000 to 420,000 tons
with an average of 382,500 tons. Smelting and refining operations
of Missouri lead had an annual capacity of 415,000 tons of pig lead.
Smelter capacities ranged from 90,000 to 225,000 tons with an
average of 138,333 tons. Capacity of zinc smelters for 1970 in the
U.S. was 904,000 tons of slab zinc. Capacities for smelters
ranged from 16,000 to 250,000 tons with an average of 90,000 tons.
Unlike zinc smelters copper and lead smelters are located
near the mine sites. Most copper smelters are in the western
part of the U.S., with the largest amount of copper, in terms of
tonnage of materials handled, being smelted in Arizona. Most
lead smelters are also found in the western U.S., with the
largest smelter capacity located in Missouri.
Copper smelting firms are, for the most part, vertically
as well as horizontally integrated. Among the 8 firms, 7 are
principal sellers and refiners of copper, and 3 are also smelters
of lead and zinc. Some also have operations in foreign countries,
b. Resources
COPPER - The major raw material (ore) of copper smelters
has been declining in grade. The average recoverable content of
U.S. ores declined to an alltime low of 0.60 percent in 1968. This
is explained in part by the increasing demand for copper which
made production from lower grade ores economical and, in turn,
increased in the quantity of materials handled at the mine and
smelter and thus the costs that go with deeper mines and benefication
required to produce copper from these ores. As production has
increased the work force has remained constant for about the last
two decades.
LEAD - Lead ores are obtained primarily from underground
mines. The cost is a function of grade, location, and co-products.
Although higher in grade, the ores in the far western states are
more expensive to mine than those in Missouri. Increased use of
mechanized equipment has increased the skill level required in
the industry. The more capital intensive techniques and the more
highly skilled work force have, in turn, resulted in an upward
trend in productivity.
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ZINC - Zinc ores too are obtained primarily from underground
mines. Mining costs vary widely depending on ore quality, quantity,
and location. Labor accounts for about 50 percent of the direct
mining costs. Productivity has increased but the labor force
employed has decreased due to newer technologies which require
a smaller but more highly skilled labor force.
3. Market
The form of copper, lead, and zinc coming out of the smelters
requires further refining and processing, which is done in many
cases by the same firm that smelts the ore.
a. Competitive Products
COPPER - Aluminum, plastic, steel, and glass serve as
close substitutes for copper. Superconductive alloys for cables
in the communications area will add to the increased competition
copper receives from aluminum; aluminum and stainless steel also
compete with copper in the building industry. Plastic, a substitute
for copper primarily in the tubing area, may find an even more
favorable competitive position if building codes are relaxed to
allow use of plastic as well as copper.
The industry has sought recently to combat this competition
with increased efforts in market development activities. Projects
undertaken include the copper electric car, the sovent plumbing
system, the desalting test loop, and a copper data information
center. In addition, more economical ways are being sought to
metallurgically bond copper with other materials.
LEAD - Lead substitutes Include cadmium, nickel, silver,
zinc, titanium, polyethylene, plastic, galvanized steel, copper,
cement, and aluminum. Cadmium, nickel, silver, and zinc are
substitutes for lead in the production of specialized storage
batteries. Titanium and zinc pigments are steadily replacing
lead in interior as well as exterior house paints, but not in
paints used to provide for rust and corrosion protection.
Polyethylene along with metallic and organic materials have
served as replacements for lead in underground cable coverings.
Plastic, galvanized steel, copper, aluminum, and cement compete
with lead in construction needs.
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The industry has attempted to create new products and to
improve existing ones. In the vehicle propulsion field, the battery-
powered vehicle used for short driving distances seems to present a
future market for lead acid batteries. In most of the other market
develop men t areas, industry has sought to combine the advantages of
lead with those of other materials to create a highly competitive
product. Examples include lead-plastic sheathing materials, lead-
plastic container materials, lead-plated steel (processed at high
speeds), and lead-bearing enamel for aluminum.
ZINC - Aluminum, magnesium, plastic, cadmium, and specialty
steels are substitutes for zinc. Aluminum and magnesium, along
with plastic, compete with zinc in die casting. For low tonnage
anticorrosion requirements, ceramic and plastic coastings, specialty
steels, and electroplated cadmium and aluminum are substitutes.
Aluminum competes with zinc in roofing and siding. In the paint
and ceramic industries, titanium pigments are a close substitute.
Zinc has been replaced to some extent as a reducing agent in chemical
reactions by aluminum and magnesium.
Research efforts have been underway to develop applications
of zinc coatings in areas not only where its corrosion protection
characteristics are required, but also where cyclic loading and
welding are important. Other areas of research include zinc-fin
radiators, zinc wheels, and wrought zinc tubing,
b. Pis tribution
The major end uses of copper are in electrical equipment
and supplies, used in construction, industrial machinery, transporta-
tion, and ordnance. Lead is used primarily in transportation,
construction, ordnance, packaging, communications equipment, and
printing and publishing. End users of zinc Include construction,
transportation, pigments and compounds, plumbing and heating, and
industrial machinery.
Other supplies of these metals include secondary smelting
and importing. Imports are in the form of ore and/or refined metals.
About 16 percent of the copper produced in the U.S. is from
secondary smelting. Of the total U.S. refined copper production,
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about 12 percent is from foreign ores. The U.S. is a net importer
of unrefined copper and a net exporter of refined copper.
About half of the lead produced in the U.S. is from
secondary smelting. Approximately 20 percent of the lead refined
in the U. S. is from imported ores. The U.S. is a net importer
of lead.
Secondary smelting accounts for 20 percent of the U.S.
zinc production. About 50 percent of the U.S. refined slab
zinc production is from imported ores, and the U.S. is also a
net importer of refined zinc.
c• Protection: Taxes, Tariffs, Government Stockpiling
COPPER - U.S. copper producers receive a 15 percent
depletion allowance for their domestic as well as foreign
operations. Duties on copper ore and metal imports suspended
to July 30, 19 70 by Public Law 90-165 will be lowered yearly
to January 1, 19 72 when 0.8 cents per pound will be charged on
ore and unwrought copper, waste, and scrap. The government
stockpile was about 260,000 tons at the end of 1968 with no
order at present for enlarging the stockpile.
LEAD - The lead industry receives a 23 percent depletion
allowance on domestic production and 15 percent on foreign production.
Present import duties on ore are 0.75 cents per pound of lead in
ore and 1.0625 cents per pound of lead metal. A price support of
75 percent of the difference between 14.5 cents per pound of
contained lead and the average monthly market price for common
lead at New York is maintained. Lead is also a stockpiled mineral
with a present surplus position.
ZINC - The zinc industry also receives a 23 percent
depletion allowance on domestic production and a 15 percent
allowance on foreign production. The free world duty on zinc
ore and fume is 0.67 cents per pound and for zinc metal is 0.7
cents per pound. (The respective duty for some communist countries
is 1.6 7 cents per pound and 1.75 cents per pound.) The government
stockpile of zinc is nearly double the target set in 1969. The
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price support level Is 75 percent of the difference between 14.5
cents per pound of contained zinc and the average monthly market
price for prime western zinc at East St. Louis.
4, Industry Trends
Investment fwids have been expended for mine exploration
and development at the expense of smelter modernization. The tax
advantages of the depletion allowance encourage mining large
quantities of ore and building ore reserves.
a. Copper
Near record output from domestic mines and smelters
plus a general slowdown of the world economy have lead to an
easing of copper prices. However, current nationalization
actions and industry strikes may be expected to cause prices to
rise somewhat in the future.
b. Lead
Uninterrupted production from new mines and smelters
in the late 1960's put U.S. ore and refined lead output at record
levels in 1969. However, the slowdown of the national economy
together with increased lead supplies has resulted in a softening
of lead prices. Moreover, the possible regulations against the
usage of tetraethyl and tetraaethyl lead in gasoline will adversely
affect prices over the next five years.
c. Zinc
Production and consumption of zinc was up in 1968, although
zinc prices have not declined as have those of copper and lead,
but the demand has been weakened recently due primarily to the
slowdown in the national economy, the auto strike, and the trend
toward smaller cars. The price rise has not been enough to offset
the declining demand. The result has been the closing of some
marginal smelting operations and, in some cases, moving these
operations to mine sites abroad.
5. Economic Impact of Control Costs
a. Impact on Firms Within the Industry
Examination of balance sheets and income statements for
most of the firms engaged in primary copper, lead, and zinc
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smelting has led to the overall conclusion that sufficient cash
flows could be generated to pay the annualized control costs.
Effects of control costs on profits and return on investment
(ROI) vary throughout the industry, but they would not be severe
enough to warrant plant closing. With the additional burden of
air pollution control costs, smelters located away from mine
sites may try to reduce total operating costs by moving the plant
to the mine site.
b. Impact on the Industry
Industry impact is a function not only of economic and
market development trends but also the air pollution control
expenditures incurred by the producers of close substitutes and
the cost-shifting practices of these competitors (some primary
nonferrous firms also produce substitute products).
Projected annual U.S. growth in demand through Fiscal 1977
for copper, lead, and zinc is 2.6 percent, 1.4 percent, and 2.2
percent, respectively. The primary producers' share of the market
will depend on the product mix and the extent of the air pollution
control cost shifting by secondary producers. The market share
of primary copper producers should remain the same. The likelihood,
however, of requirements for unleaded gasoline and the loss of a
large portion of the current market for primary lead indicate that
most of the growth forecast for lead consumption will be satisfied
by secondary producers. The shares of primary and secondary zinc
producers in satisfying projected demand should remain the same;
however, it is likely that more primary needs will be satisfied
by smelters located near mine sites in foreign countries.
c. Demand Elasticity and Cost Shifting
Most of the factors affecting demand elasticity and
cost shifting have been discussed earlier in this report, but
no mention has been made of the control costs for producers of
close substitutes and whether these costs would be shifted.
Producers of secondary copper, lead, and zinc will probably
pass on fully their control costs. Producers of close substitutes
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such as primary aluminum and steel will also be faced with
rather significant cost increases. Control costs to be
experienced by most primary smelters of copper, lead, and zinc
are 3.2 cents per pound, 2.2 cents per pound, and 2.2 cents
per pound, respectively.
Producers will probably be able to pass on only a portion
of these added costs. This will depend primarily upon future
world market conditions, and as such is highly unpredictable.
The future market for copper will be dependent primarily upon
the action of the foreign governments which have recently
nationalized production. The lead industry currently faces
a long-run decline in demand because of the expended trends
toward low-lead gasoline and smaller cars. The future demand
for zinc appears to be growing steadily. This suggests that
zinc producers will have the least difficulty in passing on
cost increases; and lead producers the most difficulty. No
statement can be made about the magnitude of such increases.
/»-! 39
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0. Secondary Nonferrous Metals
1. Introduction
Four industries encompassing those firms that reprocess copper,
aluminum, lead, and zinc scrap will be covered in this section.
Although mutually integrated to some extent, each will be individually
considered where practical.
a. Nature of Product and Process
COPPER - The secondary copper industry produces about 35
percent of the total copper consumed in the United States. Most
output in the form of unalloyed metal is reclaimed by the primary
copper producers as electrolytic copper and is not considered in
this section of the report. Of the remaining secondary production,
virtually all of the metal is recovered in alloy form.
Almost all the copper-based alloys are brass or bronze,
although several are actually misnamed. Technically, brass is a
copper-based alloy with zinc as the major secondary component.
Bronze is copper-based with tin as the major secondary component.
Lead, iron, aluminum, nickel, silicon, and manganese appear in
certain classifications. The choice of the specific alloy com-
position is dependent upon the stress, corrosion, and machining
conditions to which the product will be subjected.
The basic raw material of the brass and bronze industry is
copper-bearing scrap from obsolete consumer and industrial products.
The scrap is often contaminated with metallic and nonmetallic
impurities and thus usually requires some preprocessing. Common
techniques include hand sorting, magnetizing to remove tramp iron,
stripping or burning to remove insulation, sweating to remove
low-melting-point metals, and gravity separation in a water medium
to concentrate fine copper-bearing materials.
Cleaned scrap is charged into a furnace where it is melted,
smelted, refined, and alloyed to meet the specifications for one of
several standard brass and bronze products. The most common type of
furnace in use in the industry is the stationary reverberatory
furnace which can vary from 10 to 100 tons in batch capacity and
from 24 to 48 hours in batch processing time. Cylindrical rotary
furnaces are used for smaller batches, seldom exceeding 30 tons,
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and crucible furnaces are used for even smaller quantities or for
special purpose alloys.
ALUMINUM - The secondary aluminum industry produced
18.7 percent of the nation's aluminum supply in 1967. It
processes scrap into finished alloys of varying consistencies.
Approximately 90 percent of output is consumed by the casting
sector of the aluminum fabricating industry, represented by nearly
2,800 small, independent and captive foundries.
There are four major steps in processing: (1) sorting
and preparing the scrap; (2) smelting the feed in reverberatory
furnaces or, occasionally, in small rotary furnaces; (3) cleansing
and refining the molten metal by fluxing and filtration; and
(4) pouring the finished alloy into molds for cooling and
hardening.
LEAD - The secondary lead industry accounted for 59 per-
cent of domestic production and 44 percent of the nation's lead
consumption in 1967. It processes lead scrap into lead oxide and
various alloys and fabricates the recovered metal into many final
products, including storagB batteries, paint pigments, solder and
type, cable coverings, and castings.
There are four major steps in the recovery of lead:
(1) sorting and preparing the scrap; (2) smelting the feed in
reverberatory furnaces or, occasionally, in cupolas; (3) refining
and purifying the molten metal by oxidation of impurities and, if
lead oxide drosses are charged to the furnace, reduction to metallic
lead with the addition of carbon; and (4) intermittently tapping
the finished metal for molding.
ZINC - In 1967, zinc recovered from scrapped materials
accounted for 17 percent of the national output of that metal.
Slightly over half of this recovery was performed by primary zinc
producers and chemical plants, and the remainder by firms
principally engaged in secondary smelting. Only the latter are
considered in this section.
Most of the zinc recovered by the secondary industry is
in the form of redistilled slab or zinc dust. The metal is sold
in the same markets as primary zinc—construction, transportation,
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electrical equipment and supplies, plumbing and heating, industrial
machinery, and pigments and compounds. The principal steps in
processing zinc scrap are as follows: (1) sorting and preparing
the scrap; (2) melting or sweating; and (3) refining the zinc metal
through distillation.
b. Emissions and Cost of Control
COPPER - The refining furnace is the principal source of
particulate emissions in the brass and bronze industry. Refining
is a process in which a flux is used to remove metallic impurities
from the metal. By far the most commonly used flux is compressed
air (oxygen), which is bubbled through the molten metal to oxidize
impurities. The oxides so formed are lighter than the molten metal
and are removed from the melt by entrapment in the slag covering
or by entrainment in the gases leaving the furnace. The most vola-
tile metal oxides (especially zinc and lead) condense to form very
fine (submicron) fumes which are extremely difficult to collect.
In addition to the metallic oxides, fly ash, carbon, and mechanically
produced dust are often present in the furnace exhaust gases. The
exact composition of the particulate matter depends upon the fuel
used, alloy composition, melting temperature, furnace type, and
many operating characteristics.
Particulate emissions from the brass and bronze industry
were estimated to be 11,000 tons in 1967. Maintenance of the 1967
control level of 57 percent would increase emissions to 14,000 tons
by Fiscal 1977. The installation of fabric filters would achieve the
process weight code requirements by reducing emissions to 1,600
tons in Fiscal 1977; the implementation of these control systems
would require approximately $2.6 million in investment costs and
§.5 million in annual costs.
ALUMINUM - The most severe air pollution problem in the
processing of secondary aluminum occurs when chlorine is used as a
fluxing agent. As chlorine is bubbled through the molten metal,
it both agitates the bath and combines with certain impurities such
as magnesium and dissolved hydrogen. The fumes vented from the
furnace include A1C1^» Al^O^, and HC1 and unreacted chlorine.
This presents an extremely difficult control situation because
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of the corrosiveness of the acid mist and the fact that much of
the particulate matter is in the submicron size range.
Aluminum sweating furnaces present a smaller but still
significant problem to control the smoke caused by the incomplete
combustion of the organic constituents of rubber, oil and grease,
plastics, paint, cardboard, and paper.
Particulate emissions from secondary aluminum operations
were estimated to be 6,000 tons in 1967. Assuming that the 1967
control levels of 60 percent for reverberatory furnaces and 20 per-
cent for sweating furnaces were maintained, emissions would in-
crease to 11,000 tons by Fiscal 1977. The installation of high-
efficiency venturi scrubbers on reverberatory furnaces, and fabric
filters on sweating furnaces would allow the industry to achieve
the process weight standard. This would reduce Fiscal 1977
emissions to 2,500 tons. The investment cost is estimated to be
$28 million with an annual cost estimated at $8 million.
LEAD - Purification in reverberatory furnaces constitutes
the most serious air pollution problem in the secondary lead indus-
try. Air is passed through the molten metal to oxidize impurities
such as iron, zinc, and antimony. While most of the metallic oxides
are removed as a dross from the bath surface, some fine particulate
matter escapes with the flue gas.
The reduction of lead oxide in blast furnaces or cupolas
is another significant source of air pollutants. The primary
emission from this operation is particulate material entrained by
the turbulent flow of gases upward through the charge materials
(lead, oxide, coke, and limestone).
Because of the toxic nature of lead compounds, the secondary
lead producers have achieved a fairly high degree of control. It
is estimated that the 1967 level of control was 90 percent and emissions
amounted to 6,100 tons. If this control level was maintained, emissions
would grow to 8,200 tons by Fiscal 1977. The process weight code could
be achieved by installing fabric filters on reverberatory and blast
furnaces which are not already well controlled. This would reduce
emissions to 1,600 tons in Fiscal 1977 for an investment cost estimated
at $764,000 and annual cost of $150,000.
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ZINC - Sweating processes separate zinc from metals having
higher melting points and from nonmetallic residues. Sweating,
usually conducted in kettle furnaces, reverberatory furnaces, or
rotary furnaces, may cause emissions of smoke and oily mists from
the combustion of organic material, zinc or zinc oxide particles,
other metallic oxides, and the products of fuming fluxes (e.g.,
(e.g., ammonium chloride).
Distillation of zinc in retort furnaces purifies the
metal and produces powdered zinc or zinc oxide. In this operation,
zinc is vaporized in the retort and then passed through a condenser,
where it may be either rapidly cooled to below the melting point
to produce powdered zinc or slowly cooled to above the melting
point to produce liquid zinc for manufacturing slabs. When zinc
oxide is produced, the condenser is by-passed and excess air is
introduced to both cool and oxidize the zinc vapor; a baghouse is
usually employed to collect the oxide. Zinc and zinc oxide fumes
are the primary emissions from the distillation and oxidation
processes.
Particulate emissions from the secondary zinc industry
were estimated to be 800 tons in 1967. If the 1967 control levels
of 20 percent for sweating furnaces and 60 percent for distillation
furnaces were maintained, emissions would increase to 1,200 tons by
Fiscal 1977. The installation of fabric filters on both types of
furnaces would achieve the process weight code. This would reduce
Fiscal 1977 emissions to 100 tons and would require an investment of
$526,000 with an annual cost of $62,000.
c* Scope and Limitations of Analysis
Because many of the firms are small, locally oriented, or
subsidiaries of major corporations, data describing several of the
characteristics of the secondary metals industries was often lacking.
Voids were particularly prevalent in capacity and financial data.
For several firms it was not possible to estimate key parameters
such as operating ratios and profits per ton of output before and
after control.
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2. Industry Structure
a. Characteristics of the Firms
COPPER - The secondary copper industry may be divided
into two segments: (1) Brass and bronze manufacturers account for
most of output—60 plants produce brass and bronze ingots and 125
brass mills produce copper alloy sheets, rods, plates, and tubing;
in 1967, brass and bronze manufacturers produced 898,000 tons of
copper-based alloys. (2) Secondary smelters refine scrap back,
into unalloyed copper. They tend to be small, independent operators
and often reclaim other metals as well as copper; in 1967, these
produced 63,000 tons of refined copper.
ALUMINUM - The secondary aluminum industry is commonly
divided into three sectors: (1) Secondary smelters generally process
scrap to ingot form, which is then sold to fabricators. Comprising
by far the largest portion of the industry, secondary smelters
normally refine around 70 percent of total processed scrap. For
1969, these companies accounted for 708,000 tons of the total
reported 1,057,000 tons of scrap consumed. (2) Nonintegrated
fabricators, the second largest group, normally process 15 to 17
percent of the scrap supply; for 1969, these accounted for 151,000
tons of the total reported scrap consumed. (3) The primary aluminum
industry itself processes scrap generated from its own operations
and accounts for the remaining 13 to 15 percent of total scrap
consumed.
For the base year 1967, the secondary aluminum industry was
represented by 73 firms and 88 plants, excluding primary producers.
Of the 88 plants, 30 are strictly aluminum smelting operations and
the remainder have only minimal interests in this particular metal.
Eight companies control most of the capacity and are considered to
be the major smelters.
LEAD - The secondary lead industry is normally divided
into two sectors: (1) Primary lead refiners use a small amount of
scrap as raw material input; for 1967, these consumed only 2 per-
cent of the total reported scrap and produced about 10 thousand
tons of secondary metal. (2) Secondary smelters and re-melters
processed 98 percent of consumed scrap in 1967 and produced nearly
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544 thousand tons of secondary lead with 235 firms and 268 plants;
only 32 firms (owning 65 plants) are of significant size, with the
remainder being small, local firms of under 20 employees or having
minimal interests in lead. Two of the large firms control 33 plants
and almost 50 percent of the secondary capacity.
ZINC - The secondary zinc industry is composed of 12
firms and 15 plants. Most of the firms process other metals as
well as zinc. Five of the plants produce zinc dust only, while the
remainder produce a mixture of slab zinc, zinc dust, zinc oxides,
and zinc alloys. In 1967, the industry produced a total of 73,000
tons of zinc products.
b. Operating Characteristics
COPPER - As the supply of recoverable scrap has grown,
capacity in secondary smelters (for producing unalloyed copper) has
increased accordingly. Most of this expansion has been through the
addition of new furnaces in existing plants, rather than the entry
of new firms into the industry. The operating ratio in this segment
of the industry is high, probably approaching 90 percent.
Brass and bronze production is more directly related to
the demand for copper alloy products than to the supply of copper-
based scrap. Since World War II, there has been little increase
in capacity for this segment of the industry. The operating ratio
is estimated at 80 percent.
ALUMINUM - Complete capacity data for the aluminum
industry is unavailable and operating ratios cannot be calculated.
However, the industry normally operates at healthy rates. Markets
have been favorable. The scrap supply has grown rapidly. The
industry has expanded greatly over the past decade. Growth in
recent years has been chiefly through enlargement of existing
plants rather than the building of new ones; the trend has been
larger reverberatory furnaces, with capacities ranging up to 100
short tons of aluminum per day. The industry is technologically
advanced and is able to maintain a high degree of control over
alloy content, impurities, and heat.
LEAD - Major producers of secondary lead normally
operate in the range of 85 to 90 percent of smelting capacity.
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Production is cyclical, depending on final product need and the
health of the economy, but it fluctuates less than primary produc-
tion. Unlike many other secondary metal industries, the secondary
lead industry normally accounts for over half of the domestic lead
production and has a substantial influence on market trends. These
firms are well integrated and use much of their production in the
fabricating of final consumer products. In times of strong demand,
secondary producers call on primary producers to supply lead for
fabricating operations; when demand slackens, secondary producers
can supply a much greater percentage of their own fabricating needs.
ZINC - Complete capacity data for the zinc industry is
not available. It was therefore difficult to determine operating
ratios accurately, but it is assumed that they are quite low,
probably close to 70 percent. During the past few years, little
new capacity has been added. Production rates (particularly for
redistilled slab zinc) have declined, due mainly to a shortage of
scrap suitable for reclaiming,
c. Resources
COPPER - Copper-bearing scrap is usually classified as
either new or old. New scrap refers to newly manufactured materials-
drosses and residues from smelting processes as well as turnings,
clippings, punchings, and defective articles from fabrication
operations. In 1967, new scrap accounted for 56 percent of total
scrap copper consumption. Old scrap consists of obsolete, domestic,
and industrial products of high copper content; examples include
copper wire, cable, pipes, valves, radiators, and ship propellers.
Brass and bronze manufacturers purchase most of their
scrap through dealers who classify it by type and provide an
approximate chemical analysis of each lot. Major raw materials
of these manufacturers include primary copper (10 percent of the
total copper in their products), zinc, tin, lead, and other alloying
constituents as well as fuel oil or natural gas.
ALUMINUM - Aluminum scrap is also classified new and old.
New scrap, a byproduct of current fabricating operations, includes
borings and turnings, clippings and forgings, and residues from
various melting operations. Major suppliers are the aircraft,
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automobile, aluminum fabricator, and primary aluminum industries.
Aew scrap accounts for approximately 85 percent of the smelter's
mix. Old scrap comes from used or out-dated products; examples
are dismantled automobiles, household appliances, junked airplanes,
scrap aluminum foil, wire and cable, and beverage cans. The aviala-
bility of old scrap is expected to increase or maintain its percentage
(15%) of the smelter's supply, both types are normally gathered by
dealers, who segregate and bale it and then ship bulk loads to
the secondary smelters. For 1967, reported scrap consumption by
secondary producers amounted to 883,000 short tons (760,000 tons if
consumption by primary producers is excluded).
Fuel consumption, a major cost input, is natural gas
or fuel oil, depending on economic conditions and availability.
Estimates of fuel consumption vary in the literature but seem to
range from 4 to 7 million B.t.u.'s per short ton of metal created.
Variances may be explained by the melting properties of the
different alloys being formulated. For aluminum, the low melting
point (1220°F) and high thermal conductivity imply easy melting;
however, it is an excellent reflector of radiant energy—a property
that hampers thermal transfer in reverberatory type furnaces. Fuel
efficiency for melting is considered good at 30 percent of input.
LEAD - Because lead has a high resistance to corrosion, it
readily lends itself to reclamation through scrap processing. Lead
scrap, like copper and aluminum scrap may be classified as new and
old. New scrap is a byproduct of current fabrication operations;
for 1967, lead oxide drosses and residues from manufacturing and
foundry sources amounted to 101,000 tons of new scrap. Old scrap
comes from obsolete or worn out products—batteries, cable coverings,
piping, type metal, solder, common babbit, and lead sheet; in 1967
electric storage batteries were the major source, 73 percent of the
625,000 tons of old scrap.
Although products such as tetraethyl-lead gasoline additives
and paint pigments are not recoverable, it is estimated by the Bureau
of Mines that roughly 50 percent of consumed lead can be reclaimed
and that recoverable lead-in-use has increased to over 4 million
tons to provide adequate supply.
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ZINC - The extensive usage of zinc in galvanizing and in
compounds in which the metal is lost has limited the availability
of zinc suitable for reprocessing. Scrap is again classified as
new and old. New scrap which accounts for about 75 percent of the
total consumption, consists primarily of skimmings and drosses from
galvanizing operations, clippings, and chemical residues; old scrap
includes die castings (chiefly from dismantled automobiles), rod and
die scrap, used dry cells, engraver plantes, and other rolled zinc
articles. Most old scrap is purchased by the secondary producers
from dealers. In some cases, the dealer will concentrate the zinc
content through sweating prior to shipment to the secondary plant.
3. Market
a. Distribution
COPPER - Both the secondary smelters and tha brass and bronze
manufacturers tend to locate in metropolitan areas primarily in the
Northeastern, Pacific Coast, and East North Central States. This
places them in close proximity to both the largest sources of scrap
and the major outlets for their products.
ability, and corrosion resistance. Because of these properties, brass
and bronze are widely used in the production of hardware, radiator
cores, condensers, electrical equipment, ship propellers and many
other devices. Production by form of secondary recovery of copper
Copper-base alloys are characterized by high-strength, work-
for the year 1967 was as follows:
Copper Recovered
(Short Tons)
Alloy Type and Other Forms
Unalloyed Metal (Secondary producers
only)
Brass and Bronze Ingots
Brass Mill Products
Brass and Bronze Castings
Brass Powder
63,337
311,892
531,139
54,342
978
961,688
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ALUMINUM - Although primary producers tend to locate near
cheap power sources, secondary aluminum producers generally cluster
in the heavily industrialized areas—chiefly near Los Angeles,
Chicago, Cleveland, and New York to Philadelphia. These locations
provide good proximity to suppliers of scrap as well as to the market.
Secondary producers sell to a limited market, primarily
casters of the metal. Approximately 90 percent of secondary output
is consumed by the casting industry, which in turn depends upon
secondary smelters for the major portion of its raw materials.
Secondary producers supply 70 to 80 percent of all of the aluminum
used by the casting Industry. Primary producers supply the remainder.
For 1967, about 698,000 short tons of aluminum were recovered from
scrap. Output by type of alloy is as follows:
Aluminum Recovered
Alloy Type and Other Forms (Short Tons)
Unalloyed Metal
53,656
Alumlnun Based Alloys
628,848
Brass and Bronze
643
Zinc Based Alloys
8,304
Magnesium Alloys
1,195
Chemical Compounds
5,105
697,751
LEAD - Most secondary lead producers are in metropolitan
areas throughout the country, with ready access to sources of scrap
and to the marketplace. In contrast, primary lead smelters are
generally near sources of lead ore to minimize transportation costs
from mine to mill.
Storage batteries for home, leisure, Industrial, and
automotive purposes are by far the largest single use for lead.
Most important, virtually all battery manufacturing plants are
operated by major secondary lead producers. For 1967, this product
class accounted for 37 percent of total U.S. lead consumption, a
ratio which has been on the rise. Although a rather cyclical market,
depending to a large degree on new car production and the number of
total vehicles on the road, battery consumption has proved to be
one of the two major growth areas for the entire lead industry. By
1969, battery usage of all types was about 42 percent of U.S. lead
consumed.
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Typically, a secondary firm manufactures a broad
line of industrial and commercial batteries. Most of the output
is sold to oil and tire companies and mass merchandisers for resale
under private labels, although a substantial amount is sold under
proprietary brand names of the original manufacturer. Two-thirds
to three-fourths of all batteries are sold in the replacement market.
Lead alkyl manufacture (production of tetraethyl and
tetramethyl lead for use as gasoline antiknock agents) has been
the other major growth area for lead metal. No secondary producers
manufacture lead alkyls per se, although they probably do supply
small amounts of lead raw materials to chemical concerns which do
manufacture these products. Thus if environmental concerns lead
to the curtailment of lead additives, the secondary lead Industry
would be directly affected to a minimal extent.
Other markets for secondary lead include paint pigments,
bearings, brass and bronze alloys, type, solder, piping, and cable
covering for the construction, transportation, printing, and
communication industries. The lead content of these products
accounts for 40 percent of secondary production. Sales in these
areas show cyclical patterns and on the average have shown small
downtrends over the past several years.
ZINC - Secondary zinc smelters are primarily located in
metropolitan areas of the Northeastern, Pacific Coast, and East
North-central States. The major consumers of zinc are the iron and
steel industry (galvanizing); the automobile industry (die castings
for carburetors, grilles, trim, etc.); the brass and bronze industry
(alloying constituent); the rubber and industrial chemical industries
(pigments and compounds); and the manufacture of dry cells and
lithographic plates.
b. Competition
COPPER - The quality of secondary copper, reclaimed as
unalloyed metal, is in no way inferior to that of primary copper.
Secondary smelters compete directly with the primary producers.
In contrast, the majority of the end products made of brass and
bronze requires the unique properties of these alloys either in the
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machining process or in the final application. Little substitution
is likely in the traditional outlets for brass and bronze manufacturers,
if price increases should occur.
ALUMINUM - The term "secondary" refers not to excellence
or quality but to origin and is generally defined as "aluminum which
has lost its original identity as to source."
Because their prices are normally lower than those of
primary producers, secondary producers supply most of the casting
alloys. They also have gained favor by doing custom tailoring for
their customers. Primary and secondary producers do compete for
sales of hot metal and aluminum slot and notch bar for destructive
uses, but these markets are not particularly significant for either.
The secondary producers do not face direct external
competition in the form of substitute products, except in the general
sense that aluminum does compete with other materials such as copper,
steel, and plastics. Secondary smelters are, however, dependent upon
the fortunes of the casting industry, which has shown dramatic growth
over the past decade in the markets that are very broad; major customers
include the transportation, machinery, defense, home appliances, office
equipment, and photographic industries.
LEAD - The secondary lead industry faces a mixed pattern
of external competition in the form of substitute materials. The
most significant market, batteries, whould not be threatened in the
short term. Several combinations of alternate materials, such as
nickel, zinc, silver, cadmium, and mercury, can provide stored
electric energy; however, most of these are limited in quantity or
electrical characteristics and at present are not considered viable
substitutes to meet the large volumes required for transportation and
industrial power requirements. Manufacturing efficiencies and
technological improvements, including improvements in battery life,
have maintained the superior position of lead-based power storage.
Other product areas face stiffer competition: (1) Lead
continues to hold its market in structural and highway painting, but
lead-based pigment for paint manufacture has not been a growing
market; development of substitutes has advanced rapidly, particularly
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those for interior and exterior house paints. (2) Products for
the construction sector, an area in which lead has had much histori-
cal significance, have faced strong competition; that is, sales of
piping, lead calking, and sheet lead have been on the downtrend
because of substitutions from plastics, stainless steel, ceramic
products, and plasterboard. (3) Demand for lead as type metal in
the printing industry has shown a slight decline in recent years
due to technological shifts, particularly with regard to new photo-
graphic methods. (4) Use of lead for cable covering in the communi-
cation industry has been slowly receding, as alternate materials,
principally plastics, have been introduced. (5) Lead packaging in
the form of collapsible tubing, foil, and solder has shown a level
demand pattern because of substitutive techniques and materials
such as plastics, tinplate, and paper.
ZINC - Zinc has several unique properties that make it
particularly suitable for many applications: its resistance to
corrosion makes it useful for the galvanizing of Iron and steel,
its low melting point makes molds or dies last longer, its hard-
ness is required in brass, and its ductility is suited for rolling
or drawing. Nevertheless, zinc competes with ceramic and plastic
coatings for anticorrosion applications; with aluminum, magnesium,
and plastics in die casting; and with titanium pigments in the
paint and ceramic Industries.
4. Trends
COPPER - Production and prices for secondary copper are related
to the historical fluctuations inherently found in the copper industry
as a whole. Total secondary copper recovered in alloy form grew from
571,000 short tons in 1960 to 737,000 short tons in 1967, for a
growth rate of 3.7 percent per year. Output was cyclical, with
bottoms shown in 1961 and 1966 and a peak at 790,000 short tons in
1965. Due to uncertainties in the supply and demand for all copper,
and intermittent labor disputes, and probable slackening in demand
for defense purposes, growth in secondary copper is estimated at
3 percent through Fiscal 19 77.
ALUMINUM - Recovery of secondary aluminum set a new record every year
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from 1960 to 1969—a period when production grew from 329,000 to
856,000 short tons, for a healthy growth rate of 11 percent per
year. Operations for the past two years have been sluggish
because of the general downward trend of the economy and the
consequent lessening in demand for castings; the long-term future
for castings appears favorable, however, and the demand for secondary
aluminum should grow at a rate of approximately 6 percent through
Fiscal 1977. Average prices for secondary aluminum, in cents per
pound, for the period 1960-69 compare with those for primary
aluminum as follows:
1962 1963 1964 1965 1966 1967 1968 1969
Primary 23.9 22.6 23.7 24.5 24.5 25.0 25.6 27.2
Secondary 21.2 21.3 22.3 24.3 24.7 24.3 25.5 26.8
LEAD - Production of secondary lead increased from 453,000
short tons in 1961 to 604,000 in 1969 for a yearly growth rate of
3.7 percent. Demand for storage batteries contributed substantially
to the upward trend, while other product areas showed relatively
level or slightly declining output. Production trends in the automo-
bile industry are important as lead is a major component in original
and replacement equipment. A growth rate of 3 percent is expected
for secondary lead production through Fiscal 1977. Prices generally
follow those of primary lead, but are somewhat obscure because of the
captive nature of secondary output for further fabrication.
ZINC - Secondary zinc output rose from 57,000 short tons in
1963 to 73,000 in 1967 for a yearly growth rate of 5.0 percent. A
growth trend of 4.0 percent is expected through Fiscal 1977. Gains
reflect the upward trend in the economy, particularly in the automo-
bile industry. Zinc prices fluctuate chiefly due to heavy reliance
on the automotive and construction industries, but the swings normally
have not been severe—between 11.5 and 15.5 cents per pound over the
past decade.
5. Economic Impact of Control Costs
a. Impact on Plant
Operating statements for model plants within the secondary
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metal industries were not developed because of the lack of sufficient
financial information. Many are small, family-controlled operations;
others are owned by large metal conglomerates. Without more detailed
information, it was rot possible to estimate accurately the appropriate
revenues, costs, and profits. As an approximation of the impact of
compliance with standards, the average costs per unit of output have
been developed and are shown in Table 4-31. As shown, secondary
aluminum faces by far the highest control cost per unit of output
and, consequently, the greatest potential impact of the four metals.
TABLE 4-31. - AVERAGE COST OF CONTROL - SECONDARY NONFERROUS METALS
Industry
Average Price/
Short Ton (1969)
Control Cost/
Short Ton
Percent
of Price
Copper
$960
$0.54
0.1
Aluninum
$530
$6.34
1.2
Lead
$298
$0.21
0.1
Zinc
$292
$0.59
0.2
b. Demand Elasticity and Cost Shifting
Secondary copper smelters compete with primary producers
and are subject to the cyclical nature of the copper industry as a
whole. However, both the primary and the secondary sectors are
expected to pass on the added costs of pollution control in the
long run. Supporting this conclusion are the facts that control costs
for secondaries are minimal, in absolute terms and in comparison to
those of the primary producers. Assuming full implementation,
secondary copper producers should actually have greater competitive
advantage—comparative costs are 3.2 cents per pound for the
primary producers and 0.03 cents per pound for the secondary copper
producers. For secondary lead and zinc producers—cost increases
are minimal for each in the absolute sense and with respect to
primary producers.
Secondary aluminum faces an average control cost of
0.3 cents per pound, which is well below primary costs, at 2.4 cents
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per pound. This implies that secondary producers will be able to
maintain their prices below primary metal prices even if costs
are passed on to their customers and in turn, will be able to
maintain their market in providing ingots for the aluminum casting
industry. With a favorable long-term outlook for castings and
mild external competition, secondary aluminum producers should be
able to pass on the costs.
c. Effect on Industry
All four secondary nonferrous industries contain a great
number of small firms—over half of them with fewer than 20 employees.
For the 10 percent that operate close to the break-even point,
control costs could be relatively more severe and could cause a
few firms to drop out of the market. In general, however, air
pollution control should have little Impact on the structure and the
competitive patterns of these secondary industries because of the
small cost burdens involved.
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P. Sulfuric Acid
1. Introduction
a. Nature of Product and Process
Sulfuric acid is the largest single chemical product in the
United States. It is used in the production of phosphate fertilizers
and other industrial chemicals, in the purification of petroleum, the
leaching of copper ore, and the pickling of steel.
Almost 97 percent of all sulfuric acid is produced by the
contact process. Generally in this process, sulfur or pyrite is burned
to form sulfur dioxide (SC^) which is then catalyzed to sulfur trioxide
(SO^). Sulfur trioxide is absorbed in sulfuric acid to form more con-
centrated grades of sulfuric acid and oleum. An increasingly important
source of sulfur dioxide is that liberated during the smelting of
sulfide ores bearing copper, nickel, zinc, and lead. The final
3 percent of acid is produced by the obsolete and costly chamber
process, but because this process is rapidly being phased out, it will
not be emphasized in this analysis.
b. Emissions and Cost of Control
Pollutants consist of sulfur dioxide escaping catalytic con-
version and acid mists emitted from the absorption tower. Most plants
today operate with a single absorption step resulting in a sulfur dioxide
to sulfur trioxide conversion of 96 to 98 percent. To comply with the
assumed emission standard requires upgrading the conversion efficiency to
99.5 percent or tail gas scrubbing with alkaline solutions. (New acid
plants are expected to achieve 99.7 percent conversion efficiency.)
This would result in a reduction of 86 percent from the existing emission
level of a typical acid plant. To accomplish 99.5 percent conversion
requires partial removal of the sulfur trioxide formed, via primary
absorption, which improves the oxygen-to-sulfur dioxide ratio for favor-
able conversion of the residual sulfur dioxide. Secondary absorption is
required to complete the recovery of sulfur trioxide as acid.
Due to the high cost and technical difficulties of converting
an existing single absorption plant to dual absorption, the latter
method will probably not be used for control of existing facilities.
However, its application to new contact process acid plants is consider-
ably less costly than tail gas recovery methods. Hence, this study
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reflects use of dual absorption for new facilities and tail gas recovery
methods for existing facilities.
Acid mists are produced due to the presence of residual water
from incomplete drying of the air feed to the sulfur burner or due to
the impurities that liberate water during the combustion in the sulfur
burner. The water combines with the sulfur trioxide in the absorption
tower to form fine acid mists which escape in the tail gas unless
captured by a mist eliminator.
For 1967, the industry emitted 600,000 tons of sulfur dioxide
and 25,000 tons of mist particulates. Without the implementation of the
dct, emission levels in Fiscal 1977would increase to 920,000 tons of
sulfur dioxide and 38,000 tons of acid mist. Implementation of the act
will reduce these levels in Fiscal 1977 to 170,000 tons of sulfur dioxide
and 10,000 tons of acid mist. The demand for sulfuric acid is expected
to grow at an annual rate of 3 percent.
In order to control these emissions, the industry will have to
invest $169 million in controls and $39 million in annual costs by
Fiscal 1977.
2. Industry Structure
a. Nature of the Firms
In 1967, there were 254 sulfuric acid plants owned by 94
firms. Their combined capacity was 38 million tons. Of the total
number of plants, 213 were contact process plants and 41 were chamber
process plants. Of the total contact process plants, 24 were smelter
acid recovery operations. Chamber process plants are predominantly
small, ranging in capacity from 40 to 100 tons per day, while contact
process plants range from 10 to almost 5,000 tons per day.
Total acid output for 1967 was 29 million tons of which
only 13.5 million tons were shipped. The difference between produc-
tion and shipments indicates the extent to which acid production is
"captive" and serves as an intermediate product within the same
establishment. Most sulfuric acid plants are owned by sulfur
producers, chemical companies, petroleum refineries, fertilizer
plants, and smelters which use some, if not all, of their production
internally for the production of their final product. Of the acid
shipped, 90 percent was sold commercially. The remainder was inter-
plant transfers.
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b. Resources
The raw material consumed in sulfuric acid production is
elemental sulfur, smelter or refinery waste gas, spent acid, acidic
sludge, and pyrites. In all but the first case the raw material is a
necessary by product and can, therefore, be considered free for the
production of acid.
Elemental sulfur is produced largely from mines on the Gulf
coasts of Texas and Louisiana. Considerable amounts of sulfur are
also produced from operations which find it economical to recover
elemental sulfur rather than produce acid directly. Sources of recov-
ery include waste gas streams of coke oven processes and petroleum
refineries.
Most of the recoverable sulfur is converted directly to acid
due to the higher costs of processes for recovering elemental sulfur
from most sources. Sulfur dioxide in smelter stack gases is increasingly
being recovered in the form of acid as an air pollution control measure.
Similarly, hydrogen sulfide emitted by petroleum refineries is recovered
and burned to produce sulfur dioxide and subsequently either elemental
sulfur or acid. Also, large quantities of acid used in the refining
process are recovered from acidic sludge since the sludge cannot be dis-
charged into streams or disposed of economically. This sludge is also
burned to sulfur dioxide.
Processes are under development for the recovery of sulfuric
acid or elemental sulfur from sulfur dioxide emissions in electric
power plant stack gases. Such processes will not reach wide commercial
application for at least 5 years and thus will have little impact on the
supply or price of sulfur before that time.
The final major source of sulfur, pyrites (sulfur-bearing
impurities in coal), are removed by coal-cleaning processes, then roasted
to emit sulfur dioxide. This source of sulfur amounts to approximately
4.5 percent of the U. S. production of sulfuric acid.
Of far greater immediate significance is the flood of low-
cost sulfur which has entered the United States market from Canada,
driving the price down from $38 per ton in 1968 to only $18 per ton in
1971. The sulfur has been removed from sulfur-laden natural gas as a
byproduct in order to meet the air pollution control requirements of the
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U.S. fuel markets. U.S. sulfur-mining companies have been forced to
drastically cut back production, halt exploration, and lay off employees.
The displacement of most U.S. sulfur-mining is inevitable even
without imports. More sulfur is emitted into the air each year than is
consumed in the United States. Air pollution laws requiring the recovery
of most of this sulfur will result in the domestic recovery of sufficient
byproduct sulfur and acid to meet demands.
3. Markets
a. Major Markets
Phosphate fertilizer production accounts for approximately 40
percent of all sulfuric acid consumed in the United States. An additional
8 percent is used in the manufacture of ammonium sulfate, which is also
used extensively in fertilizer manufacture.
Since the early sixties, the utilization of highly concentrated
superphosphate fertilizer has increased rapidly, displacing normal
phosphate. Disproportionately greater quantities of sulfuric acid are
required for production of superphosphate than were required for production
of normal phosphate. The demand for sulfuric acid by the fertilizer
industry has, therefore, grown even more rapidly than the demand for
fertilizer itself. Although fertilizer demand has slowed since 1968, the
industry's consumption of acid is expected to grow at an annual rate of
5 percent.
The petroleum industry reclaims a large portion of its own
spent acid, and therefore relies only partially on outside sources for
acid. Compared with sulfuric acid's use in fertilizers, the remaining
markets are quite small. Of the latter, petroleum refining is the largest
single end-user, accounting for 8 percent of consumption, and the use of
acid for this purpose is expected to experience little growth. The use
of sulfuric acid in the manufacture of pigments also amounts to about
8 percent of consumption; however, this market is expected to decline
to only 4 percent by 1975. The only rapidly growing segment of the
market is the leaching of copper ores, which is expected to grow at a
rate of 16 percent. Yet, as recovery of acid by smelters increases,
this demand will be met by internal production and will, therefore,
contribute little to the open market demand for acid. Other major
markets, the production of fabrics, hydrofluoric acid, and steel pickling,
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account for between 3 and 6 percent of consumption.
The majority of commercial acid sales are under long-term
contractual agreements and at prices considerably below the published
market spot price. For large volumes, these prices may be as low as
one-half to two-thirds of the published price. Only small consumers
must pay the open market price.
b. Competitive Products
In most of its markets, there are substitutes for sulfuric
acid; however, because they are either economically or technologically
inferior to sulfuric acid, they have not significantly penetrated the
market. In the manufacture of phosphate fertilizer, nitric acid is a
technological substitute but it is considerably more costly. Substitu-
tion of phosphoric acid for sulfuric as an acidulating agent in fertilizer
production has been offset by the use of sulfuric acid in treating
phosphate rock to produce phosphoric acid.
The only market sector in which sulfuric acid is being dis-
placed is steel pickling. Hydrochloric acid's superior pickling and
easier treatment (after use in the pickling process) qualities outweigh,
at least for the present, the lower price advantage of sulfuric acid.
c. Competition Among Sellers
The relative competitive advantages of the various sulfuric
acid processes are variable, depending primarily on the prevailing prices
of sulfur. Even for a given process, there is considerable variation in
cost between individual plants—costs vary with size, age, and plant
design as well as the type of sulfur feed stock used. Production costs
for conventional sulfur-burning contact process plants vary from $10
to $20 per ton of acid, while costs for smelter acid recovery vary from
$4 to $25 per ton. In conventional plants buying sulfur is the major
cost, therefore production costs vary with the price of sulfur. For a
typical 1,000 ton-per-day contact process plant, the total cost of acid
production would vary from $14 per ton to $7 when sulfur prices varied
from $38 per ton to the current price of $18. In contrast, the sulfur
raw material from recovery operations is free, yet the capital equipment
necessary to recover it from waste gas streams results in a fixed
investment of 2 to 5 times that of a contact plant.
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Production cost is critical to conventional plants. They will
not produce acid if prices fall below variable coata. If the industry
were comprised primarily of conventional plants, over-capacity would goon
be rationalized and a balance of supply and demand would be achieved at
a reasonable profit level. However, the advent of many sulfur dioxide
recovery plants in the market has changed competition considerably.
Recovery plants must continue to operate at full capacity, regardless
of market price, to conform to air pollution control regulations. They,
therefore, dispose of acid at any obtainable price and might go so far
as to sell at a zero dollar price and even to subsidize transportation
costs to the extent of alternative disposal costs. Conventional plants
can, therefore, compete with recovery plants only when they are outside
of the shipping radius of the recovery plant. Fortunately for the
conventional sulfuric acid producers, most recovery plants are now
associated with smelters in the western states, quite remote from the
large eastern and midwestern markets.
Transportation cost is obviously an important element in the
competitive pattern within the industry. The bulk of sulfuric acid is
so great relative to price that shipping costs are exorbitant. It is
usually impossible to sell acid profitably beyond a radius of 150 miles
if shipments must be made by rail. Barge shipments, where possible,
would permit somewhat greater shipping distances.
Economics of scale attainable from large plants are also
quickly overcome by transportation costs in commercial markets. The
high cost of shipping permits a wide range of plant sizes to operate
throughout the country; small plants generally serve remote or captive
markets.
4. Trend
The sulfuric acid industry is so closely tied to the market for
sulfur and phosphate fertilizer that the three must be examined simul-
taneously. In the early sixties, both the sulfur and sulfuric acid
industries experienced excess capacities. With rapid increases in the
demand for superphosphate fertilizers came increases in the demands for
sulfur and sulfuric acid. Not until 1965 did demand overtake supply and
cause actual shortages. At that time, the price of both sulfur and
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sulfuric acid began to rise rapidly—sulfur prices from $25 per ton in
1965 to $38 in 1968, and sulfuric acid prices from $26 per ton to $35.
Since 1968, the growth in demand for fertilizers has slowed as has
the demand for sulfur and sulfuric acid. Yet, high prices and corres-
pondingly high profit rates have encouraged the development of excess
capacity in each industry. Capacity utilization in the sulfuric acid
industry has declined from 95 percent in 1965 to less than 80 percent
in 1969. The excess supply has driven Gulf Coast prices from their
high of $35 to $31 per ton in 1971.
The aggregate demand for sulfuric acid is expected to grow at an
annual rate of 3 percent during the 1970-1977 period. This demand can
be absorbed by existing capacity and new smelter acid recovery plants.
Addition of acid plants to copper, lead, and zinc smelters will add
5 million tons of acid production capacity to the 38 million ton capacity
existing at the end of 1969. Acid consumption is expected to reach
43 million tons in 1977. Incorporation of the new smelter capacity will
allow the industry to meet demand operating at only 88 percent of
capacity. As only moderate profits are earned at this operating rate,
no further additions to capacity are expected before 1977. Any new
plants constructed before that time will represent replacements of
existing capacity due to obsolescence or shift in demand patterns and
will, therefore, not increase the total cost of pollution control
incurred by the industry. Since most new plants will be larger and
controlled by dual absorption, the control costs will actually be less
than would be required to implement gas cleaning in existing plants.
5. Economic Impact of Control Costs
a. Impact on Plants
Only sulfur-burning contact process acid plants are considered
in this analysis. The economic impacts of sulfur recovery are presented
in the analyses of the individual industries concerned.
A major determinant of economic impact on a plant is size.
Larger plants realize considerable economics of scale over small plants,
both in production and in air pollution control costs. The unit produc-
tion cost for a standard 1,500 ton-per-day plant is 23 percent less
than the cost for a 250 ton-per-day plant, given the same raw material
cost.
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Table 4-32 presents the financial impact of an investment
in air pollution control on two typical sulfuric acid plants—one
representing a small 250 ton-per-day plant and the other representing
a larger 1,500 ton-per-day plant. For each model plant, an acid price
was selected which would approximate the contract or transfer price
that might be obtained by that plant in the current depressed market.
The table presents operating results for standard plants without pollu-
tion control with the results for identical plants controlled by tail
gas recovery systems and new dual absorption plants of the same
capacity.
Installation of a tail gas recovery system for control of
the 250 ton-per-day model plant reduces earnings 65 percent. Since
earnings represent less than half of the cash flows of such small firms,
cash flows are reduced less severely than earnings. However, the
increased investment for control, coupled with reduced cash flows,
reduces the rate of return far below attractive levels. Many small
plants will be forced to consider closing rather than implementing
controls. It becomes advantageous for a plant to close if the present
value of its potential cash flows is less than the sum of the control
investment, salvage value, and the tax writeoff attainable from closing
the plant. With such low cash flows after control, few plants of 250
tons per day or less will find it economical to continue operation.
The dual absorption plants do not incur such drastically
reduced earnings as do the tail gas recovery plants, but the rate of
return is still reduced to an unattractive level, so new plants of
this size would not be considered.
In contrast, the 1,500 ton-per-day model plant demonstrates
that large acid plants enjoy attractive rates of returns at relatively
low contract prices for acid. Unit control costs are much lower for
these high volume plants. Consequently, earnings and rates of return
are less severely affected by the imposition of air pollution control
costs. Those plants controlled by tail gas recovery systems realize a
reasonable rate of return. Large new dual absorption plants realize an
even higher rate of return..
Large acid plants could operate profitably unless market over-
supply conditions become worse forcing further trimming of profit margins.
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TABLE 4-32 . - MODEL SULFURIC ACID PLANTS
250 Tons/Day
1,500 Tons/Day
Standard
Tail Gas
New Dual
Standard
Tail Gas
New Dual
Plant
Recovery!./
Absorption
Plant
Recovery2/
Absorption
Capacity
82500
82500
82500
495000
515000
495000
Production
82500
82500
82500
495000
515000
495000
Fixed Investment
1320
1320
1800
3600
3600
5100
forking Capital
264
264
264
720
720
720
Control Investment
0
342
N/A
0
1900
N/A
Net Investment
1584
1926
2064
4320
6220
5820
Sales
1650
1650
1650
7920
8240
7920
Cost of Goods Sold
1327
1327
1429
6166
6166
6409
Control Cost
0
211
N/A
0
691
N/A
Incone Before Tax
323
112
221
1754
1383
1511
Income Tax (50%)
161
56
110
877
691
755
Net Income
162
56
111
877
692
756
Cash Flow
294
222
291
1237
1210
1266
Selling Priced/($/Ton)
20
20
20
16
16
16
Control Cost ($/Ton)
0
2.56
1.24
0
1.34
.49
Control Cost (% of Sales)
0
12.8
6.2
0
8.4
3.1
Decrease in Earnings (%)
0
65
31
0
21
14
Xate of Return
'13
2.5
6.8
26
15.5
22,5
—^Assumes lime absorption. No additional acid is recovered.
—^Assumes control by the Wellman-Power Gas process. Sales reflect acid recovery.
—^Approximation of the bulk contract price attainable by each plant size.
-------
The high probability of this makes investment in contact acid plants
risky.
b. Impact on Firms
Virtually all sulfuric acid production is by large diversified
corporations or captive intermediate processes of manufacturing firms.
Such firms will experience little difficulty in acquiring the necessary
investment capital to undertake the control investment if they find it
economical to do so. Control costs represent such a small portion of
the total costs incurred by these firms that they will cause little
impact on corporate profits.
Also, in any case where it is economical to construct a new
plant, the additional investment required for control equipment would
have little influence on the firm's ability to raise capital.
Although the control investment increases the total investment by 20
to 50 percent, virtually all sulfuric acid plants are owned by large
diversified corporations which would have little difficulty in acquir-
ing the additional capital.
c. Demand Elasticity and Cost Shifting
The demand for sulfuric acid is derived from the demand for
the products in which it is used, thus its demand is relatively in-
elastic in the short run. Since sulfuric acid is combined, in almost
fixed proportions, to other inputs, small price changes have little
effect on its consumption. Even moderate changes in sulfuric acid
prices are unlikely to induce short-term adjustments in the amount
used because shifting to an alternative input would involve changes
in plants, processes, products, and expenditures that would generally
exceed any savings likely to result from substitution.
In the long run, the demand for sulfuric acid is probably
more elastic, at least to sizable changes in price. Substantial
increases in price might outweigh the economic and technological
advantages which sulfuric acid currently enjoys over substitute products.
Some degree of process change and product substitution would undoubtedly
result from sustained high prices.
Persistent high prices of sulfuric acid are increasingly
unlikely as the number of firms recovering and producing acid expand
and as competition intensifies. High prices would also induce many
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additional firms to enter the market since sulfur, in various forms,
is widely available and capital costs are not prohibitive. As supply
increased, prices would soon be driven down.
Despite relatively Inelastic demand for sulfuric acid, the
current oversupply and intense competitive pressures indicate that it
will not be possible for most firms to pass on the full cost of
pollution control, at least until a balance is attained between supply
and demand. Firms serving isolated or captive markets will probably
adjust price to cover control costs. However, those serving the
open market will adjust price only to the extent that the most
efficient firms adjust their prices. It is assumed, therefore, that
for the period through Fiscal 1977,the open market price of sulfuric
acid will increase by only $0.50, or l.S percent reflecting the
control costs of large dual absorption plants,
d. Effect on the Industry
Many small firms—primarily those of less than 250 tons-per-
day capacity—which serve the open market will be unable to generate
sufficient cash flows to warrant an investment in control equipment.
Only those firms which serve isolated markets at higher than average
prices will find it economical to control and to continue operating
their acid plants.
However, firms which produce sulfuric acid as a necessary
byproduct will be forced to implement controls and to continue operat-
ing their acid plants regardless of the unprofitability of that invest-
ment. Their only recourse would be to close their entire facility
which is unlikely.
Captive sulfuric acid plants will continue to produce unless
the cost of control makes it more economical to buy acid. Again, many
firms with captive contact process acid plants of less than 250 tons-
per-day capacity will close their plants and purchase acid on the open
market. Virtually all chamber process plants will be closed because
they experience considerably higher control costs than do contact
process plants.
Also, many large acid plants older than 10 years will be
shut down and replaced with new, larger, dual absorption plants.
The limited accounting life of such an old plant would not warrant
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installation of gas-cleaning equipment. The additional investment
required for renovation and higher operating costs of an old plant
makes it an unattractive alternative to a new plant.
Of far greater significance to the industry than control
cost is the effect of air pollution control laws requiring control of
sulfur oxide emissions into the atmosphere. Smelters have already
begun to recover large quantities of sulfur oxides in the form of
sulfuric acid. Technology is under development whereby electric power
companies will eventually be able to produce large volumes of recovery
acid for the open market. Were it not for the oversupply created by
this byproduct acid, existing conventional plants could pass on the
full cost of pollution control in higher prices. Instead, byproduct
acid not only prevents the recovery of control costs but threatens
to displace much of the conventional acid production.
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V. CONCLUSIONS
A. General Economic Impact of Air Pollution Control
The foregoing analyses Indicate that control of air pollution
emissions from solid waste disposal, stationary fuel combustion, and
industrial processes will require an investment of approximately
$10,086 billion to control the capacity estimated to be in existence
in Fiscal Year 1977. This estimate is based on projected industrial
and population growth, which will substantially increase the sources
of pollution and required investment in control equipment over that
required for 1967. The total estimated annual cost of these controls,
including depreciation, finance, and operating expenses, would then
amount to approximately $3,885 billion per year by Fiscal Year 1977.
Both figures are based on 1970 prices.
These figures are large in absolute amounts; however, their
significance can be shown more clearly by comparing them with the related
figures for the national economy. Similarly, if the gross national
product (GNP) of the United States in Fiscal 1977 is $1.3 trillion,
the annual cost of $3,885 billion in that year will take approximately
0.3 percent of the nation's gross output.
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Chapter 5: Aggregate Price Impact
I. INTRODUCTION
The aggregate or macroeconomlc impact of expenditures for air pollu-
tion control on the national economy includes effects on the levels of
demand and supply of total production and on prices, employment, and eco-
nomic growth. For example, the majority of Investment expenditures for
pollution control will raise costs without proportionally increasing out-
put. Although some of the higher costs are expected to be transferred
into higher consumer prices, they will also affect profits in some indus-
tries. Since the rate of investment is usually considered a function of
expected profits, prospects for reduced profits due to the costs of con-
trolling emissions may make some firms in some industries reduce their
rates of investment. Such behavior by a substantial number of firms
could reduce employment opportunities in the affected industries.
Further, if the demand for capital to finance investments for pollu-
tion control causes Interest rates to Increase, expected profits could be
reduced which would also discourage Investment. Reduced rates of invest-
ment would reduce economic growth. The rate of economic growth might also
be depressed if the nonproductive pollution controlling Investment sig-
nificantly reduced the economy's overall rate of productivity.
For some products, higher prices may alter established supply and de-
mand conditions and eventually change resource allocation. For example,
if consumers choose to substitute purchases of other goods and services
for those with increased prices, the reduced demand for the products of
several industries will shift employment and income distributions. Higher
prices may also decrease the amount of exports and the rate of Investment
and require a higher level of government revenues to finance the same
level of government expenditures. However, even a comprehensive study of
production, prices, employment, and economic growth would not be complete
since it would Include only the benefits to the industries fabricating
control equipment, not the social benefits derived from cleaner air.
5-1
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Such a comprehensive analysis would be a complex task. The necessary eco-
nomic methodology is available but is beyond the more limited scope of this
study.
This analysis is primarily confined to the projection of the impact of
expenditures for air pollution control on prices paid by final purchasers
of the Nation's output. The focus is on consumer prices. However, invest-
ment, government expenditures, and export prices have been examined briefly
and the direct impact of price increases on these sectors of the economy
has been projected.
The emphasis on prices reflects the major role they play in a com-
petitive economy where they reflect values and determine what is to be
produced as well as the organization and distribution of production. For
example, significant changes in the relative prices of products will alter .
the patterns of resource allocation. Such alterations would feed back
through the economy and possibly affect the distributions and levels of
production, employment, and income; the profitability of investment; the
U.S. competitive position in foreign markets; and the productivity and
rate of investment thereby influencing the rate of economic growth. For
this reason, therefore, this analysis focuses on projecting price impacts.
The impacts projected are initial, once-and-for-all increases in the
1977 price level due to the costs of emission control for the industrial
and mobile sources. The projected increases more closely resemble cost-
push inflation rather than the classic demand-pull type. The consumer
price index used is the Implicit Price Deflator for Personal Consumption
Expenditures (PCE), which is a Paasche-type measure of consumer price
changes; that is, the current composition of expenditures is used to
weight and compute the index. (In this case, the 1977 distribution of
personal consumption expenditures has been projected and used for weighting
the price increase.) Although more reflective of the "cost of living"
than the fixed weight or Laspeyres-type of index, the Implicit Price De-
flator index is not a true measure of the cost of living to the extent
that consumers substitute one purchase for another or to the extent that
any consumer differs from the arithmetic average. Neither does it in-
clude income and property taxes and interest paid by consumers. Never-
theless, the measure is a good indicator of price movements and a fairly
good surrogate for the cost of living.
On the basis of the analysis presented below, it appears that the
5-2
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costs of meeting emission standards for both the stationary and mobile
sources will increase by less than 1 percent over the 1971-77 interval.
In the aggregate it appears that there will not be significant impact
on the prices of exports, the prices of investment expenditures for new
plant and equipment, or on the prices of goods and services purchased by
government. This is, in part, because the projected changes in prices
are quite small and would occur over several years, rather than
instantaneously, as calculated here.
Although consumer response to the projected higher prices is not ex-
plicitly examined, it appears, with one exception, that there would be
only a minimal shifting of consumer expenditures, since the projected
price increases are fairly small. The exception is consumer expenditures
for automobiles. New car prices are projected to increase significantly.
As a result of the higher prices, consumers may defer purchases of a new
car, extend the service life of their old vehicles; "buy down" in the
product line; forego the purchase of optional equipment (e.g., air condi-
tioners), or substitute other forms of transportation. These possibili-
ties were not examined in this study.
The impacts of the projected price changes due to higher prices for
controlling air pollution will probably not significantly affect the
balance of payments, the rates of investment and economic growth, or the
levels of government expenditures and taxation. However, if the full
spectrum of pollution control measures were evaluated together rather than
air alone, the aggregative impacts are likely to be significantly different.
II. THE PRICE MODEL
Using input-output relationships, a price model has been developed
to project the impact of the estimated initial price increases for each
of the subject industries on the prices of goods and services purchased
by consumers, by businesses for Investment, by state, local and federal
governments, and by foreign countries.
Input-output analysis uses a table or matrix which shows, for a spe-
cific point in time, the distribution of sales and purchases by each in-
dustry. The basic table of transactions can be mathematically transformed
into a table of interindustry coefficients which represent the direct and
5-3
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indirect output of each industry required to deliver a dollar's worth of
output of any other industry to consumers, investment, government, or ex-
ports. Since it identifies the structure of each industry's inputs, the
table can be used to estimate the impact of a price increase in any input
to any industry, on each industry's price. Further, by developing the
structure of consumer, investment, government, and export purchases on an
industry-by-industry basis, the impact of industry price increases on the
prices paid by those final demand categories can also be estimated.
The U.S. Department of Commerce input-output table of the 1963 econ-
omy was used to project price impacts. The basic table has 364 industries
and 4 components of final demand. However, consumer demand sector of
final demand was extensively augmented—it now contains 12 categories and
80 subcategories of personal consumption expenditures. Coefficients
necessary to expand the consumption sector were developed from data pro-
vided by the Office of Business Economics. The entire model was subse-
quently programmed for computer manipulations.
Since the input-output table is for 1963 and does not represent the
1977 structure of production, the projected price changes are approximate
only, even given the validity of the assumptions stated above. Between
1963 and 1977 changes in prices, technology, and product mix will alter
the interindustry coefficients. Although some of these changes can be
projected, such an effort is beyond the current scope of this study.
Nevertheless, the results of this analysis do provide a useful first ap-
proximation of the projected price changes.
Because this analysis of prices represents a substantial Increase In
the depth of analysis over that presented in the 1970 report, direct com-
parisons are difficult. For example, the computer solution has permitted
examinations of the price relationships of 364 industries rather than
last year's 72; further, this year's analysis has focused on final demand
prices, whereas last year's emphasized Industry prices (especially the
prices of two major industries, construction and motor vehicles). Also,
the Initial price increases projected for the industries have been updated,
on the basis of new data and analysis. This analysis is, therefore, not
comparable to that presented in the 1970 Congressional Report.
5-4
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Ill. PROJECTED PRICE INCREASES
A. General
Gross national product (GNP) is the final value of all goods and
services produced in 1 ve^r. It was assumed that the price increases
projected tor the industries will be passed along to the four components
of GNP: consumer expenditures, business expenditures for investment,
governmental expenditures, and purchases of U.S. products by foreigners.
The extent to which the prices of any component will increase is dependent
on the si^.e of the price increases in the Industries and the components'
industrial structure. Table 5-1 shows the 1977 price increases projected
for the stationary and mobile sources if all control costs were passed on.
However, the actual price increases that will occur will depend on the
supply and demand conditions, bnth within each industry and in other
Industries competing for major markets. These supply-demand analyses
are discussed in Chapter 4.
Figure 5-1 shows the 1970 distribution of GNP and indicates the rela-
tive importance of each of the 4 final demand components in the economy.
Personal consumption expenditures (63%) are the largest and would be even
higher if residential construction were included as a consumer purchase
rather than as an Investment expenditure. Government expenditures (237.)
have been the second largest since 1952 when they surpassed Investment ex-
penditures. Investment (14%) and net exports of goods and services (0.4%)
are the smallest and most volatile components.
B. Impact on Consumer Prices
Personal consumption expenditures (PCE) consist of consumer purchases
of durable and nondurable commodities and services and comprise two-thirds
of GNP (Figure 5-1) The distribution of PCE has been shifting and is
expected to continue to shift due to economic and demographic changes
as well as changes in consumer tastes. To weight the price increases
for 1977, it was necessary to project the 1977 distribution of PCE.
If the full price increases projected In Table 5-1 occur, then consumer
prices in 1977 are projected to increase about 0.7 percent. Well over half of
ihe increase I:; i.o tii-; projected 10 percent higher prices for passenger
cars; the remainder is primarily due to higher prices for electricity.
5-5
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TABLE 5-1. PROJECTED 1977 PRICE INCREASES IN
STATIONARY AND MOBILE SOURCES
Projected
Price Increases
Sources (percent)
Mobile Sources
New Automobiles 10.0
New Trucks 4.0
Solid Waste Disposal 1/
Stationary Fuel Combustion
Small & Intermediate Boilers 1/
Steam Electric A. 3
Industrial Processes
Asphalt Batching 3.0
Cement 2.2
Coal Cleaning 1.5
Grain Plants: Handling 1.3
Milling 0.1
Gray Iron Foundries 2.6
Iron and Steel 1.2
Kraft (Sulfate) Paper 0.7
Lime 1.8
Nitric Acid 0.0
Petroleum Products & Storage 0.0
Petroleum Refineries 0.0
Phosphate Fertilizer 0.5
Primary Nonferrous: Copper 5.7
Lead 8.2
Zinc 7.1
Aluminum 7.0
Secondary Nonferrous: Aluminum 1.2
Copper 0.1
Lead 0.1
Zinc 0.2
Sulfuric Acid 2.4
1/ Projected price increases are not estimated due to
lack of sufficient data.
Only a few of the stationary sources (steam-electric power plants, iron
and steel, aluminum reduction, and iron foundries) are large enough,
and are projected to have high enough price increases to signficantly
influence consumer prices.
As Table 5-2 shows, the largest increase in consumer prices is
5-6
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Producers
Durable
Equipment
•Residential a
Nonresidential
Structures
$ 67
Changes in
Business Inventories
t 3
2%
GROSS PRIVATE DOMESTIC
INVESTMENT
(
Durable
1370
Goods
$ 89
Nondurable
Goods £265
43%
Gross
Private
Domestic
Investment £139
14 %
Personal Consumption
Expenditures $616
63 %
Services $ 263
43%
Government
Purchases
Goods &
Services \
£ 219
23%
Federal 2 97
NET EXPORTS OF
GOODS 8 SERVICES
$4
0.4%
State 8
Locol
#122
56*/
GROSS
IMPORTS
PERSONAL CONSUMPTION
EXPENDITURES
GROSS
EXPORTS
GOVERNMENT
PURCHASES OF
GOODS a SERVICES
Fig, 5-1. Distribution of 1970 Gross National Product in Billions of Current Dollars.
Source: U. S. Department of Commerce, Survey of Current Business
-------
TABLE 5-2. PROJECTED INCREASES IN CONSUMER PRICES, 1977.
Personal Consumer
Price
Expenditure
Increase
Category
(percent)
I.
Food and Tobacco
0.1
II.
Clothing, Accessories, and Jewelry
0.1
III.
Personal Care
0.1
IV.
Housing
0.0
V.
Household Operation
0.5
VI.
Medical Care Expenses
0.1
VII.
Personal Business
0.1
VIII.
Transportation
4.3
IX.
Recreation
0.1
X.
Private Education and Research
0.2
XI.
Religious and Welfare Activities
0.2
XII.
Foreign Travel and Other, Net
0.2
Personal Consumption Expenditures—
0.7
— weighted total
projected for transportation, which is expected to comprise 14 percent of
PCE in 1977, or about the same as its current share. The 4.3-percent pro-
jected increase in transportation prices is primarily due to the increase in
motor vehicle prices, but to some extent also due to higher electricity,
iron and steel, iron foundries and aluminum prices.
The projected price increases for six of the twelve PCE categories
are expected to be about 0.1 percent primarily due to higher electricity
and motor vehicle prices. For clothing, accessories, and jewelry, higher
prices for shoes, clothing, cleaning, jewelry and watches all contribute
to the Increase. For food and tobacco the increase is primarily due to
higher prices for food purchased for off-premise consumption and purchased
meals and beverages. For personal care, higher prices for toilet articles
are the main reason for the Increase. For medical care, prices are ex-
pected to increase due to higher hospital and sanitarium rates. For per-
sonal business, higher prices for brokerage and banking services, life in-
surance, legal, and funeral and burial expenses all contribute to the
5-8
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projected increase. Recreational prices, the sixth category with a
0.1-percent price increase, will have higher prices due to higher radio
and television receiver, records, and musical instruments prices.
Three small PCE categories are expected to have price increases
of about 0.2 percent primarily due to higher electricity prices.
These are private education and research, religious and welfare
activities, and foreign travel and other, net.
Household operation prices are projected to increase 0.5 percent
due to higher electricity prices. Housing prices, however, which are
primarily actual or inputed rents, are not projected to increase.
The prices of new houses (residential construction) are expected to
increase (0.2%), but they are included in investment in accordance
with the conventions used in national income accounting.
To determine whether or not there would be a differential effect
of the price increases on families in different income classes,
the distribution of family expenditures by income class was examined.
Since the percentage of income spent on food and tobacco, personal
care, housing, household operation, and medical care expenses generally
declines with increases in family income, price increases in these
categories would weigh most heavily on families in the lower income
brackets. On the other hand, the percentage of income spent on clothing,
personal business, recreation, education, and religious and welfare
activities increases with increases in family income, so price increases
in these categories would weigh most heavily on consumers in the higher
income groups.
Expenditures for transportation are largest for the middle income
groups on a percentage basis; the lower 24 percent of families and the
upper 2 percent of these groups spend about three-fifths and four-fifths
respectively of the middle income group's percentage of transportation
expenditures. Because transportation costs are projected to increase
the most (4.3%) and because they are a significant share of all income
groups' PCE, the differential impacts of the price increases by income
groups tend to be dominated by the distribution of transportation
5-9
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expenditures. For this reason, the middle and upper income groups
would probably be affected to a greater extent on a percentage basis
than those families in the lover and the very highest income groups.
C. Impact on the Other Components of Final Demand
Gross private domestic investment, government purchases of goods
and services, and net exports of goods and services comprise the
remaining one-third of GNP. Since the price increases by the industries
will also be passed along to these three components (as well as to PCE)
some tentative conclusions have been drawn regarding the impact of the
industry price increases on these other components of final demand.
The structure of investment, government expenditures, and foreign
trade presented in the 1963 input-output table has been used for these
analyses.
1. Impact on the Prices of Gross Private Domestic Investment
Gross investment includes expenditures for residential and
nonresidential structures and for producers' durable equipment.
(Net change in business inventories, also a part of investment,
is not included in this price analysis.) These expenditures
are a volatile component of GNP--their level and distribution
shift in response to anticipated business profits. Since many
of these expenditures are for residential structures or for
equipment to make consumer goods, most of the changes in invest-
ment prices will probably be passed on to consumers.
This analysis projects the price increases in the major
investment producing industries and identifies the major industries
purchasing each major investment product. As with consumption,
higher investment prices may discourage some marginal investment
projects, postpone others and may encourage substitution of some
investment goods for others. These possibilities are not
investigated. However, the magnitude of the projected price changes
offers a basis for drawing some inferences regarding the changes
in the demand for investment goods. The changes in resource
allocation are not likely to be significant as the result of
higher prices for investment goods since the projected price
increases are about 0.5 percent for all investment goods.
5-10
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New construction is the largest investment producing industry
with over half of total sales for investment. Construction prices
are projected to increase to 0.2 to 0.4 percent, depending on the
specific construction industry, primarily as results of higher
copper, electric, iron and steel, iron foundries, and motor vehicle
prices. Every industry in the economy, including consumers who
purchase houses, is a purchaser of new construction and would be
affected to some extent by higher construction prices.
Motor vehicles and equipment is the next largest investment
producing sector, and like construction, motor vehicles are
purchased by virtually every sector in the economy. Projected
higher prices for automobiles (about 10.4%) and for trucks
(about 4.4%) are primarily due to the costs of emission control
devices which will be installed. The major motor vehicle purchasing
industry is transportation and warehousing. Major affected industries
within the transportation industries include trucking, busline
operations, and taxi cabs.
The machinery industries are frequently cited as key elements
in investment activities since they frequently embody technological
innovations. These industries together are responsible for 15
percent of investment expenditures. All major industries in
the economy purchase machinery products. The price increases
projected for the machinery industries are about 0.4 to 0.7
percent, depending on the specific type of machinery. Higher
electricity, truck, iron and steel, iron foundries, copper, lead,
zinc, and aluminum prices are the primary reasons for the higher
prices.
The implications of the effects on investment are compounded
by uncertainties regarding the availability of investment funds
and the impact on capital markets of additional spending for
air pollution control. For example, this study has projected
the investment requirements of 17 industrial sectors, for the
steam-electric generating industry, and for public and private
solid waste disposal through Fiscal 1977—the projected total public
5-11
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investment is approximately $300 million, and the total investment
for private enterprises is estimated at $9,076 million (steam-
electric $3,960 million; other industries $5,416 million).
Some analysts have questioned the capability of the
capital market to absorb demands of this magnitude and the
willingness of investors to provide funds in these amounts for
investments that do not, of themselves, increase the productive
capacity of business. However, it should not be assumed that
the entire $9,076 million will be invested in 1 year; this
is the total required to provide the controls described for
plants in existence in 1967 plus those built through Fiscal 1977,
so part of the total has already been invested. Such industries
as paper, steel, nonferrous metals, cement, petroleum, and iron
foundries have already made substantial expenditures on pollution
control, and the portion that remains will probably be financed
over at least 3 years, and not more than half, at most, of the total
will be raised in 1 year, say, not more than $4 billion. A substantial
share of the funds will come from internal financing (out of
retained earnings) although it is difficult to estimate how much
this may be. Of the remainder, perhaps as much as 80 percent may
come from increased debt and 20 percent from equity funds. Thus,
probably no more than $2.5 billion may be drawn from the bond
market in any 1 year. We feel that the market should be able to absorb
demand of this magnitude, especially if (as indicated in the analysis
of some industries in Chapter 4) other investment demands may be
postponed.
Assuming that municipal voters will approve the required bond
Issues, the reaction of the financial markets to new bond offerings
will probably be the same as for any other municipal borrowings
because the amounts projected are not large relative to other public
debt issues.
If, control costs are passed on to consumers in the form of
higher prices in many of the industries requiring the greatest
5-12
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investments, Investors should be able to obtain funds, so long as
revenues, in those Instances, Increase by enough to service
the debt or to maintain dividend rates. The greatest difficulties
will be experienced by small, financially weak firms with limited
capabilities for raising funds. Those dependent on a limited
line of bank credit, in particular, may find it virtually impossible
to raise even modest amounts for investments that contribute nothing
to earnings.
2. Impact on the Prices of Government Expenditures
Purchases of goods and services by Federal, State, and local
governments have been the second largest component of GNP since 1952.
Prior to 1952 the relative positions of government and investment
alternated several times reflecting the level of business and
military activity.
The impact on prices paid by the Federal Government for goods
and services is projected to be about 0.1 percent. Defense
expenditures would be more affected than other prices due to
higher prices for military hardware. The increase is small because
a large share of expenditures is for employee compensation which
will not be affected and because of the lack of a substantial
increase in the price for any major industry producing goods or
services which are Federal Government budget items,
a, Federal Government
Federal government expenditures for goods and services
include compensation of employees (46% of total 19 70 expenditures),
structures (3%), and other purchases (512). Higher industry
prices will be reflected in higher prices paid by government for
structures and other purchases. The composition of two categories
of Federal Government purchases—defense and other—were examined.
Defense accounted for 78 percent of 19 70 Federal Government purchases
of goods and services. The projected price increase in the major
defense purchases are 0.1 to 0.3 percent excluding motor vehicles.
(Although new automobile prices are projected to increase about
10%, defense spending for all motor vehicles is only about 1%,
5-13
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of defense expenditures.) The industry with the largest share of
defense purchases (31) is radio and TV communications equipment;
its prices are projected to increase about 0,17 percent.
Other programs make up the remaining 22 percent of
Federal Government expenditures. Major functions include
space research and technology; general government; international
affairs and finance; education; health, labor and welfare;
veterans benefits and services; commerce, transportation and
housing; agriculture and agricultural resources; and natural
resources. Price increases here are expected to be small.
The largest increase Is projected in aircraft and aircraft
equipment prices due to higher aluminum and electricity prices,
b. State and Local Government
State and local government purchases resumed the pre-
World War 11 position of being larger than Federal Government
purchases in 1965— and are expected to continue to be for the
foreseeable future. Major non-employee compensation expenditures
by state and local governments are currently for education
(44X); health, welfare, and sanitation (16Z); safety (8X); and
others including general government, transportation, agriculture
and natural resources (32%), Compensation of employees represents
over half of current State and local government purchases of goods
and services. The remaining share is about equally divided
between structures and other purchases.
The cumulative effect of the industry price increases
projected on the prices of state and local government's expenditures
is expected to be minimal. This is due to the fact that compensa-
tion of employees, the largest budget item, would be unaffected
and that the price increases in the major affected industry,
construction, is projected to be less than 0.5 percent.
The largest non-employee compensation component of
educational expenditures is for new buildings construction, which
Measured in current dollars.
5-14
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is projected to increase about 0.3 percent. Higher electricity
and iron and steel prices are the primary causes of the increase.
Most other categories are projected to increase about 0.1 or 0.2
percent.
State and local government expenditures for health,
welfare, and sanitation are primarily for construction; meat,
chemicals, drugs, electric power, miscellaneous business services;
hospitals; and other medical and health services. Price increases
of about 0.1 to 0.4 percent are projected for all but electricity,
where an increase of about 4.3 percent is projected.
State and local government expenditures for safety are
for police, fire, and correction services. These primarily
include new construction; petroleum and related products; motor
vehicles and parts; and miscellaneous business services.
Motor vehicles and parts expenditures show the largest
projected price increases. Since they comprise 2.5 percent of
State safety expenditures, they will have the most significant
impact on the price oo safety related expenditures.
The remaining component of State and local government
expenditures is for other goods and services. The largest
expenditures are for maintenance and repair construction.
3. Impact on the Prices of U.S. Foreign Trade Items
Foreign trade, currently the smallest component of GNP,
contributes less than 1 percent of total U.S. output. Net
exports have generally been declining since 1964 due to the
inability of the growth in exports to match the growth in imports.
There are many sources of the decline in the U.S. trade surplus,
however, an element frequently cited is the inflationary pressures
which have priced some U.S. goods out of world markets. It is
interesting to note that export prices have risen 13 percent in
the last 6 years after remaining virtually constant from 1951 to
1964. Prices of imports have risen also since 1964, but by only
two-thirds of the increase in export prices . Our trade position
will be further aggravated to the extent that air pollution control
5-15
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expenditures by Industry cause increases in the prices of U.S.
exports and in the domestic substitutes for imports.
The extent to which the U.S. trade position is affected by
air pollution control will depend cm changes in the relative
prices of U.S. and foreign goods competing for world markets.
Since most industrialized countries have some type of air pollution
control program, any estimate of the increase in the prices of
U.S. exports probably overstates the situation and is not reflective
of the change in relative prices. We do not here consider the
possible impact of rising U.S. prices due to pollution control
on import demand. To the extent that rising domestic prices
increase import demand, the balance of trade position will
deteriorate.
Major U.S. exports are agricultural products, food and
kindred products, chemicals and selected chemical products, and
motor vehicles and equipment.
In 1968, agricultural products including foods, feeds, and
grains comprised over 18 percent of U.S. exports. Most agri-
2/
cultural products are sold to the developed countries— especially
the Common Market countries, Canada and Japan. The highest price
increase projected for agricultural products is 0.07 percent
for cotton primarily due to higher electricity prices. Western
European countries and Japan purchase almost all U.S. cotton
exports.
Chemicals and chemical products were about 8 percent of 1968
U.S. exports. Chemicals and chemical products are primarily sold
to the Common Market countries, Canada and the Latin American
countries. The major chemical products which are exported Include
industrial inorganic and organic chemicals, agricultural chemicals
and miscellaneous chemical products. The prices of industrial
inorganic and organic chemicals are projected to increase by
0.3 percent, primarily due to the impact of higher iron and
steel prices.
_ ,,
— Western Europe, Canada, Japan, Australia, New Zealand,
and Republic of South Africa.
5-16
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Motor vehicles and equipment exports consist of new and
used passenger cars, trucks, buses, special vehicles, and parts,
bodies, and accessories. Together, they comprised 10 percent of
U.S. exports in 1968. Canada and the Latin American countries
are the largest purchasers of U.S. exports of motor vehicles—
together purchasing 80 percent of total exports of this category.
To the extent that Canada and the Latin American countries require
motor vehicles to meet the same or similar emission standards
as assumed for the U.S. in 1977, prices of exported automobiles
would increase about 10 percent and trucks about 4 percent.
If emission control devices are not Installed on motor vehicles
for export and the only price increases projected were due to
higher input prices, the projected Impact on motor vehicle
production prices would be about 0.4 percent.
5-17
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Appendix A
Assumed Emission Standards
-------
I. INTRODUCTION
Under the Clean Air Act, as amended in 1970, air quality standards
have been established for the whole country. Each State is required to
adopt and to submit implementation plans to the Administrator of the
Environmental Protection Agency for the emission reduction strategy
and enforcement thereof to achieve national standards for particulates,
sulfur oxides, nitrogen oxides, hydrocarbons, and carbon monoxide.
For this report, uniform emission standards were selected without
going through the various steps of emission inventories and diffusion
calculations to determine acceptable emission standards for achieving
air quality standards in each air quality control region. The basis for
the selections was the sample limitation procedures promulgated in the
Federal Register, Volume 36, Number 158, Part II, "Requirements for
Preparation, Adoption, and Submittal of Implementation Plans",
August 14, 1971.
Newly constructed and modified sources are subject to national
standards of performance based on adequately demonstrated control
technology in accordance with section 111 of the Clean Air Act, as
amended. In this report, steam-electric power plants, nitric and
sulfuric acid plants, cement plants, and municipal incinerators
scheduled for construction after January 1, 1972, were assumed to be
subject to national standards of performance promulgated in the
Federal Register, Volume 36, Number 159, "National Standards of
Performance for Stationary Sources", August 17, 1971.
II. STATIONARY
A. Standards for Particulates
For industrial processes, the process weight rate regulations
(Table A-l) are the bases of control cost estimates. These regulations
limit the weight of particulate emissions per hour as a function of the
total weight of raw materials introduced into a process operation. For
sulfuric acid plants, the allowable mist emission is 0.5 pounds per
ton of acid produced; for incinerators, the particulates are limited
-------
to 0.10 pounds per 100 pounds of refuse charged; for fuel-burning equipment,
the particulates are limited to 0.10 pounds per million B.t.u. of heat
input. Limitations for incinerators and for fuel-burning equipment are based on
the source test method for stationary sources of particulate emissions published
by EPA in 40 CFR-Part 60, December 22, 1971, Federal Register.
B. Standards for Sulfur Oxides
For fuel-burning equipment, cost estimates are based on mass emission
rate of 1.50 pounds of sulfur dioxide per million B.t.u. input. This
limit is approximately equivalent to a sulfur content of 1.0 percent
by weight in coal and 1.4 percent by weight in oil. For sulfuric
acid plants, a mass rate of 6.5 pounds of sulfur dioxide per ton of
acid is used for existing sources. Primary copper, lead, and zinc
smelters are assumed to limit sulfur oxide emissions to 10 percent
of sulfur (measured as sulfur dioxide) in the ore. Sulfur recovery
plants at refineries are limited to 0.01 pounds of sulfur emissions per
pound of input sulfur.
C. Standards for Carbon Monoxide
Cost estimates were based on treatment of all exhaust gases to
reduce the weight of carbon monoxide emissions by at least 95 percent.
D. Standards for Hydrocarbons
For industrial processes, cost estimates were based on treatment
of all exhaust gases to remove organic material by 90 percent (or more)
by weight. For petroleum products storage, it was assumed that all
stationary tanks, reservoirs, and containers with more than a 40,000-
gallon capacity and with a vapor pressure of 1.5 pounds per square inch
absolute (or greater) must be equipped with floating roofs, vapor recovery
systems, or other equally efficient devices. In addition, it was
assumed that submerged filling inlets must be installed on all gasoline
storage tanks with a capacity of 250 gallons or more.
E. Standards for Nitrogen Oxides
No specific cost estimates were made pertinent to the reduction of
nitrogen oxides. Limestone injection scrubbing, assumed for power
plants, can reduce some oxides of nitrogen by 20 percent. Existing
A-2
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nitric acid plants are restricted to 5.5 pounds of nitrogen oxide per
ton of acid produced.
III. MOBILE SOURCES
Table A-2 summarizes the current and projected emission control
requirements for reducing hydrocarbons, carbon monoxide, and nitrogen
oxides emissions from passenger cars and light duty trucks through
Fiscal 1977. This table is based on information available through
August 15, 1971. Table A-3 is the forecast of emission control
requirements for reducing the same pollutants for heavy duty trucks
through Fiscal 1977. The assumed standards no longer include
particulates. This change was brought about by the assumption that
unleaded or low lead gasoline will be in widespread use during the
next 5 years; removal of lead reduces particulates from gasoline
engines by 75 to 80 percent (by weight).
Table A-4 provides the reports and estimates of motor vehicle
production that served as a basis for cost estimates.
A-3
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TABLE A-l. ALLOWABLE RATE OF PARTICULATE EMISSIONS BASED ON
PROCESS WEIGHT RATE 1/
Process Weight Rate
(lbs/hr)
Emission Rate
(lbs/hr)
50
0.30
100
0.55
500
1.53
1,000
2.25
5,000
6.34
10,000
9.73
20,000
14.99
60,000
29.60
80,000
31.19
120,000
33.28
160,000
34.85
200,000
36.11
400,000
40.35
1,000,000
46.72
—' To interpolate the data for the process weight rates up to
60,000 lbs/hr, the equation
E = 3.59p0,62 P < 30 tons/hr;
To interpolate and extrapolate in excess of 60,000 lbs/hr,
the equation
E = 17.31p0,16 P > 30 tons/hr
where E is emissions in pounds per hour, and p is process
weight rate in tons per hour.
A-4
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TABLE A-2. CURRENT AND PROJECTED EMISSION CONTROL REQUIREMENTS
FOR AUTOMOBILES AND LIGHT TRUCKS (6000 LB. GVW OR LESS)
Model
Test 7
Procedure—
Exhaust
Emissions,
Gm/Mi
Evaporation
Assembly
Year
HC
CO
NOx
Gm/Teat
Line Test
1968-/
FTP
(275 ppm)
(1.5
vol.%)
NR
NR
NR
1969-
FTP
(275 ppm)
(1-5
<
o
NR
NR
NR
19 70
FTP
2.2
23
NR
NR
NR
1971
FTP
2.2
23
NR
6
NR
1972
CVS
3.4-
391/
NR
2
NR
1973
CVS
3.4
39
3.0
2
1/
19 74
CVS
3.4
39
3.0
2
4/
1975—^
CVS
0.41
3.4
3.1
2
4/
19 76-/
CVS
0.41
3.4
0.4
2
A/
1977—
CVS
0.41
3.4
0.4
2
4/
Notes:
NR
GVW
J/
2J
V
*J
1!
- No Requirement
- Gross Vehicle Weight
- Federal Test Procedure (FTP), 7-mode cycle.
- Constant Volume Sampler (CVS) using 1372 second driving cycle.
- Standards for 1968 and 1969 are expressed as parts per million
(ppm) or volume percent.
- The larger numbers for HC and CO standards beginning 1972 are due
to the fact that the CVS procedure gives larger readings than FTP.
On an equal test procedure 1972 standards are more stringent than
1971 and do not represent a relaxation of previous requirements.
- Assumes federal requirement for test on 3 percent of nationwide
sales expected starting 1973, using a new short test cycle now
under development.
- Definition of standards was published by EPA on 7-2-71. A hot start
cycle is added to the procedure beginning MY 19 75.
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TABLE A-3. CURRENT AND POSSIBLE^EMISSION CONTROL REQUIREMENTS
HEAVY DUTY VEHICLES (OVER 6000 LB. GVW)
GASOLINE ENGINES
Exhaust Emlsslona 3/
Model
Test 2/
Procedure—
Concentration-ppm or
% Mass-gm/ghp hr
Evaporation
Year
HC
CO
HC+NOx
CO
Grams/Test
EE5L
Vol. %
1967-69
NR
NR
NR
NR
1970-71
Eng. Dyn.
275
1.5
NR
1972
Eng. Dyn.
275
1.5
NR
19 73-74
Eng. Dyn.
275
1.5
10 y
1975-77
Eng. Dyn.
5
25
10
DIESEL ENGINES
Model
Year
Test 5/
Procedure—
Exhaust Emissions
Mass-gm/bhp hr
HC+NOx CO
Smoke ,.
ZObscure—
1967-69
-
NR
NR
NR
1970-74
-
NR
NR
20-40
1975-77
Eng. Dyn.
5
25
20-40
NOTES:
NR - No Requirement
GVW - Gross Vehicle Weight
1/ - EPA announced on February 11, 1972 that the 1973 heavy duty
vehicle standards proposed on October 5, 1971 were being
withdrawn and that new standards would be imposed for the
1974 model year instead. There was insufficient time to
change this report to reflect either this new effective
date or likely changes in the technical nature of the
control requirements assumed in the table.
2/ - HEW engine dynamometer test cycle (steady 2000 rpm, various loads)
3/ - Concentrations are expressed on a volume portion basis through
1974, parts per million (ppra) or volume percent. After 1974
a mass basis of grams per brake horsepower-hour is used.
4/ - Evaporative control requirements may possibly be delayed until
MY 1975.
5/ - EMA engine dynamometer teat cycle (various stabilized speeds
and loads).
6J - HEW engine dynamometer test - acceleration and lugging modes.
A-6
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TABLE A-4. MOTOR VEHICLE PRODUCTION
(Domestic Production Plus Net Imports)
Calendar
Year 2/
Autos
Numbers of Vehicles
L.D. Trucks
(Millions)
H.D. Trucks & Buses
Total
1967
8.1
1.0
0.6
9.7
1968
10.0
1.1
0.8
11.9
1969
9.7
1.1
0.8
11.6
1970
10.0
1.2
0.8
12.0
1971
10.0
1.2
0.8
12.0
1972
10.1
1.2
0.9
12.2
1973
10.2
1.3
0.9
12.4
1974
10.4
1.4
0.9
12.7
1975
10.7
1.4
0.9
13.0
1976
10.9
1.4
0.9
13.2
1977
11.2
1.4
0.9
13.5
i/Reported numbers through 1968» estimated thereafter. Source: U.S.
Department of Transportation, Federal Highway Administration, Bureau
of Public Roads, with light duty truck numbers estimated from total
truck and bus numbers.
A-7
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