<PRE>
[Federal Register: January 12, 2001 (Volume 66, Number 9)]
[Proposed Rules]               
[<strong>Page</strong> <strong>3059</strong>-<strong>3108</strong>]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr12ja01-39]                         
 
[[pp. <strong>3059</strong>-<strong>3108</strong>]] National Pollutant Discharge Elimination System Permit Regulation 
and Effluent Limitations Guidelines and Standards for Concentrated 
Animal Feeding Operations
[[Continued from <strong>page</strong> 3058]]
[[<strong>Page</strong> <strong>3059</strong>]]
reduce BOD loads. There are therefore no candidate technologies for 
more stringent BCT limits. If EPA had identified technologies that 
achieve greater TSS reductions than the proposed BPT, EPA would have 
performed the two part BCT cost test. (See 51 FR 24974 for a 
description of the methodology EPA employs when setting BCT standards.) 
EPA solicits comment on the assumptions it used in considering BCT.
    EPA is proposing to establish BCT limits for conventional 
pollutants equivalent to the proposed BPT limits.
5. Best Available Technology Economically Achievable (BAT)
    EPA is considering six technology options to control discharges 
from CAFOs in the beef, veal and poultry subcategories, and seven 
technology options for the dairy and hog subcategories. All of the 
technology options include restrictions on land application of manure, 
best management practices (BMPs), inspections and record keeping for 
the animal confinement areas, and wastewater storage or treatment 
structures. The following table summarizes the requirements for each of 
the seven technology options. Note that a given technology option may 
include a combination of technologies.
                          Table 8-1.--Requirements Considered in the Technology Options
----------------------------------------------------------------------------------------------------------------
                               Option 1    Option 2    Option 3    Option 4    Option 5    Option 6    Option 7
----------------------------------------------------------------------------------------------------------------
Zero Discharge w/overflow             X           X           X           X            Cat..........  ..........
 when a 25-24 Design                                                              Dairy
 Standard is met............
Depth markers for lagoons...          X           X           X           X            Cattle &   X           X
                                                                                  Dairy
Annual Manure Testing.......          X           X           X           X           X           X           X
N-based PNP.................          X   ..........  ..........  ..........  ..........  ..........  ..........
100' LA setback.............          X           X           X           X           X           X           X
P-based PNP (where            ..........          X           X           X           X           X           X
 necessary).................
Soil Test--every 3yrs.......  ..........          X           X           X           X           X           X
Zero discharge without any    ..........  ..........  ..........  ..........    Swine &   ..........  ..........
 allowance for overflow.....                                                    Poultry
Hydrologic Link Assessment &  ..........  ..........          X           X   ..........  ..........  ..........
 Zero Discharge to
 Groundwater beneath
 Production Area............
Ambient Surface Water         ..........  ..........  ..........          X   ..........  ..........  ..........
 Sampling (N,P,TSS).........
Anaerobic Digestion w/power   ..........  ..........  ..........  ..........      Swine     Swine &   ..........
 generation.................                                                                  Dairy
Frozen/snow covered/          ..........  ..........  ..........  ..........  ..........  ..........         X
 saturated application
 prohibitions...............
----------------------------------------------------------------------------------------------------------------
X = All Subcategories.
    Option 1. This option is equivalent to Option 1 described under BPT 
Section VIII.3. Option 1 would require zero discharge from the 
production area and that liquid storage be designed, constructed and 
maintained to handle all process wastewater and storm water runoff from 
the 25-year, 24-hour storm event. In addition, Option 1 requires 
management practices to ensure that the production area (which includes 
manure and wastewater storage) is being adequately maintained.
    Option 1 also would establish a requirement to develop a PNP which 
establishes the proper land application rate for manure and wastewater 
to meet the nitrogen requirements for the crops being grown by the CAFO 
and require a 100 foot setback from surface water, sinkholes, tile 
drain inlets and agricultural drainage wells.
    Option 2. This option is equivalent to Option 2 described under BPT 
(section VII.3). Option 2 includes all of the requirements established 
under Option 1. However, Option 2 would further restrict the amount of 
manure that can be applied to crop land owned or controlled by the 
CAFO. The CAFO would be required to apply manure and wastewater at the 
appropriate rate taking into account the nutrient requirements of the 
crop and soil conditions. Specifically, Option 2 would require that 
manure be applied at crop removal rate for phosphorus if soil 
conditions warrant and, if soils have a very high level phosphorus 
build-up, no manure or wastewater could be applied to the crop land 
owned or controlled by the CAFO.
    Option 3. Option 3 includes all the requirements for Option 2 and 
would require that all operations perform an assessment to determine 
whether the ground water beneath the feedlot and manure storage area 
has a direct hydrological connection to surface water. As described in 
Section VII, EPA has authority to control discharges to surface water 
through ground water that has a direct hydrological connection to 
surface water. A hydrological connection refers to the interflow and 
exchange between surface impoundments and surface water through an 
underground corridor or ground water. EPA is relying on the permitting 
authority to establish the region-specific determination of what 
constitutes a direct hydrological link. Option 3 would require all 
CAFOs to determine whether they have a direct hydrological connection 
between the ground water beneath the production area and surface 
waters. If a link is established, the facility would have to monitor 
ground water up gradient and down gradient of the production area to 
ensure that they are achieving zero discharge to ground water. EPA has 
assumed that CAFOs would comply with the zero discharge requirement by 
installing liners of synthetic material beneath lagoons and ponds, and 
impervious pads below storage of dry manure stockpiles. EPA's costs for 
liners reflect both a synthetic liner and compacted clay to protect the 
liner and prolong its useful life.
    CAFOs with a direct hydrologic link would be required to sample the 
groundwater from the monitoring wells (located up gradient and down 
gradient of the production area) at a minimum frequency of twice per 
year. These samples are necessary to ensure that pollutants are not 
being discharged through groundwater to surface water from the 
production area. The samples shall be monitored for nitrate, ammonia, 
total coliform, fecal coliform, Total Dissolved Solids (TDS) and total 
chloride. Differences in concentration of these pollutants between the 
monitoring
[[<strong>Page</strong> 3060]]
well(s) located up gradient and down gradient of the production area 
are assumed to represent a discharge of pollutants and must be 
prevented. As noted below, coliforms are not necessarily good 
indicators of livestock discharges. Also, it is difficult to determine 
``concentrations'' of coliforms as they are not necessarily evenly 
distributed in the way chemical contaminants generally are. EPA 
requests comment on technical concerns associated with including total 
and fecal coliforms in the groundwater monitoring and protection 
requirements and on ways to address such concerns.
    Option 4. Option 4 includes all the requirements for Option 3 and 
would require sampling of surface waters adjacent to feedlots and/or 
land under control of the feedlot to which manure is applied. This 
option would require CAFOs to sample surface water both upstream and 
downstream from the feedlot and land application areas following a one 
half inch rain fall (not to exceed 12 sample events per year). The 
samples would be analyzed for concentrations of nitrogen, phosphorus 
and total suspended solids (TSS). EPA selected these pollutants because 
it believes these pollutants provide an adequate indication of whether 
a discharge is occurring from the operation. All sampling results would 
be reported to the permit authority. Any difference in concentration 
between the upstream and downstream samples would be noted. This 
monitoring requirement could provide some indication of discharges from 
the land application or feedlot areas.
    EPA also considered requiring that pathogens and BOD<INF>5</INF> be 
analyzed in samples collected. EPA decided that this would not be 
practical, because sampling under Option 4 is linked to storm events 
which limits the ability to plan in advance for analysis of the samples 
and making arrangements for shipping samples to laboratories. Fecal 
coliform and BOD samples all have very short holding times before they 
need to be analyzed. Most CAFOs are located in rural areas with limited 
access to overnight shipping services and are probably not near 
laboratories that can analyze for these pollutants. Further, fecal 
coliform and similar analytes that are typically used as indicators in 
municipal wastewater are not necessarily good indicators of livestock 
discharges. If CAFOs were required to monitor for pathogens which could 
indicate discharges of manure or CAFO wastewater, it would be better to 
require monitoring for fecal enterococci, or even specific pathogens 
such as salmonella, Giardia, and Cryptosporidium. However, the cost for 
analyzing these parameters is very high and the holding times for these 
parameters are also very short.
    Furthermore, EPA determined pathogen analyses are also 
inappropriate because the pathogens in manure are found in areas 
without animal agriculture. For example Enterobacter, Klebsiella, 
Bacillus cereus, Clostridium, and Listeria are all naturally occurring 
soil and plant microorganisms and are found in soils that have never 
received manure. Pathogens may also be deposited onto land from 
wildlife. Thus, EPA concluded that requiring analysis for these 
pollutants was impractical at best and potentially very expensive.
    Option 5. Option 5 includes the requirements established by Option 
2 and would establish a zero discharge requirement from the production 
area that does not allow for an overflow under any circumstances. By 
keeping precipitation from contacting with the animals, raw materials, 
waste handling and storage areas, CAFOs could operate the confinement 
areas and meet zero discharge regardless of rainfall events. Option 5 
includes the same land application requirements as Option 2, which 
would restrict the rate of manure and wastewater application to a crop 
removal rate for phosphorus where necessary depending on the specific 
soil conditions at the CAFO. Additionally, as in Option 2, application 
of manure and wastewater would be prohibited within 100 feet of surface 
water.
    EPA considered Option 5 for the poultry, veal and hog 
subcategories, where it is common to keep the animals in total 
confinement, feed is generally maintained in enclosed hoppers and the 
manure and wastewater storage can be handled so as to prevent it from 
contacting storm water. EPA considered a number of ways a facility 
might meet the requirements of no discharge and no overflow. In 
estimating the costs associated with Option 5, EPA compared the total 
costs and selected the least expensive technology for a given farm 
size, geographic region, and manure management system. Costs also 
depend on whether the facility's PNP indicates land application must be 
based on nitrogen or phosphorus, and how many acres the facility 
controls. The technologies described below were used singularly or in 
combination to meet the requirements of Option 5.
    Many facilities can achieve Option 5 by covering open manure and 
storage areas, and by constructing or modifying berms and diversions to 
control the flow of precipitation. EPA costed broiler and turkey 
operations for storage sheds sufficient to contain six months of 
storage. Some poultry facilities, particularly turkey facilities, 
compost used litter in the storage sheds, allowing recycle and reuse of 
the litter. EPA costed swine, veal, and poultry facilities which use 
lagoons or liquid impoundments for impoundment covers.
    EPA believes that operations which have excess manure nutrients and 
use flush systems to move manure out of the confinement buildings will 
have an incentive to construct a second lagoon cell. A second storage 
or treatment cell should accomplish more decomposition of the waste and 
will allow flush water to be recycled out of the second cell or lagoon, 
thus reducing the addition of fresh water to the system. Reducing the 
total volume of stored waste reduces the risk of a catastrophic failure 
of the storage structure. In the absence of large volumes of water, 
facilities with an excess of manure nutrients will be able to transfer 
the excess manure off-site more economically due to a lower volume of 
waste needing to be hauled. Water reduction also results in a more 
concentrated product which would have a higher value as a fertilizer.
    Covered systems substantially reduce air emissions, and help 
maintain the nutrient value of the manure. Covered systems also may 
benefit facilities by reducing odors emanating from open storage. This 
option also creates a strong incentive for facilities to utilize 
covered lagoon digesters or multistage covered systems for treatment. 
The use of covers will allow smaller and more stable liquid 
impoundments to be constructed. Finally, the use of covered 
impoundments encourages treatment and minimal holding times, resulting 
in pathogen die-off and reduction of BOD and volatile solids.
    Other technologies can be effectively used at some facilities, such 
as conversion of flush systems to scrape systems, or by retrofit of 
slatted floor housing to V-shaped under house pits that facilitate 
solid liquid separation. Solids can be stored or composted in covered 
sheds, while the urine can be stored in small liquid impoundments.
    In the event the facility has insufficient land to handle all 
nutrients generated, EPA evaluated additional nutrient management 
strategies. First, the manure could pass through solid separation, 
resulting in a smaller volume of more concentrated nutrients that is 
more effectively transported offsite. Second, land application could be 
based on the uppermost portion of a covered lagoon containing a more 
dilute concentration of nutrients. Data indicates much of the 
phosphorus
[[<strong>Page</strong> 3061]]
accumulates in the bottom sludge, which is periodically removed and 
could be transported offsite for proper land application. Though many 
facilities report sludge removal of a properly operating lagoon may 
occur as infrequently as every 20 years, EPA assumed facilities would 
pump out the phosphorus and metals enriched sludge every three years. 
This is consistent with the ANSI/ASAE standards for anaerobic treatment 
lagoons (EP403.3 JUL99) that indicates periodic sludge removal and 
liquid drawdown is necessary to maintain the treatment volume of the 
lagoon. Third, swine and poultry farms can implement a variety of 
feeding strategies, as discussed under Option 2 (see Section VII.C.3). 
Feed management including phytase, multistage diets, split sex feeding, 
and precision feeding have been shown to reduce phosphorus content in 
the manure by up to 50%. This results in less excess nutrients to be 
transported offsite, and allows for more manure to be land applied at 
the CAFO.
    EPA is aware of a small number of swine facilities that are 
potentially CAFOs and use either open lots or some type of building 
with outside access to confine the animals. EPA data indicate these 
types of operations are generally smaller operations that would need to 
implement different technologies than those described above. CAFOs that 
provide outdoor access for the animals need to capture contaminated 
storm water that falls on these open areas. Open hog lots would find it 
difficult to comply with a requirement that does not allow for 
overflows in the event of a large storm. EPA costed these facilities to 
replace the open lots with hoop houses to confine the animals and 
storage sheds to contain the manure. Hoop structures are naturally 
ventilated structures with short wooden or concrete sidewalls and a 
canvas, synthetic, or reflective roof supported by tubes or trusses. 
The floor of the house is covered with straw or similar bedding 
materials. The manure and bedding is periodically removed and stored. 
The drier nature of the manure lends to treatment such as composting as 
well as demonstrating reduced hauling costs as compared to liquid 
manure handling systems.
    EPA considered a variation to Option 5 that would require CAFOs to 
use dry or drier manure handling practices. This variation assumed 
conversion to a completely dry manure handling system for hogs and 
laying hens using liquid manure handling systems. In addition to the 
advantages of reduced water use described above, a completely dry 
system is more likely to minimize leaching to ground water and, where 
directly connected hydrologically to surface water, will also reduce 
loads to surface waters. For the beef and dairy subcategories EPA 
assumes that the liquid stream would be treated to remove the solids 
and the solids would be composted. It is not practical to assume beef 
and dairy operations can avoid the generation of liquid waste because 
operations in both subcategories tend to have animals in open areas 
exposed to precipitation resulting in a contaminated storm water that 
must be captured. Also dairies generate a liquid waste stream from the 
washing of the milking parlor.
    Option 6. Option 6 includes the requirements of Option 2 and 
requires that large hog and dairy operations (hog operations and 
dairies with 2,000 AUs) would install and implement enclosed anaerobic 
digestion to treat their manure and use the captured methane gas for 
energy or heat generation. With proper management, such a system can be 
used to generate additional on-farm revenue. The enclosed system will 
reduce air emissions, especially odor and hydrogen sulfide, and 
potentially reduces nitrogen losses from ammonia volatilization. The 
treated effluent will also have less odor and should be more 
transportable relative to undigested manure, making offsite transfer of 
manure more economical. Anaerobic digestion under thermophilic or 
heated conditions would achieve additional pathogen reductions.
    Option 7. Option 7 includes the requirements of Option 2 and would 
prohibit manure application to frozen, snow covered or saturated 
ground. This prohibition requires that CAFOs have adequate storage to 
hold manure for the period of time during which the ground is frozen or 
saturated. The necessary period of storage ranges from 45 to 270 days 
depending on the region. In practice, this may result in some 
facilities needing storage to hold manure and wastes for 12 months. EPA 
requests comment on whether there are specific conditions which warrant 
a national standard that prohibits application when the ground is 
frozen, snow covered or saturated.
6. Proposed Basis for BAT
    BAT Requirements for the Beef and Dairy Subcategories. EPA is 
proposing to establish BAT requirements for the beef and dairy 
subcategories based on the same technology option. The beef subcategory 
includes stand-alone heifer operations and applies to all confined 
cattle operations except for operations that confine mature dairy 
cattle or veal. Under the two-tier structure, the BAT requirements 
would apply to any beef operation with 500 head of cattle or more. 
Under the three-tier structure, the BAT requirements for beef would 
apply to any operation with more than 1,000 head of cattle and any 
operation with 300 to 1,000 head which meets the conditions identified 
in section VII.B.2 and 3 of this preamble.
    EPA proposes to establish BAT requirements for dairy operations 
which meet the following definitions: under the two-tier structure, all 
dairy with 350 head of mature dairy cows or more would be subject to 
today's proposed BAT requirements. Under the three-tier approach any 
dairy with more than 700 head of mature dairy cows or 250 to 700 head 
of mature dairy cows which meets the conditions identified in section 
VII of this preamble would be subject to today's proposed BAT 
requirements.
    EPA proposes to establish BAT requirements for the beef and dairy 
subcategories based on Option 3. BAT would require all beef and dairy 
CAFOs to monitor the ground water beneath the production area by 
drilling wells up gradient and down gradient to measure for a plume of 
pollutants discharged to ground water at the production area. A beef or 
dairy CAFO can avoid this ground water monitoring by demonstrating, to 
the permit writer's satisfaction, that it does not have a direct 
hydrological connection between the ground water beneath the production 
area and surface waters.
    EPA proposes to require CAFOs in the beef and dairy subcategories 
to monitor their ground water unless they determine that the production 
area is located above ground water which has a direct hydrological 
connection to surface water. CAFOs would have to monitor for ammonia, 
nitrate, fecal coliform, total coliform, total chlorides and TDS. EPA 
selected these pollutants because they may be indicators of livestock 
waste and are pollutants of concern to ground water sources. If the 
down gradient concentrations are higher than the up gradient 
concentration this indicates a discharge which must be controlled. As 
discussed above, EPA requests comment on the inclusion of total and 
fecal coliforms among the required analytes. For operations that do not 
demonstrate that they do not have a direct hydrologic connection, EPA 
based the BAT zero discharge requirement on the installation of liners 
in liquid storage structures such as lagoons and storm water retention 
ponds and concrete pads for the storage of dry manure stockpiles.
    Beef and dairy CAFOs must also develop and implement a PNP that is 
based on application of manure and
[[<strong>Page</strong> 3062]]
wastewater to crop land either at a crop removal rate for phosphorus 
where soil conditions require it, or on the nitrogen requirements of 
the crop. EPA believes the land application rates established in 
accordance with one of the three methods described in today's proposed 
regulation, along with the prohibition of manure application within 100 
feet of that surface water will ensure manure and wastewater are 
applied in a manner consistent with proper agricultural use. See EPA's 
document entitled ``Managing Manure Nutrients at Concentrated Animal 
Feeding Operations'' for the detailed discussion of how a PNP is 
developed.
    EPA believes that technology option 3 is economically achievable 
and represents the best available technology for the beef and dairy 
subcategories, and is therefore proposing this option as BAT for these 
subcategories. The incremental annual cost of Option 3 relative to 
Option 2 for these subcategories is $170 million pre-tax under the two-
tier structure, and $1205 million pre-tax under the three tier 
structure. EPA estimated annual ground water protection benefits from 
the proposed requirements of $70-80 million. EPA estimates Option 3 for 
the beef and dairy subcategories will reduce loadings to surface waters 
from hydrologically connected ground water by 3 million pounds of 
nitrogen. To determine economic achievability, EPA analyzed how many 
facilities would experience financial stress severe enough to make them 
vulnerable to closure under each regulatory option. As explained in 
more detail in the Economic Analysis, the number of facilities 
experiencing stress may indicate that an option might not be 
economically achievable, subject to additional considerations. Under 
Option 2, no facilities in either the beef or dairy sectors were found 
to experience stress, while under Option 3, the analysis projects 10 
beef and 329 dairy CAFOs would experience stress under the two-tier 
structure, and 40 beef and 610 dairy CAFOs would experience stress 
under the three-tier structure. Of these, EPA has determined that 40 
beef operations are considered small businesses based on size standards 
established by the Small Business Administration. This analysis assumes 
that 76% of affected operations would be able to demonstrate that their 
ground water does not have a hydrological connection to surface water 
and would therefore not be subject to the proposed requirements. EPA 
projects the cost of making this demonstration to the average CAFO 
would be $3,000. EPA is aware that concerns have been raised about 
these cost estimates, and about its estimates of how many facilities 
would be able to avoid the groundwater monitoring and protection 
requirements on this basis. EPA requests comment on this analysis and 
on its proposed determination that Option 3 is economically achievable 
for the beef and dairy sectors.
    EPA is not proposing to base BAT requirements for the beef and 
dairy subcategories on Option 2 because it does not as comprehensively 
control discharges of pollutants through ground water which has a 
direct hydrological connection with surface water. However, EPA is 
requesting comment on Option 2 as a possible basis for BAT in the beef 
and dairy subcategories. EPA notes that even under Option 2, permit 
writers would be required to consider whether a facility is located in 
an area where its hydrogeology makes it likely that the ground water 
underlying the facility is hydrologically connected to surface water 
and whether a discharge to surface water from the facility through such 
hydrologically connected ground water may cause or contribute to a 
violation of State water quality standards. In cases where such a 
determination was made by the permit writer, he or she would impose 
appropriate conditions to prevent discharge via a hydrologic connection 
would be included in the permit. The main difference between Option 2 
and Option 3 is thus that under Option 3, the burden of proof would be 
on the facility to demonstrate that it does not discharge to ground 
water that is hydrologically connected to surface water, while under 
Option 2, ground water protection and monitoring requirements would 
only be included in the permit if there were an affirmative 
determination by the permitting authority that such requirements were 
necessary to prevent a discharge of pollutants to surface waters via 
hydrologically connected ground water that may be sufficient to cause a 
violation of State water quality standards. Under today's proposal, the 
Option 2 approach to preventing discharges via hydrologically connected 
ground water would be used for the veal, swine and poultry 
subcategories. EPA requests comment on applying this approach to the 
beef and dairy subcategories as well.
    EPA is not proposing to establish BAT requirements for the beef and 
dairy subcategories on the basis of Option 4 due to the additional cost 
associated with ambient stream monitoring and because the addition of 
in-stream monitoring does not by itself achieve any better controls on 
the discharges from CAFOs as compared to the other options. In-stream 
monitoring could be an indicator of discharges occurring from the CAFO; 
however, it is equally likely that in-stream monitoring will measure 
discharges that may be occurring from adjacent non-CAFO agricultural 
sources. Through the use of commercial fertilizers these non-CAFO 
sources would likely be contributing the same pollutants being analyzed 
under Option 4. EPA has not identified a better indicator parameter 
which would isolate constituents from CAFO manure and wastewater from 
other possible sources contributing pollutants to a stream. Pathogen 
analysis could be an indicator if adjacent operations do not also have 
livestock or are not using manure or biosolids as fertilizer sources. 
However, as described earlier, EPA has concerns about the ability of 
CAFOs to collect and analyze samples for these pollutants because of 
the holding time constraints associated with the analytical methods for 
these parameters. Accordingly, EPA does not believe that specifying 
these additional in-stream monitoring BMP requirements would be 
appropriate; and would not be useful in ensuring compliance with the 
Clean Water Act. Moreover, in-stream monitoring would be a very costly 
requirement for CAFOs to comply with.
    EPA is not proposing to establish BAT requirements for the beef and 
dairy subcategories on the basis of Option 5. Option 5 would require 
zero discharge with no overflow from the production area. Most beef 
feedlots are open lots which have large areas from which storm water 
must be collected; thus, it is not possible to assume that the 
operation can design a storm water impoundment that will never 
experience an overflow even under the most extreme storm. Stand alone 
heifer operations (other than those that are pasture-based) are 
configured and operated in a manner very similar to beef feedlots. 
Unlike the hog, veal and poultry subcategories, EPA is not aware of any 
beef operations that keep all cattle confined under roof at all times.
    Dairies also frequently keep animals in open areas for some period 
of time, whether it is simply the pathway from the barn to the milk 
house or an open exercise lot. Storm water from these open areas must 
be collected in addition to any storm water that contacts food or 
silage. As is the case for beef feedlots, the runoff volume from the 
exposed areas is a function of the size of the area where the cattle 
are maintained, and the amount of precipation. Since the CAFO operator 
cannot control the amount of precipation, there always remains the 
possibility that an extreme storm event
[[<strong>Page</strong> 3063]]
can produce enough rainfall that the resulting runoff would exceed the 
capacity of the lagoon.
    EPA did consider a new source option for new dairies that would 
enforce total confinement of all cattle at the dairy. This new source 
option poses a barrier to entry for new sources, therefore, EPA assumes 
that this option if applied to existing sources would be economically 
unachievable. Furthermore, EPA did evaluate a variation of Option 5 
that would apply to existing beef and dairy operations and would 
require the use of technologies which achieve a less wet manure. These 
technologies include solid-liquid separation and composting the solids. 
EPA is not proposing to establish BAT on the use of these technologies, 
but does believe these technologies may result in cost savings at some 
operations. Additionally, composting will achieve pathogen reductions. 
As described in section VIII.C.9., EPA is continuing to examine 
pathogen controls and may promulgate requirements on the discharge of 
pathogens. If EPA set limitations on pathogens, composting technology 
would likely become a basis for achieving BAT limits. EPA invites 
comment on composting and its application to dry beef and dairy manure.
    For any operation that has inadequate crop land on which to apply 
its manure and wastewater, solid-liquid separation and composting could 
benefit the CAFO, as these technologies will make the manure more 
transportable. Drier manure is easier to transport; and therefore, EPA 
believes solid liquid separation and composting will be used in some 
situations to reduce the transportation cost of excess manure. In 
addition, composting is a value-added process that improves the 
physical characteristics (e.g., reduces odor and creates a more 
homogenous product) of the manure. It can also make the manure a more 
marketable product. As a result, a CAFO with excess manure may find it 
easier to give away, or even sell, its excess manure. EPA encourages 
all CAFOs to consider technologies that will reduce the volume of 
manure requiring storage and make the manure easier to transport.
    Option 6, which requires anaerobic digestion treatment with methane 
capture, was not considered for the beef subcategory, but was 
considered for the dairy subcategory for treatment of liquid manure. 
Anaerobic digestion can only be applied to liquid waste. As described 
previously in Section VI, beef feedlots maintain a dry manure, yet they 
capture storm water runoff from the dry lot and manure stockpile. The 
storm water runoff is generally too dilute to apply digestion 
technology.
    Most dairies, however, handle manure as a liquid or slurry which is 
suited to treatment through anaerobic digestion. EPA concluded that 
application of anaerobic digesters at dairies will not necessarily lead 
to significant reductions in the pollutants discharges to surface 
waters from CAFOs. An anaerobic digester does not eliminate the need 
for liquid impoundments to store dairy parlor water and barn flush 
water and to capture storm water runoff from the open areas at the 
dairy. Neither do digesters reduce the nutrients, nitrogen or 
phosphorus. Thus, basing BAT on digester technology would not change 
the performance standard that a production area at a CAFO would achieve 
and would not reduce or eliminate the need for proper land application 
of manure. Digesters were considered because they achieve some degree 
of waste stabilization and more importantly they capture air emissions 
generated during manure storage. The emission of ammonia from manure 
storage structures is a potentially significant contributor of nitrogen 
to surface waters. Covered anaerobic digesters will prevent these 
emissions while the waste is in the digester, but the digester does not 
convert the ammonia into another form of nitrogen, such as nitrate, 
which is not as volatile. Thus as soon as the manure is exposed to air 
the ammonia will be lost. Operations may consider additional management 
strategies for land application such as incorporation in order to 
maintain the nitrogen value as fertilizer and to reduce emissions.
    As mentioned above, the application of ambient temperature or 
mesophilic anaerobic digesters would not change the performance 
standard that a CAFO would achieve. EPA considered anaerobic digestion 
as a means to control pathogens. Thermophilic digestion which applies 
heat to the waste will reduce pathogens. As described in Section 
VIII.C.9. EPA is still evaluating effective controls for pathogens.
    EPA is not proposing to base BAT requirements on Option 7 for the 
beef and dairy subcategories. Option 7 would prohibit manure 
application on saturated, snow covered or frozen ground. Pollutant 
runoff associated with application of manure or wastewater to 
saturated, snow covered or frozen ground is a site specific 
consideration, and depends on a number of site specific variables, 
including distance to surface water and slope of the land. EPA believes 
that establishing a national standard that prohibits manure or 
wastewater application is inappropriate because of the site specific 
nature of these requirements and the regional variability across the 
nation. This is described in Section VII.E.5.b, above. However, Section 
VII also explains that EPA is proposing to revise 40 CFR Part 122 to 
require the permit authority to include, on a case-by-case basis, 
restrictions on the application of CAFO waste to frozen, snow covered 
or saturated ground in CAFO permits. This permit condition should 
account for topographic and climatic conditions found in the state.
    Requirements for the beef and dairy subcategories would still allow 
for an overflow in the event of a chronic or catastrophic storm that 
exceeds the 25-year, 24-hour storm. EPA believes this standard reflects 
the best available technology. Under the proposed revisions to Part 
122, permits will require that any discharge from the feedlot or 
confinement area be reported to the permitting authority within 24 
hours of the discharge event. The CAFO operator must also report the 
amount of rainfall and the approximate duration of the storm event.
    BAT Requirements for the Swine, Veal and Poultry Subcategories. EPA 
is proposing to establish BAT requirements for the swine, veal and 
poultry subcategories based on Option 5. For the purpose of simplifying 
this discussion, the term poultry is used to include chickens and 
turkeys. Option 5 requires zero discharge of manure and process 
wastewater and provides no overflow allowance for manure and wastewater 
storage. Land application requirements for these operations would be 
the same as the requirements under Option 2.
    EPA is proposing Option 5 because swine, veal and poultry 
operations can house the animals under roof and feed is also not 
exposed to the weather. Thus, there is no opportunity for storm water 
contamination. Broiler and turkey operations generate a dry manure 
which can be kept covered either under a shed or with tarps. Laying 
hens with dry manure handling usually store manure below the birds' 
cages and inside the confinement building. Veal and poultry operations 
confine the animals under roof, thus there are no open animal 
confinement areas to generate contaminated storm water. Those 
operations with liquid manure storage can comply with the restrictions 
proposed under this option by diverting uncontaminated storm water away 
from the structure, and covering the lagoons or impoundments.
    The technology basis for the poultry BAT requirements at the 
production
[[<strong>Page</strong> 3064]]
area are litter sheds for broiler and turkey CAFOs, and underhouse 
storage for laying hens with dry manure handling systems. For laying 
hen CAFOs with liquid manure handling systems, EPA's technology basis 
is solid separation and covered storage for the solids and covered 
lagoons.
    Laying hen farms may also have egg wash water from in-line or off-
line processing areas. Only 10% of laying hen operations with fewer 
than 100,000 birds have on farm egg processing, while 35% of laying hen 
operations with more than 100,000 birds have on farm egg processing. 
The wash water is often passed through a settling system to remove 
calcium, then stored in above ground tanks, below ground tanks, or 
lagoons. Today's proposal is based on covered storage of the egg wash 
water from on-farm processing, to prevent contact with precipitation. 
The ultimate disposal of egg wash water is through land application 
which must be done in accordance with the land application rates 
established in the PNP. EPA believes the low nutrient value of egg 
washwater is unlikely to cause additional incremental costs to laying 
hen facilities to comply with the proposed land application 
requirements.
    EPA assumes large swine operations (e.g., operations with more than 
1,250 hogs weighing 55 pounds or greater) operate using total 
confinement practices. EPA based BAT Option 5 on the same approach 
described above of covering liquid manure storage. CAFOs can operate 
covered lagoons as anaerobic digesters which is an effective technology 
for achieving zero discharge and will provide the added benefits of 
waste stabilization, odor reduction and control of air emissions from 
manure storage structures. Anaerobic digesters also can be operated to 
generate electricity which can be used by the CAFO to offset operating 
costs.
    Although Option 5 is the most expensive option for the hog 
subcategory, as shown on Table X.E.2(a), EPA believes this option 
reflects best available technology economically achievable because it 
prevents discharges resulting from liquid manure overflows that occur 
in open lagoons and pond. Similarly, the technology basis of covered 
treatment lagoons and drier manure storage is believed to reduce the 
likelihood of those catastrophic lagoon failures associated with heavy 
rainfalls. Option 5 also achieves the greatest level of pollutant 
reductions from runoff reaching the edge of the field. Non-water 
quality environmental impacts include reduced emissions and odor, with 
a concurrent increase in nitrogen value of the manure, however as 
mentioned previously, the ammonia concentration is not reduced and once 
the manure is exposed to air the ammonia will volatilize. Water 
conservation and recycling practices associated with Option 5 will 
promote increased nutrient value of the manure, reduced hauling costs 
via reduced water content, and less fresh water use.
    The technology basis of Option 5, solid-liquid separation and 
storage of the solids, has the advantage of creating a solid fraction 
which is more transportable, thus hog CAFOs that have excess manure can 
use this technology to reduce the transportation costs.
    EPA is aware of three open lot hog operations that have more than 
1,250 hogs and there may be a small number of others, but the 
predominant practice is to house the animals in roofed buildings with 
total confinement. For open lot hog CAFOs, EPA is proposing to base BAT 
the application of hoop structures as described above.
    Veal operations use liquid manure management and store manure in 
lagoons. EPA has based BAT on covered manure and feed storage. The 
animals are housed in buildings with no outside access. Thus, by 
covering feed and waste storage the need to capture contaminated storm 
water is avoided.
    In evaluating the economic achievability of Option 5 for the swine, 
veal and poultry subcategories, EPA evaluated the costs and impacts of 
this option relative to Option 2. For these subcategories, the 
incremental annual cost of Option 5 over Option 2 would be $110 million 
pre-tax under the two-tier structure, and $140 million pre-tax under 
the three-tier structure. Almost all of these incremental costs are 
projected to be in the swine sector. Since the majority of the costs 
are borne by the swine subcategory, EPA solicits comment on 
establishing BAT on the basis Option 5 for the only the veal and 
poultry subcategories, and establishing BAT on the basis of Option 2 
that the swine subcategory. EPA projects that there would be no 
additional costs under the two-tier structure, and only very small 
additional costs under the three-tier structure for the veal and 
poultry subcategories to move from Option 2 to Option 5. Under Option 
2, EPA estimates 300 swine operations and 150 broiler operations would 
experience stress under the two-tier structure, and 300 swine 
operations and 330 broiler operations would experience stress under the 
three-tier structure. Under Option 5 an additional 1,120 swine 
operations would experience stress under both the two-tier and three-
tier structures. All affected hog operations have more than 1000 AU. 
None of these affected hog operations are small businesses based on the 
Small Business Administration's size standards. There would be no 
additional broiler operations experiencing stress under Option 5, and 
no veal, layer, or turkey operations are projected to experience stress 
under either Option 2 or Option 5. EPA did not analyze the benefits of 
Option 5 relative to Option 2. Under Option 2 operations are required 
to be designed, constructed and operated to contain all process 
generated waste waters, plus the runoff from a 25-year, 24-hour 
rainfall event for the location of the point source. Thus, the benefit 
of Option 5 over Option 2 would be the value of eliminating discharges 
during chronic or catastrophic rainfall events of a magnitude of the 
25-year, 24-hour rainfall event or greater. Further benefit would be 
realized as a result of increased flexibility on the timing of manure 
application to land. By preventing the rainfall and run-off from mixing 
with wastewater, CAFOs would not need to operate such that land 
application during storm events was necessary.
    EPA is not proposing Option 2 for these sectors. However, EPA notes 
that at the time of the SBREFA outreach process, removing the 25-year, 
24-hour design standard for any sector was not considered largely due 
to concern that a different design standard would lead to larger 
lagoons or impoundments. EPA staff explicitly stated this to the SERs 
and other member of the Panel. Although not extensively discussed, 
since it did not appear at that time to be an issue, retention of this 
standard was supported by both the SERs and the Panel. At that time, 
EPA was not planning to evaluate such an option because of the concern 
that this would encourage larger lagoons. Since the Panel concluded it 
outreach, EPA decided to evaluate, and ultimately propose removing this 
design standard for the veal, swine and poultry subcategories because 
of reports of lagoon failures resulting from rainfall and poor 
management. As mentioned previously, all of these sectors maintain 
their animals under roof eliminating the need to capture contaminated 
storm water from the animal confinement area. In addition, most poultry 
operations generate a dry manure, which when properly stored, under 
some type of cover, eliminates any possibility of an overflow in the 
event of a large storm. Therefore EPA believes that Option 5 technology 
which prevents the introduction of storm water into manure
[[<strong>Page</strong> 3065]]
storage is achievable and represents Best Available Technology, without 
redesigning the capacity of existing manure storage units. However, EPA 
requests comment on retaining te 25-year, 24-hour storm design standard 
(and thus basing BAT on Option 2) for these sectors, consistent with 
its intention at the time of the SBREFA outreach process.
    EPA is not proposing to base BAT for the swine, poultry and veal 
subcategories on Option 3, because EPA believes Option 5 is more 
protective of the environment. If operators move towards dry manure 
handling technologies and practices to comply with Option 5, there 
should be less opportunity for ground water contamination and surface 
water contamination through a direct hydrological connection. EPA 
strongly encourages any newly constructed lagoons or anaerobic 
digesters to be done in such a manner as to minimize pollutant losses 
to ground water. A treatment lagoon should be lined with clay or 
synthetic liner or both and solid storage should be on a concrete pad 
or preferably a glass-lined steel tank as EPA has included in its 
estimates of BAT costs. Additionally, Option 5 provides the additional 
non-water quality benefit of achieving reductions in air emissions from 
liquid storage systems. EPA estimates that the cost of complying with 
both Option 3 and 5 at existing facilities would be economically 
unachievable.
    EPA believes the proposed technology basis for broilers, turkeys 
and laying hens with dry manure management will avoid discharges to 
ground water since the manure is dry and stored in such a way as to 
prevent storm water from reaching it. Without some liquid to provide a 
transport mechanism, pollutants cannot move through the soil profile 
and reach the ground water and surface water through a direct 
hydrological connection.
    EPA is not proposing to base BAT on Option 4 for the same reasons 
described above for the beef and dairy subcategories.
    EPA is not proposing to base BAT on Option 6, because EPA believes 
that the zero discharge aspect of the selected option will encourage 
operations to consider and install anaerobic digestion in situations 
where it will be cost effective.
    As with beef and dairy, EPA is not proposing to base BAT for swine, 
veal and poultry on Option 7, but believes that permit authorities 
should establish restrictions as necessary in permits issued to CAFOs. 
Swine, veal and poultry operations should take the timing of manure 
application into account when developing the PNP. Any areas that could 
result in pollutant discharge from application of manure to frozen, 
snow covered or saturated ground should be identified in the plan and 
manure or wastewater should not be applied to those areas when there is 
a risk of discharge.
    EPA solicits comment on the use of remote liquid level monitoring 
at livestock operations. As described above in Section VIII.C.3, this 
technology could provide advanced notification that levels are reaching 
a critical point, and corrective actions could then be taken. This 
technology does not prevent precipitation from entering the lagoon and 
does not prevent overflows, therefore EPA chose not to propose this 
technology as BAT for swine or veal operations. However, EPA solicits 
comments on applicability of this technology to livestock operations, 
especially at swine and veal as an alternative to covers on lagoons.
PNP Requirements
    There are a number of elements that are addressed by both USDA's 
``Guidance for Comprehensive Nutrient Management Plans (CNMPs)'' and 
EPA's PNP which would be required by the effluent guidelines and NPDES 
proposed rules and is detailed in the guidance document ``Managing 
Manure Nutrients at Concentrated Animal Feeding Operations.'' EPA's 
proposed PNP would establish requirements for CAFOs that are consistent 
with the technical guidance published by USDA experts, but go beyond 
that guidance by identifying specific management practices that must be 
implemented. What follows is a brief description of what must be 
included in a PNP.
    General Information. The PNP must have a Cover Sheet which contains 
the name and location of the operation, the name and title of the owner 
or operator and the name and title of the person who prepared the plan. 
The date (month, day, year) the plan was developed and amended must be 
clearly indicated on the Cover Sheet. The Executive Summary would 
briefly describe the operation in terms of herd or flock size, total 
animal waste produced annually, crop identity for the full 5 year 
period including a description of the expected crop rotation and, 
realistic yield goal. The Executive Summary must include indication of 
the field conditions for each field unit resulting from the phosphorus 
method used (e.g., phosphorus index), animal waste application rates, 
the total number of acres that will receive manure, nutrient content of 
manure and amount of manure that will be shipped off-site. It should 
also identify the manure collection, handling, storage, and treatment 
practices, for example animals kept on bedding which is stored in a 
shed after removal from confinement house, or animals on slatted floors 
over a shallow pull plug pit that is drained to an outdoor in-ground 
slurry storage inpoundment. Finally, the Executive Summary would have 
to identify the watershed(s) in which the fields receiving manure are 
located or the nearest surface water body. While the General 
Information section of a PNP would give a general overview of the CAFO 
and its nutrient management plan, subsequent sections would provide 
further detail.
    Animal Waste Production. This subsection details types and 
quantities of animal waste produced along with manure nutrient sampling 
techniques and results. Information would be included on the maximum 
number of livestock ever confined and the maximum livestock capacity of 
the CAFO, in addition to the annual livestock production. This section 
would provide an estimate of the amount of animal waste collected each 
year. Each different animal waste source should be sampled annually and 
tested by an accredited laboratory for nitrogen, phosphorous, 
potassium, and pH.
    Animal Waste Handling, Collection, Storage, and Treatment. This 
subsection details best management practices to protect surface and 
groundwater from contamination during the handling, collection, 
storage, and treatment of animal waste. A review would have to be 
conducted of potential water contamination sources from existing animal 
waste handling, collection, storage, and treatment practices. The 
capacity needed for storage would be calculated.
    Feedlot runoff would have to be contained and adequately managed. 
Runoff diversion structures and animal waste storage structures would 
have to be visually inspected for: seepage, erosion, vegetation, animal 
access, reduced freeboard, and functioning rain gauges and irrigation 
equipment, on a weekly basis. Deficiencies based on visual inspections 
would have to be identified and corrected within a reasonable time 
frame. Depth markers would have to be permanently installed in all 
lagoons, ponds, and tanks. Lagoons, ponds, and tanks would have to be 
maintained to retain capacity for the 25-year, 24-hour storm event. 
Dead animals, required to be kept out of lagoons, would have to be 
properly handled and disposed of in a timely
[[<strong>Page</strong> 3066]]
manner. Finally, an emergency response plan for animal waste spills and 
releases would have to be developed.
    Land Application Sites. This subsection details field 
identification and soil sampling. County(ies) and watershed code(s) 
where feedlot and land receiving animal waste applications are located 
would be identified. Total acres of operation under the control of the 
CAFO (owned and rented) and total acres where animal waste will be 
applied would be included. A detailed farm map or aerial photo, to be 
included, would have to indicate: location and boundaries of the 
operation, individual field boundaries, field identification and 
acreage, soil types and slopes, and the location of nearby surface 
waters and other environmentally sensitive areas (e.g., wetlands, 
sinkholes, agricultural drainage wells, and aboveground tile drain 
intakes) where animal waste application is restricted.
    Separate soil sampling, using an approved method, would have to be 
conducted every 3 years on each field receiving animal waste. The 
samples shall be analyzed at an accredited laboratory for total 
phosphorous. Finally, the phosphorous site rating for each field would 
have to be recorded according to the selected assessment tool.
    Land Application. This subsection details crop production and 
animal waste application to crop production areas. Details of crop 
production would have to include: Identification of all planned crops, 
expected crop yields and the basis for yield estimates, crop planting 
and harvesting dates, crop residue management practices, and nutrient 
requirements of the crops to be grown. Calculations used to develop the 
application rate, including nitrogen credits from legume crops, 
available nutrients from past animal waste applications, and nutrient 
credits from other fertilizer and/or biosolids applications would have 
to be included.
    Animal waste application rates cannot exceed nitrogen requirements 
of the crops. However, animal waste application rates would be limited 
to the agronomic requirements for phosphorous if the soil phosphorous 
tests are rated ``high'', the soil phosphorous tests are equal to \3/
4\, but not greater than twice the soil phosphorous threshold value, or 
the Phosphorous Index rating is ``high.'' Finally, animal waste could 
not be applied to land if the soil phosphorous tests are rated ``very 
high'', the soil phosphorous tests are greater than twice the soil 
phosphorous threshold value, or the Phosphorous Index rating is ``very 
high.'' In some cases, operators may choose to further restrict 
application rates to account for other limiting factors such as 
salinity or pH.
    Animal wastes cannot be applied to wetlands or surface waters, 
within 100 feet of a sinkhole, or within 100 feet of water sources such 
as rivers, streams, lakes, ponds, and intakes to agricultural drainage 
systems (e.g., aboveground tile drain intakes, agricultural drainage 
wells, pipe outlet terraces). EPA requests comment on how serious would 
be the limitations imposed by these requirements. Manure spreader and 
irrigation equipment would have to be calibrated at a minimum once each 
year, but preferably before each application period. Finally, the date 
of animal waste application and calibration application equipment, and 
rainfall amounts 24-hours before and after application would be 
recorded.
    Other Uses/Off-Site Transfer. The final required subsection for a 
PNP details any alternative uses and off-site transport of animal 
wastes. If used, a complete description of alternative uses of animal 
waste would have to be included. If animal wastes are transported off-
site the following would have to be recorded: date (day, month, year), 
quantity, and name and location of the recipient of the animal waste.
    Voluntary Measures. Many voluntary best management practices can be 
included within various subsections of a PNP. These voluntary best 
management plans are referenced in EPA's guidance document for PNP 
``Managing Manure Nutrients at Concentrated Animal Feeding 
Operations.''
    Annual Review and Revision. While a PNP is required to be renewed 
every 5 years (coinciding with NPDES permitting), an annual review of 
the PNP would have to occur and the PNP would be revised or amended as 
necessary.
    The most likely factor which would necessitate an amendment or 
revision to a PNP is a change in the number of animals at the CAFO. A 
substantial increase in animal numbers (for example an increase of 
greater than 20%) would significantly increase the volume of manure and 
total nitrogen and phosphorous produced on the CAFO. Because of this, 
the CAFO will need to re-evaluate animal waste storage facilities to 
ensure adequate capacity, and may need to re-examine the land 
application sites and rates.
    A second reason which would require an amendment or revision to a 
PNP is a change in the cropping program which would significantly alter 
land application of animal waste. Changes in crop rotation or crop 
acreage could significantly alter land application rates for fields 
receiving animal waste. Also the elimination or addition of fields 
receiving animal waste application would require a change in the PNP.
    Changes in animal waste collection, storage facilities, treatment, 
or land application method would require an amendment or revision to a 
PNP. For example, the addition of a solid-liquid separator would change 
the nutrient content of the various animal waste fractions and the 
method of land application thereby necessitating a revision in a PNP. 
Changing from surface application to soil injection would alter ammonia 
volatilization subsequently altering animal waste nutrient composition 
requiring a revision of land application rates.
    When CAFOs Must Have PNPs. EPA proposes to allow two groups of 
CAFOs up to 90 days to obtain a PNP:
    3. Existing CAFOs which are being covered by a NPDES permit for the 
first time; or
    4. Existing CAFOs that are already covered under an existing permit 
which is reissued within 3 years from the date of promulgation of these 
regulations.
    EPA proposes that all other existing CAFOs must have a PNP at the 
time permits are issued or renewed.
7. New Source Performance Standards
    For purposes of applying the new source performance standards 
(NSPS) being proposed today, a source would be a new source if it 
commences construction after the effective date of the forthcoming 
final rule. (EPA expects to take final action on this proposal in 
December 2002, which is more than 120 days after the date of proposal--
see 40 CFR 122.2). Each source that meets this definition would be 
required to achieve any newly promulgated NSPS upon commencing 
discharge.
    In addition, EPA is proposing additional criteria to define ``new 
source'' that would apply specifically to CAFOs under Part 412. EPA 
intends that permit writers will consult the specific ``new source'' 
criteria in Part 412 rather than the more general criteria set forth in 
40 CFR 122.29(b)(1). The other provisions of 40 CFR 122.29 continue to 
apply. EPA proposes to consider an operation as a new source if any of 
the following three criteria apply.
    The definition of new source being proposed for Part 412 states 
three criteria that determine whether a source is a ``new source.''
    First, a facility would be a new source if it is constructed at a 
site at which no other source is located. These new sources have the 
advantage of not
[[<strong>Page</strong> 3067]]
having to retrofit the operation to comply with BAT requirements, and 
thus can design to comply with more stringent and protective 
requirements.
    The second criterion for defining a new source would be where new 
construction at the facility ``replaces the housing, waste handling 
system, production process, or production equipment that causes the 
discharge or potential to discharge pollutants at an existing source.'' 
Confinement housing and barns are periodically replaced, allowing the 
opportunity to install improved systems that provide increased 
environmental protection. The modern confinement housing used at many 
swine, dairy, veal, and poultry farms allows for waste handling and 
storage in a fashion that generates little or no process water. Such 
systems negate the need for traditional flush systems and storage 
lagoons, reduce the risks of uncontrollable spills, and decrease the 
costs of transporting manure.
    Third, a source would be a new source if construction is begun 
after the date this rule is promulgated and its production area and 
processes are substantially independent of an existing source at the 
same site. Facilities may construct additional production areas that 
are located on one contiguous property, without sharing waste 
management systems or commingling waste streams. Separate production 
areas may also be constructed to help control biosecurity. New 
production areas may also be constructed for entirely different animal 
types, in which case the more stringent NSPS requirements for that 
subcategory would apply to the separate and newly constructed 
production area. In determining whether production and processes are 
substantially independent, the permit authority is directed to consider 
such factors as the extent to which the new production areas are 
integrated with the existing production areas, and the extent to which 
the new operation is engaging in the same general type of activity as 
the existing source.
    EPA also considered whether a certain level of facility expansion, 
measured as an increase in animal production, should cause an operation 
to be subject to new source performance standards. If so, upon facility 
expansion, the CAFO would need to go beyond compliance with BAT 
requirements to meet the more stringent standards represented by NSPS. 
In today's proposal, that increment of additional control, for the 
swine, poultry and veal subcategories, would amount to the need to 
monitor ground water and install liners in lagoons and impoundments to 
prevent discharges to ground water that has a direct hydrological 
connection to surface water; unless the CAFO could demonstrate that no 
such direct hydrological link existed. In the beef and dairy 
subcategories, the NSPS proposed today are the same as the BAT 
standards.
    The Agency, however, decided against proposing to identify facility 
expansion as a trigger for the application of NSPS. Many CAFOs oversize 
or over-engineer their waste handling systems to accommodate future 
increases in production. Thus, in many cases, the actual increases in 
production may not present a new opportunity for the CAFO to install 
the additional NSPS technologies--e.g. liners. To install liners, these 
operations would need to retrofit their facilities the same as existing 
sources would. EPA has explained above that such retrofitting would not 
be economically achievable in these animal sectors. Similarly, the 
costs associated with these requirements would represent a barrier to 
the expansion. Therefore, it would not be appropriate to require these 
operations, upon facility expansion, to meet the additional ground 
water-related requirements that are a part of today's proposed NSPS.
    EPA considered the same seven options for new source performance 
standards (NSPS) as it considered for BAT. EPA also considered an 
additional option for new dairies, which if selected, would prohibit 
dairies from discharging any manure or process wastewater from animal 
confinement and manure storage areas (i.e., eliminating the allowance 
for discharging overflows associated with a storm event). New sources 
have the advantage of not having to retrofit the operation to comply 
with the requirements and thus can design the operation to comply with 
more stringent requirements. In selecting new source performance 
standards, EPA evaluates whether the requirements under consideration 
would impose a barrier to entry to new operations.
    EPA is proposing to select Option 3 as the basis for NSPS for the 
beef and dairy subcategories. Option 3 includes all the requirements 
proposed for existing sources including complying with zero discharge 
from the production area except in the event of a 25-year, 24-hour 
storm and the requirement to develop a PNP which establishes the rate 
at which manure and wastewater can be applied to crop or pasture land 
owned or controlled by the CAFO. The application of manure and 
wastewater would be restricted to a phosphorus based rate where 
necessary depending on the specific soil conditions at the CAFO. 
Additionally, other best management practice requirements would apply, 
including the prohibition of manure and wastewater application within 
100 feet of surface water. The proposed new source standard for the 
beef and dairy subcategories includes a requirement for assessing 
whether the ground water beneath the production area has a direct 
hydrological connection to surface water. If a direct hydrological 
connection exists, the operation must conduct additional monitoring of 
ground water up gradient and down gradient from the production area, 
and implement any necessary controls based on the monitoring results to 
ensure that zero discharge to surface water via the ground water route 
is achieved for manure stockpiles and liquid impoundments or lagoons. 
For the purpose of estimating compliance costs, EPA has assumed that 
operations located in areas with a direct hydrological connection will 
install synthetic material or compacted clay liners beneath any liquid 
manure storage and construct impervious pads for any dry manure storage 
areas. The operator would be required to collect and analyze ground 
water samples twice per year for total dissolved solids, chlorides, 
nitrate, ammonia, total coliforms and fecal coliform. EPA believes that 
Option 3 is economically achievable for existing sources. Since new 
sources are able to install impermeable liners at the time the lagoon 
or impoundment is being constructed, rather than retrofitting 
impoundments at existing source, costs associated with this requirement 
should be less for new sources in comparison to existing sources. EPA 
has concluded that Option 3 requirements will not pose a barrier to 
entry for new sources.
    EPA is proposing to establish NSPS for all swine and poultry 
operations based on Option 5 and Option 3 combined. In addition the BAT 
requirements described in Section VIII.C.6, the proposed new source 
standards would require no discharge via any ground water that has a 
direct hydrological link to surface water. As described above, Option 3 
requires all CAFOs to monitor the ground water and impose appropriate 
controls to ensure compliance with the zero discharge standard, unless 
the CAFO has demonstrated that there is no direct hydrological link 
between the ground water and any surface waters. The proposed new 
source standard also restricts land application of manure and
[[<strong>Page</strong> 3068]]
wastewater to a phosphorus based rate where necessary depending on the 
specific soil conditions at the CAFO. Additionally, other best 
management practice requirements would apply, including that 
application of manure and wastewater would be prohibited within 100 
feet of surface water.
    EPA encourages new swine and poultry facilities to be constructed 
to use dry manure handling. Dry manure handling is currently the 
standard practice at broiler and turkey operations. As described 
previously, some existing laying hen operations and most hog operations 
use liquid manure handling systems. The proposed new source performance 
standard would not require the use of dry manure handling technologies, 
but EPA believes this is the most efficient technology to comply with 
its requirements.
    EPA has analyzed costs of installing dry manure handling at new 
laying hen and swine operations. Both sectors have operations which 
demonstrate dry manure handling can be used as an effective manure 
management system. The dry manure handling systems considered for both 
sectors require that the housing for the animals be constructed in a 
certain fashion, thus making this practice less practical for existing 
sources. Both sectors have developed a high rise housing system, which 
houses the animals on the second floor of the building allowing the 
manure to drop to the first floor or pit. In the laying hen sector this 
is currently a common practice and with aggressive ventilation, the 
manure can be maintained as a dry product. Hog manure has a lower 
solids content, thus the manure must be mixed with a bedding material 
(e.g., wood chips, rice or peanut hulls and other types of bedding) 
which will absorb the liquid. To further aid in drying the hog manure, 
air is forced up through pipes installed in the concrete floor of the 
pit. With some management on the part of the CAFO operator, involving 
mixing and turning the hog manure in the pit periodically, the manure 
can be composted while it is being stored. The advantages of the high 
rise system for hogs and laying hens include a more transportable 
manure, which, in the case of the hog high rise system, has also 
achieved a fairly thorough decomposition. The air quality inside the 
high rise house is greatly improved, and the potential for leaching 
pollutants into the groundwater is greatly reduced. The design standard 
of these high rise houses include concrete floors and also assume that 
the manure would be retained in the building until it will be land 
applied, thus there is no opportunity for storm water to reach the 
manure storage and virtually no opportunity for pollutants to leach to 
groundwater beneath the confinement house. EPA believes that the cost 
savings associated with ease of manure transportation, as well as 
improved animal health and performance, with the dry manure handling 
system for hogs will off-set the increased cost of operation and 
maintenance associated with the high rise hog system. Thus, EPA 
concludes the high-rise house does not pose a barrier to entry and is 
the basis for NSPS in both the laying hen and hog sectors. Although the 
high rise house is the basis of the new source standards for the swine 
and laying hen sectors, operations are not prevented from constructing 
a liquid manure handling system. If new sources in these sectors choose 
to construct a liquid manure handling system, they would be required to 
line the lagoons if the operation is located in an area that has a 
direct hydrologic connection, but the cost associated with lining a 
lagoon at the time it is being constructed is much less than the cost 
to retrofit lagoon liners.
    EPA proposes to establish new source requirements for the veal 
subcategory on the basis of Option 5 which requires zero discharge with 
no overflow from the production area and Option 3 which requires zero 
discharge of pollutants to groundwater which has a direct hydrological 
connection to surface water, with the ground water monitoring or 
hydrological assessment requirements described above. EPA believes that 
a zero discharge standard without any overflow will promote the use of 
covered lagoons, anaerobic digesters or other types of manure treatment 
systems. Additionally, this will minimize the use of open air manure 
storage systems, thus reducing emission of pollutants from CAFOs.
    New veal CAFOs would not be expected to modify existing housing 
conditions since EPA is not aware of any existing veal operations that 
use dry manure handling systems. New veal CAFOs would be expected to 
also use covered lagoons, or anaerobic digesters to comply with the 
zero discharge standard. New veal CAFOs would be required to line their 
liquid manure treatment or storage structures with either synthetic 
material or compacted clay to prevent the discharge of pollutants to 
ground water which has a direct hydrological connection to surface 
water. In addition, the CAFO would have to monitor the groundwater 
beneath the production area to ensure compliance with the zero 
discharge requirement. The CAFO would not need to install liners or 
monitor ground water if it demonstrates that there is no direct 
hydrologic link between the ground water and any surface waters.
    In addition to the seven options considered for both existing and 
new sources, EPA also investigated a new source option for dairies that 
would prohibit all discharges of manure and process wastewater to 
surface waters, eliminating the current allowance for the discharge of 
the overflow of runoff from the production area. To comply with a zero 
discharge requirement, dairies would need to transform the operation so 
they could have full control over the amount of manure and wastewater, 
including any runoff, entering impoundments. Many dairies have drylot 
areas where calves, heifers, and bulls are confined, as well as similar 
drylot areas where the mature cows are allowed access. EPA estimated 
compliance costs for a zero discharge requirements assuming that the 
following changes would occur at new dairies:
    (1) Freestall barns for mature cows would be constructed with six 
months underpit manure storage, rather than typical flush systems with 
lagoon storage;
    (2) Freestall barns with six months underpit manure storage would 
be constructed to house heifers;
    (3) Calf barns with a scrape system would be constructed with a 
scrape system and six months of adjacent manure storage; and
    (4) New dairies would include covered walkways, exercise areas, 
parlor holding, and handling areas.
    Drylot areas are continually exposed to precipitation. The amount 
of contaminated runoff from such areas that must be captured is 
directly related to the size of the exposed area and the amount of 
precipitation. Under the current regulations, dairies use the 25-year, 
24-hour rainfall event (in addition to other considerations) when 
determining the necessary storage capacity for a facility. Imposing a 
zero discharge requirement that prevents any discharge from 
impoundments would force dairies to reconfigure in a way that provides 
complete control over all sources of wastewater. EPA considered the 
structural changes in dairy design described here to create a facility 
that eliminates the potential for contaminated runoff.
    While EPA believes that confining all mature and immature dairy 
cattle is technically feasible, the costs of zero discharge relative to 
the costs for Option 3 are very high. Capital costs to comply with zero 
discharge increase by two orders of magnitude. EPA estimates
[[<strong>Page</strong> 3069]]
annual operating and maintenance costs would rise between one to two 
orders of magnitude above the costs for Option 3. These costs may 
create a barrier to entry for new sources. In addition, EPA believes 
selecting this option could have the unintended consequence of 
encouraging dairies to shift calves and heifers offsite to standalone 
heifer raising operations (either on land owned by the dairy or at 
contract operations) to avoid building calf and heifer barns. If these 
offsite calf/heifer operations are of a size that they avoid being 
defined as a CAFO, the manure from the immature animals would not be 
subject to the effluent guidelines.
    EPA is not basing requirements for new dairies on the zero 
discharge option for the reasons discussed above. EPA solicits comment 
on the approach used to estimate the costs for new dairies to comply 
with a zero discharge requirement. Comments are particularly solicited 
on aspects such as: converting from flush systems to underpit manure 
storage; types of housing for calves and heifers; and whether the 
potential for uncontrollable amounts of precipitation runoff have been 
sufficiently eliminated (including from silage). EPA also solicits 
comment on a regulatory scenario that would establish a zero discharge 
requirement for manure and process wastewater from barns (housing 
either mature or immature dairy cattle) and the milking parlor, but 
would maintain the current allowance for overflow of runoff from drylot 
areas.
    As an alternative to underpit manure storage, dairies could achieve 
zero discharge for parlor wastes and barn flush water by constructing 
systems such as anaerobic digesters and covered lagoons. These covered 
systems, if properly operated, can facilitate treatment of the manure 
and offer opportunities to reduce air emissions. The resulting liquid 
and solid wastes would be more stable than untreated manure. EPA 
solicits comment on the usefulness of applying stabilization or 
treatment standards to liquid and slurry manures prior to land 
application. Commenters encouraging the use of such standards should 
recommend appropriate measurement parameters such as volatile solids, 
BOD, COD, and indicator organism reduction(s) to establish stability or 
treatment levels.
    EPA has not identified any basis for rejecting the zero discharge 
option for dairies solely due to animal health reasons. EPA solicits 
comment on the technical feasibility of confining mature and/or 
immature dairy cattle in barns at all times.
    Ten-year protection period. The NSPS that are currently codified in 
part 412 will continue to have force and effect for a limited universe 
of CAFOs. For this reason, EPA is proposing to retain the NSPS 
promulgated in 1974 for part 412. Specifically, following promulgation 
of the final rule that revises part 412, the 1974 NSPS would continue 
to apply for a limited period of time to certain new sources and new 
dischargers. See CWA section 306(d) and 40 CFR 122.29(d). Thus, if EPA 
promulgates revised NSPS for part 412 in December 2002, and those 
regulations take effect in January 2003, qualified new sources and new 
dischargers that commenced discharge after January 1993 but before 
January 2003 would be subject to the currently codified NSPS for ten 
years from the date they commenced discharge or until the end of the 
period of depreciation or amortization of their facility, whichever 
comes first. See CWA section 306(d) and 40 CFR 122.29(d). After that 
ten year period expires, any new or revised BAT limitations would apply 
with respect to toxic and nonconventional pollutants. Limitations on 
conventional pollutants would be based on the1974 NSPS unless EPA 
promulgates revisions to BPT/BCT for conventional pollutants that are 
more stringent than the 1974 NSPS.
    Rather than reproduce the 1974 NSPS in the proposed rule, EPA 
proposes to refer permitting authorities to the NSPS codified in the 
2000 edition of the Code of Federal Regulations for use during the 
applicable ten-year period.
8. Pretreatment Standards for New or Existing Sources (PSES AND PSNS)
    EPA is not proposing to establish Pretreatment Standards for either 
new or existing sources. Further, EPA is withdrawing the existing 
provisions entitled ``Pretreatment standards for existing sources'' at 
Secs. 412.14, 412.16, 412.24, 412.26. Those existing provisions 
establish no limitations. The vast majority of CAFOs are located in 
rural areas that do not have access to municipal treatment systems. EPA 
is not aware of any existing CAFOs that discharge wastewater to POTWs 
at present and does not expect new sources to be constructed in areas 
where POTW access will be available. For those reasons, EPA is not 
establishing national pretreatment standards. However, EPA also wants 
to make it clear that if a CAFO discharged wastewater to a POTW, local 
pretreatment limitations could be established by the Control Authority. 
These local limits are similar to BPJ requirements in an NPDES permit.
9. Effluent Guidelines Controls for Pathogens
    The third most common reason for waterbodies being listed on State 
Sec. 303(d) lists as an impaired watershed is pathogens. Degradation of 
surface waters by excessive levels of pathogens has been attributed to 
several sources, including natural wildlife, faulty septic systems, and 
animal agriculture. As described in Section 5, stream water quality may 
be impacted by animal feeding operations due to feedlot surface runoff, 
spills from liquid impoundments, tile drain effluent, leaching and 
runoff from land receiving manure, and seepage from waste storage. 
Degradation of aquatic and riparian habitat also occurs when animal 
grazing operations are poorly managed.
    In today's notice, EPA is not setting specific requirements for the 
control of pathogens. The proposed BAT is expected to reduce pathogens 
to surface waters through the implementation of the zero discharge 
requirements at the production area, and through the implementation of 
the PNP at the land application area. Even without explicit 
requirements or limits for pathogen controls, EPA expects considerable 
reduction in the discharge of pathogens for reasons described below. 
Runoff simulations and loadings analysis predict a 50% reduction in 
fecal coliforms and a 60% reduction in fecal streptococci under the 
regulatory scenario proposed today. Following this proposal, EPA 
intends to further analyze technologies for the treatment or reduction 
of pathogens in manure, and solicits comment on other approaches to 
control pathogens.
    One mechanism for pathogen discharge to surface waters is 
catastrophic spills, whether caused by intentional discharges or 
through overflow following major storms. EPA expects the requirements 
for no discharge from the production area, as well as routine 
inspection and mandatory management practices for the control of liquid 
impoundment levels, will reduce catastrophic spills. For the swine and 
poultry sectors EPA believes the elimination of the storm event at 
which an overflow is allowed will also reduce discharge of pathogens. 
At the production area, operators would be required to handle animal 
mortalities in a manner so as to prevent contamination of surface 
water. The proper use of manure as a fertilizer, as specified in the 
proposed regulations, may result in increased storage capacity and 
longer retention times of both liquid and solid manure storage, 
allowing
[[<strong>Page</strong> 3070]]
increased opportunity for natural die-off of pathogens. For example, 
runoff from fields receiving poultry litter that had been stored prior 
to application showed no significant difference in pathogen content in 
runoff from control fields (GEIS, 1999), supporting the conclusion that 
pathogen reductions will occur from increased storage times.
    Application rate has been identified as the single most important 
manure management practice affecting pollution of surface waters from 
fields receiving manure. Other practices affecting pathogen content in 
the runoff include amount of application, incorporation methods, 
tillage, saturation of the receiving field, and elapsed time following 
application before a rainfall. In one case study, swine lagoon effluent 
applied to tile drained fields at 1.1 inches showed no difference in 
runoff quality than the control fields, but application at three times 
the rate showed high levels of fecal coliform in the surface water. 
Fecal bacteria in runoff from land receiving fresh manure may often be 
a significant proportion of the fecal contamination measured in the 
surface waters. Vegetated filter strips are useful in removing 
pollutants from runoff on manured fields, particularly nutrients and 
sediment, but have not been identified as generally effective in 
reducing bacterial concentrations in the runoff. Surface applications 
of manure are more likely to result in fecal coliform transport when 
the soil is saturated, particularly in fine sandy loam soils.
    EPA believes nutrient management practices and rates established in 
the PNP would limit the quantity of nutrients that may be applied to 
fields and will reduce the occurrence of manure application to 
saturated soils, or when a heavy storm event is predicted. Nutrient 
loss to surface water under these conditions would result in reduced 
crop yields and would be reflected in revisions made to the PNP in 
subsequent years translating to a lower manure application rate.
    EPA has collected data on technologies useful in treating manure 
and wastes for pathogens. Anaerobic digesters and even simple manure 
storage for an extended period of time promote pathogen reductions 
through selective growth conditions and natural die-off over time. The 
addition of heat, such as is used in thermophilic digesters, further 
reduces pathogens. Proper composting processes also involve high 
temperatures--achieving temperatures approaching 140 degrees F in the 
pile. Heat treatment over several days is likely to kill protozoans 
such as Giardia and Cryptosporidium. The addition of lime to achieve 
high alkaline conditions, e.g., achieving a pH <gr-thn-eq> 12, also is 
effective at killing many pathogens by disrupting the cell membrane or 
disrupting virus viability.
    EPA will continue to analyze the performance and applicability of 
treatments to reduce pathogens in CAFO waste, and will analyze the 
costs of these processes. The processes described above and others used 
to significantly reduce pathogens in biosolids or sewage sludge such as 
heat treatment, drying, thermophilic aerobic digestion, pasteurization, 
disinfection, and extended storage will be analyzed for their 
applicability to animal manures. EPA will give consideration to 
establishing the same performance standards as required for Class A 
sludge in Part 503. If supported by appropriate data, the final rule 
could establish these or other appropriate standards as performance 
standards that the wastes would be required to meet prior to land 
application. The CAFO would need to demonstrate achievement of these 
standards prior to land application because of the impracticability of 
measuring the pollutant loadings in any eventual runoff from the land 
application areas to the waters. EPA solicits comment on this possible 
approach and specifically requests data relating to pathogen treatment 
and reductions that are demonstrated to be effective on CAFO waste. EPA 
also solicits data on management practices that can be applied to the 
land application of manure, which may reduce pathogens in runoff.
10. Antibiotics
    Related to concerns over pathogens in animal manures are concerns 
over antibiotics and other pharmaceuticals that may be present in the 
manure. As discussed in Section V, an estimated 60-80% of all livestock 
receive antibiotics. Some antibiotics are metabolized, and some are 
excreted with the manure. In cases where antimicrobials are 
administered to animals through the feed, spilt feed and wastelage may 
contribute to antibiotic content of the waste storage. The presence of 
antibiotics in manure and the environment has been shown to result in 
antibiotic resistant pathogens. EPA solicits comments on the direct 
effects of antibiotic residues and antimicrobial resistance, 
specifically on how manure management may contribute to the problem of 
antibiotics reaching the environment and contributing to pathogen 
resistance. EPA also solicits data and information on effective 
treatment or practices that may be implemented by CAFOs to reduce these 
releases.
IX. Implementation of Revised Regulations
A. How Do the Proposed Changes Affect State CAFO Programs?
    EPA is proposing a number of changes to the effluent guidelines and 
the NPDES permit regulations for CAFOs in today's proposed rule. Under 
40 CFR 123.25, authorized NPDES State programs must administer their 
permit programs in conformance with NPDES requirements, including the 
requirements that address concentrated animal feeding operations 
(Sec. 122.23) and the incorporation of technology-based effluent 
limitation guidelines and standards in permits (Sec. 122.44). Thus, 
today's proposed rule would require the 43 States [note that State is 
defined in Sec. 122.2] with authorized NPDES permit programs for CAFOs 
to revise their programs as necessary to be consistent with the revised 
federal requirements. Current NPDES regulations note that authorized 
NPDES State permit programs are not required to be identical to the 
federal requirements; however, they must be at least as stringent as 
the federal program. States are not precluded from imposing 
requirements that are more stringent than those required under federal 
regulations.
    Any State with an existing approved NPDES permitting program under 
section 402 must be revised to be consistent with changes to federal 
requirements within one year of the date of promulgation of final 
changes to the federal CAFO regulations [40 CFR 123.62(e)]. In cases 
where a State must amend or enact a statute to conform with the revised 
CAFO requirements, such revisions must take place within two years of 
final changes to the federal CAFO regulations. States that do not have 
an existing approved NPDES permitting program but who seek NPDES 
authorization after these CAFO regulatory provisions are promulgated 
must have authorities that meet or exceed the revised federal CAFO 
regulations at the time authorization is requested.
    In States not authorized to administer the NPDES program, EPA will 
implement the revised requirements. Such States may still participate 
in water quality protection through participation in the CWA section 
401 certification process (for any permits) as well as through other 
means (e.g., development of water quality standards, development of 
TMDLs, and coordination with EPA).
[[<strong>Page</strong> 3071]]
    EPA is aware that the majority of States authorized to implement 
the NPDES program supplement the NPDES CAFO requirements with 
additional State requirements, and some States currently regulate or 
manage CAFOs predominantly under State non-NPDES programs. It has been 
suggested that EPA provide a mechanism through which State non-NPDES 
CAFO programs can be recognized alternatives that would be authorized 
under the CWA.
    No permit issued by a non-NPDES program will satisfy the NPDES 
permit requirement. Facilities required to be covered by a NPDES permit 
must obtain a permit from an agency authorized to issue a NPDES permit. 
However, EPA believes that the current NPDES program provides a 
reasonable degree of flexibility consistent with CWA requirements, and 
that the proposed CAFO regulation provides opportunities to incorporate 
State programs in several ways.
    It is possible for non-NPDES State programs that currently regulate 
AFOs to gain EPA's approval as NPDES-authorized programs. Such a change 
would require a formal modification of the State's approved NPDES 
program, and the State would have to demonstrate that its program meets 
all of the minimum criteria specified in 40 CFR Part 123, Subpart B for 
substantive and procedural regulations. Among other things, these 
criteria include the restriction that permit terms may not exceed 5 
years, and include provisions on public participation in permit 
development and enforcement, and EPA enforcement authority.
    In addition, today's proposal provides specific flexibility on 
particular issues. First, with regard to the off-site transfer of 
manure, EPA is requiring under one co-proposed option that the CAFO 
operator obtain a certification from recipients that, if they intend to 
land apply the manure, it will be done according to appropriate 
agricultural practices. EPA is proposing to waive this requirement in a 
State that is implementing an effective program for addressing excess 
manure generated by CAFOs. Second, EPA is proposing to require that 
processors be permitted, or co-permitted, along with their contract 
producers. EPA is requesting comment on an option that would waive this 
requirement in certain instances in States with effective programs for 
managing excess manure. EPA is also soliciting comment on one 
particular type of program, an Environmental Management System 
developed by the processor, as sufficient to waive co-permitting 
requirements. EPA is interested in comments on other specific 
requirements of today's proposal that might be satisfied in whole or in 
part by State program requirements. This could include ways to ensure 
that states with unique programs that meet or exceed the provisions of 
the revised regulations and the CWA requirements could utilize their 
own programs that include similar objectives such as enhanced water 
quality protection, public participation and accountability.
    A third possible means of providing flexibility for States would be 
available if the three-tier regulatory structure is adopted in the 
final regulation. In the three-tier structure, all facilities over 
1,000 AU would be considered CAFOs by definition, and those between 300 
AU and 1,000 AU would be CAFOs only if they meet one of several 
conditions, described in detail in Section VII.B.3, or if designated by 
the permit authority as a significant contributor of pollution to 
waters of the U.S. Those with fewer that 300 AU would become CAFOs only 
if designated by the permit authority. A State with an effective non-
NPDES program could succeed in helping many operations avoid permits by 
ensuring they do not meet any of the conditions that would define them 
as CAFOs.
    EPA is also soliciting comment on whether or not to adopt both the 
two-tier and the three-tier structures, and to provide a mechanism to 
allow States to select which of the two alternative proposed structures 
to adopt in their State NPDES program. Under this option, a State could 
adopt the structure that best fits with the administrative structure of 
their program, and that best serves the character of the industries 
located in their State and the associated environmental problems. This 
option is viable only if the Agency is able to determine that the two 
structures provide substantially similar environmental benefits by 
regulating equivalent numbers of facilities and amounts of manure. 
Otherwise, States would be in a position to choose a less stringent 
regulation, contrary to the requirements of the Clean Water Act. A 
discussion of this option can be found in Section VII.B.4.
    The requirements for State NPDES program authorization are 
specified under Sec. 402(b) of the CWA and within the broad NPDES 
regulations (40 CFR Part 123). These provisions set out specific 
requirements for State authorization applicable to the entire NPDES 
program and the Agency does not believe that broad changes to these 
requirements are appropriate in this proposed rulemaking.
B. How Would EPA's Proposal to Designate CAFOs Affect NPDES Authorized 
States?
    Today's proposal would provide explicit authority, even in States 
with approved NPDES programs, for the EPA Regional Administrator to 
designate an AFO as a CAFO if it meets the designation criteria in the 
regulations. EPA's authority to designate AFOs as CAFOs would be 
subject to the same criteria and limitations to which State designation 
authority is subject. However, EPA does not propose to assume authority 
or jurisdiction to issue permits to the CAFOs that the Agency 
designates in approved NPDES States. That authority would remain with 
the approved State. EPA requests comment on this prosed new designation 
authority.
C. How and When Will the Revised Regulations be Implemented?
    EPA anticipates that this these proposed regulations will be 
promulgated as final regulations in December, 2002, and published in 
the Federal Register shortly thereafter (approximately January, 2003). 
As mentioned, authorized States programs will need up to two years 
after that date to revise their programs to reflect the new 
regulations. Following a State's revision of its program and approval 
of the revisions by EPA, we expect many States to want additional time 
to develop new or revised CAFO general permits. EPA believes it is 
reasonable to allow States one additional year to develop these new or 
revised general permits. To summarize, some States will need until 
approximately January 2006--i.e., three years after the final rule is 
published--before they can make CAFO general permits available that 
reflect the new regulations in the State.
    At the same time, once these regulations are finalized, we estimate 
that there will be a large number of operations that will need to apply 
for a permit, described in Section VII.B.4. It is important to take 
into account that some States will not be making CAFO general permits 
available to these facilities until three years after the final rule. 
If EPA were to make the new Part 122 regulations effective shortly 
after we issue the final rule (January 2003), there would be large 
numbers of facilities that would be newly defined as CAFOs at that 
time. They would be required to apply for a permit right away, but 
States would not be able to issue general permits at that time or a 
large number of individual permits all at once. This would leave the 
facilities potentially in
[[<strong>Page</strong> 3072]]
the detrimental position of being unpermitted dischargers.
    To avoid this situation, EPA proposes that the revisions to the 
CAFO definition in part 122 (including, for example, changes to the 
threshold number of animals to qualify as a CAFO and other changes such 
as the elimination of the 25-year, 24-hour storm exemption) would not 
take effect until three years after publication of the final rules. See 
proposed section 122.23(f). We expect, therefore, that these changes 
would not take effect until approximately January, 2006. Operations 
that are brought within the regulatory definition of a CAFO for the 
first time under these regulatory revisions would not be defined as 
CAFOs under final and effective regulations until that date.
    EPA also considered an alternate approach in which the effective 
date for the part 122 revisions would be different in each State, 
depending on when the State actually adopted and got approval for the 
changes and issued general permits. An advantage of this approach would 
be that the new regulations would potentially be effective at an 
earlier date, i.e., before January 2006, in some States. EPA is not 
proposing this approach, however. We decided that it would be 
preferable to provide one uniform effective date for these particular 
revisions, which would provide necessary clarity and consistency to the 
national NPDES program for CAFOs. EPA does seek comment, however, on 
which approach would be preferable to adopt in the final regulations. 
States, however, are free to implement more stringent requirements, and 
may choose to implement the revised CAFO definition at an earlier date.
    It should be noted that EPA is proposing this delayed effective 
date only for the proposed regulatory changes that affect which 
operations would be defined as CAFOs. There is no need to delay the 
effective date of any of the other revisions EPA is proposing to the 
CAFO regulations at 40 CFR part 122, such as those that specify land 
application requirements and other requirements. These other revisions 
to the part 122 regulations would become effective 60 days after 
publication of the final regulations (January 2003). For any operation 
that is a CAFO according to the current definition and that is being 
permitted after that date, or having its permit renewed, the permit 
would be developed under these new part 122 provisions.
    EPA is proposing that the revised effluent guidelines, once 
promulgated as final regulations, would be effective 60 days after 
promulgation. The 1989 statutory deadline for meeting BAT has long 
passed, and we do not believe there is any reason why permit writers 
could not begin incorporating the revised effluent guidelines into 
permits beginning 60 days after promulgation.
    If a CAFO submits a timely application for a permit renewal, but 
has not received a decision on that application prior to the expiration 
date of the original permit, then the original permit would be 
administratively ``continued'' until there is a decision from the 
permit authority on the new application (in EPA-administered States and 
States with comparable administrative procedure laws). If that 
continuance lasts beyond the date that is the effective date of the 
revised NPDES regulations and effluent guidelines, then the CAFO's new 
permit would reflect both sets of new regulations.
    EPA also proposes to adopt specific timing requirements in the 
permit with respect to the CAFO's development of PNPs. As described in 
Section VIII, EPA proposes to establish BAT as encompassing the 
following timing requirements: (1) for all new permittees and for 
applicants who hold existing individual permits, compliance with the 
PNP would be an immediate requirement of the permit. Therefore, the 
draft PNP must be submitted to the permit authority along with the 
permit application or NOI; the final PNP must be adopted by the 
permittee within 90 days of being permitted; (2) for applicants who are 
authorized under an existing general permit, the permittee must develop 
a Permit Nutrient Plan within 90 days of submittal of the NOI; and (3) 
the PNP for all CAFOs would need to include milestones for 
implementation. This time is necessary because, while operators can 
begin preparing necessary data, it would be difficult to develop a PNP 
before the permit authority issues a final permit that specifies the 
terms and conditions of the permit. (Operators of existing CAFOs with 
individual NPDES permits, who must submit their draft PNP with the 
permit application, are expected to reapply for coverage under the 
revised regulation early enough to provide time to develop its PNP 
without causing a lapse in coverage.) For facilities that have been 
designated as CAFOs, the permit writer will develop the implementation 
schedule in order to provide reasonable time to prepare the PNP.
    Prior to the effective date of the revised regulations, State and 
EPA permit authorities will be issuing permits to facilities that 
currently meet the definition of a CAFO under the existing regulations 
or that have been designated as CAFOs. Consistent with the AFO 
Strategy, discussed in section III.B., during 2000 to 2005 States with 
authorized NPDES programs are to focus on issuing permits to the 
largest CAFOs, those with 1,000 AU or greater. In States where EPA is 
the permit authority, EPA will issue permits to operations defined as 
CAFOs that are over 300 AU. The permits are valid for a maximum of five 
years, at which time these facilities would obtain new permits under 
the revised regulation.
    One of the significant changes to the NPDES and ELG regulation for 
CAFOs will be the requirement to develop and implement Permit Nutrient 
Plans that are developed, or reviewed and approved, by certified 
planners. Concern has been raised about the availability of the 
necessary expertise to develop and certify the plans. EPA believes that 
there will be sufficient lead time before this regulation is 
implemented to expect the market to have developed the CNMP and PNP 
planning expertise and infrastructure because, during this period, 
CNMPs will be developed under both the USDA voluntary program and EPA's 
Round I permitting.
    For facilities subject to the requirements of the revised 
regulation, EPA anticipates that during the period between the time 
this regulation is promulgated and the time it is effective, operators 
will be able to anticipate the status of their facilities, and 
therefore can begin gathering data that will be needed for the Permit 
Nutrient Plan and other requirements, such as soil type, manure 
sampling, cropping information, and other data needed to calculate the 
allowable manure application rate. (Note: States are supposed to have 
adopted their NRCS 590 standard by May 2001.)
    EPA also proposes that CAFOs that are new sources may not receive 
permit coverage until the PNP is developed. In this case, a complete 
application must include the PNP. The owner or operator of a new 
facility is expected to design and construct the new facility in a 
manner that anticipates the ELG and NPDES requirements for manure 
management, rather than incurring the costs of retrofitting an already 
constructed facility.
    EPA recognizes that some practices such as liners and groundwater 
wells for beef and dairy operations may take time to implement. The PNP 
will include a schedule for implementing the provisions of the PNP, 
including milestones with dates.
[[<strong>Page</strong> 3073]]
    Facilities Constructed After the Proposed Regulation is Published. 
EPA is soliciting comment on whether the revised regulations should 
apply 60 days after publication of the final rule to facilities that 
commence operation after that date, even if they would not be defined 
as a CAFO under the existing rules. Although EPA is proposing to delay 
for three years the effective date of the proposed regulations for 
existing facilities that are not currently defined as CAFOs, it is 
considering whether to require all facilities defined as CAFOs under 
the final rule that commence operation after the final rule is 
published to obtain an NPDES permit and comply with the other 
requirements of the final rule. For example, a dry poultry operation or 
an animal feeding operation of 501 cattle that is constructed during 
the three year period after publication of the final rule might be 
required to comply immediately with the revised regulations rather than 
remaining outside the scope of the NPDES program until three years 
after publication of the final rule.
    Requiring newly constructed facilities to obtain permits does not 
pose the same problem as requiring all existing AFOs which are not 
defined as CAFOs under the current rule to obtain permits immediately 
after promulgation of the final rule. Once a new definition of a CAFO 
becomes effective, a large number of existing facilities would need a 
permit on the same date. EPA expects that most existing facilities will 
seek coverage under a general permit. However, EPA and authorized 
States will need some time after the final rule is promulgated to 
develop those general permits. An existing facility would face the 
dilemma of either ceasing operations or discharging without a permit if 
it was required to obtain a permit but none was available. By contrast, 
new facilities would commence operation over a period of time and 
present less of a burden on permit authorities. If a general permit was 
not available, issuing individual permits to the smaller number of 
newly constructed facilities would present less of a burden. If all 
else fails, a newly constructed facility could not commence operation 
until it had a permit. This approach would be consistent with EPA's 
general approach for regulation of new sources and new dischargers, who 
are required to obtain an NPDES permit (and comply with any applicable 
NSPS) prior to commencing operation. See 40 CFR 122.29, 124.60(a). 
Finally, unlike an existing facility, a newly constructed facility is 
in a better position to plan its facility to comply with the revised 
regulations.
    If EPA did not delay the effective date for facilities that are 
constructed after the final rule is published, the rule would address 
additional sources sooner. On the other hand it would further 
complicate the regulatory structure because it would temporarily create 
another category of facilities. EPA solicits comments on whether all 
provisions of the rule should be effective 60 days after the final rule 
is published for facilities that are constructed after that date.
D. How Many CAFOs are Likely to be Permitted in Each State and EPA 
Region?
    Tables 9-1 and 9-2 delineate the number of facilities, in each 
State and EPA Region, that are expected to be affected by either of 
today's proposed two-tier and three-tier structures, respectively. In 
both proposed structures, all CAFOs with more than 1,000 AU would be 
required to apply for a NPDES permit. The differences lie primarily in 
how the middle-sized operations are affected.
BILLING CODE 6560-50-P
[[<strong>Page</strong> 3074]]
[GRAPHIC] [TIFF OMITTED] TP12JA01.016
[[<strong>Page</strong> 3075]]
[GRAPHIC] [TIFF OMITTED] TP12JA01.017
[[<strong>Page</strong> 3076]]
[GRAPHIC] [TIFF OMITTED] TP12JA01.018
[[<strong>Page</strong> 3077]]
[GRAPHIC] [TIFF OMITTED] TP12JA01.019
BILLING CODE 6560-50-C
[[<strong>Page</strong> 3078]]
    As described in today's preamble, the three-tier structure would 
affect more facilities because all AFOs with 300 AU or more would be 
required to do something. However, not all would be required to apply 
for a permit, and, depending on the vigor with which States and AFOs 
seek to avoid the conditions defining these facilities as CAFOs, the 
actual number of permittees could be smaller. EPA projects that a 
minimum of 4,000 middle-sized facilities and a maximum of 19,000 would 
apply for a permit under the three-tier structure. By contrast, the 
proposed two-tier structure would require all 13,000 facilities between 
500 AU and 1,000 AU to apply for a permit.
    Further, the number of small facilities likely to be designated 
differs between the two proposed structures. Under the three-tier 
structure, EPA expects very few AFOs to be designated, potentially 10 
per year nationally. Under the two-tier structure, however, this number 
is likely to rise to 50 per year, given that AFOs from 300 AU to 499 AU 
have the potential to generate significant quantities of manure that, 
if not properly managed, may lead the facility to be a significant 
contributor of pollution to the waters.
E. Funding Issues
    While most CAFO owners and operators are interested in taking 
appropriate measures to protect and preserve the environment, there are 
legitimate concerns over the costs of doing so. While EPA's cost 
analysis indicates that this rule is affordable, some businesses in 
some locales may experience economic stress. (See Section X). Further, 
concern has been expressed as to whether facilities below 1,000 AU that 
become CAFOs due to the changes in this proposed rulemaking may 
potentially cause operations to lose cost-share money available under 
EPA's Section 319 Nonpoint Source Program and USDA's Environmental 
Quality Incentive Program (EQIP). Once a facility is considered a point 
source under NPDES, the operation is not eligible for cost sharing 
under the Section 319 nonpoint source program. However, the USDA EQIP 
program is in fact available to most facilities, and being a permitted 
CAFO is not a reason for exclusion from the EQIP program. EQIP funds 
may not be used to pay for construction of storage facilities at 
operations with greater than 1,000 USDA animal units; however, EQIP is 
available to these facilities for technical assistance and financial 
assistance for other practices. One USDA animal unit equals 1,000 
pounds of live weight of any given livestock species or any combination 
of livestock species. (The approximate number of animal equivalents 
would be: 1,000 head of beef; 741 dairy cows; 5,000 swine, 250,000 
layers; and 500,000 broilers).
    To this end, EPA anticipates that State and Federal Agencies will 
facilitate compliance with this rule by providing technical assistance 
and funding for smaller CAFOs, as available.
F. What Provisions are Made for Upset and Bypass?
    A recurring issue of concern has been whether industry guidelines 
should include provisions authorizing noncompliance with effluent 
limitations during periods of ``upsets'' or ``bypasses''. An upset, 
sometimes called an ``excursion,'' is an unintentional noncompliance 
occurring for reasons beyond the reasonable control of the permittee. 
It has been argued that an upset provision is necessary in EPA's 
effluent limitations because such upsets will inevitably occur even in 
properly operated control equipment. Because technology based 
limitations require only what the technology can achieve, it is claimed 
that liability for such situations is improper. When confronted with 
this issue, courts have disagreed on whether an explicit upset 
exemption is necessary, or whether upset incidents may be handled 
through EPA's exercise of enforcement discretion. Compare Marathon Oil 
Co. v. EPA, 564 F.2d 1253 (9th Cir.1977), with Weyerhaeuser v. Costle, 
594 F.2d 1223 (8th Cir. 1979). See also Sierra Club v. Union Oil Co., 
813 F.2d 1480 (9th Cir. 1987), American Petroleum Institute v. EPA, 540 
F.2d 1023 (10th Cir. 1976), CPC International, Inc. v. Train, 540 F.2d 
1320 (8th Cir. 1976), and FMC Corp. v. Train, 539 F.2d 973 (4th Cir. 
1976).
    A bypass, on the other hand, is an act of intentional noncompliance 
during which waste treatment facilities are circumvented because of an 
emergency situation. EPA has in the past included bypass provisions in 
NPDES permits. EPA has determined that both upset and bypass provisions 
should be included in NPDES permits and has promulgated permit 
regulations that include upset and bypass permit provisions. See 40 CFR 
122.41. The upset provision establishes an upset as an affirmative 
defense to prosecution for violation of, among other requirements, 
technology-based effluent limitations. The bypass provision authorizes 
bypassing to prevent loss of life, personal injury, or severe property 
damage. Consequently, although permittees in the offshore oil and gas 
industry will be entitled to upset and bypass provisions in NPDES 
permits, this regulation does not address these issues.
G. How Would an Applicant Apply for Variances and Modifications to 
Today's Proposed Regulation?
    Once this regulation is in effect, the effluent limitations must be 
applied in all NPDES permits thereafter issued to discharges covered 
under this effluent limitations guideline subcategory. The CWA, 
however, provides certain variances from BAT and BCT limitations. Under 
301(l), the only variance available for discharges from the production 
area is an FDF variance under 301(m). For the land application area, 
301(g) variances don't apply because EPA is not setting BAT effluent 
limitations for the five pollutants to which that provision applies. 
301(c) and FDF variances are available for effluent limitations 
covering the land application area.
    The Fundamentally Different Factors (FDF) variance considers those 
facility specific factors which a permittee may consider to be uniquely 
different from those considered in the formulation of an effluent 
guideline as to make the limitations inapplicable. An FDF variance must 
be based only on information submitted to EPA during the rulemaking 
establishing the effluent limitations from which the variance is being 
requested, or on information the applicant did not have a reasonable 
opportunity to submit during the rulemaking process for these effluent 
limitations guidelines. If fundamentally different factors are 
determined, by the permitting authority (or EPA), to exist, the 
alternative effluent limitations for the petitioner must be no less 
stringent than those justified by the fundamental difference from those 
facilities considered in the formulation of the specific effluent 
limitations guideline of concern. The alternative effluent limitation, 
if deemed appropriate, must not result in non-water quality 
environmental impacts significantly greater than those accepted by EPA 
in the promulgation of the effluent limitations guideline. FDF variance 
requests with all supporting information and data must be received by 
the permitting authority within 180 days of publication of the final 
effluent limitations guideline (Publication date here). The specific 
regulations covering the requirements for and the administration of FDF 
variances are found at 40 CFR 122.21(m)(1), and 40 CFR part 125, 
subpart D.
[[<strong>Page</strong> 3079]]
X. What Are the Costs and Economic Impacts of the Proposed 
Revisions?
A. Introduction and Overview
    This section presents EPA's estimates of the costs and economic 
impacts that would occur as a result of today's proposed regulations. 
Costs and economic impacts are evaluated for each commodity sector, 
including the beef, veal, heifer, dairy, swine, broiler, turkey and egg 
laying sectors. A description of each of the ELG technology options and 
the NPDES scenarios considered by EPA, and the rationale for selecting 
the proposed BAT Option and NPDES Scenario, are provided in Sections 
VII and VIII of this document. Detailed information on estimated 
compliance costs are provided in the Development Document for the 
Proposed Revisions to the National Pollutant Discharge Elimination 
System Regulation and the Effluent Guidelines for Concentrated Animal 
Feeding Operations (referred to as the ``Development Document''). EPA's 
detailed economic assessment can be found in Economic Analysis of the 
Proposed Revisions to the National Pollutant Discharge Elimination 
System Regulation and the Effluent Guidelines for Concentrated Animal 
Feeding Operations (referred to as ``Economic Analysis''). EPA also 
prepared the Environmental and Economic Benefit Analysis of the 
Proposed Revisions to the National Pollutant Discharge Elimination 
System Regulation and the Effluent Guidelines for Concentrated Animal 
Feeding Operations (``Benefits Analysis'') in support of today's 
proposal. These documents are available at EPA's website at <A HREF="http://frwebgate.access.gpo.gov/cgi-bin/leaving.cgi?from=leavingFR.html&log=linklog&to=http://www.epa.gov/owm/afo.htm">http://
www.epa.gov/owm/afo.htm</A>.
    This section presents EPA's estimate of the total annual 
incremental costs and the economic impacts that would be incurred by 
the livestock and poultry industry as a result of today's proposed 
rule. This section also discusses EPA's estimated effects to small 
entities and presents the results of EPA's cost-effectiveness and cost-
benefit analysis. All costs presented in this document are reported in 
1999 pre-tax dollars (unless otherwise indicated).
B. Data Collection Activities
1. Sources of Data To Estimate Compliance Costs
    As part of the expedited approach to this rulemaking, EPA has 
chosen not to conduct an industry-wide survey of all CAFOs using a 
Clean Water Act Section 308 questionnaire. Rather, EPA is relying on 
existing data sources and expertise provided by the U.S. Department of 
Agriculture (USDA), industry, State agriculture extension agencies, and 
several land grant universities. More detailed information on the data 
used for this analysis can be found in the Development Document and 
also the Economic Analysis.
    EPA collected and evaluated data from a variety of sources. These 
sources include information compiled through EPA site visits to over 
100 animal confinement operations and information from industry trade 
associations, government agencies, and other published literature. EPA 
also received information from environmental groups such as the Natural 
Resources Defense Council and the Clean Water Network. The Agency 
contacted university experts, state cooperatives and extension 
services, and state and EPA regional representatives to identify 
facilities for site visits. EPA also attended USDA-sponsored farm tours 
and site visits arranged by other groups, as well as industry, 
academic, and government conferences.
    EPA obtained data and information from several agencies in USDA, 
including the National Agricultural Statistics Service (NASS), Natural 
Resources Conservation Service (NRCS), the Animal and Plant Health 
Inspection Service (APHIS), and the Economic Research Service (ERS). 
The collected data include statistical survey information and published 
reports.
    EPA gathered information from a wide range of published NASS 
reports, including annual data summaries for each commodity group. 
USDA's NASS is responsible for objectively providing important, usable, 
and accurate statistical information and data support services on the 
structure and activities of agricultural production in the United 
States. Each year NASS conducts surveys and prepares reports covering 
virtually every facet of U.S. agricultural production. The primary 
sources of data are animal production facilities in the United States. 
NASS collects voluntary information using mail surveys, telephone and 
in-person interviews, and field observations. NASS is also responsible 
for conducting a Census of Agriculture.
    EPA's main source of primary USDA data containing farm level 
descriptive information is USDA's Census of Agriculture (Census). 
USDA's Census is a complete accounting of United States agricultural 
production and is the only source of uniform, comprehensive 
agricultural data for every county in the nation. The Census is 
conducted every 5 years by NASS. The Census includes all farm 
operations from which $1,000 or more of agricultural products are 
produced and sold. The most recent Census reflects calendar year 1997 
conditions. This database is maintained by USDA. Data used for this 
analysis were compiled with the assistance of staff at USDA's NASS. 
(USDA periodically publishes aggregated data from these databases and 
also compiles customized analyses of the data to members of the public 
and other government agencies. In providing such analyses, USDA 
maintains a sufficient level of aggregation to ensure the 
confidentiality of any individual operation's activities or holdings.)
    USDA's NRCS publishes the Agricultural Waste Management Field 
Handbook, which is an agricultural engineering guidance manual that 
explains general waste management principles and provides detailed 
design information for particular waste management systems. USDA's 
Handbook reports specific design information on a variety of farm 
production and waste management practices at different types of 
feedlots. The Handbook also reports runoff calculations under normal 
and peak precipitation as well as information on manure and bedding 
characteristics. EPA used this information to develop its cost and 
environmental analyses. NRCS personnel also contributed technical 
expertise in the development of EPA's estimates of compliance costs and 
environmental assessment framework by providing EPA with estimates of 
manure generation in excess of expected crop uptake. This information 
is provided in the record that supports this rulemaking.
    NRCS also compiled and performed analyses on Census data that EPA 
used for its analyses. These data identify the number of feedlots, 
their geographical distributions, and the amount of cropland available 
to land apply animal manure generated from their confined feeding 
operations (based on nitrogen and phosphorus availability relative to 
crop need).
    EPA gathered information from several reports on the livestock and 
poultry industries from the National Animal Health Monitoring System 
(NAHMS). USDA's APHIS provides leadership in ensuring the health and 
care of animals and plants, improving agricultural productivity and 
competitiveness, and contributing to the national economy and public 
health. One of its main responsibilities is to enhance the care of 
animals. In 1983, APHIS initiated the NAHMS as an information-gathering 
program to collect, analyze, and disseminate data on animal health, 
management, and productivity. NAHMS conducts national studies to gather 
data and generate
[[<strong>Page</strong> 3080]]
descriptive statistics and information from data collected by other 
industry sources.
    USDA's ERS provides economic analyses on efficiency, efficacy, and 
equity issues related to agriculture, food, the environment, and rural 
development to improve public and private decision-making. EPA's 
analysis of economic impacts at a model CAFO references a wide range of 
published ERS reports and available farm level statistical models. ERS 
also maintains farm level profiles of cost and returns compiled from 
NASS financial data.
    Databases and reports containing the information and data used by 
EPA in support of this proposed rule are available in the rulemaking 
record.
2. Sources of Data To Estimate Economic Impacts
    To estimate economic impacts, EPA used farm level data from USDA, 
industry, and land grant universities. The major source of primary USDA 
data on farm financial conditions is from the Agricultural Resources 
Management Study (ARMS). ARMS is USDA's primary vehicle for data 
collection on a broad range of issues about agricultural production 
practices and costs. These data provide a national perspective on the 
annual changes in the financial conditions of production agriculture.
    USDA's ARMS data provide aggregate farm financial data, which EPA 
used for its cost impact analysis. The ARMS data provide complete 
income statement and balance sheet information for U.S. farms in each 
of the major commodity sectors, including those affected by the 
proposed regulations. The ARMS financial data span all types of farming 
operations within each sector, including full-time and part-time 
producers, independent owner operations and contract grower operations, 
and confinement and non-confinement production facilities.
    ERS provided aggregated data for select representative farms 
through special tabulations of the ARMS data that differentiate the 
financial conditions among operations by commodity sector, facility 
size (based on number of animals on-site) and by major producing region 
for each sector. The 1997 ARMS data also provide corresponding farm 
level summary information that matches the reported average financial 
data to both the total number of farms and the total number of animals 
for each aggregated data category. As with the Census data, ERS 
aggregated the data provided to EPA to preserve both the statistical 
representativeness and confidentiality of the ARMS survey data. ARMS 
data used for this analysis are presented in the Economic Analysis and 
are available in the rulemaking record.
    EPA obtained additional market data on the U.S. livestock and 
poultry industries as a whole from a wide variety of USDA publications 
and special reports. These include: Financial Performance of U.S. 
Commercial Farms, 1991-1994; USDA Baseline Projections 2000, Food 
Consumption, Prices and Expenditures, 1970-1997; Agricultural Prices 
Annual Summary; annual NASS statistical bulletins for these sectors; 
and data and information reported in Agricultural Outlook and ERS's 
Livestock, Dairy, and Poultry Situation and Outlook reports. Other 
source material is from ERS's cost of production series reports for 
some sectors and trade reports compiled by USDA's Foreign Agricultural 
Service (FAS). Information on the food processing segments of these 
industries is from the U.S. Department of Commerce's Census of 
Manufacturers data series. Industry information is also from USDA's 
Grain Inspection Packers and Stockyards Administration (GIPSA).
    Industry and the associated trade groups also provided information 
for EPA's cost and market analyses. In particular, the National 
Cattlemen's Beef Association (NCBA) conducted a survey of its 
membership to obtain financial statistics specific to cattle feeding 
operations. EPA used these and other data to evaluate how well the ARMS 
data for beef operations represent conditions at cattle feedyards. EPA 
also obtained industry data from the National Milk Producers Federation 
(NMPF) and the National Pork Producers Council (NPPC).
    EPA also used published research by various land grant universities 
and their affiliated research organizations, as well as information 
provided by environmental groups.
    Databases and reports containing the information and data provided 
to and used by EPA in support of this proposed rule are available in 
the rulemaking record.
C. Method for Estimating Compliance Costs
1.Baseline Compliance
    For the purpose of this analysis, EPA assumes that all CAFOs that 
would be subject to the proposed regulations are currently in 
compliance with the existing regulatory program (including the NPDES 
regulations and the effluent limitations guidelines and standards for 
feedlots) and existing state laws and regulations. As a practical 
matter, EPA recognizes that this is not true, since only 2,500 
operations out of an estimated 12,700 CAFOs with more than 1,000 AU 
have actually obtained coverage under an NPDES permit and the remainder 
may in fact experience additional costs to comply with the existing 
requirements. EPA has not estimated these additional costs in the 
analysis that is presented in today's preamble because the Agency did 
not consider these costs part of the incremental costs of complying 
with today's proposed rule.
    To assess the incremental costs attributable to the proposed rules, 
EPA evaluated current federal and state requirements for animal feeding 
operations and calculated compliance costs of the proposed requirements 
that exceed the current requirements. Operations located in states that 
currently have requirements that meet or exceed the proposed regulatory 
changes would already be in compliance with the proposed regulations 
and would not incur any additional cost. These operations are not 
included as part of the cost analysis. A review of current state waste 
management requirements for determining baseline conditions is included 
in the Development Document and also in other sections of the record 
(See State Compendium: Programs and Regulatory Activities Related to 
Animal Feeding Operations compiled by EPA and available at <A HREF="http://frwebgate.access.gpo.gov/cgi-bin/leaving.cgi?from=leavingFR.html&log=linklog&to=http://www.epa.gov/owm/afo.htm#Compendium">http://
www.epa.gov/owm/afo.htm#Compendium</A>).
    EPA also accounted for current structures and practices that are 
assumed to be already in place at operations that may contribute to 
compliance with the proposed regulations. Additional information is 
also provided in the following section (X.C.2(a)). This information is 
also provided in the Development Document.
2. Method for Estimating Incremental CAFO Compliance Costs
    a. Compliance Costs to CAFO Operators. For the purpose of 
estimating total costs and economic impacts, EPA calculated the costs 
of compliance for CAFOs to implement each of the regulatory options 
being considered (described in Section VIII of this preamble). EPA 
estimated costs associated with four broad cost components: nutrient 
management planning, facility upgrades, land application, and 
technologies for balancing on-farm nutrients. Nutrient management 
planning costs include manure and soil testing, record keeping, 
monitoring of surface water and groundwater, and plan development. 
Facility upgrades reflect costs for
[[<strong>Page</strong> 3081]]
manure storage, mortality handling, storm water and field runoff 
controls, reduction of fresh water use, and additional farm management 
practices. Land application costs address agricultural application of 
nutrients and reflect differences among operations based on cropland 
availability for manure application. Specific information on the 
capital costs, annual operating and maintenance costs, start-up or 
first year costs, and also recurring costs assumed by EPA to estimate 
costs and impacts of the proposed regulations is provided in the 
Development Document.
    EPA evaluated compliance costs using a representative facility 
approach based on more than 170 farm level models that were developed 
to depict conditions and to evaluate compliance costs for select 
representative CAFOs. The major factors used to differentiate 
individual model CAFOs include the commodity sector, the farm 
production region, and the facility size (based on herd or flock size 
or the number of animals on-site). EPA's model CAFOs primarily reflect 
the major animal sector groups, including beef cattle, dairy, hog, 
broiler, turkey, and egg laying operations. Practices at other 
subsector operations are also reflected in the cost models, such as 
replacement heifer operations, veal operations, flushed caged layers, 
and hog grow- and farrow-finish facilities. EPA used model facilities 
with similar waste management and production practices to depict 
operations in regions that were not separately modeled.
    Another key distinguishing factor incorporated into EPA's model 
CAFOs includes information on the availability of crop and pasture land 
for land application of manure nutrients. For this analysis, nitrogen 
and phosphorus rates of land application are evaluated for three 
categories of cropland availability: Category 1 CAFOs are assumed to 
have sufficient cropland for all on-farm nutrients generated, Category 
2 CAFOs are assumed to have insufficient cropland, and Category 3 CAFOs 
are assumed to have no cropland. EPA used 1997 information from USDA to 
determine the number of CAFOs within each category. This information 
takes into account which nutrient (nitrogen or phosphorus) is used as 
the basis to assess land application and nutrient management costs.
    For Category 2 and Category 3 CAFOs, EPA evaluated additional 
technologies that may be necessary to balance nutrients. EPA evaluated 
additional technologies that reduce off-site hauling costs associated 
with excess on-farm nutrients, as well as to address ammonia 
volatization, pathogens, trace metals, and antibiotic residuals. These 
technologies may include Best Management Practices (BMPs) and various 
farm production technologies, such as feed management strategies, 
solid-liquid separation, composting, anaerobic digestion, and other 
retrofits to existing technologies. EPA considered all these 
technologies for identification of ``best available technologies'' 
under the various options for BAT described in Section VIII.
    EPA used soil sample information compiled by researchers at various 
land grant universities to determine areas of phosphorus and nitrogen 
saturation, as described in the Development Document. This information 
provides the basis for EPA's assumptions of which facilities would need 
to apply manure nutrients on a phosphorus- or nitrogen-based standard.
    EPA's cost models also take into account other production factors, 
including climate and farmland geography, land application and waste 
management practices and other major production practices typically 
found in the key producing regions of the country. Model facilities 
reflect major production practices used by larger confined animal 
farms, generally those with more than 300 AU. Therefore, the models do 
not reflect pasture and grazing type farms, nor do they reflect typical 
costs to small farms. EPA's cost models also take into account 
practices required under existing state regulations and reflect cost 
differences within sectors depending on manure composition, bedding 
use, and process water volumes. More information on the development of 
EPA's cost models is provided in the Development Document.
    To estimate aggregate incremental costs to the CAFO industry from 
implementing a particular technology option, EPA first estimated the 
total cost to a model facility to employ a given technology, including 
the full range of necessary capital, annual, start-up, and recurring 
costs. Additional detailed information on the baseline and compliance 
costs attributed to model CAFOs across all sectors and across all the 
technology options considered by EPA is provided in the Development 
Document.
    After estimating the total cost to an individual facility to employ 
a given technology, EPA then weighted the average facility level cost 
to account for current use of the technology or management practice 
nationwide. This is done by multiplying the total cost of a particular 
technology or practice by the percent of operations that are believed 
to use this particular technology or practice in order to derive the 
average expected cost that could be incurred by a model CAFO. EPA 
refers to this adjustment factor as the ``frequency factor'' and has 
developed such a factor for each individual cost (i.e. each technology) 
and cost component (i.e. capital and annual costs) in each of its CAFO 
models. The frequency factor reflects the percentage of facilities that 
are, technically, already in compliance with a given regulatory option 
since they already employ technologies or practices that are protective 
of the environment. The frequency factor also accounts for compliance 
with existing federal and state regulatory requirements as well as the 
extent to which an animal sector has already adopted or established 
management practices to control discharges.
    EPA developed its frequency factors based on data and information 
from USDA's NRCS and NAHMS, state agricultural extension agencies, 
industry trade groups and industry-sponsored surveys, academic 
literature, and EPA's farm site visits. More detailed information on 
how EPA developed and applied these weighting factors is provided in 
the Development Document. To identify where farm level costs may be 
masked by this weighting approach, EPA evaluated costs with and without 
frequency factors. The results of this sensitivity analysis indicate 
that the model CAFO costs used to estimate aggregate costs and impacts, 
as presented in this preamble, are stable across a range of possible 
frequency factor assumptions.
    The data and information used to develop EPA's model CAFOs were 
compiled with the assistance of USDA, in combination with other 
information collected by EPA from extensive literature searches, more 
than 100 farm site visits, and numerous consultations with industry, 
universities, and agricultural extension agencies. Additional detailed 
information on the data and assumptions used to develop EPA's model 
CAFOs that were used to estimate aggregate incremental costs to the 
CAFO industry is provided in the Development Document.
    b. Compliance Costs to Recipients of CAFO Manure. To calculate the 
cost to offsite recipients of CAFO manure under the proposed 
regulations, EPA builds upon the cropland availability information in 
the CAFO models, focusing on the two categories of farms that have 
excess manure nutrients and that need to haul manure offsite for 
alternative use or to be spread as
[[<strong>Page</strong> 3082]]
fertilizer (i.e., Category 2 and Category 3 CAFOs, where facilities are 
assumed to have insufficient or no available cropland to land apply 
nutrients, respectively). EPA also uses this information to determine 
the number of offsite recipients affected under select regulatory 
alternatives, shown in Tables 10-3 and 10-4.
    USDA defines farm level ``excess'' of manure nutrients on a 
confined livestock farm as manure nutrient production less crop 
assimilative capacity. USDA has estimated manure nutrient production 
using the number of animals by species, standard manure production per 
animal unit, and nutrient composition of each type of manure. 
Recoverable manure is the amount that can be collected and disposed by 
spreading on fields or transporting off the producing farm.
    Depending on the nutrient used to determine the rate of manure 
application (nitrogen or phosphorus), EPA estimates that approximately 
7,500 to 10,000 CAFOs with more than 300 AU are expected to generate 
excess manure. This includes about 2,600 animal feeding operations that 
have no major crop or pasture land. These estimates were derived from a 
USDA analysis of manure nutrients relative to the capacity of cropland 
and pastureland to assimilate nutrients. EPA's estimate does not 
account for excess manure that is already disposed of via alternative 
uses such as pelletizing or incineration.
    For the purpose of this analysis, EPA assumes that affected offsite 
facilities are field crop producers who use CAFO manure as a fertilizer 
substitute. Information on crop producers that currently receive animal 
manure for use as a fertilizer substitute is not available. Instead, 
EPA approximates the number of operations that receive CAFO manure and 
may be subject to the proposed regulations based on the number of acres 
that would be required to land apply manure nutrients generated by 
Category 2 and Category 3 CAFOs. EPA assumes that offsite recipients 
will only accept manure when soil conditions allow for application on a 
nitrogen basis. Therefore, the manure application rate at offsite acres 
in a given region is the nitrogen-based application rate for the 
typical crop rotation and yields obtained in that region. EPA then 
estimates the number of farms that receive CAFO manure by dividing the 
acres needed to assimilate excess manure nitrogen by the national 
average farm size of 487 acres, based on USDA data. The results of this 
analysis indicate that 18,000 to 21,000 offsite recipients would 
receive excess CAFO manure.
    The costs assessed to manure recipients include the costs of soil 
testing and incremental recordkeeping. EPA evaluated these costs using 
the approach described in Section X.C.2(a). Excess manure hauling costs 
are already included in costs assessed to CAFOs with excess manure. For 
the purpose of this analysis, EPA has assumed that crop farmers already 
maintain records documenting crop yields, crop rotations, and 
fertilizer application, and that crop farmers already have some form of 
nutrient management plan for determining crop nutrient requirements. 
EPA estimates, on average, per-farm incremental costs of approximately 
$540 to non-CAFOs for complying with the offsite certification 
requirements. This analysis is provided in the Development Document.
3. Cost Annualization Methodology
    As part of EPA's costing analysis, EPA converts the capital costs 
that are estimated to be incurred by a CAFO to comply with the proposed 
requirements, described in Section X.C.2, to incremental annualized 
costs. Annualized costs better describe the actual compliance costs 
that a model CAFO would incur, allowing for the effects of interest, 
depreciation, and taxes. EPA uses these annualized costs to estimate 
the total annual compliance costs and to assess the economic impacts of 
the proposed requirements to regulated CAFOs that are presented in 
Sections X.E and X.F.
    Additional information on the approach used to annualize the 
incremental compliance costs developed by EPA is provided in Appendix A 
of the Economic Analysis. EPA uses a 10-year recovery period of 
depreciable property based on the Internal Revenue Code's guidance for 
single purpose agricultural or horticultural structures. The Internal 
Revenue Service defines a single purpose agricultural structure as any 
enclosure or structure specifically designed, constructed and used for 
housing, raising, and feeding a particular kind of livestock, including 
structures to contain produce or equipment necessary for housing, 
raising, and feeding of livestock. The method EPA uses to depreciate 
capital investments is the Modified Accelerated Cost Recovery System 
(MACRS).
    EPA assumes a real private discount/interest rate of 7 percent, as 
recommended by the Office of Management and Budget. EPA also assumes 
standard federal and average state tax rates across the broad facility 
size categories to determine an operation's tax benefit or tax shield, 
which is assumed as an allowance to offset taxable income.
D. Method for Estimating Economic Impacts
    To estimate economic impacts under the proposed regulations, EPA 
examined the impacts across three industry segments: regulated CAFOs, 
processors, and national markets.
1. CAFO Analysis
    EPA estimates the economic impacts of today's proposed regulations 
using a representative farm approach. A representative farm approach is 
consistent with past research that USDA and many land grant 
universities have conducted to assess a wide range of policy issues, 
including environmental legislation pertaining to animal agriculture. A 
representative farm approach provides a means to assess average impacts 
across numerous facilities by grouping facilities into broader 
categories to account for the multitude of differences among animal 
confinement operations. Information on how EPA developed its model 
CAFOs is available in the Economic Analysis. Additional information on 
EPA's cost models is provided in the Development Document. At various 
stages in the proposed rulemaking, EPA presented its proposed 
methodological approach to USDA personnel and to researchers at various 
land grant universities for informal review and feedback.
    Using a representative farm approach, EPA constructed a series of 
model facilities that reflect the EPA's estimated compliance costs and 
available financial data. EPA uses these model CAFOs to develop an 
average characterization for a group of operations. EPA's cost models 
were described earlier in Section X.C.2(a). From these models, EPA 
estimates total annualized compliance costs by aggregating the average 
facility costs across all operations that are identified for a 
representative group. EPA's cost models are compared to corresponding 
model CAFOs that characterize financial conditions across differently 
sized, differently managed, and geographically distinct operations. As 
with EPA's cost models, EPA's financial models are grouped according to 
certain distinguishing characteristics for each sector, such as 
facility size and production region, that may be shared across a broad 
range of facilities. Economic impacts under a post-regulatory scenario 
are approximated by extrapolating the average impacts for a given model 
CAFO across the larger
[[<strong>Page</strong> 3083]]
number of operations that share similar production characteristics and 
are identified by that CAFO model.
    EPA compares its estimated compliance costs at select model CAFOs 
to corresponding financial conditions at these model facilities. For 
this analysis, EPA focuses on three financial measures that are used to 
assess the affordability of the proposed CAFO regulations. These 
include total gross revenue, net cash income, and debt-to-asset ratio. 
Financial data used by EPA to develop its financial models are from the 
1997 ARMS data summaries prepared by ERS and form the basis for the 
financial characterization of the model CAFOs. To account for changes 
in an operation's income under post-compliance conditions, EPA 
estimated the present value of projected facility earnings, measured as 
a future cash flow stream. The present value of cash flow represents 
the value in terms of today's dollars of a series of future receipts. 
EPA calculated baseline cash flow as the present value of a 10-year 
stream of an operation's cash flow. EPA projected future earnings from 
the 1997 baseline using USDA's Agricultural Baseline Projections data. 
Section 4 of the Economic Analysis provides additional information on 
the baseline financial conditions attributed to EPA's model CAFO across 
all sectors as well as information on the data and assumptions used to 
develop these models.
    EPA evaluates the economic achievability of the proposed 
requirements based on changes in representative financial conditions 
for select criteria, as described in Section X.F.1. For some sectors, 
EPA evaluates economic impacts at model CAFOs under varying scenarios 
of cost passthrough between the CAFO and the latter stages in the food 
marketing chain, such as the processing and retail sectors. These three 
scenarios include: zero cost passthrough, full (100 percent) cost 
passthrough, and partial cost passthrough (greater than zero). Partial 
cost passthrough values used for this analysis vary by sector and are 
based on estimates of price elasticity of supply and demand reported in 
the academic literature. This information is available in the docket.
    Table 10-1 lists the range of annualized compliance costs developed 
for EPA's analysis. Annualized costs for each sector are summarized 
across the estimated range of minimum and maximum costs across all 
facility sizes and production regions and are broken out by land use 
category (described in Section X.C.2). In some cases, ``maximum'' costs 
reflect average costs for a representative facility that has a large 
number of animals on-site; EPA's cost models for very large CAFOs are 
intended to approximate the average unit costs at the very largest 
animal feeding operations. More detailed annualized costs broken out by 
production region, land use category, and broad facility size groupings 
are provided in the Economic Analysis.
    Estimated annualized costs shown in Table 10-1 are presented in 
1999 dollars (post-tax). All costs presented in today's preamble have 
been converted using the Construction Cost Index to 1999 dollars from 
the 1997 dollar estimates that are presented throughout the Development 
Document and the Economic Analysis. As shown in the table, costs for 
Category 3 CAFOs may be lower than those for Category 1 CAFOs since 
facilities without any land do not incur any additional incremental 
costs related to hauling. EPA has assumed that these operations are 
already hauling off-site in order to comply with existing requirements. 
More detailed cost estimates for individual technologies are provided 
in the Development Document.
    To assess the impact of the regulations on offsite recipients of 
CAFO manure, EPA compares the estimated cost of this requirement to 
both aggregate and average per farm production costs and revenues (a 
sales test). This analysis uses EPA's estimated compliance costs and 
1997 aggregate farm revenues and production costs reported by USDA. For 
the purpose of this analysis, EPA assumes that these costs will be 
incurred by non-CAFO farming operations (i.e., crop producers) that use 
animal manures as a fertilizer substitute and will not be borne by 
CAFOs.
                 Table 10-1.--Range of Annualized Model CAFO Compliance Costs ($1999, post-tax)
----------------------------------------------------------------------------------------------------------------
                                                   Category 1 \1\        Category 2 \1\        Category 3 \1\
                    Sector                     -----------------------------------------------------------------
                                                 Minimum    Maximum    Minimum    Maximum    Minimum    Maximum
----------------------------------------------------------------------------------------------------------------
                                                       (1999 dollars per model CAFO across all size groups)
----------------------------------------------------------------------------------------------------------------
Beef..........................................      2,100    986,000      8,500  1,219,800      1,000    896,700
Veal..........................................      1,500      8,100      1,100      6,100      1,000      6,000
Heifers.......................................      1,700     16,900      2,000     17,900      1,200     11,700
Dairy.........................................      5,200     44,600     14,700     67,700      4,200     40,300
Hogs: GF \2\..................................        300     52,300      5,500     63,500     11,400     81,500
Hogs: FF \2\..................................        300     82,900      8,800    100,600     10,000    115,500
Broilers......................................      4,800     36,300      4,400     25,800      3,900     21,400
Layers: wet \3\...............................        300     24,800      2,100     29,300      1,500     18,100
Layers: dry \3\...............................      1,500     59,000      1,400     31,700      1,200     27,600
Turkeys.......................................      4,900    111,900      4,800     29,500      3,800    20,800
----------------------------------------------------------------------------------------------------------------
Source: EPA.
\1\ Category 1 CAFOs have sufficient cropland for all on-farm nutrients generated; Category 2 CAFOs have
  insufficient cropland; and Category 3 CAFOs have no cropland.
\2\ ``Hogs: FF'' are farrow-finish (includes breeder and nursery pigs); ``Hogs: GF'' are grower-finish only.
\3\ ``Layers: wet'' are operations with liquid manure systems; ``Layers: dry'' are operations with dry systems.
2. Processor Analysis
    As discussed in Section VI, EPA estimates that 94 meat packing 
plants that slaughter hogs and 270 poultry processing facilities may be 
subject to the proposed co-permitting requirements (Section VI). Given 
the structure of the beef and dairy sectors and the nature of their 
contract relationships, EPA expects that no meat packing or processing 
facilities in these sectors will be subject to the proposed co-
permitting requirements. EPA bases these assumptions on data from the 
Department of Commerce on the number of slaughtering and meat packing 
facilities in these sectors and information from USDA on the degree of
[[<strong>Page</strong> 3084]]
animal ownership at U.S. farms, as described in Section VI of this 
document. Additional information is provided in Section 2 of the 
Economic Analysis. EPA is seeking comment on this assumption as part of 
today's notice.
    EPA did not conduct a detailed estimate of the costs and impacts 
that would accrue to individual co-permittees. Information on 
contractual relationships between contract growers and processing firms 
is proprietary and EPA does not have the necessary market information 
and data to conduct such an analysis. Market information is not 
available on the number and location of firms that contract out the 
raising of animals to CAFOs or on the number and location of contract 
growers, and the share of production, that raise animals under a 
production contract. In addition, EPA does not have data on the exact 
terms of the contractual agreements between processors and CAFOs to 
assess when a processor would be subject to the proposed co-permitting 
requirements, and EPA does not have financial data for processing firms 
or contract growers that utilize production contracts.
    EPA, however, believes that the framework used to estimate costs to 
CAFOs does provide a means to evaluate the possible upper bound of 
costs that could accrue to processing facilities in those industries 
where production contracts are more widely utilized and where EPA 
believes the proposed co-permitting requirements may affect processors. 
EPA's CAFO level analysis examines the potential share of (pre-tax) 
costs that may be passed on from the CAFO, based on market information 
for each sector. Assuming that a share of the costs that accrue to the 
CAFO are eventually borne by processors, EPA is proposing that this 
amount approximates the magnitude of the costs that may be incurred by 
processing firms in those industries that may be affected by the 
proposed co-permitting requirements. EPA solicits comment on this 
approach.
    To assess the impact of the regulations on processors, EPA compares 
the passed through compliance costs to both aggregate processor costs 
of production and to revenues (a sales test). These analyses use 
estimated compliance costs, cost passthrough estimates, and aggregate 
revenues and production costs by processing sector. National processor 
cost and revenue data are from the U.S. Department of Commerce's Census 
of Manufacturers data series. For some sectors, EPA evaluates the 
impact of the proposed regulations on processors under two scenarios of 
cost passthrough from the animal production sectors (described in 
Section X.D.1), including full cost and partial cost passthrough. More 
detail on this approach is provided in Section 4 of the Economic 
Analysis.
    This suggested approach does not assume any addition to the total 
costs of the rule as a result of co-permitting. This approach also does 
not assume that there will be a cost savings to contract growers as a 
result of a contractual arrangement with a processing firm. This 
approach merely attempts to quantify the potential magnitude of costs 
that could accrue to processors that may be affected by the co-
permitting requirements. Due to lack of information and data, EPA has 
not analyzed the effect of relative market power between the contract 
grower and the integrator on the distribution of costs, nor the 
potential for additional costs to be imposed by the integrator's need 
to take steps to protect itself against liability and perhaps to 
indemnify itself against such liability through its production 
contracts. EPA has also not specifically analyzed the environmental 
effects of co-permitting. EPA has conducted an extensive review of the 
agricultural literature on market power in each of the livestock and 
poultry sectors and concluded that there is little evidence to suggest 
that increased production costs would be prevented from being passed on 
through the market levels. This information is provided in the 
rulemaking record. However, as discussed in Section VII.C.5, EPA 
recognizes that some industry representatives do not support these 
assumptions of cost passthrough from contract producers to integrators 
and requests comments on its cost passthrough assumptions, both in 
general and as they relate to the analysis of processor level impacts 
under the proposed co-permitting requirements.
    EPA's processor analysis does not explicitly account for the few 
large corporate operations that are vertically integrated, to the 
extent that the corporation owns and operates all aspects of the 
operation, from animal production to final consumer product. These 
operations are covered by EPA's CAFO analysis to the extent that they 
are captured by USDA's farm survey and are included among EPA's model 
CAFOs. While the ARMS data may include information on CAFOs that are 
owned by corporate operations, these data cannot be broken out to 
create a model specifically designed to represent these operations. 
Since EPA's analysis uses farm financial data and not corporate data, 
this analysis does not reflect the ability of corporations to absorb 
compliance costs that may be incurred at CAFOs that are owned by that 
entity. EPA expects that its analysis overestimates the impact to 
corporate entities since revenues of corporate entities are, in most 
cases, no less than and are likely to exceed those at a privately-owned 
and operated CAFOs.
3. Market Analysis
    EPA's market analysis evaluates the effects of the proposed 
regulations on national markets. This analysis uses a linear partial 
equilibrium model adapted from the COSTBEN model developed by USDA's 
Economic Research Service. The modified EPA model provides a means to 
conduct a long-run static analysis to measure the market effects of the 
proposed regulations in terms of predicted changes in farm and retail 
prices and product quantities. Market data used as inputs to this model 
are from a wide range of USDA data and land grant university research. 
EPA consulted researchers from USDA and the land grant universities in 
the development of this modeling framework. The details of this model 
are described in Appendix B of the Economic Analysis.
    Once price and quantity changes are predicted by the model, EPA 
uses national multipliers that relate changes in sales to changes in 
total direct and indirect employment and also to national economic 
output. These estimated relationships are based on the Regional Input-
Output Modeling System (RIMS II) from the U.S. Department of Commerce. 
This approach is described in Section 4 of the Economic Analysis.
E. Estimated Annual Costs of the Proposed Regulatory Options/Scenarios
    As discussed in Section VII and VIII, EPA considered various 
technology options and also different scope scenarios as part of the 
development of today's proposed regulations. A summary overview of the 
ELG options and NPDES scenarios is provided in Table 10-2. More detail 
is available in Sections VII and VIII of today's preamble.
[[<strong>Page</strong> 3085]]
 Table 10-2.--Summary Description of Options/Scenarios Considered by EPA
------------------------------------------------------------------------
------------------------------------------------------------------------
                        Technology Options (ELG)
------------------------------------------------------------------------
Option 1..........................  N-based land application controls
                                     and inspection and recordkeeping
                                     requirements for the production
                                     area (described in Section
                                     VIII.C.3).
Option 2..........................  Same as Option 1, but restricts the
                                     rate of manure application to a P-
                                     based rate where necessary
                                     (depending on specific soil
                                     conditions at the CAFO).
Option 3 BAT (Beef/Heifers/Dairy).  Adds to Option 2 by requiring all
                                     operations to determine whether the
                                     groundwater beneath the production
                                     area has a direct hydrologic
                                     connection to surface water; if so,
                                     requires groundwater monitoring and
                                     controls.
Option 4..........................  Adds to Option 3 by requiring
                                     sampling of surface waters adjacent
                                     to production area and/or land
                                     under control of the CAFO to which
                                     manure is applied.
Option 5 BAT (Swine/Poultry/Veal).  Adds to Option 2 by establishing a
                                     zero discharge requirement from the
                                     production area that does not allow
                                     for an overflow under any
                                     circumstances.
Option 6..........................  Adds to Option 2 by requiring that
                                     large hog and dairy operations
                                     install and implement anaerobic
                                     digestion and gas combustion to
                                     treat their manure.
Option 7..........................  Adds to Option 2 by prohibiting
                                     manure application to frozen, snow
                                     covered or saturated ground.
------------------------------------------------------------------------
                    Regulatory Scope Options (NPDES)
------------------------------------------------------------------------
Scenario 1........................  Retains existing 3-tier framework
                                     and establishes additional
                                     requirements (described in Section
                                     VII.C.2).
Scenario 2........................  Same as Scenario 1; operations with
                                     300-1,000 AU would be subject to
                                     the regulations based on certain
                                     ``risk-based'' conditions
                                     (described in VII.C.3.b).
Scenario 3 ``Three-Tier''.........  Same as Scenario 2, but allows
                                     operations with 300-1,000 AU to
                                     either apply for a NPDES permit or
                                     to certify to the permit authority
                                     that they do not meet any of the
                                     conditions and thus are not
                                     required to obtain a permit.
Scenario 4a ``Two-Tier'' (500 AU).  Establishes 2-tier framework and
                                     applies ELG standard to all
                                     operations with more than 500 AU.
Scenario 4b.......................  Establishes 2-tier framework and
                                     applies ELG standard to all
                                     operations with more than 300 AU.
Scenario 5 ``Two-Tier'' (750 AU)..  Establishes 2-tier framework and
                                     applies ELG standard to all
                                     operations with more than 750 AU.
Scenario 6........................  Retains existing 3-tier framework
                                     and establishes a simplified
                                     certification process (described in
                                     Section VII.C.2).
------------------------------------------------------------------------
    The ``BAT Option'' refers to EPA's proposal to require nitrogen-
based and, where necessary, phosphorus-based land application controls 
of all livestock and poultry CAFOs (Option 2), with the additional 
requirement that all cattle and dairy operations must conduct 
groundwater monitoring and implement controls, if the groundwater 
beneath the production area has a direct hydrologic connection to 
surface water (Option 3 BAT), and with the additional requirement that 
all hog, veal, and poultry CAFOs must also achieve zero discharge from 
the animal production area with no exception for storm events (Option 5 
BAT). For reasons outlined in Section VIII, EPA is not proposing that 
beef and dairy CAFOs meet the additional requirements under Option 5 or 
that hog and poultry CAFOs meet the additional requirements under 
Option 3. Section VIII discusses EPA's basis for the selection of these 
technology bases for the affected subcateogries.
    EPA is jointly proposing two NPDES Scenarios that differ in terms 
of the manner in which operations are defined as a CAFO. Scenario 4a is 
to the two-tier alternative that defines as CAFOs all animal feeding 
operations with more than 500 AU (alternatively, Scenario 5 is the two-
tier alternative that defines all animal feeding operations with more 
than 750 AU as CAFOs). Scenario 3 is three-tier structure that defines 
as CAFOs all animal feeding operations with more than 1,000 AU and any 
operation with more than 300 AU, if they meet certain ``risk-based'' 
conditions, as defined in Section VII. Under Scenario 3, EPA would 
require all confinement operations with between 300 and 1,000 AU to 
either apply for a NPDES permit or to certify to the permit authority 
that they do not meet certain conditions and thus are not required to 
obtain a permit.
    For the purpose of this discussion, the ``two-tier structure'' 
refers to the combination of BAT Option 3 (beef and dairy 
subcategories) and BAT Option 5 (swine and poultry subcategories), and 
NPDES Scenario 4a that covers all operations with more than 500 AU. 
Where indicated, the two-tier structure may refer to the alternative 
threshold at 750 AU. The ``three-tier structure'' refers to the 
combination of ELG Option 3 (beef and dairy subcategories) and Option 5 
(swine and poultry subcategories), and NPDES Scenario 3 that covers 
operations down to 300 AU based on certain conditions. More detail of 
the technology options considered by EPA is provided in Section VIII. 
Section VII of this preamble provides additional information on the 
alternative scope scenarios considered by EPA. EPA did not evaluate 
costs and economic impacts under the alternative three-tier structure 
that combines the BAT Option with Scenario 6, as described in Table 10-
2.
    Under the two-tier structure, EPA estimate that 25,540 CAFOs with 
more than 500 AU may be defined as CAFOs and subject to the proposed 
regulations. EPA estimates that 19,100 CAFOs may be defined as CAFOs 
under the alternative two-tier threshold of 750 AU. Under the three-
tier structure, an estimated 31,930 CAFOs would be defined as CAFOs 
(Table 6-2) and an additional 7,400 operations in the 300 to 1,000 AU 
size range would need to certify that they do not need to apply for a 
permit. This total estimate counts operations with more than a single 
animal type only once. EPA's analysis computes total compliance costs 
based on the total number of CAFOs in each sector, including mixed 
operations that have more than 300 or 500 AU of at least one animal 
type. This approach avoids understating costs at operations with more 
than one animal type that may incur costs to comply with the proposed 
requirements for each type of animal that is raised on-site that meets 
the size threshold for a CAFO or is designated as a CAFO by the 
permitting authority. Therefore, EPA's compliance costs estimates 
likely represent the upper bound since costs at facilities with more 
than a single animal type may, in some cases, be lower due to shared 
production technologies and practices across all animal types that are 
produced on-site.
[[<strong>Page</strong> 3086]]
1. Costs to CAFOs Under the Proposed Regulations
    Tables 10-3 and 10-4 summarize the total annualized compliance 
costs to CAFOs attributed to the proposed two-tier structure and three-
tier structure. The table shows these costs broken out by sector and by 
broad facility size group. EPA calculated all estimated costs using the 
data, methodology and assumptions described in Sections X.B and X.C.
    Under the two-tier structure, EPA estimates that the incremental 
annualized compliance cost to CAFO operators would be approximately 
$831 million annually (Table 10-3). Table 10-5 shows estimated costs 
for the two-tier structure at the 750 AU threshold, estimated by EPA to 
total $721 million annually. Most of this cost (roughly 70 percent) is 
incurred by CAFOs with more than 1,000 AU. Overall, about one-third of 
all estimated compliance costs are incurred within the hog sectors.
    Under the three-tier structure, EPA estimates that the total cost 
to CAFO operators would be $925 million annually (Table 10-4). These 
costs are expressed in terms of pre-tax 1999 dollars. (Post-tax costs 
are estimated at $573 million and $635 million annually, respectively, 
and include tax savings to CAFOs. EPA uses estimated post-tax costs to 
evaluate impacts to regulated facilities, discussed in Section X.F.). 
Estimated total annualized costs for the three-tier structure include 
the cost to permitted CAFOs as well as the estimated cost to operations 
to certify to the permit authority that they do not meet any of the 
conditions and are thus are not required to obtain a permit. EPA 
estimates certification costs at about $80 million annually, which 
covers phosphorus-based PNP costs, facility upgrades, and letters of 
certification from manure recipient. More information on these costs 
and how they are calculated is provided in Section 5 of the Economic 
Analysis.
    Estimated total annualized costs shown in Table 10-3 and 10-4 
include costs to animal confinement operations that may be designated 
as CAFOs. Total annualized costs to designated facilities is estimated 
at less than one million dollars annually (Tables 10-3 and 10-4). As 
discussed in Section VI, EPA assumes that designation may bring an 
additional 50 operations each year under the two-tier structure; under 
the three-tier structure, EPA expects that an additional 10 operations 
may be designated each year. In this analysis, estimated costs to 
designated facilities are expressed on an average annual basis over a 
projected 10-year period. For the purpose of this analysis, EPA assumes 
that operations that may be designated as CAFOs and subject to the 
proposed regulations will consist of beef, dairy, farrow-finish hog, 
broiler and egg laying operations under the two-tier structure. Under 
the three-tier structure, EPA estimates that fewer operations would be 
designated as CAFOs, with 10 dairy and hog operations being designated 
each year, or 100 operations over a 10-year period. Additional 
information is provided in the Economic Analysis.
             Table 10-3.--Annual Pre-tax Cost of Two-Tier Structure (BAT Option/Scenario 4a), $1999
----------------------------------------------------------------------------------------------------------------
                                                       Number of                           500-1000
                       Sector                         operations     Total     >1000 AU       AU      500 AU \1\
----------------------------------------------------------------------------------------------------------------
                                                      (number) \
                                                          2\                ($1999, millions, pre-tax)
----------------------------------------------------------------------------------------------------------------
                                                 Regulated CAFOs
----------------------------------------------------------------------------------------------------------------
Beef................................................       3,080       216.4       191.5        24.7         0.1
Veal................................................          90         0.3        0.03         0.3          NA
Heifer..............................................         800        11.6         3.7         7.9          NA
Dairy...............................................       3,760       177.6       108.6        65.4         3.6
Hog.................................................       8,550       294.0       225.5        67.0         1.5
Broiler.............................................       9,780        97.1        55.4        41.6         0.1
Layer...............................................       1,640        14.2         9.9         4.3          NA
Turkey..............................................       1,280        19.6        10.4         9.2          NA
                                                     -----------------------------------------------------------
    Subtotal........................................      25,540       830.7       605.0       220.2         5.4
----------------------------------------------------------------------------------------------------------------
                                            Other Farming Operations
----------------------------------------------------------------------------------------------------------------
Offsite Recipients..................................      17,923         9.6          NA          NA          NA
    Total...........................................          NA       840.3          NA          NA         NA
----------------------------------------------------------------------------------------------------------------
Source: USEPA. See Economic Analysis. Table 6-2 provides information on affected operations.
Numbers may not add due to rounding. NA = Not Applicable. Option/Scenario definitions provided in Table 10-2.
\1\ Cost estimates shown are for designated CAFOs (see Section VI).
\2\ ``Total'' adjusts for operations with more than a single animal type. The number of CAFOs shown includes
  expected defined CAFOs only and excludes designated facilities.
             Table 10-4.--Annual Pre-tax Cost of Three-Tier Structure (BAT Option/Scenario 3), $1999
----------------------------------------------------------------------------------------------------------------
                                                       Number of                           300-1000
                       Sector                         operations     Total     >1000 AU       AU      300 AU \1\
----------------------------------------------------------------------------------------------------------------
                                                      (number) \
                                                          2\                 ($1999, million, pre-tax)
----------------------------------------------------------------------------------------------------------------
                                                 Regulated CAFOs
----------------------------------------------------------------------------------------------------------------
Beef................................................       3,210       227.7       191.5        36.2         0.0
Veal................................................         140         0.8        0.03         0.8         0.0
Heifer..............................................         980        14.4         3.7        10.7         0.0
Dairy...............................................       6,480       224.6       108.6       115.3         0.7
Hog.................................................       8,350       306.1       225.5        80.4         0.2
[[<strong>Page</strong> 3087]]
Broiler.............................................      13,740       116.6        55.4        61.2         0.0
Layer...............................................       2,010        15.3         9.9         5.4         0.0
Turkey..............................................       2,060        24.9        10.4        14.5         0.0
                                                     -----------------------------------------------------------
    Subtotal........................................      31,930       930.4       605.0       324.5         0.8
----------------------------------------------------------------------------------------------------------------
                                            Other Farming Operations
----------------------------------------------------------------------------------------------------------------
Offsite Recipients..................................      21,155        11.3          NA          NA          NA
                                                     -----------------------------------------------------------
    Total...........................................          NA       936.7          NA          NA         NA
----------------------------------------------------------------------------------------------------------------
Source: USEPA. See Economic Analysis. Table 6-2 provides information on affected operations.
Numbers may not add due to rounding. NA = Not Applicable. Option/Scenario definitions provided in Table 10-2.
\1\ Cost estimates shown are for designated CAFOs (see Section VI).
\2\ ``Total'' adjusts for operations with more than a single animal type. The number of CAFOs shown includes
  expected defined CAFOs only and excludes designated facilities.
2. Costs to CAFOs of Alternative Regulatory Options and Scenarios
    Alternative regulatory options considered by EPA during the 
development of today's proposed regulations include various technology 
options and also different regulatory scope scenarios. Sections VII and 
VIII present the Agency's rationale for each regulatory decision.
    Table 10-5 summarizes the total annualized (pre-tax) costs of 
alternative technology options for each NPDES scenario and ELG 
technology basis considered by EPA. As shown in the table, the total 
estimated costs across these options range from $355 million (Option 1/
Scenario 1) to $1.7 billion annually (Option 5, applicable to all the 
animal sectors, and Scenario 4b). By scenario, this reflects the fact 
that fewer CAFOs would be affected under Scenario 1 (a total of about 
16,400 operations) as compared to Scenario 4b (about 39,300 operations 
affected). As noted in Section X.E, EPA's estimate of the number of 
CAFOs and corresponding compliance costs does not adjust for operations 
with mixed animal types and may be overstated. By technology option, 
with the exception of Options 1 and 4, costs are evaluated incremental 
to Option 2 (see Table 10-2). Compared to Option 2, Option 5 costs are 
greatest. Additional breakout of these costs by sector are provided in 
the Economic Analysis.
           Table 10-5.--Annualized Pre-tax Costs for the Alternative NPDES Scenarios ($1999, million)
----------------------------------------------------------------------------------------------------------------
                                    Scenario 4a     Scenaro 2/3                     Scenario 5      Scenario 4b
         Option/Scenario           ``Two-Tier''   ``Three-Tier''    Scenario 1        >750 AU         >300 AU
----------------------------------------------------------------------------------------------------------------
Number of CAFOs \1\.............          25,540          28,860          16,420          25,770          39,320
Option 1........................          $432.1          $462.8          $354.6          $384.3          $493.6
Option 2........................          $548.8          $582.8          $444.4          $484.0          $633.3
Option 3........................          $746.7          $854.1          $587.0          $649.5          $883.6
Option 4........................          $903.9        $1,088.2          $707.0          $768.0        $1,121.2
Option 5........................        $1,515.9        $1,632.9        $1,340.9        $1,390.4        $1,671.3
Option 6........................          $621.6          $736.9          $501.5          $541.3          $706.6
Option 7........................          $671.3          $781.9          $542.4          $585.1          $756.6
BAT Option......................          $830.7          $925.1          $680.3          $720.8         $979.6
----------------------------------------------------------------------------------------------------------------
Source: USEPA. See Economic Analysis. Cost estimates shown include costs to designated operations.
Numbers may not add due to rounding. NA = Not Applicable. Option/Scenario definitions provided in Table 10-2.
\1\ ``Total'' adjusts for operations with more than a single animal type. The number of CAFOs shown includes
  expected defined CAFOs only and excludes designated facilities.
3. Costs to Offsite Recipients of CAFO Manure Under the Proposed 
Regulations
    As described in Section VII, EPA is proposing that offsite 
recipients of CAFO manure certify to the CAFO that manure will be land 
applied in accordance with proper agriculture practices. As shown in 
Table 10-3, EPA estimates that 18,000 non-CAFO farming operations will 
receive manure and therefore be required to certify proper manure 
utilization under the proposed two-tier structure. Under the 
alternative three-tier structure, up to 3,000 additional farming 
operations may be affected. EPA's analysis assumes that affected CAFO 
manure recipients are mostly field crop producers who use CAFO manure 
as a fertilizer substitute. EPA's analysis does not reflect manure 
hauled offsite for alternative uses such as incineration or 
pelletizing. EPA estimates the annualized cost of this requirement to 
offsite recipients to be $9.6 to $11.3 million across the co-proposed 
alternatives (Tables 10-3 and 10-4). This analysis is provided in the 
Development Document.
    Estimated costs to recipients of CAFO manure include incremental 
recordkeeping and soil tests every 3 years. Conservation Technology 
Information Center (CTIC) Core 4 survey data suggest an average of 46 
percent crop farmers regularly sample their soil. EPA believes crop 
farmers already maintain records pertaining to crop yields, nutrient 
requirements, and fertilizer applications. EPA also assumed that crop 
farmers have a nutrient management plan, though the plan is not 
necessarily a PNP (Permit Nutrient Plan) or CNMP (Comprehensive 
Nutrient Management Plan). EPA has evaluated alternative
[[<strong>Page</strong> 3088]]
approaches to ensuring that manure is handled properly, but is not 
proposing to establish specific requirements for offsite recipients. 
The costs to offsite recipients do not include the costs of spreading 
manure at the offsite location or any additional payments made to 
brokers or manure recipients in counties with excess manure. These 
costs are likely to be offset by the fertilizer savings and organic 
value associated with manure. EPA's analysis accounts for the costs 
incurred by the CAFO for offsite transfer of excess manure in the 
estimated industry compliance costs, described in Section X.E.1. These 
costs include the cost of soil and manure sampling at the CAFO site, 
training for manure applicators, application equipment calibration, and 
the hauling cost of excess manure generated by the CAFO.
    Under the proposed regulations, CAFOs would be required to apply 
manure on a phosphorus basis where necessary, based on soil conditions, 
and on a nitrogen basis elsewhere. EPA anticipates that offsite 
recipients of CAFO manure will only accept manure when soil conditions 
allow for application on a nitrogen basis. EPA believes this is a 
reasonable assumption because crop farms are less likely to have a 
phosphorus buildup associated with long term application of manure. 
EPA's analysis assumes a nitrogen-based application rate for offsite 
locations that is identical to the rate used by CAFOs in the same 
geographic region. A summary of the data and methodology used by EPA to 
calculate the number of affected offsite recipients and to estimate 
costs is presented in Section X.C.2(b). EPA solicits comment on the 
costs and assumptions pertaining to offsite recipients.
F. Estimated Economic Impacts of the Proposed Regulatory Options/
Scenarios
    This section provides an overview of EPA's estimated economic 
impacts across four industry segments that are included for this 
analysis: CAFOs (both existing and new sources), non-CAFO recipients of 
manure, processors, and consumer markets. More detailed information on 
each of these analyses is available in the Economic Analysis.
1. CAFO Level Analysis
    This section presents EPA's analysis of financial impacts to both 
existing and new CAFOs that will be affected by the proposed 
regulations, as well as impacts to offsite recipients of CAFO manure 
who will also be required to comply with the proposed PNP requirements.
    a. Economic Impacts to Existing CAFOs under the Proposed 
Regulations. As discussed in Section X.C.1, EPA's CAFO level analysis 
examines compliance cost impacts for a representative ``model CAFO.'' 
EPA evaluates the economic achievability of the proposed regulatory 
options at existing animal feeding operations based on changes in 
representative financial conditions across three criteria. These 
criteria are: a comparison of incremental costs to total revenue (sales 
test), projected post-compliance cash flow over a 10-year period, and 
an assessment of an operation's debt-to-asset ratio under a post-
compliance scenario. To evaluate economic impacts to CAFOs in some 
sectors, impacts are evaluated two ways'assuming that a portion of the 
costs may be passed on from the CAFO to the consumer and assuming that 
no costs passthrough so that all costs are absorbed by the CAFO.
    EPA used the financial criteria to divide the impacts of the 
proposed regulations into three impact categories. The first category 
is the affordable category, which means that the regulations have 
little or no financial impact on CAFO operations. The second category 
is the moderate impact category, which means that the regulations will 
have some financial impact on operations at the affected CAFOs, but EPA 
does not consider these operations to be vulnerable to closure as a 
result of compliance. The third category is the financial stress 
category, which means that EPA considers these operations to be 
vulnerable to closure post-compliance. More information on these 
criteria is provided in Section 4 of the Economic Analysis.
    The basis for EPA's economic achievability criteria for this 
rulemaking is as follows. USDA's financial classification of U.S. farms 
identifies an operation with negative income and a debt-asset ratio in 
excess of 40 percent as ``vulnerable.'' An operation with positive 
income and a debt-asset ratio of less than 40 percent is considered 
``favorable.'' EPA adopted this classification scheme as part of its 
economic achievability criteria, using net cash flow to represent 
income. This threshold and cash flow criterion is established by USDA 
and other land grant universities, as further described in Section 4 of 
the Economic Analysis. The threshold values used for the cost-to-sales 
test (3 percent, 5 percent and 10 percent) are those determined by EPA 
to be appropriate for this rulemaking and are consistent with threshold 
levels used by EPA to measure impacts of regulations for other point 
source dischargers (as also documented in the Economic Analysis).
    For this analysis, EPA's determination of economic achievability 
used all three criteria. EPA considered the proposed regulations to be 
economically achievable for a representative model CAFO if the average 
operation has a post-compliance sales test estimate within an 
acceptable range, positive post-compliance cash flow over a 10-year 
period, and a post-compliance debt-to-asset ratio not exceeding 40 
percent. If the sales test shows that compliance costs are less than 3 
percent of sales, or if post-compliance cash flow is positive and the 
post-compliance debt-to-asset ratio does not exceed 40 percent and 
compliance costs are less than 5 percent of sales, EPA considers the 
options to be ``Affordable'' for the representative CAFO group. A sales 
test of greater than 5 percent but less than 10 percent of sales with 
positive cash flow and a debt-to-asset ratio of less than 40 percent is 
considered indicative of some impact at the CAFO level, but at levels 
not as severe as those indicative of financial distress or 
vulnerability to closure. These impacts are labeled ``Moderate'' for 
the representative CAFO group. EPA considers both the ``Affordable'' 
and ``Moderate'' impact categories to be economically achievable by the 
CAFO.
    If (with a sales test of greater than 3 percent) post-compliance 
cash flow is negative or the post-compliance debt-to-asset ratio 
exceeds 40 percent, or if the sales test shows costs equal to or 
exceeding 10 percent of sales, the proposed regulations are estimated 
to be associated with potential financial stress for the entire 
representative CAFO group. In such cases, each of the operations 
represented by that group may be vulnerable to closure. These impacts 
are labeled as ``Stress.'' EPA considers the ``Stress'' impact category 
to indicate that the proposed requirements may not be economically 
achievable by the CAFO, subject to other considerations.
    Tables 10-6 and 10-7 present the estimated CAFO level impacts in 
terms of the number of operations that fall within the affordable, 
moderate, or stress impact categories for each of the co-proposed 
alternatives by sector and facility size group. For some sectors, 
impacts are shown for both the zero and the partial cost passthrough 
assumptions (discussed more fully below). Partial cost passthrough 
values vary by sector, as described in Section X.D.1.
    EPA's costs model analyzes impacts under two sets of conditions for 
ELG Option 3. Option 3A assumes that there is a hydrologic connection 
from groundwater to surface waters at the
[[<strong>Page</strong> 3089]]
CAFO; Option 3 assumes average costs conditions across all operations--
both operations with and without a hydrologic link. Based on available 
data and information, EPA's analysis assumes 24 percent of the affected 
operations have a hydrologic connection to surface waters. More detail 
on this assumption may be found in the rulemaking record. EPA solicits 
comment on this assumption as part of today's proposed rulemaking.
    Based on results shown in Tables 10-6 and 10-7, EPA proposes that 
the regulatory alternatives are economically achievable for all 
representative model CAFOs in the veal, turkey and egg laying sectors. 
The proposed requirements under the two-tier structure are also 
expected to be economically achievable by all affected heifer 
operations. Furthermore, although operations across most sectors may 
experience moderate impacts, EPA does not expect moderate financial 
impacts to result in closure and considers this level of impact to be 
economically achievable.
    In the beef cattle, heifer, dairy, hog and broiler sectors, 
however, EPA's analysis indicates that the proposed regulations will 
cause some operations to experience financial stress, assuming no cost 
passthrough. These operations may be vulnerable to closure by complying 
with the proposed regulations. Across all sectors, an estimated 1,890 
operations would experience financial stress under the two-tier 
structure and an estimated 2,410 operations would experience stress 
under the three-tier structure. For both tier structures, EPA estimates 
that the percentage of operations that would experience impacts under 
the stress category represent 7 percent of all affected CAFOs or 8 
percent of all affected operations in the sectors where impacts are 
estimated to cause financial stress (cattle, dairy, hog, and broiler 
sectors).
    Tables 10-6 shows results for the two-tier structure at the 500 AU 
threshold. By sector, EPA estimates that 1,420 hog operations (17 
percent of affected hog CAFOs), 320 dairies (9 percent of operations), 
150 broiler operations (2 percent), and 10 beef operations (less than 1 
percent) would experience financial stress. The broiler and hog 
operations with these impacts have more than 1,000 AU on-site (i.e., no 
operations with between 500 and 1,000 AU fall in the stress category). 
The dairy and cattle operations with stress impacts are those that have 
a ground water link to surface water. Although not presented here, the 
results of the two-tier structure at the 750 AU threshold are very 
similar in terms of number of operations affected. The results of this 
analysis are presented in the Economic Analysis.
    Table 10-7 presents results for the three-tier structure, and show 
that 1,420 hog operations (17 percent of affected hog CAFOs under that 
alternative), 610 dairies (9 percent of operations), 330 broiler 
operations (2 percent), and 50 beef and heifer operations (1 percent) 
will be adversely impacted. Hog operations with stress impacts all have 
more than 1,000 AU. Affected broiler facilities include operations with 
more than 1,000 AU, as well as operations with less than 1,000 AU. 
Dairy and cattle operations in the stress category are operations that 
have a hydrologic link from ground water to surface water. Based on 
these results, EPA is proposing that the proposed regulations are 
economically achievable.
    In the hog and broiler sectors, EPA also evaluated financial 
impacts with an assumption of cost passthrough. For the purpose of this 
analysis, EPA assumes that the hog sector could passthrough 46 percent 
of compliance costs and the broiler sector could passthrough 35 percent 
of compliance costs. EPA derived these estimates from price 
elasticities of supply and demand for each sector reported in the 
academic literature. More detailed information is provided in Section 4 
and Appendix C of the Economic Analysis. Assuming these levels of cost 
passthrough in these sectors, the magnitude of the estimated impacts 
decreases to the affordable or moderate impact category. Even in light 
of the uncertainty of cost passthrough (both in terms of whether the 
operations are able to pass cost increases up the marketing chain and 
the amount of any cost passthrough), EPA proposes that the proposed 
regulations will be economically achievable to all hog and broiler 
operations.
    Although EPA's analysis does not consider cost passthrough among 
cattle or dairy operations, EPA does expect that long-run market and 
structural adjustment by producers in this sector will diminish the 
estimated impacts. However, EPA did determine that an evaluation of 
economic impacts to dairy producers would require that EPA assume cost 
passthrough levels in excess of 50 percent before operations in the 
financial stress category would, instead, fall into the affordable or 
moderate impact category. EPA did not conduct a similar evaluation of 
estimated impacts to beef cattle and heifer operations.
    EPA believes that the assumptions of cost passthrough are 
appropriate for the pork and poultry sectors. As discussed in Section 
VI, EPA expects that meat packing plants and slaughtering facilities in 
the pork and poultry industries may be affected by the proposed co-
permitting requirements in today's proposed regulations. Given the 
efficiency of integration and closer producer-processor linkages, the 
processor has an incentive to ensure a continued production by contract 
growers. EPA expects that these operations will be able to pass on a 
portion of all incurred compliance costs and will, thus, more easily 
absorb the costs associated with today's proposed rule. This 
passthrough may be achieved either through higher contract prices or 
through processor-subsidized centralized off-site or on-site waste 
treatment and/or development of marketable uses for manure.
    EPA recognizes, however, that some industry representatives do not 
support assumptions of cost passthrough from contract producers to 
integrators, as also noted by many small entity representatives during 
the SBREFA outreach process as well as by members of the SBAR Panel. 
These commenters have noted that integrators have a bargaining 
advantage in negotiating contracts, which may ultimately allow them to 
force producers to incur all compliance costs as well as allow them to 
pass any additional costs down to growers that may be incurred by the 
processing firm. To examine this issue, EPA conducted an extensive 
review of the agricultural literature on market power in each of the 
livestock and poultry sectors and concluded that there is little 
evidence to suggest that increased production costs would be prevented 
from being passed on through the market levels. This information is 
provided in the rulemaking record. Given the uncertainty of whether 
costs will be passed on, EPA's results are presented assuming some 
degree of cost passthrough and also no cost passthrough (i.e., the 
highest level of impacts projected). EPA requests comment on its cost 
passthrough assumptions. Although EPA does consider the results of both 
of these analyses in making its determination of economic 
achievability, EPA's overall conclusions do not rely on assumptions of 
cost passthrough.
    Finally, EPA believes its estimated impacts may be overstated since 
the analysis does not quantify various cost offsets that are available 
to most operations. One source of potential cost offset is cost share 
and technical assistance available to operators for on-site 
improvements that are available from various state and federal 
programs, such as the Environmental Quality
[[<strong>Page</strong> 3090]]
Incentives Program (EQIP) administered by USDA. Another source of cost 
offset is revenue from manure sales, particularly of relatively higher 
value dry poultry litter. EPA's analysis does not account for these 
possible sources of cost offsets because the amount of cost offset is 
likely variable among facilities, depending on certain site-specific 
conditions. If EPA were to quantify the potential cost offsets as part 
of its analysis, this would further support EPA's proposed 
determination that the proposed requirements are economically 
achievable to affected operations. This analysis and additional 
supporting documentation is provided in Section 6 of the Economic 
Analysis.
    Appendix D of the Economic Analysis provides results of sensitivity 
analyses, conducted by EPA, to examine the impact under differing model 
assumptions. This analysis examines the change in the modeling results 
from varying the baseline assumptions on gross and net cash income, 
debt-to-asset ratios as well as other variability factors for model 
CAFOs. These sensitivity analyses conclude that the results presented 
here are stable across a range of possible modeling assumptions. EPA 
also conducted sensitivity analysis of the compliance costs developed 
for the purpose of estimating CAFO level impacts, as documented in the 
Development Document.
                                 Table 10-6.--Impacted Operations Under the Two-Tier Structure (BAT Option/Scenario 4a)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                   (Number of affected operations)
                                                                           -----------------------------------------------------------------------------
                          Sector                           Number of CAFOs          Zero cost passthrough                 Partial cost passthrough
                                                                           -----------------------------------------------------------------------------
                                                                             Affordable    Moderate      Stress     Affordable    Moderate      Stress
--------------------------------------------------------------------------------------------------------------------------------------------------------
Fed Cattle...............................................            3,080        2,830          240           10           ND           ND           ND
Veal.....................................................               90           90            0            0           ND           ND           ND
Heifer...................................................              800          680          120            0           ND           ND           ND
Dairy....................................................            3,760        3,240          200          320           ND           ND           ND
Hogs: GF \1\.............................................            2,690        1,710          180          810        2,690            0            0
Hogs: FF \1\.............................................            5,860        5,210           30          610        5,860            0            0
Broilers \4\.............................................            9,780        1,960        7,670          150        8,610        1,170            0
Layers--Wet \2\..........................................              360          360            0            0           ND           ND           ND
Layers--Dry \2\..........................................            1,280        1,280            0            0           ND           ND           ND
Turkeys..................................................            1,280        1,230           50            0           ND           ND           ND
                                                          ----------------------------------------------------------------------------------------------
    Total \3\............................................           28,970      18, 580        8,490        1,890       26,840        1,800         330
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: USEPA. See Economic Analysis. Impact estimates shown include impacts to designated operations.
Numbers may not add due to rounding. ND=Not Determined. Option/Scenario definitions provided in Table 10-2.
Category definitions (``Affordable,'' ``Moderate'' and ``Stress'') are provided in Section X.F.1.
\1\ ``Hogs: FF'' are farrow-finish (includes breeder and nursery pigs); ``Hogs: GF'' are grower-finish only.
\2\ ``Layers: wet'' are operations with liquid manure systems; ``Layers: dry'' are operations with dry systems.
\3\ ``Total'' does not adjust for operations with mixed animal types, for comparison purposes, to avoid understating costs at operations with more than
  one animal type that may incur costs to comply with the proposed requirements for each type of animal that is raised on-site.
                                 Table 10-7.--Impacted Operations Under the Three-Tier Structure (BAT Option/Scenario 3)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                   (Number of affected operations)
                                                                           -----------------------------------------------------------------------------
                          Sector                               Number of            Zero cost passthrough                 Partial cost passthrough
                                                                 CAFOs     -----------------------------------------------------------------------------
                                                                             Affordable    Moderate      Stress     Affordable    Moderate      Stress
--------------------------------------------------------------------------------------------------------------------------------------------------------
Fed Cattle................................................           3,210        2,540          650           20           ND           ND           ND
Veal......................................................             140          140            0            0           ND           ND           ND
Heifer....................................................             980          800          150           30           ND           ND           ND
Dairy.....................................................           6,480        5,300          560          610           ND           ND           ND
Hogs: GF \2\..............................................           2,650        1,660          190          810        2,650            0            0
Hogs: FF \1\..............................................           5,710        5,070           30          610        5,710            0            0
Broilers..................................................          13,740        1,850       11,560          330       12,320        1,440            0
Layers--Wet \2\...........................................             360          360            0            0           ND           ND           ND
Layers--Dry \2\...........................................           1,660        1,660            0            0           ND           ND           ND
Turkeys...................................................           2,060        1,950          110            0           ND           ND           ND
                                                           ---------------------------------------------------------------------------------------------
    Total \3\.............................................          37,000       21,300       13,250        2,410       33,410        2,930         660
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: USEPA. See Economic Analysis. Impact estimates shown include impacts to designated operations.
Numbers may not add due to rounding. ND=Not Determined. Option/Scenario definitions provided in Table 10-2.
Category definitions (``Affordable,'' ``Moderate'' and ``Stress'') are provided in Section X.F.1.
\1\ ``Hogs: FF'' are farrow-finish (includes breeder and nursery pigs); ``Hogs: GF'' are grower-finish only.
\2\ ``Layers: wet'' are operations with liquid manure systems; ``Layers: dry'' are operations with dry systems.
\3\ ``Total'' does not adjust for operations with mixed animal types, for comparison purposes, to avoid understating costs at operations with more than
  one animal type that may incur costs to comply with the proposed requirements for each type of animal that is raised on-site.
    b. Economic Impacts to Existing CAFOs under Alternative Regulatory 
Options and Scenarios. Table 10-8 presents estimated financial stress 
impacts to model CAFOs under alternative option and scenario 
combinations, assuming that no costs passthrough. The results shown are 
aggregated and combine impacts in the cattle sector (including all 
beef, veal and heifer operations), hog sector (including all phases of 
production), and poultry
[[<strong>Page</strong> 3091]]
sector (including all broiler, egg laying and turkey operations). 
Results are shown for Scenario 4a (two-tier), Scenario 3 (three-tier), 
and Scenario 4b. Results are shown for technology Options 1 through 5. 
Additional information is available in the Economic Analysis that 
supports today's rulemaking.
    As shown in Table 10-8, the number of potential closures range from 
610 operations (Option 1 in combination with all Scenarios) to more 
than 14,000 potential closures (Option 4/Scenario 4b). Among options, 
the number of possible closures are highest under the more stringent 
options, including Options 3A (i.e., requires groundwater controls at 
operations where there is a determined groundwater hydrologic 
connection to surface waters), Option 4 (groundwater controls and 
surface water sampling), and Option 5 (i.e., zero discharge from the 
animal production area with no exception for storm events). Differences 
across scenarios reflects differences in the number of affected 
operations; accordingly, the number of closures is greatest under 
Scenario 4b that would define as CAFOs all confinement operations with 
more than 300 AU.
                                      Table 10-8.--``Stress'' Impacts at CAFOs Under Alternative Options/Scenarios
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                    (Number of operations)
                                                          Number of ------------------------------------------------------------------------------------
                         Sector                             CAFOs                                         Option 3A
                                                                      Option 1    Option 2    Option 3       \1\      Option 4     Option 5   BAT option
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                         BAT Option/NPDES Scenario 4a (>500 AU)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Cattle.................................................       3,960           0           0           0          10           0           30          10
Dairy..................................................       3,760           0           0           0         320           0            0         320
Hogs...................................................       8,550         610         300         230         310         570        1,420       1,420
Poultry................................................      12,700           0         150         260         100       6,660          150         150
                                                        ------------------------------------------------------------------------------------------------
  Total \2\............................................      28,970         610         450         490         730       7,230        1,590       1,890
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                         BAT Option/NPDES Scenario 4b (>300 AU)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Cattle.................................................       5,330           0           0           0          90          30          180          90
Dairy..................................................       7,140           0           0           0         700           0            0         700
Hogs...................................................      14,370         610         300         230         330         570        1,420       1,420
Poultry................................................      18,300           0         320         470         380      11,030          320         320
                                                        ------------------------------------------------------------------------------------------------
  Total \2\............................................      45,140         610         620         700       1,500      11,630        1,910       2,530
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                BAT Option/NPDES Scenario 3 (>300 AU with certification)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Cattle.................................................       4,330           0           0           0          50           0          100          50
Dairy..................................................       6,480           0           0           0         610           0            0         610
Hogs...................................................       8,360         610         300         230         320         570        1,420       1,420
Poultry................................................      17,830           0         330         470         370      10,740          330         330
  Total \2\............................................      37,000         610         630         700       1,350      11,310        1,850      2,410
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: USEPA. See Economic Analysis. Impact estimates shown include impacts to designated operations.
Numbers may not add due to rounding. ND = Not Determined. Option/Scenario definitions provided in Table 10-2.
\1\ Option 3A impacts reflect operations where there is a determined groundwater hydrologic connection to surface waters (assumed at 24 percent of the
  affected operations).
\2\ ``Total'' does not adjust for operations with mixed animal types, for comparison purposes, to avoid understating costs at operations with more than
  one animal type that may incur costs to comply with the proposed requirements for each type of animal that is raised on-site. The number of CAFOs
  shown includes expected defined CAFOs only and excludes designated facilities.
    c. Economic Analysis of New CAFOs from NSPS under the Proposed 
Regulations. For new sources, EPA is proposing that operations meet 
performance standards, as specified by the BAT requirements (Option 3 
NSPS, beef and dairy subcategories, and Option 5 NSPS, swine and 
poultry subcategories), with the additional requirement that all new 
hog and poultry operations also implement groundwater controls where 
there is a hydrologic link to surface water (Option 3 NSPS, swine and 
poultry subcategories). Additional information on new source 
requirements is provided in Section VIII of this document.
    In general, EPA believes that new CAFOs will be able to comply at 
costs that are similar to, or less than, the costs for existing 
sources, because new sources can apply control technologies more 
efficiently than sources that need to retrofit for those technologies. 
New sources will be able to avoid these costs that will be incurred by 
existing sources. Furthermore, EPA believes that new sources can avoid 
the costs associated with ground water protection through careful site 
selection. There is nothing about today's proposal that would give 
existing operators a cost advantage over new feedlot operators; 
therefore, new source standards are not expected to present a barrier 
to entry for new facilities.
    EPA's analysis of the NSPS costs indicate that requiring Option 3 
for new sources in the beef and dairy subcategories and both Option 3 
NSPS and Option 5 NSPS for the swine and poultry subcategories 
(``Option 5+3 NSPS'') would be affordable and would not create any 
barriers to entry into those sectors. The basis for this determination 
is as follows. Option 5+3 NSPS is considered equivalent to Option 5 for 
new sources in terms of cost. EPA is proposing that Option 3 NSPS for 
beef and dairy subcategories and Option 5 NSPS for swine and poultry 
subcategories is economically achievable for existing sources. Since 
the estimated costs for these options are the same as or less expensive 
than costs for these same options for existing sources, no barriers to 
entry are created.
    Under Option 5+3 NSPS, costs for new sources in the swine and 
poultry subcategories would be the same as or
[[<strong>Page</strong> 3092]]
less than those for equivalent existing sources (BAT under Option 5), 
as long as new sources are not sited in areas where there is a 
hydrologic link to surface water. New operations are not expected to 
incur costs estimated under Option 3A, which includes groundwater 
controls, since they are not likely to establish a new operation where 
there is a hydrologic link to surface waters (and where operating 
expenses would be more costly). Thus EPA assumes that the costs for 
Option 5+3 NSPS are the same as those for Option 5 NSPS, which in turn 
are the same as those for Option 5 BAT. EPA is proposing that Option 5 
BAT is economically achievable for existing sources in the swine and 
poultry subcategories and therefore this same option should be 
affordable to new sources. Furthermore, because costs to new sources 
for meeting Option 5 NSPS are no more expensive than the costs for 
existing sources to meet Option 5 BAT, there should be no barriers to 
entry.
    The estimated costs of Option 3 NSPS for the beef and dairy 
subcategories are the same as or less than the costs for Option 3 BAT, 
which includes retrofitting costs. EPA is proposing that Option 3 BAT 
is economically achievable for existing sources in these sectors. Since 
Option 3 NSPS is no more expensive than Option 3 BAT, this option 
should also be economically achievable for new sources and should not 
create any barriers to entry. In fact, new sources may be able to avoid 
the cost of implementing groundwater controls through careful site 
selection, thus their costs may be substantially lower than similar 
existing sources.
    EPA did not consider an option similar to Option 5+3 NSPS for the 
beef and dairy subcategories (Option 8 NSPS), but found this option to 
be substantially more expensive than Option 3 BAT for the dairy sector 
and could create barriers to entry for this sector. Therefore, EPA 
rejected this option. See Section 5 of the Economic Analysis for more 
details on these analyses.
    d. Economic Impacts to Offsite Recipients of CAFO Manure of the 
Proposed Regulations. As discussed in Section X.D.1, EPA assesses the 
economic impact to offsite recipients of CAFO manure by comparing the 
estimated cost of this requirement to both aggregate and average per-
farm production costs and revenues. For the purpose of this analysis, 
EPA assumes that these regulatory costs will be borne by a non-CAFO 
farming operation that uses animal manures as a fertilizer substitute.
    EPA estimates that 17,900 to 21,200 farming operations will incur 
$9.6 million to $11.3 million in costs associated with requirements for 
the offsite transfer of CAFO manure (Tables 10-3 and Table 10-4). This 
translates to an average cost of roughly $540 per recipient. As 
reported by USDA, farm production expenses in 1997 totaled $150.6 
billion nationwide. Revenue from farm sales totaled $196.9 billion. 
Averaged across the total number of farms, average per-farm costs and 
revenues were $78,800 and $113,000 in 1997, respectively. Using these 
data, the ratio of incremental costs to offsite recipients as a share 
of average operating expenses and average farm revenue is well under 
one percent. Total estimated compliance costs ($9.6 million to $11.3 
million annually) as a share of aggregate farm expenses and sales is 
also under one percent. This analysis is provided in Section 5 of the 
Economic Analysis.
2. Processor Level Analysis
    As discussed in Section X.D.2, EPA did not conduct a detailed 
estimate of the costs and impacts that would accrue to individual co-
permittees due to lack of data and market information. However, EPA 
believes that the framework used to estimate costs to CAFO provides a 
means to evaluate the possible upper bound of costs that could accrue 
to potential co-permittees, based on the potential share of (pre-tax) 
costs that may be passed on from the CAFO (described in Section X.D.2). 
EPA is proposing that this amount approximates the magnitude of the 
costs that may be incurred by processing firms in those industries that 
may be affected by the proposed co-permitting requirements.
    Table 10-9 presents the results of EPA's analysis. This analysis 
focuses on the potential magnitude of costs to co-permittees in the 
pork and poultry sectors only since these are the sectors where the 
proposed co-permitting requirements could affect processing facilities. 
However, EPA did not evaluate the potential magnitude of costs to egg 
and turkey processors because the compliance costs to CAFOs in these 
industries is projected to be easily absorbed by CAFOs (see Section 
X.F.1). The results presented in Table 10-9 are for the pork and 
broiler industries only. EPA also did not evaluate the potential costs 
to cattle and dairy processors because EPA does not expect that the 
proposed co-permitting requirements to affect meat packing and 
processing facilities in these industries, for reasons outlined in 
Section VI.
    The potential magnitude of costs to co-permittees is derived from 
the amount of cost passthrough assumed in the CAFO level analysis, 
described in Section X.F.1. For this analysis, two scenarios of cost 
passthrough to processors are evaluated: partial cost passthrough 
(greater than zero) and also 100 percent cost passthrough. EPA's 
partial cost passthrough scenario assumes that 46 percent of all hog 
compliance costs and that 35 percent of all broiler compliance costs 
are passed on to the food processing sectors. Based on the results of 
this analysis, EPA estimates that the range of potential annual costs 
to hog processors is $135 million (partial cost passthrough) to $306 
million (full cost passthrough). EPA estimates that the range of 
potential annual costs to broiler processors as $34 million (partial 
cost passthrough) to $117 million (full cost passthrough). These 
results are shown in Table 10-9 and are expressed in 1999 pre-tax 
dollars.
    To assess the magnitude of impacts that could accrue to processors 
using this approach, EPA compares the passed through compliance costs 
to both aggregate processor costs of production and to revenues (a 
sales test). The results of this analysis are shown in Table 10-9 and 
are presented in terms of the equivalent 1997 compliance cost as 
compared to 1997 data from the Department of Commerce on the revenue 
and costs among processors in the hog and broiler industries. As shown, 
EPA estimates that, even under full cost passthrough, incremental cost 
changes are less than two percent and passed through compliance costs 
as a share of revenue are estimated at less than one percent. EPA 
solicits comment on this approach. Additional information is provided 
in the Economic Analysis.
[[<strong>Page</strong> 3093]]
                                  Table 10-9.--Impact of Passed Through Compliance Costs Under Co-proposed Alternatives
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                       Passed through                                 1997 Passed through cost-  Passed through cost-to-
                                                       compliance cost          1997         1997            to-revenues             delivered cost
                     Sector                      --------------------------   revenues    delivered  ---------------------------------------------------
                                                  Partial CPT    100% CPT                    cost     Partial CPT    100% CPT   Partial CPT    100% CPT
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                       ($1999, million)
                                                       ($1997, million)
                                                          (percent, comparing costs in $1997)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                     Hog Processors
--------------------------------------------------------------------------------------------------------------------------------------------------------
Two-Tier........................................          135          294       38,500       15,700         0.3%         0.7%         0.8%         1.8%
Three-Tier......................................          141          306  ...........  ...........         0.4%         0.8%         0.9%         1.9%
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                 Broiler Meat Processors
--------------------------------------------------------------------------------------------------------------------------------------------------------
Two-Tier........................................           34           97       17,700        9,100         0.2%         0.5%         0.4%         1.0%
Three-Tier......................................           41          117  ...........  ...........         0.2%         0.6%         0.4%        1.2%
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: USEPA. 1997 processor revenues and costs are from the Department of Commerce. Option/Scenario definitions provided in Table 10-2. Estimated
  compliance costs are pre-tax. CPT = Cost passthrough. Partial CPT assumes 46% CPT for the hog sector and 35% CPT for the broiler sector.
3. Market Level Analysis
    As discussed in Section X.D.3, EPA's market analysis evaluates the 
effects of the proposed regulations on commodity prices and quantities 
at the national level. EPA's market model predicts that the proposed 
regulations will not result in significant industry-level changes in 
production and prices for most sectors. Tables 10-10 and 10-11 show 
predicted farm and retail price changes across the two-tier (500 AU 
threshold) and three-tier structures. For comparison purposes, the 
average annual percentage change in price from 1990 to 1998 is shown. 
Analyses of other technology options and scenarios considered by EPA 
are provided in the record.
    EPA expects that predicted changes in animal production may raise 
producer prices, as the market adjusts to the proposed regulatory 
requirements. For most sectors, EPA estimates that producer price 
changes will rise by less than one percent of the pre-regulation 
baseline price (Table 10-10). The exception is in the hog sector, where 
estimated compliance costs slightly exceed one percent of the baseline 
price. At the retail level, EPA expects that the proposed regulations 
will not have a substantial impact on overall production or consumer 
prices for value-added meat, eggs, and fluid milk and dairy products. 
EPA estimates that retail price increases resulting from the proposed 
regulations will be under one percent of baseline prices in all 
sectors, averaging below the rate of general price inflation for all 
foods (Table 10-11). In terms of retail level price changes, EPA 
estimates that poultry and red meat prices will rise about one cent per 
pound. EPA also estimates that egg prices will rise by about one cent 
per dozen and that milk prices will rise by about one cent per gallon.
    Appendix D of the Economic Analysis provides results of sensitivity 
analyses, conducted by EPA, to examine the impact under differing model 
assumptions. EPA examined variations in the price elasticities and 
prices assumed for these industries, based on information reported in 
the agricultural literature and statistical compendiums. These 
sensitivity analyses demonstrate that the results presented here are 
stable across a range of possible modeling assumptions.
                                   Table 10-10.--Estimated Increases in Farm Prices Under the Co-proposed Alternatives
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                             Broilers     Layers  (cents/ Turkeys (cents/
                     Option/Scenario                       Beef  ($/cwt)  Dairy  ($/cwt)   Hogs  ($/cwt)    (cents/lb)         doz.)            lb)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Pre-reg. Avg Price......................................          $68.65          $13.90          $56.41           38.43           72.51           41.66
Avg. Chg 90-98..........................................            4.6%            8.0%           15.2%            5.7%           11.5%            4.4%
Two-Tier................................................            0.22            0.06            0.61            0.19            0.14            0.13
Three-Tier..............................................            0.24            0.08            0.66            0.23            0.15           0.16
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: USEPA, except historical data that are from USDA. Option/Scenario definitions provided in Table 10-2.
                                  Table 10-11.--Estimated Increases in Retail Prices Under the Co-proposed Alternatives
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                             Broilers     Layers  (cents/     Turkeys
                     Option/Scenario                       Beef  ($/lb)   Dairy  (Index)   Hogs  ($/lb)     (cents/lb)         doz.)        (cents/lb)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Pre-reg. Avg Price......................................           $2.91          145.50           $2.55          156.86          110.11          109.18
Avg. Chg 90-98 (%)......................................            2.3%            2.4%            5.1%            3.0%            7.2%            2.4%
Two-Tier................................................            0.00            0.61            0.01            0.19            0.14            0.13
Three-Tier..............................................            0.00            0.78            0.01            0.23            0.15           0.16
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: USEPA, except historical data that are from USDA. Option/Scenario definitions provided in Table 10-2.
    EPA does not expect that the proposed regulations will result in 
significant changes in aggregate employment or national economic 
output, measured in terms of Gross Domestic Product (GDP). EPA expects, 
however, that there will be losses in employment and economic output 
associated with decreases in animal production due to rising compliance 
costs. These losses are estimated throughout the entire economy, using
[[<strong>Page</strong> 3094]]
available modeling approaches, and are not attributable to the 
regulated community only. This analysis also does not adjust for 
offsetting increases in other parts of the economy and other sector 
employment that may be stimulated as a result of the proposed 
regulations, such as the construction and farm services sectors.
    Table 10-12 show these predicted changes. Employment losses are 
measured in full-time equivalents (FTEs) per year, including both 
direct and indirect employment. Under the two-tier structure (500 AU 
threshold), EPA estimates that the reduction in aggregate national 
level of employment is 16,600 FTEs. Under the three-tier structure, EPA 
estimates total aggregate job losses at 18,900 FTEs. This projected 
change is modest when compared to total national employment, estimated 
at about 129.6 million jobs in 1997. EPA's estimate of the aggregate 
reductions in national economic output is $1.7 billion under the two-
tier structure. Under the three-tier structure, EPA estimates the loss 
to GDP at $1.9 billion. This projected change is also modest when 
compared to total GDP, estimated at $8.3 trillion in 1997. Additional 
information is available in the Economic Analysis.
                       Table 10-12.--Estimated Decreases in Employment and Economic Output
----------------------------------------------------------------------------------------------------------------
                Option/ Scenario                     Beef        Dairy         Hogs       Poultry       Total
----------------------------------------------------------------------------------------------------------------
                               Estimated Decreases in Employment (Number of FTEs)
----------------------------------------------------------------------------------------------------------------
Two-Tier.......................................        4,600        3,200        6,400        2,400       16,600
Three-Tier.....................................        4,900        4,100        6,900        3,000       18,900
----------------------------------------------------------------------------------------------------------------
                                  Estimated Decreases in Economic Output ($GDP)
----------------------------------------------------------------------------------------------------------------
Two-Tier.......................................         $476         $307         $681         $251       $1,715
Three-Tier.....................................         $510         $396         $734         $306      $1,946
----------------------------------------------------------------------------------------------------------------
Source: USEPA. Option/Scenario definitions provided in Table 10-2. FTE = Full-time equivalent.
G. Additional Impacts
1. Costs to the NPDES Permitting Authority
    Additional costs will be incurred by the NPDES permitting authority 
to alter existing state programs and obtain EPA approval to develop new 
permits, review new permit applications and issue revised permits that 
meet the proposed regulatory requirements. Under the proposed rule, 
NPDES permitting authorities will incur administration costs related to 
the development, issuance, and tracking of general or individual 
permits.
    State and federal administrative costs to issue a general permit 
include costs for permit development, public notice and response to 
comments, and public hearings. States and EPA may also incur costs each 
time a facility operator applies for coverage under a general permit 
due to the expenses associated with a Notice of Intent (NOI). These 
per-facility administrative costs include initial facility inspections 
and annual record keeping expenses associated with tracking NOIs. 
Administrative costs for an individual permit include application 
review by a permit writer, public notice, and response to comments. An 
initial facility inspection may also be necessary. EPA developed its 
unit permit costs assumed for this analysis based on information 
obtained from a state permitting personnel. The cost assumptions used 
to estimate develop, review, and approve permits and inspect facilities 
are presented in the Development Document.
    EPA assumes that, under the two-tier structure, an estimated 25,590 
CAFOs would be permitted. This estimate consists of 24,760 State 
permits (17,340 General and 7,420 Individual permits) and 1,030 Federal 
permits (720 General and 310 Individual permits). Under the three-tier 
structure, an estimated 31,930 CAFOs would be permitted, consisting of 
30,650 State permits (21,460 General and 9,190 Individual permits) and 
1,280 Federal permits (900 General and 380 Individual permits). 
Information on the estimated number of permits required under other 
regulatory alternatives is provided in the Economic Analysis. The basis 
for these estimates is described in the Development Document that 
supports this rulemaking.
    As shown in Table 10-13, under the two-tier structure, EPA 
estimates State and Federal administrative costs to implement the 
permit program to be $6.2 million per year: $5.9 million for states and 
$350,000 for EPA. Under the three-tier structure, EPA estimates State 
and Federal administrative costs to implement the permit program to be 
$7.7 million per year: $7.3 million for states and $416,000 for EPA. 
EPA expects that the bulk (95 percent) of estimated administrative 
costs will be incurred by the state permitting authority. EPA has 
expressed these costs in 1999 dollars, annualized over the 5-year 
permit life using a seven percent discount rate. The range of costs 
across each of the regulatory options is $4.2 million to $9.1 million 
annually (alternatives Scenario 1 and Scenario 4b, respectively). See 
Table 10-13. (EPA did not estimate permit authority costs under 
alternative NPDES Scenarios 5 and 6, described in Table 10-2.) This 
analysis is available in the record and is summarized in Section 10 of 
the Economic Analysis.
    This analysis was conducted to evaluate the costs of the proposed 
rule to governments, as required under the Unfunded Mandates Reform Act 
(UMRA), as discussed in Section XIII.C of this preamble.
                       Table 10-13.--Annual State and Federal Administrative Costs, $1999
----------------------------------------------------------------------------------------------------------------
                       Regulatory scenario                             State          Federal          Total
----------------------------------------------------------------------------------------------------------------
Scenario 1......................................................       3,922,990         268,630       4,191,620
Scenario 2......................................................       7,233,470         413,060       7,646,530
Scenario 3 (``Three-tier'').....................................       7,279,560         415,600       7,695,160
Scenario 4a (``Two-tier'')......................................       5,910,750         351,090       6,224,040
[[<strong>Page</strong> 3095]]
Scenario 4b.....................................................       8,645,520         483,010      9,128,530
----------------------------------------------------------------------------------------------------------------
Source: USEPA. See Economic Analysis. Other supporting documentation is in the Development Document.
2. Community Impacts
    As discussed in Section X.F.3, EPA does not expect that the 
proposed regulations will result in significant increases in retail 
food prices or reductions in national level employment.
    EPA also considered other community level impacts associated with 
this rulemaking. In particular, EPA considered whether the proposed 
rule could have community level and/or regional impacts if it 
substantially altered the competitive position of livestock and poultry 
production across the nation, or led to growth or reductions in farm 
production (in- or out-migration) in different regions and communities. 
Ongoing structural and technological change in these industries has 
influenced where farmers operate and has contributed to locational 
shifts between the more traditional production regions and the more 
emergent, nontraditional regions. Production is growing rapidly in 
these regions due to competitive pressures from more specialized 
producers who face lower per-unit costs of production. This is 
especially true in hog and dairy production.
    To evaluate the potential for differential impacts among farm 
production regions, EPA examined employment impacts by region. EPA 
concluded from this analysis that more traditional agricultural regions 
would not be disproportionately affected by the proposed regulations. 
This analysis is provided in the Economic Analysis.
    EPA does not expect that today's proposed requirements will have a 
significant impact on where animals are raised. On one hand, on-site 
improvements in waste management and disposal, as required by the 
proposed regulations, could accelerate recent shifts in production to 
more nontraditional regions as higher cost producers in some regions 
exit the market to avoid relatively higher retrofitting associated with 
bringing existing facilities into compliance. On the other hand, the 
proposed regulations may favor more traditional production systems 
where operators grow both livestock and crops, since these operations 
tend to have available cropland for land application of manure 
nutrients. These types of operations tend to be more diverse and not as 
specialized and, generally, tend to be smaller in size. Long-standing 
farm services and input supply industries in these areas could likewise 
benefit from the proposed rule, given the need to support on-site 
improvements in manure management and disposal. Local and regional 
governments, as well as other non-agricultural enterprises, would also 
benefit.
3. Foreign Trade Impacts
    Foreign trade impacts are difficult to predict, since agricultural 
exports are determined by economic conditions in foreign markets and 
changes in the international exchange rate for the U.S. dollar. 
However, EPA predicts that foreign trade impacts as a result of the 
proposed regulations will be minor given the relatively small projected 
changes in overall supply and demand for these products and the slight 
increase in market prices, as described in Section X.F.3.
    Despite its position as one of the largest agricultural producers 
in the world, historically the U.S. has not been a major player in 
world markets for red meat (beef and pork) or dairy products. In fact, 
until recently, the U.S. was a net importer of these products. The 
presence of a large domestic market for value-added meat and dairy 
products has limited U.S. reliance on developing export markets for its 
products. As the U.S. has taken steps to expand export markets for red 
meat and dairy products, one major obstacle has been that it remains a 
relatively high cost producer of these products compared to other net 
exporters, such as New Zealand, Australia, and Latin America, as well 
as other more established and government-subsidized exporting 
countries, including the European Union and Canada. Increasingly, 
however, continued efficiency gains and low-cost feed is making the 
U.S. more competitive in world markets for these products, particularly 
for red meat. While today's proposed regulations may raise production 
costs and potentially reduce production quantities that would otherwise 
be available for export, EPA believes that any quantity and price 
changes resulting from the proposed requirements will not significantly 
alter the competitiveness of U.S. export markets for red meat or dairy 
foods.
    In contrast, U.S. poultry products account for a controlling share 
of world trade and exports account for a sizable and growing share of 
annual U.S. production. Given the established presence of the U.S. in 
world poultry markets and the relative strength in export demand for 
these products, EPA does not expect that the predicted quantity and 
price changes resulting from today's proposed regulations will have a 
significant impact on the competitiveness of U.S. poultry exports.
    As part of its market analysis, EPA evaluated the potential for 
changes in traded volumes, such as increases in imports and decreases 
in exports, and concluded that volume trade will not be significantly 
impacts by today's proposed regulations. EPA estimates that imports 
(exports) will increase (decrease) by less than 1 percent compared to 
baseline (pre-regulation) levels in each of the commodity sectors. By 
sector, the potential change in imports compared to baseline trade 
levels ranges from a 0.02 percent increase in broiler imports to a 0.34 
percent increase in dairy product imports. The predicted drop in U.S. 
exports ranges from a 0.01 percent reduction in turkey exports to a 
0.25 percent reduction in hog exports.
H. Cost-Effectiveness Analysis
    As part of the process of developing effluent limitations 
guidelines and standards, EPA typically conducts a cost-effectiveness 
analysis to compare the efficiencies of regulatory options for removing 
pollutants and to compare the proposed BAT option to other regulatory 
alternatives that were considered by EPA. For the purpose of this 
regulatory analysis, EPA defines cost-effectiveness as the incremental 
annualized cost of a technology option per incremental pound of 
pollutant removed annually by that option. The analyses presented in 
this section include a standard cost-effectiveness (C-E) analysis for 
toxic pollutants, but also expand upon EPA's more traditional approach 
to include an analysis of the cost-effectiveness of removing nutrients 
and sediments. This expanded approach is more appropriate for 
evaluating the broad range of pollutants in animal manure and 
wastewater.
[[<strong>Page</strong> 3096]]
    The American Society of Agricultural Engineers (ASAE) reports that 
the constituents present in livestock and poultry manure include: 
boron, cadmium, calcium, chlorine, copper, iron, lead, magnesium, 
manganese, molybdenum, nickel, potassium, sodium, sulfur, zinc, 
nitrogen and phosphorus species, total suspended solids, and pathogens. 
Of these pollutants, EPA's standard C-E analysis is suitable to analyze 
only the removal of metals and metallic compounds. EPA's standard C-E 
analysis does not adequately address removals of nutrients, total 
suspended solids, and pathogens. To account for the estimated removals 
of nutrients and sediments under the proposed regulations in the 
analysis, the Agency has developed an alternative approach to evaluate 
the pollutant removal effectiveness relative to cost. At this time, EPA 
has not developed an approach that would allow a similar assessment of 
pathogen removals. Section 10 of the Economic Analysis describes the 
methodology, data, and results of this analysis. (EPA did not estimate 
cost-effectiveness for the alternative NPDES Scenarios 5 and 6, 
described in Table 10-2.)
    For this analysis, EPA has estimated the expected reduction of 
select pollutants for each of the regulatory options considered. These 
estimates measure the amount of nutrients, sediments, metals and 
metallic compounds that originate from animal production areas that 
would be removed under a post-regulation scenario (as compared to a 
baseline scenario) and not reach U.S. waters. Additional information on 
EPA's estimated loadings and removals under post-compliance conditions 
is provided in the Development Document and the Benefits Analysis that 
support today's rulemaking.
1. Cost-Effectiveness: Priority Pollutants
    For this rulemaking, EPA identified a subset of metallic compounds 
for use in the C-E
    For this rulemaking, EPA identified a subset of metallic compounds 
for use in the C-E analysis: zinc, copper cadmium, nickel, arsenic, and 
lead. These six compounds are a subset of all the toxic compounds 
reported to be present in farm animal manure (varies by animal 
species). Therefore, if loading reductions of all priority pollutants 
in manure were evaluated, the proposed regulations would likely be even 
more cost-effective (i.e., lower cost per pound-equivalent removal).
    EPA calculates cost-effectiveness as the incremental annual cost of 
a pollution control option per incremental pollutant removal. In C-E 
analyses, EPA measures pollutant removals in toxicity normalized units 
called ``pounds-equivalent,'' where the pounds-equivalent removed for a 
particular pollutant is determined by multiplying the number of pounds 
of a pollutant removed by each option by a toxicity weighting factor. 
The toxic weighting factors account for the differences in toxicity 
among pollutants and are derived using ambient water quality criteria. 
The cost-effectiveness value, therefore, represents the unit cost of 
removing an additional pound-equivalent of pollutants. EPA calculates 
the cost-effectiveness of a regulatory option as the ratio of pre-tax 
annualized costs of an option to the annual pounds-equivalent removed 
by that option, expressed as the average or incremental cost-
effectiveness for that option. EPA typically presents C-E results in 
1981 dollars for comparison purposes with other regulations. EPA uses 
these estimated compliance costs to calculate the cost-effectiveness of 
the proposed regulations, which include total estimated costs to CAFOs 
and offsite recipients of CAFO manure (Section X.E) and costs to the 
permitting authority (Section X.G.1). Additional detail on this 
approach is provided in Appendix E of the Economic Analysis.
    Cost-effectiveness results for select regulatory alternatives are 
presented in Table 10-14. Results shown in Table 10-14 include the BAT 
Option (Option 3 for beef and dairy subcategories and Option 5 for the 
swine and poultry subcategories) and Option 3+5 (both Option 3 and 5 
for all subcategories). Options are shown for four CAFO coverage 
scenarios, including CAFOs with more than 1,000 AU and CAFOs with more 
than 500 AU (two-tier structure), and operations with more than 300 AU, 
both under Scenario 4b and as defined under Scenario 3 (three-tier 
structure). The differences in CAFO coverage provide an upper and lower 
bound of the analysis to roughly depict the alternative NPDES 
scenarios. Both incremental and average C-E values are shown.
    Incremental cost-effectiveness is the appropriate measure for 
comparing one regulatory alternative to another for the same 
subcategory. In general, the lower the incremental C-E value, the more 
cost-efficient the regulatory option is in removing pollutants, taking 
into account their toxicity. For this rulemaking, EPA compares the 
cost-effectiveness across alternative NPDES Scenarios to assess the 
Agency's decision to define as CAFO operations with more than 500 AU 
(two-tier structure) and, alternatively, some operations with more than 
300 AU (two-tier structure).
    As shown in Table 10-14, the BAT Option is the most cost-efficient 
under each of the co-proposed alternatives. Under both the two-tier 
(500 AU) and three-tier structures, EPA estimates an incremental cost-
effectiveness value of about $30 per pounds-equivalent (lbs.-eq.) 
removed. This compares to the alternative Scenario 4b that have a 
higher estimated incremental cost-effectiveness ($76/lbs.-eq., if all 
CAFOs with more than 1,000 AU are regulated). (Since the change in 
removals between Scenario 3 and Scenario 4b is zero, the incremental C-
E value is ``undefined.'') The BAT Option is also more efficient than 
requiring Option 3+5 for all subcategories, which has higher costs but 
results in no additional pollutant removals compared to the BAT Option. 
This is because the ELG options differ mostly in terms of their 
monitoring and sampling requirements but establish no additional 
pollutant controls. (Since the change in removals between the BAT 
Option and Option 3+5 is zero, the incremental C-E value is undefined.)
    The average cost-effectiveness reflects the ``increment'' between 
no regulation and regulatory options shown. For the BAT Option, EPA 
estimates an average value at $55 per lbs.-eq. to $58 per lbs.-eq., 
depending on the proposed tier structure (Table 10-14). These estimated 
average values are low compared to the alternative NPDES scenarios 
since the average cost-effectiveness value is higher ($76/lbs.-eq., if 
all CAFOs with more than 1,000 AU are regulated; $62/lbs.-eq. for all 
CAFOs with more than 300 AU). This average cost is also low compared to 
previous ELG rulemakings, where estimated costs have, in some cases, 
exceeded $100/lbs.-eq. removed. This information is provided in the 
Economic Analysis. In addition, as shown in Table 10-14, average cost-
effectiveness is nearly twice as high under the more stringent Option 
3+5 for all subcategories (estimated at more than $100 per lbs.-eq. 
removed). Costs, but also removals, are lower under the less stringent 
Option 1 (also referred to as the ``nitrogen-based'' option) compared 
to other technology options. As described in Section VIII, EPA 
determined that this option would not represent the best available 
technology and so chose not to propose it. This analysis, along with 
additional results for each subcategory and other regulatory 
alternatives, is provided in Appendix E on the Economic Analysis.
[[<strong>Page</strong> 3097]]
                   Table 10-14.--Cost-Effectiveness Results by Select Option/Scenario ($1981)
----------------------------------------------------------------------------------------------------------------
                                                     Total annual
                                         ------------------------------------
                 Option                        Pound-                           Average cost-   Incremental cost-
                                             equivalents     Total cost \2\     effectiveness     effectiveness
                                             removed \1\
----------------------------------------------------------------------------------------------------------------
                                          (million pounds)    ($ millions)                ($/lbs.-eq.)
----------------------------------------------------------------------------------------------------------------
                         ``BAT Option'' ELG Option 3 (Beef/Dairy) and 5 (Swine/Poultry)
----------------------------------------------------------------------------------------------------------------
>1000 AU................................               5.3               402                76                76
>500 AU ``Two-tier''....................               8.4               491                58                29
Scenario 3 ``Three-tier''...............               9.4               518                55                28
>300 AU.................................               9.4               579                62                ND
----------------------------------------------------------------------------------------------------------------
                                       ELG Option 3+5 (All Subcategories)
----------------------------------------------------------------------------------------------------------------
>1000 AU................................               5.3             1,047               197               197
>500 AU ``Two-tier''....................               8.4             1,212               144                53
Scenario 3 ``Three-tier''...............               9.4             1,251               133                40
>300 AU.................................               9.4             1,353               144               ND
----------------------------------------------------------------------------------------------------------------
 Source: USEPA. See Economic Analysis. Option/Scenario definitions provided in Table 10-2. ND=Not Determined.
\1\ Pound-equivalent removals are calculated from removals estimated by EPA's loadings analysis, described in
  the Benefits Analysis and the Development Document, adjusting for each pollutants toxic weighting factor (as
  described in the Economic Analysis).
\1\ Costs are pre-tax and indexed to 1981 dollars using the Construction Cost Index.
2. Cost-Effectiveness: Nutrients and Sediments
    In addition to conducting a standard C-E analysis for select toxic 
pollutants (Section X.H.1), EPA also evaluated the cost-effectiveness 
of removing select non-conventional and conventional pollutants, 
including nitrogen, phosphorus, and sediments. For this analysis, 
sediments are used as a proxy for total suspended solids (TSS). This 
analysis does not follow the methodological approach of a standard C-E 
analysis. Instead, this analysis compares the estimated compliance cost 
per pound of pollutant removed to a recognized benchmark, such as EPA's 
benchmark for conventional pollutants or other criteria for existing 
treatment, as reported in available cost-effectiveness studies.
    The research in this area has mostly been conducted at municipal 
facilities, including publicly owned treatment works (POTWs) and 
wastewater treatment plants (WWTPs). Additional information is 
available based on the effectiveness of various nonpoint source 
controls and BMPs (Best Management Practices) and other pollutant 
control technologies that are commonly used to control runoff from 
agricultural lands. A summary of this literature is provided in the 
Economic Analysis. Benchmark estimates are used to evaluate the 
efficiency of regulatory options in removing a range of pollutants and 
to compare the results for each of the co-proposed tier structures to 
other regulatory alternatives. This approach also allows for an 
assessment of the types of management practices that will be 
implemented to comply with the proposed regulations.
    Cost-effectiveness results for select regulatory alternatives are 
presented in Table 10-15. Results shown in Table 10-15 include the BAT 
Option (Option 3 for beef and dairy subcategories and Option 5 for the 
swine and poultry subcategories) and Option 3+5 (both Option 3 and 5 
for all subcategories). Options are shown for four CAFO coverage 
scenarios, including CAFOs with more than 1,000 AU and CAFOs with more 
than 500 AU (two-tier structure), and operations with more than 300 AU, 
both under Scenario 4b and as defined under Scenario 3 (three-tier 
structure). The differences in CAFO coverage provide an upper and lower 
bound of the analysis to roughly depict the alternative NPDES 
scenarios.
    The values in Table 10-15 are average cost-effectiveness values 
that reflect the increment between no regulation and the considered 
regulatory options. All costs are expressed in pre-tax 1999 dollars. 
Estimated compliance costs used to calculate the cost-effectiveness of 
the proposed regulations include total estimated costs to CAFOs and 
offsite recipients of CAFO manure (Section X.E) and costs to the 
permitting authority (Section X.G.1).
    Under the co-proposed tier structures, EPA estimates an average 
cost-effectiveness of nutrient removal at $4.60 per pound (two-tier) to 
$4.30 per pound (three-tier) of nitrogen removed. For phosphorus 
removal, removal costs are estimated at $2.10 to $2.20 per pound of 
phosphorus removed (Table 10-15). For nitrogen, EPA uses a cost-
effectiveness benchmark established by EPA's Chesapeake Bay Program to 
assess the costs to WWTPs to implement BNR (biological nutrient 
removal) retrofits. EPA's average benchmark estimate is about $4 per 
pound of nitrogen removed at WWTPs in four states (MD, VA, PA, and NY), 
based on a range of costs of $0.80 to $5.90 per pound of nitrogen 
removed. Using this benchmark, EPA's estimated cost-effectiveness to 
remove nitrogen under the proposed regulations exceed EPA's average 
benchmark value, but falls within the estimated range of removal costs. 
However, EPA's estimated cost-effectiveness to remove phosphorus is 
lower than benchmark used for phosphorus of roughly $10 per pound, 
reported in the agricultural research as the costs to remove phosphorus 
using various nonpoint source controls and management practices. 
Available data on phosphorus removal costs for industrial point source 
dischargers are much higher (exceed $100 per pound of phosphorus 
removed). Based on these results, EPA concludes that these values are 
cost-effective.
    Costs and removals are nearly twice as high under the more 
stringent Option 3+5 for all subcategories (Table 10-15). Costs and 
removals are lower under the less stringent Option 1, but EPA chose not 
to propose Option 1 because it does not represent the best available 
technology (also described in Section VIII of the preamble).
    EPA estimates that the co-proposed thresholds (two-tier and three-
tier structures) are more cost-effective compared to alternative AU 
thresholds, given slightly lower average cost-effectiveness values 
(Table 10-15). EPA
[[<strong>Page</strong> 3098]]
estimates that the average cost-effectiveness to remove nitrogen is 
$5.10 per pound of nitrogen removed at a threshold that would regulate 
as CAFOs all operations with more than 1,000 AU; the average cost-
effectiveness is $4.80 per pound of nitrogen removed at the alternative 
300 AU threshold (Table 10-15). EPA estimates that the average cost-
effectiveness to remove phosphorus is $2.50 per pound and $2.30 per 
pound of phosphorus removed at the 1,000 AU and 300 AU threshold. EPA 
also estimates that the co-proposed tier structures are also the most 
cost-efficient, compared to other alternatives considered by EPA. These 
results, based on incremental cost-effectiveness values, are provided 
in the Economic Analysis.
    Table 10-15 also shows that the cost to remove sediments under the 
BAT Option/Scenario is estimated at $0.003 per pound of sediment 
removal (1999 dollars). This estimated per-pound removal cost is low 
compared to EPA's POTW benchmark for conventional pollutants. This 
benchmark measures the potential costs per pound of TSS and BOD 
(biological nutrient demand) removed for an ``average'' POTW (see 51 FR 
24982). Indexed to 1999 dollars, EPA's benchmark costs are about $0.70 
per pound of TSS and BOD removed. The average cost-effectiveness of 
sediment removal under the BAT Option/Scenario is lower than under the 
alternative options. Option 1 results across the range of NPDES 
Scenarios are estimated at about $0.05 per-pound removal of sediments. 
This analysis, along with additional results for each subcategory and 
other regulatory alternatives, is provided in Appendix E on the 
Economic Analysis.
                                        Table 10-5.--Cost-Effectiveness Results by Select Option/Scenario ($1999)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                Total cost
                       Option/Scenario                             \1\       Sediments     Nitrogen    Phosphorus   Sediments     Nitrogen    Phosphorus
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                 ($m 1999)       (million pounds of removals)
                                                                    (average $ per pound removed
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                             ``BAT Option'' ELG Option 3 (Beef/Dairy) and 5 (Swine/Poultry)
--------------------------------------------------------------------------------------------------------------------------------------------------------
>1000 AU.....................................................         $688       209050          136          280       $0.003         $5.1         $2.5
>500 AU ``Two-tier''.........................................          840       299708          182          377        0.003          4.6          2.2
>300 AU ``Three-tier''.......................................          887       335456          206          425        0.003          4.3          2.1
>300 AU......................................................          991       335456          206          425        0.003          4.8          2.3
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                            ELG Option 3+5 (All subcategories
--------------------------------------------------------------------------------------------------------------------------------------------------------
>1000 AU.....................................................        1,791       209050          136          280        0.009         13.2          6.4
>500 AU ``Two-tier''.........................................        2,074       299708          182          377        0.007         11.4          5.5
>300 AU ``Three-tier''.......................................        2,141       335456          206          425        0.006         10.4          5.0
>300 AU......................................................        2,316       335456          206          425        0.007         11.2         5.5
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: USEPA. See Economic Analysis. Option/Scenario definitions provided in Table 10-2. ND=Not Determined.
\1\ Costs are pre-tax.
I. Cost-Benefit Analysis
    EPA estimated and compared the costs and benefits attributed to the 
proposed regulations. The cost and benefit categories that the Agency 
was able to quantify and monetize for the proposed regulations are 
shown in Table 10-16.
    Total social costs of the proposed regulations range from $847 
million to $949 million annually, depending on the co-proposed approach 
(Table 10-16). These costs include compliance costs to industry, costs 
to recipients of CAFO manure, and administrative costs to States and 
Federal governments.
    Under the two-tier structure, EPA projects that total compliance 
cost to industry is $831 million per year (pre-tax)/$572 million (post-
tax). By comparison, under the three-tier structure, EPA estimates that 
the cost to industry is $930 million per year (pre-tax)/$658 million 
(post-tax). Costs to industry include annualized capital costs, 
operating and maintenance costs, start-up and recurring costs, and also 
recordkeeping costs. Estimated costs cover four broad categories: 
nutrient management planning, facility upgrades, land application, and 
technologies for balancing on-farm nutrients. In addition, under the 
two-tier structure, EPA estimates that the cost to off-site recipients 
of CAFO manure is $10 million per year. The administrative cost to 
State and Federal governments to implement the permit program is $6 
million per year. Under the three-tier structure, the annual cost to 
off-site recipients of manure is $11 million and State and Federal 
administrative costs are $8 million per year.
    EPA estimates that the monetized benefits of the proposed 
regulations range from $146 million to $182 million annually, depending 
on the co-proposed approach (Table 10-16). Annual benefits are 
estimated to range from $146 million to $165 million under the two-tier 
structure; under the three-tier structure, estimated benefits range 
from $163 million to $182 million annually. EPA was only able to 
monetize (i.e., place a dollar value on) a small subset of the range of 
potential benefits that may accrue under the proposed regulations. Data 
and methodological limitations restricted the number of benefits 
categories that EPA was able to reasonably quantify and monetize. The 
proposed regulations benefits are primarily in the areas of reduced 
health risks and improved water quality, as shown in Table 10-16. In 
addition to these monetized benefits, EPA expects that additional 
benefits will accrue under the regulations, including reduced drinking 
water treatment costs, reduced odor and air emissions, improved water 
quality in estuaries, and avoided loss in property value near CAFOs, 
among other benefits. These benefits are described in more detail in 
the Benefits Analysis and other supporting documentation provided in 
the record.
[[<strong>Page</strong> 3099]]
  Table 10-16.--Total Annual Social Costs and Monetized Benefits, $1999
                        [In millions of dollars]
------------------------------------------------------------------------
                                           ``Two-Tier''
                                             structure      Three-Tier
           Total social costs                 (500 AU        structure
                                            threshold)     (Scenario 3)
------------------------------------------------------------------------
Industry Compliance Costs (pre-tax).....           830.7           930.4
NPDES Permitting Costs..................             6.2             7.7
Offsite Recipients of CAFO Manure.......             9.6            11.3
    Total Social Costs..................           846.5           949.4
------------------------------------------------------------------------
                           Monetized Benefits
------------------------------------------------------------------------
Improved surface water quality..........           108.5           127.1
Reduced shellfish bed closures..........         0.2-2.4         0.2-2.7
Reduced fish kills......................         0.2-0.4         0.2-0.4
Improved water quality in private wells.       36.6-53.9       35.4-52.1
                                         -------------------------------
  Total Monetized Benefits..............     145.5-165.1     163.0-182.3
------------------------------------------------------------------------
J. Initial Regulatory Flexibility Analysis
    Pursuant to Section 603 of the Regulatory Flexibility Act (RFA) as 
amended by the Small Business Regulatory Enforcement Fairness Act of 
1996 (SBREFA), the Agency prepared an Initial Regulatory Flexibility 
Analysis (IRFA) to assess the impacts on small livestock and poultry 
feeding operations. EPA's IRFA and other supplemental economic 
analyses, as required under Section 607 of the RFA, are provided in 
Section 9 of the Economic Analysis. This section summarizes the 
estimated number of small entities to which the rule will apply and 
quantitatively describes the effects of the proposed regulations. Other 
information on EPA's approach for estimating the number of small 
businesses in these sectors is provided in the Final Report of the 
Small Business Advocacy Review Panel on EPA's Planned Proposed Rule on 
National Pollutant Discharge Elimination System (NPDES) and Effluent 
Limitations Guideline (ELG) Regulations for Concentrated Animal Feeding 
Operations (referred to as the ``Panel Report''). The Panel Report is 
available in the rulemaking record, as well as online at <A HREF="http://frwebgate.access.gpo.gov/cgi-bin/leaving.cgi?from=leavingFR.html&log=linklog&to=http://www.epa.gov/sbrefa">http://
www.epa.gov/sbrefa</A>. A summary of the Small Business Advocacy Review 
(SBAR) Panel proceedings and recommendations is provided in Section 
XII.G of this preamble. Section XIII.B of this preamble summarizes 
other requirements to comply with the RFA.
1. Definition of Small Business
    The Small Business Administration (SBA) defines a ``small 
business'' in the livestock and poultry sectors in terms of average 
annual receipts (or gross revenue). SBA size standards for these 
industries define a ``small business'' as one with average annual 
revenues over a 3-year period of less than $0.5 million annually for 
dairy, hog, broiler, and turkey operations; $1.5 million for beef 
feedlots; and $9.0 million for egg operations. In today's rule, EPA is 
proposing to define a ``small'' egg laying operation for purposes of 
its regulatory flexibility assessments as an operation that generates 
less than $1.5 million in annual revenue. Because this definition of 
small business is not the definition established under the Regulatory 
Flexibility Act (RFA), EPA is specifically seeking comment on the use 
of this alternative definition as part of today's notice of the 
proposed rulemaking (see Section XIII.B and Section XIV). EPA also has 
consulted with the SBA Chief Counsel for Advocacy on the use of this 
alternative definition. EPA believes this definition better reflects 
the agricultural community's sense of what constitutes a small business 
and more closely aligns with the small business definitions codified by 
SBA for other animal operations. A summary of EPA's rationale and 
supporting analyses pertaining to this alternative definition is 
provided in the record and in the Economic Analysis.
2. Number of Small Businesses Affected under the Proposed Regulations
    Table 10-17 shows EPA's estimates of the number of small businesses 
in the livestock and poultry sectors and the number of small businesses 
that are expected to be affected by the proposed regulations. The 
approach used to derive these estimates is described in more detail in 
Section 9 of the Economic Analysis and also in Sections 4 and 5 of the 
Panel Report. EPA presented this and other alternative approaches 
during the SBAR Panel proceedings, as discussed in Section XII.G.2.a of 
this document. EPA is requesting public comment on this approach.
    EPA uses three steps to determine the number of small businesses 
that may be affected by the proposed regulations. First, EPA identifies 
small businesses in these sectors by equating SBA's annual revenue 
definition with the number of animals at an operation. Second, EPA 
estimates the total number of small businesses in these sectors using 
farm size distribution data from USDA. Third, based on the regulatory 
thresholds being proposed, EPA estimates the number of small businesses 
that would be subject to the proposed requirements. These steps are 
summarized below.
    In the absence of farm or firm level revenue data, EPA identifies 
small businesses in these sectors by equating SBA's annual revenue 
definitions of ``small business'' to the number of animals at these 
operations (step 1). This step produces a threshold based on the number 
of animals that EPA uses to define small livestock and poultry 
operations and reflects the average farm inventory (number of animals) 
that would be expected at an operation with annual revenues that define 
a small business. This initial conversion is necessary because USDA 
collects data by farm size, not by business revenue. With the exception 
of egg laying operations, EPA uses SBA's small business definition to 
equate the revenue threshold with the number of animals raised on-site 
at an equivalent small business in each sector. For egg laying 
operations, EPA uses its alternative revenue definition of small 
business.
    EPA estimates the number of animals at an operation to match SBA's
[[<strong>Page</strong> 3100]]
definitions using SBA's annual revenue size standard (expressed as 
annual revenue per entity) and USDA-reported farm revenue data that are 
scaled on a per-animal basis (expressed as annual revenue per inventory 
animal for an average facility). Financial data used for this 
calculation are from USDA's 1997 ARMS database. This approach and the 
data used for this calculation are outlined in Section 9 of the 
Economic Analysis. The resultant size threshold represents an average 
animal inventory for a small business. For the purpose of conducting 
its IRFA for this rulemaking, EPA is evaluating ``small business'' for 
these sectors as an operation that houses or confines less than: 1,400 
fed beef cattle; 200 mature dairy cattle; 1,400 market hogs; 25,000 
turkeys; 61,000 layers; or 260,000 broilers (Table 10-17).
    EPA then estimates the total number of small businesses in these 
sectors using facility size distribution data from USDA (step 2). Using 
the threshold sizes identified for small businesses, identified above, 
EPA matches these thresholds with the number of operations associated 
with those size thresholds to estimate the total number of small animal 
confinement operations in these sectors. Finally, based on the 
regulatory thresholds being proposed--e.g., operations with more than 
500 AU are CAFOs--EPA estimates the number of small businesses that 
will be subject to the proposed requirements (step 3). The 1997 Census 
constitutes the primary data source that EPA uses to match the small 
business thresholds (e.g., a small dairy operation has less than 200 
milk cows) to the number of facilities that match that size group 
(e.g., the number of dairies with less than 200 cows, as reported by 
USDA). EPA also used other supplemental data, including other published 
USDA data and information from industry and the state extension 
agencies.
                                  Table 10-17.--Number of Small CAFOs That May Be Affected by the Proposed Regulations
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                           Total annual
                                                            ($million)      Revenue per   No. of animals     Estimated       Two-Tier       Three-Tier
                         Sector                             revenue \1\    head \2\  (b)    (Avg. U.S.)      number of       ``Small''       ``Small''
                                                                (a)                           (c=a/b)       small  AFOs        CAFOs           CAFOs
--------------------------------------------------------------------------------------------------------------------------------------------------------
Cattle \3\..............................................             1.5           1,060           1,400         106,450           2,280           2,600
Dairy...................................................             0.5           2,573             200         109,740              50              50
Hogs....................................................             0.5             363           1,400         107,880             300             300
Broilers................................................             0.5               2         260,000          34,530           9,470          13,410
Egg Layers..............................................             9.0              25         365,000              ND              ND              ND
                                                                     1.5  ..............          61,000          73,710             200             590
Turkeys.................................................             0.5              20          25,000          12,320               0             500
All AFOs \4\............................................              NA              NA              NA         355,650          10,550         14,630
--------------------------------------------------------------------------------------------------------------------------------------------------------
NA=Not Applicable. ND = Not Determined. ``AFOs'' have confined animals on-site. ``CAFOs'' are assumed to have more than 500 AU.
\1\ SBA Size Standards by SIC industry (13 CFR Part 121). EPA assumes an alternative definition of $1.5 million in annual revenues for egg layers.
\2\ Average revenue per head across all operations for each sector derived from data obtained from USDA's 1997 ARMS data.
\3\ Includes fed cattle, veal and heifers.
\4\ Total adjusts for operations with mixed animal types and includes designated CAFOs (expressed over a 10-year period). See Section VI.1 of this
  document for estimates of the total number of AFOs (including operations that are not defined as small businesses by SBA).
    EPA estimates that there were approximately 376,000 animal 
confinement facilities in 1997 (Table 6-1). Most of these (95 percent) 
are small businesses, as defined by this approach (Table 10-17). 
However, not all of these operations will be affected by the proposed 
regulations.
    For this analysis, EPA has identified the number of CAFOs that are 
also small businesses that would be subject to today's proposal. Under 
the two-tier structure, EPA estimates that 10,550 operations that will 
be subject to the proposed requirements that are small businesses. 
Under the three-tier structure, an estimated 14,630 affected operations 
are small businesses. See Table 10-17. The difference in the number of 
affected small businesses is among poultry producers, particularly 
broiler operations.
    Under the two-tier structure, EPA estimates that there are 10,050 
operations with more than 500 AU that may be defined as CAFOs that also 
meet the ``small business'' definition. Under the three-tier structure, 
there are 14,530 operations with more than 300 AU that may be defined 
as CAFOs that are small businesses that meet the proposed risk-based 
conditions (described in Section VII). These totals adjusts for the 
number of operations with more than a single animal type. Under both 
co-proposed alternatives, most operations are in the broiler and cattle 
sectors. By broad facility size group, an estimated 4,060 operations 
have more than 1,000 AU, most of which are broiler operations (about 77 
percent) and cattle operations (18 percent), including fed cattle, 
veal, and heifer operations. An estimated 6,490 operations have between 
500 and 1,000 AU. The number of operations that would be regulated with 
between 300 and 1,000 AU is estimated at 10,570 operations (accounting 
for mixed operations).
    Due to continued consolidation and facility closure since 1997, 
EPA's estimates may overstate the actual number of small businesses in 
these sectors. In addition, ongoing trends are causing some existing 
small and medium size operations to expand their inventories to achieve 
scale economies. Some of the CAFOs considered here as small businesses 
may no longer be counted as small businesses because they now have 
higher revenues. Furthermore, some CAFOs may be owned by a larger, 
vertically integrated firm, and may not be a small business. EPA 
expects that there are few such operations, but does not have data or 
information to reliably estimate the number of CAFOs that meet this 
description.
    Under the two-tier structure, EPA estimates also include an 
additional 500 operations with fewer than 500 AU that may be designated 
as CAFOs under the proposed regulations over a 10-year period. See 
Section VI. Of these, 330 operations meet the small business 
definition: 50 dairies, 200 hog, 40 beef, 20 broiler, and 20 egg laying 
operations. Under the three-tier structure, EPA estimates that 100 
operations with fewer than 300 AU may be designated over ten years, 
including 50 dairies and 50 hog operations, all of which are small 
businesses. As these facilities are designated, EPA did not adjust this 
total to reflect possible mixed animal
[[<strong>Page</strong> 3101]]
operations. Each of these operations are small businesses.
3. Estimated Economic Impacts to Small CAFOs under the Proposed 
Regulations
    EPA conducted a preliminary assessment of the potential impacts to 
small CAFO businesses based on the results of a costs-to-sales test. 
This screen test indicated the need for additional analysis to 
characterize the nature and extent of impacts on small entities. The 
results of this screening test indicate that about 80 percent (about 
9,600) of the estimated number of small businesses directly subject to 
the rule as CAFOs may incur costs in excess of three percent of sales 
(evaluated for all operations with more than 500 AU). Compared to the 
total number of all small animal confinement facilities estimated by 
EPA (356,000 facilities), operations that are estimated to incur costs 
in excess of three percent of sales comprise less than two percent of 
all small businesses in these sectors. The results of this analysis are 
provided in Section 9 of the Economic Analysis.
    Based on the results of this initial assessment, EPA projected that 
it would likely not certify that the proposal, if promulgated, would 
not impose a significant economic impact on a substantial number of 
entities. Therefore, EPA convened a Small Business Advocacy Review 
Panel and prepared an Initial Regulatory Flexibility Analysis (IRFA) 
pursuant to Sections 609(b) and 603 of the RFA, respectively. Section 
XII.G provides more information on EPA's small business outreach and 
the Panel activities during the development of this rulemaking.
    The results of EPA's assessment of the financial impacts of the 
proposed rule on small entities are as follows. To further examine 
small businesses effects, EPA used the same approach as that used to 
evaluate the impact to CAFOs under the proposed regulations described 
in Section X.D.1. Economic achievability is determined by applying the 
proposed criteria described in Section X.F.1. These criteria include a 
sales test and also analysis of post-compliance cash flow and debt-to-
asset ratio for an average model CAFO.
    Accordingly, if an average model facility is determined to incur 
economic impacts under regulation that are regarded as ``Affordable'' 
or ``Moderate,'' then the proposed regulations are considered 
economically achievable. (``Moderate'' impacts are not expected to 
result in closure and are considered to be economically achievable by 
EPA.) If an average operation is determined to incur ``Stress,'' then 
the proposed regulations are not considered to be economically 
achievable. ``Affordable'' and ``Moderate'' impacts are associated with 
positive post-compliance cash flow over a 10-year period and a debt-to-
asset ratio not exceeding 40 percent, in conjunction with a sales test 
result that shows that compliance costs are less than 5 percent of 
sales (``Affordable'') or between 5 and 10 percent (``Moderate''). 
``Stress'' impacts are associated with negative cash flow or if the 
post-compliance debt-to-asset ratio exceeds 40 percent, or sales test 
results that show costs equal to or exceeding 10 percent of sales. More 
detail on this classification scheme is provided in Section X.F.1.
    EPA is proposing that the proposed regulations are economically 
achievable by small businesses in the livestock and poultry sectors. 
The results of this analysis are presented in Tables 10-18 and 10-19. 
As defined for this analysis, EPA's analysis indicates that the 
proposed requirements are economically achievable to all affected small 
businesses in the beef, veal, heifer, dairy, hog, and egg laying 
sectors (``Affordable'' and also ``Moderate''). Moderate impacts may be 
incurred by small businesses in some sectors, but these impacts are not 
associated with operational change at the CAFO. Under the two-tier 
structure, EPA expects that there are no small businesses in the turkey 
sector, as defined for this analysis. Under the three-tier structure, 
EPA expects that there are an estimated 500 small businesses in the 
turkey sector (operations with 16,500 to 25,000 birds) (Table 10-17).
    EPA's IRFA analysis indicates that the proposed requirements will 
not result in financial stress to any affected small businesses in the 
veal, heifer (two-tier only), hog, dairy, egg laying, and turkey 
sectors. In the beef, heifer (three-tier only), and broiler sectors, 
however, EPA's analysis indicates that proposed regulations could 
result in financial stress to some small businesses, making these 
businesses vulnerable to closure. Overall, these operations comprise 
about 2 percent of all affected small CAFO businesses. For the two-tier 
structure, EPA estimates that 10 small beef operations and 150 small 
broiler operations will experience financial stress. For the three-tier 
structure, EPA estimates that 40 small beef and heifer operations and 
280 small broiler operations will experience financial stress. Small 
broiler facilities with stress impacts are larger operations with more 
than 1,000 AU under both tier structures. Small cattle and heifer 
operations with stress impacts are those that have a ground water link 
to surface water. This analysis is conducted assuming that no costs are 
passed through between the CAFO and processor segments of these 
industries. Based on the results of this analysis, EPA is proposing 
that the proposed regulations are economically achievable to small 
businesses in these sectors.
    EPA believes that the small business impacts presented are 
overstated for reasons summarized below. As noted in the Panel Report, 
EPA believes that the number of small broiler operations is 
overestimated. In the absence of business level revenue data, EPA 
estimated the number of ``small businesses'' using the approach 
described in Sections X.J.1 and X.J.2. Using this approach, virtually 
all (>99.9 percent) broiler operations are considered ``small'' 
businesses. This categorization may not accurately portray actual small 
operations in this sector since it classifies a 10-house broiler 
operation with 260,000 birds as a small business. Information from 
industry sources suggests that a two-house broiler operation with 
roughly 50,000 birds is more appropriately characterized as a small 
business in this sector. This information is available in the 
rulemaking record. Therefore, it is likely that the number of small 
broiler operations may reflect a number of medium and large size 
broiler operations being considered as small entities. (During the 
development of the rulemaking, EPA did consult with SBA on the use of 
an alternative definition for small businesses in all affected sectors 
based on animal inventory at an operation. Following discussions with 
SBA, EPA decided not to use this alternative definition. This 
information is provided in the record.)
    EPA believes that the use of a costs-to-sales comparison is a crude 
measure of impacts on small business in sectors where production 
contracting is commonly used, such as in the broiler sector (but also 
in the turkey, egg, and hog sectors, though to a lesser extent). As 
documented in the Economic Analysis, lower reported operating revenues 
in the broiler sector reflect the predominance of contract growers in 
this sector. Contract growers receive a pre-negotiated contract price 
that is lower than the USDA-reported producer price, thus contributing 
to lower gross revenues at these operations. Lower producer prices 
among contract growers is often offset by lower overall production 
costs at these operations since the affiliated processor firm pays for 
a substantial portion of the grower's annual variable cash expenses. 
Inputs supplied by the integrator may include
[[<strong>Page</strong> 3102]]
feeder pigs or chicks, feed, veterinary services and medicines, 
technical support, and transportation of animals. These variable cash 
costs comprise a large component of annual operating costs, averaging 
more than 70 percent of total variable and fixed costs at livestock and 
poultry operations. The contract grower also faces reduced risk because 
the integrator guarantees the grower a fixed output price. Because 
production costs at a contract grower operation are lower than at an 
independently owned operation, a profit test (costs-to-profit 
comparison) is a more accurate measure of impacts at grower operations. 
However, financial data are not available that differentiate between 
contract grower and independent operations.
    EPA's analysis also does not consider a range of potential cost 
offsets available to most operations. One source of potential cost 
offset is cost share and technical assistance available to operators 
for on-site improvements that are available from various state and 
federal programs, such as the Environmental Quality Incentives Program 
(EQIP) administered by USDA. These programs specifically target smaller 
farming operations. Another potential source of cost offset is manure 
sales, particularly of relatively higher value dry poultry litter. More 
information on how these potential sources of cost offset would reduce 
the economic impacts to small operations is described in Section X.F.1 
in this document and also in the Economic Analysis. EPA's analysis also 
does not account for eventual cost passthrough of estimated compliance 
costs through the marketing chain under longer run market adjustment. 
Finally, this analysis does not take into account certain non-economic 
factors that may influence a CAFO's decision to weather the boom and 
bust cycles that are commonplace in agricultural markets. These other 
industry-specific factors are discussed in more detail throughout the 
Economic Analysis.
    EPA expects that the proposed regulations will benefit the smallest 
businesses in these sectors since it may create a comparative advantage 
for smaller operations (less than 500 AU), especially those operations 
which are not subject to the regulations. Except for the few AFOs which 
are designated as CAFOs, these operations will not incur costs 
associated with the proposed requirements but could benefit from 
eventual higher producer prices as these markets adjust to higher 
production costs in the longer term.
    As detailed in Sections XII.G and XIII.B of this document, EPA 
convened a Small Business Advocacy Review Panel during the development 
of this rule. As described in the Panel Report, EPA considered certain 
regulatory alternatives to provide relief for small businesses. Some of 
these alternatives are discussed in other sections of this document, 
including Section VII and Section VIII. These alternative options are 
summarized in the following section and are described in more detail in 
Section 9 of the Economic Analysis.
                                 Table 10-18.--Results of EPA's Small Business Analysis Under the BAT Option/Scenario 4a
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                        Zero cost passthrough
                                                                           -----------------------------------------------------------------------------
                            Sector                              Number of           (Number of operations                 (% Affected operations)
                                                               small CAFOs -----------------------------------------------------------------------------
                                                                             Affordable    Moderate      Stress     Affordable    Moderate      Stress
--------------------------------------------------------------------------------------------------------------------------------------------------------
Fed Cattle...................................................        1,390        1,130          250           10           81           18            1
Veal.........................................................           90           90            0            0          100            0            0
Heifer.......................................................          800          680          120            0           85           15            0
Dairy........................................................           50           40           10            0           80           20            0
Hogs.........................................................          300          300            0            0          100            0            0
Broilers.....................................................        9,470        1,860        7,460          150           20           79            2
Layers.......................................................          200          200            0            0          100            0            0
Turkeys......................................................            0            0            0            0           NA           NA           NA
                                                              ------------------------------------------------------------------------------------------
    Total....................................................       10,550        4,300        7,840          160           41           74           2
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: USEPA. Impact estimates shown include impacts to designated operations. Option/Scenario definitions provided in Table 10-2. Category definitions
  (``Affordable,'' ``Moderate'' and ``Stress'') are provided in Section X.F.1. Numbers may not add due to rounding. NA = Not Applicable.
\1\ ``Total'' does not adjust for operations with mixed animal types, for comparison purposes, to avoid understating costs at operations with more than
  one animal type that may incur costs to comply with the proposed requirements for each type of animal that is raised on-site. The number of CAFOs
  shown includes expected defined CAFOs only and excludes designated facilities.
                                 Table 10-19.--Results of EPA's Small Business Analysis Under the BAT Option/Scenario 3
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                        Zero cost passthrough
                                                                           -----------------------------------------------------------------------------
                            Sector                              Number of           (Number of operations                 (% Affected operations)
                                                               small CAFOs -----------------------------------------------------------------------------
                                                                             Affordable    Moderate      Stress     Affordable    Moderate      Stress
--------------------------------------------------------------------------------------------------------------------------------------------------------
Fed Cattle...................................................        1,490        1,100          380           10           74           26            1
Veal.........................................................          140          140            0            0          100            0            0
Heifer.......................................................          980          800          150           30           82           15            3
Dairy........................................................           50           40           10            0           80           20            0
Hogs.........................................................          300          300            0            0          100            0            0
Broilers.....................................................       13,410        1,910       11,220          280           14           84            2
Layers.......................................................          590          590            0            0          100            0            0
Turkeys......................................................          500          460           40            0           92            8            0
                                                              ------------------------------------------------------------------------------------------
[[<strong>Page</strong> 3103]]
    Total....................................................       14,630        5,340       11,800          320           37           81           2
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: USEPA. Impact estimates shown include impacts to designated operations. Option/Scenario definitions provided in Table 10-2. Category definitions
  (``Affordable,'' ``Moderate'' and ``Stress'') are provided in Section X.F.1. Numbers may not add due to rounding. NA = Not Applicable.
\1\ ``Total'' does not adjust for operations with mixed animal types, for comparison purposes, to avoid understating costs at operations with more than
  one animal type that may incur costs to comply with the proposed requirements for each type of animal that is raised on-site. The number of CAFOs
  shown includes expected defined CAFOs only and excludes designated facilities.
4. Regulatory Relief to Small Livestock and Poultry Businesses
    EPA proposes to focus the regulatory revisions in this proposal on 
the largest operations, which present the greatest risk of causing 
environmental harm, and in so doing, has minimized the effects of the 
proposed regulations on small livestock and poultry operations. First, 
EPA is proposing to establish a two-tier structure with a 500 AU 
threshold. Unlike the current regulations, under which some operations 
with 300 to 500 AU are defined as CAFOs, operations of this size under 
the revised regulations would be CAFOs only by designation. Second, EPA 
is proposing to eliminate the ``mixed'' animal calculation for 
operations with more than a single animal type for determining which 
AFOs are CAFOs. Third, EPA is proposing to raise the size standard for 
defining egg laying operations as CAFOs.
    EPA estimates that under the co-proposed alternatives, between 64 
percent (two-tier) and 72 percent (three-tier) of all CAFO manure would 
be covered by the regulation. (See Section IV.A of this preamble.) 
Under the two-tier structure, the inclusion of all operations with more 
than 300 AU instead of operations with more than 500 AU, the CAFO 
definition would result in 13,800 additional operations being 
regulated, along with an additional 8 percent of all manure. An 
estimated 80 percent of these additional 13,800 CAFOs are small 
businesses (about 10,870 CAFOs). EPA estimates that by not extending 
the regulatory definition to operations with between 300 and 500 AU, 
these 10,870 small businesses will not be defined as CAFOs and will 
therefore not be subject to the proposed regulations. The additional 
costs of extending the regulations to these small CAFO businesses is 
estimated at almost $150 million across all sectors. The difference in 
costs between the two-tier and the three-tier structures may be 
approximated by comparing the estimated costs for these regulatory 
options, which are shown in Table 10-5. Also, under the two-tier 
structure, EPA is proposing to raise the size standard for defining egg 
laying operations as CAFOs. This alternative would remove from the CAFO 
definition egg operations with between 30,000 and 50,000 laying hens 
(or 75,000 hens) that under the current rules are defined as CAFOs, if 
they utilize a liquid manure management system.
    In addition, under both co-proposed alternatives, EPA is proposing 
to exclude mixed operations with more than a single animal type. The 
Agency determined that the inclusion of these operations would 
disproportionately burden small businesses while resulting in little 
additional environmental benefit. Since most mixed operations tend to 
be smaller in size, this exclusion represents important accommodations 
for small businesses. If certain of these smaller operations are 
determined to be discharging to waters of the U.S., States can later 
designate them as CAFOs and subject them to the regulations.
XI. What are the Environmental Benefits of the Proposed Revisions?
A. Non-Water Quality Environmental Impacts
    The regulatory options developed for this proposed rule are 
intended to ensure the protection of surface water in and around animal 
feeding operations. However, one or more of the requirements included 
in these options may also have an impact on the amount and form of 
compounds released to air, as well as the energy that is required to 
operate the feedlot. Under sections 304(b) and 306 of the CWA, EPA is 
to consider the non-water quality environmental impacts (NWQI) when 
setting effluent limitations guidelines and standards. This section 
describes the methodology EPA used to estimate the NWQI for each of the 
options considered for this proposed rule. These non-water quality 
environmental impacts include:
    <bullet> Air emissions from the feedlot operation, including animal 
housing and animal waste storage and treatment areas;
    <bullet> Air emissions from land application activities;
    <bullet> Air emissions from vehicles, including the off-site 
transport of waste and on-site composting operations; and
    <bullet> Energy impacts from land application activities and the 
use of digesters.
    For each regulatory option, EPA estimated the potential for new 
water pollution control requirements to cause cross-media pollutant 
transfers. Consistent with the approach used to estimate compliance 
costs, EPA used a model-facility approach to estimate NWQIs and to 
define baseline conditions. Industry-level non-water quality impacts 
for each animal sector (i.e., beef, dairy, swine, and poultry) were 
then estimated by multiplying the model farm impacts by the number of 
facilities represented by that model farm. These results are presented 
in Tables 11-1 through 11-4 for the population of operations defined as 
CAFOs under the two-tier structure (operations with more than 500 AU) 
and Tables 11-5 through 11-8 for the population defined as CAFOs under 
the three tier structure. For details on the derivation of the model 
farms, including definitions of geographic location, method of 
determining model farm populations, and data on waste generation, see 
the Technical Development Document.
1. Sources of Air Emissions
    Animal feeding operations generate various types of animal wastes, 
including manure (feces and urine), waste feed, water, bedding, dust, 
and wastewater. Air emissions are generated from the decomposition of 
these wastes from the point of generation through the management and 
treatment of these wastes on site. The rate of generation of these 
emissions varies based on a number of operational variables (e.g., 
animal species, type of housing, waste
[[<strong>Page</strong> 3104]]
management system), as well as weather conditions (temperature, 
humidity, wind, time of release). A fraction of the air emissions from 
AFOs are subsequently redeposited on land or in surface waters. This 
atmospheric redeposition in turn can be a source for water quality 
impacts.
    a. Air Emissions from the Feedlot Operation. Animal housing and 
manure management systems can be a significant source of air emissions. 
Little data exist on these releases to allow a complete analysis of all 
possible compounds. For this proposed rule, EPA has focused on the 
release of greenhouse gases (methane, carbon dioxide, and nitrous 
oxide), ammonia, and certain criteria air pollutants (carbon monoxide, 
nitrogen oxides, volatile organic compounds, and particulate matter).
    i. Greenhouse Gas Emissions from Manure Management Systems. Manure 
management systems, including animal housing, produce methane 
(CH<INF>4</INF>), carbon dioxide (CO<INF>2</INF>), and nitrous oxide 
(N<INF>2</INF>O) emissions. Methane and carbon dioxide are produced by 
the anaerobic decomposition of manure. Nitrous oxide is produced as 
part of the agricultural nitrogen cycle through the denitrification of 
the organic nitrogen in livestock manure and urine. Greenhouse gas 
emissions for methane and nitrous oxide were estimated for this 
proposed rule based on methodologies previously used by EPA's Office of 
Air and Radiation. Emission estimates for carbon dioxide are based on 
the relationship of carbon dioxide generation compared to methane 
generation.
    Methane. Methane production is directly related to the quantity of 
waste, the type of waste management system used, and the temperature 
and moisture of the waste. Some of the regulatory options evaluated for 
animal feeding operations are based on the use of different waste 
management systems which may increase or decrease methane emissions 
from animal operations. In general, manure that is handled as a liquid 
or in anaerobic management systems tends to produce more methane, while 
manure that is handled as a solid or in aerobic management systems 
produces little methane. The methane producing capacity of animal waste 
is related to the maximum quantity of methane that can be produced per 
kilogram of volatile solids. Values for the methane producing capacity 
are available from literature and are based on animal diet. EPA 
estimated methane emissions for each type of waste management system 
included in the cost models. These values vary by animal type, 
geographic region (the methane conversion factor is a function of the 
mean ambient temperature), and type of waste management system (e.g., 
anaerobic lagoon, composting, drylot, stacked solids, or runoff storage 
pond).
    Methane is also produced from the digestive processes of ruminant 
livestock due to enteric fermentation. Certain animal populations, such 
as beef cattle on feedlots, tend to produce more methane because of 
higher energy diets that produce manure with a high methane-producing 
capacity. However, since the proposed regulatory options do not impose 
requirements forcing CAFOs to use specific feeding strategies, 
potential impacts on enteric fermentation methane emissions are 
speculative and were not estimated.
    Carbon Dioxide. Carbon dioxide is a naturally occurring greenhouse 
gas and is continually emitted to and removed from the atmosphere. 
Certain human activities, such as fossil fuel burning, cause additional 
quantities of carbon dioxide to be emitted to the atmosphere. In the 
case of feedlot operations, the anaerobic degradation of manure results 
not only in methane emissions, but also carbon dioxide emissions. These 
carbon dioxide emissions due to anaerobic degradation were estimated 
for each regulatory option. In addition, under Option 6, large dairies 
and swine operations would install and operate anaerobic digestion 
systems with energy recovery units. The biogas produced in the digester 
is burned in an engine to recover energy. EPA's emission estimates for 
Option 6 include the carbon dioxide produced during this combustion 
process.
    Nitrous Oxide. The emission of nitrous oxide from manure management 
systems is based on the nitrogen content of the manure, as well as the 
length of time the manure is stored and the specific type of system 
used. In general, manure that is handled as a liquid tends to produce 
less nitrous oxide than manure that is handled as a solid. Some of the 
regulatory options evaluated for animal feeding operations are based on 
the use of waste management systems which may increase nitrous oxide 
emissions from animal operations. Values for total Kjeldahl nitrogen 
(TKN), a measure of organic nitrogen plus ammonia nitrogen, vary by 
animal type and are typically available in the literature for animal 
waste. EPA estimated nitrous oxide emissions by adjusting these 
literature values with an emission factor that accounts for the varying 
degree of nitrous oxide production, based on the type of manure 
management system.
    ii. Ammonia Emissions and Other Nitrogen Losses from Housing and 
Manure Management Systems. Much of the nitrogen emitted from animal 
feeding operations is in the form of ammonia. Ammonia is an important 
component responsible for acidification and overnutrification of the 
environment. The loss of ammonia occurs at both the point of generation 
of manure, typically from urine, as well as during the storage and 
treatment of animal waste. As the pH of a system rises above 7, 
nitrogen in the form of ammonium is transformed into ammonia. A number 
of variables affect the volatilization of ammonia from animal waste, 
including the method in which the waste is stored, transported, and 
treated on site and the environmental conditions present (e.g., 
temperature, pH, wind).
    Animals at the feedlot operation may be housed in a number of 
different ways that have an impact on the type and amount of nitrogen 
emissions that will occur. Some animals are housed in traditional 
confined housing (e.g., tie stall barns, freestall barns), while others 
are housed in outdoor areas (e.g., drylots, paddocks). Studies have 
shown that the type of housing used has a great effect on the emission 
of ammonia. Management of waste within the housing area also affects 
emissions (e.g., litter system, deep pit, freestall).
    Anaerobic lagoons and waste storage ponds are a major component of 
the waste management systems. EPA has estimated volatilization of total 
nitrogen and ammonia from lagoons and ponds based on emission factors 
published in the scientific literature.
    iii. Criteria Air Emissions from Energy Recovery Systems. Option 6 
requires the implementation of anaerobic digestion systems with energy 
recovery for large dairy and swine operations. The operation of the 
digestion system greatly reduces the emission of methane through the 
capture of the biogas. However, the use of the biogas in an energy 
recovery system does generate certain criteria air pollutants when 
burned for fuel. Literature values for emission factors for carbon 
monoxide (CO), oxides of nitrogen ( NO<INF>X</INF>), and volatile 
organic compounds (VOCs) were used to estimate releases of criteria air 
pollutants.
    b. Air Emissions from Land Application Activities. Animal feeding 
operations generate air emissions from the land application of animal 
waste on cropland. Air emissions are primarily generated from the 
volatilization of ammonia at the point the material is applied to land. 
Additional emissions of nitrous oxide are liberated from
[[<strong>Page</strong> 3105]]
agricultural soils when nitrogen applied to the soil undergoes 
nitrification and denitrification. Loss through denitrification is 
dependent on the oxygen levels of the soil to which manure is applied. 
Low oxygen levels, resulting from wet, compacted, or warm soil, 
increase the amount of nitrate-nitrogen released to the air as nitrogen 
gas or nitrous oxide. The analysis of air emissions from land 
application activities for this proposed rule focused on the 
volatilization of nitrogen as ammonia because the emission of other 
constituents is expected to be less significant.
    The amount of nitrogen released to the environment from the 
application of animal waste is affected by the rate and method in which 
it is applied, the quantity of material applied, and site-specific 
factors such as air temperature, wind speed, and soil pH. There is 
insufficient data to quantify the effect of site-specific factors.
    Since regulatory options in this proposed rule do not dictate 
particular application methods, EPA assumed that the application 
methods used by animal feeding operations will not significantly change 
from baseline.
    Because EPA expects application methods to remain stable, EPA 
assumed that only the quantity of waste applied to cropland will 
change. On-site nitrogen volatilization will decrease as the quantity 
of waste applied to cropland decreases. The reductions of nitrogen 
volatilization will be the result of reductions in the total amount of 
manure applied on site. However, when both on-site and off-site 
nitrogen volatilization are considered, total nitrogen volatilization 
from manure is expected to remain constant. The movement of waste off-
site changes the location of the nitrogen releases but not the quantity 
released. On-site, however, the volatilization rate will decrease, 
reflecting the decrease in the quantity of applied waste.
    EPA used the same assumptions that were used to estimate compliance 
costs for land application of animal waste in order to estimate the 
change in air emissions from the application of nitrogen under baseline 
conditions and for each regulatory option. The cost methodology defines 
three types of animal feeding operations: Category 1 facilities 
currently have sufficient land to apply all manure on site; Category 2 
facilities currently do not have enough land to apply all manure on 
site; and Category 3 facilities currently apply no manure on site (this 
manure is already being spread offsite). Neither Category 1 nor 
Category 3 facilities will show a change in nitrogen emission rates 
from the land application of animal manure under the proposed 
regulatory options. However, Category 2 facilities will be required to 
apply their waste at the agricultural rate under the regulatory 
options, thus reducing the amount of manure applied on site and 
subsequently reducing air emissions from on-site land application.
    Under a phosphorus-based application scenario, facilities will have 
to apply supplemental nitrogen fertilizer to meet crop nutrient needs. 
The cost model assumes facilities will apply commercial ammonium 
nitrate or urea. The application of commercial fertilizer represents an 
increase in applied nutrients on site. While losses from applied 
commercial nitrogen are expected to be less than those from applied 
manure, data from Ohio State Extension states that both of these 
fertilizers can experience losses through denitrification if placed on 
wet or compacted soils. There is also a possibility that urea will 
volatilize if it is dry for several days after soil application. 
Ammonium nitrate fertilizer (when injected) is less likely to 
volatilize because it quickly converts to nitrate nitrogen which will 
not volatilize.
    EPA estimated a ``worst-case scenario'' for ammonia emissions due 
to commercial fertilizer application based on a 35% loss of applied 
nitrogen.
    c. Air Emissions from Vehicles. i. Off-Site Transportation. All 
options are expected to result in increasing the amount of manure 
hauled off-site, at least for some operations. Consistent with the cost 
model, EPA has grouped operations into three possible transportation 
categories. Category 1 facilities currently land apply all manure on 
site and Category 3 facilities currently transport all manure off site. 
Neither Category 1 nor Category 3 facilities require additional 
transportation of manure and will not have an increase in criteria air 
emissions. Category 2 facilities do not have enough land to apply all 
waste on site and do not currently transport waste. These facilities 
are expected to transport manure off site and therefore will have an 
increase in the amount of criteria air pollutants generated by the 
facility.
    Hauling emissions estimates are based on calculations of the annual 
amount of waste generated, the annual number of miles traveled, and 
truck sizes. The number of trucks, number of trips per truck, the 
amount of waste and transportation distance are all calculated within 
the cost model. Vehicle emissions are calculated based on emission 
factors for diesel-fueled vehicles presented in ``Compilation of Air 
Pollution Emission Factors'' (AP-42). Estimates were calculated for 
volatile organic compounds, nitrogen oxides, particulate matter, and 
carbon monoxide.
    ii. On-Site Composting Activities. Farm equipment used for on-site 
composting activities also affect the generation of air emissions, 
although composting of waste may also result in a reduction in 
transportation air emissions. While composting waste prior to hauling 
offsite can increase the marketability of the manure and may decrease 
hauling costs per ton of waste for some operations, not all operations 
can be expected to realize such benefits. Under Option 5, beef and 
dairy operations would be required to compost their solid manure. The 
criteria air emissions from on-site composting of manure were estimated 
for beef and dairy operations under Option 5. The source of criteria 
air emissions from composting are tractors and associated windrow-
turning equipment.
2. Summary of Air Emission Impacts
    Option 1: Emissions of methane and carbon dioxide from beef and 
dairy operations decrease under Option 1 due to the addition of solids 
separation in the waste management system. The separated solids are 
stockpiled rather than held in waste storage ponds or anaerobic 
lagoons. Anaerobic conditions, and the potential of the volatile solids 
to convert to methane, decrease using this drier method of handling the 
waste. However, this method also results in greater conversion of 
nitrogen to nitrous oxide. An increase in nitrous oxide emissions from 
dairies occurs for this reason. Greenhouse gas emissions from dry 
poultry operations (broilers, turkeys, and dry layers) do not change 
under Option 1 since no change to the waste handling practices are 
expected. These operations are already handling the waste as a dry 
material. Although indoor storage of poultry litter is included in the 
options, it is not expected to significantly alter the air emissions 
from the litter. Emissions of greenhouse gases from swine and wet 
poultry operations also do not change since no change to the waste 
handling practices are expected.
    Ammonia emissions occur primarily from liquid waste storage areas, 
including ponds and lagoons. Under Option 1, all facilities are 
required to contain surface runoff from the feedlot, thereby increasing 
ammonia emissions from smaller beef and dairy CAFOs that do not 
currently have runoff control ponds or lagoons. Ammonia emissions
[[<strong>Page</strong> 3106]]
for the poultry and swine sectors are not expected to change under 
Option 1.
    Option 1 requires the application of animal waste to cropland at 
agronomic rates for nitrogen. Animal feeding operations that have 
excess nitrogen for their crops will need to transport their waste to 
another location. The generation of criteria pollutants for all animal 
sectors are expected to increase from baseline to Option 1 due to the 
additional transportation of waste off-site.
    Options 2-4 and 7: No change in emissions of methane, carbon 
dioxide, or nitrous oxide occurs for all sectors relative to Option 1 
because no significant changes in waste management are anticipated. 
Likewise, no large changes are expected for ammonia emissions.
    These options require the application of animal waste to cropland 
at agronomic rates for phosphorus. Animal feeding operations that have 
excess phosphorus for their crops will need to transport their waste to 
another location. The generation of criteria pollutants are expected to 
increase from Option 1 to these options because more waste will need to 
be transported off site to meet agronomic rates for phosphorus.
    Option 5A: Option 5A does not apply to the beef and dairy sectors. 
Emissions of greenhouse gases at swine operations significantly 
decrease under Option 5A, due to covering lagoons. The swine operations 
are expected to flare the gas that is generated in the lagoon. The 
methane will be converted, although carbon dioxide emissions will 
increase. In addition, the emissions of NO<INF>X</INF> and 
SO<INF>X</INF> increase because of the flaring of biogas collected from 
the covered lagoon.
    On-site ammonia emissions at swine operations will decrease because 
the lagoon cover prevents the ammonia from leaving solution. Ammonia in 
the effluent from the covered lagoon will volatilize, however, soon 
after it is exposed to air.
    Option 5B: Emissions of greenhouse gases from beef and dairy 
operations increase under Option 5B (i.e., mandated technology of 
composting), relative to Options 1 and 2. Compost operations include 
the addition of organic material to the waste pile to aid in the 
decomposition of the waste. This additional material also decomposes 
and contributes to increased methane emissions compared to other 
options. In addition, compost operations liberate more methane than 
stockpiles because the windrows are turned regularly. Stockpiles tend 
to form outer crusts that reduce the potential for air emissions to 
occur.
    Emissions of greenhouse gases for swine operations under Option 5B 
are less than Option 2 due to the conversion of liquid manure handling 
systems (e.g., flush lagoons) to dry manure handling systems. Dry 
manure generates less methane than liquid systems. However, the 
emissions are higher than either Options 5A or 6, which allow liquid 
manure systems, but include destruction of the biogas generated from 
those systems.
    Ammonia emissions at beef and dairy operations are expected to 
increase. During composting operations, the aeration of the compost 
pile liberates nitrogen in the form of ammonia. Ammonia emissions at 
swine operations are expected to decrease compared to Option 2, because 
of liquid manure systems converting to dry operations.
    Option 5B generates the least criteria air pollutants compared to 
any other option for beef operations. Although composting operations 
include the operation of turning equipment which uses fuel and 
generates additional tractor air emissions, the process reduces the 
overall volume of waste to be transported. However, for dairy, 
additional organic material is added to the compost pile, which results 
in slightly higher transportation emissions than Option 2. Option 5B 
emissions of criteria pollutants for poultry operations are equal to 
the emissions for Options 2-4 and 7, since there is no difference in 
the amount of waste transported off site. The emissions from swine 
operations are significantly lower than Option 2 because the conversion 
of flush operations to dry housing significantly decreases the volume 
of waste to be transported off site.
    Option 6: Relative to Option 2, only the dairy and swine sectors 
see any changes in air emissions. Emissions of methane from swine and 
dairy waste under Option 6 significantly decrease due to the addition 
of the anaerobic digester. A significant portion of the methane 
generated is collected as biogas and converted to energy. Drylot areas 
at dairies, however, will continue to generate methane that is 
uncollected. Carbon dioxide emissions significantly increase as methane 
is converted during the combustion process.
    Although waste at large swine and dairy CAFOs will be digested, no 
significant changes to ammonia emissions are expected. The ammonia 
nitrogen, which is highly soluble, remains in solution in the digester. 
When the digester effluent is stored in an open lagoon, the ammonia 
will then be released.
    Emissions of criteria pollutants from swine and dairy operations 
increase due to the addition of anaerobic digestion for large dairy 
operations. The digester collects biogas, which is subsequently 
combusted and converted into VOCs, NO<INF>X</INF>, and CO. Hydrogen 
sulfide contained in swine waste will be converted to Sox.
BILLING CODE 6560-50-P
[[<strong>Page</strong> 3107]]
[GRAPHIC] [TIFF OMITTED] TP12JA01.020
[[<strong>Page</strong> <strong>3108</strong>]]
[GRAPHIC] [TIFF OMITTED] TP12JA01.021
[[Continued on <strong>page</strong> 3109]]
</PRE>