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Economic Impact Analysis

Proposed Revisions to the National Emission 

Standards for Hazardous Air Pollutants

Subpart S (MACT I and MACT III)

for the Pulp and Paper Industry

December 2011

U.S. Environmental Protection Agency

Office of Air and Radiation

Office of Air Quality Planning and Standards

Research Triangle Park, NC 27711
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ii

CONTACT INFORMATION

This document has been prepared by staff from the Office of Air Quality Planning and 

Standards, U.S. Environmental Protection Agency. Questions related to this document should be 

addressed to Alexander Macpherson, U.S. Environmental Protection Agency, Office of Air 

Quality Planning and Standards, C445-B, Research Triangle Park, North Carolina 27711 (email: 

macpherson.alex@epa.gov). 

ACKNOWLEDGEMENTS

In addition to EPA staff from the Office of Air Quality Planning and Standards, 

personnel from RTI International contributed data and analysis to this document. Specific 

sections where RTI International made contributions include the industry profile and sections 

describing emissions, pollution control options, the engineering cost analysis, and potential 

employment impacts. 
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iii

TABLE OF CONTENTS

TABLE OF CONTENTS ....................................................................................................................III

LIST OF TABLES.............................................................................................................................IV

LIST OF FIGURES ............................................................................................................................ V

1 EXECUTIVE SUMMARY........................................................................................................ 1-1

1.1 INTRODUCTION ............................................................................................................................................ 1-1

1.2 RESULTS ...................................................................................................................................................... 1-1

1.3 ORGANIZATION OF THIS REPORT.................................................................................................................. 1-2

2 INDUSTRY PROFILE ............................................................................................................. 2-1

2.1 INTRODUCTION ............................................................................................................................................ 2-1

2.2 SUPPLY AND DEMAND CHARACTERISTICS ................................................................................................... 2-4

2.2.1 Goods and Services Used in Paper Manufacturing............................................................................ 2-4

2.2.2 Uses and Consumers........................................................................................................................ 2-10

2.3 FIRM AND MARKET CHARACTERISTICS...................................................................................................... 2-10

2.3.1 Location ........................................................................................................................................... 2-11

2.3.2 Production Capacity and Utilization................................................................................................ 2-11

2.3.3 Employment..................................................................................................................................... 2-12

2.3.4 Plants and Capacity.......................................................................................................................... 2-13

2.3.5 Firm Characteristics......................................................................................................................... 2-13

2.3.6 Size Distribution .............................................................................................................................. 2-15

2.3.7 Domestic Production........................................................................................................................ 2-16

2.3.8 International Trade........................................................................................................................... 2-17

2.3.9 Market Prices................................................................................................................................... 2-17

3 REGULATORY PROGRAM COST AND EMISSIONS REDUCTIONS ......................................... 3-1

3.1 INTRODUCTION ............................................................................................................................................ 3-1

3.2 EMISSIONS, EMISSIONS POINTS, EMISSIONS CONTROLS, AND REGULATORY OPTIONS................................. 3-1

3.3 ESTIMATED EMISSIONS REDUCTIONS AND ENGINEERING COST ANALYSIS.................................................. 3-3

4 ECONOMIC IMPACT ANALYSIS ........................................................................................... 4-1

4.1 INTRODUCTION ............................................................................................................................................ 4-1

4.2 MARKET ANALYSIS ..................................................................................................................................... 4-1

4.2.1 Market Analysis Methods.................................................................................................................. 4-2

4.2.2 Model Baseline .................................................................................................................................. 4-4

4.2.3 Model Parameters.............................................................................................................................. 4-6

4.2.4 Entering Estimated Annualized Engineering Compliance Costs into Economic Model ................... 4-8

4.2.5 Model Results.................................................................................................................................. 4-11

4.2.6 Limitations....................................................................................................................................... 4-14

4.3 SMALL BUSINESS IMPACTS ANALYSIS ....................................................................................................... 4-15

4.3.1 Small Business National Overview ................................................................................................. 4-15

4.3.2 Small Entity Economic Impact Measures........................................................................................ 4-17

4.3.3 Small Entity Economic Impact Analysis and Conclusions.............................................................. 4-18

4.4 EMPLOYMENT IMPACTS ANALYSIS ............................................................................................................ 4-20

5 REFERENCES........................................................................................................................ 5-1
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LIST OF TABLES

Table 2-1 Key Statistics: Paper Manufacturing (NAICS 322)............................................................................ 2-1

Table 2-2 Industry Data: Paper Manufacturing (NAICS 322)............................................................................ 2-2

Table 2-3 Costs of Goods and Services Used in the Paper Manufacturing Industry (NAICS 322).................... 2-6

Table 2-4 Key Goods and Services Used in the Paper Manufacturing Industry (NAICS 322) ($millions, $2007)

2-7

Table 2-5 Energy Used in Paper Manufacturing (NAICS 322)......................................................................... 2-8

Table 2-6 Estimated Energy Sources for the U.S. Pulp and Paper Industry ....................................................... 2-9

Table 2-7 Demand by Sector: Paper Manufacturing Industry (NAICS 322) ($millions, $2007) ..................... 2-10

Table 2-8 Largest U.S. Paper and Forest Products Companies: 2006 .............................................................. 2-14

Table 2-9 Distribution of Economic Data by Enterprise Size: Paper Manufacturing (NAICS 322) ................ 2-15

Table 2-10 Small Business Size Standards: Paper Manufacturing (NAICS 322)............................................... 2-16

Table 3-1 Number of Mills Using Various Condensate Treatment Methods ..................................................... 3-3

Table 3-2 Regulatory Options, Affected Facilities, and Associated HAP Emission Reductions ....................... 3-3

Table 3-3 Kraft Condensate Options: Estimated Costs, Emissions Reductions, and Cost Effectiveness (costs in 

2010 dollars)....................................................................................................................................... 3-4

Table 3-4 Summary Nationwide Costs Emissions Reductions, and Cost Effectiveness (costs in 2010 dollars) 3-5

Table 4-1 Baseline Paper Market Data, 2010 (in 2010 dollars).......................................................................... 4-5

Table 4-2 Products Used for Price Information .................................................................................................. 4-6

Table 4-3 Demand Elasticity Estimates.............................................................................................................. 4-7

Table 4-4 Supply Elasticity Estimates................................................................................................................ 4-8

Table 4-5 Estimated Annualized Engineering Compliance Costs by Paper Product across Regulatory Options 

(thousands 2010 dollars) .................................................................................................................... 4-9

Table 4-6 Estimated Annualized Engineering Compliance Costs by Paper Product across Regulatory Options, 

after Redistributing Estimated Costs to Pulp Producers (thousands 2010 dollars)........................... 4-10

Table 4-7 Annualized Engineering Compliance Costs per Ton Product Produced at National Level across 

Regulatory Options (in 2010 dollars)............................................................................................... 4-11

Table 4-8 Summary of Market Impacts (%) Across Products and Regulatory Option..................................... 4-12

Table 4-9 Change in Price and Quantity (#) across Products and Regulatory Options (costs in 2010 dollars) 4-13

Table 4-10 Summary of Consumer and Producer Surplus Changes: 2010 (in millions of 2010 dollars)........... 4-14

Table 4-11 Number of Firms, Total Employment, and Estimated Salaries........................................................ 4-17

Table 4-12 Potentially Affected Small Entities: Employees and Sales, 2010..................................................... 4-19

Table 4-13 Estimated Annualized Engineering Costs for Potentially Affected Small Entities across Regulatory 

Options (costs in 2010 dollars)......................................................................................................... 4-19

Table 4-14 Labor-based Employment Estimates for Operating and Maintaining Control Equipment 

Requirements, Proposed NESHAP Options..................................................................................... 4-22
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LIST OF FIGURES

Figure 2-1 Distribution of Value of Shipments within Paper Manufacturing (NAICS 322): 2007..................... 2-4

Figure 2-2 Distribution of Employment within Paper Manufacturing (NAICS 322): 2007................................ 2-4

Figure 2-3 Electrical Power Use Trends in the Paper Manufacturing Industry: 1997–2005............................... 2-9

Figure 2-4 Establishment Concentration in Paper Manufacturing Industry (NAICS 322): 2002...................... 2-11

Figure 2-5 Capacity Utilization Trends in the Paper Manufacturing Industry (NAICS 322)............................ 2-12

Figure 2-6 Employment Concentration in the Paper Manufacturing Industry (NAICS 322): 2002.................. 2-13

Figure 2-7 Capacity Trends in the Paper Manufacturing Industry (NAICS 322).............................................. 2-14

Figure 2-8 Industrial Production Trends in the Paper Manufacturing Industry (NAICS 322): 1997–2009 ...... 2-17

Figure 2-9 International Trade Trends in the Paper Manufacturing Industry (NAICS 322) ............................. 2-18

Figure 2-10 Producer Price Trends in the Paper Manufacturing Industry (NAICS 222) .................................... 2-18
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1 EXECUTIVE SUMMARY

1.1 Introduction

EPA is performing a Risk and Technology Review (RTR) that focuses on the National 

Emission Standards for Hazardous Air Pollutants (NESHAP) Subpart S. Subpart S controls 

hazardous air pollutant (HAP) emissions from the pulp and paper production areas of mills using 

the kraft, sulfite, semi-chemical, and soda pulp processes (MACT I) and HAP emissions from 

pulp and paper production areas of mills using mechanical, secondary fiber, and non-wood 

pulping, and papermaking systems at all mills (MACT III). As of this review, a total of 171 pulp 

and paper major sources are subject to MACT I and III.

Under this proposal, affected pulp and paper facilities will be required to implement 

control measures and absorb regulatory costs. As part of the regulatory process, EPA is required 

to develop an economic impact analysis (EIA) and small entity impacts analysis for the 

potentially affected industries. This report documents the methods and results of this EIA.

1.2 Results

EPA estimates the program will result in very small increases in market prices and very

small reductions in output of paper and paperboard products produced by the affected industries.

The economic approach and engineering cost approach yield approximately the same estimate of 

the total change in surplus under the regulatory program. However, the economic approach 

identifies important distributional impacts among stakeholders. The key results of the EIA are as 

follows:

 Engineering Cost Analysis: Total annualized engineering costs measure the costs 

incurred by affected industries annually. The annualized engineering costs for the

proposed regulatory alternative are estimated to be $6.2 million in 2010 dollars.

 Market Analysis: The proposed option induces minimal changes in the average national 

price of paper and paperboard products. Paper and paperboard product prices increase 

less than 0.01% on average, while production levels decrease less that 0.01% on average, 

as a result of the proposed option.

 Economic Welfare Analysis: The economic analysis identifies important transitory

impacts across stakeholders as paper and paperboard product markets adjust to higher 

production costs. Consumers see reductions in economic welfare of about $3.3 million as 

the result of higher prices and reduced consumption. Although producers’ welfare losses 
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are mitigated to some degree by higher prices, market conditions limit their ability to pass 

on all of the compliance costs. As a result, they also experience a loss in economic 

welfare of about $2.9 million.

 Small Business Analysis: EPA performed a screening analysis for impacts on small 

businesses by comparing estimated annualized engineering compliance costs at the 

company-level to company sales. The screening analysis found that the ratio of 

compliance cost to company revenue falls below 1% for the three small companies that 

are likely to be affected by the proposed option. Based upon this analysis, we conclude 

there is no significant impact on a substantial number of small entities (SISNOSE) arising 

from the proposed NESHAP amendments. 

 Employment Impact Analysis: EPA estimated the annual labor required to comply with 

the requirements of the proposal. To do this, EPA first estimated the labor required for 

emission control equipment operation and maintenance, as well as reporting and 

recordkeeping, then converted this number to full-time equivalents (FTEs) by dividing by 

2,080 (40 hours per week multiplied by 52 weeks). The upfront (one-time) and ongoing, 

annual labor required for complying with the proposed option is estimated at about 2.5 

and 9.1 FTEs, respectively. EPA notes that this type of FTE estimate cannot be used to 

make assumptions about the specific number of people involved or whether new jobs are 

created for new employees.

1.3 Organization of this Report

The remainder of this report details the methodology and the results of the EIA. Section 

2 presents the industry profile of the papermaking industry. Section 3 describes the emissions 

points, controls, regulatory options evaluated in the EIA, emissions reduction estimates, and 

engineering costs analysis. Section 4 presents the economic, small business, and employment 

impacts analyses. Section 5 lists references cited throughout the EIA.
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2 INDUSTRY PROFILE

2.1 Introduction

The paper manufacturing subsector is an essential component of all business operations 

worldwide. Broadly speaking, paper and paperboard are manufactured by converting timber or 

other recycled material into products such as printing and writing papers, newsprint, tissue, and 

containerboard (Benwart 2006). The subsector has been experiencing a decline in shipments as 

of late. From 1997 to 2007, shipments in the industry declined 7%, and employment declined by

27% (Table 2-1). While total payroll dropped 26% over this time, annual payroll per employee 

rose 2% from 1997 to 2007 because of the decline in the number of employees (Table 2-2). 

Shipments per employee grew 28% from 1997 to 2007, with much of that growth taking place 

between 2002 and 2006 (Table 2-2).

Table 2-1 Key Statistics: Paper Manufacturing (NAICS 322)

1997 2002 2006 2007

Shipments ($2007, millions) $188,496 $175,983 $174,887 $175,806

Payroll ($2007, millions) $27,983 $24,561 $21,188 $20,804

Employees 574,274 489,367 414,049 416,886

Establishments 5,868 5,495 NA 4,803

NA = Not available.

Sources: U.S. Census Bureau; generated by RTI International; using American FactFinder; “Sector 31: Annual 

Survey of Manufactures: General Statistics: Statistics for Industry Groups and Industries: 2006 and 2005.” 

<http://factfinder.census.gov>; (July 8, 2008).

U.S. Census Bureau; generated by RTI International; using American FactFinder; “Sector 00: All Sectors: 

Core Business Statistics Series: Comparative Statistics for the United States and the States (1997 NAICS 

Basis): 2002 and 1997.” <http://factfinder.census.gov>; (July 8, 2008).

U.S. Census Bureau; generated by Kapur Energy and Environment; using American FactFinder; “Sector 

00: EC0700A1: All Sectors: Geographic Area Series: Economy-Wide Key Statistics: 2007.” Accessed on 

December 28, 2009. [Source for 2007 numbers]
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Table 2-2 Industry Data: Paper Manufacturing (NAICS 322)

Industry Data 1997 2002 2006 2007

Total shipments ($2007, millions) $188,496 $175,983 $174,887 $175,806

Shipments per establishment ($2007, thousands) $32,123 $32,026 NA $36,603

Average Shipments per employee ($2007) $328,233 $359,614 $422,381 $421,712

Average Shipments per $ of payroll ($2007) $6.74 $7.17 $8.25 $8.45

Average Annual payroll per employee ($2007) $48,727 $50,189 $51,174 $49,904

Average Employees per establishment 98 89 NA 87

NA = Not available.

Sources: U.S. Census Bureau; generated by RTI International; using American FactFinder; “Sector 31: Annual 

Survey of Manufactures: General Statistics: Statistics for Industry Groups and Industries: 2006 and 2005.” 

<http://factfinder.census.gov>; (July 8, 2008).

U.S. Census Bureau; generated by RTI International; using American FactFinder; “Sector 00: All Sectors: 

Core Business Statistics Series: Comparative Statistics for the United States and the States (1997 NAICS 

Basis): 2002 and 1997.” <http://factfinder.census.gov>; (July 8, 2008).

U.S. Census Bureau; generated by Kapur Energy and Environment; using American FactFinder; “Sector 

00: EC0700A1: All Sectors: Geographic Area Series: Economy-Wide Key Statistics: 2007.” 

<http://factfinder.census.gov>. Accessed on December 28, 2009. [Source for 2007 numbers]

The U.S. Census Bureau categorizes this industry’s facilities into two categories: pulp, 

paper, and paperboard manufacturing and converted paper product manufacturing. These are 

further divided into the following types of facilities as defined by the U.S. Census Bureau 

(2001):

 Pulp, Paper, and Paperboard:

– Pulp Mills (NAICS 32211): This industry comprises establishments primarily

engaged in manufacturing pulp without manufacturing paper or paperboard. The 

pulp is made by separating the cellulose fibers from the other impurities in wood 

or other materials, such as used or recycled rags, linters, scrap paper, and straw.

– Paper Mills (NAICS 32212): This industry comprises establishments primarily

engaged in manufacturing paper from pulp. These establishments may

manufacture or purchase pulp. In addition, the establishments may convert the 

paper they make. The activity of making paper classifies an establishment into 

this industry regardless of the output.

– Paperboard Mills (NAICS 32213): This industry comprises establishments 

primarily engaged in manufacturing paperboard from pulp. These establishments 

may manufacture or purchase pulp. In addition, the establishments may also 

convert the paperboard they make.
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 Converted Paper Products:

– Paperboard Containers Manufacturing (NAICS 32221): This industry comprises 

establishments primarily engaged in converting paperboard into containers 

without manufacturing paperboard. These establishments use corrugating, cutting, 

and shaping machinery to form paperboard into containers. Products made by

these establishments include boxes; corrugated sheets, pads, and pallets; paper 

dishes; and fiber drums and reels.

– Paper Bag and Coated and Treated Paper Manufacturing (NAICS 32222): This 

industry comprises establishments primarily engaged in one or more of the 

following manufacturing activities: cutting and coating paper and paperboard; 

cutting and laminating paper and paperboard and other flexible materials (except 

plastics film to plastics film); bags or multiwall bags or sacks of paper, metal foil, 

coated paper, or laminates or coated combinations of paper and foil with plastics 

film; laminated aluminum and other converted metal foils from purchased foils; 

and surface coating paper or paperboard.

– Stationary Product Manufacturing (NAICS 32223): This industry comprises 

establishments primarily engaged in converting paper or paperboard into products 

used for writing, filing, art work, and similar applications.

– Other Converted Paper Products (NAICS 32229): This industry comprises 

establishments primarily engaged in one of the following manufacturing 

activities:

 converting paper and paperboard into products (except containers, bags, 

coated and treated paper and paperboard, and stationery products), or

 converting pulp into pulp products, such as disposable diapers, or molded pulp 

egg cartons, food trays, and dishes.

Figure 2-1 shows that the value of shipments for converted paper products was 54% of 

the value of all paper products in 2007, while the value of shipments for pulp, paper, and 

paperboard products was 46%. Figure 2-2 indicates that 70% of industry employees worked in 

the converted paper product category of the industry due to the labor intensive aspects of those 

facilities.
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Figure 2-1 Distribution of Value of Shipments within Paper Manufacturing (NAICS 

322): 2007

Source: U.S. Census Bureau; generated by Kapur Energy and Environment; using American FactFinder: “Sector 

31: EC0731I1: Manufacturing: Industry Series: Detailed Statistics by Industry for the United States: 2007.” 

Accessed on December 28, 2009.

Figure 2-2 Distribution of Employment within Paper Manufacturing (NAICS 322): 2007

Source: U.S. Census Bureau; generated by Kapur Energy and Environment; using American FactFinder; “Sector 

31: EC0731I1: Manufacturing: Industry Series: Detailed Statistics by Industry for the United States: 2007.” 

<http://factfinder.census.gov>. Accessed on December 28, 2009.

2.2 Supply and Demand Characteristics

Next, we provide a broad overview of the supply and demand sides of the paper 

manufacturing industry. We emphasize the economic interactions this industry has with other 

industries, identify the key goods and services used by the industry, and identify the major uses 

and consumers of paper manufacturing products.

2.2.1 Goods and Services Used in Paper Manufacturing

In 2007, the cost of materials made up 53% of the total shipment value of goods in the 

paper manufacturing industry Table 2-3. Total compensation of employees represented 15% of 

PPP (3221)

CPP (3222) 46%

54%

PPP (3221)

30%

CPP (3222)

70%
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2-5

the total value in 2007, down from 17% in 2005. The total number of employees decreased by

2% between 2005 and 2007. Meanwhile shipments increased by 3% over the same period.

The top 10 industry groups supplying inputs to the paper manufacturing subsector 

accounted for 70% of the total intermediate inputs according to 2008 Bureau of Economic

Analysis (BEA) data (Table 2-4). Inputs for pulp, paper, and paperboard products are notably 

different from inputs for converted paper products because the NAICS 3221 group represents the 

initial step in the paper manufacturing process; thus, its inputs include more raw resources such 

as wood products, forestry and logging products, natural gas, and electricity. This becomes 

evident when observing inputs for converted paper products: 49% of the cost of inputs comes 

from pulp, paper, and paperboard products.

2.3.2.1.1 Energy. The Department of Energy (DOE) categorizes paper manufacturing 

(NAICS 322) as an energy-intensive subsector. The 2008 Annual Energy Outlook predicts that 

the paper-producing subsector will be one of four subsectors experiencing positive average 

growth of delivered energy consumption between 2006 and 2030 (U.S. Energy Information 

Administration 2008)

Energy generation from the recovery boiler is often insufficient for total plant needs, so 

facilities augment recovery boilers with fossil fuel–fired and wood waste–fired boilers (hogged 

fuel) to generate steam and often electricity. Industry wide, the use of pulp wastes, bark, and 

other papermaking residues supplies 58% of the energy requirements of pulp and paper 

companies (U.S. Environmental Protection Agency 2002).

Likewise, Table 2-5 shows that total energy use decreased between 1998 and 2006 by

14%. Figure 2-3 indicates that total electrical power use changed sporadically between 2002 

and 2004 but decreased consistently and rapidly after 2004.
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Table 2-3 Costs of Goods and Services Used in the Paper Manufacturing Industry 

(NAICS 322)

Variable 2005 Share 2006 Share 2007 Share

Total shipments ($2007, millions) $171,477 100% $174,887 100% $176,018 100%

Total compensation ($2007, millions) $28,846 17% $27,791 16% $27,150 15%

Annual payroll $21,792 13% $21,188 12% $20,804 12%

Fringe benefits $7,054 4% $6,603 4% $6,346 4%

Total employees 426,748 414,049 417,367

Average compensation per employee $67,596 $67,121 $65,051

Total production workers wages ($2007, 

millions)

$14,965 9% $14,689 8% $14,190 8%

Total production workers 331,228 321,684 321,937

Total production hours (thousands) 716,963 691,134 680,732

Average production wages per hour $21 $21 $21

Total cost of materials ($2007, thousands) $91,897 54% $92,452 53% $94,029 53%

Materials, parts, packaging $77,494 45% $78,202 45% $79,984 45%

Purchase electricity $3,788 2% $3,841 2% $3,780 2%

Purchased fuel ($2007) $5,537 3% $5,509 3% $5,511 3%

Other $5,078 3% $4,901 3% $4,755 3%

Sources: U.S. Census Bureau; generated by RTI International; using American FactFinder; “Sector 31: Annual 

Survey of Manufactures: General Statistics: Statistics for Industry Groups and Industries: 2006 and 2005.” 

<http://factfinder.census.gov>; (July 8, 2008).

U.S. Census Bureau; generated by Kapur Energy and Environment; using American FactFinder; “Sector 

31: EC0731I1: Manufacturing: Industry Series: Detailed Statistics by Industry for the United States: 2007.” 

<http://factfinder.census.gov>. Accessed on December 28, 2009. [Source for 2007 numbers]
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Table 2-4 Key Goods and Services Used in the Paper Manufacturing Industry 

(NAICS 322) ($millions, $2007)

Description BEA Code

NAICS 3221

Pulp, Paper, and 

Paperboard

NAICS 3222

Converted 

Paper Products Total

Pulp, paper, and paperboard 3221 $4,155 $30,448 $34,603

Wholesale trade 4200 $3,916 $6,356 $10,273

Management of companies and enterprises 5500 $3,154 $3,838 $6,993

Forestry and logging products 1130 $5,389 $0 $5,389

Basic chemicals 3251 $3,734 $263 $3,997

Electric power generation, transmission, 

and distribution

2211 $2,690 $913 $3,603

Wood products 3210 $3,450 $33 $3,484

Converted paper products 3222 $1,415 $1,745 $3,159

Natural gas distribution 2212 $2,680 $345 $3,026

Truck transportation 4840 $1,428 $1,571 $2,999

Total intermediate inputs T005 $47,835 $62,690 $110,525

Source: U.S. Bureau of Economic Analysis (BEA). 2008. “2002 Benchmark Input-Output Accounts: 2002 

Standard Make and Use Tables at the Summary Level.” Table 2. Washington, DC: BEA.
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Table 2-5 Energy Used in Paper Manufacturing (NAICS 322)

Fuel Type 1998 2002 2006

Net electricitya(million kWh) 70,364 65,503 72,518

Residual fuel oil (million bbl) 24 16 15

Distillate fuel oilb(million bbl) 2 2 2

Natural gasc(billion cu ft) 570 490 461

LPG and NGLd(million bbl) 1 2 1

Coal (million short tons) 12 11 10

Coke and breeze (million short tons) — * —

Othere(trillion BTU) 1,476 1,276 1,303

Total (trillion BTU) 2,744 2,361 2,354

a Net electricity is obtained by summing purchases, transfers in, and generation from noncombustible renewable 

resources, minus quantities sold and transferred out. It does not include electricity inputs from on-site 

cogeneration or generation from combustible fuels because that energy has already been included as generating 

fuel (for example, coal).

b Distillate fuel oil includes Nos. 1, 2, and 4 fuel oils and Nos. 1, 2, and 4 diesel fuels.

c Natural gas includes natural gas obtained from utilities, local distribution companies, and any other supplier(s), 

such as independent gas producers, gas brokers, marketers, and any marketing subsidiaries of utilities.

d Examples of liquefied petroleum gases (LPG) are ethane, ethylene, propane, propylene, normal butane, butylene, 

ethane-propane mixtures, propane-butane mixtures, and isobutene produced at refineries or natural gas processing 

plants, including plants that fractionate raw natural gas liquids (NGLs).

e Other includes net steam (the sum of purchases, generation from renewables, and net transfers), and other energy 

that respondents indicated was used to produce heat and power.

* Estimate less than 0.5.

Sources: U.S. Department of Energy, Energy Information Administration. 2007. “2002 Energy Consumption by 

Manufacturers—Data Tables.” Tables 3.2 and N3.2. <http://www.eia.doe.gov/emeu/mecs/mecs2002/

data02/shelltables.html>. Washington, DC: DOE.

U.S. Department of Energy, Energy Information Administration. 2007b. “2006 Energy Consumption by 

Manufacturers—Data Tables.” Table 3.1. <http://www.eia.doe.gov/emeu/mecs/mecs2006/

2006tables.html>. Accessed on December 27, 2009. [Source for 2006 numbers]

Over the last 25 years, the pulp and paper subsector has changed its energy generation 

methods from fossil fuels to a greater use of processes such as increases in the use of wood 

wastes in place of fuel (Table 2-6). During the 1972–1999 period, the proportion of total 

industry power generated from the combination of wood wastes, spent liquor solids, and other 

self-generated methods increased from about 41% to about 56%, while coal, fuel oil, and natural 

gas use decreased from about 54% to about 36% (U.S. Environmental Protection Agency 2002).
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Figure 2-3 Electrical Power Use Trends in the Paper Manufacturing Industry: 1997–

2005

Source: Federal Reserve Board. 2009. “Industrial Production and Capacity Utilization: Electric Power Use: 

Manufacturing and Mining.” Series ID: G17/KW/KW.GMF.S & G17/KW/KW.G322.S. 

<http://www.federalreserve.gov/datadownload/>.

Table 2-6 Estimated Energy Sources for the U.S. Pulp and Paper Industry

Energy Source 1972 1979 1990 1999

Purchased steam 5.4% 6.7% 7.3% 1.5%

Coal 9.8% 9.1% 13.7% 12.5%

Fuel oil 22.3% 19.1% 6.4% 6.3%

Natural gas 21.5% 17.8% 16.4% 17.6%

Other purchased energy — — — 6.7%

Waste wood and wood chips (hogged fuel) 

and bark

6.6% 9.2% 15.4% 13.5%

Spent liquor solids 33.7% 37.3% 39.4% 40.3%

Other self-generated power 0.6% 0.8% 1.2% 1.6%

Source: U.S. Environmental Protection Agency. 2002. “Profile of the Pulp and Paper Industry.” Sector Notebook 

Project. <http://www.epa.gov/Compliance/resources/publications/assistance/sectors/notebooks/

index.html>.

90

92

94

96

98

100

102

104

106

108

Jan-97

Jul-97

Jan-98

Jul-98

Jan-99

Jul-99

Jan-00

Jul-00

Jan-01

Jul-01

Jan-02

Jul-02

Jan-03

Jul-03

Jan-04

Jul-04

Jan-05

Jul-05

Index Value (Jan-97=100)

Manufacturing Paper
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2-10

2.2.2 Uses and Consumers

Products manufactured in the NAICS groups 3221 and 3222 have different, but 

complementary, consumer profiles. NAICS 3221 supplies a significant portion of NAICS 3222 

demand (37% of total commodity output). Both industries specialize in products with 

intermediate uses, with an average of 92% of sales between the two going toward this purpose. 

NAICS 3222 has a very diverse assortment of subsector groups from which it receives demand. 

Food manufacturing makes up 21% of the demand, making members of this industry the largest 

consumer of converted paper products (Table 2-7). Pulp, paper, and paperboard products have a 

large trade deficit, while converted paper products have a very small trade surplus.

Table 2-7 Demand by Sector: Paper Manufacturing Industry (NAICS 322) ($millions, 

$2007)

Sector BEA Code

3221

Pulp, Paper, and 

Paperboard

3222

Converted 

Paper Products Total

Converted paper product manufacturing 3222 $30,448 $1,745 $32,193

Food manufacturing 3110 $638 $18,782 $19,421

Printing and related support activities 3230 $13,320 $3,874 $17,194

General state and local government 

services

S007 $6,065 $7,792 $13,857

Pulp, paper, and paperboard mills 3221 $4,155 $1,415 $5,569

Newspaper, periodical, book, and 

directory publishers

5111 $4,851 $168 $5,018

Plastics and rubber products 

manufacturing

3260 $1,249 $3,403 $4,651

Wholesale trade 4200 $990 $2,619 $3,609

Food services and drinking places 7220 $1,510 $2,597 $4,107

Total intermediate use T001 $76,729 $80,862 $157,591

Personal consumption expenditures F010 $11,882 $9,295 $21,177

Exports of goods and services F040 $7,724 $5,799 $13,523

Imports of goods and services F050 −$15,284 −$5,720 −$21,005

Total final uses (GDP) T004 $4,996 $9,607 $14,604

Total commodity output T007 $81,725 $90,469 $172,195

Source: U.S. Bureau of Economic Analysis (BEA). 2008. “2002 Benchmark Input-Output Accounts: 2002 

Standard Make and Use Tables at the Summary Level.” Table 2. Washington, DC: BEA.

2.3 Firm and Market Characteristics

This section describes geographic, production, and market data. These data provide the 

basis for further analysis, and depict recent historical trends of production and pricing.
*** Draft – Do Not Cite, Quote, or Release During Review ***

2-11

2.3.1 Location

As Figure 2-4 illustrates, as of 2002, California was home to the most paper 

manufacturing establishments in the United States, followed by Illinois and some bordering 

northeastern states. The location of establishments in the paper manufacturing industry varies a 

great deal by subsector. Wisconsin and New York had the most pulp, paper, and paperboard 

establishments, while California dominated with over 500 converted paper product 

establishments. Overall, as of 2002, the United States had 561 pulp, paper, and paperboard 

establishments and 4,956 converted paper product establishments.

Figure 2-4 Establishment Concentration in Paper Manufacturing Industry (NAICS 

322): 2002

Source: U.S. Census Bureau; generated by RTI International; using American FactFinder; “Sector 31: 

Manufacturing: Geographic Area Series: Industry Statistics for the States, Metropolitan and Micropolitan 

Statistical Areas, Counties, and Places: 2002.” <http://factfinder.census.gov>; (July 23, 2008).

2.3.2 Production Capacity and Utilization

Capacity utilization of the paper manufacturing subsector has been experiencing a steady 

decline, similar to the decline of the total manufacturing sector. However, paper manufacturing 

has managed to use its capacity at a consistently higher rate than the average for manufacturing 

industries (Figure 2-5).

Establishments

Fewer than 50

50 - 99

100 - 199

200 - 300

More than 300
*** Draft – Do Not Cite, Quote, or Release During Review ***

2-12

Figure 2-5 Capacity Utilization Trends in the Paper Manufacturing Industry 

(NAICS 322)

Source: Source: Federal Reserve Board. 2009. “Industrial Production and Capacity Utilization: Capacity 

Utilization.” Series ID: G17/CAPUTL/CAPUTL.GMF.S & G17/CAPUTL/CAPUTL.G322.S. 

<http://www.federalreserve.gov/datadownload/>.

2.3.3 Employment

Wisconsin has the largest number of employees in the paper manufacturing subsector 

with over 38,008 reported in the 2002 census followed by 29,379 in California (Figure 2-6). The 

converted paper products group has more employees per establishment, 283, than the pulp, 

paper, and paperboard group, 67.

0

5

10

15

20

25

30

35

40

45

50

55

60

65

70

75

80

85

90

95

100

Jan-97

Jul-97

Jan-98

Jul-98

Jan-99

Jul-99

Jan-00

Jul-00

Jan-01

Jul-01

Jan-02

Jul-02

Jan-03

Jul-03

Jan-04

Jul-04

Jan-05

Jul-05

Jan-06

Jul-06

Jan-07

Jul-07

Jan-08

Jul-08

Jan-09

Jul-09

Percentage Capacity Utilization

Manufacturing Paper (NAICS 322)
*** Draft – Do Not Cite, Quote, or Release During Review ***

2-13

Figure 2-6 Employment Concentration in the Paper Manufacturing Industry (NAICS 

322): 2002

Source: U.S. Census Bureau; generated by RTI International; using American FactFinder; “Sector 31: 

Manufacturing: Geographic Area Series: Industry Statistics for the States, Metropolitan and Micropolitan 

Statistical Areas, Counties, and Places: 2002.” <http://factfinder.census.gov>; (July 23, 2008).

2.3.4 Plants and Capacity

While the manufacturing sector has been growing consistently since 1997, the paper 

manufacturing sector has not experienced the same amount of success in the same period. 

Despite a small amount of growth in capacity between 1997 and 2001, the paper manufacturing 

subsector’s capacity has declined to as much as 7% below 1997 capacity levels (Figure 2-7).

2.3.5 Firm Characteristics

In 2006, the top 10 paper and forest product companies produced over $75 billion in 

sales, with the top two companies—International Paper and Weyerhaeuser—generating nearly 

$22 billion each (Figure 2-8). The top two companies’ revenue consists of 58% of the revenue 

of the top 10 companies in Standard & Poor’s (S&P’s) list (Benwart 2006). Although these 

numbers do not exclusively reflect paper products, they do convey the market environment in 

which firms in this sector compete.

Employment

Fewer than 3,000

3,000 - 5,999

6,000 - 11,999

12,000 - 24,000

More than 24,000
*** Draft – Do Not Cite, Quote, or Release During Review ***

2-14

Figure 2-7 Capacity Trends in the Paper Manufacturing Industry (NAICS 322)

Source: Federal Reserve Board. 2009. “Industrial Production and Capacity Utilization: Industrial Capacity.” Series 

ID: G17/CAP/CAP.GMF.S & G17/CAP/CAP.G322.S. <http://www.federalreserve.gov/datadownload/>.

Table 2-8 Largest U.S. Paper and Forest Products Companies: 2006

Company Revenues ($millions)a

International Paper 21,995

Weyerhaeuser 21,896

Smurfit-Stone 7,157

MeadWestvaco 6,530

Temple-Inland 5,558

Bowater 3,530

Grief Inc. 2,628

Louisiana-Pacific 2,235

Packaging Corp. 2,187

Plum Creek 1,627

a

Includes revenues from operations other than paper and forest products in certain cases.

Sources: Benwart, S.J. 2006. “Paper & Forest Products. Standard and Poor’s Industry Surveys.” 176(28).

U.S. and international sales data from company reports.

90

100

110

120

130

140

150

1997-011997-071998-011998-071999-011999-072000-012000-072001-012001-072002-012002-072003-012003-072004-012004-072005-012005-072006-012006-072007-012007-072008-012008-072009-012009-07

Index Value (Jan-97=100)

Manufacturing Paper (NAICS 322)
*** Draft – Do Not Cite, Quote, or Release During Review ***

2-15

2.3.6 Size Distribution

The primary criterion for categorizing a business as small is the number of employees, 

using definitions by the SBA for regulatory flexibility analyses. According to SUSB reports for 

2002, large companies dominated revenue-generating transactions in the paper manufacturing 

subsector; 80% of receipts were generated by companies with 500 employees or more (Table 

2-9). This was especially true in the pulp, paper, and paperboard group, in which large 

companies generated 92% of receipts. The number of employees in the small business cutoff 

varies according to six-digit NAICS codes (Table 2-10). The cutoff for all subsectors in the pulp, 

paper, and paperboard group is 750 employees, while the cutoff for most converted paper 

product groups is 500 employees.

Table 2-9 Distribution of Economic Data by Enterprise Size: Paper Manufacturing 

(NAICS 322)

Enterprises with

Variable Total

1 to 20 

Employeesa

20 to 99 

Employees

100 to 499 

Employees

500 to 749 

Employees

750 to 999 

Employees

1,000 to 

1,499 

Employees

Firms 3,538 1,482 1,200 476 43 22 33

Establishments 5,546 1,488 1,271 755 83 69 138

Employment 495,990 11,325 52,334 78,402 13,293 12,496 23,283

Receipts ($millions) $154,746 $2,218 $9,483 $17,620 $3,034 $3,951 $6,798

Receipts/firm

($thousands) $43,738 $1,497 $7,903 $37,017 $70,561 $179,577 $206,001

Receipts/establishment 

($thousands) $27,902 $1,491 $7,461 $23,338 $36,556 $57,256 $49,261

Receipts/employment 

($) $311,994 $195,850 $181,203 $224,742 $228,250 $316,157 $291,974

a Excludes SUSB employment category for zero employees. These entities only operated for a fraction of the year.

Source: U.S. Census Bureau. 2008. “Firm Size Data from the Statistics of U.S. Businesses: U.S. Detail 

Employment Sizes: 2002.” <http://www.census.gov/csd/susb/download_susb02.htm>.
*** Draft – Do Not Cite, Quote, or Release During Review ***

2-16

Table 2-10 Small Business Size Standards: Paper Manufacturing (NAICS 322)

NAICS NAICS Description Employees

322110 Pulp Mills 750

322121 Paper (except Newsprint) Mills 750

322122 Newsprint Mills 750

322130 Paperboard Mills 750

322211 Corrugated and Solid Fiber Box Manufacturing 500

322212 Folding Paperboard Box Manufacturing 750

322213 Setup Paperboard Box Manufacturing 500

322214 Fiber Can, Tube, Drum, and Similar Products Manufacturing 500

322215 Non-Folding Sanitary Food Container Manufacturing 750

322221 Coated and Laminated Packaging Paper Manufacturing 500

322222 Coated and Laminated Paper Manufacturing 500

322223 Coated Paper Bag and Pouch Manufacturing 500

322224 Uncoated Paper and Multiwall Bag Manufacturing 500

322225 Laminated Aluminum Foil Manufacturing for Flexible, Packaging 

Uses

500

322226 Surface-Coated Paperboard Manufacturing 500

322231 Die-Cut Paper and Paperboard Office Supplies, Manufacturing 500

322232 Envelope Manufacturing 500

322233 Stationery, Tablet, and Related Product Manufacturing 500

322291 Sanitary Paper Product Manufacturing 500

322299 All Other Converted Paper Product Manufacturing 500

Source: U.S. Small Business Administration (SBA). 2008. “Table of Small Business Size Standards Matched to 

North American Industry Classification System Codes.” Effective August 22, 2008. 

<http://www.sba.gov/services/contractingopportunities/sizestandardstopics/size/index.html>.

2.3.7 Domestic Production

Similar to industry capacity rates, subsector production rates for paper manufacturing 

have witnessed a decreasing rate of production compared to the steady increase in production for 

the manufacturing sector since 1997 (Figure 2-8). It seems that the paper manufacturing sector 

was not able to return to its former levels of growth following the 2001 recession; it has 

experienced a downward production trend since then.
*** Draft – Do Not Cite, Quote, or Release During Review ***

2-17

Figure 2-8 Industrial Production Trends in the Paper Manufacturing Industry (NAICS 

322): 1997–2009

Source: Federal Reserve Board. 2009. “Industrial Production and Capacity Utilization: Industrial Production.” 

Series ID: G17/IP_MAJOR_INDUSTRY_GROUPS/IP.GMF.S & G17/IP_MAJOR_INDUSTRY_

GROUPS/IP.G322.S. <http://www.federalreserve.gov/datadownload/>.

2.3.8 International Trade

Since 1997, paper manufacturing products, both pulp, paper, and paperboard products 

and converted paper products, have contributed to an increasing trade surplus in this sector 

(Figure 2-9). Imports and exports have been changing at similar rates since 1999.

2.3.9 Market Prices

Prices of goods in paper manufacturing have been increasing at a rate consistent with all 

manufacturing products (Figure 2-10). Producer price indices (PPIs) show that producer prices 

for paper in 2007 increased by 20% since 1997, while producer prices for all manufacturing 

goods increased by roughly 27%.

90

100

110

120

130

140

150

1997-011997-071998-011998-071999-011999-072000-012000-072001-012001-072002-012002-072003-012003-072004-012004-072005-012005-072006-012006-072007-012007-072008-012008-072009-012009-07

Index Value (Jan-97=10

0)

Manufacturing Paper (NAICS 322)
*** Draft – Do Not Cite, Quote, or Release During Review ***

2-18

Figure 2-9 International Trade Trends in the Paper Manufacturing Industry (NAICS 

322)

Source: U.S. International Trade Commission. 2008b. “U.S. Total Exports” & “U.S. Imports for Consumption.” 

<http://dataweb.usitc.gov/scripts/user_set.asp>.

Figure 2-10 Producer Price Trends in the Paper Manufacturing Industry (NAICS 222)

Source: U.S. Bureau of Labor Statistics (BLS). 2009. “Producer Price Index.” Series ID: PCU322–322– & 

PCUOMFG–OMFG–. <http://www.bls.gov/ppi/home.htm>.

0

5,000

10,000

15,000

20,000

25,000

30,000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

$1,000,000 (2007)

Year

Paper Exports Paper Imports

75

85

95

105

115

125

135

Jan-97

Jul-97

Jan-98

Jul-98

Jan-99

Jul-99

Jan-00

Jul-00

Jan-01

Jul-01

Jan-02

Jul-02

Jan-03

Jul-03

Jan-04

Jul-04

Jan-05

Jul-05

Jan-06

Jul-06

Jan-07

Jul-07

Jan-08

Jul-08

Jan-09

Jul-09

Index Value (Jan-97=100)

Manufacturing Paper (NAICS 322)
*** Draft – Do Not Cite, Quote, or Release During Review ***

3-1

3 REGULATORY PROGRAM COST AND EMISSIONS REDUCTIONS

3.1 Introduction

This Risk and Technology Review (RTR) focuses on the National Emission Standards for 

Hazardous Air Pollutants (NESHAP) Subpart S. Subpart S controls hazardous air pollutant 

(HAP) emissions from the pulp and paper production areas of mills using the kraft, sulfite, semichemical, and soda pulp processes (MACT I) and HAP emissions from pulp and paper 

production areas of mills using mechanical, secondary fiber, and non-wood pulping, and 

papermaking systems at all mills (MACT III). As of this review, a total of 171 pulp and paper 

major sources are subject to MACT I and III.

Under this proposal, affected pulp and paper facilities will be required to implement 

control measures and absorb regulatory costs. This section presents the emission and emission 

points addressed in this RTR proposal, as well as the controls, regulatory options evaluated in the 

EIA, estimated emission reductions, and the engineering cost analysis associated with each 

regulatory option.

3.2 Emissions, Emissions Points, Emissions Controls, and Regulatory Options

Even though MACT I and MACT III controls HAP emissions from a wide variety of 

pulp and paper processes, the proposed RTR standards will primarily affect HAP emissions from 

kraft condensates at kraft mills. Kraft mills are those that use an alkaline cooking liquor of 

sodium hydroxide (NaOH) and sodium sulfide (Na2S) to digest wood. Kraft pulping condensates 

are HAP-containing liquids that condense from pulping system vent streams. These HAPcontaining liquids result from the contact of organic compounds in the pulping process with 

water or steam that condenses. HAP emissions from kraft condensates are primarily organic 

HAPs like methanol, acetaldehyde, and formaldehyde. Limiting HAP emissions from these kraft 

condensates will also reduce HAP emissions from the handling and reuse of these liquids and 

from wastewater treatment. Of the 171 major sources subject to Subpart S, 97 mills are currently

operating as kraft pulping facilities and currently subject to the kraft condensates standards under 

Subpart S.
*** Draft – Do Not Cite, Quote, or Release During Review ***

3-2

The current kraft condensate standard under Subpart S and Effluent Guideline standards 

require facilities to either 1) recycle the condensates back through systems controlled under lowvolume, high-concentration (LVHC) or high volume, low concentration (HVLC) requirements in 

the pulp mill or 2) remove 92% by weight of the condensates through steam stripping and 

incineration or biological control in a Wastewater Treatment System (hardpiping option). 

Because of other process considerations, kraft mills generally chose the 92% control option for 

compliance demonstration for kraft condensates rather than recycling.

For this EIA, we analyze three regulatory options for the Subpart S RTR:

Option 1: repeat air emission performance testing and retain current kraft condensate standards 

of 92% control

Option 2 (proposed option): tightening the kraft condensate standards from 92% control option 

to 94% and repeat air emission performance testing

Option 3: tightening the kraft condensate standards from 92% control option to 98% and repeat 

air emission performance testing.

Option 1, the repeat air emissions performance testing option, would require air emission 

performance testing once every five years for facilities complying with the standards for kraft, 

soda, and semichemical pulping vent gases, sulfite processes, and bleaching systems. Under this 

testing option, repeat air emissions testing would be required for mills complying with the kraft 

condensate standards using a steam stripper (or other equipment serving the same function) since 

such equipment is, by definition, part of the low-volume, high-concentration (LVHC) gas 

collection system. The EPA is not considering additional repeat testing for biological treatment 

systems to comply with the kraft pulping condensate standards because more frequent quarterly 

sampling is already required for biological treatment systems. The EPA is also not considering 

additional repeat testing for facilities complying with the clean condensate alternative (CCA) 

standards due to the complexity of this compliance approach. 

Options 2 and 3 would require repeat air emissions performance testing as in Option 1, 

but would additionally require kraft mills to further reduce total HAP emissions from the kraft 

condensates. Option 2 would require 94% total HAP control, while Option 3 would require 98% 

total HAP control from kraft condensates. Various treatment methods are currently used to 
*** Draft – Do Not Cite, Quote, or Release During Review ***

3-3

reduce total HAP emissions from kraft condensates to 92% or more. Reducing total HAPs 

emissions from 92% to 94% or 98% will require some facilities to upgrade or replace their 

existing control equipment. Table 3-1 presents the various condensate treatment methods 

currently used by kraft mills.

Table 3-1 Number of Mills Using Various Condensate Treatment Methods

Treatment Method No. of Facilities

Biotreatment 39

Recycle 5

Stripping or stripping/recycle 43

Stripping and biotreatment 9

Thermal incinerator 1

Total 97

3.3 Estimated Emissions Reductions and Engineering Cost Analysis

Table 3-2 presents the regulatory options under analysis in the EIA and the number of 

affected facilities and the associated emission reductions under each regulatory option.

Table 3-2 Regulatory Options, Affected Facilities, and Associated HAP Emission 

Reductions

Option

Regulatory 

Control Option

No. of Facilities 

Affected

Nation-wide HAP Reduction 

(ton/yr)

Option 1 Repeat air emission testing 114 0

Option 2 (proposed)

Tightening the kraft condensate 

standards from 92% to 94% and 

repeat air emission testing

Kraft condensate 15 

Repeat Testing 114

4,090

Option 3 Tightening the kraft condensate 

standards from 92% to 98%

and repeat air emission testing

Kraft condensate 66 

Repeat Testing 114

12,300

Each regulatory option requires repeat emission testing. No emission reductions are 

expected from this repeat testing requirement. However, it stands to reason that repeat testing 

would provide incentive for facilities to maintain their control systems and make periodic 

adjustments to ensure peak performance, thereby reducing emissions and the potential for 

periodic episodes of acute risk. A total of 114 facilities will be affected by this requirement 
*** Draft – Do Not Cite, Quote, or Release During Review ***

3-4

based on the number of chemical pulp mills and mills that bleach with chlorinated compounds. 

Nationwide capital cost for repeat emission testing is estimated to be $5.4 million while the 

annualized cost is estimated to be $1.3 million per year.

Under Options 2 and 3, some kraft facilities would need to upgrade or replace existing 

control equipment. Option 2 would require 15 facilities to reduce their total HAP from kraft 

condensates from 92 to 94%. Per the Pulp and Paper survey data, 82 kraft mills are currently

achieving 94% emissions control. Option 3 will require 66 facilities to reduce their total HAP 

from kraft condensates from 92 to 98%. Per the Pulp and Paper survey data, 31 kraft mills are 

currently achieving 98% emissions control.

Table 3-3 presents the estimated emission reductions from kraft condensates across 

regulatory options. The estimated emission reductions for Options 2 and 3 includes incremental 

emission reductions already achieved in practice from mills exceeding the current standard since 

these emission reductions would now be required through a change in the existing regulatory

limit.

Table 3-3 Kraft Condensate Options: Estimated Costs, Emissions Reductions, and Cost 

Effectiveness (costs in 2010 dollars)

No. of Facilities 

Affected

Engineering 

Capital Costs

(millions)

Engineering 

Annualized Costs

(millions)

HAP Reductions 

(tons per year)

Option 1 0 0 0 0

Option 2 

(proposed)

15 $36.2 $4.1 4,090

Option 3 66 $297.0 $33.7 12,300

Table 3-4 summarizes estimated total engineering costs, emissions, reductions, and HAP 

reduction cost-effectiveness across the three regulatory options. This table includes additional 

reporting and recordkeeping expenses estimated to be required of affected firms. Capital costs 

and annualized cists for reporting and recordkeeping are estimated at $4,344 and $6,516 per 

affected facility, respectively. For the 114 affected firms, total national capital and annualized 

reporting and recordkeeping costs are estimated at $0.5 million and $0.7 million, respectively.
*** Draft – Do Not Cite, Quote, or Release During Review ***

3-5

Table 3-4 Summary Nationwide Costs Emissions Reductions, and Cost Effectiveness

(costs in 2010 dollars)

Engineering 

Capital Costs

(millions)

Engineering 

Annualized Costs 

(millions)

Estimated HAP 

Emissions 

Reductions

Cost Effectiveness 

($/ton)

Option 1 $5.9 $2.1 0 N/A

Option 2 

(proposed)

$42.1 $6.2 4,090 1,516

Option 3 $302.9 $35.7 12,300 2,906
*** Draft – Do Not Cite, Quote, or Release During Review ***

4-1

4 ECONOMIC IMPACT ANALYSIS

4.1 Introduction

The EIA is designed to inform decision makers about the potential economic consequences 

of a regulatory action. For the current proposed rulemaking, EPA performed a partialequilibrium analysis of national pulp and paper product markets to estimate potential paper 

product market and consumer and producer welfare impacts of the regulatory alternatives. This 

section also presents the analysis used to support the conclusion that EPA anticipates there will 

be no Significant Impact on a Substantial Number of Small Entities (SISNOSE) arising from the 

proposed NESHAP amendments. The section concludes with estimates of the initial and annual 

labor required to comply with the regulatory alternatives.

4.2 Market Analysis

EPA performed a series of single-market partial-equilibrium analyses of national pulp and 

paper product markets to measure the economic consequences of the regulatory options. With 

the basic conceptual model described below, we estimated how the regulatory program affects 

prices and quantities for ten paper and paperboard products that, aggregated, constitute the 

production of the industry. We also conducted an economic welfare analysis that estimates the 

consumer and producer surplus changes associated with the regulatory program. The welfare 

analysis identifies how the regulatory costs are distributed across two broad classes of 

stakeholders: consumers and producers.

While a series of partial equilibrium models was used to analyze the economic impacts of 

this proposal, EPA notes that it is currently developing the Industrial Sectors Integrated Solution 

Model (ISIS) for the U.S. pulp and paper industry. When completed, the ISIS model for the pulp 

and paper industry will be a dynamic engineering-economic model that facilitates analysis of 

emission reduction strategies for multiple pollutants, while taking into account plant-level 

economic and technical factors such as the type of mill, associated capacity, location, cost of 

production, applicable controls, and costs. By considering various emission reduction strategies, 
*** Draft – Do Not Cite, Quote, or Release During Review ***

4-2

the model when completed will provide information on optimal industry operation and determine 

the most cost-effective controls to meet the demand for pulp and paper products and the emission 

reduction requirements for a given time period of interest.

4.2.1 Market Analysis Methods

The models use a common analytic expression to analyze supply and demand in a single 

market (Berck and Hoffmann 2002; Fullerton and Metcalf 2002) and follows EPA guidelines for 

conducting an EIA (U.S. Environmental Protection Agency 2010). We illustrate our approach 

for estimating market-level impacts using a simple, single partial equilibrium model. The

method involves specifying a set of nonlinear supply and demand relationships for the affected 

market, simplifying the equations by transforming them into a set of linear equations, and then 

solving the equilibrium system of equations (see Fullerton and Metcalfe (2002) for an example). 

First, we consider the formal definition of the elasticity of supply, qs, with respect to 

changes in own price, p, where s

 represents the market elasticity of supply:

/

/

s s

s

dq q

dp p

  (4.1)

Next, we can use “hat” notation to transform Eq. 1 to proportional changes and rearrange terms:

ˆ ˆ

s s q p   (4.1a)

where ˆ

s

q equals the percentage change in the quantity of market supply, and ˆp equals the 

percentage change in market price. As Fullerton and Metcalfe (2002) note, we have taken the 

elasticity definition and turned it into a linear behavioral equation for the market we are 

analyzing.

To introduce the direct impact of the regulatory program, we assume the per-unit cost

associated with the regulatory program, c, leads to a proportional shift in the marginal cost of 

production 

mc. The per-unit costs are estimated by dividing the total estimated annualized 

engineering costs accruing to producers within a given product market by the baseline national 
*** Draft – Do Not Cite, Quote, or Release During Review ***

4-3

production in that market. Under the assumption of perfect competition (e.g. price equaling

marginal cost), we can approximate this shift at the initial equilibrium point as follows:



0 0

c c

mc

mc p

  . (4.1b)

The with-regulation supply equation can now be written as

 ˆ ˆ ( )

s s

q p    mc . (4.1c)

Next, we can specify a demand equation as follows:

ˆ ˆ d d q p   (4.2)

where

ˆ

d

q = percentage change in the quantity of market demand,

d = market elasticity of demand, and

ˆp = percentage change in market price.

Finally, we specify the market equilibrium conditions in the affected market. In response 

to the exogenous increase in production costs, producer and consumer behaviors are represented 

in Eq. 4-1a and Eq. 4-2, and the new equilibrium satisfies the condition that the change in supply 

equals the change in demand:

ˆ ˆ s d q q  . (4.3)

We now have three linear equations in three unknowns ( ˆp , ˆ

d

q , and ˆ

s

q ), and we can 

solve for the proportional price change in terms of the elasticity parameters ( s

 and d

) and the 

proportional change in marginal cost:











ˆ ˆ

ˆ ˆ

ˆ ˆ

s d

s s d

s d s

p mc p

p mc p

p p mc

 

  

  

 

 

 

(4.4)
*** Draft – Do Not Cite, Quote, or Release During Review ***

4-4

Given this solution, we can solve for the proportional change in market quantity using Eq. 4-2.

The change in consumer surplus in the affected market can be estimated using the 

following linear approximation method:

  cs   q p 1    0.5  q p  (4.5)

where 1

q equals with-regulation quantities produced. As shown, higher market prices and 

reduced consumption lead to welfare losses for consumers. 

For affected supply, the change in producer surplus can be estimated with the following 

equation:

  ps qpq 1 1       c q    0.5    p c. (4.6)

Increased regulatory costs and output declines have a negative effect on producer surplus, 

because the net price change   p c is negative. However, these losses are mitigated, to some 

degree, as a result of higher market prices. 

4.2.2 Model Baseline

Standard EIA practice compares and contrasts the state of a market with and without the 

regulatory policy. EPA selected 2010 as the baseline year for the analysis and collected pulp and 

paper production and price data for this year from the American Forest Products Association and 

RISI, Inc., respectively. The figures cited were obtained from RISI Inc.’s PPI Pulp and Paper 

Week. Baseline data are reported in Table 4-1.
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Table 4-1 Baseline Paper Market Data, 2010 (in 2010 dollars)

 Products

Price1

($/ton) 

Quantity2 

(tons/year) 

% of Total 

Production

Paper

Newsprint $ 580 3,429,000 4%

Uncoated mechanical $ 740 2,002,000 2%

Coated paper $ 960 7,903,000 10%

Uncoated freesheet $ 930 9,500,000 12%

Tissue3$ 1,765 7,302,000 9%

Other printing/writing $ 1,305 4,917,000 6%

Total Paper4$1,118 35,053,000 43%

Paperboard 

Unbleached Kraft paperboard $ 640 21,579,000 26%

Semichemical paperboard $ 610 5,443,000 7%

Bleached paperboard $ 1,290 5,499,000 7%

Recycled paperboard $ 855 14,896,000 18%

Total Paperboard4$779 47,417,000 57%

Total Paper and Paperboard4$923 82,470,000 100%

1 Source: RISI Inc. (2011a)

2

Source: American Forest Products Association; cited in RISI Inc. (2011b)

3 EPA was unable to obtain national price averages for tissue paper. For this analysis, EPA relied upon the average 

of the prices reported by two major tissue producers in corporate earnings statements. We will seek to obtain a 

better tissue price estimate for the EIA for promulgation of this rule. The price used in this table is derived from 

prices reported by Cellu Tissue in 2009 and Clearwater Paper (2010). 

4 Weighted average of individual product prices.

Because the paper and paperboard products listed in Table 4-2 are aggregates of many

relatively distinct types of products, EPA had to choose one product per aggregated product for 

price information. Ideally, the analyst would use weighted averaged of all products within the 

aggregate product category, but this information is not available to EPA as of the signature date 

for this proposal. With the exception of tissue papers (note footnote in Table 4-2), all product 

prices were drawn from a RISI, Inc. publication. Table 4-2 lists the aggregate product category

and product selected for pricing purposes as representative of the aggregate product. For the 

promulgation version of this EIA, EPA will further investigate appropriate price information.
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Table 4-2 Products Used for Price Information

Products Source Product Used for Price Information

Paper

Newsprint RISI Inc. 30-lb (East)

Uncoated mechanical RISI Inc. 22.1-lb White directory (mid-point min./max.

1

)

Coated paper RISI Inc. Economy 8-lb sheets (mid-point min./max.)

Uncoated freesheet RISI Inc. 50-lb offset, rolls (mid-point min./max.)

Other printing/writing RISI Inc.

Bleached bristols, 10-pt C1S, rolls (mid-point 

min./max.)

Paperboard

Unbleached Kraft paperboard RISI Inc. Unbleached kraft (East, mid-point min./max.)

Semichemical paperboard RISI Inc.

Corrugating Medium, Semichemical (East, 

mid-point min./max.)

Bleached paperboard RISI Inc. Grocery bag, 30-lb (mid-point min./max.)

Recycled paperboard RISI Inc. 20-pt clay coated news (mid-point min./max.)

1 For many products, RISI Inc. lists price ranges, based on minimum and maximum prices. We chose to use the 

midpoint of this range as the price used in the analyses. 

4.2.3 Model Parameters

Demand elasticity is calculated as the percentage change in the quantity of a product 

demanded divided by the percentage change in price. An increase in price causes a decrease in 

the quantity demanded, hence the negative values seen in Table 4-3, which presents the demand 

elasticities used in this analysis. Demand is considered elastic if demand elasticity exceeds 1.0 

in absolute value (i.e., the percentage change in quantity exceeds the percentage change in price). 

The quantity demanded, then, is very sensitive to price increases. Demand is considered 

inelastic if demand elasticity is less than 1.0 in absolute value (i.e., the percentage change in 

quantity is less than the percentage change in price). Inelastic demand implies that the quantity

demanded changes very little in response to price changes. 

As shown in Table 4-3, we draw demand elasticities from the North American Pulp and 

Paper (NAPAP) model, a dynamic model used by the U.S. Forest Service to analyze the paper 

and paperboard industry (Ince and Buongiorno 2007). The table presents the elasticity estimates, 

as well as the NAPAP product from which the elasticity estimate is drawn.
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Table 4-3 Demand Elasticity Estimates

Products Elasticity Source Source Product

Paper

Newsprint -0.22 NAPAP Newsprint

Uncoated mechanical -0.40 NAPAP Uncoated groundwood

Coated paper -0.40 NAPAP Coated freesheet

Uncoated freesheet -0.47 NAPAP Uncoated freesheet

Tissue -0.26 NAPAP Tissue

Other printing/writing -0.23 NAPAP Specialty packaging

Paperboard 

Unbleached Kraft paperboard -0.54 NAPAP Kraft packaging paper

Semichemical paperboard -0.43 NAPAP Corrugating medium

Bleached paperboard -0.29 NAPAP Solid bleached board

Recycled paperboard -0.40 NAPAP Recycled board

Source: The North American Pulp and Paper (NAPAP) model (Ince and Buongiorno 2007)

Supply elasticity is calculated as the percentage change in quantity supplied divided by

the percentage change in price. An upward sloping supply curve has a positive elasticity since 

price and quantity move in the same direction. If the supply curve has an elasticity greater than 

one, then supply is considered elastic, which means a small price increase will lead to a relatively 

large increase in quantity supplied. A supply curve with elasticity less than one is considered 

inelastic, which means an increase in price will cause little change in quantity supplied. In the 

long-run, when producers have sufficient time to completely adjust their production to a change 

in price, the price elasticity of supply is usually greater than one. 

As shown in Table 4-4, we draw supply elasticities from the U.S. Environmental 

Protection Agency’s Economic Impact and Regulatory Flexibility Analysis of Proposed Effluent 

Guidelines and NESHAP for the Pulp, Paper, and Paperboard Industry (1993). The table 

presents the elasticity estimates, as well as the product in the 1993 U.S. EPA from which the 

elasticity is drawn.
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Table 4-4 Supply Elasticity Estimates

Products Elasticity Source Source Product

Paper

Newsprint 0.29 U.S. EPA Newsprint

Uncoated mechanical 0.33 U.S. EPA Uncoated groundwood

Coated paper 1.65 U.S. EPA Clay coated printing and 

converted paper

Uncoated freesheet 0.31 U.S. EPA Uncoated freesheet

Tissue (need to find tissue price) 0.82 U.S. EPA Tissue

Other printing/writing 1.20 U.S. EPA Paper-other

Paperboard 

Unbleached Kraft paperboard 0.32 U.S. EPA Unbleached Kraft

Semichemical paperboard 0.28 U.S. EPA Semichemical paperboard

Bleached paperboard 0.68 U.S. EPA Bleached paperboard for 

miscellaneous packaging

Recycled paperboard 0.49 U.S. EPA Recycled paperboard

Source: U.S. Environmental Protection Agency (1993)

4.2.4 Entering Estimated Annualized Engineering Compliance Costs into Economic Model

In order to allocate estimate engineering costs across paper and paperboard product 

markets used in the partial equilibrium analyses, we first identified the primary product produced 

by affected mills and classified the primary product as one of the products used in the economic 

analysis. Then, using the mill-level estimates of annualized engineering compliance costs, we 

distributed the costs to products based upon the primary product produced at each mill. Table 

4-5 reports the results of this distribution across the three regulatory options considered.
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Table 4-5 Estimated Annualized Engineering Compliance Costs by Paper Product 

across Regulatory Options (thousands 2010 dollars)

Products Option 1

Option 2 

(proposed) Option 3

Paper

Newsprint $0 $0 $0

Uncoated mechanical $61 $61 $1,277

Coated paper $192 $701 $2,792

Uncoated freesheet $429 $1,234 $5,780

Tissue $117 $117 $368

Other printing/writing $90 $341 $1,731

Total Paper $890 $2,456 $11,948

Paperboard 

Unbleached Kraft paperboard $82 $82 $1,574

Semichemical paperboard $633 $1,578 $9,621

Bleached paperboard $153 $349 $5,034

Recycled paperboard $17 $17 $17

Total Paperboard $885 $2,026 $16,246

Pulp

All pulp products $289 $1,720 $7,549

All pulp products $289 $1,720 $7,549

All products $2,064 $6,202 $35,743

Note in Table 4-5 that annualized engineering compliance costs accrue to producers of 

pulp products. However, in the partial equilibrium models used within this EIA, we are 

modeling the impacts of compliance costs on prices and quantities of paper products. Because of 

this, we allocate the annualized engineering compliance costs accruing to pulp producers to 

producers of paper products that are potentially affected by this rule. This redistribution is based 

on the strong assumption that impacts on the pulp sector can be reallocated to producers of paper

products in proportion to the estimated compliance costs absent costs expected to accrue to pulp 

producers. The results of this redistribution are shown in Table 4-6.
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Table 4-6 Estimated Annualized Engineering Compliance Costs by Paper Product 

across Regulatory Options, after Redistributing Estimated Costs to Pulp Producers

(thousands 2010 dollars)

Products Option 1

Option 2 

(proposed) Option 3

Paper

Newsprint $0 $0 $0

Uncoated mechanical $72 $85 $1,619

Coated paper $224 $971 $3,539

Uncoated freesheet $499 $1,708 $7,328

Tissue $136 $162 $467

Other printing/writing $105 $472 $2,194

Total Paper $1,035 $3,398 $15,147

Paperboard 

Unbleached Kraft paperboard $95 $113 $1,995

Semichemical paperboard $737 $2,184 $12,198

Bleached paperboard $177 $483 $6,382

Recycled paperboard $19 $23 $21

Total Paperboard $1,029 $2,804 $20,596

All products $2,064 $6,202 $35,743

Using this engineering cost information and total national production of paper and 

paperboard products, we estimate the annualized compliance cost per ton of product produced. 

These annualized engineering compliance costs per ton across regulatory options are presented in 

Table 4-7.
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Table 4-7 Annualized Engineering Compliance Costs per Ton Product Produced at 

National Level across Regulatory Options (in 2010 dollars)

Products

Option 1

($/ton)

Option 2 

(proposed)

($/ton)

Option 3

($/ton)

Paper

Newsprint $0.000 $0.000 $0.000

Uncoated mechanical $0.036 $0.043 $0.809

Coated paper $0.028 $0.123 $0.448

Uncoated freesheet $0.052 $0.180 $0.771

Tissue $0.019 $0.022 $0.064

Other printing/writing $0.021 $0.096 $0.446

Total Paper $0.030 $0.097 $0.432

Paperboard 

Unbleached Kraft paperboard $0.004 $0.005 $0.092

Semichemical paperboard $0.135 $0.401 $2.241

Bleached paperboard $0.032 $0.088 $1.161

Recycled paperboard $0.001 $0.002 $0.001

Total Paperboard $0.022 $0.059 $0.434

All products $0.025 $0.075 $0.433

Note that under the proposed option, paper products incur a higher per-ton compliance cost 

burden, while semichemical paperboard has the highest estimated per ton compliance costs of the 

ten products examined. Under the most stringent Option 3, however, the per-ton weighted 

average compliance cost estimate for paperboard products exceeds that of paper products. Note 

also that mills primarily producing newsprint are unaffected by any of the regulatory options.

These per-ton of product produced annualized engineering costs estimates were then entered into 

the series of partial equilibrium market models to estimate impacts on the respective paper and 

paperboard product markets. 

4.2.5 Model Results

Across regulatory options, market-level changes in the paper and paperboard markets are 

estimated to be insignificant. For the proposed option, national-level weighted average paper 

and paperboard prices are predicted to increase less than 0.01%, while total quantities are 

predicted to also decrease less than 0.01% (Table 4-8). 
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Table 4-8 Summary of Market Impacts (%) Across Products and Regulatory Option

Option 1

Option 2 

(proposed) Option 3

Products

Price 

Change 

(%) 

Quantity 

Change

(%) 

Price 

Change 

(%) 

Quantity 

Change

(%) 

Price 

Change 

(%) 

Quantity 

Change 

(%) 

Paper

Newsprint 0.000% 0.000% 0.000% 0.000% 0.000% 0.000%

Uncoated mechanical 0.002% -0.001% 0.003% -0.001% 0.049% -0.020%

Coated paper 0.002% -0.001% 0.010% -0.004% 0.038% -0.015%

Uncoated freesheet 0.002% -0.001% 0.008% -0.004% 0.033% -0.015%

Tissue 0.001% 0.000% 0.001% 0.000% 0.003% -0.001%

Other printing/writing 0.001% 0.000% 0.006% -0.001% 0.029% -0.007%

Total Paper 0.002% -0.001% 0.005% -0.002% 0.023% -0.010%

Paperboard 

Unbleached Kraft 

paperboard 0.000% 0.000% 0.000% 0.000% 0.005% -0.003%

Semichemical paperboard 0.009% -0.004% 0.026% -0.011% 0.144% -0.062%

Bleached paperboard 0.002% -0.001% 0.005% -0.001% 0.063% -0.018%

Recycled paperboard 0.000% 0.000% 0.000% 0.000% 0.000% 0.000%

Total Paperboard 0.001% -0.001% 0.004% -0.002% 0.027% -0.011%

Total Paper and Paperboard 0.001% -0.001% 0.004% -0.002% 0.025% -0.010%

As indicated by having the highest estimated per ton compliance costs, semichemical paperboard 

has the largest predicted percentage change in price and quantity. 

Overall, the economic models predict an overall price increase of about 4.1 cents per ton 

of paper and paperboard product, from a baseline price of about $920 per ton (Table 4-9). 

Overall production quantities are predicted to decrease about 1500 tons, from a baseline 

production level of about 82 million tons. Note that the weighted average price increase is lower 

than the weighted per ton compliance cost increase of about 7.5 cents per ton as shown in Table 

4-7. As the welfare impacts analysis that follows shows, producers absorb a portion of the 

regulatory program costs and do not pass on the full burden to consumers.
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Table 4-9 Change in Price and Quantity (#) across Products and Regulatory Options 

(costs in 2010 dollars)

Option 1

Option 2 

(proposed) Option 3

Products

Price 

Change 

($/ton) 

Quantity 

Change 

(tons/year) 

Price 

Change 

($/ton) 

Quantity 

Change 

(tons/year) 

Price 

Change 

($/ton) 

Quantity 

Change 

(tons/year) 

Paper

Newsprint $0.000 0.0 $0.000 0.0 $0.000 0.0

Uncoated mechanical $0.016 -17.5 $0.019 -20.8 $0.366 -395.9

Coated paper $0.023 -75.1 $0.099 -325.6 $0.361 -1,187.4

Uncoated freesheet $0.021 -99.9 $0.071 -342.2 $0.306 -1,468.2

Tissue $0.014 -15.2 $0.017 -18.1 $0.048 -52.1

Other printing/writing $0.018 -15.5 $0.081 -69.8 $0.375 -324.7

Total Paper $0.018 -223.2 $0.060 -776.6 $0.263 -3,428.3

Paperboard 

Unbleached Kraft 

paperboard $0.002 -29.6 $0.002 -35.3 $0.034 -621.2

Semichemical paperboard $0.053 -202.8 $0.157 -601.5 $0.875 -3,359.2

Bleached paperboard $0.023 -28.0 $0.062 -76.2 $0.814 -1,006.1

Recycled paperboard $0.001 -5.0 $0.001 -6.0 $0.001 -5.5

Total Paperboard $0.010 -265.5 $0.028 -718.9 $0.214 -4,992.0

Total Paper and Paperboard $0.013 -488.7 $0.041 -1,495.5 $0.235 -8,420.2

The national compliance cost estimates are often used to approximate the social cost of the

rule. However, in cases where the engineering costs of compliance are used to estimate social 

cost, the burden of the regulation is typically measured as falling solely on the affected 

producers, who experience a profit loss exactly equal to these cost estimates. Thus, the entire 

loss is a change in producer surplus with no change (by assumption) in consumer surplus, 

because no changes in price and consumption are estimated. This is typically referred to as a 

“full-cost absorption” scenario in which all factors of production are assumed to be fixed and 

firms are unable to adjust their output levels when faced with additional costs.

In contrast, EPA’s economic analysis builds on the engineering cost analysis and 

incorporates economic theory related to producer and consumer behavior to estimate changes in 

market conditions. Paper and paperboard producers can make supply adjustments that will 

generally affect the market environment in which they operate. As producers change levels of 
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product supply in response to a regulation, consumers are typically faced with changes in prices 

that cause them to alter the quantity they are willing to purchase. These changes in price and 

output from the market model are used to estimate the total economic surplus changes for two 

types of stakeholders: paper and paperboard consumers and producers.

As shown in Table 4-10, under the proposed Option 2, paper and paperboard consumers 

are predicted to experience a $3.3 million reduction in surplus as the result of higher prices and 

reduced consumption. Producer surplus is predicted to decrease about $2.9 million. Total 

welfare losses are then estimated at $6.2 million. 

Table 4-10 Summary of Consumer and Producer Surplus Changes: 2010 (in millions of 

2010 dollars)

Surplus Change (in 2010 dollars)

Option Product Type Consumer Producer Total

Option 1 Paper -$0.6 -$0.4 -$1.0

Paperboard -$0.5 -$0.6 -$1.0

Total -$1.1 -$1.0 -$2.1

Option 2 

(proposed)

Paper -$2.0 -$1.4 -$3.4

Paperboard -$1.2 -$1.6 -$2.8

Total -$3.3 -$2.9 -$6.2

Option 3 Paper -$8.7 -$6.5 -$15.1

Paperboard -$10.0 -$10.6 -$20.6

Total -$18.7 -$17.1 -$35.7

Again, as indicated by the relatively higher per ton compliance costs accruing to paper product 

producers, paper products are predicted to experience a greater proportion of the welfare losses, 

compared to paperboard products. For paperboard products, however, producers are predicted to 

have greater welfare losses than consumers of paperboard products, as opposed to the predictions 

for paper products.

4.2.6 Limitations

Ultimately, the regulatory program may cause negligible increases in the costs of 

supplying paper and paperboard products to consumers. The partial equilibrium model used in 

this EIA is designed to evaluate behavioral responses to this change in costs within an

equilibrium setting within nationally competitive markets. The national competitive market 
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assumption is clearly very strong because the markets in paper products may be regional for 

some products, as well as some product markets within the paper industry may be 

interdependent. Regional price and quantity impacts could be different from the average impacts 

reported if local market structures, production costs, or demand conditions are substantially 

different from those used in this analysis. 

4.3 Small Business Impacts Analysis

The Regulatory Flexibility Act as amended by the Small Business Regulatory Enforcement 

Fairness Act (SBREFA) generally requires an agency to prepare a regulatory flexibility analysis 

of any rule subject to notice and comment rulemaking requirements under the Administrative 

Procedure Act or any other statute, unless the agency certifies that the rule will not have a 

significant economic impact on a substantial number of small entities. Small entities include 

small businesses, small governmental jurisdictions, and small not-for-profit enterprises.

After considering the economic impact of the proposed rules on small entities, the 

screening analysis indicates that these proposed rules will not have a significant economic 

impact on a substantial number of small entities (or “SISNOSE”). The supporting analyses for 

these determinations are presented in this section of the EIA.

4.3.1 Small Business National Overview

The industry sectors covered by the final rule were identified during the development of 

the engineering cost analysis. The U.S. Census Bureau’s Statistics of U.S. Businesses (SUSB) 

provides national information on the distribution of economic variables by industry and 

enterprise size. The Census Bureau and the Office of Advocacy of the Small Business 

Administration (SBA) supported and developed these files for use in a broad range of economic 

analyses.

1 Statistics include the total number of establishments, and receipts for all entities in an 

industry; however, many of these entities may not necessarily be covered by the final rule. SUSB 

also provides statistics by enterprise employment and receipt size (Table 2-10).

The Census Bureau’s definitions used in the SUSB are as follows:

 

1

See http://www.census.gov/csd/susb/ and http://www.sba.gov/advocacy/ for additional details.
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 Establishment: A single physical location where business is conducted or where 

services or industrial operations are performed. 

 Firm: A firm is a business organization consisting of one or more domestic 

establishments in the same state and industry that were specified under common 

ownership or control. The firm and the establishment are the same for singleestablishment firms. For each multi-establishment firm, establishments in the same 

industry within a state will be counted as one firm- the firm employment and annual 

payroll are summed from the associated establishments.

 Receipts: Receipts (net of taxes) are defined as the revenue for goods produced, 

distributed, or services provided, including revenue earned from premiums, 

commissions and fees, rents, interest, dividends, and royalties. Receipts exclude all 

revenue collected for local, state, and federal taxes. 

 Enterprise: An enterprise is a business organization consisting of one or more 

domestic establishments that were specified under common ownership or control. The 

enterprise and the establishment are the same for single-establishment firms. Each 

multi-establishment company forms one enterprise—the enterprise employment and 

annual payroll are summed from the associated establishments. Enterprise size 

designations are determined by the sum of employment of all associated 

establishments.

Because the SBA’s business size definitions apply to an establishment’s “ultimate parent 

company,” we assumed in this analysis that the “firm” definition above is consistent with the 

concept of ultimate parent company that is typically used for SBREFA screening analyses, and 

the terms are used interchangeably. 
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Table 4-11 Number of Firms, Total Employment, and Estimated Salaries

by Firm Size and NAICS for Primarily Affected Segments, 2006

NAICS NAICS Description

SBA Size 

Standard 

Small 

Businesses 

Large 

Businesses 

Total 

Firms

Number of Firms by Firm Size

322110 Pulp Mills 750 21 10 31

322121 Paper (except Newsprint) Mills 750 137 42 179

322122 Newsprint Mills 750 11 7 18

322130 Paperboard Mills 750 57 30 87

Percentage of Firms by Firm Size

322110 Pulp Mills 750 68% 32% 100%

322121 Paper (except Newsprint) Mills 750 77% 23% 100%

322122 Newsprint Mills 750 61% 39% 100%

322130 Paperboard Mills 750 66% 34% 100%

Source: U.S. Census Bureau. 2011. “Statistics of U.S. Businesses, Business Dynamics Statistics, Business Employment 

Dynamics, and Nonemployer Statistics.” < http://www.sba.gov/advocacy/849/12162#susb>

4.3.2 Small Entity Economic Impact Measures

The proposed NESHAP amendments will affect the owners of the facilities that will incur 

compliance costs to control their regulated emissions. The owners, either firms or individuals, 

are the entities that will bear the financial impacts associated with these additional operating 

costs. The proposed rule has the potential to impact all firms owning affected facilities, both 

large and small. 

The analysis provides EPA with an estimate of the magnitude of impacts the proposed 

NESHAP amendments may have on the ultimate domestic parent companies that own facilities 

EPA expects might be impacted by the rules. The analysis focuses on small firms because they

may have more difficulty complying with a new regulation or affording the costs associated with 

meeting the new standard. This section presents the data sources used in the screening analysis, 

the methodology we applied to develop estimates of impacts, the results of the analysis, and 

conclusions drawn from the results. 
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The small business impacts analysis relies upon a series of firm-level sales tests 

(represented as cost-to-sales ratios) for firms that are likely to be associated with NAICS codes 

listed in Table 2-10. EPA obtained firm-level employment, revenues, and production levels 

using various sources, including the Dun & Bradstreet, the American Business Directory, 

corporate websites, and publically-available financial reports. Using these data, we estimated 

firm-level compliance cost impacts and calculated cost-to-sales ratios to identify small firms that 

might be significantly impacts by the rules. 

For the sales test, we divided the estimates of annualized establishment compliance costs 

at the company-level by estimates of company sales. This is known as the cost-to-revenue ratio, 

or the “sales test.” The “sales test” is the impact methodology EPA employs in analyzing small 

entity impacts as opposed to a “profits test,” in which annualized compliance costs are calculated 

as a share of profits. The sales test is often used because revenues or sales data are commonly

available for entities impacted by EPA regulations, and profits data normally made available are 

often not the true profit earned by firms because of accounting and tax considerations. Revenues 

and sales as typically published are correct figures and are more reliably reported when 

compared to profit data. The use of a “sales test” for estimating small business impacts for a 

rulemaking such as this one is consistent with guidance offered by EPA on compliance with 

SBREFA2and is consistent with guidance published by the U.S. SBA’s Office of Advocacy that 

suggests that cost as a percentage of total revenues is a metric for evaluating cost increases on 

small entities in relation to increases on large entities (U.S. SBA, 2010).38

4.3.3 Small Entity Economic Impact Analysis and Conclusions

As discussed in Section 3, 114 facilities are potentially affected by each of the regulatory

options, but as the options increase in stringency the relative impacts increase. Of these 114

facilities, three are owned by small entities. Table 4-12 presents facility names, ultimate owners, 

number of employees, and estimates sales in 2010 for the three small firms.

 

2 The SBREFA compliance guidance to EPA rulewriters regarding the types of small business analysis that should 

be considered can be found at <http://www.epa.gov/sbrefa/documents/rfaguidance11-00-06.pdf>

3U.S. SBA, Office of Advocacy. A Guide for Government Agencies, How to Comply with the Regulatory 

Flexibility Act, Implementing the President’s Small Business Agenda and Executive Order 13272, June 2010.
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Table 4-12 Potentially Affected Small Entities: Employees and Sales, 2010

Faculty Ultimate Owner

Employees in 

2010

Sales in 2010 

(million of 2010 

dollars)

Lincoln Paper and Tissue, 

LLC

Lincoln Paper and Tissue, 

LLC 350 141.2

Old Town Fuel & Fiber Patriarch Partners, LLC 170 12.9

Port Townsend Paper Corp. Port Townsend Paper Corp 585 181.3

Table 4-13 shows that cost-to-sales ratios for the three affected small firms do not exceed 

1% for the proposed option. In fact, the ratios are well below 1%, ranging from 0.01% to about 

0.16%. An impact level greater than 1% is estimated for one firm under the more stringent 

Option 3, however.

Table 4-13 Estimated Annualized Engineering Costs for Potentially Affected Small 

Entities across Regulatory Options (costs in 2010 dollars)

Option 1 Option 2 (proposed) Option 3

Ultimate Owner

Estimated 

Annualized 

Costs

Estimated 

Costs to 

Sales Ratio

Estimated 

Annualized 

Costs

Estimated 

Costs to 

Sales Ratio

Estimated 

Annualized 

Costs

Estimated 

Costs to 

Sales Ratio

Lincoln Paper and Tissue, 

LLC 18,223 0.01% 18,223 0.01% 18,223 0.01%

Patriarch Partners, LLC 18,223 0.14% 18,223 0.14% 259,918 2.01%

Port Townsend Paper Corp 13,345 0.01% 299,058 0.16% 687,022 0.38%

EPA concludes from this analysis that a substantial number of small firms are not 

significantly impacted. Based upon the analysis in this section, we conclude there is no 

SISNOSE arising from the proposed NESHAP amendments. 
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4.4 Employment Impacts Analysis

While a standalone analysis of employment impacts is not included in a standard costbenefit analysis, such an analysis is of particular concern in the current economic climate of 

sustained high unemployment. Executive Order 13563, states, “Our regulatory system must 

protect public health, welfare, safety, and our environment while promoting economic growth, 

innovation, competitiveness, and job creation”. Therefore, we seek to inform the discussion of 

labor demand and job impacts by providing an estimate of the employment impacts of the 

proposed regulations using labor requirements for the operation and maintenance of control 

requirements. 

Regulations set in motion new orders for pollution control equipment and services. New 

categories of employment have been created in the process of implementing regulations to make 

our air safer to breathe. When a new regulation is promulgated, a response of industry is to order 

pollution control equipment and services in order to comply with the regulation when it becomes 

effective. Revenue and employment in the environmental technology industry have grown 

steadily between 2000 and 2008, reaching an industry total of approximately $300 billion in 

revenues and 1.7 million employees in 2008.4 While these revenues and employment figures 

represent gains for the environmental technologies industry, they are costs to the regulated 

industries required to install the equipment. Moreover, it is not clear the 1.7 million employees 

in 2008 represent new employment as opposed to workers being shifted from the production of 

goods and services to environmental compliance activities. 

Once the equipment is installed, regulated firms hire workers to operate and maintain the 

pollution control equipment – much like they hire workers to produce more output. Morgenstern 

et al. (2002) examined how regulated industries respond to regulation. The authors found that,

on average for the industries they studied, employment increases in regulated firms. Of course, 

these firms may also reassign existing employees to perform these activities.

 

4 Environmental Business International (EBI), Inc., San Diego, CA. Environmental Business Journal, monthly 

(copyright). http://www.ebiusa.com/ EBI data taken from the Department of Commerce International Trade 

Administration Environmental Industries Fact Sheet from April 2010: 

http://web.ita.doc.gov/ete/eteinfo.nsf/068f3801d047f26e85256883006ffa54/4878b7e2fc08ac6d85256883006c45

2c?OpenDocument
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4-21

Environmental regulations support employment in many basic industries. In addition to 

the increase in employment in the environmental protection industry (via increased orders for 

pollution control equipment), environmental regulations also support employment in industries 

that provide intermediate goods to the environmental protection industry. The equipment 

manufacturers, in turn, order steel, tanks, vessels, blowers, pumps, and chemicals to manufacture 

and install the equipment. Bezdek et al. (2008) found that investments in environmental 

protection industries create jobs and displace jobs, but the net effect on employment is positive.

Unlike several recent RIAs, however, we do not provide employment impacts estimates 

based on the study by Morgenstern et al. (2002). Using plant-level data from 1979-1991, 

Morgenstern et al. (2002) estimate a model for four highly-polluting, regulated industries (pulp 

and paper, plastics, steel, and petroleum refining) to examine the effect of higher abatement costs 

from regulation on net employment. The results indicate that, on average across the four 

industries, each additional $1 million in spending on pollution abatement results in a net increase 

of 1.55 jobs (95% confidence interval: -2.9 to + 6.0). We do not, however, provide employment 

impacts estimates for this rulemaking based on the study by Morgenstern et al. (2002) because 

the study’s results for the pulp and paper industry, specifically, were not statistically significant

The focus of this part of the analysis is on labor requirements related to the compliance 

actions of the affected entities within the affected sector. We do not estimate any potential 

changes in labor outside of the pulp and paper industry. This analysis estimates the potential

employment impacts due to the operation and maintenance of control equipment, as well as 

additional reporting and recordkeeping requirements. No estimates of the labor used to 

manufacture or assemble pollution control equipment or to supply the materials for manufacture 

or assembly are included because U.S. EPA does not currently have this information. 

The employment analysis uses a bottom-up engineering-based methodology to estimate 

employment impacts. The engineering cost analysis summarized in this EIA includes estimates 

of the labor requirements associated with implementing the proposed regulations. These labor 

changes may be required as an upfront, intensive expenditure of effort required to initially

comply with the new requirements, or as continuous, annual efforts to sustain compliance. 
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We convert estimates of the number hours of labor required to full-time equivalents 

(FTEs) by dividing by 2,080 (40 hours per week multiplied by 52 weeks). We note that this type 

of FTE estimate cannot be used to make assumptions about the specific number of people 

involved or whether new jobs are created for new employees. In this EIA, we make no 

distinction in the quantitative estimates between labor changes within and outside of the 

regulated sector.

The results of this employment estimate are presented in Table 4-14 for the proposed 

NESHAP amendment alternatives. The table includes estimates of labor requirements by

NESHAP option evaluated in the EIA and presents both the estimated hours required and the 

conversion of this estimate to FTE. The upfront and ongoing requirements are estimated at 

about 2.5 and 9.1 FTEs, respectively for Option 2, the proposed NESHAP option. 

Table 4-14 Labor-based Employment Estimates for Operating and Maintaining Control 

Equipment Requirements, Proposed NESHAP Options

Option 1

Option 2 

(proposed) Option 3

Compliance-related Activities

Initial 

Reqs.

Cont. 

Annual 

Reqs.

Initial 

Reqs.

Cont. 

Annual 

Reqs.

Initial 

Reqs.

Cont. 

Annual 

Reqs.

Kraft Condensate-related Activities

Nationwide Labor (hrs) 0 0 N/A 11,100 N/A 87,640

Full-time Equivalents (FTE) 0 0 N/A 5.3 N/A 42.1

Reporting and Recordkeeping

Nationwide Labor (hrs) 5,244 7,866 5,244 7,866 5,244 7,866

Full-time Equivalents (FTE) 2.5 3.8 2.5 3.8 2.5 3.8

Total

Nationwide Labor (hrs) 5,244 7,866 5,244 18,966 5,244 95,506

Full-time Equivalents (FTE) 2.5 3.8 2.5 9.1 2.5 45.9
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5-1

5 REFERENCES

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5-2

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