*** Draft

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# Economic **Impact Analysis Proposed Revisions to**  **the National Emission Standard**  **s for Hazardous Air Pollutants Subpart S**  **( MACT I and MACT III**  **) for the Pulp and Paper Industry** 

December 2011 U . S
. Environm ental Protection Agency Office of Air and Radiation Office of Air Quality Planning and Standards Research Triangle Park, NC 27711*** Draft

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ii **CONTACT INFORMATION** This document has been prepared b y 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 , Offi ce 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 anal ys is to this document. Specific sections where RTI International made contributions include the industry profile and s ections d escribing emissions, pollution control options, the engineering cost anal ys is , and potential employ ment impacts
.*** Draft

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iii **TABLE OF CONTENTS T**  **ABLE OF C**  **ONTENTS ................................**  **................................ ................................**  **.................... III**  **L IST OF**  **T ABLES**  **................................ ................................**  **................................ .............................**  **IV L**  **IST OF F**  **IGURES ................................**  **................................ ................................**  **............................ V**  **1 E**  **XECUTIVE S**  **UMMARY ................................**  **................................ ................................**  **........ 1**  **- 1**  1.1 I NTRODUCTION ................................ ................................ ................................ ................................ ............ 1
- 1 1.2 R ESULTS ................................ ................................ ................................ ................................ ...................... 1
- 1 1.3 O RGANIZATION OF THIS R EPORT ................................ ................................ ................................ .................. 1
- 2 **2 I**  **NDUSTRY P**  **ROFILE ................................**  **................................ ................................**  **............. 2**  **- 1**  2.1 I NTRODUCTION ................................ ................................ ................................ ................................ ............ 2
- 1 2.2 S UPPLY AND D EMAND C HARACTERI STI CS ................................ ................................ ................................ ... 2
- 4 2.2.1 Goods and Services Used in Paper Manufacturing
................................ ................................ ............ 2
- 4 2.2.2 Uses and Consumers
................................ ................................ ................................ ........................ 2
- 10 2.3 F IR M AND M AR KET C HARACTERI STICS ................................ ................................ ................................ ...... 2
- 10 2.3.1 Location
................................ ................................ ................................ ................................ ........... 2
- 11 2.3.2 Production Capacity and Utilization
................................ ................................ ................................ 2
- 11 2.3.3 Em

ployment
................................ ................................ ................................ ................................ ..... 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 Dom estic Production
................................ ................................ ................................ ........................ 2
- 16 2.3.8 International Trade
................................ ................................ ................................ ........................... 2
- 17 2.3. 9 Market Prices
................................ ................................ ................................ ................................ ... 2
- 17 **3 R**  **EGULATORY P**  **ROGRAM C**  **OST AND E**  **MISSIONS R**  **EDUCTIONS ................................**  **......... 3**  **- 1**  3.1 I NTRODUCTION ................................ ................................ ................................ ................................ ............ 3
- 1 3.2 E MI SSI ONS , E MI SSIONS P OI NTS , E MI SSIONS C ONTROLS , AND R EGULATORY O PTIONS ................................ . 3
- 1 3.3 E STI MATED E MI SSIONS R EDUCTIONS AND E NGINEERING C OST A NALYSIS ................................ .................. 3
- 3 **4 E**  **CONOMIC I**  **MPACT A**  **NALYSIS ................................**  **................................ ...........................**  **4 -**  **1** 4.1 I NTRODUCTION ................................ ................................ ................................ ................................ ............ 4
- 1 4.2 M AR KET A

NALYS IS ................................ ................................ ................................ ................................ ..... 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 Limi tations
................................ ................................ ................................ ................................ ....... 4
- 14 4.3 S MALL B USINESS I MPACTS A NALYSIS ................................ ................................ ................................ ....... 4
- 15 4.3.1 Sm all Business National Overview
................................ ................................ ................................ . 4
- 15 4.3.2 Sm all Entity Economic Impact Measures
................................ ................................ ........................ 4
- 17 4.3.3 Sm all Entity Economic Impact Analysis and Conclusions
................................ .............................. 4
- 18 4.4 E MPL OYMENT I MPACTS A NALYSIS ................................ ................................ ................................ ............ 4
- 20 **5 R**  **EFERENCES ................................**  **................................ ................................**  **........................ 5**  **- 1** *** Draft

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iv **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, $2007) 2
- 7 Table 2
- 5 Energy Used in Paper Manufacturing (NAICS 322)
................................ ................................ ......... 2
- 8 Table 2
- 6 Estimated Energy Sources for the U.S. Pulp and Paper Industry
................................ ....................... 2
- 9 Table 2
- 7 Dem and by Sector: Paper Manufacturing Industry (NAICS 322) ($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 Sm all 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 Regu latory Options, Affected Facilities, and Associated HAP Emission Reductions
....................... 3
- 3 Table 3
- 3 Kraft Condensate Options: Estimated Costs, Em issions Reductions, and Cost Effectiveness (costs in

2010 dollars)
................................ ................................ ................................ ................................ ....... 3
- 4 Table 3
- 4 Summary Nationwide Costs Emissions Reductions, a nd 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 Dem and 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

Op tions (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*** Draft

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v **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 Pow er 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 Em

ployment 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 Manufactu ring 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*** Draft

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1
- 1 **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) S ubpart S . Subpart S controls hazardous air pollutant (HAP) emissions from the pulp and paper production areas of mil ls 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 s ys tems at all mills (MACT III). As of th is 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, EP A is required to develop an economic impact anal ys is (EIA) and small entity impacts analy sis for the potentially

affected industries. This report documents the methods and results of this EI A. **1.2 Results**  EPA estimates the program will result in very small i ncreases in market prices and very small reductions in output of paper and paperboard products produced b y the affected industries
. The economic approach and engineering cost approach yi eld approximately the same estimate of the total c hange 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 incur red b y affected industrie s 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 c hanges in the a verage 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 analy sis ident ifies important transitory impacts across stakeholders as paper and paperboard product markets adjust to higher production costs. C onsumers see reductions in economic welfare of about $3.3 million as the result of higher prices and reduced consumption . Al though producers’ welfare losses*** Draft

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1
- 2 are mitigated to some degree b y 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 Busines s Analysis:**  EPA performed a screening analy sis for impacts on small businesses by

comparing estimated annualized engineering compliance costs at the compan y - level to company sales
. The screening anal ys is found that the ratio of compliance cost to company revenue falls bel ow 1% for the three small companies that are likel y to be affected by the proposed opti on . Based upon this anal ys is, we conclude there is no significant impact on a substantial number of small entities ( SI SNOSE ) arising from the proposed N ESHAP 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 a s reporting and recordkeeping, then converted this number to full
- time equivalents (FTEs) by dividing b y 2,080 (40 hours per week multiplied by 52 weeks). The upfront (one
- time) and ongoing, annual labor required for comply ing with the proposed option is estimated at about 2.5 and 9.1 FTEs, respectively . EPA notes that this ty pe of FTE estimate cannot be used to make assumptions about the specific number of people involved or whether new jobs are created for new emplo ye es. **1.3 Organization of this Report**  The remainder of this report details the meth odology and the results of the E IA. Section 2 presents the industry

pr ofile of the paper

making industry . Section 3 describes the emissions points, controls, regulatory options evaluated in the EI A , emissions reduction estimates, and engineering cost s anal ys is . Section 4 presents the economic , small business, and employ ment impacts anal ys e s. Section 5 lists references cited throughout the EIA.*** Draft

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2
- 1 **2 INDUSTRY PROFILE**  **2.1 Introduction**  The paper manufacturing subsector is an essential component of all business operations worldwide. Broadl y speaking, paper and paperboard are manufactured b y converting timber or other recy cled material into products such as printing and writing papers, ne wspri nt, 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 employ ment declined by 27% ( Table 2
- 1 ). While total pay roll dropped 26% over this time, annual pay roll per employ ee rose 2% from 1997 to 2007 because of the decline in the number of emplo yees ( Table 2
- 2 ). Shipments per employ ee grew 28% from 1997 to 2007, with much of that growth taking place b etween 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 Em ploy ees 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 Am erican 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]*** Draft

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2
- 2 **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. Ce nsus 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 Basi s): 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 ty pes of facilities as defined by the U.S. Census Bureau ( 2001 ) :

 **Pulp, Paper, and Pap erboard:** 

– Pulp Mills (NAI CS 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 mate rials, such as used or recy cled 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. I n 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 (NAI CS 32213): This industry comprises establishments primarily engaged in manufactu ring paperboard from pulp. These establishments may manufacture or purchase pulp. In addition, the establishments may also convert the paperboard they make.*** Draft

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2
- 3  **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 establishm ents 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 lam inates 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 es tablishments 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 th e 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 pu lp egg cartons, food tray s, 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 employ ees worked in the converted paper product category of the industry

due to the labor intensive aspects of those facilities.*** Draft

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2
- 4 **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 ; genera ted 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 >. A ccessed 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 man ufacturing industry Table 2
- 3
. Total compensation of employ ees represented 15% of PPP ( 3221) 46% CP P ( 3222) 54%

PPP ( 3221)

30% CP P ( 3222) 70%*** Draft

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2
- 5 the total value in 2007, down from 17% in 2005. The t otal number of employ ees decreased by 2% between 2005 and 2007. Meanw h ile shipments increased b y 3% over the same period. The top 10 industry

groups supply ing inputs to the paper manufacturing subsector accounted for 70% of the total intermediate inputs according to 2008 Bureau of Economic Analy sis (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 come s 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 I nformation Adminis tration 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
. Indu stry 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 1 998 and 2006 by 14%. Figure 2
- 3 indicates that total electrical power use changed sporadically between 2002 and 2004 but decreased consistently and rapidl y after 2004.*** Draft

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2
- 6 **Table 2**  **- 3**  **Costs of Goods and Services Used in the Paper Manufacturing Industry (NAICS 322)**  **V ariable**  **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 w orkers wages ($2007, millions) $14,965 9% $14,689 8% $14,190 8% Total production w orkers 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]*** Draft

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2
- 7 **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 pow er 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
.*** Draft

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2
- 8 **Table 2**  **- 5**  **Energy Used in Paper Manufacturing (N AICS 322)** 

**Fuel Type 1998**  **2002 2006**  Net electricity a (million kWh) 70,364 65,503 72,518 Residual fuel oil (million bbl) 24 16 15 Distillate fuel oil b (m illion bbl) 2 2 2 Natural gas c (billion cu ft) 570 490 461 LPG and NGL d (m illion bbl) 1 2 1 Coal (m illion short tons) 12 11 10 Coke and breeze (million short tons)

— *

— Other e (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 D istillate 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, m arketers, 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 o r natural gas processing plants, including plants that fractionate raw natural gas liquids (NGLs). e Other includes net steam (the sum of purchases, generation from rene wables, and net transfers), and other energy that respondents indicated w as used to pro duce 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.” Tab les 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 ye ars, 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 was tes 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 ab out 41% to about 56%, while coal, fuel oil, and natural gas use decreased fr om about 54% to about 36% ( U.S. Environmental Protection Agency 2002 )
.*** Draft

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2
- 9 **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/datadow nload/>
. **Table 2**  **- 6**  **Estimated Energy Sources for the U.S. Pulp and Paper Industry Energy Sour**  **ce 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 w ood and w ood 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 pow er 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 108Jan-97Jul-97Jan-98Jul-98Jan-99Jul-99Jan-00Jul-00Jan-01Jul-01Jan-02Jul-02Jan-03Jul-03Jan-04Jul-04Jan-05Jul-05**I n** **d e** **x V** **a l** **u e** **( J** **a n** **- 9** **7 =** **1 0** **0 )** 

Man ufac tu ri ng Pa pe r*** Draft

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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. NAI CS 322 1 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. NAI CS 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 Im ports 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 analy sis , an d depict recent historical trends of production and pricing.*** Draft

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2
- 11 **2.3.1 Location**  As Figure 2
- 4 illustrates, as of 2002, California wa s home to the most paper manufacturing establishments in the United States, followed by I llinois and some bordering n ortheastern 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 establishm ents, while California dominated with over 500 converted pa per 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 Concentratio n 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 bee n experiencing a stead y decline, similar to the decline of the total manufacturing sector. However, paper manufacturing has managed to use its capacity at a consistentl y higher rate than the average for manuf acturing industries ( Figure 2
- 5 ).

**Es tablishments**  Fewer than 50 50 - 99 100 - 199 200 - 300 More than 300*** Draft

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- 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/datadow nload/>
. **2.3.3 Employment**  Wisconsin has the largest number of emplo ye es in the paper manufacturing subsector with over 38,008 reported in the 2002 census followed b y 2 9,379 in California ( Figure 2
- 6 ). The converted paper products group has more employ ees 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 100Jan-97Jul-97Jan-98Jul-98Jan-99Jul-99Jan-00Jul-00Jan-01Jul-01Jan-02Jul-02Jan-03Jul-03Jan-04Jul-04Jan-05Jul-05Jan-06Jul-06Jan-07Jul-07Jan-08Jul-08Jan-09Jul-09**P e** **r c** **e n** **t a** **g e** **C a** **p a** **c i** **t y** **U t** **i l** **i z** **a t** **i o** **n**

Man ufac tu ri ng Pa pe r (N AI CS 322)*** Draft

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- 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 Fa ctFinder; “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 capacit y between 199 7 and 2001, the paper manufacturing subsector’s capacit y has declined to as much as 7% below 1 997 capacit y l evels ( 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 Wey erhaeuser

— generating nea rl y $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** Fe wer than 3,000 3,000 - 5,999 6,000 - 11,999 12,000 - 24,000 More than 24,000*** Draft

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- 14 **Figure 2**  **- 7**  **Capacity Trends in the Paper Manufacturing Industry (NAICS 322)** Source: Federal Reserve Board. 2009. “Industrial Production and Capacity Utiliz ation: Industrial Capacity.” Series ID: G17/CAP/CAP.GMF.S & G17/CAP/CAP.G322.S. <http://www.federalreserve.gov/datadow nload/>
. **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 Tem ple
- Inland 5,558 Bow ater 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: Benw art, 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 1501997-011997-071998-011998-071999-011999-072000-012000-072001-012001-072002-012002-072003-012003-072004-012004-072005-012005-072006-012006-072007-012007-072008-012008-072009-012009-07**I n** **d e** **x V** **a l** **u e** **( J** **a n** **- 9** **7 =** **1 0** **0 )** 

Man ufac tu ri ng Pa pe r (N AI CS 322)*** Draft

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- 15 **2.3.6 Size Distribution**  The primary

criterion for categorizing a business as small is the number of employ ees, using definitions by

the SBA for regulatory

flexibility

anal ys es. According to SUSB reports for 2002, large companies dominated revenue
- generating transactions in the pa per manufacturing subsector; 80% of receipts were generated b y companies with 5 00 employ ees or more ( Table 2
- 9 ). This was especiall y true in the pulp, paper, and paperboard group, in which large companies generated 92% of receipts. The number of emplo ye es 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 employ ees, while the cutoff for most converted paper product groups is 500 employ ees. **Table 2**  **- 9**  **Distribution of Economic Data by Enterprise Size: Paper Manufacturing (NAICS 322)**  **Enterprises with**
**Variable Total**  **1 to 20 Employees**  **a 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 Em ployment 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 Em ployment Sizes: 2002.” <http://www.census .gov/csd/susb/download_susb02.htm>
.*** Draft

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- 16 **Table 2**  **- 10**  **Small Business Size Standards: Paper Manufacturing (NAICS 322) NAICS**  **NAICS Description Employees**  322110 Pulp Mills 750 322121 Paper (except New sprint) 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 Multiw all 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 indu stry

capacity rates, subsector production rates for paper manufacturing have witnessed a decreasing rate of production compared to the stead y increase in production for the manufacturin g 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

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- 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 wit h 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 b y roughly 27%.

90 100 110 120 130 140 1501997-011997-071998-011998-071999-011999-072000-012000-072001-012001-072002-012002-072003-012003-072004-012004-072005-012005-072006-012006-072007-012007-072008-012008-072009-012009-07**I n** **d e** **x V** **a l** **u e** **( J** **a n** **- 9** **7 =** **1 0** **0 )** 

Manufacturing Paper (NAICS 322)*** Draft

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- 18 **Figure 2**  **- 9**  **International Trade Trends in the Paper Manufacturing Industry (NAICS 322)**  Source: U.S. International Trade Commission. 2008 b. “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** **, 0** **0 0** **, 0** **0 0** **( 2** **0 0** **7 )** 

**Yea r**  Pa pe r Ex port s Pape r Imp ort s

75 85 95 105 115 125 135Jan-97Jul-97Jan-98Jul-98Jan-99Jul-99Jan-00Jul-00Jan-01Jul-01Jan-02Jul-02Jan-03Jul-03Jan-04Jul-04Jan-05Jul-05Jan-06Jul-06Jan-07Jul-07Jan-08Jul-08Jan-09Jul-09**I n** **d e** **x V** **a l** **u e** **( J** **a n** **- 9** **7 =** **1 0** **0 )** 

Manufac tu ri ng Pa pe r (N AI CS 322)*** Draft

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- 1 **3 REGULATORY PROGRAM C**  **OST AND EMISSIONS RE DUCTIONS**  **3.1 Introdu**  **ction** This Risk and Technology Review (RTR) focuses on the National Emission Standards for Hazardous Air Pollutants (NESHAP) S ubpart 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 s ys tems at all mills (MACT III). As of this review, a total of 17 1 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. T his section presents the emission and emission po ints addressed in this RTR proposal, as well as the controls, regulatory options evaluated in the EI A, estimated emission reductions , and the engineering cost anal ys is 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 variet y of pulp and paper processes, the proposed RTR standards will primarily affect HAP emissions from kraft condensates at kraft mills. Kraft mills are those th at use an alkaline cooking liquor of sodium hy droxide (N a OH) and sodium sulfide (N a 2 S) to digest wood
. Kraft pulping condensates are HAP
- containing liquids that condense from pulping s ys tem vent streams. These HAP
containing liquids result from the conta ct of organic compounds in the pulping process with water or steam that condenses. HAP emissions from kraft condensates are primarily organic HAPs like methanol, acetaldeh yde, and formaldehyde. L imiting HAP emissions from these kraft condensates will als o 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 currentl y subject to the kraft condensates s tandards under Subpart S.*** Draft

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- 2 The current kraft condensate standard under Subpart S and Effluent Guideline standards require facilities to either 1) re cy c le the condensates back through s ys tems controlled under low
volume, high
- concentration ( LVHC) or high v olume , low concentration (HVL C) requirements in the pulp mill or 2) remove 92% b y weight of the condensates through steam stripping and incineration or biological control in a Wastewater Treatment S ys tem (hardpiping option). Because of other process consid erations, kraft mills generall y chose the 92% control option for compliance demonstration for kraft condensates rather than recy cling. For this EIA, we anal yz e three regulatory options for the Subpart S RTR: **Option 1:** repeat a ir 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 **Optio n 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 comply ing with the st andards for kraft, soda, and semichemical pulping vent gases , sulfite processes, and bleaching s ys tems. Under this testing option, r epeat air emissions testing would be required for mills comply ing with the kraft condensate standards using a steam strippe r (or other equipment serving the same function) since such equipment is, by

definition, part of the low
- volume, high
- concentration ( LVHC ) gas collection sy stem. The EPA is not considering additional repeat testing for biological treatment sy stems to compl y with the kraft pulping condensate standards because more frequent quarterl y sampling is alread y required for biological treatment systems. The EPA is also not considering additional repeat testing for facilities compl yi ng with the clean condensate altern ative (CCA) standards due to the complexity of this compliance approach
. Options 2 and 3 would require repeat air emissions performance testing as in O ption 1 , but would addition ally require kraft mills to f urther 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 currentl y used to*** Draft

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- 3 reduce total HAP emissi ons 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 exis ting control equipment. Table 3
- 1 presents the various condensate treatment methods currentl y used b y kraft mills. **Table 3**  **- 1**  **Number of Mills Using Various Condensate Treatment Methods**

**Treatment Method No. of Facilities**  Biotreatment 39 Recy cle 5 Stripping or stripping/recycle 43 Stripping and biotreatment 9 Thermal incinerator 1 **Total 97** 
**3.3 Estimated Emissions Reductions and**  **Engineering Cost A nalysis**  Table 3
- 2 presents the regulatory options under analy sis 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 11 4 0 Option 2 ( proposed ) Tightening the kraft condensate

standards from 92% to 94% and repeat air emission testing Kraft condensate 15 Repeat Testing 11 4 4, 090 Option 3 Tightening the kraft condensate

standards from 92% to 98% and repeat air emission testing Kraft condensate 66 Repeat Testing 11 4 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 s ys tems and make periodic adjustments to ensure peak performance, thereb y reducing emissions and the potential for periodic episodes of acute risk. A total of 11 4 facilities will be affected b y this requirement*** Draft

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- 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 annualiz ed cost is estimated to be $1.3 million per ye ar. 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 a re currentl y achieving 98% emissions control. Table 3
- 3 presents the estimated emission reductions from kraft condensates across regulatory

options. The estimated e mission reduction s 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 i n 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 (**  **million s**  **) Engineering** 

**Annualized Costs (**  **million s**  **) 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 $3 3.7 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 re cordkeeping 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, respectivel y.*** Draft

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- 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 ) $ 4 2.1 $ 6.2 4,090 1, 516 Option 3 $ 302. 9 $ 35. 7 12,300 2, 906*** Draft

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4
- 1 **4 ECONOMIC IMPACT ANAL**  **YSIS**
**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 partial
equilibrium analy sis 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 anal ys is used to support the conclusion that EPA anticipates there will be no Significant Im pact on a Substantial Number of Small Entities (SI SNOSE) 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 Marke**  **t Analysis** EPA performed a series of single
- market partial
- equilibrium analy ses of national pulp and paper product markets to measure the economic consequences of the regulatory options. With the basic conceptual model described below, we estimate d how th e regulatory program affects p rices and quantities for ten paper and paperboard products that, aggregated, constitute the production of the industry
. We also conduct ed an economic welfare anal ys is th at estimates the consumer and producer surplus changes a ssociat ed with the regulatory program . The welfare anal ys is identifies how the regulatory costs are distributed across two broad classes of st akeholders: consumers and producers
. While a series of partial equilibrium models was used to anal yz e the economic impacts of this proposal, EPA notes that it is currently developing the Industrial Sectors I ntegrated Solution Model (I SI S) for the U.S. pulp and paper industry . When completed, the I SI S model for the pulp and paper industry

will be a dy

namic engineering
- economic model that facilitates analy sis of emission reduction strategies for multiple pollutants, while taking into account plant
- level economic and technical factors such as th e ty pe of mill, associated capacity, location, cost of production, applicable controls, and costs. By considering various emission reduction strategies,*** Draft

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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 anal yt ic expression to analy ze suppl y and demand in a sing le market ( Berck and Hoffmann 2002 ; Fullerton and Metcalf 2002 ) a nd follows EPA guidelines for conducting an EIA ( U.S. Environmental Protection Agency 2010 )
. We illustrate our approach for estimating market
- level im pacts using a simple , single partial equilibrium model. The method involves specify ing a set of nonlinear supply and demand relati onships for the affected market , simplify ing the equations by transforming them into a set of linear equations, and then solv ing the equilibrium system of equatio ns (see Fullerton and Metcalfe ( 2002 ) for an example). First, we consider the formal definition of the elasticity of suppl y , q s , with respect to changes in own price , p , where s 

###  represents the market elasticity of suppl y : / / 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)

w her e 

### ˆ s 

### q equals the p ercentage change i n the quantity of market suppl y, and 

### p

ˆ 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 anal yz ing
. 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

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4
- 3 production in that market. Under the assumption of p erfect 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 elasticit y of demand, and 

### p ˆ = percentage change in market price. Finally , we specify

the market equilibrium co nditions in the affected market
. In response to the exogenous increase in production costs, producer and consumer be haviors are represented in Eq. 4
- 1a and Eq. 4
- 2 , and the new equilibrium satisfies the condition that the change in suppl y equals the change in demand:



### ˆ ˆ s d 

### q q  . ( 4. 3 ) We now have three linear equations in three unknowns ( 

### p ˆ , 

### 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 m c p p m c p p p mc          

 

  ( 4. 4)*** Draft

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4
- 4 Given this solution, we can solve for the proportional chang e in market quantity using Eq. 4
- 2
. The change in consume r surplus in the affected market can be estimated using the following linear approximation method: 

##     1 0.5 cs q p 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 suppl y, the change in producer surplus can be estimated with the following equation: 

##       

##   1 1 0.5 ps qpq c q p c             . ( 4. 6 ) In creased regulatory

cos ts 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 y ear for the anal ys is and collected pulp and paper production and price data for this y ear from the American Forest Products Association and RI SI , Inc., respectivel y . The figures cited were obtained from RI SI I nc.’s PPI Pulp and Paper Week. Baseline data are reported in Tabl e 4
- 1
.*** Draft

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- 5 **Tabl e**  **4 -**  **1 Baseline Paper Market Data, 2010**  **(in 2010 dollars) Products**  **Price 1**  **($/ton) Quantity**  **2**

**(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% Tissue 3 $ 1,765 7,302,000 9% Other printing/writing $ 1,305 4,917,000 6% **Total Paper 4**  **$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% Recy cled paperboard $ 855 14,896,000 18% **Total Paperboard 4**  **$779 47,417,000**  **57% Total Paper and Paperboard**  **4 $923**  **82,470,000 100%**  1 Source: RISI Inc. ( 2011a ) 2 Source: America n Forest Pr oducts Association; cited in RISI Inc. ( 2011b ) 3 EPA w as unable to obtain national price averages for tissue paper. For this analysis, EPA relied upon the average of the prices reported by tw o major tissue producers in corporate earnings statements. We w ill 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 Clearw ater Paper ( 2010 ). **4** Weighted average of individual product prices. Because the paper and paperboard pro ducts listed in Table 4
- 2 are aggregates of many relativel y distinct types of products, EPA had to cho o se one product per aggregated product for price information. Id eally , the anal ys t 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 RI SI , 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 EI A, EPA will further investig ate appropriate price information.*** Draft

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- 6 **Table 4**  **- 2**  **Products Used for Pr ice I**  **nformation Products**  **Source Product Used for Price Information**  **Paper** Newsprint RI SI I nc. 30
- lb (East) Uncoated mechanical RI SI In c. 22.1
- lb White directory (mid
- point min
. /max
. 1 ) Coated paper RI SI I nc. Economy 8
- lb sheets (mid
- point min
. /max
. ) Uncoated freesheet RI SI I nc. 50
- lb offset, rolls (mid
- point min
. /max
. ) Other printing/writing RI SI I nc. Bleached bristols, 10
- pt C1S, rolls (mid
- point min
. /max
. ) **Paperboard** Unbleached Kraft paperboard RI SI I nc. Unbleached kraft (East, mid
- point min
. /max
. ) Semichemical paperboard RI SI I nc. Corrugating Medium, Semichemical (East, mid
- point min
. /max
. ) Bleached paperboard RI SI I nc. Grocery bag, 30
- lb (mid
- point min
. /max
. ) Recy cled paperboard RI SI I nc. 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 elasticit y is calculated as the percentage change in the quantit y of a product demanded divided b y the percentage change in price. An increase in price causes a decrease in the quantity

demanded, hence the n egative values seen in Table 4
- 3 , which presents the demand elasticities used in this analy sis. Demand is considered elastic if demand elasticity exceeds 1.0 in absolute value (i.e., the percentage change in quantity exceed s 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 percenta ge 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 ela sticities from t he North American Pulp and Paper (NAPAP) model , a dy namic model used by

the U.S. Forest Service to anal yz e the paper and paperboard industry (Ince and Buongiorno 2007) . The table presents the elasticity estimates, as well as the NAPAP prod uct from which the elasticity estimate is drawn.*** Draft

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- 7 **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 Ti ssue - 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 Recy cled paperboard
- 0.40 NAPAP Recy cled board Source: The North American Pulp and Paper (NAPAP) model ( In ce and Buongiorno 2007 ) Supply elasticity is calculated as the percentage change in quantity supplied divided by the percentage change in price. An upward sloping suppl y curve has a positive elasticity since price and quantity

move in the same direction. If the supply curve has an elasticity

greater than one, th en supply

is considered elastic, which means a small price increase will lead to a relativel y large increase in quantity supplied. A supply curve with elasticity

less than one is considered inela s tic, 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 suppl y is usually greater than on e. As shown in Table 4
- 4 , we draw supply elasticities from the U.S. Environmental Protection Agency ’s Economic I mpact and Regulatory Flexibility

Anal ys is of Propose d Effluent Guidelines and NESHAP for the Pulp, Paper, and Paperboard Industry ( 1993 ) . The table presents the elasticit y estimates, as well a s the product in the 1993 U.S. EPA from which the elasticity is drawn.*** Draft

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- 8 **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 Recy cled paperboard 0.49 U.S. EPA Recy cled paperboard Source: U.S. Environmental Protection Agency ( 1993 )
**4.2.4 Ente**  **ring Estimated Annualized**  **Engineering Compliance Costs into Economic Model**  In order to allocate estimate engineering costs across pape r and paperboard product markets used in the partial equilibrium analy se s , we first identified the primary product produced by affected mills and classified the primary product as one of the products used in the economic anal ys is. Then, using the mill
- level estimates of annualized engineering compliance costs, we distributed the costs to products based upon the primar y product produced at each mill
. Table 4
- 5 reports the results of this distribution across the three regulatory options considered.*** Draft

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4
- 9 **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 Recy cled 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 with in 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 potentiall y affected b y this rule. This redistribution is based on the strong assumption that impacts on the pulp sector can be r eallocated to producers of paper products in proportion to the estimated compliance costs absent costs expected to accrue to pulp produc ers. The results of this redistribution are shown in Table 4
- 6
.*** Draft

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4
- 10 **Table 4**  **- 6**  **Estimated Annualized**  **Engineering Com pliance**  **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 Recy cled 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 c ompliance cost per ton of product produced. These annualized engineering compliance costs per ton across regulatory options are presented in Table 4
- 7 .*** Draft

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- 11 **Table 4**  **- 7**  **A nnualized**  **Engineering C om**  **pliance C**  **osts per**  **T on**  **Product Prod uced at**  **National Level across Regulatory O**  **ptions (in 2010 dollars)** 
**Pro ducts**  **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 Recy cled 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 an y 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, m ark et - level changes in the paper and paperboard market s are estim ated 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 )
.*** Draft

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4
- 12 **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% Recy cled 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 b y having the highest estimated per ton compliance costs, semichemical paperboard has the largest predicted percentage change in price and quantity
. Overall, the economic model s predict an o verall price increase of about 4.1 cents per ton o f paper and paperboard product, from a baseline price of about $920 per ton ( Table 4
- 9 )
. Overall production quantities ar e predicted to decrease about 15 00 tons, fro m a baseline production level of about 82 million tons. Note that the weighted average price increase is lower than the weighted per ton compl iance cost increase of about 7.5 cents per ton as shown in Table 4
- 7 . As the welfare impacts anal ys is that follows shows, producers absorb a portion of the regulatory

program costs and do not pass on the full burden to consumers.*** Draft

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- 13 **Table 4**  **- 9**  **Change in Price and Quantity (#)**  **a cross Products and Regulatory Option**  **s (**  **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 Recy cled 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 ty pically measured as falling solel y on the affected producers, who experience a profit loss exactly equal to these cost e stimates. 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 ty pically 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 anal ys is builds on the engineering cost anal ys is and incorporates economic theory related to pro ducer and consumer behavior to estimate changes in market conditions. Paper and paperboard producers can make suppl y adjustments that will generall y affect the market environment in which they operate. As producers change levels of*** Draft

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- 14 product supply

in respo nse to a regulation, consumers are t ypically 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 fo r two ty pes of stakeholders: paper and paperboard consumers and producers. As shown in Table 4
- 10 , under the proposed Option 2, pa per and paperboard co nsumers are predicted to experience a $3.3 million reduction in surplus as the result of higher prices and reduced consumption . P roduce r surplus is p redicted to decrease about $2.9 million
. Total welfare lo sses 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 b y the relativel y 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**  Ultimate ly , the regulatory program may

cause negligible increase s in the costs of supply ing paper and paperboard products to consumers. T he partial equilibrium model used in this EI A is designed to evaluate behavioral responses to this change in costs within a n equilibrium setting within nationally competitive market s . T he national competitive market*** Draft

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- 15 assumption is clearly

v ery 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 quantit y impacts could be different from the average impacts reported if local market structures, production costs, or d emand conditions are substantiall y different from tho se used in this analy sis. **4.3 Small Business Impacts**  **Analysis** The Regulatory

Flexibility

Act as amended b y the Small Business Regulatory Enforcement Fairness Act (SBREFA) generall y requires an agency to prepare a regulatory flexibility

analy sis of an y rule subject to notice and comment rulemaking requirements under the Administrative Procedure Act or an y other statute , unless the agency certifies that the rule will not have a significant economic impact o n 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 rule s on small entities , the screening anal ys is indicates that these proposed rules will not have a significant economic impact on a substantial number of small entities (or “SI SNOSE”). The supporting analy ses for these determinations are pres ented in this section of the EIA
. **4.3.1 Small Business National**  **Overview** The industry

sectors covered b y the final rule were identified during the de velopment of the engineering cost analy sis. The U.S. Census Bureau’s Statistics of U.S. Businesses (SUSB) provide s national information on the distribution of economic va riables b y industry and ente rprise 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 anal ys es . 1 Statistics include the total number of est ablishments , and receipts for all entities in an industry ; however, man y of these entities may not necessarily

be covered by

the final rule
. SUSB also provides statistics by enterprise employ ment 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.*** Draft

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- 16  E stablishmen t: A s ingle phy sical 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 single
establishment firms. For each multi
- establishment firm, establishments in the same industry within a state will be counted as one firm
- the firm emplo ym ent and annual pay roll are summed from the associated establishments.

 R eceipts : 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.

 E nterprise : An enterpr ise 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 emplo yment and annual pay

roll are summed from the associated establishments. Enterprise size designations are determined by the sum of employ

ment of all associated establishments. Because the SBA ’ s busin ess size definitions apply to an establishment ’ s “ ultimate parent compan y, ” we assume d in this analy sis that the “firm” definition above is consistent with the concept of ultimate parent company that is ty pically used for SBREFA screening anal ys es , and the terms are used int er changeabl y.*** Draft

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- 17 **Table 4**  **- 11**  **Number of Firms, Total Employment, and Estimated Salaries**  **by Firm Size and NAICS for Primarily Affected Segments**  **, 200 6**  NAI CS NAI CS Description SBA Size Standard Small

Businesses La rge

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

Dy namics, 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 anal ys is 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 b y the rules. The anal ys is focuses on small firms bec ause they may have more difficult y comply ing with a new regulation or affording the costs associated with meeting the new standard. This section presents the data sources used in the screening anal ys is, the methodology

we applied to develop estimates of i mpacts, the results of the anal ys is, and conclusions drawn from the results.*** Draft

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- 18 The small business impacts anal ys is relies upon a series of firm
- level sales tests (represented as cost
- to - sales ratios) for firms that are likely to be associated with NAI CS cod es listed in Table 2
- 10
. EPA obtained firm
- level employ ment, revenues, and production levels using various sources, including the Dun & Bradstreet, the A merican Business Directory , corporate websites, and publicall y - available financial reports. Using these data, we estimated firm
- level compliance cost impacts and c alculated cost
- to - sales ratios to identify small firms that might be significantl y impacts by the rules. For the sales test, we divided the estimates o f annualized establishment compliance costs at the compan y - 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 employ s in anal yz ing small entity impacts as o pposed 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 b y EPA regulations, and profits data normally m ade available are often not the true profit earned b y firms because of accounting and tax considerations. Revenues and sales as t ypicall y 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 SBREFA 2 and is consistent with guidance published by the U.S. SBA’s Office of Advocacy that suggests that cost as a perce ntage of total revenues is a metric for evaluating cost increases on small entities in relation to increases on large entities (U.S. SBA, 2010). 3 8 **4.3.3 Small**  **Entity Economic Impact Analysis and Conclusions**  As discussed in Section 3 , 114 facilities are potential ly 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 emplo ye es, 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 considere d can be found at < http://www.epa.gov/sbrefa/documents/r faguidance11
- 00
- 06.pdf> 3 U.S. SBA, Office of Advocacy. A Guide for Government Agencies, How to Com ply with the Regulatory Flexibility Act, Implementing the President’s Small Business Agenda and Execut ive Order 13272, June 2010
.*** Draft

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

Facult y Ultimate Owner Employ ees 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. I n fact, the ratios are well below 1%, ranging from 0.01% to about 0.16%. An imp act 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 Optio**  **ns (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 anal ys is that a substantial number of small firms are not significantl y impacted. Based upon the anal ys is in this section, we conclude there is no SI SNOSE arising from the proposed NESHAP amendments.*** Draft

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4
- 20 **4.4 Employment Impacts Analysis**  While a standalone anal ysis of e mploy ment impacts is not included in a standard cost
benefit anal ys is, such an anal ys is is of particular concern in the current economic climate of sustained high unemplo yment. Executive Order 13563, states, “ Our regulatory s ys tem must protect public healt h, welfare, safet y, 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 employ ment impacts of the proposed regulations using labor re quirements for the operation and maintenance of control requirements. Regulations set in motion new orders for pollution control equipment and services. New categories of emplo ym ent have been created in the process of i mplementing 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 emplo ym ent 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 employ ees in 2008. 4 While these revenues and employ ment 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 employ ees in 2008 represent ne w employ ment 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

– muc h like they hire workers to produce more output. Morgenstern et al. (2002) examined how regulated industr ies respond to regulation. The authors found that , on average for the industries they studied , employment increases in regulated firms
. Of course, the se firms may

also r eassign existing employ ees 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 Ad ministration Environmental Industries Fact Sheet from April 2010: http://web.ita.doc.gov/ete/eteinfo.nsf/068f3801d047f26e85256883006ffa5 4/4878b7e2fc08ac6d85256883006c45 2c?OpenDocument*** Draft

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4
- 21 Environmental regulations support employ ment in many

basic industries
. In addition to the increase in emplo ym ent in the environmental protection industry ( via increased orders for p ollution control equipment), environmental regulations also support employ ment in industries that provide intermediate goods to the environmental protection industr y. The equipment manufacturers, in turn, order steel, tanks, vessels, blowers, pumps, and c hemicals 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 employ ment is positive
. Unlike several recent R IAs, however, we do not provide employ ment impacts estimates based on the stud y b y M orgenstern et al. ( 2002 )
. Using plant
- level data from 1979
- 1991, Morgenstern et al. (2002) estimate a model for four highl y - polluting , regulated industries (pulp and paper, plastics, steel, and petroleum refining) to examine the effect of higher abatement costs from regulation on net employ ment. T he 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 employ ment 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 , specificall y, were not statistically significant T he focus of this part of the anal ys is is on labor requirements related to the compliance actions of the affected entities within the affected sector. We do not estimate an y potential changes in labor outside of the pulp and paper industry
. This analy sis estimate s the potential employ ment impacts due to the operation and maintenance of control equip ment , as well as additional reporting and recordkeeping requirements
. N o estimates of the labor used to manufacture or assemble pollution control equipment or to supply the materials for manufacture or assembl y are included because U.S. EPA does not curre ntl y have this information. The employ

ment anal ys is uses a bottom
- up engineering
- based methodolog y to estimate employ ment impacts . The engineering cost anal ys is summarized in this EIA includes estimates of the labor requirements associated with implemen ting the proposed regulations. These labor changes may

be required as a n upfront, intensive expenditure of effort required to initially comply with the new requirements, or as continuous, annual effort s to sustain compliance.*** Draft

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4
- 22 We convert estimates of the number hours of labor required to full
- time equivalents (FTEs) b y dividing b y 2,080 (40 hours per week multiplied by 52 weeks). We note that this ty pe of FTE estimate cannot be used to make assumptions about the specific number of people involved or wheth er new jobs are created for new employ ees. 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 al ternatives. 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 requi rements are estimated at about 2.5 and 9.1 FTEs , respectivel y for Option 2, the proposed NESHA P option. **Table 4**  **- 14**  **Labor -**  **based Employment Estimates for Operating and Maintaining Control Equip**  **ment Requirements, Proposed NESHAP Option**  **s 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** *** Draft

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5 - 1 **5 REFERENCES**  Benwart, S.J., 2006. Forest and paper products. Standard and Poor’s Industry Surveys 176(28). Berck, P., Hoffmann, S., 2002. Assessing the Employ ment Impacts of Environmental and Natural Resource Policy
. Environmental and Resource Economics 22(1): 133
- 156. Bezdek, R.H., Wendling, R.M., DiPerna, P., 2008. Environmental protection, the econom y, and j obs: National and regional anal ys es. Journal of Environmental Management 86(1): 63
- 79. Fullerton, D., Metcalf, G., 2002. Tax I ncidence. In **Handbook of Public Economics** , eds A. Auerbach, M. Feldstein. Elsevier: Amsterdam. In ce, P., Buongiorno, J., 2007. Nor th American Pulp and Paper Model (NAPAP). I n **Resource and Market Projections for Forest Policy Development: Twenty**  **- five Years of**  **Experience with the US RPA Timber Assessment** , eds D.M. Adams, R.W. Hay nes, pp. 99
- 174. Springer: Dordrecht, The Netherlands. Mo rgenstern, R.D., Pizer, W.A., Shih, J.
- S., 2002. Jobs Versus the Environment: An I ndustry
Level Perspective. Journal of Environmental Economics and Management 43(3): 412
- 436. RI SI I nc., January

20,2011a. Price Watch. PPI Pulp & Paper Week 33(3): 3. RI SI I n c., February

4,2011b. Price Watch. PPI Pulp & Paper Week 33(5): 5. U.S. Census Bureau, 2001. **1997 Census NAICS Definitions**
. < http://www.census.gov/econ/industry /current/c322.htm > Accessed o n: 11/14/11. U.S. Energy

I nformation Administration, 2008. **Assumptions to the Annual Energy Outlook 2008: With Projections for 2030** 
. < http://www.eia.gov/oiaf/aeo/assumption/pdf/0554(20 08).pdf > Accessed on: 11/14/11. U.S. Environmental Protection Agency , 2002. **Profile of the Pulp and Paper Industry. Sector Notebook Project. EPA/310**  **- R**  **- 02**  **- 002.**  < http://www.epa.gov/Compliance/resources/publications/assistance/sectors/notebooks/in dex.html> . Accessed on: 11/14/11. U.S. Environmental Protection Agency , 2010. **Gu idelines for Preparing Economic Analyses,**  **EPA 240 -**  **R -**  **10 -**  **001** . < http://y osemite.epa.gov/ee/epa/eed.nsf/pages/Guidelines.html > Accessed on: 11/14/11.*** Draft

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5 - 2 U.S. Environmental Protection Agency , Office of Water, Office of Air and Radiation, 1993. **Economic Impact and Reg ulatory Flexibility Analysis of Proposed Effluent**  **Guidelines and NESHAP for the Pulp, Paper, and Paperboard Industry: Final Report, 821R93021** 
.