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Economic Impact and Small Business Analysis for the Proposed Compression
- Ignition (CI) New Source Performance Standard s (NSPS) EPA is proposing to amend the CINSPS for stationary engines that were published on June 11, 2006. Based on a settlement ag reement resulting from a legal challenge to the original rule, EPA must propose amendments to the CINSPS by May 22, 2010. The impacts discussed in this memorandum are based on proposing to implement more stringent standards for stationary CI engines with a displacement greater than or equal to 10 liters/cy linder (l/cy l) and less than 30 l/cy l, consistent with recent revisions to standards for similar mobile source marine engines. Specifically , EPA is proposing to amend the CINSPS to require stationary C I engines greater than or equal to 10 l/cy l and less than 30 l/cy l to meet the emission standards for the same size and displacement engines as currently required under 40 CFR part 1042, C ontrol of Emissions from New and I n - Use Marine Compression

- Ignition Engines and Vessels

. These standards will be phased

- in between 2013 and 2017 model y ear engines depending on the size and displacement. BASIS OF ESTIMATED EMISSION REDUCTIONS The 40 CFR part 1042 emission standards include recently finalized more string ent standards, i.e., Tier 3 and Tier 4 emission standards, and are the standards that EPA is proposing to adopt for stationary

CI engines greater than or equal to 10 l/cy l and less than 30 l/cy l. Tier 3 standards are based on in

- engine controls and ultra low sulfur diesel fuel use

. The Tier 4 standards are based on diesel particulate filters ( DPF ) and selective catal yt ic reduction ( SCR ). Consistent with how EPA has treated stationary emergency

CI engines in the past, EPA is not requiring standards that fo rce aftertreatment for stationary emergency CI engines. Onl y stationary non - emergency

CI engines greater than or equal to 10 l/cy l and less than 30 l/cy l will be subject to emission standards based on aftertreatment under the proposed amendments In order to estimate the number of new stationary CI engines in the displacement range that would be subject to Tier 3 and Tier 4 emission standards under the proposed amendments to the CINSPS, EPA obtained information from the Engine Manufacturers Association (E MA). 1 According to EMA, it is estimated that 8 new engines between 10 l/cy l and 30 l/cy l would be produced ye arl y and would become subject to the rule. Of these 8 engines, 3 are expected to be non - emergency

engines and 5 are expected to be emergency engi nes, according to EMA. All engines are expected to be used for power generation. In order to estimate the pollutant reductions for stationary CI engines between 10 l/cy l and 30 l/cy l that would be subject to 40 CFR part 1042 emission standards, EPA compared Tier 4 emission standards from 40 CFR part 1042 to the previous standards that applied to these engines under the CI NSPS, which were consistent with the emission standards in 40 CFR part 94. EPA used emission standards from Tables 3

- 16 and 3

- 41 of th e 2008 Regulatory I mpact

1 E mail from Joe Suchecki , EMA to Tanya Parise, EC/R, Inc. Apr il 7, 2010.2

Analy sis (RIA) for locomotive and marine CI engines. 2 The cumulative emissions reductions associated with the proposed amendments in the year 2018 are 8 tpy of PM, 295 tpy

of NO x , and 4 tpy of HC. The y ear 2018 is the first y ear the se emission standards would be fully implemented for stationary CI engines between 10 and 30 l iters l /cy l. In the y ear 2030, t he cumulative emissions reductions are estimated at 38 tpy of PM, 1,100 tpy

of NO x , and 18 tp y of HC

. BASIS OF ESTIMATED C OSTS TO AFFECTED SOURCES In order to estimate the costs associated with requiring Tier 4 emission standards for new non - emergency

stationary

CI engines, EPA consulted with the Office of Transportation and Air Quality (OTAQ). EPA used the costs presented in the 2008 RI A for locomotive and marine engines 2 in order to estimate the cost associated with meeting Tier 4 emission standards based on aftertreatment controls. Specificall y, after consulting with OTAQ, it was found most appropriate to use the hardware (or variable) costs in Tables 7A

- 5 and 7A

- 6 and the auxiliary engine costs from Tables 7B

- 20 and 7B

- 21 of the 2008 RIA for locomotive and marine engines. 2 The hardware and auxiliary

costs were multiplied by the number of new stationary non - emergency

C I engines between 10 l/cy l and 30 l/cy l to determine the total capital costs. No capital costs were attributed to new stationary emergency

CI engines between 10 l/cy l and 30 l/cy l because these engines will not be subject to emission standards that force aftertreatment. The capital cost associated with the proposed amendments to the CI NSPS is $236,000 ($2009) in 2018. The annual costs associated with the proposed requirements for new non

- emergency CI engines between 10 l/cy l and 30 l/cy l include the ope rating costs for the urea usage for the SCR control sy stem, DPF maintenance, and the increased fuel consumption associated with DPF

. These annual cost elements were estimated based on communication with OTAQ 3 , 4 and information from Nonroad Engine Modeling documents. 5 The cumulative annual cost is estimated to be $142,000 ($2009) in 2018 and $711,000 ($2009) in 2030. ECONOMIC IMPACTS In this economic anal ys is, we estimate impacts for the y ear 2018. We al locate the annual costs to the electric power generation industry (NAI CS 2211) , the industry we expect the 3 new non - emergency

CI engines affected b y 2018 will be located and the industry in which two

- thirds of the existing CIengines are currentl y cl assified. 6 We use the annual average revenue for the electric power generation industry , which is estimated using U.S. Census Bureau data at $41.2 million (2009 dollars). Assuming that a single affected non

- emergency engine will be owned by one firm, we thus assume three firms affected b y t his NSPS. Th us, the annual cost per affected firm is $47,333 (or $ 142,000/3)

. We estimate economic impacts using the cost

- to
- receipt (i.e.,

2 Regulatory Impact Analysis: Control of Emissions of Air Pollution from Locomotive Engines and Marine Compression Ignition Engines Less than 30 Liters Per Cylinder, EPA/ 420

- R

- 08

- 001a May 2008. 3 Email from Todd Sherwood, OTAQ to Tanya Parise, EC/R, Inc. October 6, 2009. 4 Email from Todd Sherwood, OTAQ to Tanya Parise, EC/R, Inc. April 21, 2010

. 5 Exhaust and Crankcase Emission Factors for Nonroad Engine Modeling

-- Compression Ignition EPA420

-- P

- 04

- 009 April 2004 NR

- 009c. 6 Regulatory Impact Analysis for the Compression

- Ignition (CI) RICE NESHAP. February 2010.3

sales) ratio, or the “sales test.” The “sales test” is the impact methodology EPA employ s in anal yz ing small entity

impacts as opposed to a “profits test,” in which annualized compliance costs are calculated as a share of profits. This is because revenues or sales data are commonly available data for entities normally impacted b y EPA regulations and profits data normally made av ailable are often not the true profit earned b y firms because of accounting and tax considerations. Revenues as ty picall y published are usuall y correct figures and are more reliably reported when compared to profit data. The use of a “sales test” for est imating small business impacts for a rulemaking such as this one is consistent with guidance offered b y EPA on compliance with SBREFA 7 and is consistent with guidance published by the U.S. SBA’s Office of Advocacy that suggests that cost as a percentage of total revenues is a metric for evaluating cost increases on small entities in relation to increases on large entities. 8 By using an annualized cost to revenue metric, we estimate the eco nomic impact to be $47,333/$183 million, or 0.03 percent of revenues

. 9 , 7 Assuming one of these firms is a small entity , the impact on the small entity is also 0.03 percent. Thus, based on this impact and there being onl y one small entity affected by

this proposal, we certify

that there is no significant economic impact on a substantial impact on small entities ( SI SNOSE ) associated with this rule. In addition, since the annualized cost as a percent of sales or revenues estimate is an approximation of the maximum price increase required for a product for a firm to recover all costs of compliance, the maximum price increase associated with this N SPS will be no greater than 0.03 percent. The change in affected product output should also be no higher than this.

7 The SBREFA compliance guidance to EPA rulewriters regarding the types of small business analysis that should be considered can be found at http://www.epa.gov/sbrefa/documents/rfafinalguidance06.pdf , pp. 24

- 25. 8 U.S. SBA, Office of Advocacy. A Guide for Government Agencies, How to Comply with the Regulatory Flexibility Act, Implementing the President’s Small Bus iness Agenda and Executive Order 13272, May 2003

. 9 U.S. Census Bureau .2008. “Firm Size Data from the Statistics of U.S. Businesses: U.S. All Industries Tabulated by Receipt Size: 2002.” <http://www.census.go v/csd/susb/susb02.htm>. Key Enterprise Statistics for Electric Power Generation, Transmission, and Distribution (NAICS 2211): 2002.