# Economic Analysis of Air Pollution Regulations: Miscellaneous Cellulose Manufacturing Industry
Industry Profile

Prepared for Eric L. Crump U.S. Environmental Protection Agency Office of Air Quality Planning and Standards Innovative Strategies and Economics Group (ISEG) (MD-15) Research Triangle Park, NC 27711

Prepared by
Robert H. Beach George L. Van Houtven Mark C. Buckley Brooks M. Depro Research Triangle Institute Center for Economics Research Research Triangle Park, NC 27709

EPA Contract Number 68-D-99-024

RTI Project Number 7647-001-011

February 2000EPA Contract Number 68-D-99-024 RTI Project Number 7647-001-011 

# Economic Analysis of Air Pollution Regulations: Miscellaneous Cellulose Manufacturing Industry Industry Profile

February 2000

Prepared for Eric L. Crump U.S. Environmental Protection Agency Office of Air Quality Planning and Standards Innovative Strategies and Economics Group (ISEG) (MD-15) Research Triangle Park, NC 27711 Prepared by
Robert H. Beach George L. Van Houtven Mark C. Buckley Brooks M. Depro Research Triangle Institute Center for Economics Research Research Triangle Park, NC 27709DRAFT

iii CONTENTS
Section Page 2 Industry Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-1
2.1 Production Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-3 2.1.1 Viscose Category Production Process . . . . . . . . . . . . . . . . . . . . 2-3 2.1.2 Cellulose Ether Cate gory Production Process . . . . . . . . . . . . . . 2-6 2.1.3 Costs of Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-6
2.2 The Demand Side . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-8 2.2.1 Characteristics of Misce llaneous Cellu lose Products . . . . . . . . 2-8 2.2.2 Consumption and Uses of Mis cellaneous Cellulo se Products . . 2-8 2.2.3 Substitution Possibilities in Consumption . . . . . . . . . . . . . . . . . 2-9 2.3 Industry Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-10 2.3.1 Market Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-10 2.3.2 Manufacturing Plants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-11 2.3.3 Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-14 2.3.3.1 Employment and Sales Distribution . . . . . . . . . . . . . 2-14 2.3.3.2 Identifying Small Businesses . . . . . . . . . . . . . . . . . . 2-14 2.3.3.3 Issue of Vertical and Horizontal Integration . . . . . . . 2-16 2.3.2.4 Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-17
2.4 Market Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-18 2.4.1 Cellulose Food Casings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-18 2.4.2 Rayon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-18 2.4.3 Sponges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-18 2.4.4 Cellulose Ethers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-18
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-1DRAFT

iv LIST OF FIGURES
Number Page 2-1 Generic Process Diagram for the Viscose Category . . . . . . . . . . . . . . . . . . . . . 2-5 2-2 Cellulose Ether Manufacturing Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-7 2-3 Geographic Distribution of Mis cellaneous Cellulo se Manufacturing Plants in the United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-12 2-4 Chain of Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-15 2-5 Distribution of Miscellaneous Cellulose Companies by Size . . . . . . . . . . . . . 2-17DRAFT

v LIST OF TABLES
Number Page 2-1 Miscellaneous Cellulose Manufacturing Facilities . . . . . . . . . . . . . . . . . . . . . 2-11 2-2 Facility Employme nt and Sales, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-13 2-3 Affected Parent Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-16DRAFT

2-1 SECTION 2 INDUSTRY PROFILE

Cellulose is a natural polymer found in plan t cell walls. The cellulose extracted from trees or other plants provides the basic ra w material for all of the commercial products produced by the miscellaneous cellulose manufacturing industry. The miscellaneous cellulose manufacturing industry can be divided into two majo r categories: the viscose category and the cellulose ether category. Both of these categories use some type of cellulose as the primary raw material, normally either wood pulp or co tton linters, but their production processes differ. Although pr oduction of viscose products is not identical for all of the viscose outputs, the processes are very similar. Relatively few firms are involved in the production of these mis cellaneous cellulose products. Only 17 miscellaneous cellulose manufacturin g facilities ar e operated in the United States. The final products of these facilities compete in ma rkets with products made from alternative materials, especially plastics. Cellulose products ha ve generally been declining in market share over time as newer noncellu lose products have been introduced. Fourteen of the 17 facilities in the United States are considered major sources of hazardous air pollutants (HAPs). The primary pollutant associated with this industry is carbon disulfide (CS 2 ), which is used in the viscose production process a nd may be emitted at several steps during production. Another pollutant generate d during the viscose production process is hydrogen sulfide (H 2 S). The HAP emitted during the manufacture of cellulose ethers depends primarily on th e type of cellulose ether be ing manufactured. Methanol, methyl chloride, ethylene oxid e, and propylene oxide are the primary HAPs released by the cellulose ether manufacturing facilities in the United States. This industry profile consid ers five outputs of miscellane ous cellulose manufacturing. The viscose category features four types of products—cellulose food casings, rayon, cellophane, and cellulosic sponges —and cellulose ethers are cons idered a single category. Brief descriptions of each of these categories are provided below.

 Cellulose food casings: Ce llulose food casings were developed in 1925 as a substitute for natural casings and are used in manufacturing meat products such asDRAFT

2-2 sausages, hot dogs, salamis, bologna, and other processed meats. The meat is stuffed into a casing that holds the shape of the product during processing. Casings are commonly removed from the meat products prio r to retail sale.

 Rayon: Rayon was the first man-made fiber and serves in a wide variety of uses. It is used in apparel, household goods , and various nonwoven fabrics. Textile fabrics may be woven of ra yon alone or rayon in combination with other yarns. Nonwoven rayon products include feminine hygiene products, baby wipes, computer disk liners, and surgical swabs.

 Cellophane: Cellophane is a thin, transparent material used in food packaging (especially for candy, cheese, and baked goods); adhesive ta pes; and membranes for industrial uses such as batteries.

 Cellulosic sponges: This type of artif icial sponge was introduced in 1931 as an alternative to natural spong es. Cellulosic sponges are used for cleaning purposes.

 Cellulose ethers: Various cellulose ethers are produced, including methyl cellulose (MC), carboxymethyl cellulose (CMC), hydroxyethyl cellulose (HEC), hydroxypropyl cellulose (HPC), and hy droxypropyl methyl cellulose (HPMC). These cellulose derivatives are used mainly as thickeners, visc osifiers, and binders in the food, pharmaceutical, paper, cosme tic, adhesive, dete rgent, and textile industries. The affected products are cla ssified in the following Sta ndard Industrial Classification (SIC) codes:

 SIC 2823, Cellulosic Manmade Fibers;

 SIC 2869, Industrial Organic Chemical s—Not Elsewhere Classified; and

 SIC 3089, Plastics Products, No t Elsewhere Classified. Under the North American Industry Classi fication System (NAICS), the codes for miscellaneous cellulose manufacturing are the following:

 NAICS 32511, Petrochemi cal Manufacturing;

 NAICS 325199, All Other Basic Orga nic Chemical Manufacturing;

 NAICS 3252, Resin, Synthetic Rubber, a nd Artificial and Sy nthetic Fibers;

 NAICS 326121, Unsupported Plastics Prof ile Product Manufacturing; and

 NAICS 326199, All Other Plas tics Product Manufacturing.DRAFT

1 The majority of the information on production processes was drawn from Schmidtke and Holloway (1999). 2-3 In the remainder of this section, we pr ovide a summary profile of the miscellaneous cellulose industry in the United States as background information for understanding the technical and economic aspects of the industr y. Section 2.1 provides an overview of the production processes for the vari ous products of this industry. Section 2.2 discusses the demand side of the markets for these cellu lose products. Section 2.3 summarizes the organization of the U.S. mis cellaneous cellulose manufacturing industry, including a description of U.S. manufacturing plants a nd the companies that own them. Finally, Section 2.4 provides market data on U.S. production, consumption, foreign trade, and prices. 2.1 Production Overview This section provides an overview of the various processes for manufacturing miscellaneous cellu lose products. 1 Both the viscose and cellu lose ether categories use some type of cellulose as the raw material a nd begin the production of cellulose products by reacting the cellulose with a sodium hydroxid e (NaOH) solution and shredding the cellulose pulp (not necessarily in that order) to produce alkali cellulose. The NaOH breaks the cellulose pulp into shorter length s by adding a sodium ion to the cellulose chain. This step lowers the viscosity of the ge nerated product (e.g., viscose solution for the viscose category) and creates a site to add constituent groups (e .g., methyl, ethyl, or propyl groups for the cellulose ether category). After this common initial step, the viscose and cellulose ether categories diverge in their production methods. Therefore, process descriptions for the viscose and cellulose ether categ ories are provided se parately below. No major by-products or co-products are associated with the manuf acture of miscellaneous cellulose manufacturing process. 2.1.1 Viscose Category Production Process The manufacturing processes for the differe nt products in the viscose category are very similar. They all essentially include the same raw materials and process steps. The main difference is simply the shape through wh ich the viscose is extruded at the end of the process. The raw materials used in all of the different viscose manufacturing processes include cellulose, NaOH, CS 2 , and sulfuric acid (H 2 SO 4 ). The steps in the process are

 production and aging of alkali cellulose,

 reaction with CS 2 to produce sodium cellulose xanthate,DRAFT

2-4  production and aging of viscose solution,

 extrusion/regeneration and washing to produce the viscose product, and

 acid or salt recovery. Figure 2-1 illustrates a generic process flow diagram for the viscose category. The alkali cellulose is aged to decrease the degree of polymerization of the cellulose. The amount of time for the aging step is base d on the desired cellulose chain length. The aged alkali cellulose is then reacted with CS 2 to form sodium cellulose xanthate. Following completion of the reaction, most of the viscos e category facilities apply vacuum to the reactor and/or purge the reactor with air or nitrogen (N 2 ) to remove unreacted CS 2 . The CS 2 levels are the most concentrated at the beginning of the reactor evacuation and fall as evacuation continues. The reactor area of the facility is well-ventilated at most of the viscose category facilities, helping to reduce operator exposure to CS 2 . Following the reactor, the sodium cellulose xanthate is dissolved in a caustic solution to form a viscous material referred to by the industry as “viscose.” The viscose solution is aged or “ripened” and then filtered to remove unreacted alkali cellulose. At most of the viscose category facilities, the viscose is also deaerated to remove en trapped air and filtered to remove any undissolved solids. The excep tion is sponge manufactur ing facilities, which do not include these steps. The viscose is th en extruded or formed into various shapes or products; the product forming may occur in an aci d bath or by electrifying, depending on the type of viscose manufacturing process. At the majority of the viscose manufacturing facilities, the cellulose precipitates out of a H 2 SO 4 solution, and the sodium atom on the cellulose polymer reacts with the H 2 SO 4 to generate Na 2 SO 4 (i.e., the sodium cellulose xanthate decomposes back to cellulose and CS 2 ). H 2 S is also generated in the extrusion/regeneration steps and emitted. The acid bath for the extrusion/regeneration step becomes diluted from the water in the viscose solution, and a portion of the acid bath solution is treated in the acid recovery area and returned to the acid bath. In sponge plants, glauber salts are added to the viscose prior to genera tion of the product and ar e recovered and reused as part of the production process. The form ed cellulose product is then washed, dried, finished, and packaged.DRAFT

2-5CelluloseCS2H2SSteepingShreddingAlkaliCelluloseAgingReactionMixingViscoseAging/RipeningPackagingFinishingDryingWashingExtrusion/RegenerationFilteringaDeaeratedaCS2NaOHsolutionSodiumCelluloseXanthateViscoseCS2H2SNaOH solutionCS2CS2

Figure 2-1. Generic Process Di agram for the Viscose Category

a Sponge manufacturers do not include the deaeration and filtering steps.DRAFT

2-6 Pollutants can be emitted into the atmosphere from several sources during viscose processing. The primary HAP emitted from the manufacturing process is CS 2 . CS 2 is emitted from the reactors and can be emitted from the slurry tanks used to generate viscose solution. Both CS 2 and H 2 S are emitted from the regeneration baths and the wash steps. 2.1.2 Cellulose Ether Cate gory Production Process All cellulose ether processes include the following steps:

 production of alkali cellulose from cellulose and NaOH,

 reaction of the alkali cellulose with ch emical compound(s) to produce a cellulose ether product,

 washing and purification of th e cellulose ether product, and

 drying of the cellulose ether product. Cellulose ether products may also be ground to uniform size and coated or blended. Figure 2-2 displays a simplified flow diagra m of the processes used to produce cellulose ethers. Following the production of al kali cellulose, the raw materi als used in the cellulose ether process vary according to the particul ar ether being produced. To produce MC, CMC, HEC, and HPC, alkali cellulose is reacted with methyl chloride, chloroacetic acid, ethylene oxide, and propylene oxide, respectively. HPMC is produced by reacting alkali cellulose with both methyl chloride and pr opylene oxide. All of these raw materials (methyl chloride, chloroacetic acid, ethylene oxide, and propylene oxide) added to the alkali cellulose to form the various ether products are considered HAPs. As shown in Figure 2-2, pollutants can be emitted at various points in the manufacturing process. The primary HAP(s ) emitted from the manufacturing of cellulose ethers depends on the type of ether pr oduct being produced, as mentioned above. 2.1.3 Costs of Production The input costs into the production of mis cellaneous cellulose products are reported as confidential business information (CBI).DRAFT

2-7Cellulosesheets orrollsShredderReactoror VesselHold Tubs orDump TanksPackagingDryerBlend TankaDump TankaNaOHsolutionChloroacetic AcidEthylene OxideMethyl ChloridePropylene OxideCelluloseether slurryPurification solvent orhot water wash todissolve salts orby-productsHAPNon-HAPsolventaBlending/SurfaceTreatmentaMixeraCentrifuge orFilterbGrindingaHAPHAPPurification solvent orhot water containingdissolved salts or byproductsNon-HAPsolvent andNaOHsolution

Figure 2-2. Cellulose Eth er Manufacturing Process

a Not all cellulose ether processes use this material or equipment.

b Some cellulose ether processes have multiple centrifuge/filter and wash steps; the solvent is reused and

flows countercurrent to the cellulose ether product. 2. 2 T h
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2-8 d side of the market, including product charact eristics, the uses of the final products, the consumers of these products, and th e substitution possibilities available. 2.2.1 Characteristics of Misce llaneous Cellulose Products Cellulose products have many advantageous physical a ttributes that led to their introduction into various markets. Some of the useful character istics of cellulosics include a unique combination of toughness and transparency at relatively low cost, an almost unlimited color range, good grease resistance, little effect on mechanical properties due to moisture, and suitability of some grades for use with f ood products. One of the chief disadvantages is that using a natural polymer base causes greater variation in propertie s than a truly synthetic polymer (“Cellulose,” 2000). Since the introduction of thes e cellulose products, advances in plastics technology have allowe d products made from synthetic polymers to enter many of the markets in which the products comprising the miscellaneous cellulose category compete. 2.2.2 Consumption and Uses of Mi scellaneous Cellulose Products The main uses of these products vary de pending on which of the outputs is being considered. In general, the miscellaneous cellulose pr oducts under consideration are intermediate goods serving as input s into other production processes. Cellulose food casings are purch ased primarily by meat packers as an input in the production of processed meat pr oducts and are used to encase hot dogs, sausages, deli meats, and whole hams. The casing may either be left on the final produc t or removed following production. Rayon can be purchased as a continuous filament yarn or as cut (staple) fiber. Rayon is used as an input in the production of a variet y of products, but rayon is typically used as an input for two main categories of products: textiles and nonwove n materials. The buyers of textile fibers produce yarn from the fiber, ofte n as a blend with other fiber materials, and weave the yarns into fabrics used to produ ce apparel and upholstery, among other things. Nonwoven fibers are used by a variety of produ cers to make wipes, co mputer diskette liners, and feminine hygiene products. Cellophane normally serves as an intermediate good as well and is purchased primarily for packaging items such as food and confectionary produc ts (especially candy, cheese, and baked goods) and batteries; it is also used in adhesive tape. Cellulosic sponges are the one category under consideration here th at is not typically an input into the production of another g ood, although manufacturers of sponges may sellDRAFT

2-9 their output to other firms in la rge blocks and these firms may then cut, package, and sell the sponges. The main use for these sponges is cleaning various surfaces, and they can be purchased by households or businesses for this purpose. Cellulose ethers are used as an input into a variety of goods. They are chiefly used as thickeners, viscosifiers , and binders and are used in pr oducing paints, pers onal care products, inks, pharmaceuticals, and industrial coatings. 2.2.3 Substitution Possibilities in Consumption The markets in which the miscellaneous cellulose outputs compete generally consist of the cellulose product in add ition to several viable alternatives. With advances in the production of plastics, plastic a lternatives to cellulose produc ts have become increasingly competitive over time. In many cases, the manuf acturers of miscellaneous cellulose goods in the United States have seen their market shares shrinking recently under pressure from substitute products and foreign producers of cellulose goods. In the food casing market, the major alterna tives to cellulose are collagen and plastic. Another category in the industry, known as fi brous, actually contains regenerated cellulose and is considered under cellulose casings. Natural (intestine) casings are also used by some producers, especially in making sausage. Buye rs of casings make their choice as to which type of casing will be purchased based on the type of meat product being produced, desired shelf life, whether edible casing is desired, smoke permeability, and appearance. Many fibers, such as cotton, wool, and polyester, among others, can be used in textiles instead of rayon. Th e textile mills choose which fibe rs to use for a particular application based on characteristics like comfor t, warmth, ease of washing and drying, and resistance to unwanted creasing and wrinkling. As textile producti on has moved outside of the United States, sales of rayon fibers for use in textiles have declined rapidly. Sales of rayon fibers for use in nonwoven applications have shown much more strength in recent years than sales of tex tile fibers (Acordis, 1998). There are very strong substitutes for cellopha ne as well. Cellopha ne has been facing increasing competition in recent years from plastic s such as polypropylene and polyethylene. Cellophane twist wrap (used for wrapping single-piece candy) fell from a position of about 85 percent of the U.S. market in 1992 to 35 percent by early 1997 (Duschene, 1997). According to Plastics World (1995), polypropylene “has all but replaced cellophane in many packaging applications, such as for snack food and tobacco....”DRAFT

2-10 Cellulosic sponges seems to be the categor y where there is the least competition from alternative products, because na tural sponges are far more ex pensive and have a relatively small market share. Several retailers were contacted and these retailers sold cellulose sponges exclusively. However, there are still substitute products for cleaning such as paper towels and dishtowels. The cellulose ethers are used in many di fferent end uses and have numerous possible substitutes, depending on the particular application for which they are being used. Ethers generally compete with each other and with water-soluble polymers, both synthetic polymers (polyvinyl alcohol, polyurethane associativ e thickeners, polyacrylates), and natural polymers(xanthan, carageenan, locust bean gum) . The specific product used depends on the tradeoff between performance and price a nd availability (Che mical Economics Handbook, 1998). 2.3 Industry Organization
This section discusses the products and producers that c onstitute the market. The affected facilities and parent companies are identified, and their sales and employment distribution are summarized. 2.3.1 Market Structure
Market structure is of interest because it determines the beha vior of producers and consumers in the industry. If an industry is perfectly competitive, then individual producers are not able to influence the price of the output they sell or the inputs they purchase. This condition is most likely to hold if the industry has a large number of firms, the products sold and the inputs purchased are homogeneous, a nd entry and exit of firms are unrestricted. Entry and exit of firms are unrestricted for mo st industries except, for example, in cases where government regulates who is able to produce, where one firm holds a patent on a product, where one firm owns the entire stock of a critical input, or wh ere a single firm is able to supply the entire market. Very few U.S. facilities are involved in manufacturing each of the cellulose products under examination, implying imperf ectly competitive markets. However, there is vigorous competition from foreign sources in this indus try. In addition, there are many viable substitutes for these products. Therefore, de spite the small number of domestic producers, the miscellaneous cellulose manufacturing facilities are likely to behave fairly competitively.DRAFT

2-11 2.3.2 Manufacturing Plants Based on facility responses to the Section 114 letters, the Agency identified 17 plants in the United States currently manufacturin g miscellaneous cellulo se products. These facilities are identified in Table 2-1. Figure 2-3 shows the geographic distribution of U.S. miscellaneous cellulose manufacturing plants by final produc t. As shown, many of these plants are concentrated in the north-central re gion of the United States. Since only 14 of the 17 facilities are major sources subject to the maximum achievable control technology (MACT) standard, subsequent discussion focuses on this subset of the miscellaneous cellulose manufacturing facilities affected by the proposed regulation.

Table 2-1. Miscellaneous Cellulose Manufacturing Facilities
Facility Facility Location Major Product(s) Devro-Teepak, Inc. Danville, IL Cellulose food casings Viskase Corp. Loudon, TN Cellulose food casings Viskase Corp. Osceola, AR Cellulose food casings Acordis Cellulosic Fibers, Inc. Axis, AL Rayon Lenzing Fibers Corp. Lowland, TN Rayon UCB Films, Inc. Tecumseh, KS Cellophane Nylonge Corp. Elyria, OH Cellulosic sponges Spontex, Inc. Columbia, TN Cellulosic sponges 3M Corp. Prairie du Chien, WI Cellulosic sponges 3M Corp. Tonawanda, NY Cellulosic sponges Dow Chemical Co. Midland, MI Cellulose ethers (MC, HPMC) Dow Chemical Co. Plaquemine, LA Cellulose ethers (MC) Hercules Inc., Aqualon Co. Hopewell, VA Cellulose ethers (CMC, HEC, HPC) Hercules Inc., Aqualon Co. a Parlin, NJ Cellulose ethers (HEC) MAK Chemical Corp. a Muncie, IN Cellulose ethers (crude CMC) Penn Carbose, Inc. a Somerset, PA Cellulose ethers (crude CMC) Union Carbide Corp. Institute, WV Cellulose ethers (HEC)

a Hercules-Parlin, MAK, and Penn Carbose are area sources not subject to the MACT standard.DRAFT

2-12●= Rayon manufacturer■= Food casing manufacturer▲= Cellophane manufacturer◆= Sponge manufacturer✘= Cellulose ether manufacturerLegend▲■●◆■✘●◆■◆◆✘✘✘✘✘✘

Figure 2-3. Geographic Distribution of Mis cellaneous Cellulose Manufacturing Plants in the United StatesDRAFT

2-13 Facility-level sales and employment data are available for 11 of the 14 affected facilities, as reported in Table 2-2. The Spontex facility has the lowest employment and sales, while Dow Chemical in Plaquemine, LA, has the highest. For the facilities with available data, using the midpoint of the reported ranges gives an average employment of 510 employees and an average of $103 million in sales. For facilities that reported this data as CBI, the more accurate CBI da ta will be used for our econo mic analysis. We will provide data by final product as CBI. 2.3.3 Companies Table 2-2. Facility Employment and Sales, 1998

Company Facility Location Employment Range Sales ($ millions) Food Casings Devro-Teepak, Inc. Danville, IL 501-750 NA Viskase Corp. Loudon, TN 230 50-100 Viskase Corp. Osceola, AR 170 20-50 Rayon Acordis Cellulosic Fibers Inc. Axis, AL 425 NA Lenzing Fibers Corp . Lowland, TN 400 100-500 Cellophane UCB Films, Inc. Tecumseh, KS 100-249 20-50 Sponges Nylonge Corp. Elyria, OH 100-249 10-20 Spontex, Inc. Columbia, TN 140 NA 3M Corp. Prairie du Chien, WI 500-999 100-500 3M Corp. Tonawanda, NY 250-499 20-50 Ethers Dow Chemical Co. Midland, MI 60 NA Dow Chemical Co. Plaquemine, LA 50 NA Hercules Inc., Aqualon Co. Hopewell, VA 395 NA Union Carbide Corp. Institute, WV 134 20-50
Note: Italicized rows indicate companies for which we have CBI data. Sources: InfoUSA Inc. 1999. American Business Disc. Omaha, NE. Section 114 requests and plant trip reports.DRAFT

2-14 Companies that are directly affected by the regulation include entities that own miscellaneous cellulose manufacturing plants. As shown in Figure 2-4, the chain of ownership may be as simple as one plant owned by one company or as complex as multiple plants owned by subsidiary companies. Base d on survey and publicly available source data, the Agency identified 11 ultimate parent companies that own and operate the 14 directly affected facilities. For the economic analysis , EPA obtained sales and employment data from one of the following secondary data sources:

 Hoover’s Company Profiles (Hoover’s, 2000)

 Business and Company ProFile (I nformation Access Corporation, 2000)

 Ward’s Business Directory (Gale Research, 1998)

 Wrights Research Service (Winthrop Corporation, 2000) Data are available for all 11 companies and are included in Table 2-3. 2.3.3.1 Employment and Sales Distribution Company size is likely to be a factor in the distribution of the regulatory action’s financial impacts. The parent companies affected by this regulation are relatively large in general. The 11 firms owning the 14 affected manufacturing facilities range in size from 200 to 73,600 employees, with all but one firm havi ng over 3,000 employees. Over half of the companies have more than 10,000 employees. Table 2-3 shows the size distribution of potentially affected firms by total company employment. Company sales ranged from $15 million to $28 billion in 1998 for the potentially aff ected firms. Seven of the 11 companies had sales over $1 billion. 2.3.3.2 Identifying Small Businesses The Regulatory Flexibility Act (RFA) of 1980 as amended by the Small Business Regulatory Enforcement Fairness Act (SBREF A) of 1996 requires that the Agency give special consideration to sma ll entities affected by federal regulation. Companies operating miscellaneous cellulose manufacturing plants can be grouped into small and large categories using Small Business Administration (SBA) gene ral size standard definitions. The SBA defines a small business in terms of the sales or employment of the owning entity, and these thresholds vary by industry cl assification (SIC code) of the affected company. For this analysis the Agency identified three primary SIC codes with small business definition rangesDRAFT

2-15 ABC 

### Other Companies or Legal Entities

Subsidiary Company (Direct Owner) Subsidiary Company (Direct Owner)

Facility Facility Facility Parent Company Parent Company Parent Company (Direct Owner)

Figure 2-4. Chain of Ownership

as follows:

 2823 and 2869—1,000 or fewer employees

 3089—500 or fewer employeesDRAFT

2-16 Based on the reported company employment a nd SIC size standard, one company can be classified as small, or 9.1 percen t of the total (see Figure 2-5). 2.3.3.3 Issue of Vertical and Horizontal Integration Vertical integration is a potentially important dimension in analyzing firm-level impacts because the regulation could affect a vertically integrated firm on more than one level. The regulation may affect companies for whom cellulose manufacturing is only one of several processes in which the firm is involved. Fo r example, a company may produce cellulose products as part of a vertical operation that manufact ures and assembles the final Table 2-3. Affected Parent Companies Company Sales ($ millions) Employment Small Business 3M 15,659 73,564 no Acordis 2,285 18,300 no Devro-Teepak 438 3,687 no Dow Chemical 18,929 39,000 no Hercules 2,145 12,357 no Lenzing AG 751 4,723 no Nylonge 15 200 yes Total Fina S.A. 28,418 57,126 no UCB Films 1,597 8,726 no Union Carbide 5,870 11,627 no Viskase 409 3,050 no
Sources: Hoover’s Incorporated. 2000. Hoover’s Company Profiles. Austin, TX: Hoover’s Incorporated. <http://www.hoovers.com/>. Gale Research. 1998. Ward’s Business Directory of U.S. Private and Public Companies . Gale Research. New York. Disclosure Incorporated. 1999. Worldscope [computer file]. Bethesda, MD: Disclosure Incorporated. Winthrop Corporation. 1999. “Wright Investor’s Service Corporate Information.” Bridgeport, CT. <http://profiles.wisi.com/profiles/Chemicals.htm>. Information Access Corporation. 1999. Business & Company ProFile [computer file]. Foster City, CA: Information Access Corporation.DRAFT

2-17 commodity. Increased production costs of cellulo se manufacturing will affect the cost of the final products that use thes e as intermediate inputs. Horizontal integration is also an importa nt dimension in firm-level impact analysis because diversified firms may own facilities in unaffected indus tries. This may give them resources to spend on complying with this re gulation—if they so choose. Several of the larger firms are involved in se veral different industr ies other than cellu lose manufacturing. For example, Total Fina S.A.’s other operati ons include petroleum, natural gas, and tires while 3M provides pharmaceutical, automo tive, and dental products (Hoover’s, 1999; Information Access Corporation, 2000).
2.3.3.4 Trends Recently, some of the industries potentia lly affected by this regulation have experienced consolidation and plant closings. According to UCB Films, Inc.’s site visit report, the cellophane manufact uring industry has been declining since the 1950s. At one time, there were 10 to 12 cellopha ne plants operating in the U.S. By the mid-1990s, only Flexel, Inc. still produced cellophane in the U.S. Flexel, Inc. filed for bankruptcy in 1997 and Small 1 (9%)

Large 10 (91%)

Figure 2-5. Distribution of Miscella neous Cellulose Companies by SizeDRAFT

2-18 sold one of its two U.S. facilities to Belgium’s UCB Films, Inc. ( Chemical Market Reporter , 1997). They have stopped producin g cellophane at the other plan t, leaving UCB as the only Western cellophane producer rema ining. The domestic market for rayon has also been in decline as textile production m oves out of the United States. Only two rayon manufacturers are left in the United States, and they are currently involved in joint venture discussions (Westervelt, 1999). 2.4 Market Data [WILL BE I NCLUDED AS A CBI SECTION] 2.4.1 Market Quantities This section includes data on production, ex ports, imports, and a pparent consumption of cellulose food casings, ray on, cellophane, cellulose sponges, and cellulose ethers, but it is provided as a CBI section. 2.4.2 Market Prices Historical price data are presented as CBI. 2.4.3 Future ProjectionsDRAFT

R-1 REFERENCES
Acordis. 1998. Akzo Nobel Annual Report 1998 . p. 59–61. “Cellulose.” <http.//mc. mit.edu/2.01/Taxonomy/Character istics/Cellulose.htm>. As obtained on January 3, 2000. Chemical Market Reporter . 1997. “UCB to Buy Cellulose Film Plant from its Bankrupt Owner, Flexel.” Chemical Market Reporter 251(24):24-30. Disclosure Incorporated. 1999. Worldscope [computer file]. Bethesda, MD: Disclosure Incorporated. Duschene, Stephanie. 1997. “Converter Casts a New Twist on Candy Wrap.” Converting Magazine 15(3):110-114. Gale Research. 1998. Ward’s Business Directory of U.S. Private and Public Companies

. Gale Research. New York. Hoover’s Incorporated. 1999. Hoover’s Co mpany Profiles. Austin, TX: Hoover’s Incorporated. <http://www.hoovers.com/>. Hoover’s Incorporated. 2000. Hoover’s Co mpany Profiles. Austin, TX: Hoover’s Incorporated. <http://www.hoovers.com/>. Information Access Corporation. 1999. Busi ness & Company ProFile [computer file]. Foster City, CA: Inform ation Access Corporation. Information Access Corporation. 2000. Busi ness & Company ProFile [computer file]. Foster City, CA: Inform ation Access Corporation InfoUSA Inc. 1999. American Business Disc. Omaha, NE.

Plant trip reports.DRAFT

R-2 Plastics World . 1995. “The Fundamentals of BOPP.” Plastics World 53(8):35-37. Schmidtke, Karen, and Thomas Holloway. July 16, 1999. Memorandum to William Schrock, EPA/ESD/OCG. I ndustry profile of miscellaneous cellulo se manufacturing facilities in the U.S. Section 114 requests. Westervelt, Robert. 1999. “Acordis, Lenzing, Discuss Venture.” Chemical Week . 161:16. Winthrop Corporation. 1999. “Wright Invest or’s Service Corporate Information.” Bridgeport, CT. <http://profiles.wi si.com/profiles/Chemicals.htm>.