**D R A F T OCTOBER 1990** 

B.41 coating operation was based on a VOC content coating or application rate that is too low [when the source had the ability and intent to utilize (even infrequently) a higher VOC content coating or application rate].

Incremental Cost Effectiveness

In addition to the average cost effectiveness of a control option, incremental cost effectiveness between control options should also be calculated. The incremental cost effectiveness should be examined in combination with the total cost effectiveness in order to justify elimination of a control option. The incremental cost effectiveness calculation compares the costs and emissions performance level of a control option to those of the next most stringent option, as shown in the following formula:

Incremental Cost (dollars per incremental ton removed) = Total costs (annualized) of control option - Total costs (annualized) of next control option

Next control option emission rate - Control option emissions rate

Care should be exercised in deriving incremental costs of candidate control options. Incremental cost-effectiveness comparisons should focus on annualized cost and emission reduction differences between **dominant** alternatives. Dominant set of control alternatives are determined by generating what is called the envelope of least-cost alternatives. This is a graphical plot of total annualized costs for a total emissions reductions for all control alternatives identified in the BACT analysis (see Figure B-1).

For example, assume that eight technically available control options for analysis are listed in the BACT hierarchy. These are represented as A through H in Figure B-1. In calculating incremental costs, the analysis should only be conducted for control options that are dominant among all possible options. In Figure B-1, the dominant set of control options, A, B, D, F, G, and H, represent the least-cost envelope depicted by the curvilinear line connecting them. Points C and E are inferior options and should not be considered in the**D R A F T OCTOBER 1990** 

B.42INCREASING TOTALANNUAL COSTS ($/yr)



### INCREASING EMISSIONS REDUCTION ( Tons/yr) A B C E

D F G H

Inferior controls (A,C,E)

Dominant controls (A, B, D, F , G, H) lie on envelope

"delta" Emissions Reduction "delta" Total Annual Costs



# Figure B-1. LEAST-COST ENVELOPE**D R A F T OCTOBER 1990** 

B.43 derivation of incremental cost effectiveness. Points A, C and E represent inferior controls because B will buy more emissions reduction for less money than A; and similarly, D and F will by more reductions for less money than E, respectively.

Consequently, care should be taken in selecting the dominant set of controls when calculating incremental costs. First, the control options need to be rank ordered in ascending order of annualized total costs. Then, as Figure B-1 illustrates, the most reasonable smooth curve of the control options is plotted. The incremental cost effectiveness is then determined by the difference in total annual costs between two contiguous options divided by the difference in emissions reduction. An example is illustrated in Figure B-1 for the incremental cost effectiveness for control option F. The vertical distance, "delta" Total Costs Annualized, divided by the horizontal distance, "delta" Emissions Reduced (tpy), would be the measure of the incremental cost effectiveness for option F.

A comparison of incremental costs can also be useful in evaluating the economic viability of a specific control option over a range of efficiencies. For example, depending on the capital and operational cost of a control device, total and incremental cost may vary significantly (either increasing or decreasing) over the operation range of a control device.

As a precaution, differences in incremental costs among dominant alternatives cannot be used by itself to argue one dominant alternative is preferred to another. For example, suppose dominant alternative is preferred to another. For example, suppose dominant alternatives B, D and F on the least-cost envelope (see Figure B-1) are identified as alternatives for a BACT analysis. We may observe the incremental cost effectiveness between dominant alternative B and D is $500 per ton whereas between dominant alternative D and F is $1000 per ton. Alternative D does not dominate alternative F. Both alternatives are dominant and hence on the least cost envelope. Alternative D cannot legitimately be preferred to F on grounds of incremental cost effectiveness.**D R A F T OCTOBER 1990** 

B.44 In addition, when evaluating the total or incremental cost effectiveness of a control alternative, reasonable and supportable assumptions regarding control efficiencies should be made. An unrealistically low assessment of the emission reduction potential of a certain technology could result in inflated cost effectiveness figures.

The final decision regarding the reasonableness of calculated cost effectiveness values will be made by the review authority considering previous regulatory decisions. Study cost estimates used in BACT are typically accurate to ± 20 to 30 percent. Therefore, control cost options which are within ± 20 to 30 percent of each other should generally be considered to be indistinguishable when comparing options.

**IV.D.2.c. DETERMINING AN ADVERSE ECONOMIC IMPACT**

It is important to keep in mind that BACT is primarily a technologybased standard. In essence, if the cost of reducing emissions with the top control alternative, expressed in dollars per ton, is on the same order as the cost previously borne by other sources of the same type in applying that control alternative, the alternative should initially be considered economically achievable, and therefore acceptable as BACT. However, unusual circumstances may greatly affect the cost of controls in a specific application. If so they should be documented. An example of an unusual circumstance might be the unavailability in an arid region of the large amounts of water needed for a scrubbing system. Acquiring water from a distant location might add unreasonable costs to the alternative, thereby justifying its elimination on economic grounds. Consequently, where unusual factors exist that result in cost/economic impacts beyond the range normally incurred by other sources in that category, the technology can be eliminated provided the applicant has adequately identified the circumstances, including the cost or other analyses, that show what is significantly different about the proposed source.

Where the cost of a control alternative for the specific source being reviewed is within the range of normal costs for that control alternative, the