### 1

**Economic Impact Analysis for the Proposed Secondary Aluminum**  **NESHAP 1.**  **Background** This report is the economic impact analysis for the proposed revisions to the Secondary Aluminum NESHAP, which will be signed as per a court

- ordered schedule by January 30, 201 2

. The proposed amendments will allow sources up to 90 day s after promulgation to comply with the provisions of the rule that are unrelated to testing. Otherwise, sources will have to comply with the testing provisions upon their next regularly scheduled testing. The court

- ordered deadline for promulgation is October 31, 2012. This proposal includes amendments to the existing NES HAP that was promulgated in 2000 to correct and clarify rule requirements and provisions. These proposed amendments would:

 Add a requirement that the existing numerical limits apply at times, including periods of startup and shutdown;

 Add a definition of affirmative defense;

 Add a requirement to report performance testing through the Electronic Reporting Tool (ERT);

 Add rule provis ions allowing furnaces to change designations;

 Add operating requirements such as monitoring of lime injection rates and solicit comments for improving the scrap inspection program ; and

 Make technical corrections and clarifications to the applicability , d efinitions, operating, monitoring, and performance testing requirements. Details on the proposed rule can be found in the preamble contained in the public docket for this rulemaking. The EPA defined the Secondary Aluminum source category in 1992 as any

e stablishment using clean charge, aluminum scrap, or dross from aluminum production, as the raw material and performing one or more of the following processes: scrap shredding, scrap drying/delacquering/decoating, thermal chip drying, furnace operations (i. e., melting, holding, sweating, refining, fluxing, or alloying), recovery of aluminum from dross, in

- line fluxing, or dross cooling. The Secondary Aluminum Production source category includes facilities that

### 2

produce aluminum from scrap aluminum material and consists of the following operations: (1) Preprocessing of scrap aluminum, including size reduction and removal of oils, coatings, and other contaminants;(2) Furnace operations including melting, in

- furnace refining, fluxing, and tapping; (3) Additional refining, b y means of in

- line fluxing; and (4) Cooling of dross. **Table 1 . NESHAP and Industrial Source Categories Affected By This Proposed Action** 

**Source Category NESHAP**  **NAICS code**  **1** Secondary Aluminum Production Primary aluminum production facilities A luminum sheet, plate, and foil manufacturing facilities Aluminum extruded product manufacturing facilities Other aluminum rolling and drawing facilities Aluminum die casting facilities Aluminum foundry facilities Secondary Aluminum Production 331314

33131 2 331315 331316 331319 331521 331524 1 North American Industry Classification System 2 Maximum Achievable Control Technology


### The secondary

aluminum industry

consists of approximately 161 secondary aluminum production facilities, of which the EPA estim ates 53 to be major sources of HAP. Several of the secondary aluminum facilities are co

- located with primary aluminum, coil coating, and possibl y other source category

facilities. The components of the proposal that are expected to have impacts on costs are the following:

 require uncontrolled furnaces to install testing hooding that meets American Council of Government Industrial Hygienists (ACGIH) guidelines,

 require uncontrolled furnaces to test for hydrogen fluoride (HF) in addition to hydrogen chlori de (HCl), and

 allow furnaces to switch designations, such as from a controlled Group 1 furnace to uncontrolled Group 2 furnace.

### 3 The costs of the rule, and the economic and small business impacts associated with the proposed rule, can be found in Section 3. Section 2 below provides a profile for the secondary aluminum industry

. **2. Industry Profile**  This section introduces the secondary aluminum industry

and provides aggregate statistics on the amount of secondary aluminum produced and other economic data about the secondary aluminum industry

. The secondary

aluminum industry

is based around recovery of aluminum, or production of aluminum from recycled aluminum (scraps). Recovered aluminum, along with primary aluminum, is used for: containers (such as aluminum can s) and packaging (which in 2010 accounted for 22.4 percent of end

- use shipments in the United States and Canada), buildings and construction (10.2 percent), and transportation (28.2 percent) (Bray , 2011, 5.1). 1 

### From 2006 to 2010 secondary recovery of aluminum, on average, accounted for 64 percent of total aluminum production in the United States. In 2010, 2,800 metric tons of aluminum were recovered in the U.S. (Table 1

- 1). Secondary recovery decreased b y 36 percent from 2006 to 2010. The annual decreases b ecame progressivel y severe until the industry , at least temporaril y, stabilized from 2009 to 2010. **Table 2 .**  **Salient Aluminum Statistics (Thousands of Metric Tons)**
**2006 2007**  **2008 2009**  **2010 Prim**  **ary Production** 2,284 2,554 2,658 1,727 1,726 **Secondary Recove ry Total:**  4,380 4,110 3,630 2,820 2,800 New Scrap 2,800 2,450 2,130 1,570 1,550 Old Scrap 1,580 1,660 1,500 1,260 1,250 Note: New

Scrap is generated in the manufacturing of primary aluminum and semi

- fabricated aluminum mill, finished industrial and co nsumer products (EPA, 1999 , 6). New scrap that is recycled by the same company that generated it is generally not counted in scrap consumption and secondary production data. Old scrap comes from recycled aluminum products (products recovered after their useful lives) such as used beverage cans (UBC) (EPA, 1999 , 7). Source: Bray, Lee. 2011 . “Minerals Yearbook: Aluminum [Advanced Release]” USGS. Table 1. <http://minerals.usgs.gov/minerals/p ubs/commodity/aluminum/myb1

- 2010

- alumi.pdf>

1 Primary aluminum is produced from alumina/bauxite (EPA 1999, 7)

### 4

Secondary

Aluminum is produced b y several di fferent ty pes of firms (Table 3 ). The principal manufacturers of recovered aluminum are Secondary Smelters and Independent Mill Fabricators. To simplify , this industry profile now focuses on firms whose sole purpose is to **Table 3 .**  **U.S. Consumption and Recovery from Purchased New and Old Aluminum**

**Scrap, by Class (Metric Tons) Calculated Recovery**  **a Class**  **Consumption Aluminum**  **Me tallic**  2009 Secondary smelters 1,450,0 00 1,020,000 1,090,000 Independent mill fabricators 1,620,000 1,390,000 1,470,000 Foundries 74,800 61,200 65,400 Other Consumers 6,870 6,330 6,350 Total 3,160,000 2,470,000 2,630,000 Estimated full Industry Coverage 3,390,000 2,650,000 2,820,000 2 010 Secondary Smelters 1,610,000 1,150,000 1,230,000 Independent mill fabricators 1,450,000 1,240,000 1,320,000 Foundries 50,700 41,400 44,200 Other Consumers 6,290 6,290 6,290 Total 3,120,000 2,430,000 2,590,000 Estimated full Industry Coverage 3,370,000 2,620,000 2,800,000

aMetallic Recovery includes both aluminum recovery and alloying metals, Aluminum Recovery is the aluminum content of the recovered metals. Source: Bray, Lee. 2011 . “Minerals Yearbook: Aluminum [Advanced Release]” USGS. Table 3. <http://minerals.usgs.gov/minerals/pubs/commodity/aluminum/myb1

- 2010

- alumi.pdf> 

### process aluminum scrap into molten aluminum or aluminum ingot. The Secondary Smelting and Alloying of Aluminum industry (NAICS 331314) “comprises e stablishments primarily engaged in (1) recovering aluminum and aluminum alloys from scrap and/or dross (i.e., secondary smelting) and making billet or ingot (except by rolling) and/or (2) manufacturing alloys, powder, paste, or flake from purchased aluminum” (U.S. Census Bureau, 2007). Secondary Smelters were responsible for 44 percent of total aluminum recovery in 2010.

### 5

**2 .1**  **Key Statistics** The Secondary

Smelting industry ’s shipments (output) expanded by 35 percent from 2005 to 2007. This expansion not onl y stalled but was overwhelmed by a 57 percent decrease in output from 2007 to 2009, likely due to the overall economic recession during that period. There was an overall decrease in output of 43 percent from 2005 to 2009 (Table 4 ). Other indicators (pay rol l and number of employees) likewise exhibit this pattern of industry expansion from 2005 to 2007 followed by

drastic contraction from 2007 to 2009. Pay roll increased by

10 percent and the number of emplo ye es increased by 12 percent from 2005 to 2007 but fe ll by 46 percent and 43 percent from 2007 to 2009. **Table 4 .**  **Key Statistics: Secondary Aluminum Manufacturing (North American**

**Industry Classification [NAICS] 331314) ($2009)**
**2005 2007**  **2009** Shipments ($1,000) 6,037,839 8,149,043 3,440,336 Annual payroll ($1,000) 366,891 404,999 217,198 Em ployees 6,727 7,524 4,224 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: 2009 and 2008, 2008 and 2007, 2006 and 2005.” <http://factfinder.census.gov>; (December 13, 2011 ). 

### The average shipments per emplo yee and shipments per dollar of payroll followed the same pattern as the aggregate statistics but the fluctuations were mostly less extreme. Average shipments per employee increased from 2005 to 2007 only to fall below the 2005 level by 2009. There was an overall decrease in average shipments per employee of 9 percent. Average shipments per dollar of pay roll expanded by

25 percent from 2005 to 2007 only to fall back to the 2005 level b y 2009. The average annual payroll per employee was unique as it did not increase before decreasing, but rather decreased slightly (1.3 percent) from 2005 to 2007 and decreased slightly

more (4.5 percent) fro m 2007 to 2009 (Table 5 ).

### 6

**Table 5 .**  **Industry Data: Secondary Aluminum (NAICS 331314) ($2009)**

**Industry Data 2005**  **2007 2009**  Total Shipments ($1,000) 6,037,839 8,149,043 3,440,336 Average Shipments per employee 898 1,083 814 Average Shipments per $ of payroll 16 20 16 Average Annual payroll per employee 54,540 53,827 51,420 Source: U.S. Census Bureau: generated by RTI International; using American Factfinder; “Sector 31: Annual Survey of Manuf

actures: General Statistics: Statistics for Industry Groups and Industries: 2009 and 2008, 2008 and 2007, 2006 and 2005.” <http://factfinder.census.gov>; (December 13, 2011 ). 

### 2 **.2 Supply and Demand Characteri**  **stics:** Secondary

aluminum demand is determined by the industries that use secondary aluminum as an input into their manufacturing process. Historicall y, data on the use of aluminum in product markets has not differentiated between the demand of primary and secondary

(EPA, 1999 , 41). Conversel y, there is more detailed data available for the supply and inputs used in secondary production. **2 .2.1**  **Goods and Services Used in Secondary Aluminum** Material cost consistently accounted for the li on’s share (around 80 percent) of the value of shipments in secondary aluminum manufacturing from 2005 to 2009. This suggests that the cost of aluminum scrap has a major influence on the cost of secondary aluminum manufacturing. Total employee compensation took up a much smaller amount

—an average of 7.3 percent of the value of shipments. About half of total compensation went to production workers’ wages. Purchased electricity (ranging from 3 to 4.7 percent) and purchased fuel (1.7 to 3.2 percent) accounted for small but not insignificant portions of the total value of shipments through the period (Table 6 ). **2 .3**  **Firm and Market Characteristics 2** **.3.1 Location**  The concentration of the Secondary aluminum industry

has been attributed to the cost of transportation which causes establishments to locate near scrap supplies and consumers of secondary aluminum. “A cursory

look at the distribution of secondary smelters in the U.S. reveals a heavy concentration of smelters in the automotive and appliance manufacturing areas of the country” (EPA, 1999 , 19). The secondary aluminum industry

was concentrated in the central U.S. in 1997 and remained that way through 2007. In 2007, Indiana had the most

### 7

secondary aluminum establishments, followed by Texas, Tennessee, Michigan, and California. Similarly, Indiana had the highest concentration of establishments, followed by Tennessee, Kentucky and New Hampshire (Table 7 ). **Table 6**  **. Cost of Goods and Services Used in Secondary Aluminum Manufacturing** 

**(NAICS 33131 4) ($2009)**  **Industry Ratios 2005**  **Share 2007**  **Share 2009**  **Share** Total shipments ($1,000) 6,037,839 100.0% 8,149,043 100.0% 3,440,336 100.0% Total compensation ($1,000) 487,199 8.1% 533,852 6.5% 280,485 8.6% Annual payroll ($1,000) 366,891 6.1% 404,999 5.0% 217,198 6.3% Fringe benefits ($1,000) 120,308 2.0% 128,853 1.6% 63,287 1.8% Total employees 7,390 7,785 4,224 Total production workers’ wages ($1,000)

—2007 nonleased 246,744 4.1% 267,385 3.3% 125,503 3.7% Average production workers per year 5,513 5 ,798 3,082 Total production hours (thousands) 12,603 14,066 6,429 Total cost of materials ($1,000) 4,793,596 79.4% 6,404,830 78.6% 2,840,494 82.6% Materials, parts, packaging etc. used ($1,000) 4,360,670 72.0% 5,697,489 70.0% 2,537,663 73.8%

cost of resales ($1,000) 134,966 1.6% 62,094 1.8% Purchased electricity ($1,000) 114,150 1.9% 262,814 3.2% 59,873 1.7% Cost of purchased fuel ($1,000) 260,314 4.3% 241,124 3.0% 162,076 4.7% Source: 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: 2009 and 2008, 2008 and 2007, 2006 and 2005.” <http://factfinder.census.gov>; (December 13, 2011 ).

### 8

**Table 7**  **. Establishment and Employee Concentration in Secondary Aluminum** 

**Manufacturing (NAICS 331314) (2007)**

**Geography Number of** 

**Establishments Average Num** **ber of Paid**  **Employees per Pay Period**  **Population/**

**Employees Average** 

**Number of Employees per**  **Establishment Population/** 

**Establishments** United States 134 7,468 40,388 56 2,250,904 Alabama 4

— — — 1,156,963 Arkansas 2

— — — 1,417,399 California 10 473 77,280 47 3,655,322 Florida 6 228 80,049 38 3,041,874 Georgia 3

— — — 3,181,583 Illinois 9 369 34,831 41 1,428,061 Indiana 15 898 7,066 60 423,019 Kentucky 7 454 9,342 65 605,925 Michigan 11 515 19,557 47 915,620 Minnesota 1

— — — 5,197,621 Missouri 4 165 35,627 41 1,469,604 New Hampshire 2

— — — 657,914 New York 6 901 21,418 150 3,216,288 Ohio 9 329 34,854 37 1,274,102 Pennsylvania 4 127 97,896 32 3,108,198 Tennessee 11

— — — 559,702 Texas 12

— — — 1,992,032 Wisconsin 3

— — — 1,867,213 Source: U.S. Census Bureau: generated by RTI International; using American Factfinder; “T able 1: Selected Industry Statistics for the U.S. and States: 2007.” <http://factfinder.census.gov>; (December 13, 2011 ). 

### 2**.3.2 Employment**  Secondary

aluminum manufacturing employ ment and the concentration of employ ment by state follows that of establishments fairly closely with the exceptio n of New York which had relativel y large amount of employees per establishment (Table 7 ). Indiana had the highest concentration of emplo ye es, followed closel y b y Kentucky, and less closel y by Michigan and New York.

### 9

**2 .3.3**  **Energy Use** The U.S. Energy

Information Administration has not ty picall y published energy consumption data disaggregated enough to build a time trend of the secondary aluminum industry ’s energy

use. However, energy

consumption data specific to the secondary aluminum was published in 2006 ( Ta ble 8 ). This shows that the industry almost entirely

uses natural gas to fuel aluminum production. **Table 8**  **. Energy Use by Fuel Type, NAICS 331314**  **Fuel Type (Unit: Trillion Btu) 2006**  Total 21 Net electricity 2 Residual Fuel Oil

— Distillate Fuel Oil

— Natural Gas 18 LPG and NGL

— Coal

— Coke and Breeze 0 Other

— Source: U.S. Department of Energy, Energy Information Administration. 2009. “First Use of Energy for All Purposes (Fuel and Nonfuel), 2006” <http://www.eia.gov/emeu/mecs/mecs2006/200 6tables.html > 

### 2**.3.4 Size Distribution**  The Small Business Administration defines any Secondary

Smelting and Alloying of Aluminum firm with less than 750 employees as small. 2 

### As only 13 of 110 secondary

smelting firms had more than 500 employees, it is fair to say that most firms in the industry will be classifie d as small. In spite of the high proportion of firms being classified as small, only a slight majority (56 percent) of the employees worked for firms with less than 500 ( Table 9 ).

2 U.S. Small Business Administration, Table o f Size Standards. November 5, 2010. Found on the Internet at http://www.sba.gov/idc/groups/public/documents/sba_homepage/serv_sstd_tablepdf.pdf

.

### 10

**Table 9**  **. Distribution of Economic Data by Enterprise Size in Secondary Alumi**  **num**

**Manufacturing (NAICS 331314) Enterprises with** 
**Variable Total**  **1 to 20 Employees**  **20 to 99**

**Employees 100 to 499** 

**Employees 500+** 

**Employees** Firms 110 55 32 10 13 Establishments 133 55 35 14 29 Em ployment 4,683 305 1,413 927 2,038 Source: U.S. Census Bureau. 2011. “Number of Firms, Number of Establishments, Employment, and Annual Payroll by Enterprise Employment Size for the United States, All Industries: 2009” <http://www.census.gov/econ/susb/> 

### The industry ’s Concentration Ratios emphasize the relative dominance of large companies. While 108 companies were documented in 2007, the largest 50 companies accounted for 95.9 percent of the total value of shipments and the largest 4 companies accounted for 54.8 percent (Table 10). Also shown in Table 10 is the Herfindahl

- Hirshman Index (HHI) for NAI CS 331314, which is 930.8. This HHI is at the upper end of the unconcentrated range (HHIs over 1,000 are considered moderatel y concentrated). **Table 1 0**  **. Secondary Aluminum Manufacturing (NAICS 331314) Concentration Ratios** 

**Companies Total Value** 

**of Shipments**  **Percent of Total**

**Value of Shipments (5)**  **Herfindahl******

**Hirschman Index** All companies 108 7,823,492 100.0 930.8 4 largest companies

— 4,287,274 54.8 8 largest companies

— 5,132,211 65.6 20 largest companies

— 6,470,028 82.7 50 largest companies

— 7,502,729 95.9 Source: U.S. Census Bureau; generated by RTI International; using American FactFinder; “Sector 31: Manufacturing: Subject Series: Concentration Ratios: Share of Value of Shipments Accounted for by the 4, 8, 20 and 50 Largest Companie s for Industries: 2007.” <http://factfinder.census.gov>: (December 20, 2011 ).

### 11

**2 .3.5**  **Production and Capacity Utilization** Capacity utilization of secondary

aluminum manufacturing increased from 2004 until 2007 before starting a steep decline which left the industry well below the 2004 level by 2010 (Table 11 ). **Table 1 1**  **. Capacity Utilization for Aluminum Manufacturing (NAICS 3313)**  **2005 2006**  **2007 2008**  **2009 2010**  Capacity Utilization 86.7% 83.7% 78.8% 74.1% 59.3% 63.8% Source: Charles Gilbert, Senior Economist, Federal Reserve Board. Capacity Utilization data for NAICS 3313. Personal Communication with Christopher Sichko, RTI International, January 5, 2012. 

### 2**.3.6 Profitability**  While Total and B usiness receipts increased slightly from 2006 to 2008, Net Income, and Profit Margins decreased slightly from 2006 to 2007 then collapsed in 2008. It should be noted that these statistics are for the Metal Manufacturing Industry not the secondary

aluminum industry specificall y because more disaggregated data is not available (Table 12 ). **Table 1 2**  **. Corporate Income and Profitability for Secondary Aluminum Manufacturing** 

**(NAICS 331) ($2009)**
**2006 2007**  **2008** Total receipts 298,104,481 305,773,370 312,467,335 Bu siness receipts 286,730,514 292,550,057 302,877,203 Net income 22,503,070 21,519,223 13,694,559 Before

- tax profit margin 7.8% 7.4% 4.5% After

- tax profit margin 5.6% 5.1% 2.9% Source: Internal Revenue Service, U.S. Department of Treasury, 2008 (1), 20 07 (1), 2006 (1) “Corporation Source Book of Statistics of Income: Primary Metal Manufacturing” <http://www.irs.gov/taxstats/article/ 0,,id=168246,00.html>; (December 14, 2011 ) 

### 2**.3.7 International Trade**  The U.S. consistently

(from 2005

–2010) was a net impo rter of aluminum. Imports for consumption fell fairl y constantly each ye ar for an overall decrease of 23 percent. Exports increased b y 38 percent from 2005 to 2008 before decreasing b y 17 percent from 2008 to 2009, then increasing again in 2010 (Table 13 ). While imports were more than double the volume of

### 12

exports in 2005, imports exceeded exports by a smaller fraction, about one

- third, in 2010. Note that the international trade data is for all aluminum production, not just secondary

. **Table 13 .**  **U.S. Imports and Exports of Aluminum (Metric Tons)** 
**2005 2006**  **2007 2008**  **2009 2010**  Im ports for consumption 5,330,000 5,180,000 4,490,000 4,200,000 4,110,000 4,120,000 Exports 2,370,000 2,820,000 2,840,000 3,280,000 2,710,000 3,040,000 Source: Bray, Lee. 2011 . “Minerals Yearbook: Aluminum” USGS. 2006 Tables 8 and 11; 2008 Tables 9 and 11; 2010 Tables 10 and 12. <http://minerals.usgs.gov/minerals/pubs/commodity/aluminum> 

### 2 **.4 2011 and Future Trends**  Fueled b y low

- cost power contracts and recovering aluminum prices, productive capacity shut down in 2008 and 2009 was scheduled to restart in late 2010 and early 2011. Still, this is a small step and capacity

use likely

remained low through 2011. “World demand for aluminum in 2011 was expected to remain at levels lower than in 2008 owing to depressed levels in automobile manufacturing and home construction” (Bray , 2011, 5.7). Low demand for aluminum in U.S. domestic industries and other developed economies is likely to persist for several more years, as these economies have not recovered from the 2008 downturn. However, the demand for aluminum in emerging economies is likely to increase more rapidly in the near future (Bray , 2011, 5.7). Table 13 shows that in 2010 aluminum exports were heading back towards their 2008 level, and this trend seems likely to continue.

### 13

**3. Impact Results**  Section 2 provides information on the entire Secondary Aluminum industry . In this section, we provide the economic and small business impacts associated with the propo sed rule. This analy sis is focused on th ose businesses that will incur costs associated with this proposal. Based on information in the cost memo, there are 28 parent companies that are expected to incur costs associated with this proposed rule. Nine o f these companies have fewer than 750 employees, and thus are small businesses according to the Small Business Administration (SBA) size standards for the predominant NAI C S code for companies subject to this rule (331314). The total annualized costs (TAC ) of the rule for each parent owner company , which includes the annualized control, monitoring and recordkeeping costs as taken from the cost memo prepared for US EPA 3 

### , are in Table 14. A negative TAC denotes an estimated cost savings to the firm associat ed with the proposed rule. Small businesses are identified in the table. The nationwide total annualized costs of this rule are $0.6 million. All costs are in 2011 dollars, and are based on the estimates presented in the cost memo for the proposed rule. **Table 14 . TAC for each Parent Owner**  **Parent Company TAC per Owner**  **Small Business? (N= No, Y=Yes)**  **Number of**

**Employees in 2011**  Alcoa $377600 N 59,000 Aleris 39000 N 6,500 Aluminum Recovery Technologies

- 12000 Y 20 Aluminum Shapes, LLC 33600 N 1,100 Reynolds Group Holdings Ltd. (owner of Reynolds Foil) 56800 N 25,500 Metal Exchange Corporation (owner of Continental Aluminum and Electro Cycle)

- 24000 Y 201 to 500

3 U.S. Environmental Protection Agency, Office of Air Quality Planning and Standards. “Cost Estimate for January 2012 Proposed Rule Changes to Secondary Aluminum NESHAP.” Prepared by RTI, Inc. for Rochelle Boyd, U.S. Environmental Protection Agency, Office of Air Quality Planning and Standards. January 25, 2012.

### 14

Hydro (owner of Hydro Aluminum Wells North America) 22600 N 23,000 J.L. French Corp.

- 12000 N 2,000 Ju piter Aluminum

- 36000 Y 200 JW Aluminum

- 48000 N 772 Kaiser Aluminum

- 12000 N 2,470 Logan Aluminum 22000 N 1,000 Metalico (owner of Metalico Aluminum Recovery)

- 12000 N 800 Toyota Tsusho (owner of Most, Inc.)

- 12000 N 31,081 Quanex (owner of Nichols Aluminum)

- 36000 N 2,340 Noranda 79600 N 2,400 Novelis 19000 N 11,000 Owl's Head Alloys

- 12000 Y 50

- 100 Rio Tinto (owner of Alcan) 110000 N 77,000 Ritchey Metals

- 12000 Y 80 Orkla ASA (owner of Sapa Extrusion) 5 6000 N 30,000 Scepter

- 48000 Y 250 Smelter Service

- 24000 Y 10 Southwire 22400 N 4,180 Superior Aluminum Alloys

- 12000 Y 5
- 9 Tennessee Aluminum Processors
- 24000 Y 180 Tredegar (owner of William L. Bonnell) 33000 N 2,000 Wise Metals Group 2000 0 N 1,000 **a**

### A negative sign denotes a cost savings to the parent owner. Of the nine small businesses expected to incur costs associated with this rule, all of them are expected to experience negative costs (or cost savings), based on estimates from the cost memo. We do not provide impact estimates for these businesses, and the large businesses with cost savings, since these estimates are positive. These cost savings are a result of the change in proposal to allow facilities to switch furnace designations from Group 1 to Group 2. In the cost memo, EPA presumed that one

- fourth of the 200 affected furnaces would switch. For each of the 50 furnaces that switch, the cost savings is estimated at $12,000 annually . This cost savings is a result of shutting off a furnace that is controlled and the following effects:

### 15

 Fan power is approximately 50 kW

 Control device shut off 4000 hours per ye ar
 Electricity

cost of 10 cents/kWh. More information is available in the cost memo for the proposed rule. Thi s analy sis identified the businesses that will be affected by this rule and provides an anal ys is at a screening level to assist in determining whether this rule is likely to impose a significant economic impact on affected businesses. The anal ys is employe d here is a “sales test” that computes the annualized compliance costs as a share of sales for each company

. The annualized cost per sales for a company represents the maximum price increase in affected product needed for the company to completely

recover the annualized costs imposed by the regulation. The “sales test” is the impact methodology EPA employ s in economic impact anal ys is such as this one as opposed to a “profits test”, in which annualized compliance costs are calculated as a share of profits. 4 

### This is because revenues or sales data is commonly available data for entities normally impacted b y EPA regulations and profits data normally made available is often not the true profits earned b y firms due to accounting and tax considerations. Firms a nd entities often have ways legally available in the tax code to minimize their reported profits; thus, using reported profits may lead to a less than accurate estimate of the economic impact of a regulation to an affected firm or entity and their consumer s. While screening level anal ys es are often employed to estimate impacts to small business or entities as part an analysis in compliance with the Regulatory

Flexibility

Act (RFA) as amended by the Small Business Regulatory Enforcement Fairness Act (SBREF A), a screening level anal ys is can also be employed in an economic impact analysis such as this one whose focus is on the regulated companies. Economic impact estimates are shown in Table 15 below. The table lists the ultimate parent companies impacted b y the rule that have positive or negative costs , the costs of the rule for each company basis, the annual revenues for these companies, and then the impact to the company on a cost to sales basis . Revenues are for the ultimate parent owners, and are for 2 011 to be consistent with the year for the cost estimates. Applying such a calculation yields the

4 More information on sales and profit tests as used in analyses done by U.S. EPA can be found at http://www.epa.gov/sbrefa/documents/rfaguidance11

- 00

- 06.pdf , pp. 32

- 33.

### 16

following results as shown below. Impacts are only shown for those companies estimated to experience a positive cost as a result of the proposed rule.

**Tab le 15. Economic Impacts to**  **Parent Companies Parent**  **Company TAC per** 

**Owner (2011**  **dollars) Total Annual** 

**Revenues for Parent Owners**  **Small**

**Business? (N= No,**  **Y=Yes) Impact** 

**Estimates (Annualized**  **Compliance Cost/Revenue**  **s in % Terms) Reference for** 

**Economic Data**  **a**

Alcoa $377600 $21,013,000,000 N 0.0018 http://www.sec.go v/Archives/edgar/ data/4281/000119 312511039230/d1 0k.htm http://www.elkem .com/e way/default .aspx?pid=242&tr g=MainLeft_6886 &Main_7127=688 6:0:4,4130:1:0:0:: :0:0&MainLeft_6 886=6271:33029:: 1:712 6:1:::0:0

Aleris 39000 3,000,000,000 N 0.0013 Reference USA http://www.aleris. com/about

- aleris and http://www.forbes .com/lists/2010/21 /private

companies

10_Aleris

International_IDN 6.html Aluminum Recovery Technologies

- 12000 10,460,000 Y <0 b Reference USA Aluminum Shapes, LLC 33600 175,000,000 N 0.019 Reference USA Reyno lds Group Holdings Ltd. (owner of Reynolds Foil) 56800 N

### 17 9,972,000,000 0.00057 http://www.reyn oldsgroupholdin gs.com/Fi nancia ls/2011/28Mar2 011

- RGHL

- 2010

- Results

- Presentation.pdf , p. 4.

Metal Exchange Corp.

- 24000 99,400,000 Y <0 http: //www.meta lexchangecorp.c om/cf/metal/SN A.asp?asm=sna &tmp=C011&x =714&sid=714 &t=About%20U s and http://www.insid eview.com/direc tory/metal

- exchange

- corporation

Hydro 22600 17 ,977,000,000 N 0.000126 http://www.hydr o.com/en/Invest or - relations/Reporti ng/2010/Key

- figures/ J.L. French Corp.

- 12000 550,447,000 N <0 Reference USA Ju piter Aluminum

- 36000 50,000,000 Y <0 Reference USA

JW Aluminum

- 48000 250,000,000

- 500,000,000 N <0 http://www.zoo minfo.com/com pany/JW+Alumi num+Company

- 33687486 Kaiser Alumi num - 12000 1,079,100,000 N <0 Reference USA Logan 22000 1,140,000,000 N 0.002 Reference USA Metalico

- 12000 291,733,000 N <0 Reference USA

Toyota Tsusho (owner of Most, Inc.)

- 12000 54,839,454,000 N <0 http://www.toyo ta
- tsusho.com/engl ish/ir/report/ann ual/uploadfiles/s ection03_E.pdf Quanex

- 36000 798,314,000 N <0 Reference USA

### 18

Noranda 79600 1,226,400,000 N 0.0065 Reference USA

Hindalco (o wner of Novelis) 19000 12,800,000,000 N 0.00015 http://www.hind alco.com/invest ors/downloads/ Hindalco_Annu al_Report_2009

- 10.pdf Owl's Head Alloy s - 12000 22,550,000 Y <0 Reference USA

Rio Tinto (owner of Alcan) 110000 14,324,000,000 N 0.00076 http://www.rioti ntoalcan.com/E NG/media/medi a_releases_1717 .asp
Rit chey Metals

- 12000 80,080,000 Y <0 Reference USA

Orkla ASA 56000 9,822,000,000 N 0.00056 http://markets.ft. com/research

/M arkets/Tearsheet s/Financials?s= ORK:OSL&sub view=IncomeSta tement&period= a Scepter

- 48000 54,700,000 Y <0 Reference USA Smelter Service

- 24000 28,100,000 Y <0 Reference USA Southwire 22400 1,340,000,000 N 0.0018 Reference USA Superior Aluminum All oys - 12000 7,980,000 Y <0 Reference USA Tennessee Aluminum Processors
- 24000 81,180,000 Y <0 Reference USA Tredegar (owner of William L. Bonnell) 33000 740,000,000 N 0.004 http://www.tred egar.com

Wise Metals Group 20000 618,000,000 N 0.0032 http://www.usatod ay .com /printeditio n/ne ws/20110125/ states25_st.art.ht m

aEconomic data includes revenues and em ployee size for each affected firm in 2011.

### 19 b <0 = impact of less than zero, since the costs for the firm will be less than zero (cost savings). 

### As shown in this table, no firm will experience an annualized compliance cost of greater than 0.02 percent of its sales, according to this analy sis, as a result of this proposed rule. It should also be noted that this analysis does not presume any incidence of th e costs on the consumers of secondary aluminum and other products made by these companies. Thus, no estimate of the impact of this rule on secondary aluminum consumers , for intermediate or end

use, is included in this report. However, it should be noted that available estimates show that the price elasticity of demand for secondary aluminum is

- 1.0 5 

### , and the price elasticity of suppl y for secondary aluminum is 0.6. 6 

### Based on this information, one can conclude that demand will respond 1:1 with a change in secondary lead price, and that supply is inelastic (i.e., will respond less than 1:1) with a change in secondary lead price. Thus, the direct impact of this rule appears quite minor, and thus it is reasonable to infer that the impact on secondary aluminum consumers from this rule should also be minor. The TAC is taken from the cost memorandum menti oned earlier that was pr epared by U.S. EPA for the proposed rule and in that memorandum can be found more information on the cost anal ys is.

5 Ho, M. S, R. Morgenstern, and J. S. Shih. 2008. “Impact of Carbon Price Policies on US Industry.” RFF Discussion Paper 08

- 37). Http://Www.Rff.Org/Publications/Pages/Publicationdetails.Aspx?. Publicationid=20680. Accessed August 2009. Table 8.A.6.

6 Broda, C., N. Limao, and D. Weinstein. 2008a. “Export Supply Elasticities.” http://fac ulty.chicagobooth.edu/christian.broda/website/research/unrestricted/TradeElasticities/TradeElastic ities.html . Accessed September 2009.