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Unfunded Mandates Reform Act Statement

Formaldehyde Emission Standards for Composite Wood Products; Proposed Rule; RIN 2070-AJ92

U.S. Environmental Protection Agency, Office of Pollution Prevention and Toxics

May 2013

Pursuant to the Title II of the Unfunded Mandates Reform Act (UMRA), 2 U.S.C. 1531-1538,

EPA has determined that the rule being proposed, “Formaldehyde Emission Standards for Composite 

Wood Products; Proposed Rule,” contains a Federal mandate that may result in expenditures of $100 

million or more by the private sector in any one year, but is not expected to result in expenditures of this 

magnitude by State, local, and Tribal governments in the aggregate. EPA has prepared this statement in 

accordance with section 202(a) of UMRA.

(1) Authorizing Legislation. This proposed rule is issued under the authority of Section 601 of 

TSCA, 15 U.S.C. 2697. 

(2) Benefit-Cost Analysis. EPA has prepared an economic analysis to evaluate, among other 

things, the benefits and costs of this rule as well as various regulatory options. See “Economic Analysis 

of the Formaldehyde Emission Standards for Composite Wood Products Act Implementing Regulations 

Proposed Rule.” This document is available in the public docket for this rule. 

The proposal is estimated to result in a total cost of $434 million to $447 million in the first year. 

The cost is estimated to drop to $56 million to $65 million per year in the second year. The total 

annualized cost of this proposal is $72 million to $81 million per year when using a 3 percent discount 

rate and $80 million to $89 million per year using a 7 percent discount rate. When adjusted for inflation, 

the $100 million UMRA threshold is equivalent to approximately $143 million in 2010 dollars. Thus, the 

cost of the rule to the private sector and State, local, and Tribal governments in the aggregate exceeds the 

inflation-adjusted UMRA threshold in the first year.

This proposed rule will reduce exposures to formaldehyde, resulting in benefits from avoided 

adverse health effects. For the subset of health effects where the results were quantified, the estimated 

annualized benefits (due to avoided incidence of eye irritation and nasopharyngeal cancer) are $20 million 

to $48 million per year using a 3% discount rate, and $9 million to $23 million per year using a 7% 

discount rate. There are additional unquantified benefits due to other avoided health effects (respiratory 

related effects, reduced female fertility, allergic sensitization, immune function effects, neurological and 
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behavioral toxicity, and developmental toxicity).

Net benefits are the difference between benefits and costs. The proposal is estimated to result in 

quantified net benefits of -$24 million to -$60 million per year using a 3% discount rate, and -$57 million 

to -$79 million per year using a 7% discount rate. As stated above, there are additional unquantified 

benefits due to other avoided health effects. EPA considers two of these effects, health benefits from 

avoided cases of respiratory related effects and reduced fertility, to be potentially very important nonmonetized impacts that contribute to the overall net benefits of this rule.

(A) Federal Financial Assistance. EPA has not identified any sources of federal 

financial assistance (e.g., grants or loans) that are available from either EPA or other federal 

agencies to defray State, local, or Tribal expenditures under this rule.

(B) Federal Resources. EPA has not identified any federal resources available to carry 

out the private sector mandate contained in this rule.

(3) Costs and Budgetary Impacts.

(A) Future Compliance Costs. Total compliance costs for the proposal are estimated to 

be $434 million to $447 million in the first year. The cost is estimated to drop to $56 million to 

$65 million in the second year. The total annualized cost of this proposal is $72 million to $81 

million per year when using a 3 percent discount rate and $80 million to $89 million per year 

using a 7 percent discount rate.

(B) Disproportionate Budgetary Effects. EPA believes that the most relevant measure 

of the budgetary effect of this rule is the cost of compliance with the rule. Costs can be expected 

to vary from state to state, region of the country, and industry to industry, depending on the 

number and type of regulated firms. On an aggregate basis, the retail industry has the highest 

first year costs ($215 million). The industries with the highest aggregate annualized costs are 

laminated product producers ($18 million to $32 million per year using a 3 percent discount rate) 

and fabricators ($21 million to $26 million per year). None of these industries is likely to incur 

disproportionate effects. Aggregate first year costs for retailers are high because of the large 

number of firms (759,000) that are potentially subject to the rule. Retailers subject to the rule

have an average first year cost of approximately $300, which is not disproportionate to the costs 
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incurred by other industries. Fabricators subject to the rule have an average annualized cost of 

$300 to $400 per year. And of the 7,000 to 14,000 laminated product producers, much of the 

aggregate cost will be incurred by the 150 to 300 firms assumed to continue using formaldehydebased resins, which will need to certify and test their products. Most laminated product producers 

will find it less expensive to use no-added formaldehyde resins rather than engaging in 

certification and testing.

Firms located in California are likely to have incurred costs to comply with a similar 

California regulation on formaldehyde emissions from composite wood products, which will 

lower their incremental costs of complying with this rule. But many firms outside of California 

have also incurred these costs because their products are sold in California. EPA has no evidence 

to suggest that this rule will have disproportionate budgetary impacts on any particular regions of 

the country, or particular State, local, or tribal governments or communities, or particular 

segments of the private sector affected by the rule.

(4) Effect on National Economy. Guidance issued by the Office of Management and Budget 

indicates that the economic impact of a regulation on the national economy becomes measurable only if 

the economic impact of the regulation reaches 0.25 percent to 0.5 percent of Gross Domestic Product 

(GDP). See Memorandum from Sally Katzen, “Guidance for Implementing Title II of [UMRA],” March 

31, 1995. Given the current GDP, this is equivalent to a cost of $37 billion to $75 billion. Therefore, 

EPA has concluded that this rule is highly unlikely to have any measurable effect on the national 

economy. 

(5) Prior consultation with affected State, local, and Tribal governments. Consistent with the 

intergovernmental consultation provisions of section 204 of the UMRA EPA has initiated consultations 

with governmental entities affected by this rule. EPA has met with officials from the state of California 

on numerous occasions to discuss aspects of the California Air Resources Board’s (CARB) Airborne 

Toxic Control Measure (ATCM) for composite wood products and its implementation. With the 

assistance of the National Conference of State Legislatures, EPA has also initiated consultations with 

state environmental health directors. 

(6) Small Government Agency Plan. This rule does not contain a significant Federal 

intergovernmental mandate as described by § 203 of UMRA, because it neither imposes enforceable 

duties on State, local, or tribal governments nor reduces an authorized amount of Federal financial 
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assistance provided to State, local, or tribal governments. And this proposed rule contains no regulatory 

requirements that might significantly or uniquely affect small governments. The proposed rule would 

regulate entities that manufacture (including import), fabricate, distribute, or sell composite wood 

products. Governments do not typically engage in these activities, so government entities are not 

expected to be subject to the rule’s requirements.