1737 King Street, Suite 390 Alexandria, VA 22314 Phone (571) 970

- 3359 Fax (571) 970

- 3271 www.vinylinfo.org www.vinylindesign.com Page 1 of 8 October 27, 2011 Sent via Electronic Mail

Ms. Jodi Howard U.S. EPA

- Office of Air Quality Planning and Standards Sector Policies and Program Divisions Refining and Chemicals Group Mail Code: E143

- 01 Research Triangle Park, NC 27711

RE: Vinyl Institute Estimate of Direct Economic Impact on PVC Industry from EPA’s Proposed PVC MACT

– EPA

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Dear Ms. Howard:

This let ter and the enclos ed attachment further supplement the comments of The Vinyl Institute PVC MACT Working Group 1 concerning the proposed PVC MACT rule. The Working Group expressed significant concerns that, if finalized as proposed, the PVC MACT would impose limits for stripped resins that no PVC producer could meet on a consistent basis, requiring either significa nt reformulation or loss of a significant number of resin products.

The Working Group, allied organizations, and industry producers submitted extensive comments on the technical aspects of the rule. Because of the limited comment period, we chose to foc us on the technical aspects of the rule rather than the economic impact, which we had planned to address fully if given more time. Industry did submit preliminary economic impact data, but believes further consideration is required given the magnitude of the economic impact and commercial disruption that would be created by the proposed rule.

EPA estimated the costs for resin producers to meet the proposed limits, but the Agency substantially underestimated costs because it assumed that the proposed resi n limits could be easily met through modest process changes, such as simply using additional steam during stripping. EPA did not consider the shutdown and resin replacement costs for the dispersion, blending, and specialty resin categories, or the potenti al costs and other impacts on

1 See Comments of The Vinyl Institute, Inc. PVC MACT Working Group , Document No. EPA

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- 6.1737 King Street, Suite 390 Alexandria, VA 22314 Phone (571) 970

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- 3271 www.vinylinfo.org www.vinylindesign.com Page 2 of 8 downstream users of all PVC resins. This letter quantifies in more detail the overall impact on the entire PVC industry if the proposed rule were to be promulgated as EPA has drafted.

We have taken a very conservative appro ach in making these economic projections. For example, we assumed, despite considerable disagreement within the industry, that all suspension resins can be reformulated, tested by customers and proven suitable during the three

- year implementation period a fter the final rule is promulgated. Even if the capital improvements to retrofit the existing facilities (estimated at $127 million in Appendix A and as outlined in the Working Group comments) are implemented at the resin producers, it is highly uncertain that industry can be in compliance 100% of the time with EPA’s proposed RVCM limits on stripped resins and even more uncertain that today’s family of suspension resin products can continue to be produced domestically. The manufacture of dispersion resin
p roducts would completely end in the U.S. through plant closures if the rule is promulgated as proposed, and that is reflected in this estimate.

The economic impact should be considered from at least two perspectives. First, one

- time costs to the indust ry amounting to $200 million would include:

 retrofitting plants to meet the new limits,

 closure of dispersion, blending and specialty resin plants where no technology exists to meet the proposed limits,

 costs of users to carry inventory for foreign sourced replacement resins,

 costs to reformulate resin recipes,

 processor tooling adjustments, and

 costs to re

- list and re

- qualify recipes and products with appropriate standards agencies and certifying orga nizations.

Second, on

- going costs to the industry amounting to $130 million annually would include higher operating expenses at resin plants, added costs to deliver foreign sourced resins to replace those that will need to be discontinued, and increased ingredient costs to compensate for poorer quality resin that will likely be produced under the new proposed limits. These cost estimates and their derivation are delineated in the attached Appendix A.

Please note these are preliminary direct costs only and do not include indirect and induced costs. Those will be included in a forthcoming IHS Global Insights economic impact study, which will provide expert, third party conclusions on the economic impact of the proposed PVC1737 King Street, Suite 390 Alexandria, VA 22314 Phone (571) 970

- 3359 Fax (571) 970

- 3271 www.vinylinfo.org www.vinylindesign.com Page 3 of 8 MACT rule. 2 While the Vinyl In stitute does not know the projections IHS Global Insights is developing, we expect that the overall impact, using EPA methodology, will be far in excess of the projections in this letter. We further emphasize that industry’s estimates assume that reformul ating is possible and that additive ingredients are capable of correcting the unknown deficiencies associated with aggressively steam

- stripped resins or of foreign sourced resins. Our calculations do not address the impact of reduced raw material consumpt ion (vinyl chloride) and the associated impact on the upstream suppliers from diminished sales as a result of the aforementioned plant closures . It is not possible to consider all the variations in resin quality and types of resins available that will be discontinued if the Agency’s rule is promulgated as proposed, and, as such, this estimate should be considered as being highly or excessively conservative.

The limits for new sources would be so low as to make it impossible for any new PVC resin facility t o be constructed within the U.S. An estimate of lost future growth revenue from new plants is not included in this letter’s estimate. It is, nonetheless, an important economic consideration because the U.S. industry is a large exporter and exports have b een increasing.

We estimate that a PVC MACT promulgated as proposed would cause the loss of at least 500 jobs including operational, contract maintenance and services, and administrative functions as a result of the closure of all plants making dispersi on, blending and specialty resins. The proposed stripped resin limits for dispersion, blending, and specialty resins are unachievable using any known technology. The closure of these facilities would force the customer base to source the resin from forei gn producers. Under this scenario, small to mid

- sized dispersion resin consumers may not be successful in obtaining a foreign supplier, possibly forcing their shutdown. In addition, a certain number of downstream resin consumers may be impacted because o f loss of market share due to inability to make quality products with foreign sourced resins or the discontinuation of a specialty grade resin that is unique to a U.S. PVC producer; these indirect job losses are difficult to determine and are not included in this estimate.

An overarching consideration is our assumption that all suspension resins can be successfully reformulated. If that assumption is incorrect, a significant number of additional jobs would be at risk at the resin producer and resin conv erter level as well as the corresponding downstream

2 Recognizing that the Agency may be constrained by its rulemaking schedule, we also are providing a copy of thi s analysis and the IHS study, when available, to the Office of Information and Regulatory Affairs (OIRA) in order to inform OIRA’s review of the proposed PVC MACT pursuant to E.O. 12866, Regulatory Planning and Review

.1737 King Street, Suite 390 Alexandria, VA 22314 Phone (571) 970

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- 3271 www.vinylinfo.org www.vinylindesign.com Page 4 of 8 jobs linked to direct job lost. Because suspension resin converters operate in most States, the potential geographically broad job loss across the U.S. is significant.

While the IHS Global Insights repor t will provide a more robust analysis, if you have any immediate question, please feel free to contact me.

Sincerely,

Richard P. Krock Technical Director

e

- mail: rkrock@vinylinfo.org phone: 571

- 970

- 3392 cell: 571

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- 4474

cc: Peter Tsirigotis Penny Lassiter Richard M. Doyle (Vinyl Institute)1737 King Street, Suite 390 Alexandria, VA 22314 Phone (571) 970

- 3359 Fax (571) 970

- 3271 www.vinylinfo.org www.vinylindesign.com Page 5 of 8 Appendix A: Estimate of Economic Impacts of Proposed PVC MACT Rule

Industry Segment PVC Resin Producers, not including dispersion and specialty( 1),(2),(3) PVC Dispersion,

Blending, and Specialty Resin Producers (4) PVC

Compounders, Processors and Finished Goods Manufacturers (4) Subtotals

Capital Costs To Retrofit Existing Facilities, $MM $127 N.A. N.A. $127 Shutdown Costs, $MM $0 $30 $0 $30 Costs to Reformulate with Different Resins and Re

- qualify Products, $MM N.A. $1 $30 $31

Incremental Inventory Costs for Import Replacements of Discontinued Resins, $MM N.A. N.A. $12 $12 Total One Time Costs by Segment, $MM $127 $31 $43 $200
Annual On

- going Operating Costs, Testing, and Reporting, $MM $38 N.A. $50 $88 Annual Costs to Import Replacements for Discontinued Resins, $MM N.A. N.A. $42 $42 Total On

- going Costs by Segment, $MM/Yr. $38 $0 $92 $130

Estimated Jobs Lost D ue to P lant C losures N.A. 500 N.A. 500

Notes:

(4) Based on VI and Industry Estimate

Overall Economic Impact on PVC Industry for EPA's Proposed PVC MACT

(1) Capital Costs and Annual operating costs are based on information in URS July 29, 2011 Memorandum to R. Krock (2) Capital and annual costs for new strippers at dispersion facilities have been excluded (3) Testing, Monitoring and reporting costs have been extracted from EPA

- HQ

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- 114.21737 King Street, Suite 390 Alexandria, VA 22314 Phone (571) 970

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- 3271 www.vinylinfo.org www.vinylindesign.com Page 6 of 8 The sp ecific costs have been broken out for three segments of the industry in order to illustrate the widespread effect of the proposed rule:

A. PVC Resin Producers

– includes U.S. domestic producers of types and grades of PVC resins other than dispersion and specialty resins. Annual production of 14 billion pounds from calendar 2010 is used as the basis for calculations.

B. PVC Dispersion, Blending, and Specialty R esin Producers

– includes only those producers of dispersion , blending, and specialty resins, including copolymers. Annual production of 3% of total PVC resin or 420 million pounds is used as the basis for calculations.

C. Rigid PVC Compounders, Processors and Finished Goods Manufacturers

– includes those companies that compound PVC resin, and either sell merchant compounds or use the compounds to manufacture finished goods such as pipe, siding, flooring, windows, doors, fence, decking, electrical conduit, wiring devices, and packaging. This segment is estimated to process 10 billion pounds of PVC compounds and the resin portion is estimated to be 80% of the total compound weight.

One

- time costs have been identified for each of these factors:

1) Capital Cos ts To Retrofit Existing Facilities

– the information for this estimate restates the estimates by URS and submitted with VI’s comments as Attachment 6 3 but excludes any costs associated with retrofits to dispersion and specialty blending plants. Also inclu ded are costs associated with indicators and alarms for PRDs estimated to be $3.5 million 4

.

3 See Comments of The Vinyl Institute , Inc. PVC MACT Working Group , Document No. EPA

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- 0146, at Attachment 6, URS Memorandum to Richard Krock from John Martinez, Subject: Summary of Cost Review for Controls for Compliance With EPA’s Proposed PVC MACT Rule (40 CFR Part 63, Subpa rt HHHHHHH).

4 See Comments of The Vinyl Institute, Inc. PVC MACT Working Group , Document No. EPA

- HQ

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- 0146, at p. 97.1737 King Street, Suite 390 Alexandria, VA 22314 Phone (571) 970

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- 3271 www.vinylinfo.org www.vinylindesign.com Page 7 of 8 2) Shutdown Costs

– Estimates were completed by VI for costs associated with shutting down the existing dispersion, blending, and specialty resin producing plants. Co sts included mothballing (not disposing) of all on

- site equipment, disposing of chemicals and raw materials inventories, and employee severance packages. This cost could be considerably higher if write

- down of assets are included and if the extent of the inability to produce proper grade resins that meet the proposed RVCM and HAPs limits is found to go beyond the dispersion, blending, and specialty resin facilities.

3) Costs to Reformulate with Different Resins and Re

- qualify Products

– It is the belief of PVC industry experts that meeting the proposed lower RVCM limits will require longer residence times and/or hotter temperatures in the resin stripper, each of which wi ll have a detrimental effect on the quality of the PVC resin. Even with the retrofits in place as estimated under capital costs item, the resin will still be of poorer quality than that produced before promulgation of the new rule. Estimates were complet ed by the PVC industry to attempt to compensate for poorer quality PVC resins (reduced stability and off

- color resins) by adjusting rigid PVC compound recipes with added stabilizers, pigments, lubricants, process aids, and other ingredients needed to be ab le to process the new formulation. Costs w ere estimated in three manners:

a) First, those costs necessary to reformulate would include chemists’ time to reformulate, laboratory experiments, material and shipping costs, compound plant trials on developmental recipes, and trials with developmental compounds at processors (molders, and extruders).

b) Second, any change in the compound may require the tools used to process the material to either be retuned or replaced if tooling changes are impractical 5

. c) Third, those costs are identified to re

- qualify compound recipes in the product at listing agencies that require performance standards and recipe component verifications such as UL, NSF, and ASTM as detailed in VI’s comments 6

.

5 See Comments of The Vinyl Institute, Inc. PVC MACT Working Group , Document No. EPA

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- 0146, at p. 9.

6 See C omments of The Vinyl Institute, Inc. PVC MACT Working Group , Document No. EPA

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- 0146, at Attachment 1, Technical Impacts of PVC MACT Comments on Change in Resin Properties Affecting Downstream Users, Dated July 21, 2011.1737 King Street, Suite 390 Alexandria, VA 22314 Phone (571) 970

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- 3271 www.vinylinfo.org www.vinylindesign.com Page 8 of 8 4) Incremental Inventory Costs for I mport Replacements of Discontinued Resins

– Costs associated with carrying two weeks additional inventory on site and in

- transit from offshore producers that replace dispersion, blending, and specialty resins made at the shutdown plants.

On

- going costs have been identified for each of these factors:

5) Annual On

- going Operating Expenses, Testing, and Reporting

–
a) For PVC Resin Producers other than Dispersion, Blending, and Specialty Resins

- Testing and reporting expenses are extracted from EPA’s estimate for PVC producers 7 excluding those estimated by EPA for dispersion, blending, and specialty resin plants. Additional testing and monitoring expenses for required CEMS devices at PVC resin plants, operating expenses of additional resin and wastewater steam strippers, and updated operated expenses for activated carbon injection for control devices are taken from the previously referenced URS estimates 8

. b) For PVC Compounders, Processors and Finished Goods Manufacturers

- Includes costs for additional recipe in gredients such as stabilizers, pigments, process aids, and lubricants for new formulations needed to compensate for poorer quality PVC resins. PVC processors are estimated to consume 10 billion pounds of PVC compounds annually. This cost estimate assumes that reformulation can successfully compensate for the quality parameters of resins likely to be produced under the proposed rule.

6) Costs to Import Replacements for Discontinued Resins

– includes inland and ocean freight, import duties, and sales commissi ons to source offshore dispersion, blending, and specialty resins. This cost assumes that foreign source resins are available to replace those discontinued at the affected U.S. facilities. Some U.S. resin producers make unique resins and those users of t he unique resins must either substitute a different grade or stop making the products that use the U.S. producers’ unique grades.

7 See EPA

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- 114.2 EPA Polyvinyl Chloride and Copolymers Production Testing and Monitoring Cost Estimates, April 11, 2011, at PVC Industry T&M Costs tab.

8 See footnote 2.