1 Unfunded Mandates Reform Act Statement Formaldehyde Emission Standards for Composite Wood Products; Proposed Rule ; RIN 2070

- AJ 92 U.S. Environmental Protection Agency, Office of Pollution Prevention and Toxics May 201 3

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 th is 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 $ 43 4 million to $ 447 million in the first year. The cost is estimated to drop to $ 56 million to $ 6 5 mill ion per year in the second year. The total annualized cost of this proposal is $ 7 2 million to $ 8 1 million per year when using a 3 percent discount rate and $ 8 0 million to $ 89 million per year using a 7 percent dis co unt 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 fi rst 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 $ 4 8 million per year using a 3% discount rate, and $ 9 million to $ 2 3 million per year using a 7% discount rate. There are additional unquantified benefits due to other avoided healt h effects ( respiratory related effects, reduced female fertil ity, allergic sensitization, immune function effects, neurological and2 behavioral toxicity, and developmental toxicity).

Net benefits are the difference between benefits and costs. The proposa l is estimated to result in quantified net benefits of

- $ 24 million to

- $ 6 0 million per year using a 3% discount rate, and

- $ 57 million

to

- $ 7 9 million per year using a 7% discount rate. As stated above, t here 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 non

monetized impacts that contribute to the overall net benefits o f 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 $ 43 4 million to $ 447 m illion in the first year. The cost is estimated to drop to $ 5 6 million to $ 6 5 million in the second year. The total annualized cost of this proposal is $ 7 2 million to $ 8 1 million per year when using a 3 percent discount rate and $ 8 0 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 th e highest first year costs ( $215 million) . The industries with the highest aggregate annuali zed 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. A ggregate first year costs for retailers are high because of the large
number of firms (759,000) that are potentially subject to the rule

. R etailers subject to the rule
have an average first year cost of approximately $ 30 0 , which is not disproportionate to the costs3 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 formaldehyde

based 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 loc ated 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 Cal ifornia
have also incurred these costs because their products are sold in California. EPA has no evidence to suggest that th is rule will have disproportionate budgetary impacts on any particular regions of the country
, or particular State, local, or triba l governments o r 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 Produ ct (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 $3 7 billion to $ 7 5 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 occa sions to discuss aspects of the California Air Resources Board’s (CARB) Airborne Toxic Control Measure ( ATCM ) for composite wood prod ucts 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 sig nificant 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 financial4 assistance provided to State, local, or tri bal 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 compo site wood products. Governments do not typically engage in these activities, so government entities are not expected to be subject to the rule’s requirements.