1 MEMORANDUM

DATE: April 2 , 2010

SUBJECT: Revised Conversion Costs and Baseline Emissions

- Conversion from Mercury Cell Chlor

- Alkali to Membrane Cell Chlor

- Alkali Technology

FROM: Donna Lee Jones, PhD, EPA/OAQPS/SPPD/MMG

TO: Project File

INTRODU CTION AND PURPOSE

On December 19, 2003, the U.S. Environmental Protection Agency (EPA) promulgated 40 CFR part 63, subpart IIIII (the Mercury Cell MACT). The compliance date for the Mercury Cell MACT was December 19, 2006. On February 17, 2004, the Nat ional Resource Defense Council (NRDC) filed petitions on the final rule in DC District Court. One of the issues raised by NRDC was that EPA failed to consider non

- mercury technology as beyond

- the

- floor MACT for existing sources. NRDC stated in the petiti on that eliminating the mercury cell process would completely eliminate mercury emissions and would be cost effective. In order to stop using the mercury cell process, the facilities currently in operation would need to convert to one of the non

- mercury t echnologies, such as membrane cell.

On June 11, 2008, EPA proposed amendments addressing the NRDC petition issues (73 FR 33258). As a part of the development of these proposed amendments, EPA estimated the cost impacts associated with conversion of th ese merc u ry cell processes to a non

- mercury technology (membrane cells). 1 After publication of th e 2008 proposal, EPA issued memoranda with revised estimated conversion cost impacts, in June 2009 2 and September 2009, 3 that reflected comments received on t he previous conversion cost analyses from both the chlorine industry 4
, 5
, 6
, 7
, 8
, 9
, 10
, 11
, 12 and Oceana, 13
, 14
, 15 an international organization focused on ocean conservation that is in agreement with NRDC’s goal to eliminate mercury in the environment.

The purpose of this memorandum is to present EPA’s revised cost estimates associated with the conversion of the operating mercury cell chlor

- alkali plants that have been generated considering all of the comments received to date. A separate memorandum has been prepa red and placed in the rule docket (EPA

- OAR

- HQ

- 2002

- 0017) that addresses the reduction of mercury air emissions and other mercury wastes from these conversions. 16

INDUSTRY STATUS

There are four mercury cell chlor

- alkali plants currently operating in the U nited States in 2010 that have the combined capacities to produce approximately 500,000 tons of chlorine per year. These plants are Olin Corporation in Augusta, Georgia (Olin GA); Olin Corporation in2 Charleston, Tennessee (Olin TN); PPG Industries in New Martinsville, West Virginia (PPG); and ASHTA Chemicals in Ashtabula, Ohio (ASHTA).

CAPITAL AND ANNUAL COST ESTIMATES

In order to estimate the capital and annual costs associated with a conversion from mercury cell chlor

- alkali technology to membrane ce ll technology, information was used from the following resources:

**•** EPA’s Mercury Report to Congress 17

**•** Recent news reports regarding plants converting or considering converting 18
, 19
, 20
, 21
, 22
, 23
, 24

**•** EPA waste minimization study 25

**•** Fact sheet from the conversion of a C anadian facility 26

**•** General chlor

- alkali reference 27

**•** European Best Available Techniques Document 28

**•** Information from Oceana 13
, 14
, 15 and the Chlorine indust ry 4
, 5
, 6
, 7
, 8
, 9
, 10
, 11
, 12

In addition to reviewing the Oceana correspondence, all directly relevant references cited by Oceana in their comments were obtained, reviewed, and considered. These references are compiled and available in the docket as one docket entry. 29

Capital Costs

Initially, to determine capital costs of conversion to nonmercury technol ogy, EPA collected capital cost data for mercury cell conversion projects that occurred between 1992 and 2008 from the search of the resources listed above. 2 In their September 15, 2009 memorandum, 15 Oceana pointed out that several of the capital cost data points were not appropriate because either the costs were from unsubstantiated estimates or they were developed from conversions that were done so long ago that t hey did not apply to membrane cell technologies currently being used.

Initially, Oceana identified seven capital cost data points for conversion to non

- mercury technology that were derived from estimates rather than actual conversions. These were:

**•** One 1997 estimate published by a HoltraChem facility where the conversion did not in actuality occur ;

**•** One 1988 estimate for a facility in the U.S. that could not be identified;

**•** One 1992 estimate for a “model plant” representing a mid

- range facility size, with no documentation included; and

**•** Four European estimates for conversions to non

- mercury technology, 14 which did not include information on plant production capacities.

In addition, Oceana stated that convers ion project costs prior to 1995 are not applicable to
current

- day conversion costs. According to Oceana, newer membrane

- cell technology uses bipolar electrolyzers, which were not commercially available until around 1997. 14 The3 conversions prior to 1995 would have used the older monopolar electrolyzers. Therefore, we agree with Oceana’s position that for this analysis it is not appropriate to include the data points derived from conversions that took place pri or to 1995; thus these data points were not used in our current analysis.

We developed c apital cost factors for conversion to membrane cell technology in units of dollars per ton ($/ton) of chlorine (Cl 2 ) production using data from conversions anywhere in the world that too k place after 1995, excluding the cost data described above . These costs and cost factors are shown in Table 1. The cost factor s ranged from $ 267 to $ 941 /ton Cl 2 produced and averaged $ 535/ton Cl 2 . In addition, Table 1 shows the ave rage of the cost factors from only the most recent US conversions (since 2000), which is $596/ton Cl 2 . Since membrane cells are smaller than mercury cells, in some conversions the companies have elected to use the extra available space to install addition al membrane cells, thus increasing the chlorine and caustic production capacity of the facility. Therefore, for some conversion projects included in Table 1, an increase in production capacity was also included. Oceana indicated in their comments 14 that a conversion cost analysis should either exclude the costs attributed to expanding capacity or include the cost saving benefits derived from expanding capacity. We do not believe that it is appropriate to make an assumption about savings because any benefits derived from additional sales due to increased capacity assumes that product demand would simultaneously increase. We do not disagree that the additional incremental costs of the expanded capacity should b e excluded. However, the available information does not provide a breakdown of the costs associated with conversion versus the costs associated with the increased capacity. Therefore, the capital costs for some conversions may include expansion costs. T his could result in the capital costs based on these data being biased high.

When providing comments on the June 2009 memorandum, ASHTA stated that differences in size, the new or expanded infrastructure required, and the end products desired (e.g., vapo r or liquid chlorine, dilute or merchant concentration of caustic) all impact the actual cost of conversion. 6 ASHTA suggested that, minimally, conversion cost estimates should take into account economies of sc ale. However, Oceana expressed concern with the use of an equation that relates increasing size to lower conversion costs to estimate the cost of conversion for the four remaining facilities
, since extrapolation of the costs to very small or very large

ca pacities produces illogical conclusions. But w e do believe that there could be some economies of scale. An equation we developed using the limited data set of the recent U.S. conversions showed a good correlation (correlation coefficient (R 2 )
, b 3 = 0.9981) of costs to facility size/capacity. However, when the entire data set (in Table 1) was plotted, a similar correlation was not observed.

Figure 1 presents these cost factors versus plant chlorine capacity for all the facilities

. As shown in Figure 1, there is little correlation between cost factor and plant chlorine capacity (R 2 = 0.0102) for all global conversions with documented data. Therefore, we agree with Oceana that it is most appropriate to use a single cost factor to estimate the capital costs of conversion.

b T he correlation coefficient is a measure of how accurately a regress ion predicts a value. The regression is most accurate when R 2 is equal to one (1).4 Table 1 . Cost Factors for Conversion of Mercury Cell Chlor

- Alkali Facilities to Membrane Cell Technology ($/ton Cl 2 produced)

Year of Estimate Location of Conversion Capital Cost (as prov ided) Capacity (ton Cl 2 / yr) Capital Cost Factor ($/ton Cl 2 produced /yr) Reference Base Year 200 7 a 1997 Europe $104,946,640 173,063 $606 $824 28
1997 Europe $32,856,014 110,231 $298 $405 28
1998 Europe $16,334,213 66,139 $247 $333 28
1998 Europe $13,094,369 66,139 $198 $267 28
1998 Europe $29,923,557 44,092 $679 $91 5 28
1998 US ( OxyT ech) a $57,327,236 135,033 $425 $573 28
1998 Asia $39,775,832 182,983 $ 217 $ 293 28
1999 Europe $13 1,159,254 330,693 $ 397 $ 533 28
1999 Europe $31,026,058 82,673 $ 375 $ 505 28
2002 US ( Wes t lake
, KY ) $86,100,000 205,000 $ 420 $ 497 22
2004 Belgium $171,032,583 363,762 $ 470 $ 556 23
2005 c US (PPG, LA) $90,000,000 275,000 $327 $367 20
2007 c US (Pioneer, LA) $117,000,000 c 197,000 $5 94 $594 19
2007 c Germany $109,678,733 250,000 $439 $439 24
2008 c US (ERCO, WI) $107,112,676 b 118,000 $908 $908 21
A verage $535 Average of Recent US Conversions b $596
N/A = Not Available

a The conversion to 2007 dollars was estimated using the Chemical Engineering Plant Cost Index Economic Indicators. Base year costs were adjusted to 2007 dollars using the rati o of the 2007 economic indicator and the base year economic indicator. See Reference 30 b Refers to conversions that occurred in the United States after 2000. .

c U sed in this analysis to develop an average factor for near future U.S. conversions

.

In o rder to develop capital cost factors for the current four mercury cell facilities, the chlorine production capacities from the 1997 Directories of Chemical Producers 31 were obtained and are shown in Table 2. The capital costs of converting to membrane cell technology for the four facilities in current operation were then estimated using these capacities. As shown in Table 2, capital costs were estimated using both the average capital cost factor for the entire data set ($535/ton Cl 2 ) in Table 1, and then a lso using the average of only the four most recent U.S. conversions ($596/ton Cl 2 ) since 200 0

. Because of several known factors, including environmental regulations and process safety management, we do not believe the broad range of data represented by all the facilities shown in Table 1 to be as accurate as the recent conversions that have occurred since 2000 in the U.S. to use to estimate the potential capital costs of conversion for the four remaining U.S. facilities. W e believe that the average cos t factor from the four recent U.S. conversions results in the best estimate of the capital costs that would occur for all four mercury cell chlor

- alkali plants5 Figure 1. Capital Cost Factor ($/ton Cl 2 produced) vs. Capacity

T a ble 2

. Estimated Capital Costs for E xisting Mercury Cell Chlor

- Alkali Facilities

Facilit y Cl 2 Production Capacity (ton/yr) a Capital Costs ($ ) Based on Entire Data Set b Based on Recent U.S. Conversions c ,d ASHTA 47,421 25,375,938 28,246,460 Olin GA 1 19,031 63,695,899 70,901,169 Olin TN 262,451 140,442,954 156,329,838 PPG 72,848 38,982,173 43,391,830 Total s 268,496,964 298,869,297

a From Reference 31

. b Calculated using averag e capital cost factor of $535/ton Cl 2 for entire data set.

c Calculated using average capital cost factor of $596/ton Cl 2 for recent (i.e., after 2000) U.S. Conversions. d Used in this analysis to develop costs for ne ar future U.S. conversions

.6 to conve rt to membrane cells. The total estimated capital cost of conversion for all four facilities, therefore, is approximately $300 million, which is also shown in Table 2.

Annual Costs

The annual costs associated with the conversion of mercury cells to memb rane cells include costs related to capital recovery, unused mercury storage costs, and energy costs due to the need for increased steam required to further concentrate caustic. However, some of these additional annual costs will be offset by savings real ized due to the elimination of mercury, e.g., mercury

- related environmental compliance costs and the reduced energy needs for the membrane cell process. Each of these costs and savings are described below.

Capital Recovery Cost

Annualization of the cap ital costs involves establishing an annual “payment” sufficient to finance the investment over the expected lifetime of the equipment or loan period . This payment is typically referred to as the “capital recovery cost.” The three key inputs into the capi tal recovery costs are the capital costs, the interest rate, and the finance period . The estimates for capital costs were discussed above ; the remainder of this discussion is focused on the interest rate and the finance period.

As pointed out by Olin in their F ebruary 2, 2010, correspondence
, 10 “access to capital and available interest rates are a function of many things, including the overall financial environment, the financial condition of the prospective borrower (including its debt load), and the amount and length of the loan.” In their June 25, 2009 correspondence
, 5 Olin also stated that “a 7 percent interest rate is simply not available to industry in this economy.” They suggested replacing the 7 percent rate with a 10 percent, or even a 14 percent rate. In their February 2010 correspondence, Olin provided an example to support the use of an interest rate higher than 7 percent. Olin reported that they sol d $150 million in Senior Notes, and that these notes had an interest rate of 8.875 percent and a maturity date of August 2019. According to Olin, the effective interest rate was over 9 percent considering the costs and discount.

The interest rate can re sult in significant differences in total annualized costs. For example, for a finance period of 15 years, the difference in capital recovery costs is approximately 20 percent higher for a 10 percent interest rate than for a 7 percent interest rate. This difference is even more profound for longer finance periods.

The policy of EPA’s Office of Air Quality Planning and Standards is to use an interest rate of 7 percent for all analyses used in regulatory decision making. While we do not disagree with Olin ’s information, we feel that it is important to maintain uniformity to allow decision

makers to consider consistent information across various regulatory decisions. Therefore, in this present analysis, an interest rate of 7 percent was used in the develop ment of the capital recovery
cost

. In previous versions of this analysis, a finance period of 15 years was used. Oceana commented that this underestimates the useful life of the equipment and overestimates the annualized costs. 14 Oceana suggested that a 30

- year finance period was more appropriate, and cited a previous analysis for the mercury ce ll industry where EPA used a 30

- year period to7 estimate the capital recovery costs. 32 However, it is important to no te that the use of a 30

- year finance period in th e analysis cited by Oceana was for a stationary building and not a n operating industrial process . Therefore, we do not agree that t his example establishes a precedent that is pertinent to our analysis.

To illustrate the importance of the choice of finance period, consider the fact that t he capital recovery costs for a 30

- year finance p eriod at 7

- percent interest rate would be approximately 30 percent lower than those for a 1 5 year finance period. Table 3 shows the annual capital recovery costs for both a 15

- year and 30

- year period, using the capital cost estimates based on the cost factor from the average of recent U.S. conversions shown in Table 2 of the previous section . While we recognize that a 15

- yea r finance period may understate the lifetime of the membrane cell process equipme nt, we believe that the use of a 30

- year period will bias the annualized costs unreasonably low. Therefore, we chose to base our capital recovery cost estimates on a 20

- year finance period which is higher than our previous estimate of 15 percent . Th is results in total annualized costs for the four U.S. facilities of approximately $30 million/yr, which we believe represent the best estimate of the capital recovery costs, as sh own in Table 3

.
Annual Costs Associated w ith Storage o f Unused Mercury

According to the Chlorine Institute, there were 1,376 tons of mercury available at the five mercury cell plants operating in 2008. 33 These plants operated a total of 264 mercury cel ls
, which equates to 5.2 tons of mercury per cell (ton Hg/cell) on the average . To estimate the amount of mercury available at each of the four currently operating facilities, that would need to be stored if they converted to membrane cells, this average factor was multiplied by the number of cells in each of the facilities. As shown in Table 4 , this results in an estimated total of 1,272 tons of mercury to be stored , ranging from 125 tons at ASHTA to over 550 tons at Olin TN

.
There were two sources of information identified that provided estimates of mercury storage costs. EPA’s Office of Pollution Prevention and Toxics and the EPA Office of Solid Waste and Emergency Response 34 has estimated future mercury storage costs at a private facility would be be tween $0. 0 81 and $0.186 per year per pound of mercury stored, with an average of $0.134 per year per pound. The Defense National Stockpile Center also has presented information indicating that the cost associated with the federal mercury storage is $0.056 1/yr/lb Hg. 35

Table 4 shows the estimated storage costs using both the average factor from EPA ($0.134/yr/lb) and the factor from the Department of Defense ($0.0561/yr/lb). While there is a considerable difference in these estimates, the sources of the i nformation are reliable. Use of either factor could bias the annual cost estimates high or low. Therefore, we assumed that these two points represent the upper and lower bounds of the storage costs, and that the midpoint of the range of storage costs rep resent s the best estimate of the mercury storage cost s that would be incurred . These midpoint costs , which are also shown in Table 4, total just over $240,000 per year for all four plants

.8 Table 3 . Estimated Capital Recovery Costs for Varying Finance Periods (Using 7 percent interest rate)

Plant Best Estimate of Capital Cost ($) a Capital Recovery Costs ($/yr) 15 years (CRF b = 0.1098) 30 years (CRF b = 0.0806) 20 years c (CRF b = 0.0944) ASHTA $28,246,460 $3,101,309 $2,276,281 $2,666,266 Olin GA $70, 901,169 $7,784,567 $5,713,670 $6,692,569 Olin TN $156,329,838 $17,164,176 $12,598,059 $14,756,431 PPG $43,391,830 $4,764,190 $3,496,792 $4,095,882 Total s $32,814,242 $24,084,802 $28,211,147

a Using the average cost factor from recent U.S. Conversions ( See Table 2). b CRF = Capital Recovery Factor.

c Used in th is ana l ysis to develop costs for near future U.S. conversions.

Table 4

. Estimate of Annual Mercury Storage Costs

Facility Number C ells a Available Mercury

(ton) b Mercury Storage Costs ($/yr) Using EPA Factor ( $0.134/yr/lb ) Using DOD Factor ( $0.0561/yr/lb ) Midpoint of EPA and DOD Factors c ASHTA 24 125 $33,399 $14,035 $23,717 Olin GA 60 313 $83,498 $35,088 $59,293 Olin TN 106 552 $147,513 $61,989 $104,751 PPG 54 281 $75,148 $31,579 $53, 364 Total s 244 1,271 $339,558 $142,691 $241,125

a Reference 31

. b Total amount of available mercury (5.28 tons/cell) distributed by number of mercury cells (see Reference 33 )

. c Used in this analysis to develop costs for near future U.S. conversions.

Costs Savings Associa ted with the Elimination of Mercury

- Related Environmental Compliance Costs

There are some expected costs savings related to the conversion from a mercury

containing process to the membrane cell process due to the elimination of compliance costs associate d with the use of mercury

. These savings can be categorized into three environmental elements: air, waste, and water. Air

- related environmental compliance cost savings are realized when the facility no longer has to comply with mercury

- related air regula tions, as well as labor due to the elimination of mercury

- related air monitoring, reporting, abatement measures, and occupational exposure monitoring. Waste

- related environmental compliance cost savings are realized when a facility no longer incurs costs due to recycling, retorting, transporting, storing and/or disposing of mercury wastes. Water

- related environmental compliance cost savings are realized when the facility no longer is required to operate mercury wastewater treatment programs.9 We used i n formation from the literature 36 ( with costs converted from Euros to U

. S

. d ollars using the average 2004 exchange rate 37 of 1.2439 ) and cost information presented to the State of Ohio by ASHTA as a part of their consent order 38

31 to estimate the cost savings. I nformation related to annual compliance costs associated with reducing mercury air emissions from the hydrogen and end box vent streams, presented to the Ohio EPA by ASHTA under the consent order, indicated that ASHTA would spend approximately $228,000 ann ually on air compliance. This value was converted to a $/ton Cl 2 value based on ASHTA’s capacity of 47,421 ton Cl 2 /yr, resulting in a cost factor of $4.81/ton Cl 2 capacity. Since these costs would no longer be incurred after conversion, this factor represents a savings. In contrast, European information indicates that a savings of approximately $2.20/ton Cl 2 in expenditures related to air compliance could be realized from the elimination of mercury. 36

In addition to the air

- related compliance costs described above , A SHTA presented to the Ohio EPA that they would be spending approximately $256,500 annually on fugitive mercury emission

- related activities (inclu ding the implementation of leak detection and repair standards). Upon conversion to membrane cells, this would represent a savings. These costs and savings are not relevant for the other three facilities because ASHTA is the only facility that did not ins tall a cell room instrumental monitoring program and
, therefore, is required to perform a leak program.

ASHTA also presented information to the Ohio EPA related to costs for their water treatment system. According to ASHTA, they spend approximately $98, 000 annually on their storm water recovery system. This converts to a cost/savings factor of $2.07/ton Cl 2 capacity for elimination of water

- related compliance costs due to mercury use. The European information indicates that a cost savings of approximat ely $1.92/ton Cl 2 could be realized by the eliminations of a mercury wastewater treatment system. 36

Waste

- related environmental compliance cost savings are realized by facilities no longer being required to re cycle, retort, transport, stor e and/or dispose of mercury

- cont aining wastes. The only information available was the European data that indicated that facilities could expect a cost savings of $6,470/ton waste

, at an a verage mercury waste production rate o f 4.2x10 - 5 ton waste per ton Cl 2 . 36 This results in a waste

- related cost savings of $0.27/ton Cl 2 capacity for elimination of waste

- related compliance costs due to mercury use.

Table 5 presents the cost savi ngs factors for each environmental compliance element discussed above from both the information from ASHTA as well as the European literature. A total environmental compliance cost savings factor was obtained from the sum of all the individual elements in each data set. Since ASHTA did not provide data related to annual cost of handling mercury

- related wastes, the value from the literature was used to obtain a total from all media. With this approach, a value of $7.15/ton Cl 2 shown in Table 5
, was develo ped from data mostly from ASHTA
, and a value of $4.63/ton Cl 2 was developed from the European literature.10 Table 5. Environmental Compliance Cost Savings Factors from Elimination of the Mercury Process

Environmental Element Cost Saving Factor s from E limination of Mercury ($/ton Cl 2 ) ASHTA Factor a Literature Factor b Air 4.81 2.20 Water 2.07 2.16 Waste 0.27 c 0.27 Total s 7.15 c ,d 4.63

a See Reference 38

. b See Reference 36

. c Since ASHTA did not provide data related to annual cost of compliance for mercury

- related wastes, the value from the literature was used for this element

. d Used in this analysis to develop costs for nea r future U.S. conversions

.

Table 6 presents the estimated annual cost savings from the elimination of mercury

related compliance costs for each of the four U.S. facilities using both total environmental compliance saving cost factors from Table 5. Since the cost data found in the literature were based on facilities in Europe and not from actual U.S. facilities, we believe that the annual cost savings from the elimination of mercury that is based mostly on the ASHTA cost factors represent the best estimat e of the cost savings for the remaining U.S. facilities.

En ergy Savings and Costs

The membrane cell process requires less energy than the mercury cell process. Therefore, there are reduced energy requirements with membrane cell s as compared to mercu ry cell s

. E nergy savings were estimated using information from literature and average State energy prices. 28 Although there could be variations in local energy costs, according to the information in the liter ature , the energy used by the membrane cell technology is approximately 2, 500 kilowatt hours per ton chlorine produced (kWh/ton Cl 2 ), which is about 700 kWh/ton Cl 2 less than that used by the mercury cell process ( 3,230 kWh/ton Cl 2 )

. 28 This equates to an approximately 22 percent reduction in energy requirements . Oceana provided information that indicated that a 37.5 percent reduction was possible. 14 Applying a 37. 5 percent reduction to the mercury cell process energy usage estimate of 3,230 kWhr/ton Cl 2 would yield a reduction in energy usage of approximately 1,211 kWhr/ton Cl 2 .

These energy savings are slightly offset by an increase in energy required to concent rate the caustic co

- product generated in the membrane cell process. Mercury cells produce caustic at the market concentration of 50 percent, and membrane cells produce caustic at a 33 percent concentration. T here fore, there is an increase in energy use ( in the form of steam) due to the need to further concentrate the caustic produced with the membrane cell technology. 4
, 5
, 6
, 711 Table 6. Annual Cost Savings from Elimination of the Mercury Processes , by Facility

Facility Chlorine Capacity (tpy) Savings from Hg Elimination ($/yr) ASHTA Factor a Literature Factor b ASHTA c 47,421 595,386 595,386 Olin GA 119,031 850,634 550,600 Olin TN 262,451 1,875,561 1,214,017 PPG 72,848 520,592 336,970 Total s 3,842,173 d 2,696,973

a Using the ASHTA factor of 7.15 $/ton Cl2 presented in Table 5.
b Using the literature factor of 4.63 $/ton Cl2 presented in Table 5.

c As discussed above, the ASHTA compliance costs savings include $256,500/yr related to their fugitive emissions compliance costs (that includes a leak detection and repair element, as well as the installation of a temporary canopy for the cell room) ; whereas
, the other facilities do not include these costs because ASHTA was the only facility that did not install an instrumental monitoring program to comply with the NESHAP. d Used in this anal ysis to develop costs for near future U.S. conversions

.

The energy requirement (in the form of steam) to concentrate the caustic to 50 percent was estimated to be 601 kWh/ton Cl 2 ($13.6/ton Cl 2 )
, as obtained from the average of estimates provided for three U.S. facilities

. 5
, 7 This cost was deducted from the energy savings described above to develop an estimate of overall energy cost savings with membrane cell t echnology due to reduced energy needs. The energy cost savings are shown in Table 7

. Further evaluation of Oceana’s claim of a 37.5 percent energy reduction 39

14 shows that although the estimate is for an actual facility, it is not clear whether steam cost s are included. In addition, Oceana also indicated in their September 16, 2009, letter that a 25 percent reduction was commonplace. Therefore, we believe that the total energy cost savings based on the 22 p ercent energy reduction represents the best cost estimate

In their September 29, 2009, letter, 15 Oceana stated that the steam cost was an overestimate of the required energy needs to concentrate the caustic. Oceana argued that even though additional energy is required to generate steam, the steam could be obtained without additional expense. According to Oceana, facilities could use byproduct hydrogen as fuel to generate the necessary steam. 15 While it may be possible to assume that byproduct hydrogen could be used to generate the steam required to concentrate caustic from a membrane cell, we agree with industry’s claim that increases in the demand for and the va lue of high purity chemical hydrogen make this use of byproduct hydrogen economically impractical. Therefore,

we have not made adjustments to the energy usage costs (in the form of steam) based on the use of byproduct hydrogen as fuel

.12 Table 7. Energy S avings Associated with Conversion from the Mercury Cell to the Membrane Cell Process

Facility Chlorine Capacity (tpy) Average Industrial Retail Electricity Cost

(cents/kWh) a Steam Cost ($/yr) b Annual Energy Savings ( $/yr ) Total Energy Cost Savings ($/yr) f 22% Energy Reduction c ,d 37.5% Energy Reduction e 22% Energy Reduction c ,d 37.5% Energy Reduction e ASHTA 47,421 5.77 644,788 1,911,268 3,313,692 1,266,480 2,668,904 Olin GA 119,031 5.48 1,618,476 4,556,346 7,899,639 2,937,870 6,281,163 Olin TN 262,45 1 5.4 0 3,568,575 9,901,023 17,166,059 6,332,448 13,597,484 PPG 72,848 3.9 0 990,515 1,986,964 3,444,931 996,449 2,454,416 Total s 11,533,247 25,001,967

` a Average retail price of electricity to ultimate customers by end

- us e sector, by state (R eference 40 b Steam cost associated with concentrating caustic produced by membrane cells from 33 percent to 50 percent at an average cost of $13.60/ton Cl 2 ).

(Reference 28 ).

c Calculated using a 22 perc ent energy savings associated with the conversion, at 699 kWh/ton Cl 2 . (Reference 28 ). d Used in this analysis to develop costs for near future U.S. conversions

. e Calculated using a 37.5 percent energy savings associated w ith the conversion, at 1,211 kWh/ton Cl 2 . (Reference 15 ). f Energy Cost Savings = Energy Savings ($/yr)

– Steam Cost ($/yr)

.

Table 8. Ranges of Individual Annual Cost/Savings Elements for the Conversion of Mercury Cells to Membrane Cells

Facility Capital Recovery Costs ($/yr) a Mercury Storage Costs ($/yr) b Environmental Compliance Savings ($/yr) Energy Savings ($/yr)

7% and 30 years 7% and 15 years EPA Factor DOD Factor ASHTA Factors c Literature Factors 22% Energy Red uction c 37.5% Energy Reduction ASHTA $2,276,281 $3,101,309 $33,399 $14,035 ($ 595,386 ) ($ 595,386 ) ($1,266,480) ($2,668,904) Olin GA $5,713,670 $7,784,567 $83,498 $35,088 ($ 850,634 ) ($ 550,600 ) ($2,937,870) ($6,281,163) Olin TN $12,598,059 $17,164,176 $147 ,513 $61,989 ($ 1,875,561 ) ($ 1,214,017 ) ($6,332,448) ($13,597,484)

PPG $3,496,792 $4,764,190 $75,148 $31,579 ($ 520,592 ) ($ 336,970 ) ($996,449) ($2,454,416) Totals $ 24,084,802 $ 32,814, 242 $ 339,558 $ 142,691 ($3,842,173) ($2,696,973) ($11,533,247) ($25,001,967)

a A recovery period of 20 years and 7% was use in the final analysis.
b The midpoint of the EPA and DOD factor range was used in the final analysis.

c These data were used in the final analysis.13 OVERALL ANN UAL COSTS

For each of the costs and savings elements discussed in the previous sections, there is credible information that would result in different estimated levels of costs/savings. For each element, this resulted in a high

- and low

- end estimate. The se values are shown in Table 8.

For each element, we chose the method of estimation that we believe is the best es timate of the cost or savings, as follows:

**•** For capital recovery costs and mercury storage costs, we conclude d that n either the high

- end n or the low

- end of the ranges represented the best estimate of the costs that would be incurred. Instead, we concluded that using a 20

- year finance period provided the best estimate. (See Table 3 above.)

**•** For the mercury storage costs, we determined that the midpoint of the range of data from two sources (list) was the best estimate. (See Table 4 above.)

**•** For the environmental compliance savings element, we chose the higher estimated savings
, u sing the cost factors developed mostly from ASHTA da ta to provide the best estimate for these U.S. facilities. (See Table 6 above.)

**•** For the energy savings, we believe that the lower savings level based on a 22 percent energy reduction provides the best estimate. (See Table 7 above.)

Table 9 shows the estimates fo r each facility for each individual cost element that in corporate the choices described above, and also shows the total annual costs calculated using these estimates for each facility for conversion to non

- mercury technology. The values in Table 9 represe nt our best estimate of the annual costs that would be incurred due to the conversion of the four currently operating mercury cell facilities to membrane cells. These annual costs range from less than $1 million per year for ASHTA to almost $7 million per year for Olin TN, and a total estimate of $13 million for all four facilities.

Uncertainty Analysis

While we selected the values that we believe provide the best estimates of the costs that would be incurred and savings that would be realized in the co nversion from mercury cells to membrane cells at these four facilities, there is some uncertainty associated with the estimates. While most of the information obtained and provided by commenters appears to be credible and representative of actual conversi ons that have occurred, there is a high amount of variability. This is most likely due to the fact that the conditions associated with the potential conversion of each mercury cell plant are different, resulting in potentially significant differences in the costs and savings.14 Table 9. EPA Estimates of the Annual Cost s of Conversion of Mercury Cells to Membrane Cells

Facility Capital Recovery Costs ($/yr) a Annual Costs Total Annual Costs ($/yr) Mercury Storage Costs ($/yr) b Environmental Comp liance Savings ($/yr) c Energy Savings ($/yr) d ASHTA $2,666,266 $23,717 ($595,386) ($1,266,480) $ 828,117 Olin GA $6,692,569 $59,293 ($850,634) ($2,937,870) $ 2,963,358 Olin TN $14, 756,431 $104,751 ($1,875,561) ($6,332,448) $ 6,653,173

PPG $4,095,882 $53,364 ($520,592) ($996,449) $ 2,632,205 Totals $28,211,147 $ 25,325,589 ($3,842,173) ($11,533,247) $ 13,076,853

a Using 20 year finance period with a resulting CRF of 0.0944
b Using midpoint of EPA and DOD factors.

c Using ASHTA factors for air and water compliance costs and a literature value for waste compliance costs not provided in ASHTA data.
d Using an estimate of 22 percent energy reduction with membrane process.

Table 10. Results of the Monte Carlo Simula tion Compared to the EPA Estimates

Facility EPA Estimate Total Annual Costs ($/yr) Monte Carlo Simulation Mean Total Annual Costs ($/yr) ASHTA $828,117 $736,743 Olin GA $2,963,358 $2,821,114 Olin TN $6,653,173 $6,349,942

PPG $2,632,205 $2,608,708 Totals $13,076,853 $12,516,50815 In order to consider the uncertainties, we conducted a simple Monte Carlo simulation

. ‡ For this simulation, we assumed a normal distribution for each variable. We set the peak of the distribution at our best estimate. For the elements where we believe one end of the range provides the best estimate (i.e., the environmental compliance savings and the energy savings), we truncated the distribution so that the peak of the distribution curve was at the best estimate. We ra n the simulation with 100,000 calculations to create distributions of the individual plant annual costs over all annual costs. The results are shown in Table 10. As can be seen, the results of this analysis are very close to our best estimated costs. Th is shows that collectively, considering the ranges of each parameter/input to the annual costs, a mean value is obtained from the simulation that is only slightly lower (4 percent) than our estimate. Attachment 1 contains the report of this simulation.

S UMMARY OF RESULTS

This memorandum provided estimated costs for the conversion of the four currently operating mercury cell chlor

- alkali facilities to membrane cells. The EPA estimate of the total capital cost for this conversion is slightly under $300 m illion, with the EPA estimate of total annual costs at approximately $13 million. Per facility estimated costs range from a low of $828,117 (ASHTA) to $6,653,173 (Olin TN).

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R

e p o r t o f M o n t e C a r l o S i m u l a t i o n C o s t s o f C o n v e r s i o n f o r M e r c u r y C h l o r

- a l k a l i F a c i l i t i e s

M a r c h 2 0 1 0Inv Plant Run REPORT.xls

Page 1 Crystal Ball Report Simulation started on 3/2/10 at 20:49:30 Simulation stopped on 3/2/10 at 20:59:38

Forecast: ASHTA Cell: G2

Summary: Display Range is from $100,000 to $1,300,000 Entire Range is from ($89,585) to $1,262,515 After 99,999 Trials, the Std. Error of the Mean is $684

Statistics: Value Trials 99999 Mean $736,743 Median $735,141 Mode

--- Standard Deviation $216,247 Variance $46,762,643,543 Skewness 0.00 Kurtosis 2.37 Coeff. of Variability 0.29 Range Minimum ($89,585) Range Maximum $1,262,515 Range Width $1,352,100 Mean Std. Error $683.84Inv Plant Run REPORT.xls

Page 2 Forecast: ASHTA (cont'd) Cell: G2

Percentiles:

Percentile Value 0% ($89,585) 10% $450,773 20% $537,872 30% $609,958 40% $673,558 50% $735,141 60% $796,520 70% $861,928 80% $936,064 90% $1,029,823 100% $1,262,515

End of ForecastInv Plant Run REPORT.xls

Page 3 Forecast: OLINGA Cell: G3

Summary: Display Range is from $2,300,000 to $3,300,000 Entire Range is from $1,628,267 to $3,272,924 After 99,999 Trials, the Std. Error of the Mean is $583

Statistics: Value Trials 99999 Mean $2,821,114 Median $2,853,762 Mode

--- Standard Deviation $184,278 Variance $33,958,401,275 Skewness -0.87 Kurtosis 3.79 Coeff. of Variability 0.07 Range Minimum $1,628,267 Range Maximum $3,272,924 Range Width $1,644,657 Mean Std. Error $582.74Inv Plant Run REPORT.xls

Page 4 Forecast: OLINGA (cont'd) Cell: G3

Percentiles:

Percentile Value 0% $1,628,267 10% $2,565,442 20% $2,673,985 30% $2,746,711 40% $2,804,326 50% $2,853,762 60% $2,898,178 70% $2,940,154 80% $2,979,573 90% $3,023,648 100% $3,272,924

End of ForecastInv Plant Run REPORT.xls

Page 5 Forecast: OLINTN Cell: G4

Summary: Display Range is from $5,250,000 to $7,500,000 Entire Range is from $3,633,806 to $7,303,391 After 99,999 Trials, the Std. Error of the Mean is $1,264

Statistics: Value Trials 99999 Mean $6,349,942 Median $6,421,196 Mode

--- Standard Deviation $399,437 Variance 2E+11 Skewness -0.88 Kurtosis 3.86 Coeff. of Variability 0.06 Range Minimum $3,633,806 Range Maximum $7,303,391 Range Width $3,669,586 Mean Std. Error $1,263.14Inv Plant Run REPORT.xls

Page 6 Forecast: OLINTN (cont'd) Cell: G4

Percentiles:

Percentile Value 0% $3,633,806 10% $5,799,566 20% $6,032,395 30% $6,190,153 40% $6,313,524 50% $6,421,196 60% $6,517,855 70% $6,607,508 80% $6,692,043 90% $6,788,912 100% $7,303,391

End of ForecastInv Plant Run REPORT.xls

Page 7 Forecast: PPG Cell: G5

Summary: Display Range is from $2,400,000 to $2,800,000 Entire Range is from $2,222,889 to $2,825,561 After 99,999 Trials, the Std. Error of the Mean is $216

Statistics: Value Trials 99999 Mean $2,608,708 Median $2,617,427 Mode

--- Standard Deviation $68,229 Variance $4,655,208,792 Skewness -0.60 Kurtosis 3.57 Coeff. of Variability 0.03 Range Minimum $2,222,889 Range Maximum $2,825,561 Range Width $602,672 Mean Std. Error $215.76Inv Plant Run REPORT.xls

Page 8 Forecast: PPG (cont'd) Cell: G5

Percentiles:

Percentile Value 0% $2,222,889 10% $2,516,657 20% $2,554,236 30% $2,579,823 40% $2,600,169 50% $2,617,427 60% $2,633,124 70% $2,647,947 80% $2,664,141 90% $2,687,576 100% $2,825,561

End of ForecastInv Plant Run REPORT.xls

Page 9 Forecast: TOTAL ANNUAL Cell: G7

Summary: Display Range is from $11,000,000 to $14,000,000 Entire Range is from $9,613,214 to $14,021,330 After 99,999 Trials, the Std. Error of the Mean is $1,570

Statistics: Value Trials 99999 Mean $12,516,508 Median $12,558,622 Mode

--- Standard Deviation $496,234 Variance 2E+11 Skewness -0.49 Kurtosis 3.31 Coeff. of Variability 0.04 Range Minimum $9,613,214 Range Maximum $14,021,330 Range Width $4,408,116 Mean Std. Error $1,569.24Inv Plant Run REPORT.xls

Page 10 Forecast: TOTAL ANNUAL (cont'd) Cell: G7

Percentiles:

Percentile Value 0% $9,613,214 10% $11,856,133 20% $12,114,524 30% $12,290,083 40% $12,432,022 50% $12,558,622 60% $12,681,120 70% $12,805,043 80% $12,940,515 90% $13,118,004 100% $14,021,330

End of ForecastInv Plant Run REPORT.xls

Page 11 Assumptions

Assumption: C2 Cell: C2

Normal distribution with parameters: Mean 0.0944 Standard Dev. 0.0094

Selected range is from 0.0806 to 0.1098

Assumption: D2 Cell: D2

Normal distribution with parameters: Mean $23,717 Standard Dev. $2,372

Selected range is from $14,035 to $33,399

Assumption: D3 Cell: D3

Normal distribution with parameters: Mean $59,293 Standard Dev. $5,929

Selected range is from $35,088 to $83,498

Assumption: D4 Cell: D4

Normal distribution with parameters: Mean $104,751 Standard Dev. $10,475

Selected range is from $61,989 to $147,513 0.0661 0.0802 0.0944 0.1086 0.1227 C2

$16,602 $20,159 $23,717 $27,275 $30,832 D2

$41,505 $50,399 $59,293 $68,187 $77,081 D3

$73,326 $89,038 $104,751 $120,464 $136,176 D4Inv Plant Run REPORT.xls

Page 12 Assumption: D5 Cell: D5

Normal distribution with parameters: Mean $53,364 Standard Dev. $5,336

Selected range is from $31,579 to $75,148

Assumption: E3 Cell: E3

Normal distribution with parameters: Mean $850,634 Standard Dev. $85,063

Selected range is from $550,600 to $850,634

Assumption: E4 Cell: E4

Normal distribution with parameters: Mean $1,875,561 Standard Dev. $187,556

Selected range is from $1,214,017 to $1,875,561

Assumption: E5 Cell: E5

Normal distribution with parameters: Mean $520,592 Standard Dev. $52,059

Selected range is from $336,970 to $520,592 $37,355 $45,359 $53,364 $61,369 $69,373 D5

$595,444 $723,039 $850,634 $978,229 $1,105,824 E3

$1,312,893 $1,594,227 $1,875,561 $2,156,895 $2,438,229 E4

$364,414 $442,503 $520,592 $598,681 $676,770 E5Inv Plant Run REPORT.xls

Page 13 Assumption: F2 Cell: F2

Normal distribution with parameters: Mean $1,266,480 Standard Dev. $126,648

Selected range is from $1,266,480 to $2,668,904

Assumption: F3 Cell: F3

Normal distribution with parameters: Mean $2,937,870 Standard Dev. $293,787

Selected range is from $2,937,870 to $6,281,163

Assumption: F4 Cell: F4

Normal distribution with parameters: Mean $6,332,448 Standard Dev. $633,245

Selected range is from $6,332,448 to $13,597,484

Assumption: F5 Cell: F5

Normal distribution with parameters: Mean $996,449 Standard Dev. $99,645

Selected range is from $996,449 to $2,454,416

End of Assumptions $886,536 $1,076,508 $1,266,480 $1,456,452 $1,646,424 F2

$2,056,509 $2,497,190 $2,937,870 $3,378,551 $3,819,231 F3

$4,432,714 $5,382,581 $6,332,448 $7,282,315 $8,232,182 F4

$697,514 $846,982 $996,449 $1,145,916 $1,295,384 F5