United States Office of Air Quality FINAL REPORT

Environmental Protection Planning and Standards EPA-452/R-98-002

Agency Research Triangle Park, NC 27711 July 1998

Air

ECONOMIC IMPACT AND

REGULATORY FLEXIBILITY

ANALYSES OF THE FINAL

ARCHITECTURAL COATINGS

VOC RULE
TABLE OF CONTENTS

Section Page

Executive Summary .................................................. ix

1 Introduction, Regulatory Background, and 

Industry Profile ..................................................... 1-1

1.1 Introduction ................................................. 1-1

1.2 Regulatory Background ........................................ 1-2

1.2.1 Regulatory Structure .................................. 1-3

1.3 Industry Profile .............................................. 1-5

1.3.1 Commodities and VOC Content .......................... 1-5

1.3.2 Demand for Architectural Coatings ....................... 1-8

1.3.2.1 Conceptual View of Coating

Decision ................................. 1-8

1.3.2.2 Substitution Effects ........................ 1-10

1.3.2.3 Aggregate Demand ........................ 1-11

1.3.2.4 Coating Users ............................ 1-11

1.3.3 Production of Architectural Coatings ..................... 1-12

1.3.3.1 Raw Material Inputs ....................... 1-12

1.3.3.2 Formulations ............................. 1-15

1.3.3.3 Manufacturers’ Substitution

Options and New 

Technologies ............................. 1-17

1.3.4 Industry Conditions .................................. 1-20

1.3.4.1 Shipments and Manufacturer

Specialization ............................ 1-20

1.3.4.2 Company Size and Industry

Structure ................................ 1-23

2 Costs of Proposed Regulation for Architectural 

Coating Producers .................................................. 2-1

2.1 Background ................................................. 2-1
2.2 Overview of Response Options ................................... 2-2

2.2.1 Supply ............................................ 2-2

2.2.2 Demand ........................................... 2-4

2.3 Cost Analysis ................................................ 2-5

2.3.1 Costs of Reformulation ................................ 2-5

2.3.1.1 Product-Level Reformulation

Cost Estimates ............................. 2-8

2.3.1.2 National Reformulation Costs ................ 2-14
TABLE OF CONTENTS (continued)

Section Page

2.3.2 Exceedance Fee Provision ............................. 2-20

2.3.3 Product Withdrawal ................................. 2-23

2.3.4 “Best-Response” Analysis ............................. 2-24

2.3.5 Tonnage Exemption ................................. 2-30

2.4 Cost Analysis Uncertainties .................................... 2-30

2.4.1 Upward Bias ....................................... 2-32

2.4.2 Downward Bias .................................... 2-32

2.4.3 Unknown Directional Effects ........................... 2-33

3 Architectural Coatings Market Analysis .................................. 3-1

3.1 Market Effects of Firm Responses to 

Regulation .................................................. 3-1

3.1.1 Model Execution and Results ........................... 3-2

3.1.1.1 Baseline ................................. 3-2

3.1.1.2 Quantifying Market Shocks ................... 3-3

3.2 Architectural Coatings Industry Employment 

Impacts ................................................... 3-10

4 Traffic Coating User Costs ............................................ 4-1

4.1 Truck Replacement Cost Method ................................. 4-2

4.2 Equipment Retrofit Method ..................................... 4-5

4.3 National Incremental Cost Calculation ............................. 4-5

5 Social Cost-Effectiveness Analysis ...................................... 5-1

5.1 Conversion of Impacts to Current Dollars ........................... 5-5

6 Small Business Impact Analysis ........................................ 6-1

6.1 Background and Affected Entities ................................. 6-2

6.1.1 Potentially Affected Entities ............................ 6-3

6.1.2 Regulatory Requirements .............................. 6-5

6.2 Analysis .................................................... 6-6

6.2.1 Baseline Market Presence of Small

Architectural Coatings Producers ........................ 6-6

6.2.2 VOC Content of Small Business Products:

Technology and Specialization Effects .................... 6-11

6.2.3 Costs Associated With Regulatory
Compliance ........................................ 6-17

6.2.4 Reformulation Cost Impact Estimates .................... 6-18

6.2.4.1 Small Business Impacts Under

“Reformulation-Only” Option ................ 6-22
TABLE OF CONTENTS (continued)

Section Page

6.2.5 Cost Impacts Across Market Segments ................... 6-23

6.2.6 Average Cost Impacts for Small

Company ......................................... 6-25

6.2.7 Potential Factors Mitigating Small

Business Impacts: Exceedance Fee,

Withdrawal, and Tonnage Exemption .................... 6-27

6.2.7.1 Fee and Withdrawal Options ................. 6-27

6.2.7.2 Tonnage Exemption ........................ 6-29

6.3 Regulatory Alternatives to Reduce Impacts ......................... 6-31

6.3.1 Selection of VOC Content Limits and 

Coating Categories .................................. 6-33

6.3.2 Low-Volume Exemption Option ........................ 6-34

6.3.3 Exceedance Fee Compliance Option ..................... 6-38

6.3.3.1 Exceedance Fee Rate ....................... 6-41

6.3.4 Extended Compliance Time for Small .......................

Businesses ................................................. 6-44

6.3.5 Compliance Variances ................................ 6-45

6.3.6 Selection of Recordkeeping and Reporting

Requirements ...................................... 6-47

6.4 Small Business Impact Summary ................................ 6-49

7 Epilogue .......................................................... 7-1

7.1 New Product Categories ........................................ 7-1

7.2 Categories with Higher VOC Content Limits ........................ 7-6

7.3 Summary ................................................... 7-7

8 References ........................................................ 8-1

Appendices

A Market Definition, Demand Estimation, 

and Data .......................................................... A-1

B Summary of Reformulation Cost Estimates from

Public Comments ................................................... B-1

C Calculation of Regulation-Induced Costs when

Reformulation Normally Occurs at Fixed Time

Intervals .......................................................... C-1

D Methodology for Computing Market and Welfare
Adjustments ....................................................... D-1
vii

LIST OF FIGURES

Number Page

1-1 Comprehensive classification of emissions 

from consumer and commercial products. ..................................... 1-2

1-2 Inputs generally used in the manufacture 

of a solventborne coating ................................................ 1-16

1-3 Inputs generally used in the manufacture 

of a waterborne coating ................................................. 1-16

1-4 Approximate volume relationships of coating 

ingredients ........................................................... 1-18

1-5 Location of manufacturing establishments 

in the paints and allied products 

industry in 1987: SIC 2851 .............................................. 1-27

2-1 Basic stages of architectural coating reformulation 

(prototype firm and product) ............................................... 2-4

2-2 Fee versus reformulation ................................................ 2-22

4-1 Cost schedules with and without accelerated 

replacement ........................................................... 4-4

4-2 Replacement cost schedules with and without

equipment retrofit ....................................................... 4-6

6-1 Chain of ownership ..................................................... 6-4
viii

LIST OF TABLES

Number Page

1-1 Average VOC Content for Architectural Coatings 

Expected to Be Covered by Proposed Regulation ............................ 1-7

1-2 Consumers of Architectural Coatings .................................... 1-12

1-3 Percentage of Solvent in Conventional and 

Reformulated Organic Solventborne Coatings ............................. 1-19

1-4 Value Shipped of Potentially Regulated Paint 

and Allied Products: 1981 Through 1991 ................................. 1-21

1-5 Number of Companies, Establishments, and 

Producer Specialization—Paint and Allied 

Products: 1987 .................................................... 1-24

1-6 Commodity Production in 1982: Paint and 

Allied Products .................................................... 1-25

1-7 Large Firm Dominance and Numbers of Companies 

and Establishments in the Paint and Allied 

Products Industry: 1987 ............................................. 1-27

1-8 Number of Companies and Establishments in 

the Coatings Industry, Selected Years, 

1972-1991 ........................................................ 1-28

1-9 Recent Acquisitions in the Coatings Industry .............................. 1-29

2-1 Table of Standards ................................................... 2-6

2-2 National Costs: Reformulation-Only Scenario ............................. 2-19

2-3 Architectural Coatings Market Segments Baseline 

Data ............................................................ 2-27

2-4 Best-Response Option Analysis—Survey Population:

Fee = $2,200/ton ................................................... 2-28

2-5 Reformulation Cost Analysis Uncertainties ................................ 2-31

3-1 Regulatory Effects on Architectural Coatings 

Market Output and Prices ............................................. 3-6

3-2 Architectural Coatings Market Welfare Effects ............................. 3-9

3-3 Estimated Employment Effects ......................................... 3-11
ix

LIST OF TABLES (continued)

Number Page

4-1 National Incremental Cost of Traffic Coating

Equipment Replacement and Retrofits—Medium

Stripers ........................................................... 4-7

4-2 National Incremental Cost of Traffic Coating

Equipment Replacement and Retrofits—Large

Stripers ........................................................... 4-9

4-3 National Incremental Cost Summary for Traffic

Coating Equipment ................................................. 4-11

5-1 Social Cost-Effectiveness Estimates ...................................... 5-4

5-2 Conversion of Summary Impacts to 1996 Dollars ............................ 5-5

6-1 Small Business Presence in the Architectural 

Coatings Market: Survey Population ..................................... 6-7

6-2 Baseline VOC Content ............................................... 6-12

6-3 Specialization-Based Average VOC Content: Small

Business Products .................................................. 6-15

6-4 Small Business Costs by Market Segment: 

Reformulation Option Only ........................................... 6-19

6-5 Average Regulatory Impact by Firm Size—

“Reformulation-Only” Scenario ........................................ 6-26

6-6 Average Regulatory Impact for Small Companies—

“Best-Response” Scenario ............................................ 6-28

7-1 Table of Standards: Interim vs. Final ..................................... 7-4
x

EXECUTIVE SUMMARY

Under Title I of the Clean Air Act of 1990, the U.S. Environmental Protection Agency (EPA)

is developing regulations to reduce volatile organic compound (VOC) emissions from various

consumer and commercial products. One of the first categories of consumer and commercial

products to be regulated is architectural coatings. This report analyzes the costs and economic

impacts of the final architectural coatings rule.

The general purpose of the regulation is to reduce the flow of VOCs into the atmosphere from

the use and disposal of architectural coating products. These emissions are distinguished from the

manufacturing-related emissions that are controlled by other forms of regulation (as are emissions

to land and water).

VOC emissions are regulated because of their contribution to the formation of ground-level

ozone. Elevated levels of ozone degrade air quality and pose a variety of health risks to exposed

populations.

ES.1 COMPLIANCE ACTIONS

The regulation imposes a set of standards for VOC content for individual architectural coating

products. Products that exceed the limits imposed by these standards must either be brought into

compliance with the limits, have an exceedance fee assessed on the product’s VOC content above

the limit, or be withdrawn from the market. These actions, however, can be avoided for products

subject to the small tonnage exemption.

ES.2 COMPLIANCE COSTS
xi

The number of compliance actions was estimated using survey data on VOC content and sales

volumes for almost 5,000 architectural coating products manufactured by 116 companies. The

surveyed products constitute about three-quarters of industry output. The survey data were used

to estimate the compliance activity for the products and manufacturers not covered in the survey

and is thereby the basis for the national estimate of costs.

Initially, the regulatory impacts were viewed in a very restrictive light, assuming that

reformulation down to the standards is the only option available to producers. The aggregate

costs of this restrictive option were then computed to give a benchmark measure of regulatory

costs under a restrictive set of conditions. The costs in Table ES-1 present both the initial

one-time expenditure for the reformulations and the costs expressed in annualized terms.

TABLE ES-1. NATIONAL COST FOR ARCHITECTURAL COATINGS

PRODUCERS—REFORMULATION-ONLY

Total Initial Expenditure

($1991)

Total Annualized Cost

($1991)

204.0 million 34.2 million

The analysis was expanded by progressively shedding the restrictive assumptions of forced

reformulation. First, the exceedance fee option was incorporated, taking into account that

producers may choose to pay an exceedance fee rather than reformulate if it is a less costly

alternative for them. Then, the least-cost compliance option (fee or reformulation) was compared

with benefit streams (net revenues) to determine if the least-cost option is also profitable. If the

value of the benefit stream is less than the cost of compliance, firms are assumed to remove the

products from the market as a best-response strategy. Alternative response options reduce the

cost of the regulation by approximately 20 percent for the architectural coating producers

included in the survey. Cost reductions are likely to be greater for the nonsurvey population and

are further reduced when market-level responses are factored in (see below). Most of the cost

savings is attributable to adopting the exceedance fee, which is projected to be the compliance

option for a number of products that are either very small in volume or have a VOC content
xii

relatively close to the limit. Because the fee is generally adopted for relatively small sources of

VOC “exceedance,” the effect on VOC emissions reductions is projected to be relatively small.

ES.3 MARKET EFFECTS

The compliance actions lead to a reallocation of society’s resources toward VOC controls,

which imposes opportunity costs directly on the producers and indirectly on other members of

society as producers act, markets respond, and prices and output change. The purpose of the

architectural coatings market analysis is to characterize the reallocation of resources and quantify

them in dollar-denominated terms to assess the distribution of costs and economic impacts of the

regulation.

The collective effect of some producers removing unprofitable products and some producers

bearing a per-unit fee on output will contract the aggregate supply of architectural coatings and

lead to changes in market prices and quantities. The optimal best-response actions and resulting

market outcomes will determine how the welfare costs of the policy are distributed across

producer groups, consumers, and the government sector.

Several scenarios were modeled for the standards. In general, market model results indicate a

very small change in baseline market conditions as a result of the regulation. This derives from

the expectation that aggregate costs of the regulation are a small share of aggregate industry

costs. However, because there is a high degree of producer heterogeneity within the architectural

coatings sector, the costs for some producers may be large. The distribution of impacts across

affected parties is presented in Table ES-2.

TABLE ES-2. MARKET IMPACTS SUMMARY

Aggregate Welfare Effects on.... (MM $1991)

Architectural coating producers -22.0

Architectural coating consumers -4.3

Government (fee receipts) +4.0

Net social welfare effect (“social cost”) -22.3
xiii

A portion of the cost for architectural coating producers is passed on to consumers in the form

of higher prices, which lowers their welfare. An important impact to consider is the effect of the

fee payments. While these payments constitute losses for the producers paying the fee (less the

amount they are able to pass on to the consumer via higher prices), these fee payments are simply

transfer payments to the government and therefore do not constitute a net increase in social costs. 

In other words, while the fee serves as a private cost for firms that do not reduce VOCs to the

statutory limit and a continuing incentive for producers to reduce VOCs to the limit, it does not

constitute an allocation of society’s resources to a particular use as, in contrast, the allocation of

resources for reformulation does.

The net social cost estimate is substantially lower than the annualized cost estimate under the

reformulation-only scenario described above. The market analysis demonstrates the potential for

substantial cost savings due to adopting the fee alternative and how this cost savings is likely to

accrue especially to producers of small volume products. Moreover, this cost savings is not

expected to have a significant impact on undercutting aggregate emissions reduction targets.

ES.4 TRAFFIC COATING USER COSTS

The economic analysis up to this point has focused entirely on the primary impacts of the

regulation, those borne directly by producers in the architectural coatings industry in the form of

higher costs and indirectly by the consumers of architectural products in the form of higher prices. 

The driving force of those impacts is the requirement that, except for products subject to the

tonnage exemption, noncompliant products must either be reformulated to a compliant VOC

level, be subject to a fee on the excess VOCs over the allowable level, or be withdrawn from the

market. However, this analysis considered a type of secondary impact, one that is caused by the

costs that users of a newly compliant product must incur to purchase the special equipment

necessary to apply the compliant coating. The secondary impact analysis focuses exclusively on

users of traffic marking paints, primarily government entities such as state transportation

departments, for whom the costs of switching application equipment (“striper” trucks) are

thought to be potentially significant. 
xiv

Traffic coating user costs are summarized in Table ES-3. Costs are estimated as the

incremental cost associated with the accelerated replacement of striper trucks and are expressed

both in terms of the present value of the one-time acceleration ($53.2 million total) and on an

annualized basis ($3.7 million).

TABLE ES-3. NATIONAL INCREMENTAL COST SUMMARY FOR TRAFFIC COATING

EQUIPMENT ($1996)

Striper Type Present Value of Cost Annualized

Cost

Medium (see Table 4-1) $42,844,912 $2,999,144

Large (see Table 4-2) $10,393,011 $727,511

Total $53,237,923 $3,726,655

ES.5 SOCIAL COST-EFFECTIVENESS

The social cost estimates from the market analysis and the estimate of traffic coating user costs

can be used to compute measures of the social cost-effectiveness of the regulation. The

distinction of “social” cost-effectiveness is made to illuminate the fact that the costs evaluated are

the net costs imposed on society (i.e., the net welfare costs estimated in the architectural coatings

market plus the resource costs incurred by traffic coating users to switch application equipment).

Cost-effectiveness results are summarized in Table ES-4. Emission reduction effects of the

regulation are estimated by taking the national target for VOC emission reductions from
xv

TABLE ES-4. SOCIAL COST-EFFECTIVENESS SUMMARY

Social Cost

($1991)

Estimated Emissions

Reduction (Mg)

Social Cost per Mg

($1991)

25.6 million 103,471 247

architectural coatings and modifying that total to account for market responses (fee adoption and

changes in output levels).

This estimate allows for an evaluation of cost-effectiveness implications of the fee option. 

Allowing the fee reduces social costs by about $12 million but foregoes about 1,802 Mg of

emissions reduction, about 1.7 percent of the targeted reductions. Dividing the cost savings by

foregone reductions approximates the marginal social cost of the foregone reductions. This figure

is $6,580/Mg, which is substantially higher than the $247/Mg average social cost-effectiveness

measure reported above. This difference indicates that the fee’s main effect is to reduce the very

most expensive emission reductions without substantially undercutting the achievement of

emissions reduction.

For external reporting purposes, the economic impacts are reported in 1996 dollars. Costs are

converted from the base year used in the analysis (1991) to 1996 using the Gross Domestic

Product (GDP) price deflator. The conversion results are presented in Table ES-5.

TABLE ES-5. CONVERSION OF SUMMARY IMPACTS TO 1996 DOLLARS

Impact Estimate $1991 $1996

Net social cost $25.6 million $29.2 million

Net social cost per Mg of emissions

reduction

$247/Mg $282/Mg
xvi

ES.6 SMALL BUSINESS IMPACTS AND REGULATORY FLEXIBILITY 

ANALYSIS

The potential for significant impacts on small businesses of the regulation arises from two

primary sources:

C Products made by small producers, on average, have a higher VOC content than the

industry average.

C The costs of reformulating products to comply with the regulation are fixed and

thereby impose higher average costs on small volume coatings.

The first problem is related to small producers’ tendency to specialize in coatings categories

that are naturally higher in VOC content and to their tendency to concentrate in the “high-VOC”

end of the distribution of products within a given category. Thus, the potential for

disproportionate impacts of VOC reduction regulation on small businesses follows partly from the

fact that small businesses contribute a disproportionate amount of the aggregate VOC emissions

that are targeted for reduction.

The second problem follows from the nature of reformulation costs. A coating’s formula is the

product of an intellectual capital investment, much like the development of a drug or a computer

software product. The cost of the investment follows directly from the level of effort necessary to

revise the formula to meet both the VOC standards imposed by the regulation and performance

standards imposed by the marketplace. This level of effort is essentially independent of the

quantity of the product that is eventually sold. Therefore, the relative impacts on smaller volume

products is, by definition, greater.

The data used in this analysis suggest that these two primary factors are relevant in the case of

small architectural coating producers. The average VOC content of the products made by the

small business producers in the survey is 75 percent higher than the average VOC content of all

products combined (see Table ES-6). A little over half of the difference in the averages is

attributed to the specialization of small producers in high-VOC content product categories, with

the remainder attributed to the tendency for small businesses to produce higher VOC products

within each product group. Moreover, the average product volume of products made by small
xvii

businesses is less than 20 percent of the average product volume for the entire survey population,

implying much larger average reformulation costs (see Table ES-7). Thus, without mitigating

factors, the impacts on some small businesses are potentially significant.

TABLE ES-6. BASELINE VOC CONTENT

Size

Categorya

VOC Emissions

(Mg)

Sales

(kL)

Average VOC

Content

(g/L)

All products 344,059 1,853,623 186 

Small business products 21,431 65,914 325 

a

The survey had 116 respondents and 36 of those identified themselves as having under $10 million in annual

sales. Twelve survey respondents did not report company size. 

Source: Industry Insights. Architectural and Industrial Maintenance Surface Coatings VOC Emissions Inventory

Survey. Prepared for National Paint and Coatings Association in cooperation with the AIM Regulatory

Negotiation Industry Caucus. Final Draft Report. 1993.

At proposal, the Agency included specialized coating categories and limits designed to

preserve niche product markets. To evaluate whether further steps were still needed to

accommodate niche market coatings, the Agency requested that commenters identify any

additional specialty coatings that would not comply with applicable VOC content requirements. 

The Agency also requested comment on whether to include an “exceedance fee” in the final rule,

which would allow companies the option of paying a fee, based on the amount that VOC content

limits are exceeded, instead of achieving the limit. In addition, the Agency requested comment on

the concept of a low volume cut-off, under which a coating might be exempt from regulation. In

the final rule, the Agency has included the exceedance fee compliance option and a provision that

enables each manufacturer to claim as exempt a specified amount of VOC per year (known as the

tonnage exemption). Also, in response to public comments, the Agency created seven new niche

product categories and increased the VOC content limits for four product categories in the final

rule. The Agency also added an extended period for compliance after promulgation to allow

additional time for reformulations. These provisions are designed to mitigate rule impacts on

small businesses’ low production volumes and to allow for the preservation of several niche
xviii

markets. However, based on the limited data available to the Agency, only the mitigating impact

of exceedance fees can be quantified.

The analysis shows that, when reformulation is the only option for compliance, the

cost/revenue ratio is estimated to be 2.5 percent on average (see Table ES-7). When the

alternative compliance options of the exceedance fee or product withdrawal are considered, the

ratio decreases to 2.0 percent (see Table ES-8). This ratio would decrease further if the cost

effects of the additional niche product categories, use of the tonnage exemption, and reduction in

cost to reformulate due to resin supplier assistance could be specifically quantified.

TABLE ES-7. AVERAGE REGULATORY IMPACT BY FIRM SIZE—

“REFORMULATION-ONLY” SCENARIOa

Industry Average Small Firm

Average

Revenueb ($1991) 38,990,000 4,614,000 

Number of productsb42.4 27.5 

Number of products facing major

 reformulationc

9.9 7.8 

Annualized reformulation costd ($1991) 144,272 113,669 

Ratio of annualized reformulation cost to revenues

(percent)

0.4 2.5 

a The survey has 116 respondents and 36 of those identified themselves as having under $10 million in annual

sales. Twelve survey respondents did not report company size.

b Data for revenues and products per firm were based on data reported in Table 6-1. The number of products per

firm is based on the total number of products for which quantity data are available.

c This number represents two-thirds of the products over the 1998 TOS. Industry experts estimate that

approximately two-thirds of the products with VOC contents exceeding the TOS limits face a “major”

reformulation.

d Annualized cost of reformulation is the number of major reformulations multiplied by the annualized

reformulation cost estimate per product of $14,573 ($1991).

Source: Industry Insights. Architectural and Industrial Maintenance Surface Coatings VOC Emissions

Inventory Survey. Prepared for National Paint and Coatings Association in cooperation with the AIM

Regulatory Negotiation Industry Caucus. Final Draft Report. 1993.

The Agency prepared analyses to support both the proposed and final rules that are equivalent

to those required by the Regulatory Flexibility Act (RFA) as modified by the Small Business

Regulatory Enforcement Fairness Act of 1996 (SBREFA). The Agency undertook these analyses
xix

because of the large presence of small entities in the architectural coatings industry and because

the initial impact analysis indicated that there could be a significant economic impact on a

substantial number of small entities if mitigating regulatory options were not adopted for the rule. 

After evaluating public comment on the proposed mitigating options, EPA made a 
xx

TABLE ES-8. AVERAGE REGULATORY IMPACT FOR SMALL

COMPANIES—”BEST-RESPONSE” SCENARIO

Compliance

Strategy

Percent of All

Constrained Survey

Products Selecting

Option

“Expected”

Number of

Products Selecting

Strategya

Average

Compliance

Cost per Product

($1991)

Compliance

Cost

($1991)

Reformulate 60.5% 4.7 14,573 68,767

Fee 35.5% 2.8 7,197b19,936

Withdrawal 4.0% 0.3 12,705c3,955

Total 100.0% 7.8 11,879 92,658

Average percent of sales 2.0%

a

Equals average number of constrained products for small companies (7.8) multiplied by percentage of all

constrained products in the survey selecting each strategy.

b Average fee cost computed by taking the average fee rate ($0.084/L), multiplying by the average size per small

company product (65,914 L), and adding the recordkeeping cost per product of $590.

c

Equals the average value of foregone profits for the 46 surveyed products that select the fee as the best-response

strategy.

number of changes to the proposed rule to further mitigate the rule’s small business impacts. As a

result, the Agency believes that it is highly unlikely that the rule will have a significant economic

impact on a substantial number of small entities. However, in light of the Agency’s inability to

quantify the effect of the mitigating options, the EPA has elected to conduct a regulatory

flexibility analysis and to prepare a SBREFA compliance guide to eliminate any potential dispute

on whether EPA has fulfilled SBREFA requirements.

ES.7 EPILOGUE

Because regulatory development is an evolving process, the final Table of Standards for VOC

content limits differs slightly from the interim Table of Standards used in the analysis reported

here. The main difference between the two sets of standards is the addition of seven new

categories in the final standards and an increase in the VOC content limits for three categories.

By and large, new categories were added to accommodate specialty products that were

previously included in other categories with lower VOC limits. As a result, some products that
xxi

would be over the limit in the previous category, thereby necessitating a compliance action

(reformulate, fee payment, withdrawal), are no longer constrained by the regulation. Therefore, in

most cases the addition of the new categories reduces the number of required compliance actions

and, as a result, also cuts compliance costs. In addition, raising the VOC limits in the other

categories reduces compliance actions and costs as well.

However, one of the new product categories, concrete curing and sealing (CCS) compounds,

applies to products that were considered outside of the regulated universe in the economic

analysis presented in this report. Therefore, the costs associated with the compliance actions

required for those products are not estimated in the analysis. If they were, the cost estimate

would be larger.

Data were available to approximate cost effects for only two of the seven new product

categories. One of these was the CCS category, which allowed for an estimate of the

corresponding increase in costs just described. The other new product category for which data

were obtained is zone markings. The original 1991 emissions inventory provided data to analyze

the cost reductions due to the increase in content limits for three product categories. Taken

together, the available data allowed for quantification of a $580,000 (1991 dollars) net increase in

the estimate of annual social costs. However, this increase in cost must be considered against the

unquantified decrease in costs from the expected fall in compliance activity in the five other new

categories for which data were unavailable. Without additional data, it is difficult to conclude

whether the cost reductions from those categories will together outweigh the net cost increases

quantified. Given that the social cost effects quantified here are less than 3 percent of the total

estimated social costs of the regulation, factors that reduce (or reverse the sign) of these costs

lead to the conclusion that the total social cost estimate is not greatly affected by the differences

between the interim standards used in the analysis and the final standards issued in the rule.