*** EO 12866 Review Draft – Deliberative – Do Not Cite, Quote or Release During Review ***

1 EO12866_RIN2070-AJ92_Formaldehyde-Imp_NPRM_IRFA 

### _2012-01-27.docx 1

2 Initial Regulatory Flexibility Analysis for 

### 3 Formaldehyde Emission Standard s for Composite Wood Products 

### 4 Proposed Rule; RIN 2070-AJ92 

### 5

6

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

### 8 January 2012 

### 9

10

11 Pursuant to section 603 of the Regulatory Flexibility Act (RFA) (5 U.S.C. § 601 et seq.), EPA has 

### 12 prepared this initial regulatory flexibility analysis for the “Formaldehyde Emission Standards for 

### 13 Composite Wood Products” proposed rule. 

### 14

15

1. Need For the Rule 

### 16

17 TSCA section 601(d) directs EPA to promulgate regulations to implement the formaldehyde 

### 18 standards for composite wood products described in TSCA section 601(b)(2). EPA is issuing a proposed 

### 19 rule under TSCA Title VI to implement the statut ory formaldehyde emission standards for hardwood 

### 20 plywood, medium-density fiberboard, and particleboar d sold, supplied, offered for sale, or manufactured 

### 21 (including imported) in the United States. As directed by the statute, this proposal includes provisions 

### 22 relating to, among other things, lami nated products, products made w ith no-added formaldehyde resins, 

### 23 testing requirements, product labeling, chain of custody documentation and other recordkeeping 

### 24 requirements, and product inventory sell-through provisions, including a product stockpiling prohibition. 

### 25

26 2. Objectives and Legal Basis for the Rule 

### 27

28 The legal basis for the rule is TSCA secti on 601(d), which provides authority for the 

### 29 Administrator to “promulgate regulations to implem ent the standards required under subsection (b) in a 

### 30 manner that ensures compliance with the emission sta ndards described in subsec tion (b)(2).” Therefore, 

### 31 the central objective of this proposal is to ensu re compliance with the TSCA Title VI formaldehyde 

### 32

emission standards. 

### 33

34 3. Description and Number of Small Entities to Which the Rule Will Apply 

### 35

36 The proposed rule potentially affects small manuf acturers (including importers), fabricators, 

### 37 distributors, and retailers of composite wood produc ts. These may include, but are not limited to, entities 

### 38 in the following industries: 

### 39

40 • Hardwood Veneer and Plywood Ma nufacturing (NAICS code 321211); 

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• Reconstituted Wood Product Manuf acturing (NAICS code 321219); 

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• All Other Miscellaneous Wood Produc t Manufacturing (NAICS code 321999); 

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• Furniture and Related Product Manufacturing (NAICS code 337); 

### 44 • Miscellaneous Manufacturing (NAICS code 339); 

### 45 • Merchant Wholesalers, Durable Goods (NAICS code 423); 

### 46 • Merchant Wholesalers, Nondurable Goods (NAICS code 424); and 

### 47 • Retail Trade (NAICS Sector 44 and 45). 

### 48

49 This listing is not intended to be exhaustive, but rather provides a guide for readers regarding entities 

### 50 likely to be affected by this action. Other types of entities could also be affected. 

### 51

52*** EO 12866 Review Draft – Deliberative – Do Not Cite, Quote or Release During Review ***

2 For purposes of assessing the impacts of the rule on small entities, small entity is defined as: (1) a 

### 53 small business as defined by the Small Business Ad ministration’s (SBA) regulations at 13 CFR 121.201; 

### 54 (2) a small governmental jurisdiction that is a govern ment of a city, county, town, school district or 

### 55 special district with a population of less than 50,000; and (3) a small organization that is any not-for-profit 

### 56 enterprise which is independently owned and ope rated and is not dominant in its field. 

### 57

58 EPA estimates that the rule will affect approximately 879,000 small entities. 

### 59

60 4. Projected Compliance Requirements, Classes of Small Entities Subject to the Compliance 

### 61 Requirements, and Professional Skills Needed to Comply 

### 62

63 A. Projected Compliance Requirements 

### 64

65 This proposal implements the statutory formal dehyde emission standards for hardwood plywood, 

### 66 medium-density fiberboard, and particleboard sold, s upplied, offered for sale, or manufactured (including 

### 67 imported) in the United States. As directed by the statute, this proposal includes provisions relating to, 

### 68 among other things, laminated prod ucts, products made with no-adde d formaldehyde resins, testing 

### 69 requirements, product labeling, chain of custody do cumentation and other recordkeeping requirements, 

### 70 and product inventory sell-through provisions, including a product stockpiling prohibition. This proposal 

### 71 would establish requirements for manufacturers (includi ng importers), fabricators, distributors, and 

### 72 retailers of composite wood products. The regulatory provisions in this proposal are designed to ensure 

### 73 compliance with the TSCA Title VI formaldehyde em ission standards while aligning, where practical, 

### 74 with the regulatory requirements under the Californi a Air Resources Board’s (CARB) Airborne Toxic 

### 75 Control Measure (ATCM) to reduce formaldehyde emissions from composite wood products. By 

### 76 aligning itself with the existing CARB requirements, EPA seeks to avoid differing or duplicative 

### 77 regulatory requirements that would result in an increased burden on the regulated community. 

### 78

79 B. Classes of Small Entities Subject to the Compliance Requirements 

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81 Small entities include small businesses, sma ll organizations, and small governmental 

### 82 jurisdictions. The small entities that are potentially di rectly regulated by this rule are small businesses 

### 83 that are manufacturers (including importers), fabri cators, distributors, or retailers of composite wood 

### 84 products. No small governments or sma ll organizations are expected to be directly regulated by the rule. 

### 85

86 C. Professional Skills Needed to Comply 

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88 Each panel producer must designate a pers on as quality control manager with adequate 

### 89 experience and/or training to be responsible for fo rmaldehyde emission quality control. EPA has not 

### 90 proposed criteria for determining whether an individua l’s experience or training are appropriate for this 

### 91 position, but experience in the wood products industry or a degree in chemistry or a related field might 

### 92 provide the skills needed to comply with the requirements. 

### 93

94 A panel producer must be able to follow sampling and handling procedures for the material that is 

### 95 to be tested. However, those procedures must be described in the facility’s quality control manual, and 

### 96 specified skills should not be needed to follow the written procedures. 

### 97 98 Each panel producer must also designate a quality control facility for conducting quality control 

### 99 formaldehyde testing, and the qualit y control facility must have quality control employees with adequate 

### 100 experience and/or training to conduct accurate chemic al quantitative analytical tests. But instead of 

### 101 performing these functions themselves, panel producers ha ve the option of hiring an accredited third party 

### 102 certifier (TPC) or a contract laboratory to fulfill these requirements. 

### 103

104*** EO 12866 Review Draft – Deliberative – Do Not Cite, Quote or Release During Review ***

3 To obtain product certification, a panel producer must apply to an accredited TPC, and must 

### 105 provide information and notifications to the TPC. Fi nally, manufacturers, fabricators, distributors, or 

### 106 retailers of composite wood products must maintain records, and may need to request information from 

### 107 their suppliers and provide information to their cust omers. None of these activities requires any special 

### 108

skills. 

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110 5. Other Federal Rules that may Duplicate, Overlap, or Conflict with the Rule 

### 111

112 The U.S. Department of Housing and Urba n Development (HUD) h as regulations governing 

### 113 formaldehyde emission levels from plywood and partic leboard materials installed in manufactured homes. 

### 114 (See 24 CFR 3280.308.) However, TSCA Title VI est ablishes specific formalde hyde emission standards 

### 115 for hardwood plywood, particleboard, and medium-den sity fiberboard and does not provide EPA with the 

### 116 authority to modify these standards. Furthermor e, the Formaldehyde Standards for Composite Wood 

### 117 Products Act, which includes TSCA Title VI, directs HUD to revise their regulations to ensure that they 

### 118

reflect the emission standards in TSCA Title VI. A nd the HUD regulations do not deal with the other 

### 119 elements addressed in these implementing regulations (where EPA does have the authority to make 

### 120 determinations) such as laminated products, products made with no-a dded formaldehyde resins, testing 

### 121 requirements, chain of custody documentation, and pr oduct inventory sell-through provisions. Therefore, 

### 122 the regulatory provisions of this proposal for which EPA has flexibility in implementing the statute do not 

### 123 duplicate, overlap, or conflict with any other Federal rules. 

### 124

125 6. Potential Economic Impacts on Small Entities 

### 126

127 Of the nearly 879,000 small firms affected by th e rule, approximately 851,000 (about 97 percent) 

### 128 are expected to have costs impacts that are less than one percent of their revenues, 23,000 firms (about 3 

### 129 percent) are expected to experience impacts at levels between one and three percent of their revenue, and 

### 130 4,000 firms (less than 1 percent) are expected to in cur costs exceeding three percent of their revenues. 

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132 Many of the firms with cost impacts above 1 percent of their revenues are fabricators, 

### 133 wholesalers, and retailers with annualized costs less th an $250 (i.e., they are firms with annual revenues 

### 134 below $25,000). These firms account for 92 percent of th e firms with cost impacts that are between 1 and 

### 135 3 percent and 42 percent of the firms with cost impacts that exceed 3 percent. 

### 136

137 7. Minimization of Economic Impacts on Small Entities Consistent with Statutory Objectives, 

### 138

and Consideration of Alternatives 

### 139

140 A. Small Business Advocacy Review Panel 

### 141

142 As required by section 609(b) of the RFA, as amended by the Small Business Regulatory 

### 143 Enforcement Fairness Act (SBREFA), EPA conducted outreach to small entities and convened a Small 

### 144 Business Advocacy Review Panel on February 3, 2011 to obtain advice and recommendations of 

### 145 representatives of the small entities that potentially would be subject to the rule's requirements. The Panel 

### 146 solicited input on all aspects of these proposed regula tions and on the framework for the third-party 

### 147 certification program under TSCA Title VI. Sevent een potentially-impacted small entities served as 

### 148 small-entity representatives (SERs) to the Panel, re presenting a broad range of small entities from diverse 

### 149 geographic locations, and five trade associations. The Pa nel concluded its deliberati ons on April 4, 2011. 

### 150

151 Consistent with the RFA/SBREFA requirements, the Panel evaluated the assembled materials and 

### 152 small-entity comments on issues related to elements of th e IRFA. It is important to note that the Panel’s 

### 153 findings and discussion were based on the information av ailable at the time the final report was prepared. 

### 154 EPA has continued to conduct analyses relevant to the proposed rule, and additional information may be 

### 155 developed from public comment on the proposed rule. 

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### 157 The Panel’s most significant findings and reco mmendations on the TSCA Title VI implementing 

### 158 regulations are summarized below. 

### 159

160

1. In general . The Panel recommended that EPA adopt regulatory requirements that are 

### 161 consistent with the CARB ATCM wherever possibl e. EPA agrees with this recommendation and has 

### 162 tried throughout this proposal to remain consis tent with CARB where it is practical to do so. 

### 163

164

2. Manufactured-by dates and stockpiling . The Panel generally agreed with those SERs that 

### 165 recommended that EPA propose to establish the manufact ured-by date at 180 days after promulgation of 

### 166 the final rule and make the reference period for determining whether stockpiling has occurred the 12 

### 167 month period prior to promulgation of the final rule. 

### 168

169 EPA is proposing to establish the manufactured-by date at 1 year after promulgation of the final 

### 170 rule. This is primarily to allow for development of the third-party certification infrastructure and to give 

### 171 panel producers who are not already complying w ith the CARB ATCM adequate time before the 

### 172 manufactured-by date to select an accredited third-pa rty certifier, develop a qua lity control manual, and 

### 173 complete the initial testing to qualify for product certification. 

### 174

175 EPA is proposing to establish the stockpiling re ference period, or base period, as the calendar 

### 176 year 2009 because, under TSCA Title VI, the base peri od must end before the statute was enacted. 

### 177

178

3. Quality control and compliance testing . The Panel recommended that EPA consider CARB’s 

### 179 method of establishing equivalency and carefully evalua te any alternative test method permitted. EPA is 

### 180 proposing to use CARB’s method of establishing equiva lency between test methods and EPA is also 

### 181 proposing to recognize those alternative test methods that CARB has approved. 

### 182

183 The Panel further recommended that EPA provide clear direction on product decertification and 

### 184 recertification procedures and the recall of no ncompliant products. In response to these 

### 185 recommendations, EPA has proposed specific provisions on what actions are required and allowed in the 

### 186 event of a failed test result. EPA has also proposed to require panel producers to hold lots selected for 

### 187 testing until the test results are received. 

### 188 189

4. Labeling and recordkeeping. The Panel generally recommended that labeling and record 

### 190 keeping provisions should be closely harmonized w ith CARB’s requirements, including allowing panels 

### 191 to be labeled by bundle, rather than individually. The Panel did recognize that subtle differences between 

### 192 the TSCA Title VI implementing regulations a nd the CARB ATCM may make identical labels 

### 193 impossible. EPA is proposing labeling requirements th at are virtually identical to CARB’s, except that 

### 194 the labels must say that the products are TSCA Title VI compliant instead of CARB compliant. EPA’s 

### 195 proposed recordkeeping and chain-of custody documenta tion requirements are also virtually identical to 

### 196

CARB’s. 

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198

5. Laminated products and engineered veneer. The Panel recommended that EPA continue to 

### 199 seek available information, and exempt those laminated products that can be exempted consistent with the 

### 200 direction given in TSCA Title VI. The Panel furt her recommended that EPA work with small businesses, 

### 201 especially those laminating on a made-to-order basis, to design a testing scheme that is practical for those 

### 202 businesses, and at the same time, is calculated to ensu re compliance with the emissions standards. The 

### 203 Panel also recommended that EPA consider basing th e number and frequency of required quality control 

### 204 tests on production volume, thereby requiring fewer test s for smaller producers. EPA has incorporated all 

### 205 of these recommendations into this proposal, by propos ing to exempt laminated products that are made 

### 206 with certified platforms and NAF resins, and by pr oposing to allow for quality control testing frequency 

### 207 based on production volume for hardwood plywood producers. 

### 208*** EO 12866 Review Draft – Deliberative – Do Not Cite, Quote or Release During Review ***

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### 209

6. Definitions . The Panel recommended that EPA develop a definition of “hardboard” that takes 

### 210 the revised ANSI standard into account while ensuring that similar products are similarly regulated under 

### 211

TSCA Title VI. While a revised ANSI standard for “har dboard” has yet to be finalized, EPA believes that 

### 212 its proposed definition takes into account both widespread industry usage of the term and the intent of the 

### 213

statute. 

### 214

215 Recognizing that TSCA Title VI was not intended to apply to structural plywood, the Panel also 

### 216 recommended that EPA develop a clear definition for “interior use” in order to eliminate confusion in the 

### 217 regulated community. According to the Panel, the defi nition should be based on the intent of the statute 

### 218 and consider how the hardwood plywood is likely to be used and stored once incorporated into a finished 

### 219 good. EPA has proposed a definition of “intended fo r interior use” that includes these considerations. 

### 220

221

While the SERs differed in their advice on the de finition of the term “panel,” the SBAR Panel 

### 222 recommended that EPA reduce uncertainty in the regu lated community by including in its regulation a 

### 223 clear definition of “panel” that is based on the intent of the statute, and considers trade usage and the 

### 224 limitations of current test methods. Again, EPA is proposing a definition that takes these factors into 

### 225

account. 

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227

B. Alternatives considered 

### 228 229 The Economic Analysis for the proposed rule examined a number of alternative 230 analytical options. Among the alternatives base d on the formaldehyde emissions standards set in 231 Title VI of TSCA, EPA analyzed different optio ns for how laminated products might be included 232 in the definition of hardwood plywood, and for th e rule’s chain of cu stody and recordkeeping 233 requirements. These alternatives would have ap plied to both small and la rge entities, but given 234

the number of small entities in th e affected industries, these alte rnatives would largely affect 235

small entities. 236

237 EPA is proposing the option with the lowest total cost among these options. This will 238 minimize any significant economic impact on small entities. The Economic Analysis included 239 two options for the definition of hardwood plywood that had higher total costs than the proposed 240 rule (because they did not include the proposed rule’s reduced recordkeeping requirements for 241 firms that are not manufacturers under TSCA) but that were less burdensome to certain 242 laminated product producers. Specifically, one of the alternative options would have excluded 243 all laminated products from the definition of hardwood plywood, and the second would have 244 excluded all laminated products other than arch itectural panels and cu stom plywood from the 245 definition of hardwood plywood. Both alternative op tions would apply regard less of the types of 246 resins used in making the laminated products exempted from the definition of hardwood 247 plywood. 248

249 Because eligibility for the exemptions for la minated products in the alternative options 250 was not based on the type of resins used to attach a wood veneer to a platform, currently 251 available information indicates that these opti ons would have allowed laminated products that 252 exceed the formaldehyde emission standards to be exempted from the definition of hardwood 253 plywood. Therefore, EPA has concluded that such alternative options ar e not consistent with 254 TSCA Title VI’s statutory mandate that EPA pr omulgate regulations in a manner that ensures 255 compliance with the emission standard s in TSCA section 601(b)(2). 256

257