P.1 

OAR Box 1706 

Prepped by Ollie Stewart 

Document Number: 

2) lll-B-2 

Docket Number: 

A-98-13 

Printed 10/8/2008 10:25:07 AM Sheet 2 of 142 
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am:-' 6 2001 

EPA AIR DOCKET 

Economic Analysis of Air Pollution 

Regulations: Organic Liquid Distribution 

Final Report for Proposal 

Prepared for 

John L. Sorrels 

U.S. Environmental Protection Agency 

Office of Air Quality Planning and Standards 

Innovative Strategies and Economics Group (ISEG) 

(MD-15) 

Research Triangle Park, NC 27711 

Prepared by 

Katherine Heller 

Brooks M. Depro 

Research Triangle Institute 

Center for Economics Research 

Research Triangle Park, NC 27709 

EPA Contract Number 68-D-99-024 

RTI Project Number 7647-002-134 

February 2001 

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EPA Contract Number RTI Project Number 

68-D-99-024 7647-002-134 

Economic Analysis of Air Pollution 

Regulations: Organic Liquid Distribution 

Final Report for 

Proposal 

Februar y 200 1 

Prepared for 

John L. Sorrels 

U.S. Environmental Protection Agency 

Office of Air Quality Planning and Standards 

Innovative Strategies and Economics Group (ISEG) 

(MD-15) 

Research Triangle Park, NC 27711 

Prepared by 

Katherine Heller 

Brooks M. Depro 

Research Triangle Institute 

Center for Economics Research 

Research Triangle Park, NC 27709 

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CONTENTS 

Section Page 

1 Introduction and Executive Summary 1-1 

1.1 Profile of the Affected Industries 1-1 

1.2 The Costs of the OLD NESHAP 1-3 

1.3 Estimated Economic Impacts of the OLD NESHAP 1-4 

1.3.1 Market Responses to the NESHAP 1-4 

1.3.1.1 Market- and Industry-Level Impacts 1-5 

1.3.1.2 Facility-Level Impact Results 1-6 

1.3.1.3 Company-Level Impacts Results 1-6 

1.3.1.4 Social Costs 1-7 

2 Industry Profile 2-1 

2.1 Brief Description of Source Category 2-1 

2.1.1 Current Economic Conditions and Trends 2-3 

2.1.1.1 Chemical Production 2-3 

2.1.1.2 Petroleum Refineries 2-3 

2.1.1.3 Liquid and Petroleum Terminals 2-3 

2.1.1.4 Crude Oil Pipeline Pumping and 

Breakout Stations 2-4 

2.1.2 Environmental Concems 2-4 

2.2 Distribution of Organic Chemical Liquids 2-5 

2.2.1 Overview of Distribution Service 2-7 

2.2.1.1 Elasticity of Supply ._. 2-7 

2.2.2 Industry Organization 2-9 

2.2.2.1 Facilities 2-11 

2.2.2.2 Firm Characteristics 2-13 

2.2.3 Uses and Consumers 2-18 

2.2.3.1 Characterization of Demand—Derived Demand 

Elasticity 2-19 

2.2.4 Markets 2-20 

2.2.4.1 Market Volumes 2-20 

in 

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2.2.4.2 Market Prices 2-20 

2.2.4.3 Future Projections 2-21 

2.3 Distribution of Petroleum Liquids 2-21 

2.3.1 Affected Markets 2-21 

2.3.2 Production/Service Overview 2-22 

2.3.2.1 Elasticity of Supply 2-24 

2.3.3 Industry Organization 2-24 

2.3.3.1 Facilities 2-27 

2.3.3.2 Firm Characteristics 2-27 

2.3.4 Uses and Consumers 2-34 

2.3.4.1 Characterization of Demand—Derived Demand 

Elasticity 2-35 

2.3.5 Markets 2-36 

2.3.5.1 Market Volumes 2-36 

2.3.5.2 Market Prices 2-37 

2.3.5.3 Future Projections 2-37 

3 Engineering Cost Analysis 3-1 

3.1 Control Cost Estimates 3-1 

4 Economic Impact Analysis: Methods and Results 4-1 

4.1 Overview of Economic Modeling Approaches 4-1 

4.2 Conceptual Approach 4-2 

4.2.1 Operational Model •. < 4-4 

4.2.1.1 Market Supply 4-4 

4.2.1.2 Market Demand 4-4 

4.2.1.3 Control Cost Inputs and With-Regulation 

Equilibrium 4-4 

4.2.2 Results 4-5 

4.2.3.1 Market- and Industry-Level Impacts 4-5 

4.2.3.2 Facility-Level Impact Results „ 4-7 

4.2.3.3 Company-Level Impacts Results 4-8 

4.2.3.4 Social Costs 4-9 

5 Small Business Impact Analysis 5-1 

5:1 Identifying Small Businesses 5-1 

5.2 Screening-Level Analysis 5-1 

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5.3 Economic Analysis 5-2 

5.4 Assessment 5-2 

References R-1 

Appendices 

A Revised Organic Liquids Distribution (OLD) 

Methodology A-1 

B Economic Computations B-l 

C OLD Economic Impact Analysis: Sensitivity Analysis C-1 

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VI 

LIST OF FIGURES 

Number Page i 

2-1 Distribution of Organic Chemical Liquids Facilities that Responded 

to the ICR Survey .• 2-14 j 

2-2 The Distribution of Organic Chemical Liquids Facilities that 'i 

Responded to the ICR Survey by Employment 2-15 

2-3 The Size Distribution of Companies that own OLD Facilities that "^ 

Responded to the ICR Survey and are Involved in Chemical i_ 

Distribution, by 1998 Sales (in $1997) 2-16 

2-4 Size Distribution of Companies that own OLD Facilities that V 

Responded to the ICR Survey and are Involved in Chemical Distribution .. . 2-17 7. 

2-5 Distribution of Companies Owning Organic Chemical Liquids Facilities that 

Responded to the ICR Survey, by Profit Margin ... ; 2-19 .* 

2-6 Location of Petroleum Liquids Distributors that Responded to the 

ICR Survey 2-28 

2-7 The Distribution of Petroleum Liquids Facilities that / 

Responded to the ICR Survey by Employment 2-29 

2-8 The Size Distribution of Companies that own OLD Facilities that 

Responded to the ICR Survey and are Involved in the Distribution of , 

Nongasoline Petroleum Liquids, by 1998 Sales (in $1997) 2-32 

2-9 Size Distribution of Companies that own OLD Facilities that Responded 

to the ICR Survey and are Involved in the Distribution of Nongasoline 

Petroleum Liquids •.. 2-33 

2-10 Distribution of Companies Owning Petroleum Liquid Facilities that 

Responded to the ICR Survey, by Profit Margin 2-34 ,

;

. 

4-1 Market Responses to the OLD NESHAP 4-3 j 

5-1 Distribution of Compliance CSRs by Industry: [Control and 

MRR Costs] (1997) 5-4 

5-2 Distribution of Compliance CSRs by Industry: [MRR 

Only Costs] (1997) 5-5 
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LIST OF TABLES 

Number Page 

1-1 Number of Facilities Affected by OLD NESHAP, by NAICS Code 1-2 

1-2 Per-Facility and Nationwide Control Costs by Model 

Plant (1997$/yr) 1-3 

1-3 Market-Level Industry Impacts of the Proposed OLD 

NESHAP (1997$) 1-5 

2-1 Nationwide HAP Totals from OLD Activities (tons/yr)a 2-5 

2-2 Summary of Facility Categories, Liquids, Modes of Transportation, 

and Emissions Sources Covered by the OLD Source Category 2-6 

2-3 Principal OLD Facility Categories 2-8 

2-4 Concentration Ratios by SIC Code 2-11 

2-5 Number of Total OLD Facilities and Affected Facilities, 1997 2-12 

2-6 Profit Margins of Firms that Responded to the ICR Survey and 

that own Organic Chemical Liquids Distribution Facilities 2-18 

2-7 Organic Chemical Market Volumes, 1997 (IO6 pounds) 2-20 

2-8 Petroleum Products Produced at U.S. Refineries, 1997 2-22 

2-9 Principal OLD Facility Categories 2-23 

2-10 Concentration Ratios by SIC Code 2-26 

2-11 Number of Total OLD Firms and Affected Firms, 1996 2-30 

2-12 Small Business Size Standards for OLD Industries 2-31 

2-13 Profit Margins of Firms that own Organic Chemical Liquids Distribution 

Facilities that Responded to the ICR Survey 2-33 

2-14 Estimates of Price Elasticity of Demand for Petroleum Products 2-35 

2-15 Petroleum Product Market Volumes, 1997 (IO6 pounds) 2-36 

2-16 Petroleum Consumption and Net Imports in 1997 and 2020 

(IO6 barrels/day) 72-39 

3-1 Facility and Nationwide Control Costs for the Proposed 

OLD MACT 3-3 

4-1 Market-Level Industry Impacts of the Proposed Organic Liquid 

Distribution (OLD) NESHAP: 1997 4-6 

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4-2 National-Level Industry Impacts of the Proposed Organic Liquid 

Distribution (OLD) NESHAP: 1997 4-7 

4-3 Estimated Company-Level Impacts of the OLD NESHAP: 1997 4-9 

4-4 Distribution of Social Costs Associated with Organic Liquids 

Distribution (OLD) NESHAP: 1997 4-10 

5-1 Compliance CSRs for Companies by Industry and Company Size: 

[Control and MRR Costs] (1997) 5-3 

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SECTION 1 

INTRODUCTION AND EXECUTIVE SUMMARY 

Under Title II ofthe Clean Air Act Amendments of 1990, the Office of Air Quality 

Planning and Standards (OAQPS) is developing a national emission standard for hazardous 

air pollutants (NESHAP) to limit air emissions from organic liquid distribution activities. 

Industries that will be affected by this NESHAP include chemical manufacturers, liquid 

terminals, petroleum refiners, and pipeline owners and operators. The proposed NESHAP 

requires distributors of nongasoline organic liquids to meet emission standards for the release 

of hazardous air pollutants (HAPs) into the environment. To meet these standards, some 

firms will have to modify their equipment and institute leak detection and repair procedures. 

These changes result in higher costs of production for the affected producers. They may also 

have broader societal implications because these effects are transmitted through market 

relationships to their customers. This report profiles the affected industries and analyzes the 

economic impacts expected to be incurred as a result ofthe NESHAP. 

1.1 Profile of the Affected Industries 

The organic liquids distribution (OLD) source category consists of all the source 

category operations that receive, store, and distribute organic liquids (other than gasoline) 

throughout the economy. To provide data on the affected industry, EPA collected survey 

information from OLD facilities. In this report, these survey data are scaled up to reflect the 

entire affected universe of facilities. EPA estimates that 649 facilities will be affected by the 

NESHAP. Table 1-1 shows a frequency distribution of facilities by North American Industry 

Classification System (NAICS) code. Facilities affected may either produce, consume, store, 

and distribute regulated organic liquids, or only store and distribute them. The four major 

industries affected by the NESHAP are chemical manufacturing, petroleum refining, crude 

oil and natural gas pipeline transportation1, and liquid terminalling and warehousing. The 

liquids being distributed fall into two broad categories: 

'Natural gas pipeline distribution is not affected by this proposed rule. 

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NAICS Code 

325 

32411 

493 

48611 

422,454 

Total 

Description 

Industrial Organic Chemical Production 

Petroleum Refineries 

Liquid Terminals 

Crude Petroleum Pipelines 

Petroleum and Chemical Terminals 

Table 1-1. Number of Facilities Affected by OLD NESHAP, by NAICS Code 

Number of Affected 

Facilities 

370 

110 

94 

35 

40 

649 

• organic chemicals, including synthetic chemicals and petrochemicals, and 

• petroleum liquids, including crude oil, natural gas liquids, and nongasoline refined 

products. 

In NAICS 324 and 325, the majority of facilities employ more than 500 people. 

Within the other NAICS codes, however, many facilities employ 25 or fewer people. Thirty 

percent of affected organic chemical producers (NAICS 325) and 31 percent of facilities in 

the other industry groups are located in Texas. Other states with substantial numbers of 

facilities include Louisiana, Alaska, Ohio, Illinois, and California. Firms owning OLD 

facilities range from small single-facility specialized distributors to large integrated 

companies that own numerous production and distribution facilities. Of an estimated 208 

(scaled) affected companies owning OLD facilities, only 28 are considered small according to 

Small Business Administration (SBA) criteria. Of OLD firms in NAICS 325, most have 

baseline company sales exceeding $1 billion, and baseline employment exceeding 10,000 

employees. Among firms owning petroleum OLD facilities, however, baseline sales vary 

more widely. Approximately 20 percent have sales less than $50 million, while more uian 65 

percent have sales exceeding $1 billion. Many firms in the affected industries are highly 

integrated, both vertically and horizontally. This means they may own numerous affected 

facilities, and that their distribution facilities are an integral part of their overall organic 

liquid operations. For this reason, we have paid special attention in our analysis to the 

impacts on the companies owning the OLD facilities. In these integrated firms, EPA expects 

that many ofthe distribution-only facilities in NAICS 422,454,486, and 493 are not profit 

centers for the firms that own them, but instead provide a service to other facilities owned by 

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the firm, and operate as a cost center for the firm. Thus, the impacts ofthe regulation will be 

evaluated in terms of its overall impact on the firm's profitability, in addition to examining 

the impact on the profitability of individual facilities. For merchant firms, however, that own 

only distribution facilities, EPA expects that the impact ofthe regulation will be evaluated in 

terms of its effect on facility profitability. 

1.2 The Costs of the OLD NESHAP 

The OLD rulemaking will increase the costs of distributing organic liquids. 

Specifically, the costs of several general types of businesses are expected to increase. These 

businesses include facilities that manufacture and distribute organic chemicals and/or 

nongasoline petroleum products and facilities that specialize in the distribution of these 

products. Ofthe latter facilities, some are owned by companies that also manufacture the 

products, while others are independent businesses that only distribute the products. Table 1-2 

shows the estimated costs for model plants. The costs are shown in greater detail in Section 

3, and their allocation to actual plants is discussed in Appendix B. 

Table 1-2. Per-Facility and Nationwide Control Costs by Model Plant (1997$/yr) 

Model 

Plant 

28-1 

28-2 

28-3 

29-1 

29-2 

29-3 

42-1 

42-2 

42-3 

46-1 

46-2 

51-1 

51-2 

Number of 

Facilities 

195 

105 

70 

54 

30 

27 

25 

31 

38 

26 

35 

24 

17 

Total Annual Cost per 

Facility (range) 

16,300-120,112 

15,700-116,818 

15,700-156,599 

47,500-58,268 

15,700-78,378 

15,700-93,094 

16,400-147,331 

16,400-185,425 

16,400-379,224 

13,300-164,200 

13,300-149,700 

16,400-142,668 

16,400-136,414 

Total Capital Cost 

for all Facilities 

11,671,136 

13,425,086 

23,433,641 

1,584,390 

1,799,840 

2,445,528 

3,068,008 

6,650,062 

22,147,029 

3,791,900 

1,470,561 

1,686,556 

1,247,732 

Total Annual Cost 

for all Facilities 

9,510,196 

4,969,124 

6,013,919 

1,951,671 

1,283,044 

1,302,902 

1,789,052 

2,738,045 

7,093,774 

1,507,335 

601,458 

1,568,183 

1,047,192 

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1.3 Estimated Economic Impacts of the OLD NESHAP 

Section 4 presents the economic impact analysis methods and results. EPA developed 

a multi-market partial equilibrium simulation model in which buyers and sellers exert no 

individual influence on market prices of two aggregated commodities potentially affected by 

the rule—petroleum and chemical products—and the market for distribution services. Prices 

in these markets are set by the collective actions of producers and consumers, who take the 

market price as a given in making their production and consumption choices. Figure 4-1 

illustrates this market in which prices and quantities are determined by the intersection of 

market supply and demand curves. The baseline consists of a market price and quantity (P, 

Q).that is determined by the downward-sloping market demand curve (D,) and the 

upward-sloping market supply curve (S,). 

With the regulation, the costs of production increase for organic liquid suppliers 

because they incur additional costs associated with the proposed rule. Incorporating these 

regulatory control costs is represented by an upward shift (from S, to S2) ofthe aggregate 

supply curve by the per-unit compliance cost. 

At the new equilibrium with the regulation, the market price increases from P, to P2 

and market output (as determined from the market demand curve, D) declines from q, to q^. 

This illustrates the theory underlying estimation ofthe economic impacts ofthe rule. Note 

that EPA is modeling the impacts ofthe rule on facilities and companies that both produce 

and distribute organic liquids by examining the changes in market prices and quantities for 

the liquids being distributed. For integrated organic liquid producers, distribution operations 

are a cost center, not a profit center. The distribution operations are an essential part ofthe 

process of providing the delivered Uquids to customers, but are not required to be profitable if 

they are to continue. Instead, the companies examine the impact ofthe proposed rule on the 

overall profitability of their chemical or petroleum product operations. In the merchant 

distribution sector, however, distribution facilities are assumed to operate as profit centers; 

that is, they continue to operate only if they are profitable. 

1.3.1 Market Responses to the NESHAP 

The theory presented above suggests that producers attempt to mitigate the impacts of 

higher-cost production by shifting the burden on to other economic agents to the extent the 

market conditions allow. We would expect the model to project upward pressure on prices as 

producers reduce output rates in response to higher costs. Higher prices reduce quantity 

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demanded and output for each product, leading to changes in economic surplus to consumers 

and profitability of firms. These market adjustments determine the social costs ofthe 

regulation and its distribution across stakeholders (producers and consumers). 

1.3.1.1 Market- and Industry-Level Impacts 

The increased cost of production due to the regulation is expected to slightly increase 

the price of petroleum and chemical products and reduce their production/consumption from 

baseline levels. As shown in Table 1-3, the regulatory alternative is projected to increase 

prices by less than 0.1 percent. Domestic production of petroleum products declines by 0.06 

million metric tons and domestic chemical production declines by 0.04 million metric tons. 

Supply from foreign producers (imports) increases by 0.02 million metric tons in the 

petroleum market and 0.002 million metric tons in the chemical market, resulting in a net 

decline of 0.04 and 0.05 million metric tons respectively (less than 0.02 percent). Supply 

from merchant distributors declines by approximately 0.02 million metric tons, less than 0.01 

percent. 

Table 1-3. Market-Level Industry Impacts ofthe Proposed OLD NESHAP (1997$) 

Petroleum Products 

Price ($/Mt) 

Quantity (106Mt/yr) 

Domestic 

Foreign 

Organic Chemical Products 

Price ($/Mt) 

Quantity (10* Mt/yr) 

Domestic 

Foreign 

Merchant Distributors 

Price ($/Mt) 

Quantity (10* Mt/yr) 

Absolute Change 

0.01 

-0.04 

-0.06 

0.02 

0.05 

-0.03 

-0.04 

0.01 

0.04 

-0.02 

Percent Change 

0.002% 

-0.001% 

-0.002% 

0.002% 

0.030% 

-0.045% 

-0.053% 

0.045% 

0.36% 

-0.00% 

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Revenue, costs, and profitability ofthe directly affected industry also change as prices 

and production levels adjust to increased costs associated with compliance. For domestic 

petroleum producers, operating profits are projected to decline by $8.7 million (see Table 

4-2). For domestic chemical producers, operating profits are projected to decline by $11.4 

million. Operating profits earned by merchant distributors are projected to increase by $0.3 

million. 

1.3.1.2 Facility-Level Impact Results 

EPA estimated quantity adjustments by affected OLD facilities, in response to the 

costs of compliance with the proposed rule. EPA defined closure of an OLD operation when 

an OLD facility is projected to reduce their quantity distributed by the entire amount of their 

baseline distribution. No facilities are projected to close their OLD operations in response to 

the proposed rule. 

1.3.1.3 Company-Level Impacts Results 

For the company level analysis, EPA computed the change in profits associated with 

the regulation to baseline company profits. A company may become unprofitable if the 

predicted change in OLD facility profits eliminates total baseline profits of the firm (i.e. ratio 

= 100 percent). For companies incurring both control and monitoring, recordkeeping and 

recording (MRR) costs, profit changes range from +0.1 percent to -32.5 percent. For the 

median company, profits decrease by approximately less than 1.0 percent. No firms are 

projected to become unprofitable as a result ofthe regulation. For companies incurring MRR 

costs only, profit changes range from +0.2 to -7.3 percent. For the median company, profits 

decrease by less than 0.3 percent. None of these firms are projected to become unprofitable 

as a result ofthe regulation. The analysis also shows that impacts for companies within 

model plant 42, owners of bulk liquid terminals, are relatively higher compared to other 

industry groups. 

EPA also performed a screening analysis to assess the impacts ofthe OLD NESHAP 

on small businesses. The results of this screening analysis are shown in Section 5. EPA 

examined the ratio of compliance costs to baseline company revenues, without incorporating 

market adjustments to the proposed rule. Seven ofthe companies owning facilities 

responding to the OLD questionnaire are small businesses. Scaling these up statistically to 

correspond to the universe of companies owning OLD facilities, EPA estimated that a total of 

28 small companies own OLD facilities. Ofthe estimated 28 small firms, only two are 

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projected to incur costs exceeding one percent of their baseline revenues, and none are 

projected to incur costs exceeding three percent of baseline revenues. Given the relatively 

low costs and the small number of small companies incurring them, EPA finds that 

significant economic impacts will not be incurred by a substantial number of small 

businesses. 

1.3.1.4 Social Costs 

The value of a regulatory action is traditionally measured by the change in economic 

welfare that it generates. The regulation's welfare impacts, or the social costs required to 

achieve environmental improvements, will extend to consumers (customers) and producers 

alike. Consumers experience welfare impacts due to changes in market prices and 

consumption levels associated with the rule. Producers experience welfare impacts resulting 

from changes in profits corresponding with the changes in production levels and market 

prices. However, it is important to emphasize that this measure does not include benefits that 

occur outside the market, that is, the value of reduced levels of air pollution with the 

regulation. 

The economic analysis accounts for behavioral responses by producers and consumers 

to the regulation (i.e., shifting costs to other economic agents). This approach provides 

insights on how the regulatory burden is distributed across stakeholders. As shown in Table 

4-4, the economic model estimates total social cost ofthe rule of $40.7 million (1997$). As a 

result of higher prices and lower consumption levels, consumers (domestic and foreign) are 

projected to lose $23.8 million, with petroleum consumers accounting for more than 50 

percent ofthe total. Domestic producers lose $16.9 million in profits, with chemical 

producers accounting for 58 percent ofthe total. Foreign producers unambiguously gain as a 

result ofthe regulation, with profits increasing by 3.0 million. Foreign producers benefit 

from higher prices while not incurring control costs associated with the proposed rule. 

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SECTION 2 

INDUSTRY PROFILE 

The OLD NESHAP potentially affects companies and facilities that distribute 

petrochemicals and petroleum liquids. Industries that will be affected by this NESHAP 

include chemical manufacturers, petroleum refiners, liquid terminals, and pipeline owners 

and operators (organic liquids other than gasoline). Information on the affected facilities, 

companies, and industries is necessary in determining the effects of a regulation. This profile 

describes the supply and demand of petrochemicals and petroleum liquids, the facilities and 

companies that operate within affected industries, and the market conditions in those 

industries. 

Section 2.1 provides a brief description ofthe entire OLD source category. Sections 

2.2 and 2.3 focus on the two primary facility categories—chemical liquids and petroleum 

liquids, which are briefly described in Section 2.1. Sections 2.2 and 2.3 are both organized as 

follows: background, production overview, industry organization, characterization of uses 

and consumers, and market information. Facilities that may distribute either chemicals or 

petroleum products are discussed in Section 2.3 only, for convenience. 

2.1 Brief Description of Source Category 

The organic liquids distribution (OLD) source category consists of all ofthe source 

category operations that receive, store, and distribute organic liquids throughout the 

economy. For the purposes of this MACT standard, only those organic liquids with 

appreciable hazardous air pollutant (HAP) content (beyond trace quantities) are considered to 

be "organic liquids." These liquids may consist of pure HAP chemicals (single HAP) or 

chemical blends, refined petroleum products, natural gas liquids, or crude oil. They also may 

consist of "appreciable" organic HAPs blended with inorganic, non-HAP liquids (such as 

water). 

OLD operations are carried out by a large number of industries. "Plant sites 

performing OLD activities include those that produce, consume, or merely store and 

distribute organic liquids. The four principal industries with the greatest volumes of OLD 

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operations are chemical manufacturing, petroleum refining, crude oil and natural gas liquids 

pipeline transportation, and liquid terminalling and warehousing" (TSD, 2000). 

Distributed organic liquids of concern in this profile fall under two broad categories: 

• chemicals, including synthetic chemicals and petrochemicals (i.e., chemicals 

manufactured from crude petroleum); and 

• petroleum liquids, including crude oil, natural gas liquids, and nongasoline refined 

products. 

Gasoline, which is subject to the gasoline distribution NESHAP, is not covered by the OLD 

source category. Sections 2.2 and 2.3 2 provides a more detailed description ofthe liquids 

covered by this regulation. 

For the purposes of this regulation, distribution includes the bulk transfer of an 

organic liquid across a plant site boundary, either into or out ofthe plant site (TSD, 2000). 

Also covered under this definition are the storage of OLD liquids after receipt and before 

distribution. Not included in the OLD source category are the following activities: the 

movement of packaged liquids (e.g., drummed or canned liquids); any production, 

compounding, blending, or packaging activities at OLD facilities; and the transportation of 

OLD liquids for activities other than loading and unloading. 

The OLD activities described above take place at sites that serve as distribution points 

from which organic liquids can be obtained for further use and processing. Distribution 

activities are either collocated with liquid production operations, or they are carried out at 

stand-alone storage and distribution terminals. Although the MACT standards developed 

under this regulation will apply to any facility that receives, stores, and/or distributes 

nongasoline liquids with HAP content, this profile focuses on five categories of OLD 

facilities for which model plants were developed: 

chemical production, 

petroleum refineries, 

liquid terminals 

crude oil pipeline pumping/breakout stations, and 

petroleum terminals. 

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These categories were identified from EPA's April 1998 source category survey as 

accounting for the majority of OLD HAP emissions (Gale Business Resources, 1999a,b,c). 

2.1.1 Current Economic Conditions and Trends 

OLD distribution points will incur the costs of this regulation; therefore, this profile 

examines the current condition ofthe OLD source category as it relates to distribution 

activities. This section briefly describes recent trends in each ofthe five principal, OLD 

facility categories.1 

2.1.1.1 Chemical Production 

Recent trends in the chemical manufacturing industry include increased capital 

spending and declining employment. In an effort to save money and increase efficiency, 

many ofthe activities associated with repackaging, blending, reformulating, bar-coding, 

testing, and quality assurance have been outsourced. That is, contracted out to third-party 

operators. This trend has been growing in the chemical manufacturing business. With more 

of this work being outsourced, manufacturers' costs are decreasing {Distribution, 1996). 

2.1.1.2 Petroleum Refineries 

Over the past two decades, oil companies have been closing refineries that are no 

longer profitable. To avoid expensive environmental cleanup costs, companies have started 

to convert the refineries' storage tanks and to operate them as storage and distribution 

centers. However, in recent years, a stable supply market for crude oil has led to a reduction 

in oil inventories, creating excess storage space at refineries. Refineries have responded to 

this situation by leasing out this excess space to third parties. With continued merger and 

cost-cutting activities in the source category, it is conceivable that more excess space will be 

created in the future and more refineries will continue to lease increasing amounts of storage 

space at their installations. 

'This discussion is largely based on the November, 2000 report, Technical Support Document for the Organic 

Liquid Distribution (Non-Gasoline) Industry, published by U.S. EPA's Office of Air Quality Planning and 

Standards, Emission Standards Division. 

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2.1.1.3 Liquid and Petroleum Terminals 

The bulk liquid terminalling industry is undergoing changes as the major 

manufacturers of organic liquids and chemicals are restructuring their industries to meet 

present and future demands. Terminals face a dual challenge in the future. One challenge is 

increasing regulatory demands that are raising the cost of operation for refineries, chemical 

plants, and terminals. In addition, excess storage capacity at petroleum refineries and newly 

created storage capacity at smaller chemical distributors have started to directly compete with 

the larger bulk terminals. Major consolidations within the chemical industry have also 

affected the bulk terminalling industry. Major chemical companies have begun to 

consolidate their storage requirements by contracting out storage to outside firms that operate 

single-party terminals, rather than spreading their operations across many terminals. 

2.1.1.4 Crude Oil Pipeline Pumping and Breakout Stations 

The Federal Energy Regulatory Commission (FERC) regulates interstate pipeline 

companies. Similar to some ofthe other categories, these pipeline companies are 

experiencing difficult times as well. In 1997 earnings from operations were down, following 

a 2-year trend. The effects of warmer-than-normal weather during 1997 in North America 

also caused oil deliveries to decrease. This decrease affected both operating revenues and net 

income for pipeline companies (Oil & Gas Journal, 1998). 

2.1.2 Environmental Concerns 

EPA has identified four emission sources that account for the majority of HAP 

emissions from OLD activities:2 

• storage tanks, 

• liquid transfer activities involving tank trucks and railcars (loading racks), and 

• leaks from equipment components (e.g., pumps, valves). 

2Originally, wastewater and semi-aqueous waste were also believed to be sources of HAP emissions for the 

OLD source category. However, responses to the OLD survey indicated that insufficient information is 

available to determine nonzero MACT floors for wastewater. In addition, the survey indicated that semiaqueous waste generated from OLD operations is generally kept in closed containers once it is collected. 

The handling of these wastes, at both chemical facilities and refineries, is already covered under the 

Resource Conservation and Recovery Act (RCRA). Consequently, emission sources associated with 

wastewater and semi-aqueous waste are excluded from this analysis. 

2-4 

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P.21 

Table 2-1 shows the nationwide HAP totals for each industry resulting from the different 

emission sources. Storage tanks emit 63,315 tons/yr of HAPs, accounting for approximately 

70 percent ofthe total OLD source category. Equipment leaks are the next greatest source of 

HAP emissions, representing almost 19 percent ofthe source category total. 

Table 2-1. Nationwide HAP Totals from OLD Activities (tons/yr)a 

No. of Major 

Source 

i Storage Loading Container Equipment 

Filling Leaks Totals 

Industry 

Segment 

Chemical 

production 

Petroleum 

refinery 

Liquid terminals 

Crude oil 

pipelines 

Petroleum 

terminals 

Facilities 

Nationwideb 

370 

111° 

94 

35 

41c 

Storage 

Tanks 

38,785 

4,365 

17,990 

440 

1,735 

Loadinj 

Racks 

4,660 

2,100 

2,890 

a 

260 

48 

Total 651c 63,315 9,910 51 

10,030 53,520 

1,460 7,930 . 

5,015 25,900 

45 490 

965 2,960 

17,515 90,800 

a

 There are no transfer rack or container filling emissions at pipeline facilities. 

b

 Estimated number of facilities based on industry data and previous NESHAP reports, as described in the 

technical support document. Only 239 facilities returned surveys on their OLD activities. Emissions data for 

the nonresponding facilities were estimated to develop the estimate of nationwide impacts. 

c

 EPA has recently determined that two facilities, one petroleum refinery and one petroleum terminal, are 

exempt due to their very small throughput. Thus there are a total of 649 affected facilities, including 110 

petroleum refineries and 40 petroleum terminals. 

Source: U.S. Environmental Protection Agency (EPA). 2000. Technical Support Document for the Organic 

Liquids Distribution (Nongasoline) Industry. Washington, DC: U.S. Environmental Protection 

Agency, Office of Air Quality Planning and Standards, Emission Standards Division. 

Table 2-2 lists all ofthe facility categories as well as the modes of transportation 

employed and the emission sources covered by the OLD source category. 

2-5 

P ^ 
Table 2-2. Summary of Facility Categories, Liquids, Modes of Transportation, and 

Emissions Sources Covered by the OLD Source Category 

Facility Category 

Chemical production 

Petroleum refineries 

Liquid terminals 

Crude oil pipelines 

Petroleum terminals 

Liquids Handled 

Synthetic chemicals 

Petrochemicals 

Crude oil 

Natural gas liquids, 

(NGLs) 

Nongasoline refined 

products 

Synthetic chemicals 

Petrochemicals 

Crude oil 

Nongasoline refined 

products 

Crude oil 

Crude oil 

NGLs 

Nongasoline refined 

products 

Mode of Liquid 

Transportation 

Tank truck 

Tank car (railroad) 

Sometimes pipelines 

Pipelines 

Tankers 

Barges 

Tank car 

Tank truck 

Tank car 

Tank truck 

Pipelines 

Tankers 

Barges 

Tank car 

Tank truck 

Emission Sources 

Storage tanks 

Liquid transfer 

Container filling 

Equipment leaks 

Storage tanks 

Liquid transfer 

Container filling 

Equipment leaks 

Storage tanks 

Liquid transfer 

Container filling 

Equipment leaks 

Storage tanks 

Equipment leaks 

Sources: Various background documents. 

Gale Business Resources. 1999b. "Pipelines, Crude Petroleum." 

American Petroleum Institute. August 1998. Heating Oil in the United States. 

2-6 

P3 
2.2 Distribution of Organic Chemical Liquids 

Organic chemical liquids include synthetic chemicals and petrochemicals (chemicals 

manufactured from crude petroleum). Synthetic organic chemicals cover a wide range of 

intermediate products, including inputs to the manufacture of synthetic resins, plastics 

materials, and nonvulcanized elastomers, as well as cyclic organic intermediates and 

dyes/pigments, and aliphatic and acrylic chemicals and solvents. 

Petrochemicals are intermediate products resulting from the refinery process. 

Petrochemical feedstocks include naphtha, a liquid obtained from refining crude oil, as well 

as products recovered from natural gas and refinery gases (ethane, propane, and butane). 

Other feedstocks include ethylene; propylene; normal- and iso-butylenes; butadiene; and 

aromatics such as benzene, toluene, and xylene. The volume of petroleum liquids available 

to the petrochemical industry depends primarily on the following three factors: crude 

petroleum input to refineries, refinery process configuration and operating conditions, and the 

demands and prices for naptha and gas oil in their primary fuel markets (DOE, EIA, 1999e). 

Synthetic chemicals are associated with the OLD source category when they are 

distributed from synthetic organic chemical manufacturing industry (SOCMI) facilities to 

liquid terminals. These chemicals are typically transported by means of tank truck or tank 

car. 

Petrochemical feedstocks travel by various modes throughout their product life. The 

distribution components associated with the OLD source category are the shipments of 

feedstocks from refineries to liquid terminals and SOCMI facilities. Most often, 

petrochemicals travel by means of tank truck or tank car; however, some SOCMI facilities 

have pipelines by which their products are distributed. 

Synthetic organic chemical and petrochemical distribution facilities are most likely to 

be classified under the three SIC codes listed in Table 2-3. The table includes the North 

American Industry Classification System (NAICS) codes that correspond to the affected SICcoded industries. 

2.2.1 Overview of Distribution Service 

OLD distribution is a service that is part ofthe production process for organic liquids. 

After a refining process, petrochemicals might be distributed to chemical production plants 

for processing into synthetic chemicals, or they might be transported to an independent liquid 

terminal for storage before further processing. In addition, independent liquid terminals may 

2-7 

7>H 
P.24 

also receive processed synthetic chemicals for storage. Liquids stored at independent liquid 

terminals might be transported to chemical production plants or refineries for further 

processing, they might be sent to a blending/packaging/distribution facility, or they might be 

distributed to end users (TSD, 2000). 

2.2.1.1 Elasticity of Supply 

The supply elasticity for synthetic organic chemicals and petrochemicals depends on 

the ability and willingness of firms to scale up production in the face of higher 

demand.percentage change in quantity supplied. At a given point in time, firms can be 

2-8 

2^ 
P.25 

Table 2-3. Principal OLD Facility Categories 

SIC 

Code SIC Description 

Chemical Production (118 survey responses) 

2821 

2865 

Plastics Materials, Synthetic and 

Resins, and Nonvulcanizable 

Elastomers 

Cyclic Organic Crudes and 

Intermediates, and Organic Dyes 

and Pigments 

NAICS 

Codes 

325211 

325192 

32511 

325132 

NAICS Description 

Plastics Material and Resin 

Manufacturing 

Cyclic Crude and Pigment 

Manufacturing 

Petrochemical Manufacturing8 

Synthetic Organic Dye and 

2869 Industrial Organic Chemicals, NEC 325188 

32511 

325193 

32512 

325199 

Pigment Manufacturing 

All Other Basic Inorganic 

Chemical Manufacturing8 

Petrochemical Manufacturing8 

Ethyl Alcohol Manufacturing 

Industrial Gas Manufacturing 

All Other Basic Organic Chemical 

Manufacturing8 

' Only part ofthe NAICS industry is made up of facilities from the corresponding SIC-coded industry. 

Source: U.S. Census Bureau. March 2000a. "1987 SIC Matched to 1997 NAICS." 

<http://www.census.gov/epcd/naics/NSIC3B.HTML>. As obtained on March 13,2000. 

expected to supply an approximately profit-maximizing quantity, given their available 

technology. For a given increase in the price of chemicals, the increase in quantity supplied 

will be greater when the producers of that chemical have excess capacity and when new 

production lines for the chemical are easy and inexpensive to establish. In this analysis, EPA 

aggregates all organic chemical liquids into a single market, and incorporates supply 

elasticities estimated for other analyses. The elasticity of supply for the organic chemicals 

market is assumed to be 1.5 (organic chemicals producers will distribute 1.5 percent more 

organic liquids for each 1 percent increase in price). 

2-9 

P£? 
P.26 

2.2.2 Industry Organization 

This subsection describes the organization ofthe segments ofthe chemical industry 

most likely to be affected by the NESHAP regulation and provides specific information on 

affected OLD facilities and firms when such information is available. The section begins 

with a discussion of market structure, followed by information on facilities that distribute 

organic chemicals and the firms that own them. 

The structure ofthe affected market(s) is an important factor in estimating the 

potential impacts from a regulation. For example, in a competitive market where each 

producer has little market power, it would be difficult for an affected firm to pass on 

compliance costs to its consumers. On the other hand, in an industry with very few producers 

or where the products are highly differentiated, it may be possible for affected firms to 

recover part or all ofthe compliance costs through price increases. The most important 

factors determining the competitive structure of an industry are the number of producers, the 

degree of product differentiation, and the presence of barriers to entry. The remainder of this 

subsection provides a brief explanation of these factors and discusses the competitive 

structure ofthe OLD markets in terms of each factor (CMA, 1995a,b). 

Thirty-one companies produce and distribute organic chemical liquids. These 

companies include many large integrated chemical companies. Only one OLD company that 

distributes organic chemicals is classified as a small company. Product differentiation is a 

form of nonprice competition used by firms to establish market power in a specific product 

market. Product differentiation may result from unique product characteristics or from brand 

recognition. In general, a company that sells a product with valued characteristics that no or 

few other products possess will have more market power than a company that sells a product 

that has no distinguishable characteristics from other products in the same market. Similarly, 

market power is created if customers place a higher value on a product produced by a specific 

company, or brand, even though the product characteristics are identical to the products 

produced by other companies. The products of concern to the OLD source category are 

characterized by a high degree of homogeneity. Thus, brand loyalty is not expected to be an 

important factor in the organic chemicals market (CMA, 1995a,b; Arnold, 1989; Gale, 1999a; 

DOE, EIA, 1999e). 

The number of producers and the market shares ofthe largest firms are important 

determinants ofthe degree of market power individual firms may have. The term 

"concentration" refers to the combined percentage of total output accounted for by the largest 

2-10 

?7 
P.27 

producers in the industry. For example, the four-firm concentration ratio (CR4) refers to the 

market share ofthe four largest firms. The higher the concentration ratio, the more 

concentrated the industry. A market is generally considered highly concentrated if the CR4 is 

greater than 50 percent. The Herfindahl-Hirschmann index (HHI) is an alternative measure 

of concentration. It is equal to the sum ofthe squares ofthe market shares for the largest 50 

firms in the industry. The higher the index, the fewer the number of firms supplying the 

industry and the more concentrated the industry is at the top. The Justice Department uses 

the HHI for antitrust enforcement purposes. The benchmark used by the Justice Department 

is 1,000, where any industry with an HHI less than 1,000 is considered to be unconcentrated. 

The advantage ofthe HHI over the concentration ratio is that the former gives information 

about the dispersion of market share among all the firms in the industry, not just the largest 

firms (Arnold, 1989). 

In general, an industry with a large number of firms and a small concentration will be 

relatively more competitive than an industry with few firms and a high concentration. Firms 

that operate in a more competitive market will be relatively more affected by new regulations 

because they are less likely to be able to pass on compliance costs. 

Table 2-4 shows concentration ratios by SIC code for the affected OLD industries 

from the 1992 Economic Census. Industry concentration information is not yet available for 

the 1997 Economic Census. Ratios are included for the census years 1987 and 1992 (where 

possible). For some SIC codes, data are available for only 1992. The numbers in Table 2-5 

show that, by and large, the OLD industries are characterized by a large number of firms and 

generally unconcentrated markets, indicating a high degree of competitiveness in their 

respective product markets. 

The chemical industry is undergoing a trend of mergers, acquisitions, and general 

industry consolidation. According to an analysis by Speed (1999), "the market will 

[comprise] fewer but larger companies, global in scope, and more focused in their business 

pursuits." 

Barriers to entry are the mechanisms through which the total number of firms in an 

industry can be kept small and a high degree of market concentration can exist. Where 

barriers to entry are present, new firms find it impossible or unprofitable to enter the market. 

Barriers to entry therefore create market power for the firms that already operate in the 

2-11 
P.28 

Table 2-4. Concentration Ratios by SIC Code" 

SIC 

Code 

Total 

Number ol 

Year Firms 4 Firm 

Chemical Production 

2821: 

2865: 

2869: 

Concentration Ratio 

8 Firm 20 Firm 50 Firm 

Plastics Materials, Synthetic Resins, and Nonvulcanizable Elastomers 

1987 288 20% 

1992 240 24% 

33% 

39% 

Cyclic Organic Crudes and Intermediates, Organic 

1987 131 34% 

1992 150 31% 

Industrial Organic Chemicals, NEC 

1987 491 31% 

1992 489 29% 

50% 

45% 

48% 

43% 

61% 

63% 

89% 

90% 

Dyes and Pigments 

77% 

72% 

68% 

67% 

96% 

94% 

86% 

86% 

HerfindahlHirschmann 

Index 

248 

284 

542 

428 

376 

336 

8

 Industry concentration information is not yet available for the 1997 Economic Census. 

Source: U.S. Department of Commerce, Bureau ofthe Census. 1992. Economic Census. Washington, DC: 

Government Printing Office, <http://www.census.gov/epcd/www/92result.html>. 

market. Typically, barriers to entry exist when industries are capital intensive, are 

characterized by significant economies of scale, require specialized knowledge (e.g., patents), 

or are subject to government regulation (Speed, 1999). While relatively capital-intensive, 

chemical production in general is not extremely specialized. Thus, the Agency believes the 

barriers to entry are moderate. 

2.2.2.1 Facilities 

Table 2-5 presents an overview ofthe total number of facilities for each OLD NAICS 

code, the total number of firms potentially affected by the OLD source category, and the 

percentage ofthe source category potentially affected. 

2-12 

&4 
P.29 

Table 2-5. Number of Total OLD Facilities and Affected Facilities, 1997 

NAICS 

Code NAICS Description 

Total Number 

of Facilities8 

Total Number 

of Affected 

Facilities'" 

% ofSource 

Category that 

is Affected 

Chemical Production 

325110 Petrochemical Mfg 54 

325132 Synthetic Organic Dyes and 112 

Pigments 

325192 Cyclic Organic Crudes and 50 

Intermediates 

370 25.3% 

325193 

325199 

325211 

Ethyl Alcohol Mfg 

All Other Basic Organic 

Chemical Mfg 

Plastics Materials, Synthetic 

and Resins, and 

Nonvulcanizable Elastomers 

38 

676 

532 

U.S. Census Bureau. August 1999. "Cyclic Crude and Intermediate Manufacturing." 1997 Economic 

Census, Manufacturing—Industry Series, E97M-3251I, Washington, DC: Government Printing Office. 

U.S. Environmental Protection Agency (EPA). November 2000. Technical Support Document for the 

Organic Liquids Distribution (nongasoline) Industry. Washington, DC: U.S. Environmental Protection 

Agency, Office of Air Quality Planning and Standards, Emission Standards Division. 

b 

Sources: U.S. Census Bureau. August 1999a. "All Other Basic Inorganic Chemical Manufacturing." 1997 

Economic Census, Manufacturing—Industry Series, E97M-3251I, Washington, DC: Government 

Printing Office. 

U.S. Census Bureau. August 1999b. "All Other Basic Organic Chemical Manufacturing." 1997 

Economic Census, Manufacturing—Industry Series, E97M-3251I, Washington, DC: Government 

Printing Office. 

U.S. Census Bureau. August 1999c. "Ethyl Alcohol Manufacturing." 1997 Economic Census, 

Manufacturing—Industry Series, E97M-3251I, Washington, DC: Government Printing Office. 

U.S. Census Bureau. August 1999d. "Industrial Gas Manufacturing." 1997 Economic Census, 

Manufacturing—Industry Series, E97M-3251I, Washington, DC: Government Printing Office. 

U.S. Census Bureau. August 1999e. "Petrochemical Manufacturing." 1997 Economic Census, 

Manufacturing—Industry Series, E97M-3251I, Washington, DC: Government Printing Office. 

U.S. Census Bureau. August 1999g. "Plastics Material and Resin Manufacturing." 1997 Economic 

Census, Manufacturing—Industry Series, E97M-32511, Washington, DC: Government Printing 

Office. 

U.S. Census Bureau. August 1999h. "Synthetic Organic Dye and Pigment Manufacturing." 1997 

Economic Census, Manufacturing—Industry Series, E97M-3251I, Washington, DC: Government 

Printing Office. 

2-13 

3o 
Although EPA received surveys from only about 32 percent (117 out of 370)3

 ofthe 

universe of organic liquids distributors in the chemical industry, an examination ofthe data 

provided in the surveys does illustrate general characteristics of those facilities. The figures 

and tables in this section include facilities classified in NAICS codes 325211, in addition to 

the 117 facilities classified as part ofthe chemical industry. Facilities in NAICS code 

325211 use synthetic organic chemicals and petrochemicals as an input into their production 

of various plastic parts and products. The data presented here are for the 105 facilities (out of 

121) who did not request that their surveys be considered classified information. 

Figure 2-1 shows the distribution of 105 organic chemical liquids distribution 

facilities across 26 states. Twenty-nine percent of organic chemical liquids distribution 

facilities are located in Texas, 9 percent are located in Louisiana, and 8 percent are located in 

Ohio. 

Capacity utilization at organic chemical facilities ranges from 80 to 81 percent. The 

OLD NESHAP is specifically concerned with the distribution of chemicals, rather than their 

production. However, a facility's ability to store and transfer chemicals is considered in the 

calculation of plant capacity, so the data below provide some indication of storage and 

transfer capacity. 

Figure 2-2 shows almost all organic chemical liquids distribution facilities employ 

more than 50 people and that more than 35 percent of those facilities employ at least 

500 hundred employees each. 

2.2.2.2 Firm Characteristics 

Although facilities are the physical unit regulated by the OLD source category, this 

regulation may also affect the firms that own the facilities. Firms are legal business entities 

that have the capacity to conduct business transactions and make business decisions that 

affect the facility. In this analysis, the terms firm and company are used synonymously. The 

chemical industry is heavily dominated by corporations, with few proprietorships or 

partnerships. 

3

 Some portions ofthe Technical Support Document (TSD) report that 118 facilities in SIC code 28 returned 

surveys. However, the report shows assigned model plant numbers for only 117 facilities in this SIC code. 

(One facility, numbered 30-Q, was listed in the TSD but is nonexistent in the database compiled from ICR 

survey responses. The TSD failed to report a model number for plant 32-E, which was in the database. 

Facility 30-Q was excluded from analysis and 32-E was included. 

2-14 
P.31 

Figure 2-1. Distribution of Organic Chemical Liquids Facilities that Responded to the 

ICR Survey 

2-15 

3

a 
P.32 

45% n 

40% 

| 35% 

il 30% 

° 25% 

j? 20% 

« 15% 

Q. 10% 

5% 

0% 

less than 25 25 to 50 50 to 100 100 to 250 250 to 500 

Employment Range 

over 500 

Figure 2-2. The Distribution of Organic Chemical Liquids Facilities that Responded to 

the ICR Survey by Employment 

Source: Nonclassified responses to the 1998 Industry Specific Information Collection Request for the 

Development of an Organic Liquids Distribution Maximum Achievable Control Technology. 

Firm size is important when analyzing the distribution ofthe regulation's financial 

impacts. Analysis of likely impacts on small entities is required under the Small Business 

Regulatory Flexibility Enforcement Act (SBREFA) and requires the categorization of firms 

as either small or large. The Small Business Administration (SBA) now publishes general 

size standard definitions for small entities by NAICS code.4 The size standards are defined 

either by employment or by annual firm revenue, depending on the NAICS code. 

The SBA size definitions for all chemical industries is defined in terms of number of 

employees. The size standard for these NAICS categories ranges from 750 to 1,000 

employees. As previously stated, only 117 facilities out of an estimated 370 that handle 

organic chemical liquids responded to the ICR survey. Those facilities are owned by 31 

different firms. Only one of those 31 firms is small according to the SBA small business 

standards. That one small firm owns two facilities that distribute organic liquids. If the 121 

facilities are an accurate sample ofthe actual facilities, we can conclude that only a very 

4As of October 1,2000, small business determinations are defined based on NAICS codes rather than SIC 

codes. 

2-16 

- > g 
P.33 

small share of all affected facilities are owned by small businesses. Figures 2-3 and 2-4 show 

the distribution of surveyed firms by firm size as measured by revenue and employment; 

respectively. The majority of affected firms took in more than $1 billion in revenues in 1998 

and employed more than 10,000 people. 

E 

u 

i l 

ra 

c 

ffl 

ffl 

Q. 

70% 

60% 

50% H 

40% 

30% 

20% 

10% 

0% 

Less than $5Mto$50 $50M to $500Mto $1Bto 

$5M $500M $1B $10B 

Company Sales 

$10Bto over$100B 

$100B 

Figure 2-3. The Size Distribution of Companies that own OLD Facilities that 

Responded to the ICR Survey and are Involved in Chemical Distribution, by 1998 Sales 

(in $1997) 

Sources: Dun & Bradstreet. 1999. Company Capsules. As available on EBSCO. 

General Business File International (formerly Business ASAP). 1999. Gale Group Collections. As 

obtained from InfoTrac Web. 

Hoover's Incorporated. 1999. Hoover's Company Profiles. Austin, TX: Hoover's Incorporated. 

<http://www.hoovers.com/>. 

Company websites. 

Company 10k reports. 

U.S. Environmental Protection Agency (EPA). November 2000. "Technical Support Document for 

the Organic Liquids Distribution (non-gasoline) Industry." Washington, DC: USEPA, Office of Air 

Quality Planning and Standards, Emission Standards Division. 

Vertical and horizontal integration are important determinants in analyzing a firm's 

potential for impacts. Both measures are concerned with the types of industries in which a 

firm operates. Vertical integration refers to the degree to which a firm operates facilities that 

are part ofthe same supply chain. For example, if the same firm owns facilities in the 

petroleum production, refining, and transportation industries, it would be considered 

2-17 

EX 
70% 

.

 60 % 

.b 50% 

u. 

o 40% 

<D 

j? 30% -| 

8 20% 

ffl 

°- 10% -

0% 

less than 

500 

500 to 1,000 1,000 to 

5,000 

5,000 to 

10,000 

10,000 to over 100,000 

100,000 

Number of Employees 

Figure 2-4. Size Distribution of Companies that own OLD Facilities that Responded to 

the ICR Survey and are Involved in Chemical Distribution 

Sources: Dun & Bradstreet. 1999. Company Capsules. As available on EBSCO. 

General Business File International (formerly Business ASAP). 1999. Gale Group Collections. As 

obtained from InfoTrac Web. 

Hoover's Incorporated. 1999. Hoover's Company Profiles. Austin, TX: Hoover's Incorporated. 

<http://www.hoovers.com/>. 

Company websites. 

Company 10k reports. 

U.S. Environmental Protection Agency (EPA). November 2000. "Technical Support Document for 

the Organic Liquids Distribution (non-gasoline) Industry." Washington, DC: USEPA, Office of Air 

Quality Planning and Standards, Emission Standards Division. 

vertically integrated. Vertical integration is potentially important in analyzing firm-level 

impacts because a regulation could affect a vertically integrated firm at more than one level. 

Horizontal integration refers to the scale of production in a single-product firm or its scope in 

a multiproduct one. A single-product firm is considered horizontally integrated if it owns 

more than one facility producing the same product, which may be an advantage to the firm's 

ability to absorb costs if not all ofthe facilities are subject to the regulation and if the firm 

can shift parts ofthe production to the unregulated facilities. A multiproduct firm is 

considered horizontally integrated if it owns facilities in several unrelated industries. Here, 

horizontal integration may improve a firm's ability to absorb compliance costs if only one or 

a few ofthe industries in which the firm operates are directly affected by the regulation. 

Firms producing and distributing organic chemical liquids are generally integrated both 

2-18 

^r 
horizontally and vertically, while firms only distributing organic chemicals are not highly 

integrated. 

The 31 firms that are known to own chemical facilities that will be affected by the 

OLD NESHAP have an average (median) profit margin of 5.4 (5.3) percent. Table 2-6 shows 

the average, median, minimum, and maximum profit margins of these 31 firms. Figure 2-5 

shows the distribution of profit margins among the firms. 

Table 2-6. Profit Margins of Firms that Responded to the ICR Survey and that own 

Organic Chemical Liquids Distribution Facilities 

Median 0.054088 

Average 0.052776 

Maximum -0.04093 

Minimum 0.11828 

Source: Nonclassified responses to the 1998 Industry Specific Information Collection Request for the 

Development of an Organic Liquids Distribution Maximum Achievable Control Technology. 

2.2.3 Uses and Consumers 

As with petroleum liquids, the demand for organic chemicals depends primarily on 

their end use. Organic chemicals, particularly petrochemicals, play an important role in 

society. Petrochemicals are usually an intermediate product that is converted into a variety of 

consumer and industrial products. Some ofthe end products include plastics, antifreeze, 

synthetic fibers, rubber, solvents, and detergents. Higher demand for these products 

translates into higher demand for their inputs (EPA, 1995). This section lists the major 

consumers of organic chemicals, the purposes of chemical consumption, and the factors 

affecting the elasticity of demand for chemicals. 

Nearly everyone is a consumer of chemicals in some way. Chemicals are used as 

inputs into the majority of manufacturing industries both domestically and internationally. 

As with petroleum products, the markets for end-use products drive the demand for 

individual chemicals. The major industrial consumers of chemicals in the United States are 

housing, motor vehicles, agriculture, tires, paper products, plastic products, textile mill 

products, apparel, and furniture and fixtures (Oil & Gas Journal, 1999). 

2-19 

36 
45% -] 

40% -

| 35% -

il 30% -

° 25% -

0 

8* 20% -

S 15% -

£ 10% J 

5% -

0% -

<0% 0%-3% 3%-5% 

Profit Margin 

5%-10% >10% 

Figure 2-5. Distribution of Companies Owning Organic Chemical Liquid Facilities that 

Responded to the ICR Survey, by Profit Margin 

Sources: Dun & Bradstreet. 1999. Company Capsules. As available on EBSCO. 

General Business File International (formerly Business ASAP). 1999. Gale Group Collections. As 

obtained from InfoTrac Web. 

Hoover's Incorporated. 1999. Hoover's Company Profiles. Austin, TX: Hoover's Incorporated. 

<http://www.hoovers.com/>. 

Company websites. 

Company 10k reports. 

U.S. Environmental Protection Agency (EPA). November 2000. Technical Support Document for 

the Organic Liquids Distribution (Non-gasoline) Industry. Washington, DC: US Environmental 

Protection Agency, Office of Air Quality Planning and Standards, Emission Standards Division. 

Dun & Bradstreet. 1997. Industry Norms & Key Business Ratios. Desk-Top Edition 1996-1997. 

2.2.3.1 Characterization of Demand—Derived Demand Elasticity 

As with petroleum products, the price elasticity of demand for chemicals depends on 

the availability of substitutes, either substitute products for the same use or alternative 

production processes that do not need this chemical. There are 65 HAPs covered; since the 

availability of substitutes varies among these chemicals, so will their demand elasticities. For 

this analysis, however, the Agency is employing an aggregated market model, using a 

demand elasticity estimated for another analysis ofthe chemical industry. This demand 

elasticity is -1.5, meaning that a one percent increase in the price of organic chemical liquids 

would decrease the quantity demanded by 1.5 percent. 

2-20 

37 
P.37 

2.2.4 Markets 

A recent study conducted by the Chemical Manufacturers Association (CMA) showed 

that U.S. shipments of chemicals and allied products for 1998 had increased by only 0.6 

percent compared to the previous year. Domestic demand was the main driver of this 

increase as exports declined 2.0 percent, the result ofthe Asia crisis and the high U.S. dollar. 

Shipments of industrial chemicals, however, fell by 6.9 percent. Imports rose 8.5 percent, 

which led to a reduction in the trade surplus from $19.1 billion (1997) to $13.4 billion 

(1998). Deficits occurred in organic chemicals, pharmaceuticals, and inorganic chemicals. 

The CMA projected the overall condition ofthe U.S. economy to remain favorable 

through the first half of 2000. The financial crisis in Asia has come to an end, and exports 

rebounded through June 2000. With continued expansion of the U.S. economy, overall 

growth in chemical and allied products production volume is expected to be 1.3 percent 

during 1999 (CMA, 1999; CMA, 2000). 

2.2.4.1 Market Volumes 

Market volumes for EPA's analysis were compiled from published reports of 

production, imports, and exports of all the chemicals produced or distributed by OLD 

facilities. (ChemExpo, 2000). Table 2-7 presents production, imports and exports in the 

aggregated organic chemical market, for chemicals affected by the OLD NESHAP. 

Table 2-7. Organic Chemical Market Volumes, 1997 (IO6 Mt) 

Domestic Supply 

191 

Imports 

11 

Total 

202 

Sources: EPA OLD Industry Questionnaire Database; ChemExpo. <http://www.chemexpo.com>. Reports for 

all chemicals distributed by OLD facilities. Accessed June 2000. 

2.2.4.2 Market Prices 

The baseline market price used for the organic chemicals market, $498.62 per metric 

ton, was estimated as a quantity-weighted average ofthe individual chemical prices obtained 

from ChemExpo (ChemExpo, 2000). 

2-21 
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2.2.4.3 Future Projections 

Constant-dollar shipments of organic chemicals are forecasted to increase at less than 

5 percent annually through 2002. This low growth rate is expected to result from slowing 

U.S. domestic markets and competition from foreign producers. Competition in the chemical 

industry is not only increasing in foreign markets, but in domestic markets as well. While 

imports have grown consistently since 1989 (and now account for 17 percent of demand), 

export prospects have been less positive. The United States is expected to remain a net 

exporter but the country's trade surplus is expected to continue to decline (U.S. Department 

of Commerce, 1998,2000). 

2.3 Distribution of Petroleum Liquids 

Petroleum liquids are made up of a number of different liquids: crude oil, natural gas 

liquids, and nongasoline petroleum products. Table 2-8 shows the distribution of petroleum 

products in 1997. Since gasoline is already covered by the gasoline distribution NESHAP, 

this profile discusses the two major categories of nongasoline refined products—fuels and 

liquified petroleum gases (LPGs). The main fuel products included in the OLD source 

category are distillate fuel oil, kerosene-type jet fuel, and residual fuel oil. Distillate fuel oil 

includes diesel oil, heating oils, and industrial oils. It is used to power diesel engines in 

buses, trucks, trains, automobiles, and other machinery. In addition, it is used to heat 

residential and commercial buildings and to fire industrial and electric utility boilers. 

Kerosene-type jet fuel is primarily used in commercial airlines. Sometimes it is blended into 

heating oil and diesel fuel during periods of extreme cold weather. Residual fuel is used by 

electric utilities to generate electricity. It is also used as fuel for ships, industrial boiler fuel, 

and heating fuel in some commercial buildings (DOE, EIA, 1999b). 

2.3.1 Affected Markets 

Three types of petroleum liquids are covered by the OLD source category—crude oil, 

NGLs, and refined petroleum products. Table 2-9 shows the SIC codes and NAICS codes 

associated with their production. Since crude oil and NGLs are the primary inputs into the 

production of refined petroleum products, the discussion in this section focuses on the 

consumers of, demand for, and price elasticities ofthe refined petroleum products (DOE, 

EIA, 1999e). 

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Table 2-8. Petroleum Products Produced at U.S. Refineries, 1997 

Petroleum Product Percent Produced 

Motor gasoline 45.7% 

Distillate fuel oil 22.5% 

Jet fuel 10.3% 

Residual fuel oil 4.7% 

Still gas 4.4% 

Petroleum coke 4.6% 

Liquefied petroleum gases 4.6% 

Asphalt and road oil 3.2% 

Petrochemical feedstocks 2.9% 

Lubricants 1.2% 

Other L4% 

Source: U.S. Department of Energy, Energy Information Administration. July 1999b. Petroleum: An Energy 

Profile 1999. DOE/EIA-0545(99). 

Petroleum liquids are inputs to virtually every industry in the United States. Crude oil 

becomes gasoline, diesel fuel, and jet fuel, which affects the transportation industry and 

facilitates the distribution of manufactured goods and the transportation industry. Refineries 

separate crude oil into petrochemical feedstocks that are used as inputs in the chemical 

industry and eventually become plastic or synthetic rubber products, automobile lubricants or 

antifreeze, cleaning compounds, or cosmetics. LPGs also become inputs into chemical 

compounds or fuel for household or farm use. 

2.3.2 Production/Service Overview 

OLD distribution is a service that is part ofthe production process for petroleum 

liquids. Organic liquids first enter the path ofthe OLD source category at the point of 

custody transfer, shortly before the refinery stage. Pipelines carry crude oil and/or NGLs 

from production fields into the refineries. Along the way, the liquids are channeled through 

crude oil pipeline stations, which are used for surge capacity, sorting, measuring, rerouting, 

and temporary storage ofthe transported liquid. Crude oil pipeline stations are the first point 

of OLD regulation for petroleum liquids. 

2-23 

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Table 2-9. Principal OLD Facility Categories 

SIC 

Code SIC Description 

Petroleum Refinery (56 survey responses) 

2911 Petroleum Refining 

Liquid Terminal (32 survey responses) 

4226 Special Warehousing and 

Storage, NEC 

NAICS Code 

32411 

49311 

49319 

Crude Oil Pipeline Pumping/Breakout Station (24 survey 

4612 Crude Petroleum Pipelines 

Petroleum Terminal (10 survey responses) 

5169 Chemicals and Allied 

Products, NEC 

5171 Petroleum Bulk Stations and 

Terminals 

48611 

42269 

42271 

454311 

454312 

NAICS Description 

Petroleum Refineries 

General Warehousing and Storage 

Other Warehousing and Storage 

responses) 

Pipeline Transportation of Crude 

Oil 

Other Chemical and Allied 

Products Wholesalers 

Petroleum Bulk Stations and 

Terminals 

Heating Oil Dealers0 

LP Gas Sold Via Retail Method" 

" Only part of this NAICS-coded industry consists of facilities that would also be classified in the 

corresponding SIC code. 

Source: U.S. Census Bureau. March 2000a. "1987 SIC Matched to 1997 NAICS." 

<http://www.census.gov/epcd/naics/NSIC3B.HTML>. As obtained on March 13,2000. 

From the crude oil pipeline station, crude oil and NGLs are transported to a petroleum 

refinery; crude oil can also be transported to an independent liquid terminal (either a liquid 

terminal or a petroleum terminal). Petroleum refineries process crude oil and/or NGLs into 

refined petroleum products (including gasoline, distillate fiiel oil, residual fuel oil, liquified 

petroleum gases, and petrochemicals). 

After the refining process, the refined petroleum products might be distributed to one 

of three destinations—refined petroleum products might be distributed to end users belonging 

to different industries or they might be transported to an independent liquid terminal for 

storage before further processing. Liquids stored at independent liquid terminals might be 

2-24 

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P.41 

transported to chemical production plants or refineries for further processing, they might be 

sent to a blending/packaging/distribution facility, or they might be distributed to end users. 

2.3.2.1 Elasticity of Supply 

The price elasticity of supply, or own-price elasticity of supply, is a measure ofthe 

responsiveness of producers to changes in the price of a product. The price elasticity of 

supply indicates the percentage change in the quantity supplied of a product resulting from 

each 1 percent change in the price ofthe product. 

The EIA for the petroleum refinery NESHAP (1995) econometrically estimated the 

price elasticity of supply for five petroleum products (motor gasoline, jet fuel, residual fuel 

oil, distillate fuel oil, and LPGs). The price elasticity of supply for the five petroleum 

products was estimated to be 1.24. Foreign supply is assumed to have the same price 

elasticity of supply as domestic supply. A supply elasticity of 1.24 is considered elastic, 

because in response to a one percent increase in the market price, the quantity of petroleum 

products would increase by more than 1 percent. 

2.3.3 Industry Organization 

This section describes the organization of industries that distribute petroleum liquids, 

including market structure, the characteristics of distribution facilities, and the firms that own 

them. Overall, the petroleum liquids distributors face a large degree of competition from 

fellow distributors. This section describes the producers, product differentiation, market 

concentration, and barriers to entry. 

Suppliers in the petroleum industry can be divided into two principal types of firms: 

• "Majors" are large companies that are typically fully vertically integrated and 

operate facilities in all ofthe different petroleum sectors (i.e., exploration, 

production, transportation, refining, and marketing); 

• "Independents" are smaller, nonintegrated companies that generally specialize in 

one aspect, such as crude oil exploration and production or product marketing 

(DOE, EIA, 1999e). 

Historically, majors have dominated the petroleum industry. However, the majors recently 

began a trend of selective refining/marketing divestiture that reduced their share of U.S. 

refinjng capacity from 72 percent in 1990 to 54 percent in 1998. Over the same period, the 

share ofthe independents rose from 8 percent to 23 percent. 

2-25 

42 
Petroleum products are produced according to quality grade specifications and 

therefore do not vary much from one another. Brand loyalty is not expected to be an 

important factor in the petroleum products market (DOE, EIA, 1999e). 

Table 2-10 shows concentration ratios by SIC code for the affected OLD industries 

involved in petroleum product distribution, based on data from the 1992 Economic Census. 

(Concentration information by NAICS code from the 1997 Economic Census is not yet 

available.) Industry concentration information is not yet available for the 1997 Economic 

Census. Ratios are included for the census years 1987 and 1992 (where possible), although 

only 1992 data are available for some SIC codes. The numbers in Table 3-7 show that, by 

and large, the petroleum liquids distribution industries are characterized by a large number of 

firms and generally unconcentrated markets, indicating a high degree of competitiveness in 

their respective product markets. The exception is crude oil pipeline stations, which has 

relatively few firms (52) and high concentration ratios (a CR4 of 60.3 percent and a CR8 of 

79.7 percent), indicating a high degree of concentration. These numbers are not surprising 

given that the pipeline industry is highly capital intensive (see discussion on barriers to entry, 

above. In addition, FERC legislates and monitors the liquids pipeline industries. FERC 

ensures fair access to pipeline transportation at reasonable rates. Interestingly, the vast 

majority of crude oil pipeline companies with corporate offices in the United States are 

operated as subsidiaries of other corporate entities, mostly major oil companies. Only a few 

ofthe pipeline companies are independently listed on any stock exchange (Gale Business 

Resources, 1999b). 

Recently, two trends in the petroleum market have affected the number and market 

shares of firms—mergers/joint ventures and divestitures. Over the past few years, a number 

of mergers and joint ventures have been undertaken in an effort to cut costs and increase 

profitability. This merger activity has occurred among the largest firms (as best illustrated by 

the recently approved acquisition of U.S.-based Amoco Corporation by the UK-based British 

Petroleum and the announced mega-merger of Exxon and Mobil Corporation) as well as 

among independent refiners and marketers (e.g., the independent refiner/marketer Ultramar 

Diamond Shamrock [UDS] acquired Total Petroleum North America in 1997 and announced 

a joint venture with Phillips Petroleum in October 1998, which was later abandoned) (DOE, 

EIA, 1999d). 

As explained above, barriers to entry are an important component ofthe market 

structure. As indicated above, common carrier pipelines in the United States are government 

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Table 2-10. Concentration Ratios by SIC Code" 

Total 

SIC Number ol 

Code Year Firms 

Petroleum Refinery 

2911: Petroleum Refining 

1987 200 

1992 132 

4 Firm 

32% 

30% 

Concentration Ratio 

8 Firm 

52% 

49% 

20 Firm 

78% 

78% 

50 Firm 

95% 

97% 

HerfindahlHirschman 

Index 

435 

414 

Liquid Terminal 

4226: Special Warehousing and Storage, NEC 

1992 1,212 27% 36% 50% 64% NA 

Crude Oil Pipeline Station 

4612: Crude Petroleum Pipelines 

1992 52 60% 80% 97% 10% NA 

Petroleum Terminal 

5169: Chemicals and Allied Products, NEC 

1992 7,446 27% 35% 50% 65% NA 

5171: Petroleum Bulk Stations and Terminals 

1992 8,266 21% 34% 53% 64% NA 

a

 Concentration information by NAICS code from the 1997 Economic Census is not yet available. 

Source: U.S. Department of Commerce, Bureau ofthe Census. 1992. Economic Census. Washington, DC: 

Government Printing Office, <http://www.census.gov/epcd/www/92result.html>. 

regulated due to the industry's structure, which can be characterized as a natural monopoly. 

The crude oil pipeline industry is capital intensive. Start-up costs are high, and entry into the 

industry is restricted, as is indicated by the small number of firms operating with 

headquarters in the United States. However, since the day-to-day maintenance of capitalintensive industries tends to be relatively moderate, successful companies within the pipeline 

industries have been able to take advantage of economies of scale. 

2-27 

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2.3.3.1 Facilities 

Although EPA has received surveys from only about 45 percent (126 out of 281) of 

the universe of OLD in the petroleum industry, an examination ofthe data provided in the 

surveys illustrates general characteristics of those facilities. The data presented here are for 

the 118 facilities (out of 126) who did not request that their surveys be considered classified 

information. 

Figure 2-6 shows that of the 118 nonclassified facilities, 31 percent of petroleum 

liquids distributors are located in Texas, 12 percent are in Louisiana, and 10 percent are 

located in Alaska. 

Facilities in NAICS code 32411 were operating at 91 percent capacity in 1998 and 

1997 according to the U.S. Census Bureau (U.S. Department of Commerce, 1999f). Figure 

2-7 shows that almost 40 percent of facilities involved in the distribution of petroleum liquids 

employ fewer than 25 people on-site, while another 40 percent of facilities employ more than 

250 employees each. 

2.3.3.2 Firm Characteristics 

Table 2-11 presents an overview ofthe total number of firms for each petroleum OLD 

SIC code, the total number of firms potentially affected by the OLD source category, and the 

percentage ofthe source category potentially affected. 

The OLD source category is heavily dominated by firms organized as corporations. 

For example, in 1987, 177 of 200 petroleum refineries (or 88.5 percent) were classified as 

corporations. In 1992, 914 of 1,212 liquid terminals (or 75.4 percent), and 49 of 52 crude oil 

pipeline stations (or 94.2 percent) were classified as corporations (DOE, EIA, 1999e; Speed, 

1999). 

Table 2-12 presents the SBA small business standards for the OLD source category 

and also shows the number of small firms in the industry. The SBA size definitions for most 

OLD industries is defined in terms of employees. The size standard for these NAICS 

categories ranges from 100 employees in the petroleum terminal industry to 1,500 employees 

for petroleum refineries5 and crude oil pipeline stations. 

5

In addition to the maximum number of employees, petroleum refining firms may not have more than a total 

input capacity of 75,000 barrels per day of petroleum-based inputs, such as crude oil. 

2-28 

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P.45 

Figure 2-6. Location of Petroleum Liquids Distributors that Responded to the ICR 

Survey 

2-29 

^ 
45% 

40% 

| 35% 

il 30% 

° 25% 

S? 20% 

§ 15% 

® 10% 

5% 

0% 

less than 25 25 to 50 50 to 100 100 to 250 250 to 500 over 500 

Employment Range 

Figure 2-7. The Distribution of Petroleum Liquids Facilities that Responded to the ICR 

Survey by Employment 

Source: Nonclassified responses to the 1998 Industry Specific Information Collection Request for the 

Development of an Organic Liquids Distribution Maximum Achievable Control Technology. 

EPA's survey of OLD facilities provides data on firms owning facilities affected by 

the OLD NESHAP. The 126 surveyed facilities are owned by 45 companies. According to 

SBA standards, 9 percent (4 out of 45) of those companies are small businesses. 

Figures 2-8 and 2-9 show the distribution of surveyed firms by firm size as measured 

by revenue and employment. The majority of affected firms took in more than $1 billion in 

revenues in 1998 and employ more than 5,000 people. The industry exhibits a high degree of 

vertical integration with many firms operating in more than one sector (DOE, EIA, 1999e). 

For example, the crude petroleum pipeline industry is dominated by giant oil companies with 

assets in many ofthe downstream sectors ofthe industry (Gale Business Resources, 1999b). 

Ofthe two types of petroleum firms, majors are generally fully integrated and operate 

facilities in all the different sectors. Independents, on the other hand, are nonintegrated and 

generally specialize in one aspect, such as crude oil exploration and production or product 

marketing (DOE, EIA, 1999e). Similarly, major petroleum companies are horizontally 

integrated, but the smaller independent firms typically operate only one refinery each and are 

therefore not horizontally integrated (EPA, 1995). 

2-30 

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P.47 

Table 2-11. Number of Total OLD Firms and Affected Firms, 1996 

NAICS 

Code NAICS Description 

Petroleum Refinery 

32411 Petroleum Refineries 

Liquid Terminal 

49311 General Warehousing and 

Storage 

49319 Other Warehousing and 

Storage 

Crude Oil Pipeline Station 

48611 Pipeline Transportation of 

Crude Oil 

Petroleum Terminal 

42269 Other Chemical and Allied 

Products Wholesalers 

42271 Petroleum Bulk Stations and 

Terminals 

454311 Heating Oil Dealers 

454312 LP Gas Dealers 

Total Number 

of 

Establishments' 

244 

3911 

1213 

482 

8,892 

6,729 

5657 

6623 

Total 

Number of 

Affected 

Facilities 

111 

94 

35 

41b 

% ofSource 

Category that 

is Affected 

45.5% 

1.8% 

7.3% 

0.1% 

" U.S. Census Bureau. February 1998. "Statistics for Industry Groups and Industries." 1997 Economic 

Census, Manufacturing—Industry Series, E97M-3251I. Washington, DC: Government Printing Office. 

U.S. Census Bureau. September 1999f. "Petroleum Refinery." 1997 Economic Census, 

Manufacturing—Industry Series. E97M-3251I, Washington, DC: Government Printing Office. 

U.S. Census Bureau. January 2000c. "Transportation and Warehousing." 1997 Economic Census, 

Manufacturing—Industry Series. E97M-3251I, Washington, DC: Government Printing Office. 

U.S. Census Bureau. January 2000d. "Wholesale Trade." 1997 Economic Census, 

Manufacturing—Industry Series. E97M-3251I, Washington, DC: Government Printing Office. 

U.S. Census Bureau. March 2000b. "Retail Trade." 1997 Economic Census, Manufacturing—Industry 

Series, E97M-3251I. Washington, DC: Government Printing Office. 

b

 This is the combined estimated number of affected facilities in this industry. 

Throughout the 1990s, the U.S. refining and marketing industry was characterized by 

unusually'low product margins, low profitability, selective retrenchment, and substantial 

restructuring. During 1997, the profitability of U.S. refining and marketing was the highest 

2-31 

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Table 2-12. Small Business Size Standards for OLD Industries 

NAICS 

Code NAICS Description SBA Small Business Standard 

Petroleum Refinery 

32411 Petroleum Refineries 

Petroleum Terminal 

42269 Chemicals and Allied Products, NEC 

42271 Petroleum Bulk Stations and Terminals 

454311 Heating Oil Dealers 

454311 LP Gas Dealers 

1,500 employees and 75,000 

barrels per day capacity of 

petroleum-based inputs" 

Liquid Terminal 

49311 General Warehousing and Storage 

49319 Other Warehousing and Storage 

Crude Oil Pipeline Station 

4612 Crude Petroleum Pipelines 

$18.5millionb 

1,500 employees 

100 employees 

100 employees 

$9.0 million 

$5.0 million 

" Petroleum-based inputs include crude oil or bona fide feedstocks. 

b

 The SBA small business standard for NAICS code 493 represents annual firm revenue. Firm size by 

revenue is not available in Statistics of U.S. Businesses 1996. 

Sources: Small Business Association. Small Business Size Standards Matched to NAICS codes as of 

October 1,2000. 

Speed, Phillip J. "The Changing Competitive Landscape ofthe Chemical Industry." Chemicalbond. 

<http://www.socma.org/bond/featurel.html>. As obtained on September 2, 1999. 

U.S. Department of Energy, Energy Information Administration. July 1999. Petroleum: An Energy 

Profile 1999. DOE/EIA-0545(99). Washington, DC. 

since 1989, which was in part achieved by low energy costs as well as cost-cutting measures, 

including a number of mergers and joint ventures in the downstream sector (DOE, EIA, 

1999d). The crude petroleum pipeline industry has experienced modest but steady growth 

since 1993. As a result, company profits have also increased. This trend has been a result of 

lower operating costs and moderate expanses in deliveries (Gale Business Resources, 1999b; 

DOE, EIA, 1999a). 

2-32 

& . 
P.49 

(A Firnr 

o ntage 

u 

0) 

Q. 

70% n 

60% -

50% -

40% -

30% -

20% -

mo/„ _ • I 

Less than $5Mto$50 $50M to $500M to $1Bto $10Bto 

$5M $500M $1B $10B $100B 

Company Sales 

over$100B 

Figure 2-8. The Size Distribution of Companies that own OLD Facilities that 

Responded to the ICR Survey and are Involved in the Distribution of Nongasoline 

Petroleum Liquids, by 1998 Sales (in $1997) 

Note: Sales data are from 1998 but were converted into 1997 dollars to facilitate comparison with other 

figures reported in this profile and allow easy comparison with estimated compliance costs, which are 

calculated in 1997 dollars. 

Sources: Dun & Bradstreet. 1999. Company Capsules. As available on EBSCO. 

General Business File International (formerly Business ASAP). 1999. Gale Group Collections. As 

obtained from InfoTrac Web. 

Hoover's Incorporated. 1999. Hoover's Company Profiles. Austin, TX: Hoover's Incorporated. 

<http://www.hoovers.com/>. 

Company websites. 

Company 10k reports. 

U.S. Environmental Protection Agency (EPA). November 2000. Technical Support Document for 

the Organic Liquids Distribution (Non-gasoline) Industry. Washington, DC: USEPA, Office of Air 

Quality Planning and Standards, Emission Standards Division. 

Table 2-13 shows that, for the firms that own the 126 facilities that responded to the 

EPA survey,6 the average (median) profit margin was (4.7) 4.3 percent. Figure 2-10 shows 

the distribution of profit margins among firms that own petroleum liquids distributors. 

6

Forty-five firms own surveyed facilities distributing petroleum products or performing merchant distribution. 

Profit, employment, and sales data were identified for only 43 of those facilities. 

2-33 

SO 
P.50 

d> 

D) 

ra 

C 

o 

u 

._-

» 

Q. 

70% 

60% 

50% 

40% 

30% 

20% -

10% -

0% 

less than 500 500 to 1,000 1,000 to 

5,000 

5,000 to 

10,000 

10,000 to 

100,000 

over 100,000 

Number of Employees 

Figure 2-9. Size Distribution of Companies that own OLD Facilities that Responded to 

the ICR Survey and are Involved in the Distribution of Nongasoline Petroleum Liquids 

Sources: Dun & Bradstreet. 1999. Company Capsules. As available on EBSCO. 

General Business File International (formerly Business ASAP). 1999. Gale Group Collections. As 

obtained from InfoTrac Web. 

Hoover's Incorporated. 1999. Hoover's Company Profiles. Austin, TX: Hoover's Incorporated. 

<http://www.hoovers.com/>. 

Company websites. 

Company 10k reports. 

U.S. Environmental Protection Agency (EPA). November 2000. Technical Support Document for 

the Organic Liquids Distribution (Non-gasoline) Industry. Washington, DC: USEPA, Office of Air 

Quality Planning and Standards, Emission Standards Division. 

Table 2-13. Profit Margins of Firms that own Organic Chemical Liquids Distribution 

Facilities that responded to the ICR Survey 

Median 

Average 

Maximum 

Minimum 

0.043364 

0.04732 

0.347377 

-0.06935 

Source: Nonclassified responses to the 1998 Industry Specific Information Collection Request for the 

Development of an Organic Liquids Distribution Maximum Achievable Control Technology. 

2-34 

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P.51 

jjj 35% 

•r 30% 

<0% 0%-3% 3%-5% 

Profit Margin 

5%-10% >10% 

Figure 2-10. Distribution of Companies Owning Petroleum Liquid Facilities that 

Responded to the ICR Survey, by Profit Margin 

Sources: Dun & Bradstreet. 1999. Company Capsules. As available on EBSCO. 

General Business File International (formerly Business ASAP). 1999. Gale Group Collections. As 

obtained from InfoTrac Web. 

Hoover's Incorporated. 1999. Hoover's Company Profiles. Austin, TX: Hoover's Incorporated. 

<http://www.hoovers.com/>. 

Company websites. 

Company 10k reports. 

U.S. Environmental Protection Agency (EPA). November 2000. Technical Support Document for 

the Organic Liquids Distribution (Non-gasoline) Industry. Washington, DC: US Environmental 

Protection Agency, Office of Air Quality Planning and Standards, Emission Standards Division. 

Dun & Bradstreet. 1997. Industry Norms & Key Business Ratios. Desk-Top Edition 1996-1997. 

2.3.4 Uses and Consumers 

Five major economic sectors consume petroleum products (DOE, EIA, 1999e): the 

residential sector, the commercial sector, the industrial sector, the transportation sector, and 

the electric utility sector. 

The demand for petroleum products is influenced by several factors, including crude 

oil prices, economic growth trends, and weather conditions. Low oil prices tend to stimulate 

demand. Demand also increases during periods of economic expansion, particularly in the 

industrial and transportation sectors. Economic expansions lead to an increase in the 

production of goods, which contributes in turn to an increase in the demand for transportation 

of raw materials and the deliveries of finished products. Petroleum demand is also 

2-35 

K2. 
influenced by weather conditions. Extreme weather tends to either increase or decrease the 

use of heating oil and electricity, which contributes to the demand for petroleum products. 

Weather can also contribute to the seasonal variations in demand for transportation fuels 

(such as gasoline). 

2.3.4.1 Characterization of Demand—Derived Demand Elasticity 

The demand for petroleum is also influenced by the price of petroleum itself and the 

price of available substitutes. The degree to which the price of petroleum influences the 

quantity of petroleum products demanded is called the price elasticity bf demand. Generally 

speaking, the price elasticity of demand represents the percentage change in the quantity 

demanded resulting from a 1 percent change in the price ofthe product. Table 2-14 lists the 

price elasticities of demand for several ofthe major petroleum products. In modeling the 

demand for the composite petroleum product, EPA has assumed a demand elasticity of-0.6. 

Table 2-14. Estimates of Price Elasticity of Demand for Petroleum Products 

Jet fuel -0.15 

Residual fuel oil -0.61 to -0.74 

Distillate fuel oil -0.50 to-0.99 

Liquified petroleum gases -0.60 to -1.0 

Source: U.S. Environmental Protection Agency (EPA). July 1995. Economic Impact Analysis for the 

Petroleum Refinery NESHAP, Revised Draft for Promulgation. 

The elasticity estimates indicate that each of these products has inelastic demand. 

Regulatory control costs are more likely to be paid by consumers of products with inelastic 

demand as compared to products with elastic demand, all other factors held constant. Price 

increases for products with inelastic demand lead to revenue increases for the producers. 

Thus, one can predict that price increases resulting from implementation of regulatory control 

costs will lead to higher gross revenues for the producers (EPA, 1995). 

Demand becomes more elastic with the availability of substitutes and the passage of 

time. In the short run, there may not be substitutes readily available for consumption. 

However, over time, consumers have the opportunity to adjust to the price increase and will 

seek alternatives. In the case ofthe petroleum industry, as the prices of crude oil and 

2-36 

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P.53 

petroleum products increase, consumers may not be able to respond immediately. The shortrun demand elasticity is inelastic because petroleum plays a critical role in today's lifestyles 

(Oil & Gas Journal, 1999). As time passes, consumers can adjust to price changes, and 

consumer behavior may change, and the price elasticity of demand will be higher. 

2.3.5 Markets 

The petroleum industry is a major sector in the U.S. economy. A significant portion 

ofthe petroleum consumed domestically is imported. The industry experienced relatively 

high prices in 1996 and 1997; however, petroleum prices declined substantially in 1998 (Gale 

Business Resources, 1999b). 

2.3.5.1 Market Volumes 

Petroleum refining is one ofthe leading manufacturing industries in the United States. 

The value of shipments by the petroleum refining industry accounts for about 4 percent ofthe 

value of shipments by the entire manufacturing sector ofthe U.S. economy. In 1996, the 

value of shipments by the petroleum refining industry was an estimated $158 billion (DOE, 

EIA, 1999b). 

Table 2-15 shows domestic production and consumption, imports, and exports ofthe 

aggregated petroleum product in 1997. 

Table 2-15. Petroleum Product Market Volumes, 1997 (IO6 Mt) 

Domestic Supply Imports Total 

1,924 441 2,365 

Source: EPA OLD Industry Questionnaire Database; ChemExpo. <http://www.chemexpo.com>. Reports for 

all chemicals distributed by OLD facilities. Accessed June 2000. 

Foreign trade plays a critical role in the U.S. crude oil market, and imports of crude 

oil in the United States far outweigh exports of crude oil. With a decline in domestic 

production and an increase in consumption, crude oil imports provide the missing link as 

U.S. oil demand continues to increase. U.S. imports of crude oil have increased 49 percent in 

the last decade alone. Imports of refined petroleum products, on the other hand, have 

2-37 

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P.54 

declined since the mid-1980s, accounting for slightly more than one-third of total petroleum 

imports in 1985, but less than one-fifth by 1997 (DOE, EIA, 1999a). 

Although the United States is a net importer of petroleum, some exports of crude oil 

and petroleum products do occur. The United States exported a combined 1 million barrels 

per day of crude oil and petroleum products in 1997, matching the record level set in 1993. 

The five leading countries that receive United States exports of petroleum are Mexico, 

Canada, Japan, Republic of Korea, and Spain. Crude oil exports averaged 110,000 barrels 

per day in 1998. This average is down from its peak in 1980 of 287,000 barrels per day. 

Product exports have averaged more than 600,000 barrels per day since 1986 and reached 

896,000 barrels per day in 1997, when they accounted for more than 89 percent of petroleum 

exports. This number dropped in 1998 to 835,000 barrels per day, representing 88 percent of 

total petroleum exports. The three leading petroleum product exports, in order of volume 

exported, are petroleum coke, distillate fuel oil, and motor gasoline (DOE, EIA, 1999b,c). 

2.3.5.2 Market Prices 

Crude oil prices are set in international market and have been on a general decline 

since 1981. The Organization of Petroleum Exporting Countries (OPEC) has the ability to 

influence oil prices worldwide because its members possess such a large portion ofthe 

world's oil supply. If OPEC restricts supply, prices increase. If OPEC floods the market 

with crude oil, prices decrease. The sharp price decline in 1998 was attributable to plentiful 

crude oil supplies (partly due to Iraq's increased production). There has also been a general 

trend of price decline in petroleum products. Part of this decline is due to a reduction in 

demand from suffering Asian economies and a decrease in United States demand for heating 

oil because of unseasonably warm weather (API, 1999). In modeling the market for the 

aggregate petroleum product, EPA estimated the price ofthe composite commodity as the 

quantity-weighted average ofthe petroleum products distributed by OLD facilities. The 

market price used in the model is $191.84 per metric ton. 

2.3.5.3 Future Projections 

The current status ofthe potentially affected industries is important to establish a 

baseline for the economic impact analysis. However, since compliance costs will not be 

incurred until some time in the future, it is also important to consider projections of future 

economic trends when estimating likely impacts of a regulation. 

2-38 

^S" 
P.55 

The Energy Information Administration (EIA) publishes the Annual Energy Outlook, 

which presents midterm forecasts on energy supply, demand, and prices. The analysis 

performed focuses on a reference case and four other cases that assume higher and lower 

economic growth and higher and lower world oil prices than in the reference case. The 

projections are based on results from EIA's National Energy Modeling System (NEMS). 

Information on petroleum found in this section is based on the 1999 Annual Energy Outlook. 

Domestic crude oil production is expected to continue to decline throughout the next 

20 years. It is expected to decrease by 1.1 percent a year, from 6.5 million barrels per day in 

1997 to 5.0 million barrels per day in 2020. This decline in domestic production will lead to 

a decline in domestic petroleum supply. Domestic supply in 1997 was 9.4 million barrels per. 

day. In NEMS's low price projection, supply drops to 7.6 million barrels per day in 2020; in 

its high price projection, supply drops to 9.3 million barrels. 

Domestic consumption of petroleum is expected to increase over the next 20 years. 

United States petroleum consumption is projected to increase by 6.0 million barrels per day 

between 1997 and 2020 in the reference case, 3.9 million barrels per day in the low growth 

case, and 8.2 million in the high growth case. The transportation sector is expected to 

account for most ofthe increase in petroleum consumption. However, a change in the 

consumption pattern ofthe transportation sector is expected to occur. Gasoline accounted for 

65 percent ofthe petroleum consumed for transportation. However, this share is expected to 

decrease to 61 percent in 2020 as alternative fuels are introduced to the transportation market. 

The share of jet fuel is expected to increase from 13 percent to 17 percent as air travel 

continues to expand. 

As domestic production continues to decline and domestic consumption continues to 

grow, oil imports will continue to increase. The projections for net petroleum imports in 

2020 range from a high of 18.3 million barrels per day in the low oil price case to a low of 

14.3 million barrels per day in the low growth case. This is more than double the 1997 level 

of 9.2 million barrels per day. Table 2-16 shows consumption and net imports of crude oil 

and petroleum products for 1997 and projections for 2020. 

As discussed earlier, crude oil imports currently account for the majority of foreign 

imports of petroleum. Crude oil is expected to continue as the major component of 

petroleum imports. However, the import share of refined products is expected to increase in 

the future. More imports of petroleum products will be needed as growth in demand for 

refined products exceeds the expansion of domestic refining capacity. 

2-39 

S&> 
P.56 

Table 2-16. Petroleum Consumption and Net Imports in 1997 and 2020 (IO6 barrels/ 

day) 

Year and 

Projection 

1997 

2020 Projections 

Reference 

Low oil price 

High oil price 

Low growth 

High growth 

Consumption 

18.6 

24.7 

26.0 

24.0 

22.5 

26.8 

Net Imports 

9.2 

16.0 

18.3 

14.6 

14.3 

17.7 

Net Crude Imports 

8.1 

12.0 

13.1 

11.5 

11.4 

12.6 

Net Product 

Imports 

1.0 

4.0 

5.2 

3.1 

2.9 

5.1 

Source: U.S. Department of Energy, Energy Information Administration. 1999a. Annual Energy Outlook, 

1999. 

Future exports of petroleum from the United States will depend on economic 

conditions worldwide and the restrictions placed ori trade both in the United States and 

abroad. The industrialized countries will continue to be the major oil consumers over the 

next 20 years. However, petroleum use will increase at the fastest rate in developing 

countries. The United States will continue to export petroleum products (especially the 

heavy products, which are in less demand in this country) (DOE, EIA, 1999c). 

Oil prices have fluctuated greatly in the past, which makes future price projections 

uncertain. However, future oil prices are expected to be higher than current prices. The 

latest year for which comprehensive data is available is 1998, a year which saw 

uncharacteristically low prices for petroleum-based products. The world price for crude oil is 

most heavily influenced by OPEC's limits on production. As ofthe publication of this 

document, prices for crude oil and petroleum-based products are much higher than during the 

years presented in the tables in this report. Increased world demand has not been met with 

production increases, resulting in higher prices. 

The reference case for oil projects prices to rise by about 0.9 percent a year, reaching 

$22.73 in constant 1997 dollars in 2020. In nominal dollars, the reference case price exceeds 

$43 in 2020. The low price case projects prices rising to $14.57 by 2005 and remaining at 

about that level until 2020. The high price case has a price rise of about 2.5 percent per year 

until 2015 and then remains at $29.35 until 2020. The leveling off at about $29.35 in the 

2-40 

S7 
P.57 

high price case is due to the market penetration of alternative energy supplies that could 

become economically viable at that price (DOE, EIA, 1999a). 

2-41 

SB 
P.58 

References - Chapter 2 

(EPA). 2000 2-12, 2-16, 2-33 

1998 Industry Specific Information Collection Request 2-15 

(DOE, EIA, 1999e 2-34 

(EPA). 2000 2-5, 2-17, 2-19, 2-34 

(EPA). July 1995 2-35 

1998 Industry Specific Information Collection Request 2-29 

1998 Industry Specific Information Collection Request 2-18, 2-33 

American Petroleum Institute. August 1998 2-5 

API, 1999 2-37 

Arnold, 1989 2-9, 2-10 

ChemExpo, 2000 2-20 

CMA, 1995a,b 2-9 

CMA, 1999 2-20 

CMA, 2000 2-20 

Company 10k reports 2-32 

Company 10k Reports. 2-16, 2-17, 2-19, 2-33,2-34 

Company Websites 2-16, 2-17,2-19, 2-32, 2-33 

Distribution, 1996 2-3 

DOE, EIA, 1999a 2-31, 2-37 

DOE, EIA, 1999a) 2-40 

DOE, EIA, 1999b 2-21, 2-36 

2-42 

m. 
P.59 

DOE, EIA, 1999b,c 2-37 

DOE, EIA, 1999c 2-39 

DOE, EIA, 1999d 2-25, 2-31 

DOE, EIA, 1999e 2-7, 2-9,2-21, 2-24, 2-25, 2-27, 2-29 

Dun & Bradstreet. 1997 2-19, 2-34 

Dun & Bradstreet. 1999 2-16, 2-17, 2-19, 2-32, 2-34 

Dun & Bradstreet. 1999 2-33 

EPA OLD Industry Questionnaire Database; ChemExpo. <http://www.c 2-20, 2-36 

EPA, 1995 2-18, 2-29, 2-35 

Gale Business Resources. 1999b 2-5 

Gale Business Resources, 1999a,b,c 2-3 

Gale Business Resources, 1999b 2-25, 2-29, 2-31, 2-36 

Gale, 1999a; 2-9 

General Business File International (formerly Business ASAP). 1 2-19,2-32-34 

Hoover's Incorporated. 1999 2-16, 2-17, 2-19,2-33, 2-34 

Hoover's Incorporated. 1999 2-32 

MACT Floor Development for the OLD Source Category," Memo, May 5 2-4 

NESHAP (1995) 2-24 

Oil & Gas Journal, 1998 2-4 

Oil & Gas Journal, 1999 2-18, 2-36 

Small Business Association. Small Business Size Standards Match 2-30 

Speed (1999) 2-10 

Speed, 1999 2-11, 2-27 

2-43 

(cX 
P.60 

Speed, Phillip J. "The Changing Competitive Landscape of the Ch 2-30 

U.S. Census Bureau. August 1999 2-12 

U.S. Census Bureau. August 1999a 2-12 

U.S. Census Bureau. August 1999b 2-12 

U.S. Census Bureau. August 1999c 2-12 

U.S. Census Bureau. August 1999d 2-12 

U.S. Census Bureau. August 1999e 2-12 

U.S. Census Bureau. August 1999g 2-12 

U.S. Census Bureau. August 1999h 2-12 

U.S. Census Bureau. February 1998 2-30 

U.S. Census Bureau. January 2000c 2-30 

U.S. Census Bureau. January 2000d 2-30 

U.S. Census Bureau. March 2000a 2-8, 2-23 

U.S. Census Bureau. March 2000b 2-30 

U.S. Census Bureau. September 1999f. 2-30 

U.S. Department of Commerce, 1998,2000 2-21 

U.S. Department of Commerce, Bureau ofthe Census. 1992 2-11 

U.S. Department of Commerce, Bureau ofthe Census. 1992 2-26 

U.S. Department of Energy, Energy Information Administration. J 2-22, 2-30 

U.S. Environhiental Protection Agency. Technical Support Document (TSD) for the Organic 

Liquids Distribution (Non-gasoline) NESHAP - Proposed Standards. 

Research Triangle Park, NC. November 2000 2-2, 2-7, 2-32 

Various background documents 2-5 

2-44 

6? I 
P.61 

SECTION 3 

ENGINEERING COST ANALYSIS 

HAP emissions occur at several common points during the storage and distribution of 

organic liquids other than gasoline. To control these emissions, EPA has developed MACT 

floor levels of control under the authority of Section 112 ofthe CAA. This section 

summarizes EPA's control costs estimates for the proposed rule. The Technical Support 

Document (TSD) contains a detailed discussion ofthe methodologies used to develop these 

cost estimates. 

3.1 Control Cost Estimates 

The engineering analysis identified 649 major sources that are potentially affected by 

the rule. To estimate nationwide costs, EPA developed 13 model plants with control costs 

for the following emission points: 

• storage tanks, 

• cargo tank transfers, and 

• equipment leaks. 

The costs include capital costs associated with tank, rack, and leak detection and repair 

devices (appropriately annualized using the equipment lifetime and discount rate) and 

variable costs associated with operating and maintaining pollution control devices and other 

costs associated with monitoring, recordkeeping, and reporting (MRR). The Agency 

identified 429 facilities, or 66 percent ofthe total that will incur control and MRR costs, with 

the remaining 220 facilities incurring MRR cost only. 

3-1 

<£P 
P.62 

The nationwide compliance cost estimates for the proposed rule are $41.38 million 

for the required controls (see Table 3-1).1 These costs are distributed by industry as follows: 

Model Plant 28 Chemical Production—$20.49 million (49.5 percent) 

Model Plant 29 Petroleum Refineries—$4.54 million (11.0 percent) 

Model Plant 42 Liquid Terminals—$11.62 million (28.1 percent) 

Model Plant 46 Crude Oil Pipelines—$2.11 million (5.1 percent) and 

Model Plant 51 Petroleum Terminals—$2.62 million (6.3 percent) 

EPA expressed these control costs on a per-unit basis for input in the market model described 

in Appendix A. EPA also assigned representative costs to individual facilities within each 

industry, as described in Appendix B. In addition, the Agency assigned model plant costs to 

each ofthe 248 survey facilities2 to compute cost-to-sales ratios (CSRs) for facilities and their 

ultimate parent companies (see Appendix B). 

'Although most of EPA's analysis employs NAICS codes, model plants were developed based on the SIC 

codes listed in the facilities' survey response. 

2The Agency collected survey data for 248 of 649 potentially affected facilities (40 percent) and these are 

referred to as the "known" facilities in the analysis. 

3-2 

43 
Table 3-1. Facility and Nationwide Control Costs for the Proposed OLD MACT 

Tank Tank Rack Rack LDAR LDAR Total Annual 

Number Capital Annual Capital Annual Capital Annual Capital Control 

or Cost per Cost per Cost per Cost per Cost per Cost per Cost per Cost per MRR Annual Total Ann. 

Total 

Capital 

Cost for 

Total 

Annual 

Cost for 

Model Facilities Facility Facility Facility Facility Facility Facility Facility 

Plant Affected (1997$) ($/yr) (1997$) ($/yr) (1997 S) (S/yr) (1997$) 

Facility Cost/Facil. 

(S/yr) (S/yr) 

Cost/Facil. All Facilities All Facilities 

(1997 $) ($/yr) 

28-1 67 0 0 0 0 0 0 2,500 0 16,300 16,300 167,500 1,092,100 

85 0 0 0 0 7,350 22,785 9,850 22,785 18,500 41,285 837,250 3,509,225 

40 200,252 -6,488 40,800 69,915 7,350 22,785 250,902 86,212 33,900 120,112 10,036,080 4,804,480 

3 200,252 -6,488 0 0 7,350 22,785 210,102 16,297 18,500 34,797 630,306 104,391 

Totals 

Totals 

195 

105 

11,671,136 

13,425,086 

9,510,196 

28-2 36 0 0 0 0 0 0 2,500 0 15,700 15,700 90,000 565,200 

46 0 0 0 0 7,350 22,785 9,850 22,785 18,500 41,285 453,100 1,899,110 

21 505,132 -15,467 49,400 75,500 7,350 22,785 564,382 82,818 34,000 116,818 11,852,022 2,453,178 

2 505,132 -15,467 0 0 7,350 22,785 514,982 7,318 18,500 25,818 1,029,964 51,636 

4,969,124 

28-3 23 0 0 0 0 

32 0 0 0 0 

14 1,458,729 -^5,883 58,800 80,730 

1 1,458,729 -45,883 0 . 0 

0 0 2,500 0 15,700 15,700 57,500 361,100 

11,798 87,752 14,298 87,752 18,500 106,252 457,536 3,400,064 

11,798 87,752 1,531,827 122,599 34,000 156,599 21,445,578 2,192,386 

11,798 87,752 1,473,027 41,869 18,500 60,369 1,473,027 60,369 

Totals 70 23,433,641 6,013,919 

Totals 

for 

SIC 28 

370 48,529,863 20,493,239 

(continued) 

^ 

-£ 
Table 3-1. Facility and Nationwide Control Costs for the Proposed OLD MACT (continued) 

Tank Tank Rack Rack LDAR LDAR Total Annual Total Total 

Capital Annual Capital Annual Capital Annual Capital Control Capital Annual 

Number of Cost per Cost per Cost per Cost per Cost per Cost per Cost per Cost per MRR Annual Total Ann. Cost for Cost for 

Model Facilities Facility Facility Facility Facility Facility Facility Facility Facility Cost/Facil. Cost/Facil. All Facilities All Facilities 

Plant Affected (1997$) ($/yr) (1997$) (S/yr) (1997$) ($/yr) (1997$) ($/yr) ($/yr) ($/yr) (1997 $) ($/yr) 

29-1 19 0 0 0 0 0 0 2,500 0 15,700 15,700 47,500 298,300 

23 0 0 0 0 7,350 22,785 9,850 22,785 18,700 41,485 226,550 954,155 

12 99,345 16,783 0 0 7,350 22,785 109,195 39,568 18,700 58,268 1,310,340 699,216 

Totals 54 1,584,390 1,951,671 

29-2 

Totals 

i 

4^ 

10 0 0 0 0 0 0 2,500 0 15,700 15,700 25,000 157,000 

12 0 0 0 0 7,350 22,785 9,850 22,785 18,800 41,585 118,200 499,020 

8 197,230 36,793 0 0 7,350 22,785 207,080 59,578 18,800 78,378 1,656,640 627,024 

30 1,799,840 1,283,044 

29-3 9 

10 

0 0 

7,350 22,785 

2,500 

9,850 

0 

22,785 

15,700 

18,900 

15,700 

41,685 

22,500 

98,500 

141,300 

416,850 

Totals 

Totals 

for 

SIC 29 

8 

27 

111 

280,716 51,409 0 0 7,350 22,785 290,566 74,194 18,900 93,094 2,324,528 

2,445,528 

5,829,758 

744,752 

1302,902 

4,537,617 

42-1 

4 213,459 31,331 0 0 

8 213,459 31,331 40,800 69,915 

0 

7,350 

0 

22,785 

2,500 

9,850 

0 

22,785 

16,400 

19,400 

16,400 

42,185 

22,500 

39,400 

147,600 

168,740 

7,350 22,785 223,309 54,116 19,400 73,516 893,236 294,064 

7,350 22,785 264,109 124,031 23,300 147,331 2,112,872 1,178,648 

Totals 25 3,068,008 1,789,052 

(continued) 
^ 

^ 

Table 3-1. Facility and Nationwide Control Costs for the Proposed OLD MACT (continued) 

Model 

Plant 

42-2 

Totals 

42-3 

V^ Totals 

Totals 

for 

SIC 42 

46-1 

Totals 

46-2 

Totals 

Totals 

for 

SIC 46 

Number 

of 

Facilities 

Affected 

10 

7 

10 

4 

31 

13 

8 

12 

5 

38 

94 

9 

11 

6 

26 

3 

3 

3 

9 

35 

Tank 

Capital 

Cost per 

Facility 

(1997 $) 

0 

0 

423,158 

423,158 

0 

0 

1,238,326 

1,238,326 

0 

0 

600,325 

0 

0 

467,987 

Tank 

Annual 

Cost per 

Facility 

($/yr) 

0 

0 

63,940 

63,940 

0 

0 

187,642 

187,642 

0 

0 

127,615 

0 

0 

112,216 

Rack 

Capital 

Cost per 

Facility 

(1997 $) 

0 

0 

49,400 

0 

0 

0 

58,800 

0 

0 

0 

0 

0 

0 

0 

Rack 

Annual 

Cost per 

Facility 

($/yr) 

0 

0 

75,500 

0 

0 

0 

80,730 

0 

0 

0 

0 

0 

0 

0 

LDAR 

Capital 

Cost per 

Facility 

(1997 $) 

0 

7,350 

7,350 

7,350 

0 

11,798 

11,798 

11,798 

0 

7,350 

7,350 

0 

7,350 

7,350 

LDAR 

Annual 

Cost per 

Facility 

($/yr) 

0 

22,785 

22,785 

22,785 

0 

87,752 

87,752 

87,752 

0 

22,785 

22,785 

0 

22,785 

22,785 

Total 

Capital 

Cost per 

Facility 

(1997 $) 

2,500 

9,850 

482,408 

433,008 

2,500 

14,298 

1,311,424 

1,252,624 

2,500 

9,850 

610,175 

2,500 

9,850 

477,837 

Annual 

Control 

Cost per 

Facility 

($/yr) 

0 

22,785 

162,225 

86,725 

0 

87,752 

356,124 

275,394 

0 

22,785 

150,400 

0 

22,785 

135,001 

MRR 

Annual 

Cost/Facil. 

(S/yr) 

16,400 

19,400 

23,200 

19,400 

16,400 

19,300 

23,100 

19,300 

13,300 

13,800 

13,800 

13,300 

14,700 

14,700 

Total Ann. 

Cost/Facil. i 

(S/_yr) 

16,400 

42,185 

185,425 

106,125 

16,400 

107,052 

379,224 

294,694 

13,300 

36,585 

164,200 

13,300 

37,485 

149,701 

C 

Total 

Capital 

Cost for 

\ll Facilities 

(1997 $) 

25,000 

68,950 

4,824,080 

1,732,032 

6,650,062 

32,500 

114,384 

15,737,088 

6,263,120 

22,147,092 

31,865,162 

22,500 

108,350 

3,661,050 

3,791,900 

7,500 

29,550 

1,433,511 

1,470,561 

5,262,461 

Total 

Annual 

Cost for 

All Facilities 

(S/yr) 

164,000 

295,295 

1,854,250 i 

424,500 

2,738,045 

213,200 

856,416 

4,550,688 

1,473,470 

7,093,774 

11,620,871 

119,700 

402,435 

985,200 

1,507^35 

39,900 

112,455 

449,103 

601,458 

2,108,793 

(continued) 
< ^ 

-a 

Table 3-1. Facility and Nationwide Control Costs for the Proposed OLD MACT (continued) 

Model 

Plant 

51-1 

Totals 

51-2 

OJ 

OS 

Totals 

Totals 

for 

SIC 51 

Grand 

Totals 

Note: 

Number 

of 

Facilities 

Affected 

7 

6 

5 

6 

24 

5 

4 

4 

4 

17 

41 

651 

Tank 

Capital 

Cost per 

Facility 

(1997 $) 

0 

0 

114,256 

114,256 

0 

0 

119,229 

119,229 

Tank 

Annual 

Cost per 

Facility 

($/yr) 

0 

0 

26,668 

26,668 

0 

0 

20,314 

20,314 

Rack Rack 

Capital Annual 

Cost per Cost per 

Facility Faciliry 

(1997 $) ($/yr) 

0 0 

0 0 

0 0 

40,800 69,915* 

0 0 

0 0 

0 0 

40,800 69,915 

LDAR 

Capital 

Cost per 

Facility 

(1997 $) 

0 

7,350 

7,350 

7,350 

0 

7,350 

7,350 

7,350 

rwo facilities, one in Model Plant 29-ND and one in Model Plant 51 -

affected facilities is 649. 

LDAR 

Annual 

Cost per 

Facility 

Mr) 

0 

22,785 

22,785 

22,785 

0 

22,785 

22,785 

22,785 

Total 

Capital 

Cost per 

Facility 

(1997 $) 

2,500 

9,850 

124,106 

164,906 

2,500 

9,850 

129,079 

169,879 

Annual 

Control 

Cost per 

Facility 

($/yr) 

0 

22,785 

49,453 

119,368 

0 

22,785 

43,099 

113,014 

MRR Annual Total Ann. 

Cost/Facil. 

(S/yr) 

16,400 

19,400 

19,400 

23,300 

16,400 

19,500 

19,500 

23,400 

1, have been found to be exempt due to their very smal 

Cost/Facil. 

($/yr) 

16,400 

42,185 

68,853 

142,668 

16,400 

42,285 

62,599 

136,414 

throughput. 

Total 

Capital 

Cost for 

All Facilities 

(1997 $) 

17,500 

59,100 

620,530 

989,436 

1,686,566 

12,500 

39,400 

516,316 

679,516 

1,247,732 

2,934,298 

94,421,542 

-

Total 

Annual 

Cost for 

All Facilities 

($/yr) 

114,800 

253,110 

344,265 

856,008 

1,568,183 

82,000 

169,140 

250,396 

545,656 

1,047,192 

2,615375 

41375,895 

The actual grand total number of 

-
P.67 

SECTION 4 

ECONOMIC IMPACT ANALYSIS: METHODS AND RESULTS 

The proposed NESHAP requires distributors of nongasoline organic liquids to meet 

emission standards for the release of HAPs into the environment. To meet these standards, 

firms will have to modify their plant and equipment and institute leak detection and repair 

procedures. These changes result in higher costs of production for the affected producers. 

They may also have broader societal implications because these effects are transmitted 

through market relationships to their customers. 

The OLD rulemaking will increase the costs of distributing organic liquids. 

Specifically, the costs of several general types of businesses are expected to increase. These 

businesses include facilities that manufacture and distribute organic chemicals and/or 

nongasoline petroleum products and facilities that specialize in the distribution of these 

products. Ofthe latter facilities, some are owned by companies that also manufacture the 

products, while others are independent businesses that only distribute the products. 

4.1 Overview of Economic Modeling Approaches 

Several types of economic impact modeling approaches have been developed to 

support regulatory development. Models incorporating different levels of economic 

decisionmaking can generally be categorized as with behavior responses (behavioral 

approach) and without behavior responses (nonbehavioral/accounting approach). 

The behavioral approach is grounded in economic theory related to producer and 

consumer behavior in response to changes in market conditions. In essence, this approach 

models the expected reallocation of society's resources in response to a regulation. The 

behavioral approach explicitly models the changes in market prices and production. 

Resulting changes in price and quantity are key inputs into the determination of a number of 

important phenomena in an EIA, such as changes in producer surplus, changes in consumer 

surplus, and net social welfare effects. For example, a large price increase may imply that 

consumers bear a large share ofthe regulatory burden, thereby mitigating the impact on 

4-1 

6& 
P.68 

producers' profits and plant closures. The following describes the methods and results of this 

approach. 

In contrast the nonbehavioral/accounting approach essentially holds fixed all 

interaction between facility production and market forces. In this approach, a simplifying 

assumption is made that the firm absorbs all control costs, and the analysis assesses the 

burden ofthe control costs under this assumption. Typically, engineering control costs are 

then compared to facility, company, or industry sales to evaluate the regulation's economic 

impact. The Agency employed a nonbehavioral approach to conduct an initial screening 

analysis of impacts on small businesses (described in Section 5). 

4.2 Conceptual Approach 

EPA developed a simple competitive market model in which buyers and sellers exert 

no individual influence on market prices of three commodities potentially affected by the 

rule: petroleum and chemical products and merchant organic liquid distribution services. 

Prices in these markets are set by the collective actions of producers and consumers, who 

take the market price as a given in making their production and consumption choices. EPA's 

model compares baseline conditions in the two product markets and the merchant distribution 

service market to with-regulation conditions in those markets. Because the suppliers of 

organic chemicals and petroleum liquids are also the demanders of merchant services, EPA 

paid particular attention to the interactions between the markets. 

With the regulation, the costs of production increase for organic liquid suppliers and 

distributors because they incur additional costs associated with the proposed rule. 

Incorporating these regulatory control costs is represented by an upward shift ofthe aggregate 

supply curve in each ofthe three markets. In addition, the increased costs incurred by organic 

liquid and petroleum product facilities reduces their demand for merchant distribution 

services. 

At the new equilibrium with the regulation, the market prices of organic chemcials 

and petroleum products increase and output in those markets (as determined from the market 

demand curve, D") declines. In the market for merchant distribution services, market 

quantity declines. However, depending on the interaction ofthe decrease in demand and the 

decrease in supply in that market, the market price may either increase or decrease. Figure 

4-1 illustrates the theory underlying estimation ofthe economic impacts ofthe rule. 

4-2 

(*"1 
P.69 

% <ll q/t 

a) Quantity of organic liquid distributed by SICs 28 and 29 

P, "T7> 

b) Quantity of organic liquids distributed by merchant distributors 

Figure 4-1. Market Responses to the OLD NESHAP 

4-3 

70 
P.70 

4.2.1 Operational Model 

To develop quantitative estimates of economic impacts, the Agency developed an 

operational model using spreadsheet software. As described below and in detail in Appendix 

A, this model characterizes baseline supply and demand and the behavioral responses to 

changes in costs and/or market prices. 

4.2.1.1 Market Supply 

For each organic liquid market, EPA defines market supply as the sum of domestic 

and foreign supply. Domestic supply is the sum of baseline quantities supplied by facilities 

within the market. EPA obtained questionnaire data on baseline quantities of liquids 

distributed by a sample of facilities, and estimated the quantities distributed by the rest ofthe 

estimated universe of OLD facilities as described in Appendix B. Each supply function's 

parameters were calibrated using baseline production, price data, and the responsiveness of 

supply to changes in price (supply elasticity). 

4.2.1.2 Market Demand 

Similar to supply, the Agency modeled two aggregate consumers (domestic and 

foreign) in each product market, and domestic demand for distribution, with downwardsloping demand curves that are consistent with the theory of demand. This characterization 

simply indicates that consumption of commodities is high at low prices and low at high 

prices. The Agency constructed demand functions for each consumer using baseline 

quantity, price data, and assumptions about the responsiveness to changes in price (demand 

elasticity). EPA obtained estimated demand elasticities for the liquid markets from previous 

EPA economic impact analyses. The elasticity of demand for distribution services, like the 

demand itself, is derived from the demand for the Uquids being distributed. 

4.2.1.3 Control Cost Inputs and With-Regulation Equilibrium 

The proposed OLD NESHAP will increase the cost of distributing organic liquids, 

which will increase the costs of facilities producing organic liquids both directly (because 

they also distribute organic liquids) and indirectly (because they purchase merchant 

distribution services, whose costs will also increase due to the proposed regulation). The 

increased cost and reduced quantity of organic liquids distributed by producing facilities also 

reduces the demand for merchant distribution services. EPA's analysis estimates the 

4-4 

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adjustment in equilibrium quantity at each distribution facility and in each market, using the 

model described in Appendix A. 

Many ofthe facilities potentially affected by the proposed regulation are located in 

1-hour ozone nonattainment areas. These facilities probably have many ofthe controls and 

processes on which the estimated costs of compliance are based in place at baseline. The 

costs of compliance for these facilities would likely be much lower than the costs estimated 

by EPA. They would therefore incur lower impacts as a result ofthe regulation, and the 

market adjustments would be somewhat smaller. To account for these differences, EPA 

conducted two sensitivity analyses. Sensitivity Analysis A decreases estimated compliance 

costs for facilities located in 1-hour ozone nonattainment areas by the amount of leak 

detection and repair (LDAR) costs and monitoring, recordkeeping, and reporting (MRR) 

costs. Sensitivity Analysis B reduces their costs by the amount of MRR costs only. The 

results of these two sensitivity analyses are shown in Appendix C. 

4.2.2 Results 

The theory presented above suggests that producers attempt to mitigate the impacts of 

higher-cost production by shifting the burden on to other economic agents to the extent the 

market conditions allow. We would expect the model to project upward pressure on prices 

for merchant distribution services as producers reduce output rates in response to higher 

costs. Increased price of merchant services, plus direct costs of compliance for organic liquid 

producers that also distribute, results in increased prices for organic liquids as producers 

reduce output rates to respond to higher costs. Higher prices reduce quantity demanded and 

output for organic liquids, leading to changes in economic surplus to consumers and 

profitability of firms. Reduced production of organic liquids reduces the demand for 

merchant distribution services. These interacting market adjustments determine the social 

costs ofthe regulation and its distribution across stakeholders (producers and consumers). 

4.2.3.1 Market- and Industry-Level Impacts 

The increased cost of production due to the regulation is expected to slightly increase 

the price of petroleum and chemical products and reduce their production/consumption from 

baseline levels. As shown in Table 4-1, the regulatory alternative is projected to increase 

prices by less than 0.02 percent in the markets for petroleum products and organic chemicals. 

Domestic production of petroleum products declines by 0.055 million Mt and domestic 

chemical production declines by 0.035 million Mt. Supply from foreign producers (imports) 

4-5 

72 
P.72 

Table 4-1. Market-Level Industry Impacts of the Proposed Organic Liquid 

Distribution (OLD) NESHAP: 1997 

Petroleum Products 

Price ($/metric ton) 

Quantity (IO6 metric tons/yr) 

Domestic 

Foreign 

Chemical Products 

Price ($/metric ton) 

Quantity (IO6 metric tons/yr) 

Domestic 

Foreign 

Distribution Services 

Price ($/metric ton) 

Quantity (IO6 metric tons/yr) 

Baseline 

$191.84 

2,365 

1,924 

441 

$498.65 

202 

191 

11 

$12.32 

368 

With 

Regulation 

$191.85 

2,365 

1,924 

441 

$498.70 

202 

191 

11 

$12.36 

368 

Chang< 

Absolute 

$0,005 

-0.04 

-0.05 

0.01 

$0,054 

-0.03 

-0.03 

0.00 

$0.04 

-0.02 

k 

Relative 

0.003% 

-0.002% 

-0.003% 

0.003% 

0.011% 

-0.016% 

-0.018% 

0.016% 

0.356% 

-0.004% 

increases by 0.015 million Mt in the petroleum market and 0.002 million Mt in the chemical 

market, resulting in a net decline of 0.04 million Mt and 0.033 million Mt respectively (less 

than 0.02 percent). In the market for merchant distribution services, equilibrium quantity is 

projected to decline by 0.016 million Mt, less than 0.01 percent, and market price is projected 

to increase by $0.04, less than 0.5 percent. 

Revenue, costs, and profitability ofthe directly affected industry also change as prices 

and production levels adjust to increased costs associated with compliance. For domestic 

petroleum producers, operating profits are projected to decline by $8.7 million (see Table 

4-2). Operating profit losses are the net result of three effects: decreased revenue, reductions 

in production costs as output declines, and increased control costs. For domestic chemical 

producers, operating profits are projected to decline by $11.4 million. 

4-6 

73 
P.73 

Table 4-2. National-Level Industry Impacts ofthe Proposed Organic Liquid 

Distribution (OLD) NESHAP: 1997 

Absolute Change 

Petroleum 

Revenue -$0.13 

Costs $8.61 

Operating Profit -$8.74 

Facilities 0 

Chemicals 

Revenue -$6.94 

" Costs $4.51 

Operating Profit -$ 11.45 

Facilities 0 

Distribution Services 

Revenue $15.94 

Costs $15.61 

Operating Profit $0.33 

Facilities 0 

Total 

Revenue $8.87 

Costs $28.73 

Operating Profit -$19.86 

Facilities 0 

4.2.3.2 Facility-Level Impact Results 

Using the quantity adjustment equation shown in Appendix A, EPA estimated each 

facility's adjustment to the proposed regulation. First, EPA estimates the change in the 

facility's quantity distributed. EPA then combines the estimated decrease in quantity, 

coupled with the change in the market price for the commodity distributed, to estimate the 

facility's change in revenue. 

4-7 

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P.74 

Detailed information about facility-level profitability was unavailable from ICR 

survey responses. However, Agency estimated the change in each facility's profit, using the 

following formula: 

An = (Ap - Cj)-qn + 0.5(Ap - c^-Aqj (4.1) 

This formula estimates the facility's change in producer surplus based on the change in the 

market price and the facility's quantity and compliance costs. Facility costs are estimated by 

subtracting estimated with-regulation facility profits from with-regulation facility revenues. 

EPA then aggregated the changes in facility revenues, costs, and profits across facilities in 

each market to estimate national-level industry impacts shown in Table 4-2. 

In the petroleum markets, revenues fell slightly, and costs increased, so that overall, 

profits decreased by approximately $8.7 million. In the chemicals market, revenues fell by 

$6.9 million, and costs increased by $4.5 million, so that overall profits fell $11.4 million. 

For the merchant distributors, revenues increased by $15.9 million and costs increased by 

$15.6 million, so profits increased slightly, by $0.3 million. Nationwide, profits fell by 

nearly $20 million across all three affected sectors. 

4.2.3.3 Company-Level Impacts Results 

To analyze the impacts ofthe proposed rule on the companies owning affected 

facilities, EPA estimated the change in profits they would experience as a result ofthe 

regulation. These results are shown in Table 4-3. Generally, the proposed regulation is 

projected to result in slight reductions in the profits of companies owning OLD facilities. No 

company that was profitable at baseline is projected to become unprofitable due to the 

regulation. Of the 41 companies owning facilities analyzed in the market model, two are 

projected to experience increased profits as a result ofthe regulation.: Only one company is 

projected to experience a reduction in profits of more than $0.5 million. Eighteen are 

projected to experience reductions in profits less than $0.1 million, and another 13 are 

projected to experience reductions in profits between $0.1 million and $0.3 million. The 

remaining seven companies are projected to experience reductions in profits of between $0.3 

million and $0.5 million. 

In addition to the companies owning facilities included in the market model, the 

companies owning the Trans-Alaska Pipeline (TAP) will also be impacted. (The TAP was 

4-8 

?x-
P.75 

Table 4-3. Estimated Company-Level Impacts ofthe OLD NESHAP: 1997 

Change in Profits ($106 million) Number of Companies 

Positive 2 

Between-0.1 and 0 18 

Between-0.3 and-0.1 13 

Between -0.5 and -0.3 7 

Greater than -0.5 1 

Total 41 

omitted from the market impacts model because the volume of petroleum transferred via the 

pipeline is so large, and because it is not really competing with other pipeline facilities 

affected.) EPA analyzed the impacts ofthe proposed rule on the company owning the TAP 

by comparing the costs of compliance with company sales. Affected TAP facilities include 

11 pipeline pump stations and the Valdez Marine Terminal. The TAP is owned by the 

Alyeska Pipeline Company, the major partner in which is BP-Amoco. To be conservative, 

EPA compared the TAP's costs with the revenues of BP-Amoco, ignoring revenues of other 

partners. The TAP is estimated to incur $2.7 million to comply with the regulation, which is 

0.004 percent of Amoco's annual sales. If revenues of other pipeline owners were included, 

the estimated costs ofthe proposed rule would represent an even smaller share. EPA thus 

believes that the proposed rule will not impose significant impacts on the owners ofthe TAP. 

In addition to analyzing impacts on companies in general, EPA also examined the 

impacts ofthe regulation on small businesses. This analysis is presented in Section 5. 

4.2.3.4 Social Costs 

The value of a regulatory action is traditionally measured by the change in economic 

welfare that it generates. The regulation's welfare impacts, or the social costs required to 

achieve environmental improvements, will extend to consumers and producers alike. 

Consumers experience welfare impacts due to changes in market prices and consumption 

levels associated with the rule. Producers experience welfare impacts resulting from changes 

in profits corresponding with the changes in production levels and market prices. However, 

it is important to emphasize that this measure does not include benefits that occur outside the 

market, that is, the value of reduced levels of air pollution with the regulation. 

4-9 

7<e 
P.76 

The economic analysis accounts for behavioral responses by producers and consumers 

to the regulation (i.e., shifting costs to other economic agents). This approach provides 

insights on how the regulatory burden is distributed across stakeholders. As shown in Table 

4-4, the economic model estimates the total social cost ofthe rule of $41.4 million. As a 

result of higher prices and lower consumption levels, consumers (domestic and foreign) are 

projected to lose $21.8 million, with chemical consumers accounting for 80 percent ofthe 

total. Domestic producers lose $22.3 million in profits, with chemical producers accounting 

for 85 percent ofthe total. Foreign producers unambiguously gain as a result ofthe 

regulation with profits increasing by $2.7 million. These producers benefit from higher 

prices with additional control costs associated with production. 

Table 4-4. Distribution of Social Costs Associated with Organic Liquids Distribution 

(OLD) NESHAP: 1997 

Value ($106/yr) 

Change in Consumer Surplus -$23.77 

Petroleum -$12.80 

Chemical -$10.97 

Change in Producer Surplus -$16.89 

Domestic Producers -$19.86 

Petroleum -$8.74 

Chemical -$11.45 

Distribution Services $0.33 

Foreign Producers $2.97 

Petroleum $2.39 

Chemical $0.58 

Total Social Cost -$40.70 

4-10 

77 
P.77 

SECTION 5 

SMALL BUSINESS IMPACT ANALYSIS 

Although environmental regulations can affect all businesses, small businesses may 

have special problems complying with such regulations. The Regulatory Flexibility Act 

(RFA) of 1980 requires that special consideration be given to small entities affected by 

federal regulations. The RFA was amended in 1996 by the Small Business Regulatory 

Enforcement Fairness Act (SBREFA) to strengthen its analytical and procedural 

requirements. Under SBREFA, the Agency must perform a regulatory flexibility analysis for 

rules that will have a significant impact on a substantial number of small entities. This 

section focuses on the compliance burden for the small businesses to determine whether this 

proposed rule is likely to impose a significant impact on a substantial number ofthe affected 

small entities (SISNOSE) within this industry. 

5.1 Identifying Small Businesses 

The Small Business Administration (SBA) defines a small business in terms ofthe 

sales or employment ofthe owning entity. These thresholds vary by industry and are 

evaluated based on the industry classification (NAICS code) ofthe affected facility. EPA 

identified 26 different four-digit SIC codes, and an even larger number of NAICS codes, for 

the affected companies. The size standards for these industries range from a maximum Of 

100 to 1,500 employees or from a maximum of $5 million to $18.5 million in revenues. 

Based on the reported company employment or revenue and SIC size standards, EPA 

classified seven ofthe 65 known companies in the survey as small, or 10.6 percent ofthe 

total. Using the scaling methods described in Appendix B, the Agency estimated there are 

potentially 28 small firms affected by the rule, 19 small firms that incur control and MRR 

costs, and 9 small firms that incur only MRR costs. 

5.2 Screening-Level Analysis 

For the purposes of assessing the potential impact of this rule on these small 

businesses, the Agency calculated the share ofthe annual compliance cost relative to baseline 

sales for each company. When a company owns more than one affected facility, the costs for 

each facility it owns are summed to develop the numerator ofthe test ratio. For this 

screening-level analysis, annual compliance costs were defined as the engineering control 

costs imposed on these companies; thus they do not reflect the changes in production 

5-1 
P.78 

expected to occur in response to imposing these costs and the resulting market adjustments. 

The Agency estimated 26 ofthe 28 small firms have cost-to-sales ratios (CSRs) between 0 

and 0.5 percent. Table 5-1 shows CSRs for firms incurring control and MRR costs. The 

remaining two small firms incur costs that are between 1 and 3 percent of sales. Both of 

these firms are classified in model plant group 42 (NAICS 493) and incur control and MRR 

costs. All ofthe nine small firms incurring only MRR costs have CSRs between 0 and 0.5 

percent. The distribution of CSRs presented in Figures 5-1 and 5-2 also shows that small 

firms are not disproportionately affected compared to large firms. 

5.3 Economic Analysis 

The Agency also examined the economic impacts on small businesses under withregulation conditions expected to result from the rule. Unlike the screening analysis 

described above, this approach examines small business impacts in light ofthe expected 

behavioral responses of producers and consumers as described in Section 4. For small 

companies facing control and MRR costs, profits decline from <0.01 to 32.5 percent. The 

median small company's profits decline by approximately 3 percent. For small companies 

facing MRR costs only, profit changes range from +0.1 to -7.3 percent. The median small 

company's profits decline by less than 0.5 percent. No facilities owned by small businesses 

are projected to close. In addition, no small firms become unprofitable as a result of 

incurring the compliance costs of this regulation. 

5.4 Assessment 

The RFA generally requires an agency to prepare a regulatory flexibility analysis of 

any rule subject to notice and comment rulemaking requirements under the Administrative 

Procedure Act or any other statute unless the agency certifies that the rule will not have a 

significant economic impact on a substantial number of small entities. Small entities include 

small businesses, small organizations, and small governmental jurisdictions. 

For purposes of assessing the impacts of today's proposed rule on small entities, small 

entity is defined as 

• a small business whose parent company has fewer than 100 or 1,500 employees, 

depending on size definition for the affected SIC or NAICS code, or a maximum 

of $5 million to $18.5 million in revenues; 

5-2 

£?0 
Table 5-1. Compliance CSRs for Companies by Industry and Company Size: [Control and MRR Costs] (1997)" 

Oft 

<~r. 

Mean 

Median 

Maximum 

Minimum 

Total 

Compliance costs are 

<1% of sales 

Compliance costs are 

sl to 3% of sales 

Compliance costs are 

z. 3% of sales 

Model Plant 

Group 28 

Small Large 

0.13% 0.01% 

0.13% <0.01% 

0.13% 0.02% 

0.13% <0.01% 

Model Plant 

Group 28 

Small Large 

2 53 

2 53 

0 0 

0 0 

] 

Model Plant 

Group 29 

Small Large 

0.09% <0.01% 

0.09% <0.01% 

0.18% 0.02% 

<0.01% <0.01% 

Model Plant 

Group 29 

Small Large 

3 16 

3 16 

0 0 

0 0 

Summary Statistics 

Model Plant 

Group 42 

Small Large 

1.14% 0.20% 

1.14% 0.04% 

2.11% 1.21% 

0.17% <0.01% 

Number of Companies 

Model Plant 

Group 42 

Small 

4 

2 

2 

0 

Large 

29 

27 

2 

0 

Model Plant 

Group 46 

Small Large 

NA 

NA 

NA 

NA 

Model Plant 

Group 46 

Small 

0 

0 

0 

0 

Large 

3 

3 

0 

0 

0.Q1% 

<0.01% 

0.01% 

<0.01% 

Model Plant 

Group 51 

Small Large 

Model Plant 

Group 51 

Small Large 

10 19 

0 19 

10 0 

0 0 

NA 0.01% 

NA 0.01% 

NA 0.02% 

NA <0.01% 

All Affected 

Industries 

Small Large 

19 120 

17 118 

2 2 

0 0 

NA = Not available 

" Facilities were assigned to model plants 28, 29, 42, 46, and 51 depending on the OLD activity taking place at the facility. These two-digit SIC model 

plants do not always correspond to the SIC or NAICS code for the parent company owning the plant. The determination of small business status is 

based on the parent company's NAICS code. 
P.80 

100% 

80% 

Frequency 

60% 

40% 

20% 

0% 

100% 

80% 

o 60% 

c 

o 

3 

£ 40% 

u. 

20% 

0% 

1 

0% >0-0.5% >0.5- >1.0- >3.0- >5.0- >10.0- >20.0% 

1.0% 3.0% 5.0% 10.0% 20.0% 

CSR Range 

a) Small Companies 

a SIC 28 

a SIC 29 

m SIC 42 

m SIC 46 

• SIC 51 

aSIC 28 

D SIC 29 

g, SIC 42 

ffl SIC 46 

• SIC 51 

0% >0-0.5% >0.5- >1.0- >3.0- >5.0- >10.0- >20.0% 

1.0% 3.0% 5.0% 10.0% 20.0% 

CSR Range 

b) Large Companies 

Figure 5-1. Distribution of Compliance CSRs by Industry: [Control and MRR Costs] 

(1997) 

Note: SICs 28,29,42,46, and 51 reflect the model plants to which facilities are assigned. 

5-4 

^ 
P.81 

100% 

80% 

o 60% 

c 

3 

» 40% 

20% 

0% 

100% 

80% 

o 60% 

c 

0) 

3 

S" 40% 

20% 

0% 

0% >0-0.5% >0.5-

1.0% 

>1.0- >3.0- >5.0-

3.0% 5.0% 10.0% 

CSR Range 

a) Small Companies 

>10.0-

20.0% 

>20.0% 

0% >0-0.5% >0.5- >1.0- >3.0-

1.0% 3.0% 5.0% 

>5.0- >10.0- >20.0% 

10.0% 20.0% 

a SIC 28 

D SIC 29 

a SIC 42 

g|SIC46 

• SIC 51 

a SIC 28 

D SIC 29 

H SIC 42 

IB SIC 46 

• SIC 51 

CSR Range 

b) Large Companies 

Figure 5-2. Distribution of Compliance CSRs by Industry: [MRR Only Costs] (1997) 

5-5 

£3 
P.82 

• a small governmental jurisdiction that is a government of a city, county, town, 

school district or special district with a population of less than 50,000; and 

• a small organization that is any not-for-profit enterprise independently owned and 

operated and is not dominant in its field. 

It should be noted that companies in 26 four-digit SIC codes and 42 NAICS codes are 

affected by this proposed rule, and the small business definition applied to each industry by 

SIC code or NAICS code is that listed in the SBA size standards (13 CFR 121). For more 

information on size standards for particular industries, please refer to the economic impact 

analysis in the docket. 

After considering the economic impacts ofthe proposed rule on small entities, EPA 

certifies that this action will not have a significant economic impact on a substantial number 

of small entities. We have determined that only 19 small firms in the industries affected by 

this rule may be affected. Out of the 19 affected small firms, only two firms are estimated to 

have compliance costs that exceed 1 percent of their revenues. The reported impacts on the 

small firms are therefore not considered to be significant. In addition, the rule is likely to 

also increase profits at the many small firms not affected by the rule due to the very slight 

increase in market prices. Finally, while there is a difference between the median compliance 

cost-to-sales estimates for the affected small and large firms (0.26 percent compared to 0.01 

percent for the large firms), no small or large firms are expected to close in response to 

incurring the compliance costs associated with this rule. Therefore, the affected small firms 

are not disproportionately affected by this rule as compared to the affected large firms. 

It also should be noted that the results of this small business analysis are the same 

regardless of which industrial classification (SIC or NAICS) is used. 

Although this proposed rule will not have a significant economic impact on a 

substantial number of small entities, EPA nonetheless has tried to reduce the impact of this 

rule on small entities. In addition, in this rule the Agency is applying the minimum level of 

control to affected sources allowed by the Clean Air Act. We continue to be interested in the 

potential impacts ofthe proposed rule on small entities and welcome comments on issues 

related to such impacts. 

5-6 

<gH 
P.83 

Dun & Bradstreet, 1997 5-2 

5-7 

^ < 
P.84 

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Outlook, 1999. 

U.S. Department of Energy, Energy Information Administration. "The U.S. Petroleum 

Refining and Gasoline Marketing Industry." Overview of Domestic Petroleum 

Refining and Marketing. 

<http://www.eia.doe.gov/emeu/finance/usi&to/downstream/>. As obtained on July 9, 

1999e. 

U.S. Department of Energy, Energy Information Administration. "The U.S. Petroleum 

Refining and Gasoline Marketing Industry." Recent Structural Changes in U.S. 

Refining: Joint Ventures, Mergers, and Mega-Mergers. 

<http://www.eia.doe.gov/emeu/finance/usi&to/downstream/>. As obtained on July 9, 

1999d. 

U.S. Department of Energy, Energy Information Administration. June 1999c. Petroleum 

Supply Annual 1998. Volume 1. DOE/EIA-0340(98)/1. Washington, DC. 

U.S. Environmental Protection Agency (EPA). July 1995. Economic Impact Analysis, for the 

Petroleum Refinery NESHAP, Revised Draft for Promulgation. 

U.S. Environmental Protection Agency (EPA). May 1999. Economic Impact Analysis for the 

Oil and Natural Gas Production and Natural Gas Transmission and Storage 

NESHAP. EPA-452/R-99-003. 

R-5 

90 
P.89 

U.S. Environmental Protection Agency (EPA). November 2000. Technical Support 

Document for the Organic Liquids Distribution (Non-gasoline) Industry. 

Washington, DC: U.S. Environmental Protection Agency, Office of Air Quality 

Planning and Standards, Emission Standards Division. 

U.S. International Trade Commission, Dataweb database, <www.dataweb.usitc.gov>. 

R-6 

ll 
P.90 

APPENDIX A 

REVISED ORGANIC LIQUIDS DISTRIBUTION (OLD) METHODOLOGY 

The primary purpose for the economic impact analysis (EIA) for the proposed 

Organic Liquids Distribution (OLD) rule is to "describe and quantify" the reallocation of 

society's resources in response to the regulatory action. To develop these estimates, we will 

use a basic framework that is consistent with other EIA's performed by the ISEG. This 

approach employs standard microeconomic concepts to model behavioral responses expected 

to occur with regulation. 

We compare baseline conditions in two organic liquid product markets (chemicals 

and petroleum products) and a service market (distribution) in 1997 with with-regulation 

conditions in the same markets. By including the service market, we place particular 

emphasis the interactions between the market for organic liquid products and the market for 

distribution services. 

The proposed regulation will increase the costs of performing distribution services. 

This will increase the costs of facilities producing organic liquids, either directly or 

indirectly. For example, costs will increase for chemical and petroleum manufacturing 

compames performing on-site distribution services. We assume that all producers of organic 

liquids perform onsite distribution, either while bringing their organic liquid inputs into the 

facility, while sending their organic liquid products out ofthe facility, or both. Costs will 

also increase for stand-alone distribution service providers, both independent merchant 

distribution facilities and captive distribution facilities owned by the same companies 

producing the organic Uquids. The increase in the price of merchant distribution services will 

indirectly increase the costs of chemical and petroleum producers purchasing distribution 

services. Figure 4-1, in Section 4, illustrates the interacting market responses. 

This methodology plan describes the proposed model in detail and discusses how the 

Agency will 

• characterize the supply and demand ofthe affected commodities and services at 

the market level, 

A-1 

7"=* 
P.91 

• link three standard partial equilibrium models by specifying the interactions 

between supply functions and then solving for prices and quantities across all 

markets simultaneously, 

• introduce a policy "shock" in the model with control costs inducing shifts in the 

affected supply functions, and 

• use a solution algorithm to determine a new with-regulation equilibrium. 

A.1 Baseline Data Set 

ISEG collected the following market information to characterize the baseline: 

• Market quantities—Using responses from the EPA industry survey, the Agency 

identified known facilities producing petroleum and chemical products potentially 

affected by the proposed rule. Quantities for unknown facilities were developed 

using the procedure described in Appendix B. Import and export quantities for 

these commodities were collected from ChemExpo. Domestic and import 

quantities were aggregated to develop baseline market quantities for the petroleum 

and chemical markets (see Table A-1). The market quantity of distribution 

services is computed by multiplying the estimated share (a) ofthe organic liquid 

product distributed by merchant service providers and the total baseline quantities 

ofthe known and unknown facilities. Using data contained in the facility 

database, the Agency estimated a = 17.4%. 

• Market prices—Petroleum and chemical prices were collected from the Chemical 

Market Reporter. A weighted average price for each aggregate market was 

computed based on the petroleum and chemical quantities. Absent data on the 

market price for distribution services, we assume that the market price is set by 

the highest unit cost service supplier. Using an engineering cost function1 and 

quantities for service providers, the baseline market price for services was 

estimated to be $ 12.32 per metric ton. 

• Supply and demand elasticities—For the chemical and petroleum industries, we 

utilized industry (SIC) elasticities gathered from previous EPA economic impacts 

analyses (EPA, 1995; Shapiro, 1987). For the distribution service industry, we 

have assumed a supply elasticity of one. The model does not specify an 

exogenous demand function for services because this demand is derived from the 

supply decisions ofthe chemical and petroleum producers. Table A-2 shows the 

elasticities used. 

'The engineering cost function used for this analysis is as follows: TC = 598(q/29)og. 

A-2 

3^*7^ 
P.92 

41 

Table A-1. Baseline Data Set, 1997 

Market 

Petroleum 

Chemical 

Distribution Services 

Average Price 

($/metric ton) 

$191.84 

$498.65 

$12.32 

Domestic 

Production 

(10' metric tons) 

1,924 

191 

368 

Imports 

(10' metric tons) 

441 

11 

NA 

Exports 

(10' metric tons) 

25 

8 

NA 

Table A-2. Supply and Demand Elasticities Used in the Market Model 

Market 

Petroleum 

Chemical 

Distribution Services 

Supply 

1.2 

1.5 

1 

Demand 

-0.6 

-1.5 

derived demand 

A.2 Market for Organic Liquid Products 

A. 2.1 Market Supply 

Market supply for the organic liquid product market i can be expressed as: 

Q

Si

 = E q,

 + 9? (A-1) 

where 

Si 

qj = product (i) supply from plant (j), and 

qF = product (i) supply from foreign sources (imports). 

Domestic Facility-Level Supply 

Domestic facilities will be affected by the change in costs of distribution on-site and 

by changes in the price for distribution services. Foreign producers do not face additional 

A-3 
P.93 

costs of production with regulation. However, their output decisions are affected by price 

changes expected to result from the regulation. The facility survey did provide sufficient 

information on baseline revenues, costs, or profits. Therefore, estimates ofthe change in 

supply were generated as follows: 

Si Si 

% = <ljO ' 1 + 8' Si Ap-Cj-aAps 

PiO J J 

(A.2) 

where 

Si qj! is the with regulation supply for facility j , 

Si qj0 is the baseline supply for facility j , 

a 

Ap 

e

5

" is the domestic supply elasticity, 

APj is change in price for market i, 

c

j is the per-unit control costs for facility j , 

is the share of output distributed through merchant terminals, 

is the change in the price of merchant services, and 

PiO is the baseline price for market i. 

Foreign Supply (imports) 

Foreign producers do not face additional costs of production with regulation. 

However, their output decisions are affected by price changes expected to result from the 

regulation. Therefore, changes imports were modeled as follows: 

„

S i

- X1 

<1FI- <1FV 

I 

l + e5' l + 

Pto 

(A.3) 

A-4 

f&-
P.94 

where 

Si 

qF1 is the with regulation imports for market i, 

Si 

qF0 is the baseline imports for market i, 

e

5

" is the foreign supply elasticity, 

APj is the change in price for market i, and 

Pio is the baseline price for market i. 

A.2.2 Market Demand 

Market demand for market i can be expressed as the sum of domestic and foreign 

demand, that is, 

Q

Di Di Di 

= qdom+ qF 

(A.4) 

where qd0'm is the domestic demand and qF' is the foreign demand (or exports). 

Domestic Demand 

Changes in domestic demand for each market was computed as follows: 

Di _ Di 

^doml" QdomO 1 + n Di 1 + 

AP, (A.5) 

where 

Di 

qdoml is the with regulation demand for market i, 

Di q<iomo is m e

 baseline domestic consumption for rnarket i, 

A-5 

Xffr 
P.95 

r\ is the domestic demand elasticity, 

APj is the change in price for market i, and 

PJO is the baseline price for market i. 

Foreign Demand (Exports) 

Changes in domestic demand for each market was computed as follows: 

Di Di 1 + xf' • Ml I p«)\ 

(A.6) 

where 

Di 

qF1 is the with regulation exports for market i, 

Di 

qF0 is the baseline exports for market i, 

r|Dl is the foreign demand elasticity, 

Ap( is the change in price for market i, and 

Pio is the baseline price for market i. 

A3 Market for Old Distribution Services 

A.3.1 Market Supply 

Market supply for OLD distribution services can be expressed as 

Q

s

~ - E if (A.7) 

A-6 

1Z. 
where 

supply from plant (j) providing distribution services. 

Domestic Facility-Level Supply 

P.96 

Si Si 

<ljl = Ijo 1 + e' Si 

PiO 

(A.8) 

where 

Si 

qj i is the with regulation supply for facility j , 

Si 

qj0 is the baseline supply for facility j , 

e is the domestic supply elasticity, 

Ap 

Svc is the change in price for the service market, 

c

j is the per-unit control costs for facility j , and 

Psvco is the baseline price for the service market. 

A.3.2 Market Demand 

Q

D

- = E qj' 

Dsvc (A.9) 

As noted above, demand for services is derived form the supply decisions of chemical 

and petroleum producers. Therefore, individual facility demand, qj

 ,vc

, is computed as 

follows: 

Dsvc Si 

qj = a-q, 

(A.10) 

A-7 

TX. 
P.97 

EPA, 2000 A_2 

A-8 

3± 
P.98 

APPENDIX B 

ECONOMIC COMPUTATIONS 

To prepare the baseline for the economic impact analysis ofthe OLD NESHAP, EPA 

used data from a variety of sources, including publicly available data on the chemical and 

petroleum industry, publicly available data on distribution firms and the independent liquid 

terminals, and data provided by respondents to the Agency's Organic Liquid Distribution 

Questionnaire. To establish the baseline for each affected facility and sector, EPA needed to 

estimate 

• baseline quantity of product (chemical or petroleum liquid) at each facility and for 

the sector as a whole; 

• baseline quantity distributed through captive distribution system, for each facility 

and sector-wide; 

• baseline quantity distributed through merchant distributors, for each facility and 

sector-wide; and 

• baseline price of chemicals, petroleum liquids, and merchant distribution services. 

B.1 Baseline Quantities of Chemicals and Petroleum Liquids Distributed by Each 

Facihty 

All organic liquids produced and marketed in the United States must be distributed. 

Thus, EPA expects that all organic liquids (except gasoline) sold in the U.S. will be affected 

by the proposed OLD NESHAP. EPA has data on organic liquids distribution facilities 

responding to the OLD questionnaire, and the quantities of organic liquids they distribute. 

The questionnaire data provide infonnation on a subset of organic liquids, distributed by a 

subset of organic liquid distributors. To construct the model's baseline, EPA first examined 

the database information, then developed a method for estimating the volume of organic 

liquids distributed by the "unknown" organic liquids distribution facilities. This section 

describes these methods. 

B-l 

; /oO 
P.99 

B.I.I Quantities of Organic Liquids Distributed Onsite and Off-site by Known OLD 

Facilities 

To compute the baseline quantity of product distributed at each facility, EPA began 

with the OLD questionnaire database information on quantities of each organic liquid 

transferred at each facility. EPA first designated each product distributed by these "known" 

facilities as either organic chemical or petroleum liquid, then aggregated across products to 

estimate the quantity of chemicals and/or petroleum products distributed at each known 

facility. 

Facilities in model plant groups 28 and 29 are assumed to both produce and distribute 

organic liquids. The increased costs associated with the proposed regulation are assumed to 

directly increase their costs of supplying delivered organic liquids to the organic liquid 

markets they serve. Facilities in model plant groups 42,46, and 51 offer off-site distribution 

services to the producers and consumers of organic liquids. EPA does not have sufficient 

data to be able to determine which ofthe off-site suppliers of OLD services offer their 

distribution services to each organic liquid producer. Thus, EPA has assumed that all ofthe 

off-site distribution facilities are merchant suppliers of distribution services, who supply 

these services to the distribution market. Similarly, EPA is not able to determine which of 

the organic liquid producers purchase off-site distribution services and which ones supply 

their organic liquids directly to customers. EPA has computed the share of organic liquid 

distribution that takes place at off-site facilities (17.4 percent) and assumes that all organic 

liquid producers distribute 17.4 percent of their output through off-site distributors. This is 

clearly a simplification that reduces the variability of secondary impacts ofthe NESHAP on 

organic liquid producers. In the absence of more detailed information, however, it is a 

reasonable simpUfying assumption. 

For the market model, EPA assumes that companies owning more than one OLD 

facility regard their individual facilities as part of a single integrated production and 

distribution operation. Thus, we model supply at the company level, rather than at the 

facility level, by summing the quantities distributed at all facilities owned by a company 

within each model plant group. This is probably a simplification in that companies would 

consider the profitability of individual facilities incurring unusually high compliance costs in 

addition to considering the profitability ofthe overall operation. 

B-2 

ZOL 
B.1.2 Estimating Quantities of Organic Liquids Distributed by Unknown OLD Facilities 

To complete the baseline characterization of quantities of organic liquids distributed 

by OLD facilities, EPA created pseudo-facilities and assigned quantities of organic liquids to 

them. EPA has an estimate of the number of OLD facilities represented by each model plant. 

Subtracting known OLD facilities from the database that are assigned to each model plant 

from the total number represented by each model plant yields an estimated number of 

unknown plants in a model plant group. The unknown facilities are divided between those 

incurring only monitoring, recordkeeping, and reporting costs (MRR-only facilities) and 

those incurring costs of compliance control and MRR costs. Table B-l presents the number 

of known and unknown facilities by model plant group. 

Table B-l. Number of Known and Unknown Facilities by Model Plant Group 

Model Plant 

Group 

28 

29 

42 

46 

51 

Total 

Total 

Facilities 

370 

110 

94 

35 

40 

649 

Known 

Facilities 

53 

33 

18 

7 

5 

116 

Unknown Facilities Incurring 

Control and MRR Costs 

191 

38 

44 

16 

22 

311 

MRR-Only 

Facilities 

126 

38 

32 

12 

12 

220 

EPA used a two-step process to estimate the quantity of organic liquids distributed by 

the unknown facilities. First, for model plant groups 28 and 29, EPA assigned quantities 

randomly over the interval between the minimum and maximum quantities distributed by 

facilities in each model plant group. Then, EPA estimated the total quantity of merchant 

distribution services demanded by these unknown facilities in model plant groups 28 and 29 

by multiplying their total distribution times 0.174. EPA allocated employment to the 

unknown facilities within each model plant group randomly over the range of actual 

employment for known facilities in each model plant group and allocated the merchant 

distribution quantity to these facilities proportional to their estimated employment. 

In the absence of information about company ownership ofthe unknown facilities, 

EPA makes the conservative assumption that the facilities are owned by single-faciUty 

B-3 

S03. 
p.1 

companies. This means that the companies owning the unknown facilities are modeled as 

being smaller than the companies owning the known facilities, on average. 

It should be noted that EPA analyzed the Trans-Alaska Pipeline (TAP) differently 

from other merchant distributors. According to the OLD database, the TAP distributes 

715,851,794 Mt per year, 55 times the total for all other model plant group 46 firms. This 

volume of crude oil also represents more than half of the total market quantity of petroleum 

products distributed in the U.S. in a year. Clearly, the TAP is completely different from the 

other "merchant" distributors in our database. For this reason, EPA has chosen to model the 

impacts ofthe NESHAP on the TAP separately from the market model. The impact ofthe 

proposed rule on the owners ofthe TAP will be approximated by examining the costs ofthe 

rule for the TAP as a share ofthe baseline company revenues ofthe largest shareholder in the 

consortium that owns and operates the TAP (BP/Amoco). 

B.2 Market Prices of Organic Liquids and Distribution Services 

EPA obtained data on product-specific prices for organic liquids mentioned in the 

OLD database. EPA estimates the market price for organic chemicals as the quantityweighted average ofthe prices for organic liquids designated as organic chemicals. 

Similarly, EPA estimates the market price for petroleum liquids as the quantity-weighted 

average ofthe prices for organic liquids designated as petroleum liquids. 

The market price of organic liquid distribution services was found by first estimating 

the cost of OLD services, then setting the price equal to the maximum average cost. The 

costs of distribution services were estimated based on loading, unloading, and tank storage 

costs, scaled to the volume of liquid distributed. Baseline costs of merchant distribution 

services range from $1.68/Mt to $12.32/Mt. The baseline market price of distribution 

services is thus set at $ 12.32/Mt. 

B.3 Compliance Costs per Facility 

EPA estimated costs of complying with the proposed rule based on 13 model plants, 

and assigned each known facility to a model plant. Within each model plant, a range of 

compliance costs are possible depending on the baseline equipment and processes in place at 

a facility. EPA has estimated costs for facilities that will only have to implement monitoring, 

recordkeeping, and reporting (MRR). All ofthe MRR-only facilities fall within the unknown 

facility group. For facilities needing to implement control and MRR, EPA has estimated 

costs that reflect this range of compliance experiences, but is unable to determine which 

B-4 

^ /<? 
P.2 

/°*1, 

specific costs within a model plant apply to a particular known facility. To implement the 

economic impact analysis, EPA has therefore assigned the median control and MRR 

compliance cost for each model plant to all known facilities assigned to that model plan. 

EPA then allocated the residual costs across the unknown facilities simulated for each model 

plant group code, based on the total number of facilities within each model plant incurring 

the high, low, or medium costs for that model plant, shown in Table 3-1. Because the costs 

are randomly assigned to individual simulated facilities, EPA may be over- or underestimating the costs of compliance that would be experienced by plants such as those 

simulated for this analysis. 

Because some ofthe OLD facilities are located in ozone nonattainment areas, and 

would therefore be likely to have LDAR and MRR operations in effect at baseline, EPA also 

prepared sensitivity analyses that reduce the costs of compliance for each facility located 

within a nonattainment area by the amount of MRR costs and by the sum of MRR and LDAR 

costs. 

B.3.1 Scaling Nonbehavioral Impacts to Provide Industry- Wide Estimates 

Ofthe 651 facilities potentially affected by the rule, 431 are estimated to incur costs 

for control and MRR. For the nonbehavioral analysis, of company impacts used in the 

SBREFA screening analysis, EPA did not create simulated facilities. Instead, EPA computed 

scaling factors relating the number of known facilities to the total number of facilities within 

each model plant group (see Table B-2): 

where 

N: (B.l) 

Nj = number of facilities estimated to incur compliance costs for control and MRR 

for model plant group i, and 

i^ = number of known facilities in model plant group i. 

Using these scaling factors, we estimate the impacts incurred by the all 431 facilities 

that have costs for control and MRR. Note that, because the number of known facilities in 

model plant group 46 exceeds the number in the engineering cost analysis, we scale impacts 

down for this model plant group. This method also assumes that the 183 facilities estimated 

to 

B-5 
P.3 

Table B-2. Facility Counts and Scaling Factor for each Model Plant Group 

Model plant 

28 

29 

42 

46 

51 

group 

Number of Facilities in 

Model Plant Group, 

According to Cost 

Analysis 

244 

73 

62 

23 

29 

Number of Facilities in 

Model Plant Group in 

Database 

120 

59 

32 

27 

10 

Scaling Factor 

2.033 

1.237 

1.937 

0.851 

2.900 

incur costs for control and MRR that are unknown are similar to the known facilities in the 

same model plant group. 

In addition to the 183 facilities accounted for using the scaling factors above, there are 

220 facilities projected to incur only MRR costs. To estimate the costs for these, we use a 

different scaling factor (see Table B-3). First, we estimate test ratios for known facilities by 

model plant group, using only the MRR costs. Then we scale those results using the ratio 

Ms 

n. 

(B.2) 

where , 

Mf = number of facilities estimated to incur only MRR costs in model plant group i, 

and 

n^ = number of known facilities in model plant group i. 

Using this method, we estimate impacts that would be incurred by all facilities in each model 

plant group code incurring only MRR costs. This method assumes that the facilities incurring 

only MRR costs are similar to the known facilities in the same model plant group code. 

B-6 

/os~ 
P.4 

B.4 Company-Level Factors: Cost-to-Sales Ratios (CSRS) and Scaling Factors 

To assess the potential economic impact ofthe rule on companies, the Agency 

calculated a cost-to-sales ratio as follows: 

CSR (%) i = l 

Sales 

100 (B.3) 

where ECfl is the sum ofthe annual control cost for all facilities owned by company p and 

sales is the total revenue for company p. 

Table B-3. Scaling Factors for Facilities Incurring Only MRR Costs 

Model Plant 

Code 

28 

29 

42 

46 

51 

Group 

Number of Facilities in 

Model Plant Group 

With Only MRR Costs 

126 

38 

32 

12 

12 

Number of Facilities in 

Model Plant Group in 

Database 

120 

59 

32 

27 

10 

Scaling Factor 

1.050 

0.644 

1.000 

0.444 

1.200 

Baseline company profit margins were collected from secondary source data (see 

Section 2). If these margins were not available, an industry profit margin (D&B return-onsales) was used for the company. With-regulation profit margins were computed by 

subtracting the CSR from the baseline profit margin. 

B.4.1 Scaling Company Impacts to Provide Industry-Wide Estimates 

To estimate company impacts on an industry-wide basis, the Agency used a scaling 

process similar to the approach used for facilities. First, we assign a company model plant 

group based on the model plant group for the largest number of facilities owned by the 

B-7 

/£>G 
P.5 

company. Next, we compute the average number of facilities per company by model plant 

group, based on the facilities and companies in the database as follows: 

n. 

(B.4) 

where 

F = number of firms, 

n = number of facilities, and 

k = known facilities in database. 

We then create a company scaling factor for each modelplant group by dividing the total 

number of facilities (with control and MRR costs or MRR costs only) by the average number 

of facilities per company. This method provides an estimate ofthe total number of 

companies in that model plant group. 

n

t 

n,. 

(B.5) 

where 

F = number of firms, 

n = number of facilities, 

k = known in database, and 

t = total number affected. 

Next, we compute the scaling factor for the model plant group as the ratio ofthe estimated 

total number of companies divided by the companies in the database. 

B-8 

/°i 
ifi _ 

s = (B.6) 

Finally, we tabulate the cost-to-sales and profit margin results by model plant group and scale 

it up using the scaling factor. 

B-9 

/ * 
P.7 

APPENDIX C 

OLD ECONOMIC IMPACT ANALYSIS: SENSITIVITY ANALYSIS 

To provide an alternative set of results that incorporate differing assumptions about 

baseline controls at affected plants, EPA conducted sensitivity analysis, varying the costs 

assigned to facilities depending on whether they are located in ozone nonattainment areas. 

EPA expects that facilities located in 1-hour ozone nonattainment areas will have MRR and 

perhaps also LDAR operations in effect at baseline. Such facilities would not incur the full 

estimated compliance costs, but rather they would incur the estimated total annual cost minus 

either monitoring recordkeeping and reporting and leak detection and repair costs (Sensitivity 

Scenario A) or total annual costs minus monitoring, recordkeeping and reporting (Sensitivity 

Scenario B). This appendix presents results of these sensitivity analyses. Tables C-l through 

C-3 present the results of Sensitivity Scenario A, and Tables C-4 through C-6 present the 

results of Sensitivity Scenario B. 

Overall, if facilities in ozone nonattainment areas have monitoring, recordkeeping, 

and reporting operations in place at baseline (Sensitivity Scenario B), the social cost ofthe 

proposed rule will be $39.7 million instead of $40.7 million. Operating profits will fall by 

$19.4 million nationwide as opposed to $19.9 million. Price and output changes will also be 

somewhat diminished. If in fact affected facilities located in ozone nonattainment areas have 

both leak detection and repair and monitoring, recordkeeping, and reporting operations in 

effect at baseline, estimated impacts ofthe proposed rule will be even smaller. Social cost 

will be $38.2 million rather than $40.7 million, and profits will fall by $18.7 million rather 

than $19.9 million. 

C-l 

/ * $ 
P.8 

Table C-l. Market-Level Industry Impacts ofthe Proposed Organic Liquid 

Distribution (OLD) NESHAP: 1997 

Sensitivity A: No LDAR or MRR for Nonattainment Area Facilities 

Petroleum Products 

Price ($/metric ton) 

Quantity (IO6 metric tons/yr) 

Domestic 

Foreign 

Chemical Products 

Price ($/metric ton) 

Quantity (IO6 metric tons/yr) 

Domestic 

Foreign 

Distribution Services 

Price ($/metric ton) 

Quantity. (IO6 metric tons/yr) 

Baseline 

$191.84 

2,365 

1,924 

441 

$498.65 

202 

191 

11 

$12.32 

368 

With 

Regulation 

$191.84 

2,365 

1,924 

441 

$498.70 

202 

191 

11 

$12.36 

368 

Changi 

Absolute 

$0,005 

-0.04 

-0.05 

0.01 

$0,052 

-0.03 

-0.03 

0.00 

$0.04 

-0.01 

Relative 

0.003% 

-0.002% 

-0.003% 

0.003% 

0.010% 

-0.016% 

-0.017% 

0.016% 

0.329% 

-0.004% 

C-2 

y/o 
P.9 

Table C-2. National-Level Industry Impacts ofthe Proposed Organic Liquid 

Distribution (OLD) NESHAP: 1997 

Sensitivity A: No LDAR or MRR for Nonattainment Area Facilities 

Absolute Change 

Petroleum 

Revenue -$0.12 

Costs $7.92 

Operating Profit -$8.04 

Facilities 0 

Chemicals 

Revenue -$6.60 

Costs $4.33 

Operating Profit -$10.94 

Facilities 0 

Distribution Services 

Revenue $14.75 

Costs $14.51 

Operating Profit $0.24 

Facilities 0 

Total 

Revenue $8.03 

Costs $26.77 

Operating Profit -$18.74 

Facilities 0 

C-3 

/ / / 
P.10 

Table C-3. Distribution of Social Costs Associated with Organic Liquids Distribution 

(OLD) NESHAP: 1997 

Sensitivity A: No LDAR or MRR for Nonattainment Area Facilities 

Value (SlOVyr) 

Change in Consumer Surplus -$22.18 

Petroleum -$11.74 

Chemical -$10.45 

Change in Producer Surplus -$16.00 

Domestic Producers -$18.74 

Petroleum -$8.04 

Chemical -$10.94 

Distribution Services $0.24 

Foreign Producers $2.74 

Petroleum $2.19 

Chemical $0.55 

Total Social Cost -$38.20 

C-4 

//?-
P.11 

Table C-4. Market-Level Industry Impacts ofthe Proposed Organic Liquid 

Distribution (OLD) NESHAP: 1997 

Sensitivity B: No MRR for Nonattainment Area Facilities 

Petroleum Products 

Price ($/metric ton) 

Quantity (IO6 metric tons/yr) 

Domestic 

Foreign 

Chemical Products 

Price ($/metric ton) 

Quantity (IO6 metric tons/yr) 

Domestic 

Foreign 

Distribution Services 

Price ($/metric ton) 

Quantity (IO6 metric tons/yr) 

Baseline 

$191.84 

2,365 

1,924 

441 

$498.65 

202 

191 

11 

$12.32 

368 

With 

Regulation 

$191.85 

2,365 

1,924 

441 

$498.70 

202 

191 

11 

$12.36 

368 

Changr 

Absolute 

$0,005 

-0.04 

-0.05 

0.01 

$0,053 

-0.03 

-0.03 

0.00 

$0.04 

-0.02 

2 

Relative 

0.003% 

-0.002% 

-0.003% 

0.003% 

0.011% 

-0.016% 

-0.018% 

0.016% 

0.347% 

-0.004% 

C-5 

/££g^//3> 
Table C-5. National-Level Industry Impacts of the Proposed Organic Liquid 

Distribution (OLD) NESHAP: 1997 

Sensitivity B: No MRR for Nonattainment Area Facilities 

Absolute Change 

Petroleum 

Revenue -$0.13 

Costs $8.37 

Operating Profit -$8.50 

Facilities 0 

Chemicals 

Revenue -$6.79 

Costs $4.45 

Operating Profit -$11.24 

Facilities 0 

Distribution Services 

Revenue $15.56 

Costs $15.27 

Operating Profit $0.29 

Facilities 0 

Total 

Revenue $8.64 

Costs $28.08 

Operating Profit -$ 19.44 

Facilities - 0 

C-6 

//H 
P.13 

12* 

Table C-6. Distribution of Social Costs Associated with Organic Liquids Distribution 

(OLD) NESHAP: 1997 

Sensitivity B: No MRR for Nonattainment Area Facilities 

Value ($106/yr) 

Change in Consumer Surplus -$23.16 

Petroleum -$12.41 

Chemical -$10.74 

Change in Producer Surplus -$16.56 

Domestic Producers -$ 19.44 

Petroleum -$8.50 

Chemical -$11.24 

Distribution Services $0.29 

Foreign Producers $2.88 

Petroleum $2.31 

Chemical $0.57 

Total Social Cost -$39.70 

C-7 

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