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# A-98-1 3

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## 6 200 1 EP A AI R DOCKE T 

# Economi c Analysi s o f Ai rPollutio n Regulations : Organi c Liqui d Distributio n

Fina l Report fo rProposa l

Prepare d fo r Joh n L . Sorrel s U.S . Environmenta l Protectio n Agenc y Offic e o f Ai rQualit y Plannin g an d Standard s Innovativ e Strategie s an d Economic s Grou p (ISEG ) (MD-15 ) Researc h Triangl e Park , N C 2771 1 Prepare d b y Katherin e Helle r Brook s M . Depr o Researc h Triangl e Institut e Cente rfo rEconomic s Researc h Researc h Triangl e Park , N C 2770 9 EP A Contrac t Numbe r68-D-99-02 4 RT I Projec t Numbe r7647-002-13 4 Februar y 200 1

/P. 3

EP A Contrac t Numbe rRT I Projec t Numbe r 68-D-99-02 4 7647-002-13 4 

# Economi c Analysi s o f Ai rPollutio n Regulations : Organi c Liqui d Distributio n

Fina l Report fo r Proposa l

Februar y 200 1 Prepare d fo r Joh n L . Sorrel s U.S . Environmenta l Protectio n Agenc y Offic e o f Ai rQualit y Plannin g an d Standard s Innovativ e Strategie s an d Economic s Grou p (ISEG )

(MD-15 ) Researc h Triangl e Park , N C 2771 1

Prepare d by Katherin e Helle r Brook s M . Depr o Researc h Triangl e Institut e Cente rfo rEconomic s Researc h Researc h Triangl e Park , N C 2770 9 

# 3P. 4

CONTENT S Sectio n Pag e 1 Introductio n an d Executiv e Summary 1- 1 1. 1 Profil e o

f th e Affecte d Industrie s 1- 1 1. 2 Th e Cost s of

th e OL D NESHA P 1-3 1. 3 Estimate d Economi c Impact s o f th e OL D NESHA P 1- 4 1.3. 1 Marke t

Response s t o th e NESHA P 1- 4 1.3.1. 1 Market

- an d Industry-Leve l Impact s 1- 5 1.3.1. 2 Facility-Leve l Impac t Result s 1- 6 1.3.1. 3 Company-Leve l Impact s Result s 1-6 1.3.1. 4 Social Cost s 1- 7 2 Industry Profil e 2- 1 2. 1 Brie f

Descriptio n o f

Sourc e Categor

y 2- 1 2.1. 1 Curren t

Economi c Condition s an d Trend s 2- 3 2.1.1. 1 Chemica l Productio n 2- 3 2.1.1. 2 Petroleu mRefinerie s 2- 3 2.1.1. 3 Liqui d an d Petroleu mTerminal s 2- 3 2.1.1. 4 Crud e Oi l Pipelin e Pumpin g an d Breakou t Station s 2- 4 2.1. 2 Environmenta l Concem s 2- 4 2. 2 Distributio n of

Organi c Chemica l Liquid s 2- 5 2.2. 1 Overvie w o f

Distributio n Servic e 2- 7 2.2.1. 1 Elasticit y of

Suppl y ._ . 2- 7 2.2. 2 Industry Organizatio n 2- 9 2.2.2. 1 Facilitie s 2-1 1 2.2.2. 2 Fir mCharacteristic s 2-1 3 2.2. 3 Use s an d Consumer s 2-1 8 2.2.3. 1 Characterizatio n o f Demand—Derive d Deman d Elasticit y 2-1 9 2.2. 4 Market s 2-2 0 2.2.4. 1 Marke t

Volume s 2-2 0 i n 

# £7P. 5

2.2.4. 2 Marke t

Price s 2-2 0 2.2.4. 3 Futur e Projection s 2-2 1 2. 3 Distributio n o f

Petroleu mLiquid s 2-2 1 2.3. 1 Affecte d Market s 2-2 1 2.3. 2 Production/Servic e Overvie w 2-2 2 2.3.2. 1 Elasticit y o

f Suppl y 2-2 4 2.3. 3 Industry Organizatio n 2-2 4 2.3.3. 1 Facilitie s 2-2 7 2.3.3. 2 Fir mCharacteristic s 2-2 7 2.3. 4 Use s an d Consumer s 2-3 4 2.3.4. 1 Characterizatio n of Demand—Derive d Deman d Elasticit y 2-3 5 2.3. 5 Market s 2-3 6 2.3.5. 1 Marke t

Volume s 2-3 6 2.3.5. 2 Marke t

Price s 2-3 7 2.3.5. 3 Futur e Projection s 2-3 7 3 Engineerin g Cos t

Analysi s 3- 1 3. 1 Contro l Cos t

Estimate s 3- 1 4 Economi c Impac t Analysis : Method s an d Result s 4- 1 4. 1 Overvie w o

f Economi c Modelin g Approache s 4- 1 4. 2 Conceptua l Approac h 4- 2 4.2. 1 Operationa l Mode l • . < 4- 4 4.2.1. 1 Marke t

Suppl y 4- 4 4.2.1. 2 Marke t

Deman d 4- 4 4.2.1. 3 Contro l Cos t

Input s an d With-Regulatio n Equilibriu m4- 4 4.2. 2 Result s 4- 5 4.2.3. 1 Market

- an d Industry-Leve l Impact s 4- 5 4.2.3. 2 Facility-Leve l Impac t Result s „ 4- 7 4.2.3. 3 Company-Leve l Impact s Result s 4- 8 4.2.3. 4 Socia l Cost s 4- 9 5 Smal l Busines s Impac t Analysi s 5- 1 5: 1 Identifyin g Smal l Businesse s 5- 1 5. 2 Screening-Leve l Analysi s 5- 1 i v 

# 6P. 6

5. 3 Economic Analysi s 5- 2 5. 4 Assessmen

t 5- 2 Reference s R- 1 Appendice s

A Revised Organic Liquid s Distributio n (OLD ) Methodology A- 1 B Economic Computation s B- l C OL D Economi c Impact

Analysis : Sensitivit

y Analysi s C- 1



# 7P. 7

V I LIS T O F FIGURE S Numbe r Pag e i 2- 1 Distributio n o f

Organi c Chemica l Liquid s Facilitie s tha t Responde d t o th e IC RSurve y . • 2-1 4 j 2- 2 Th e Distributio n of Organi c Chemica l Liquid s Facilitie s tha t 'i Responde dt o th e IC RSurve y b y Employmen t 2-1 5 2- 3 Th e Siz e Distributio n o f Companie s tha t

ow n OL D Facilitie s tha t

" ^ Responde dt o th e IC RSurve y an d are Involve d in Chemica l i_ Distribution , b y 199 8 Sale s (i n $1997 ) 2-1 6 2- 4 Siz e Distributio n of Companie s tha

t ow n OLD Facilitie s tha t

V Responde dt o th e IC RSurve y an d ar e Involve d i n Chemica l Distributio n .. . 2-1 7 7. 2- 5 Distributio n of

Companie s Ownin g Organi c Chemica l Liquid s Facilitie s that Responde dt o th e IC RSurvey , b y Profi t Margi n ... ; 2-1 9 . * 2- 6 Locatio n o f

Petroleu mLiquid s Distributor s that Responde d t o th e IC RSurve y 2-2 8 2- 7 Th e Distributio n o f Petroleu mLiquid s Facilitie s tha t / Responde dt o th e IC RSurve y b y Employmen t 2-2 9 2- 8 Th e Siz e Distributio n of Companie s that

ow n OL D Facilitie s tha t Responde dt o th e IC RSurve y an d ar e Involve d in th e Distributio n of , Nongasolin e Petroleu mLiquids , b y 199 8 Sale s (i n $1997 ) 2-3 2 2- 9 Siz e Distributio n of Companie s tha t

ow n OL D Facilitie s that

Responde d t o th e IC RSurve y an d ar

e Involve d i

n th e Distributio n of

Nongasolin e Petroleu mLiquid s •. . 2-3 3 2-1 0 Distributio n o f

Companie s Ownin g Petroleu mLiqui d Facilitie s that Responde d t o th e IC RSurvey , by Profi t Margi n 2-3 4 , ; . 4- 1 Marke t

Response s t o th e OLD NESHA P 4- 3 j 5- 1 Distributio n of

Complianc e CSR s by Industry : [Contro l an d MRRCosts ] (1997 ) 5- 4 5- 2 Distributio n o f

Complianc e CSR s b y Industry : [MRR Onl y Costs ] (1997 ) 5- 5P. 8

LIS T O F TABLE S Numbe r Pag e 1- 1 Numbe r

o f Facilitie s Affecte d b y OL D NESHAP , b y NAIC S Cod e 1- 2 1- 2 Per-Facilit y an d Nationwid e Contro l Cost s b y Mode l Plan t (1997$/yr ) 1-3 1- 3 Market-Leve l Industry Impact s of th e Propose d OL D NESHA P (1997$ ) 1- 5 2- 1 Nationwid e HA P Total s fromOL D Activitie s (tons/yr) a2- 5 2- 2 Summary of

Facilit y Categories, Liquids , Mode s of Transportation , an d Emission s Source s Covere d b y th e OL D Sourc e Category 2- 6 2- 3 Principa l OL D Facility Categorie s 2- 8 2- 4 Concentratio n Ratio s b y SI C Cod e 2-1 1 2- 5 Numbe r

of Tota l OLD Facilitie s an d Affecte d Facilities , 199 7 2-1 2 2- 6 Profi t

Margin s of

Firm s that

Responde d t o th e IC RSurve y an d that ow n Organi c Chemica l Liquid s Distributio n Facilitie s 2-1 8 2- 7 Organi c Chemica l Marke t Volumes , 199 7 (IO 6 pounds ) 2-2 0 2- 8 Petroleu mProduct s Produce d a t U.S . Refineries , 199 7 2-2 2 2- 9 Principa l OL D Facility Categorie s 2-2 3 2-1 0 Concentratio n Ratio s b y SI C Cod e 2-2 6 2-1 1 Numbe r

of Tota l OL D Firm s an d Affecte d Firms , 199 6 2-3 0 2-1 2 Smal l Busines s Siz e Standard s fo r OL D Industrie s 2-3 1 2-1 3 Profi t

Margin s of

Firm s tha t

ow n Organi c Chemica l Liquid s Distributio n Facilitie s that

Responde d t o th e IC RSurve y 2-3 3 2-1 4 Estimate s of

Pric e Elasticit y o f

Deman d for

Petroleu mProduct s 2-3 5 2-1 5 Petroleu mProduc t Marke t Volumes , 199 7 (IO 6 pounds ) 2-3 6 2-1 6 Petroleu mConsumptio n an d Ne t Import s in 199 7 an d 202 0 (IO 6 barrels/day ) 72-3 9 3- 1 Facility an d Nationwid e Contro l Cost s for th e Propose d OLD MAC T 3- 3 4- 1 Market-Leve l Industry Impact s o f th e Propose d Organi c Liqui d Distributio n (OLD ) NESHAP : 199 7 4- 6

VI 1 

# 1P. 9

4- 2 National-Level Industr y Impacts o

f th e ProposedOrganic Liqui d Distributio n (OLD) NESHAP : 199 7 4- 7 4- 3 Estimate d Company-Leve l Impacts o

f th e OL D NESHAP : 1997 4- 9 4- 4 Distributio n o

f Socia l Costs Associate

dwit h Organic Liquid s Distributio n (OLD) NESHAP : 199 7 4-1 0 5- 1 Complianc e CSRs fo r Companie s b

y Industr y an dCompan y Size : [Contro l an

d MR RCosts ] (1997 ) 5- 3

v m 

# toP.1 0

SECTIO N 1 INTRODUCTIO N AN

D EXECUTIV E SUMMARY Unde r Titl e II ofth e Clea

n Ai r Ac t Amendments of

1990 , th e Office of

Air Qualit y Plannin g and Standard s (OAQPS ) i s developing anationa l emissio n standar

dfo r hazardou s air pollutant s (NESHAP) to limit ai r emission s fro

morgani c liqui ddistributio n activities . Industrie s tha

t wil l b e affecte

d b y thi s NESHA

P includ e chemica l manufacturers , liqui d terminals , petroleumrefiners , and pipeline owners andoperators . The propose dNESHA P require s distributor s o f

nongasoline organic liquid s t o mee t emissio n standard s fo

r th e releas e o f hazardou s ai

r pollutant s (HAPs ) int

o the environment . To meet thes e standards , som

e firms wil l hav e to modif

y thei r equipmen t an dinstitut e lea k detectio n andrepair

procedures . Thes e change s resul t

i n highe r cost s o f productio n fo

r the affectedproducers . The y ma y als o hav e broade

r societa l implication s becaus e thes e effects ar e transmitte dthroug h market relationship s t o thei r

customers . Thi s repor

t profile s th e affectedindustrie s andanalyze s th e economi c impact s expecte d to b e incurreda s aresult ofth e NESHAP . 1. 1 Profil e o f

th e Affecte

d Industries Th e organi c liquid s distributio n (OLD ) sourc e categor y consist s o f

all th e sourc e categor y operation s tha

t receive , store , an

ddistribut e organi c liquid s (othe

r tha n gasoline ) throughou t

th e economy . To provide dat aon th e affecte

dindustry , EP

A collecte dsurve

y informatio n fromOL

D facilities . In thi s report , thes e surve y dat aar e scale du p t o reflect th e entire affected univers e o f

facilities . EP

A estimate s tha

t 64 9 facilitie s wil l b e affecte db y th e NESHAP . Tabl e 1- 1 show s afrequency distributio n of facilitie s b y Nort

h America n Industr y Classificatio n Syste

m(NAICS ) code . Facilitie s affecte dma y either produce , consume , store , and distribute regulate d organi c liquids , o r onl y stor e an ddistribute them . Th e fou

r majo r industrie s affecte

d b y th e NESHA

P ar e chemica l manufacturing , petroleu mrefining , crude oi l an d natura

l ga s pipelin e transportation 1 , an dliqui dterminallin g andwarehousing . Th e liquid s bein g distribute d fal l int o tw o broa dcategories :

'Natura l ga s pipelin e distributio n i s no t affecte d b y thi s proposed rule . 1- 1

/ /P.1 1

NAIC S Cod e 32 5 3241 1 49 3 4861 1 422,45 4 Tota l Descriptio n

Industria l Organic Chemica

l Productio n Petroleu mRefinerie s Liquid Terminal s Crud e Petroleu mPipeline s Petroleu man d Chemica l Terminal s Tabl e 1-1 . Numbe r

o f Facilitie s Affecte

dby OL D NESHAP , b y NAIC S Cod e

Numbe r o f Affecte d Facilitie s 37 0 11 0 9 4 3 5 4 0 64 9

• organi c chemicals , including syntheti c chemical s an dpetrochemicals , and

• petroleumliquids , including crud e oil , natura

l ga s liquids , an

dnongasolin e refined products . In NAIC S 32

4 an d 325 , th e majorit

y o f facilitie s employ mor

e tha n 500 people . Withi n th e othe

r NAIC S codes , however , man y facilitie s employ 2 5 or

fewe r people . Thirt

y percent o f affecte d organi c chemica

l producers (NAIC S 325 ) an d3 1 percent

o f facilitie s i n th e othe r industr y group s ar

e locatedin Texas . Othe

r state s wit h substantia

l number s o f facilitie s include Louisiana , Alaska , Ohio , Illinois , andCalifornia . Firm s ownin g OL D facilitie s rang e fromsmall single-facilit y specializeddistributor s to larg e integrate d companie s tha

t own numerou s productio n an ddistributio n facilities . Of

a n estimate d20 8 (scaled ) affecte

d companie s owning OL

D facilities , onl

y 2 8 ar e considere dsmal l accordin g t o Small Busines s Administratio n (SBA) criteria . Of OL D firms i n NAIC S 325 , mos t hav e baselin e compan

y sale s exceeding $ 1 billion , an dbaseline employmen

t exceedin g 10,000 employees . Among firms owning petroleu mOL D facilities , however , baselin e sale s var y more widely . Approximatel y 2 0 percen

t have sale s les s tha

n $5 0 million , whil e mor

e uia n 6 5 percent hav e sale s exceeding $ 1 billion . Man y firms i n th e affecte

dindustrie s ar

e highly integrated , bot

h vertically an

d horizontally . Thi s mean s the y ma y ow n numerou s affecte

d facilities , and tha

t thei r distributio n facilitie s ar

e a n integra l par t o f their overal l organi c liqui d operations . For

thi s reason , w e have pai dspecia l attentio n i n ou

r analysi s to th e impact s o n th e companie s owning th e OL D facilities . In thes e integrate dfirms, EP A expect s tha t many ofth e distribution-only facilitie s i n NAIC S 422,454,486 , and49 3 are no t profit center s fo r th e firms tha

t own them , but

instea dprovid e aservic e t o othe

r facilitie s owned by 1- 2 

# /z -P.1 2

th e firm, an

d operat e a s acos t cente r fo r the firm. Thus , th e impact s ofth e regulatio n will b e evaluate d in term s o f

it s overall impac

t on the firm' s profitability , i n additio n t

o examinin g th e impac t o n th e profitabilit

y of individua l facilities . Fo

r merchan t firms, however , tha

t ow n onl y distributio n facilities , EP

A expect s tha

t th e impact

ofth e regulatio n wil l b e evaluate d i n term s o f it s effec t o n facilit y profitability . 1. 2 Th e Cost s o

f th e OL D NESHA

P The OL D rulemaking wil l increas e th e cost s of distributin g organi c liquids . Specifically , th e cost s of

severa l genera l type s o f businesse s ar

e expecte dto increase . Thes e businesse s include facilitie s tha t manufactur

e an ddistribut e organi c chemical s and/or nongasolin e petroleumproduct s an dfacilitie s tha

t specializ e in th e distributio n o f thes e products . Ofth e latte

r facilities , som

e ar e owne db y companie s tha

t als o manufactur

e th e products , whil e other s ar

e independen

t businesse s tha

t onl y distribut e th e products . Tabl e 1-

2 show s th e estimate d cost s fo r mode l plants . Th

e cost s ar e shown i n greate

r detai l i n Sectio n 3 , and thei r

allocatio n to actua

l plant s i s discussedin Appendix B . Tabl e 1-2 . Per-Facilit

y an d Nationwide Contro

l Cost s b y Mode l Plan t(1997$/yr) Mode l 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 Numbe

r o f Facilitie s 19 5 10 5 7 0 54 3 0 27 2 5 3 1 3 8 2 6 3 5 2 4 1 7 Tota

l Annua l Cos tper Facilit y (range) 16,300-120,11 2 15,700-116,81 8 15,700-156,59 9 47,500-58,26 8 15,700-78,37 8 15,700-93,094 16,400-147,33 1 16,400-185,425 16,400-379,224 13,300-164,20 0 13,300-149,70 0 16,400-142,66 8 16,400-136,41 4 Tota l Capita l Cost fo r all Facilities 11,671,13 6 13,425,086 23,433,64 1 1,584,39 0 1,799,84 0 2,445,52 8 3,068,00 8 6,650,062 22,147,02 9 3,791,90 0 1,470,56 1 1,686,556 1,247,73 2 Tota

l Annua l Cost for al l Facilitie s 9,510,19 6 4,969,124 6,013,91 9 1,951,67 1 1,283,04 4 1,302,90 2 1,789,05 2 2,738,04 5 7,093,774 1,507,33 5 601,45 8 1,568,18 3 1,047,19 2

1- 3 

# / 31. 3 Estimate d Economi c Impact s o f th e OL D NESHA

P Sectio n 4 present s th e economic impact analysi s method s an

dresults . EP

A develope d amulti-market

partia l equilibriu msimulation mode

l i n which buyer s an

dseller s exer

t no individua l influenc e o

n marke t price s o f tw o aggregatedcommoditie s potentially affecte d b y th e rule—petroleuman

d chemica l products—an

d th e marke

t fo r distributio n services . Price s in thes e market s ar

e se t by the collectiv e action s o

f producer s an

dconsumers , who tak

e th e marke t pric e a s agive

n in making thei

r production an

dconsumption choices . Figur e 4- 1 illustrate s thi s marke

t in which price s an

dquantitie s ar

e determinedby th e intersectio n of market suppl y and deman

d curves . Th

e baseline consist s of

amarke t pric e an dquantit y (P , Q).tha t i s determine d b

y th e downward-slopin

g marke t deman dcurv e (D, ) an

dth e upward-slopin g market

suppl y curve (S,) . Wit h th e regulation , th e cost s of production increas e fo

r organi c liqui dsupplier s becaus e the

y incu r additiona l cost s associatedwit

h th e proposedrule . Incorporatin g thes e regulator y contro l cost s i s representedb y a n upwar dshif t (fro mS , to S 2) ofth e aggregat e supply curv e b y th e per-unit complianc e cost . A t th e ne w equilibriumwit

h the regulation , th e marke

t pric e increase s fromP , to P 2 and market

output (a s determinedfromth e marke t deman dcurve , D ) decline s fromq , t o q^ . Thi s illustrate s th e theor

y underlying estimatio n ofth e economic impact s ofth e rule . Note tha t EP A i s modelin g th e impact s ofth e rul e o n facilitie s andcompanie s tha t bot h produc e and distribut

e organi c liquid s by examinin g th e change s i n marke

t price s andquantitie s fo

r th e liquid s bein g distributed . Fo r integratedorgani c liqui dproducers , distributio n operation s ar e acos t center , no t

aprofi t center . Th

e distributio n operation s ar

e a n essentia l par t ofth e proces s o f providin g th e deliveredUquid s to customers , but

ar e no t require dto b e profitabl e i f they are t o continue . Instead , th e companie s examin e th e impact

ofth e propose drul e o n th e overal l profitabilit

y o f their chemica l or petroleu mproduc t operations . In th e merchan t distributio n sector , however , distributio n facilitie s ar e assumedto operat

e a s profit centers ; tha t is , they continu e to operat

e onl y i f the y ar e profitable . 1.3.1 Market

Responses to the NESHAP The theor y presente d above suggest s tha t producer s attempt

t o mitigate th e impact s of higher-cos t

productio n b y shiftin

g th e burde

n o n t o othe

r economi c agent s t o th e exten t th e market condition s allow . W

e wouldexpect

th e model to project

upwar dpressur e o n price s a s producer s reduc e outpu t

rate s i n respons e t o highe

r costs . Highe

r price s reduc e quantit

y 1- 4 

# IHP.1 4

demande d an

d output fo r eac h product , leadin

g t o change s i

n economi c surplu s t

o consumer s and profitabilit

y of firms. Thes e marke

t adjustments determine th e socia l cost s ofth e regulatio n an

d it s distributio n acros s stakeholder s (producer s andconsumers) . 1.3.1.1 Market- and

Industry-Level

Impacts Th e increase d cos t

of productio n due t

o th e regulatio n i s expecte dto slightly increas e th e pric e o f

petroleuman

d chemica l product s an

dreduc e their

production/consumptio n from baselin e levels . A s show

n in Tabl e 1-3 , the regulator y alternativ e i s projecte dt

o increas e price s b y les s tha

n 0. 1 percent . Domesti c production of petroleumproduct s decline s b y 0.0 6 millio n metri c ton s an

d domesti c chemica

l production decline s by 0.0 4 millio n metri c tons . Suppl y fromforeign producer s (imports ) increase s by 0.0 2 millio n metri c ton s in th e petroleu mmarket

and 0.002 millio n metri c ton s in th e chemica l market , resultin g i n anet declin e o f 0.0 4 an d 0.05 millio n metri c ton s respectivel y (les s tha n 0.0 2 percent) . Suppl

y frommerchan

t distributor s decline s b

y approximatel

y 0.0 2 millio n metri c tons , les s tha n 0.0 1 percent . Tabl e 1-3 . Market-Leve

l Industr y Impact s ofth e Proposed OL

D NESHAP (1997$ )

Petroleu m Product

s Pric e ($/Mt

) Quantit y (10 6 Mt/yr ) Domesti c Foreig n Organi c Chemica

l Product s Pric e ($/Mt

) Quantit y (10 * Mt/yr

) Domesti c Foreig n Merchan tDistributor

s Pric e ($/Mt

) Quantit y (10 * Mt/yr

) Absolut e Chang e 0.0 1 -0.0 4 -0.0 6 0.0 2 0.0 5 -0.0 3 -0.0 4 0.0 1 0.0 4 -0.0 2 Percen tChang e 0.002 % -0.001 % -0.002 % 0.002 % 0.030 % -0.045 % -0.053 % 0.045 % 0.36 % -0.00 %

1- 5 

# IS'P.1 5

Revenue , costs , an

d profitabilit

y ofth e directl

y affecte dindustr y als o chang e a s price s an d productio n level s adjust

t o increasedcost s associatedwit h compliance . Fo

r domesti c petroleumproducers , operating profit s ar e projectedt

o decline by $8. 7 millio n (see Tabl e 4-2) . For domesti c chemica

l producers , operating profits ar e projecte dt

o decline b

y $11. 4 million . Operating profit s earnedb y merchan t distributor s ar

e projecte dt

o increas e b

y $0. 3 million . 1.3.1.2 Facility-Level

Impact Results EP A estimate d quantit

y adjustments b

y affecte dOL D facilities , in respons e to th e cost s o f complianc e wit

h th e propose drule . EP

A define dclosur e o f a n OL D operatio n whe

n a n OL D facilit y i s projected t

o reduc e thei

r quantit y distribute db y th e entir

e amoun t o f their baselin e distribution . N o facilitie s ar e projectedt

o clos e their

OL D operation s in respons e t

o th e propose d rule . 1.3.1.3 Company-Level

Impacts Results For th e compan

y level analysis , EP

A compute dth e chang e i n profit s associate d wit h th e regulatio n t o baselin e company profits . A compan y ma y becom e unprofitabl e i f

th e predicte d chang e in OL

D facilit y profit s eliminate s total

baseline profits of

the firm (i.e . rati o = 10 0 percent) . For

companie s incurrin g bot

h contro l an

dmonitoring , recordkeepin g and recordin g (MRR

) costs , profi

t change s rang e from+0. 1 percen t to -32. 5 percent . For

th e media n company , profit s decreas e by approximatel y les s tha n 1. 0 percent . N o firms ar

e projecte d t o becom

e unprofitable a s aresul

t ofth e regulation . For

companie s incurrin g MR

R cost s only , profi

t change s rang e from+0. 2 to -7. 3 percent . For th e media n company , profit s decreas e b y les s tha

n 0. 3 percent . Non e of

thes e firms ar

e projecte dt o becom

e unprofitable a s aresul t ofth e regulation . Th

e analysi s als o show s tha

t impact s fo

r companie s withi n mode l plan t

42 , owner s o f

bul k liqui dterminals , ar

e relatively higher

comparedt o othe

r industr y groups . EP A als o performed ascreening analysi s t o asses s th e impact s ofth e OL D NESHA

P o n smal l businesses . Th

e result s of

thi s screening analysi s ar

e show n i n Sectio n 5 . EP

A examine d th e rati o of

complianc e cost s to baseline compan y revenues , without

incorporatin g market adjustment s t o th e proposedrule . Seve n ofth e companie s owning facilitie s respondin g t o th e OL

D questionnair

e ar e smal l businesses . Scaling thes e up statistically t o correspon d t o th e univers e o f companie s ownin

g OL D facilities , EP

A estimate dtha

t atota l of 2 8 smal l companie s own OL D facilities . Ofth e estimated2 8 smal l firms , onl y tw o ar e 1- 6 

# ItoP.1 6

projecte d t o incu r cost s exceeding on

e percen t o f thei r baseline revenues , an

dnone ar e projecte d t o incu r cost s exceeding thre e percen t of baseline revenues . Give

n th e relatively lo w cost s an

d the small numbe

r of smal l companie s incurring them , EP A finds tha

t significan t economi c impact s will not b e incurredb

y asubstantia

l numbe r of small businesses . 1.3.1.4 Social Costs Th e valu e o f

aregulator

y actio n i s traditionally measuredb y th e chang e i n economi c welfar e tha t i t generates . Th

e regulation' s welfar

e impacts , o

r th e socia l cost s require dto achiev e environmenta

l improvements , will exten

dto consumers (customers ) andproducer s alike . Consumer s experienc e welfar e impacts du e t o change s in marke t price s and consumptio n level s associate d wit h th e rule . Producer s experienc e welfar e impact s resultin g fromchange s in profit s corresponding wit h th e change s in productio n level s andmarket prices . However , i t

i s importan

t to emphasize tha

t thi s measur

e doe s not include benefit s tha

t occu r outside th e market , tha

t is , th e value of

reduce d level s of

air pollutio n wit

h th e regulation . Th e economi c analysi s account s fo r behaviora l response s b y producer s andconsumer s t o th e regulatio n (i.e. , shifting cost s t o othe r economi c agents) . Thi s approach provide s insight s o n ho w th e regulator y burden i s distribute dacros s stakeholders . A s show n in Tabl e 4-4 , th e economi c model estimate s tota l socia l cos t ofth e rul e o f

$40. 7 millio n (1997$) . A s a resul t o f highe r price s and lowe

r consumption levels , consumers (domesti c andforeign ) ar e projecte d to los e $23. 8 million , wit h petroleu mconsumer s accountin g fo r mor e tha n 5 0 percent ofth e total . Domesti c producer s los e $16. 9 millio n i n profits , wit h chemica l producer s accountin g fo

r 5 8 percen t ofth e total . Foreig n producer s unambiguously gai n a s a resul t ofth e regulation , wit

h profit s increasing b y 3. 0 million . Foreig n producer s benefit fromhigher

price s whil e no t

incurrin g contro l cost s associate dwit h th e propose drule .

1- 7 

# n.P.1 7

SECTIO N 2 INDUSTR

Y PROFIL

E The OL D NESHA

P potentially affect

s companie s an

dfacilitie s tha

t distribut e petrochemical s an

d petroleumliquids . Industrie s tha t will b e affecte

db y thi s NESHA

P include chemica

l manufacturers , petroleu

mrefiners , liqui dterminals , andpipelin e owner s and operator s (organi c liquid s othe r tha n gasoline) . Information on th e affecte dfacilities , companies , an

d industrie s i s necessar

y i n determining the effect

s of aregulation . Thi s profil e describe s th e suppl

y an d deman d of petrochemical s an

dpetroleumliquids , th e facilitie s and companie s tha

t operat e withi n affecte

dindustries , an

dth e marke

t condition s in thos e industries . Sectio n 2. 1 provide s abrief descriptio n ofth e entir

e OL D sourc e category . Section s 2. 2 and 2. 3 focu s on th e tw o primar y facilit y categories—chemica

l liquid s an

dpetroleum liquids , whic h ar

e briefl y describe din Section 2.1 . Section s 2. 2 and2. 3 ar e bot h organize d a s follows : background , productio n overview , industr y organization , characterizatio n of use s an d consumers , an

d marke t information . Facilitie s tha

t ma y distribut e eithe r chemical s or petroleumproduct s ar

e discusse di n Section 2. 3 only , fo r convenience . 2. 1 Brief

Description of

Sourc e Categor y The organi c liquid s distributio n (OLD ) sourc e categor y consist s o

f all ofth e sourc e categor y operation s tha

t receive , store , an

ddistribut e organi c liquid s throughout th e economy . For

th e purpose s of

thi s MAC T standard , onl

y thos e organi c liquid s wit

h appreciabl e hazardou s ai

r pollutan t (HAP ) conten t (beyondtrac e quantities ) ar e considere d to b e "organi c liquids. " Thes e liquid s ma y consis t of pur e HA P chemical s (singl e HAP) o r chemica l blends , refined petroleumproducts , natura l ga s liquids , o

r crude oil . The

y als o ma y consis t o f "appreciable " organi c HAP s blendedwit h inorganic , non-HA

P liquid s (such a s water) . OL

D operation s ar

e carrie dou

t b y alarg e numbe

r of industries . "Plan

t site s performing OL

D activitie s includ

e thos e tha t produce , consume , o

r merel y stor e and distribut e organi c liquids . Th

e fou r principa l industrie s wit

h th e greates t

volume s o f

OL D 2- 1

/P.1 8

operation s ar

e chemica l manufacturing , petroleu

mrefining , crud

e oil an dnatura l ga s liquid s pipelin e transportation , an

d liqui dterminalling an

dwarehousing " (TSD , 2000) . Distribute d organi c liquid s of concer n i n thi s profile fal

l unde r tw o broa dcategories :

• chemicals , including syntheti c chemical s an dpetrochemical s (i.e. , chemical s manufactured fro

mcrud e petroleum) ; an

d

• petroleumliquids , including crud e oil , natura

l gas liquids , an

dnongasolin e refined products . Gasoline , which i s subject

to th e gasoline distributio n NESHAP , i s not covere db y th e OL

D sourc e category . Section s 2. 2 an d2. 3 2 provide s amor

e detaile ddescriptio n ofth e liquid s covere d by thi s regulation . For th e purpose s of

thi s regulation , distribution include s th e bul k transfe r o f a n organi c liqui d acros s aplant sit e boundary , eithe

r int o o r ou t ofth e plan

t sit e (TSD , 2000) . Als o covered unde

r thi s definitio n ar

e th e storag e o f

OL D liquid s afte

r receip t an dbefor e distribution . No t

include d i n th e OL D sourc e categor

y ar e th e followin

g activities : th e movemen t of package d liquid s (e.g. , drumme dor cannedliquids) ; an

y production , compounding , blending , o r packaging activitie s a

t OL D facilities ; an

dth e transportatio n o f OL D liquid s fo

r activitie s othe

r tha n loading an

dunloading . The OL D activitie s describe dabove tak e plac e a t site s tha t serv e a s distributio n point s fromwhic h organi c liquid s ca n b e obtainedfo

r furthe r us e an dprocessing . Distributio n activitie s ar

e eithe r collocate d wit

h liqui dproductio n operations , or the y ar e carrie dout

a t stand-alon e storag e and distributio n terminals . Although th e MACT standard s develope d unde r thi s regulatio n wil l appl

y to an y facilit y tha t receives , stores , and/o

r distribute s nongasolin e liquid s wit

h HA P content , thi s profile focuse s on five categorie s of OL D facilitie s fo

r which model plant s wer

e developed : chemica l production , petroleumrefineries , liqui d terminal s crude oi l pipelin e pumping/breakou t stations , an

d petroleumterminals . 2- 2 

# /IP.1 9

Thes e categorie s wer

e identified fro

mEPA' s April 199 8 sourc e categor y surve y a s accountin g fo

r th e majorit

y o f OL D HA P emission s (Gale Busines s Resources , 1999a,b,c) . 2.1.1 Current

Economic Conditions and Trends OL D distributio n point s will incu r the cost s of

thi s regulation ; therefore , thi s profil e examine s th e curren

t conditio n ofth e OL

D sourc e categor

y a s it relate s t o distributio n activities . Thi s sectio n briefl y describe s recen

t trend s in eac

h ofth e five principal , OL

D facilit y categories. 1 2.1.1.1 Chemical

Production Recen t trend s in th e chemica

l manufacturing industr

y include increase dcapita

l spendin g an

d declinin g employment . I

n a n effor t t o save mone

y an dincreas e efficiency , man y ofth e activitie s associate d wit h repackaging , blending , reformulating , bar-coding , testing , and qualit

y assuranc e have bee

n outsourced . Tha

t is , contracte dout

to third-part

y operators . Thi s tren d ha s bee n growin g i n th e chemica

l manufacturing business . Wit h mor e o f thi s wor k bein g outsourced , manufacturers ' cost s ar e decreasing {Distribution, 1996) . 2.1.1.2 Petroleum Refineries Ove r th e pas t tw o decades , oi l companie s hav e bee n closin g refinerie s tha

t ar e n o longe r profitable . To avoi d expensive environmenta l cleanu p costs , companie s hav e starte d to conver t th e refineries ' storag e tank s an dt o operat e the ma s storag e an

ddistributio n centers . However , in recen t years , astabl e suppl

y marke t fo r crud e oi l ha s ledto areductio n in oi l inventories , creatin g exces s storag e spac e a t refineries . Refinerie s hav e responde d to thi s situatio n by leasin g ou t thi s exces s spac e to thir

dparties . Wit

h continue dmerge

r and cost-cuttin g activitie s i n th e sourc e category , i t i s conceivabl e tha

t mor e exces s spac e wil l b e create d i n th e futur

e an d mor e refinerie s will continu e to leas e increasin g amount s o f storag e spac e a t thei r installations .

'Thi s discussio n i s largel

y based o n the November , 200 0 report , Technical Support Document

for the Organic Liquid Distribution (Non-Gasoline) Industry, published b y U.S . EPA' s Offic

e o f Ai r Qualit y Plannin g an

d Standards , Emission Standard s Division . 2- 3 

# ?oP.2 0

2.1.1.3 Liquid

and Petroleum Terminals Th e bul k liqui d terminallin g industry i s undergoin g change s a s th e majo r manufacturer s o f

organi c liquid s an d chemical s ar e restructurin g thei r industrie s t o mee t presen t an d future demands . Terminal s fac e adual challeng e i n th e future . On e challeng e i s increasin g regulatory demands tha t ar e raisin g th e cos t

o f operatio n for

refineries , chemica l plants , an d terminals . I n addition , exces s storag e capacity a t petroleu mrefinerie s an d newl y create d storag e capacity at smalle r chemica l distributor s hav e starte d t o directl y compet e with th e large r bul k terminals . Majo r

consolidation s withi n th e chemica l industry hav e als o affecte d th e bul k

terminallin g industry . Majo r chemica l companie s hav e begu n t o consolidat e thei r

storag e requirement s b y contractin g ou t storag e t o outsid e firms tha t operat e single-part y terminals , rathe r tha n spreadin g thei r

operation s acros s man y terminals . 2.1.1.4 Crude Oil

Pipeline Pumping and

Breakout Stations Th e Federa l Energ y Regulatory Commissio n (FERC ) regulate s interstat e pipelin e companies . Simila

r t o som e ofth e othe r

categories , thes e pipelin e companie s ar e experiencin g difficul t

time s a s well . I n 199 7 earning s fromoperation s wer e down , followin g a2-year trend . Th e effect s o f

warmer-than-norma l weathe r durin g 199 7 i n Nort h Americ a als o cause d oi l deliverie s t o decrease . Thi s decreas e affecte d bot h operatin g revenue s an d ne t incom e for

pipelin e companie s (Oil

& Gas Journal, 1998) . 2.1.2 Environmental

Concerns EP A ha s identifie d four

emissio n source s tha t

accoun t for th e majorit

y o f HA P emission s fromOL D activities: 2

• storag e tanks , • liqui d transfe r

activitie s involvin g tan k

truck s an d railcar s (loadin g racks) , an d

• leak s fromequipmen t component s (e.g. , pumps , valves) .

2 Originally , wastewate

r an d semi-aqueou s wast

e wer e als o believed t o b e source s of HA P emission s fo

r th e OL D sourc e category . However , response s t o the OL D surve y indicated tha

t insufficien t information i s availabl e to determine nonzer o MAC T floor s fo r wastewater . I

n addition , the surve

y indicated tha

t semi

aqueou s wast

e generated fro

mOL D operation s i s generall

y kept i n closed container s onc e i

t i s collected . The handlin g o f

thes e wastes , a

t bot h chemica l facilitie s an

d refineries , i s alread

y covered unde

r th e Resourc e Conservation an

d Recover y Ac t (RCRA) . Consequently , emission source s associated wit h wastewate r an d semi-aqueou s wast

e ar e excluded fromthi s analysis . 2- 4 

# P IP.2 1

Tabl e 2- 1 show s th e nationwid e HA P total s fo r eac h industr y resultin g fro mth e differen t emissio n sources . Storag e tank s emi t 63,31 5 tons/y r

o f HAPs , accountin g fo r

approximatel y 7 0 percen t

ofth e tota l OL D sourc e category . Equipmen t leak s ar e th e nex t

greates t sourc e o f HA P emissions , representin g almos t 1 9 percen t

ofth e sourc e categor y total . Tabl e 2-1 . Nationwid e HA P Total s fro m OL D Activitie s (tons/yr) a

No . o f Majo r Sourc e i Storag e Loadin g Containe r Equipmen t Fillin g Leak s Total s Industr y Segment Chemica l productio n Petroleum refiner y Liqui d terminal s Crud e oi l pipeline s Petroleum terminal s Facilitie s

Nationwide

b 37 0 111 ° 9 4 3 5 41 c Storage

Tank s 38,78 5 4,36 5 17,990 44 0 1,73 5 Loadin

j Rack s 4,66 0 2,100 2,89 0 a 260 4 8

Total 651 c 63,31 5 9,91 0 5 1 10,03 0 53,52 0 1,46 0 7,93 0 . 5,01 5 25,90 0 4 5 49 0 96 5 2,96 0 17,51 5 90,80 0 aTher e ar e n o transfe

r rack o r containe r filling emission s a

t pipeline facilities . b Estimate d numbe

r of facilitie s base

d o n industr y dat aan d previou s NESHA

P reports , a s described i

n th e technica l suppor t document . Onl

y 23 9 facilitie s returned survey s o n thei r OL D activities . Emission s datafo r th e nonresponding facilitie s wer e estimated to develo

p the estimat

e of nationwid e impacts . c EP A ha s recentl

y determined tha

t two facilities , on

e petroleu mrefiner y an d one petroleu

mterminal , ar

e exemp t du e to thei

r ver y smal l throughput . Thu s ther

e ar e atota l of 649 affecte

d facilities , including 11 0 petroleu mrefinerie s an

d 40 petroleu

mterminals . Source : U.S . Environmenta l Protection Agenc

y (EPA) . 2000 . Technical Support Document

for the Organic Liquids Distribution (Nongasoline) Industry. Washington , DC : U.S . Environmenta l Protection Agency , Offic

e o f Ai r Qualit y Planning an

d Standards , Emissio

n Standard s Division . Tabl e 2- 2 list s al l ofth e facilit y categorie s a s wel l a s th e mode s o f transportatio n employe d an d th e emissio n source s covere d b y th e OL D sourc e category .

2- 5 

# P ^Tabl e 2-2 . Summar y o f Facilit y Categories , Liquids , Mode s o f Transportation , an d Emission s Source s Covere d b y th e OL D Sourc e Categor y Facilit y Categor y Chemica l productio n

Petroleu mrefinerie s

Liqui d terminal s

Crud e oi l pipeline s

Petroleu mterminal s Liquid s Handle d

Syntheti c chemical s Petrochemical s Crud e oi l Natura l ga s liquids , (NGLs ) Nongasolin e refine d product s Syntheti c chemical s Petrochemical s Crud e oi l Nongasolin e refine d product s Crud e oi l

Crud e oi l NGL s Nongasolin e refine d product s Mod e o f Liqui d Transportatio n Tan k truc k Tan k car (railroad ) Sometime s pipeline s Pipeline s Tanker s Barge s Tan k car Tan k truc k Tan k car Tan k truc k Pipeline s Tanker s Barge s Tan k car Tan k truc k Emissio n Source s

Storag e tank s Liqui d transfe r Containe r fillin g Equipmen t

leak s Storag e tank s Liqui d transfe r Containe r filling Equipmen t

leak s Storag e tank s Liqui d transfe r Containe r filling Equipmen t

leak s Storag e tank s Equipmen t

leak s

Sources : Variou s background documents . Gale Busines s Resources . 1999b . "Pipelines , Crud e Petroleum. " America n Petroleu mInstitute . Augus t

1998 . Heating Oil

in the United

States.

2- 6 

# P 32. 2 Distributio n o f Organic Chemica

l Liquid s Organi c chemica

l liquid s includ

e syntheti c chemical s an

dpetrochemical s (chemical s manufactured fro

mcrud e petroleum) . Synthetic organi c chemical s cove r awid e rang e of intermediat

e products , including input s to th e manufactur e o f syntheti c resins , plastic s materials , an

d nonvulcanize d elastomers , as well a s cycli c organi c intermediate s an d dyes/pigments , an

d aliphati c an

dacryli c chemical s an

dsolvents . Petrochemical s ar

e intermediat

e product s resultin g fro

mth e refiner

y process . Petrochemica

l feedstocks includ

e naphtha , aliqui dobtaine dfro mrefinin g crude oil , a s well a s product s recovered fro

mnatura l ga s an drefiner y gase s (ethane , propane , an dbutane) . Othe r feedstock s include ethylene ; propylene ; normal

- andiso-butylenes ; butadiene ; and aromatic s suc

h a s benzene , toluene , an

dxylene . Th

e volum e o f petroleu mliquid s availabl e to th e petrochemica

l industr y depend s primaril

y on th e following thre e factors : crude petroleuminpu

t to refineries , refiner

y proces s configuration an

doperating conditions , and th e demand s and price s fo

r napth aan dga s oil i n their primar y fue l market s (DOE , EIA , 1999e) . Syntheti c chemical s ar

e associatedwit

h the OL D sourc e categor

y whe n the y ar e distribute d fro

msyntheti c organi c chemica l manufacturing industr

y (SOCMI) facilitie s to liqui d terminals . Thes e chemical s ar e typicall y transporte db

y mean s of

tan k truck o r tan k car . Petrochemica

l feedstocks travel b

y variou s mode s throughout their produc t life . The distributio n component s associate dwit h the OL D sourc e categor

y ar e th e shipment s of feedstock s fro

mrefinerie s to liqui dterminal s an dSOCM I facilities . Mos t

often , petrochemical s travel b

y mean s of

tan k truc k o r tan k car ; however , som

e SOCM I facilitie s hav e pipeline s b y which their product s ar

e distributed . Syntheti c organi c chemica

l an dpetrochemica

l distributio n facilitie s ar

e mos t likely t o b e classifie d unde

r th e thre e SI

C code s listedin Tabl e 2-3 . The tabl e include s th e Nort h America n Industr y Classificatio n Syste

m(NAICS ) code s tha

t correspondto th e affecte

d SIC

coded industries . 2.2.1 Overview of

Distribution Service OL D distributio n i s aservic e tha t i s par t ofth e productio n proces s fo r organi c liquids . Afte r arefining process , petrochemical s migh t b e distribute dto chemica

l productio n plant s fo r processin g int

o syntheti c chemicals , o

r the y migh t b e transporte dto a

n independen

t liqui d termina l fo r storag e befor

e furthe r processing . I

n addition , independen

t liqui dterminal s ma

y 2-7 

# 7>HP.2 4

als o receiv e processe d syntheti c chemical s fo r storage . Liquid s storeda

t independen

t liqui d terminal s migh

t b e transported t

o chemica l production plant s o

r refinerie s fo

r furthe r processing , the

y migh t b e sen t t o ablending/packaging/distributio n facility , o r the y migh t b e distribute d t

o en d user s (TSD , 2000) . 2.2.1.1 Elasticity of

Supply The supply elasticit

y fo r syntheti c organi c chemical s an dpetrochemical s depend s o n th e abilit y an d willingnes s o

f firms t o scale u p productio n i

n th e face o f

highe r demand.percentag e chang e in quantit y supplied . A

t agive n point in time , firms ca

n b e

2-8 

# 2^P.2 5

Tabl e 2-3 . Principa l OL D Facilit y Categorie s SI C Cod e SI C Descriptio n Chemica l Productio n (11 8 surve y responses ) 282 1 286 5 Plastic s Materials , Syntheti c an d Resins , an d Nonvulcanizabl e Elastomer s Cycli c Organi c Crude s an

d Intermediates , an

d Organi c Dye s an d Pigment s NAIC S Code s 32521 1 32519 2 3251 1 32513 2 NAIC S Descriptio n

Plastic s Materia

l an d Resin Manufacturing Cycli c Crud

e an d Pigmen t Manufacturing Petrochemica

l Manufacturing 8 Syntheti c Organi c Dy e an

d 286 9 Industria

l Organi c Chemicals , NE

C 32518 8 3251 1 32519 3 3251 2 32519 9 Pigmen

t Manufacturing All Othe r Basi c Inorgani c Chemica l Manufacturing 8 Petrochemica

l Manufacturing 8 Ethyl Alcoho l Manufacturing Industria l Ga s Manufacturing All Othe r Basi c Organi c Chemica

l Manufacturing 8

' Onl y par t ofth e NAIC S industr y i s mad e u p o f facilitie s fro mth e correspondin

g SIC-code d industry . Source : U.S . Censu

s Bureau . Marc

h 2000a. "198

7 SI C Matche d t o 199 7 NAICS. " <http://www.census.gov/epcd/naics/NSIC3B.HTML> . A s obtaine d o n Marc h 13,2000 . expecte dt o suppl y a n approximatel y profit-maximizin g quantity , give n thei r availabl e technology . Fo r

agive n increas e i n th e pric e o f chemicals , th e increas e i n quantit y supplie d wil l b e greate r

whe n th e producer s o f

tha t chemical hav e exces s capacit y an d whe n ne w productio n line s for

th e chemica l ar e eas y an d inexpensiv e t o establish . I n thi s analysis , EP A aggregate s al l organi c chemica l liquid s int o asingl e market , an d incorporate s suppl y elasticitie s estimate d for

othe r analyses . Th e elasticity o f suppl y for

th e organi c chemical s marke t i s assume d t o b e 1. 5 (organic chemical s producer s wil l distribut e 1. 5 percen t mor e organi c liquid s for

eac h 1 percen t

increas e i n price) .

2- 9



## P£ ?P.2 6

2.2.2 Industry Organization Thi s subsectio n describe s th e organizatio n ofth e segment s ofth e chemica l industry mos t likel y t o b e affecte d b y th e NESHA P regulatio n an d provide s specifi c informatio n o n affecte dOL D facilitie s an d firm s whe n suc h informatio n i s available . Th e sectio n begin s wit h adiscussio n o f

marke t structure , followe d b y informatio n o n facilitie s tha t distribut e organi c chemical s an d th e firm s tha t ow n them . Th e structur e ofth e affecte d market(s ) i s an importan t facto r i n estimatin g th e potentia l impact s from aregulation . Fo r example , i n acompetitiv e marke t wher e eac h produce r ha s littl e marke t

power , i t woul d b e difficul t

for an affecte d fir

mt o pas s o n complianc e cost s t o it s consumers . O n th e othe r hand , i n an industry wit h very fe w producer s o r wher e th e product s ar e highl y differentiated , i t may b e possibl e for

affecte d firm s t o recove r par t o r al l ofth e complianc e cost s throug h pric e increases . Th e mos t importan t factor s determinin g th e competitiv e structur e o f a n industry ar e th e numbe r o f producers , th e degre e o f produc t differentiation , an d th e presenc e o f barrier s t o entry . Th e remainde r o f thi s subsectio n provide s abrie f explanatio n o f

thes e factor s an d discusse s th e competitiv e structur e ofth e OL D market s i n term s o f eac h facto r

(CMA , 1995a,b) . Thirty-on e companie s produc e an d distribut e organi c chemica l liquids . Thes e companie s includ e man y larg e integrate d chemica l companies . Onl y on e OL D compan y tha t distribute s organi c chemical s i s classifie d a s asmal l company . Produc t differentiatio n i s a formo f nonpric e competitio n use d b y firm s t o establis h marke t powe r i n aspecifi c produc t market . Produc t

differentiatio n ma y resul t fromuniqu e produc t

characteristic s o r

from brand recognition . I n general , acompan y tha t sell s aproduc t

with value d characteristic s tha t n o o r fe w othe r product s posses s wil l hav e mor e marke t powe r tha n acompan y tha t

sell s aproduc t tha t ha s n o distinguishabl e characteristic s fromothe r product s i n th e sam e market . Similarly , marke t powe r i s create d i f

customer s plac e ahighe r valu e o n aproduc t

produce d b y aspecifi c company , o r

brand , eve n thoug h th e produc t characteristic s ar e identica l t o th e product s produce d b y othe r

companies . Th e product s o f concer n t o th e OL D sourc e categor y ar e characterize d b y ahig h degre e o f homogeneity . Thus , brand loyalt y i s not expecte d t o b e an importan t facto r i n th e organi c chemical s marke t (CMA , 1995a,b ; Arnold , 1989 ; Gale , 1999a ; DOE , EIA , 1999e) . Th e numbe r

o f producer s an d th e marke t share s ofth e larges t

firm s ar e importan t determinant s ofth e degre e o f marke t powe r individua l firms ma y have . Th e ter m "concentration " refer s t o th e combine d percentag e o f tota l outpu t

accounte d for

b y th e larges t 2-1 0 

# ? 7P.2 7

producer s i

n th e industry . Fo

r example , the four-fir

mconcentratio n rati o (CR4 ) refers t o th e marke t shar e ofth e fou

r larges t firms . Th e highe r th e concentratio n ratio , th e mor e concentrate d th e industry . A marke t i s generall y consideredhighl

y concentrate dif

the CR 4 i s greate r tha n 5 0 percent . Th

e Herfindahl-Hirschman

n inde x (HHI ) i s a

n alternativ e measur

e of concentration . I

t i s equa l t o the su mofth e square s ofth e marke t share s fo r th e larges t

5 0 firms in th e industry . Th

e highe r the index , the fewe

r the numbe

r of firms supplying th e industr y an d th e mor e concentratedthe industr

y i s a t th e top . Th

e Justic e Departmen

t use s th e HH I fo r antitrus t enforcemen

t purposes . Th

e benchmar

k usedb y th e Justic e Departmen

t i s 1,000 , wher

e an y industr y wit h a n HH I les s tha n 1,00 0 i s considere dt o b e unconcentrated . Th e advantag e ofth e HH

I ove r th e concentratio n rati o i s tha t th e forme r give s information abou t th e dispersio n of

marke t shar e amon g all th e firms in th e industry , no t jus t th e larges t firms (Arnold , 1989) . I n general , a

n industr y wit h alarg e numbe

r of firms an dasmall concentratio n wil l b e relatively mor

e competitiv e tha

n a n industr y wit h fe w firms an dahig h concentration . Firm s tha t operat e in amor e competitiv e marke

t will b e relatively mor

e affecte dby ne w regulation s becaus e they ar

e les s likely t o b e abl e t o pas s o n complianc e costs . Tabl e 2- 4 show s concentration ratio s b y SI C cod e fo r th e affecte dOL D industrie s fromth e 199 2 Economi c Census . Industr y concentratio n information i s no t ye t availabl e fo

r th e 199 7 Economi c Census . Ratio s ar e includedfo

r th e censu s year s 198 7 an

d199 2 (wher

e possible) . For

som e SI C codes , dat

aar e availabl e fo

r onl y 1992 . The number s in Tabl e 2- 5 sho w that , by an

d large , th e OL

D industrie s ar

e characterizedb

y alarg e numbe

r of firms an d generally unconcentrate d markets , indicating ahigh degree of competitivenes s in their respectiv e produc t

markets . The chemica

l industr y i s undergoing atrendof

mergers , acquisitions , an

dgenera l industr y consolidation . According to a n analysi s b y Speed(1999) , "th e market wil l [comprise ] fewe

r but large r companies , globa

l in scope , an

dmor e focusedi n their

busines s pursuits. " Barrier s to entr

y ar e th e mechanism s through which th e tota l numbe r of firms i n a n industr y ca n b e kep t small an d ahigh degree of

marke t concentratio n ca

n exist . Wher

e barrier s to entr

y ar e present , ne

w firms find it

impossibl e o

r unprofitabl e to ente

r th e market . Barrier s to entr

y therefor e creat e marke t powe r fo r th e firms tha

t alread y operat e in the

2-1 1P.2 8

Tabl e 2-4 . Concentratio n Ratio s b y SI C Code " SI C Cod e Tota l

Numbe r o l Year Firm s 4 Fir m Chemica l Productio n 2821 : 2865 : 2869 : Concentratio n Rati o 8 Fir m 20 Fir m 5 0 Fir m Plastic s Materials , Syntheti c Resins , an d Nonvulcanizabl e Elastomer s 1987 28 8 20 % 1992 24 0 24 % 33 % 39 % Cycli c Organi c Crude s an

d Intermediates , Organic 1987 13 1 34 % 1992 150 31 % Industria l Organi c Chemicals , NE

C 1987 49 1 31 % 1992 48 9 29 % 50 % 45 % 48 % 43 % 61 %

63 % 89 %

90 % Dye s an d Pigment s 77 % 72 % 68 % 67 % 96 %

94 % 86 % 86 % Herfindahl

Hirschman n Inde x 24 8 284 54 2 42 8 37 6 33 6 8 Industr y concentratio

n informatio

n i s no t ye t availabl e fo r th e 199 7 Economi c Census . Source : U.S . Departmen

t o f Commerce , Burea u ofth e Census . 1992. Economi

c Census . Washington

, DC : Governmen t Printin g Office , <http://www.census.gov/epcd/www/92result.html> . market . Typically , barrier s t o entry exis t whe n industrie s ar e capita l intensive , ar e characterize d b y significan t economie s o f

scale , requir e specialize d knowledg e (e.g. , patents) , o r ar e subjec t

t o governmen t

regulatio n (Speed , 1999) . Whil e relativel y capital-intensive , chemica l productio n i n genera l i s not extremel y specialized . Thus , th e Agenc y believe s th e barrier s t o entry ar e moderate . 2.2.2.1 Facilities Tabl e 2- 5 present s an overvie w ofth e tota l numbe r o f facilitie s for

eac h OL D NAIC S code , th e tota l numbe r

o f firms potentiall y affecte d b y th e OL D sourc e category , an d th e percentag e ofth e sourc e category potentiall y affected .

2-1 2 

# &4P.2 9

Tabl e 2-5 . Numbe r

o f Tota l OL

D Facilitie s an d Affected Facilities , 199 7 NAIC S Code NAIC S Description Tota l Numbe r of Facilities 8 Tota

l Number of Affecte d Facilities' " % ofSourc e

Categor y tha t i s Affected Chemica l Productio n 32511 0 Petrochemica l Mf g 5 4 32513 2 Syntheti c Organi c Dye s an d 11 2

Pigment s 32519 2 Cycli c Organi c Crude s an d 5 0

Intermediate s 37 0 25.3 % 32519 3 32519 9 32521 1 Ethyl Alcohol Mf g All Othe r Basi c Organi c Chemica l Mf g Plastic s Materials , Syntheti c an d Resins , an

d Nonvulcanizabl e Elastomer s 3 8 67 6 53 2

U.S . Censu s Bureau . August 1999 . "Cycli c Crud

e an d Intermediat

e Manufacturing. " 1997

Economic Census, Manufacturing—Industry Series, E97M-3251I , Washington , DC : Governmen t Printing Office . U.S . Environmenta

l Protectio n Agenc y (EPA) . Novembe

r 2000 . Technical

Support Document

for the Organic Liquids Distribution (nongasoline) Industry. Washington , DC : U.S . Environmenta l Protection Agency , Office o f

Ai r Qualit y Planning an

d Standards , Emissio

n Standard s Division . b

Sources : U.S . Censu s Bureau . August 1999a . "All Othe

r Basic Inorgani c Chemica

l Manufacturing. " 1997 Economic Census, Manufacturing

— Industry Series, E97M-3251I , Washington , DC : Governmen t Printin g Office . U.S . Censu s Bureau . August 1999b . "All Othe

r Basic Organic Chemica

l Manufacturing. " 1997 Economic Census, Manufacturing—Industry Series, E97M-3251I , Washington , DC : Governmen t Printin g Office . U.S . Censu s Bureau . Augus t 1999c . "Ethy l Alcohol Manufacturing. " 1997 Economic Census, Manufacturing—Industry Series, E97M-3251I , Washington , DC : Governmen t Printing Office . U.S . Censu s Bureau . Augus t 1999d . "Industria

l Gas Manufacturing. " 1997 Economic Census, Manufacturing—Industry Series, E97M-3251I , Washington , DC : Governmen t Printing Office . U.S . Censu s Bureau . Augus t 1999e . "Petrochemica

l Manufacturing. " 1997

Economic Census, Manufacturing—Industry Series, E97M-3251I , Washington , DC : Governmen t Printin g Office . U.S . Censu s Bureau . August 1999g . "Plastic s Materia

l an d Resi n Manufacturing. " 1997

Economic Census, Manufacturing—Industry Series, E97M-32511 , Washington , DC : Governmen t Printin g Office . U.S . Censu s Bureau . August 1999h . "Syntheti c Organic Dy e an d Pigmen t Manufacturing. " 1997 Economic Census, Manufacturing—Industry Series, E97M-3251I , Washington , DC : Governmen t Printin g Office .

2-1 3 

# 3oAlthoug h EP A receive d survey s fromonl y abou t 3 2 percen t

(11 7 ou t o f 370) 3 ofth e univers e o f

organi c liquid s distributor s i n th e chemica l industry , an examinatio n ofth e dat a provide d i n th e survey s doe s illustrat e general characteristic s o f thos e facilities . Th e figures an d table s i n thi s sectio n includ e facilitie s classifie d i n NAIC S code s 325211 , i n additio n t o th e 11 7 facilitie s classifie d a s par t ofth e chemica l industry . Facilitie s i n NAIC S cod e 32521 1 us e syntheti c organi c chemical s an d petrochemical s a s an inpu t int o thei r productio n o f variou s plasti c part s an d products . Th e dat apresente d her e ar e for th e 10 5 facilitie s (ou t

o f 121 ) wh o di dno t

reques t tha t thei r survey s b e considere d classifie d information . Figur e 2- 1 show s th e distributio n o f 10 5 organi c chemica l liquid s distributio n facilitie s acros s 2 6 states . Twenty-nin e percen t o f organi c chemica l liquid s distributio n facilitie s ar e locate d i n Texas , 9 percen t ar e locate d i n Louisiana , an d 8 percen t ar e locate d i n Ohio . Capacit y utilizatio n at organi c chemica l facilitie s range s from8 0 t o 8 1 percent . Th e OL D NESHA P i s specificall y concerne d wit h th e distributio n o f

chemicals , rathe r

tha n thei r production . However , afacility' s ability t o stor e an d transfe r chemical s i s considere d i n th e calculatio n o f

plan t capacity , s o th e dat abelo w provid e som e indicatio n o f storag e an d transfe r capacity . Figur e 2- 2 show s almos t

al l organi c chemica l liquid s distributio n facilitie s emplo y mor e tha n 5 0 peopl e an d tha t mor e tha n 3 5 percen t

o f thos e facilitie s emplo y at leas t 50 0 hundre demployee s each . 2.2.2.2 Firm Characteristics Althoug h facilitie s ar e th e physica l uni t regulate d b y th e OL D sourc e category , thi s regulatio n ma y als o affec t th e firms tha t

ow n th e facilities . Firm s ar e lega l busines s entitie s tha t hav e th e capacity t o conduc t busines s transaction s an d mak e busines s decision s tha t affec t th e facility . I n thi s analysis , th e term s firman d compan y ar e use d synonymously . Th e chemica l industr y i s heavil y dominate d b y corporations , wit h fe w proprietorship s o r partnerships .

3 Som e portion s ofth e Technica

l Suppor t Documen t (TSD ) repor

t tha t 11 8 facilitie s i

n SI C code 2 8 returne d surveys . However , th e repor t show s assigned mode

l plan t numbers fo

r onl y 11 7 facilitie s i

n thi s SI C code . (One facility , numbered 30-Q , wa s listed i n th e TS D but i s nonexisten

t i n th e databas e compile d fro mIC R surve y responses . Th

e TS D failed to repor

t amode l numbe r fo r plan t 32-E , whic

h wa s i n th e database . Facilit y 30- Q wa s excluded fro

manalysi s an

d 32- E was included . 2-1 4P.3 1

Figur e 2-1 . Distributio n o f Organi c Chemical Liquid s Facilitie s tha t Responde dt o th e IC RSurve y 2-1 5 

# 3 aP.3 2

45 % n 40 % | 35 % i l 30 % ° 25 % j ? 20 % « 15 % Q . 10 % 5 % 0 % les s tha n 2 5 2 5 t o 5 0 5 0 t o 10 0 10 0 t o 25 0 25 0 t o 50 0 Employmen t Rang e ove r50 0 Figure 2-2 . Th e Distributio n o f Organi c Chemica

l Liquids Facilitie s tha

tResponded t

o th e IC RSurve

y by Employmen

t Source: Nonclassifie

d response s t o th e 199 8 Industr y Specifi c Informatio n Collectio n Reques t fo r th e Developmen t o f a n Organi c Liquid s Distributio n Maximu mAchievabl

e Contro l Technology

. Fir msiz e i s importan

t whe n analyzing th e distributio n ofth e regulation' s financial impacts . Analysi s of

likel y impacts on smal

l entitie s i s requiredunde

r th e Smal l Busines s Regulator y Flexibilit

y Enforcemen

t Ac t (SBREFA) an

drequire s th e categorizatio n of firms a s eithe r small o r large . Th e Smal l Busines s Administratio n (SBA) no w publishe s genera l siz e standar

d definition s fo

r smal l entitie s by NAIC S code. 4 Th e siz e standard s ar

e defined eithe r by employmen

t o r b y annua l firmrevenue , depending on th e NAIC S code . Th e SB A siz e definition s fo r all chemica

l industrie s i s definedi n term s of numbe r of employees . The siz e standar d fo r thes e NAIC S categorie s range s from75 0 t o 1,00 0 employees . A s previously stated , onl y 11 7 facilitie s ou

t of a n estimate d37 0 tha

t handl e organi c chemica

l liquid s respondedto th e ICRsurvey . Thos e facilitie s ar e ownedb y 3 1 differen t firms. Onl

y on e of thos e 3 1 firms i s small according to th e SB A small busines s standards . Tha

t one small firmown s tw o facilitie s tha t distribut e organi c liquids . If

th e 12 1 facilitie s ar

e a n accurat e sample ofth e actua

l facilities , w e ca

n conclude tha

t onl y aver y

4 A s o f Octobe r 1,2000 , smal

l busines s determination s ar e define d base d o n NAIC S code s rathe

r tha n SI C codes . 2-1 6

- > gP.3 3

smal l shar e o f

al l affecte d facilitie s ar e owne d b y smal l businesses . Figure s 2- 3 an d 2- 4 sho w th e distributio n o f

surveye d firms b y firmsiz e a s measure d b y revenu e an d employment ; respectively . Th e majorit y o f affecte d firms too k

i n mor e tha n $ 1 billio n i n revenue s i n 199 8 an d employe d mor e tha n 10,00 0 people .

E u i l ra c ffl ffl Q . 70 % 60 % 50 % H 40 % 30 % 20 % 10 % 0 % Les s tha n $5Mto$5 0 $50 M t o $500Mt o $1Bt o $5 M $500 M $1 B $10 B Company Sale s $10Bt o over$100 B $100 B Figur e 2-3 . Th e Siz e Distributio n o f Companie s tha tow n OL D Facilitie s tha t Responde d t o th e IC RSurve y an d ar e Involve d i n Chemica l Distribution , b y 199 8 Sale s (i n $1997 ) Sources : Du

n & Bradstreet. 1999 . Compan y Capsules . A

s availabl e o n EBSCO . Genera l Busines s Fil

e Internationa

l (formerl y Busines s ASAP) . 1999 . Gal e Grou p Collections . A

s obtaine dfromInfoTra

c Web . Hoover' s Incorporated . 1999 . Hoover' s Compan y Profiles . Austin, TX : Hoover' s Incorporated . <http://www.hoovers.com/> . Compan y websites . Compan y 10 k reports . U.S . Environmenta

l Protectio n Agenc y (EPA) . Novembe

r 2000 . "Technica

l Suppor t Documen t fo r th e Organi c Liquid s Distributio

n (non-gasoline

) Industry. " Washington

, DC : USEPA

, Offic e o f Ai r Qualit y Plannin g an d Standards , Emissio

n Standard s Division . Vertica l an d horizonta l integratio n ar e importan t determinant s i n analyzin g afirm' s potentia l fo r

impacts . Both measure s ar e concerne d with th e type s o f industrie s i n whic h a firmoperates . Vertica l integratio n refer s t o th e degre e t o whic h afirmoperate s facilitie s tha t ar e par t ofth e sam e suppl y chain . Fo r example , i f

th e sam e firmown s facilitie s i n th e petroleu mproduction , refining , an d transportatio n industries , i t woul d b e considere d 2-1 7 

# EX70 %

. 60 %

. b 50 % u . o 40 % < D j ? 30 % - | 8 20 % ffl ° - 10 % - 0 % les s tha n

50 0 50 0 t o 1,00 0 1,00 0 t o 5,00 0 5,00 0 to

10,00 0 10,00 0 t o ove r100,00 0

100,00 0 Numbe r o f Employee s Figure 2-4 . Siz e Distributio n of Companie

s tha tow n OL D Facilitie s thatResponded t o th e IC RSurvey an

d ar e Involved in Chemica

l Distributio n Sources : Du

n & Bradstreet . 1999 . Compan y Capsules . As availabl e o

n EBSCO . Genera l Busines s File Internationa

l (formerl y Busines s ASAP) . 1999 . Gale Grou p Collections . A s obtaine d fromInfoTra

c Web . Hoover' s Incorporated . 1999 . Hoover' s Compan y Profiles . Austin , TX : Hoover' s Incorporated . <http://www.hoovers.com/> . Compan y websites . Compan y 10 k reports . U.S . Environmenta

l Protection Agenc

y (EPA) . Novembe

r 2000 . "Technica

l Suppor t Documen t fo r th e Organi c Liquid s Distribution (non-gasoline ) Industry. " Washington , DC : USEPA , Offic e of Ai r Qualit y Planning an

d Standards , Emissio

n Standard s Division . vertically integrated . Vertica l integratio n i s potentially importan t in analyzin g firm-level impact s becaus e aregulatio n coul daffec t avertically integrate dfirma t mor e tha n one level . Horizonta l integratio n refer s t

o th e scal e of

productio n in asingle-produc t firmo r it s scop e i n amultiproduc t

one . A single-produc t

firmi s consideredhorizontally integrate dif it own s mor e tha n on e facilit

y producing th e sam

e product , which ma

y b e a n advantag e t o th e firm's abilit y t o absor b cost s i f no t all ofth e facilitie s ar

e subject to th e regulatio n an

dif th e firm ca n shif t part s ofth e productio n to th e unregulatedfacilities . A multiproduc t firmi s considere d horizontally integrate dif it own s facilitie s in severa

l unrelate dindustries . Here , horizonta l integratio n ma

y improv e afirm's abilit

y to absor b complianc e cost s if

onl y one o r afe w ofth e industrie s i n which th e firmoperate s ar e directly affecte

db y th e regulation . Firm s producin g an

d distributin g organi c chemica l liquid s ar e generally integrate dbot

h 2-1 8



# ^ rhorizontall y an d vertically , whil e firms onl y distributin g organi c chemical s ar e not highl y integrated . Th e 3 1 firms tha t

ar e know n t o ow n chemica l facilitie s tha t wil l b e affecte d b y th e OL D NESHA P hav e a n averag e (median ) profi t margi n o f

5. 4 (5.3 ) percent . Tabl e 2- 6 show s th e average , median , minimum , an d maximu mprofi t margin s o f

thes e 3 1 firms. Figur e 2- 5 show s th e distributio n o f

profi t margin s amon g th e firms. Tabl e 2-6 . Profi tMargin s o f Firm s tha tResponde d t o th e IC RSurve y an d tha tow n Organi c Chemica l Liquid s Distributio n Facilitie s

Media n 0.05408 8 Averag e 0.05277 6 Maximu m-0.0409 3 Minimu m0.1182 8 Source : Nonclassified response s t o the 199 8 Industr

y Specifi c Informatio

n Collection Reques t

fo r the Developmen

t o f a n Organi c Liquid s Distribution Maximu mAchievable Contro l Technology . 2.2.3 Uses and

Consumers A s with petroleu mliquids , th e deman d for organi c chemical s depend s primaril y o n thei r en d use . Organi c chemicals , particularl y petrochemicals , pla y a n importan t rol e i n society . Petrochemical s ar e usuall y an intermediat e produc t tha t i s converte d int o avariety o f consume r an d industrial products . Som e ofth e en d product s includ e plastics , antifreeze , syntheti c fibers , rubber , solvents , an d detergents . Highe r deman d for

thes e product s translate s int o highe r

deman d for

thei r input s (EPA , 1995) . Thi s sectio n list s th e majo r consumer s o f

organi c chemicals , th e purpose s o f chemica l consumption , an d th e factor s affectin g th e elasticit y o f deman d for

chemicals . Nearl y everyon e i s aconsume r o f chemical s i n som e way . Chemical s ar e use d a s input s int o th e majority o f manufacturin g industrie s bot h domesticall y an d internationally . A s wit h petroleu mproducts , th e market s fo r end-us e product s driv e th e deman d fo r individua l chemicals . Th e majo r industria l consumer s o f

chemical s i n th e Unite d State s ar e housing , moto r

vehicles , agriculture , tires , pape r products , plasti c products , textil e mil l products , apparel , an d furnitur e an d fixture s (Oil & Gas Journal, 1999) . 2-1 9 

# 3 645 % - ] 40 % - | 35 % - i l 30 % - ° 25 % - 0 8 * 20 % - S 15 % - £ 10 % J 5 % - 0 % - <0% 0%-3 % 3%-5 % Profi t Margi n 5%-10 % >10 % Figur e 2-5 . Distributio n o f Companie s Ownin g Organi c Chemica l Liqui d Facilitie s tha t Responde d t o th e IC RSurvey , b y Profi tMargi n Sources : Du

n & Bradstreet . 1999 . Compan y Capsules . A s availabl e o

n EBSCO . Genera l Busines s File Internationa

l (formerl y Busines s ASAP) . 1999 . Gale Grou p Collections . A s obtaine d fromInfoTra

c Web . Hoover' s Incorporated . 1999 . Hoover' s Compan y Profiles . Austin , TX : Hoover' s Incorporated . <http://www.hoovers.com/> . Compan y websites . Compan y 10 k reports . U.S . Environmenta

l Protection Agenc

y (EPA) . Novembe

r 2000 . Technical

Support Document

for the Organic Liquids Distribution (Non-gasoline) Industry. Washington , DC : US Environmenta l Protectio n Agency , Offic

e o f Ai r Qualit y Planning an

d Standards , Emission Standard s Division . Du n & Bradstreet . 1997 . Industry Norms & Key Business Ratios. Desk-To p Editio n 1996-1997 . 2.2.3.1 Characterization of Demand—Derived

Demand Elasticity A s wit h petroleu mproducts , th e pric e elasticity o f deman d for

chemical s depend s o n th e availabilit y o f

substitutes , eithe r

substitut e product s for

th e sam e us e o r

alternativ e productio n processe s tha t d o not nee d thi s chemical . Ther e ar e 6 5 HAP s covered ; sinc e th e availabilit y o f

substitute s varie s amon g thes e chemicals , s o wil l thei r deman d elasticities . Fo r thi s analysis , however , th e Agenc y i s employin g a n aggregate d marke t model , usin g a deman d elasticit y estimate d for anothe r analysi s ofth e chemica l industry . Thi s deman d elasticit y i s -1.5 , meanin g tha t aon e percen t

increas e i n th e pric e o f

organi c chemica l liquid s woul d decreas e th e quantit y demande d b y 1. 5 percent . 2-2 0 

# 37P.3 7

2.2.4 Markets A recen t stud y conducted b

y th e Chemica

l Manufacturers Associatio n (CMA ) showed tha t U.S . shipment s of

chemical s an

dalliedproduct s fo

r 199 8 ha dincreasedb

y onl y 0. 6 percen t compare d to th e previou s year . Domesti c deman dwa s th e mai

n drive r of thi s increas e a s export s declined 2. 0 percent , the result ofth e Asi acrisi s an

dth e hig h U.S . dollar . Shipment s of

industria l chemicals , however , fel

l by 6. 9 percent . Import s ros e 8. 5 percent , which led to areductio n in th e trade surplu s from$19. 1 billio n (1997 ) to $13. 4 billio n (1998) . Deficit s occurred in organi c chemicals , pharmaceuticals , an dinorgani c chemicals . The CM A projected th e overall conditio n ofth e U.S . econom y to remain favorable throug h th e first

hal f o f 2000 . Th e financia l crisi s i n Asi aha s com

e t o a n end , an dexport s rebounde d throug h Jun e 2000 . Wit h continuedexpansion o f

th e U.S . economy , overal l growt h in chemica

l an d allie d product s productio n volum e i s expecte dto b e 1.3 percen t durin g 199 9 (CMA , 1999 ; CMA , 2000) . 2.2.4.1 Market

Volumes Market volume s fo

r EPA' s analysi s wer

e compiledfrompublishe dreport s o f production , imports , an

d export s of

all th e chemical s producedo r distribute db

y OL D facilities . (ChemExpo , 2000) . Tabl e 2- 7 present s production , import s andexport s in th e aggregate d organi c chemica l market , fo

r chemical s affecte

dby th e OL

D NESHAP . Tabl e 2-7 . Organi c Chemica l Marke tVolumes , 199

7 (IO 6 Mt ) Domesti c Suppl y 19 1 Import s 1 1 Tota l 20 2 Sources : EP

A OL D Industr y Questionnair

e Database ; ChemExpo . <http://www.chemexpo.com> . Report s fo r al l chemical s distributed by OL D facilities . Accessed June 2000 . 2.2.4.2 Market

Prices The baselin e marke

t pric e usedfo

r th e organi c chemical s market , $498.6 2 pe r metri c ton , wa s estimate d a s aquantity-weighte daverag e ofth e individua l chemica l price s obtaine d fromChemExp o (ChemExpo , 2000) .

2-2 1P.3 8

2.2.4.3 Future Projections Constant-dolla

r shipment s o

f organi c chemical s ar

e forecastedt

o increas e a

t les s tha n 5 percent annuall y through 2002 . Thi s low growt h rat e i s expectedt

o result fro mslowin g U.S . domesti c market s an

d competitio n fro

mforeig n producers . Competitio n i n th e chemica

l industr y i s no t onl y increasing i

n foreig n markets , bu

t i n domesti c market s a s well . Whil e import s hav e grow

n consistently sinc e 198 9 (an dnow accoun

t fo r 1 7 percen

t of demand) , expor t prospect s hav e bee

n les s positive . Th

e United State s i s expecte dt o remai n anet exporte r but th e country' s trade surplu s i s expectedt o continu e t

o decline (U.S . Departmen

t o f Commerce , 1998,2000) . 2. 3 Distributio n o

f Petroleu m Liquids Petroleumliquid s ar

e mad e u p of anumbe r of differen t liquids : crud

e oil , natura

l ga s liquids , and nongasoline petroleumproducts . Table 2- 8 show s th e distributio n o f petroleum product s i n 1997 . Sinc e gasoline i s alread y covere db y th e gasoline distributio n NESHAP , thi s profil e discusse s th e tw o majo r categorie s of

nongasoline refinedproducts—fuel s an d liquifie d petroleumgase s (LPGs) . Th e main fue l product s include din th e OL D sourc e categor y ar e distillat e fue l oil , kerosene-typ e je t

fuel , an dresidua l fue l oil . Distillat

e fue l oi l include s diese l oil , heatin g oils , an dindustria l oils . It i s usedto powe

r diesel engine s in buses , trucks , trains , automobiles , an dothe r machinery . I

n addition , it

i s usedt o hea t residentia l and commercia

l building s an

dt o fire industria

l an delectri c utilit

y boilers . Kerosene-typ e je t

fue l i s primarily usedin commercia l airlines . Sometime s i t

i s blende d into heatin g oi l and diesel fue

l during period s of

extrem e col dweather . Residua

l fue l i s used b y electri c utilitie s t o generat

e electricity . I t

i s als o useda s fue

l fo r ships , industria

l boiler fuel , and heatin g fue

l in som e commercia

l building s (DOE , EIA , 1999b) . 2.3.1 Affected

Markets Thre e type s of

petroleumliquid s ar

e covere dby th e OL

D sourc e category—crude oil , NGLs , and refined petroleumproducts . Table 2- 9 show s th e SI C code s an

dNAIC S code s associate d wit

h their production . Sinc e crud

e oil an dNGL s ar e th e primar

y input s int

o th e productio n o f

refined petroleumproducts , th e discussio n i n thi s sectio n focuse s o n th e consumer s of

, deman d for, an d pric e elasticitie s ofth e refinedpetroleumproduct s (DOE , EIA , 1999e) .

2-2 2 

# 5>< ?P.3 9

Tabl e 2-8 . Petroleu mProduct s Produce d a t U.S . Refineries , 199 7 Petroleu mProduc t

Percen t Produce d Moto r gasoline 45.7 % Distillate fue

l oil 22.5 % Jet fue l 10.3 % Residua l fue l oil 4.7 % Stil l ga s 4.4 % Petroleu mcok e 4.6 % Liquefiedpetroleu

mgase s 4.6 % Asphalt an droa d oil 3.2 % Petrochemica

l feedstocks 2.9 % Lubricant s 1.2 % Othe r L4 % Source : U.S . Departmen

t o f Energy, Energ

y Informatio

n Administration . Jul

y 1999b . Petroleum: An Energy Profile 1999. DOE/EIA-0545(99) . Petroleu mliquid s ar e input s t o virtuall y every industry i n th e Unite d States . Crude oi l become s gasoline , diese l fuel , an dje t fuel , whic h affect s th e transportatio n industr y an d facilitate s th e distributio n o f manufacture d good s an dth e transportatio n industry . Refinerie s separat e crud e oi l int o petrochemica l feedstock s tha t ar e use d a s input s i n th e chemica l industr y an d eventuall y becom e plasti c o r syntheti c rubbe r

products , automobil e lubricant s o r antifreeze , cleanin g compounds , o r cosmetics . LPG s als o becom e input s int o chemica l compound s o r

fue l for househol d o r

far muse . 2.3.2 Production/Service Overview OL D distributio n i s aservic e tha t i s par t ofth e productio n proces s fo r petroleu m liquids . Organi c liquid s first ente r th e pat h ofth e OL D sourc e categor y at th e poin t o f custod y transfer , shortl y before th e refiner y stage . Pipeline s carry crud e oi l and/o r NGL s fromproductio n fields int o th e refineries . Alon g th e way , th e liquid s ar e channele d throug h crud e oi l pipelin e stations , whic h ar e use d fo r surg e capacity , sorting , measuring , rerouting , an d temporar y storag e ofth e transporte d liquid . Crud e oi l pipelin e station s ar e th e first poin t o f OL D regulatio n fo r

petroleu mliquids . 2-2 3 

# //DP.4 0

Tabl e 2-9 . Principa l OL D Facilit y Categorie s SI C Cod e SI C Descriptio n Petroleu mRefiner

y (5 6 surve

y responses ) 291 1 Petroleu

mRefining Liqui d Termina l (3 2 surve y responses ) 422 6 Specia

l Warehousing an

d Storage , NEC NAIC S Code 3241 1 4931 1 4931 9 Crud e Oi l Pipelin e Pumping/Breakou t Statio n (24 surve

y 461 2 Crud

e Petroleu mPipeline s Petroleu mTermina l (1 0 surve y responses ) 516 9 Chemical s an

d Allie d Products , NE

C 517 1 PetroleumBul

k Station s an

d Terminal s 4861 1 4226 9 4227 1 45431 1 45431 2 NAIC S Descriptio n

Petroleu mRefinerie s Genera l Warehousing an

d Storag e Othe r Warehousing an

d Storag e responses ) Pipeline Transportatio n of

Crud e Oi l Othe r Chemica l an d Allie d Product s Wholesaler s Petroleu mBul k Station s an

d Terminal s Heating Oi

l Dealers 0 L P Gas Sol d Vi aRetai l Method "

" Onl y par t o f thi s NAICS-code

d industr y consist s o f facilities tha

t woul d also b e classifie d i n th e correspondin

g SI C code . Source : U.S . Censu

s Bureau . Marc

h 2000a . "198 7 SI C Matche d t o 199 7 NAICS. " <http://www.census.gov/epcd/naics/NSIC3B.HTML> . A s obtaine d o n Marc h 13,2000 . Fro mth e crud e oi l pipelin e station , crud e oi l an d NGL s ar e transporte d t o apetroleu m refinery ; crud e oi l ca n als o b e transporte d t o an independen t liqui d termina l (eithe r

aliqui d termina l o r

apetroleu mterminal) . Petroleu mrefinerie s proces s crud e oi l and/o r NGL s int o refine d petroleu mproduct s (includin g gasoline , distillat e fiiel oil , residua l fue l oil , liquifie d petroleu mgases , an d petrochemicals) . Afte r th e refinin g process , th e refine d petroleu mproduct s migh t b e distribute d t o on e o f thre e destinations—refine d petroleu mproduct s migh t b e distribute d t o en d user s belongin g t o differen t

industrie s o r

the y migh t

b e transporte d t o an independen t liqui d termina l fo r storag e befor e furthe r

processing . Liquid s store d a t independen t

liqui d terminal s migh t

b e

2-2 4 

# H\P.4 1

transporte dt o chemica l productio n plant s o r refinerie s fo

r further processing , the y migh t

b e sen t t o ablending/packaging/distributio n facility , o r the y migh t

b e distribute d t o en d users . 2.3.2.1 Elasticity of

Supply Th e pric e elasticity o f

supply , o r

own-pric e elasticity o f

supply , i s ameasur e ofth e responsivenes s o f

producer s t o change s i n th e pric e o f aproduct . Th e pric e elasticity o f suppl y indicate s th e percentag e chang e i n th e quantity supplie d o f aproduc t

resultin g fro m eac h 1 percen t

chang e i n th e pric e ofth e product . Th e EI A for

th e petroleu mrefiner

y NESHA P (1995 ) econometricall y estimate d th e pric e elasticit y o f

suppl y for

five petroleu mproduct s (moto r gasoline , je t

fuel , residua l fue l oil , distillat e fue l oil , an d LPGs) . Th e pric e elasticity o f suppl y for

th e five petroleu m product s wa s estimate d t o b e 1.24 . Foreig n suppl y i s assume d t o hav e th e sam e pric e elasticit y o f

suppl y a s domesti c supply . A suppl y elasticity o f 1.2 4 i s considere d elastic , becaus e i n respons e t o aon e percen t increas e i n th e marke t

price , th e quantit y o f

petroleu m product s woul d increas e b y mor e tha n 1 percent . 2.3.3 Industry Organization Thi s sectio n describe s th e organizatio n o f industrie s tha t

distribut e petroleu mliquids , includin g marke t

structure , th e characteristic s o f distributio n facilities , an d th e firms tha t ow n them . Overall , th e petroleu mliquid s distributor s fac e alarg e degre e o f competitio n from fello w distributors . Thi s sectio n describe s th e producers , produc t differentiation , marke t concentration , an d barrier s t o entry . Supplier s i n th e petroleu mindustry ca n b e divide d int o tw o principa l type s o f firms:

• "Majors " ar e larg e companie s tha t ar e typicall y fully verticall y integrate d an d operat e facilitie s i n al l ofth e different petroleu msector s (i.e. , exploration , production , transportation , refining , an d marketing) ;

• "Independents " ar e smaller , nonintegrate d companie s tha t generall y specializ e i n on e aspect , suc h a s crud e oi l exploratio n an d productio n o r produc t marketin g (DOE , EIA , 1999e) . Historically , major s hav e dominate d th e petroleu mindustry . However , th e major s recentl y bega n atren d o f

selectiv e refining/marketin g divestitur e tha t reduce d thei r

shar e o f U.S . refinjn g capacit y fro m7 2 percen t i n 199 0 t o 5 4 percen t

i n 1998 . Ove r

th e sam e period , th e shar e ofth e independent s ros e from 8 percen t t o 2 3 percent . 2-2 5 

# 42Petroleumproduct s ar e producedaccording t

o qualit y grad e specification s an

d therefor e d o not var y muc h fro mon e another . Bran

dloyalt y i s no t expectedt o b e a n importan t facto r i n th e petroleumproduct s marke t (DOE , EIA , 1999e) . Tabl e 2-1 0 show s concentratio n ratio s b y SI C cod e fo r th e affecte dOL D industrie s involve d i n petroleumproduc t distribution , base

don datafro

mth e 199 2 Economic Census . (Concentratio n information b y NAIC S cod

e fromth e 1997 Economi c Censu s i s no t yet available. ) Industr

y concentratio n information i s no t yet availabl e fo

r th e 199 7 Economi c Census . Ratio s ar

e included fo

r th e censu s year s 1987 an

d1992 (wher

e possible) , althoug h only 199 2 dataar

e availabl e fo

r som e SI C codes . The number s in Tabl e 3- 7 sho w that , by and large , th e petroleumliquid s distributio n industrie s ar e characterize db

y alarg e numbe

r of firms and generally unconcentrate dmarkets , indicatin g ahigh degre e o f competitivenes s i n their respectiv e produc t

markets . Th

e exception i s crud

e oil pipelin e stations , which ha s relatively fe

w firms (52 ) and hig h concentratio n ratio s ( aCR 4 o f 60. 3 percen

t andaCR 8 o f 79. 7 percent) , indicatin g ahigh degree of concentration . Thes e number s ar e no t surprisin g given tha t th e pipelin e industr

y i s highly capita

l intensiv e (se e discussio n on barrier s to entry , above . I n addition , FER

C legislate s an

dmonitor s th e liquid s pipelin e industries . FER C ensure s fai r acces s to pipelin e transportatio n a t reasonabl e rates . Interestingly , th e vas t majorit y o f crud e oi l pipelin e companie s wit h corporat e office s in th e UnitedState s ar e operate d a s subsidiarie s of

othe r corporat e entities , mostl

y majo r oi l companies . Onl

y afe w ofth e pipelin e companie s ar e independentl

y liste don an

y stoc k exchang e (Gale Busines s Resources , 1999b) . Recently , tw o trend s in th e petroleu mmarke t hav e affecte

dth e numbe

r andmarket share s of firms—mergers/join

t venture s an

ddivestitures . Ove

r th e pas t fe w years , anumbe

r of merger s an

d join t venture s have bee

n undertake

n i n a n effor t to cut cost s an dincreas e profitability . Thi s merge

r activit y ha s occurredamon

g th e larges t

firms (as bes t

illustrate d b

y th e recentl y approved acquisitio n o f U.S.-basedAmoc o Corporatio n b y the UK-basedBritis h Petroleuman

d th e announced mega-merge r o f Exxon andMobil Corporation) a s well a s among independen

t refiner s an

d marketer s (e.g. , th e independen t refiner/markete

r Ultrama r Diamond Shamroc

k [UDS ] acquire dTota

l Petroleu mNort h Americ ain 199

7 an dannounce d ajoin t ventur e wit h Phillip s Petroleumi

n Octobe r 1998 , whic h wa s later

abandoned) (DOE , EIA , 1999d) . A s explaine d above , barrier s to entr y ar e a n importan

t componen

t ofth e market structure . A s indicate d above , common carrie r pipeline s in th e Unite dState s ar e governmen

t 2-2 6 

# X3P.4 3

Tabl e 2-10 . Concentratio n Ratio s b y SI C Code "

Tota l SI C Number o l Code Year Firms Petroleu m Refiner

y 2911 : PetroleumRefining

1987 200 199 2 13 2 4 Fir m

32 % 30 % Concentration Rati o

8 Fir m

52 % 49 % 20 Fir

m

78% 78 % 5 0 Fir

m

95 % 97 % Herfindahl Hirschma n Inde x

43 5 41 4 Liqui d Termina

l 4226 : Specia

l Warehousing an

d Storage , NE

C 1992 1,21 2 27 % 36 % 50 % 64 % N A Crude Oi l Pipelin e Station 4612 : Crud

e PetroleumPipeline s 1992 5 2 60 % 80 % 97 % 10 % N A Petroleu m Termina

l 5169 : Chemical s an

d Allie d Products , NE

C 1992 7,44 6 27 % 35 % 50 % 65 % N A 5171 : PetroleumBul

k Station s an

d Terminal s 1992 8,26 6 21 % 34 % 53 % 64 % N A

aConcentratio

n informatio

n b y NAIC S cod e fro mth e 199 7 Economi c Censu s is no t ye t available . Source : U.S . Departmen

t o f Commerce , Burea u ofth e Census . 1992 . Economi

c Census . Washington

, DC : Governmen t Printin g Office , <http://www.census.gov/epcd/www/92result.html> . regulate d du e t o th e industry' s structure , whic h ca n b e characterize d a s anatura l monopoly . Th e crud e oi l pipelin e industry i s capita l intensive . Start-u p cost s ar e high , an d entr y int o th e industr y i s restricted , a s i s indicate d b y th e smal l numbe r o f firms operatin g wit h headquarter s i n th e Unite d States . However , sinc e th e day-to-da y maintenanc e o f capital

intensiv e industrie s tend s t o b e relativel y moderate , successfu l companie s withi n th e pipelin e industrie s hav e bee n abl e t o tak e advantag e o f economie s o f

scale .

2-2 7 

# WP.4 4

2.3.3.1 Facilities Althoug h EP A ha s receive d survey s fromonl y abou t 4 5 percen t

(12 6 ou t o f 281 ) o f th e univers e o f

OL D i n th e petroleu mindustry , a n examinatio n ofth e dat aprovide d i n th e survey s illustrate s genera l characteristic s o f thos e facilities . Th e dat apresente d her e ar e for th e 11 8 facilitie s (ou t

o f 126 ) wh o di d no t

reques t that thei r survey s b e considere d classifie d information . Figur e 2- 6 show s tha t

o f th e 11 8 nonclassifie d facilities , 3 1 percen t o f petroleu m liquid s distributor s ar e locate d i n Texas , 1 2 percen t ar e i n Louisiana , an d 1 0 percen t ar e locate d i n Alaska . Facilitie s i n NAIC S cod e 3241 1 wer e operatin g at 9 1 percen t

capacity i n 199 8 an d 199 7 accordin g t o th e U.S . Censu s Bureau (U.S . Departmen t o f Commerce , 1999f) . Figur e 2- 7 show s tha t

almos t 4 0 percen t

o f facilitie s involve d i n th e distributio n o f petroleu mliquid s emplo y fewe r

tha n 2 5 peopl e on-site , whil e anothe r 4 0 percen t

o f facilitie s emplo y mor e tha n 25 0 employee s each . 2.3.3.2 Firm Characteristics Tabl e 2-1 1 present s an overvie w ofth e tota l numbe r o f firm s for eac h petroleu mOL D SI C code , th e tota l numbe r o f firm s potentiall y affecte d b y th e OL D sourc e category , an d th e percentag e ofth e sourc e category potentiall y affected . Th e OL D sourc e category i s heavil y dominate d b y firms organize d a s corporations . Fo r example , i n 1987 , 17 7 o f 20 0 petroleu mrefinerie s (o r 88. 5 percent ) wer e classifie da s corporations . I n 1992 , 91 4 o f 1,21 2 liqui d terminal s (o r 75. 4 percent) , an d 4 9 o f

5 2 crud e oi l pipelin e station s (o r

94. 2 percent ) wer e classifie d a s corporation s (DOE , EIA , 1999e ; Speed , 1999) . Tabl e 2-1 2 present s th e SB A smal l busines s standard s for th e OL D sourc e categor y an d als o show s th e numbe r o f smal l firms i n th e industry . Th e SB A siz e definition s for mos t OL D industrie s i s define d i n term s o f employees . Th e siz e standar d for thes e NAIC S categorie s range s from10 0 employee s i n th e petroleu mtermina l industr y t o 1,500 employee s for petroleu mrefineries 5 an d crud e oi l pipelin e stations .

5 In additio n to th e maximu

mnumbe r o f employees , petroleu

mrefinin g firms ma y not hav e mor e tha n atota l inpu t capacit y of 75,00 0 barrel s pe

r da y of petroleum-based inputs , suc h a s crud e oil . 2-2 8 

# ?SP.4 5

Figur e 2-6 . Locatio n o

f Petroleu mLiquid s Distributor s tha t Responde dt o th e IC R Surve y 2-29

^45 % 40 % | 35 % i l 30 % ° 25 % S ? 20 % § 15 % ® 10 % 5 % 0 % les s tha n 2 5 2 5 t o 5 0 5 0 t o 10 0 10 0 t o 25 0 25 0 t o 50 0 ove r50 0 Employmen t Rang e Figure 2-7 . Th

e Distributio n of

Petroleu m Liquids Facilitie s tha

tResponded t

o th e IC R Surve y by Employmen

t Source : Nonclassified response s to th e 199 8 Industr

y Specifi c Informatio

n Collection Request

fo r the Developmen

t of a n Organi c Liquid s Distributio n Maximu mAchievable Control Technology . EPA' s surve

y o f OL D facilitie s provide s dataon firms owning facilitie s affecte d b y th e OL D NESHAP . Th

e 126 surveyedfacilitie s ar

e owne dby 4 5 companies . Accordin g to SB A standards , 9 percen

t ( 4 ou t of 45 ) o f thos e companie s ar

e small businesses . Figure s 2- 8 and 2- 9 sho w th e distributio n o f surveyedfirms by firmsiz e a s measure d b y revenu e an

d employment . Th

e majorit y o f affecte dfirms took

in mor e tha n $ 1 billio n i

n revenue s i n 199 8 and employ mor e tha n 5,00 0 people . The industr

y exhibit s ahig h degre e o f vertica l integratio n wit

h man y firms operating in mor

e tha n on e sector (DOE , EIA , 1999e) . For example , th e crude petroleumpipeline industr y i s dominatedb y gian

t oi l companie s wit

h asset s i n man

y ofth e downstrea

msector s ofth e industr

y (Gale Busines s Resources , 1999b) . Ofth e tw o type s o f

petroleumfirms , major

s ar e generall y full y integrate dan

doperat e facilitie s in al l th e differen

t sectors . Independents , on th e othe r hand , ar e nonintegrate d an

d generally specializ e in one aspect , suc h a s crud e oi l exploratio n andproductio n o r produc t marketin g (DOE , EIA , 1999e) . Similarly , majo r petroleumcompanie s ar

e horizontally integrated , but

th e smalle r independen

t firms typically operat

e onl y one refiner

y eac h and ar

e therefor e no t horizontally integrate d(EPA , 1995) . 2-3 0



# ^ 7P.4 7

Tabl e 2-11 . Number o

f Tota l OL D Firm s an d Affecte d Firms , 1996

NAIC S Cod e NAIC S Descriptio n Petroleu m Refiner y 3241 1 Petroleu mRefinerie s Liqui d Termina l 49311 Genera l Warehousin g an d

Storag e 4931 9 Othe r

Warehousin g an d Storag e Crud e Oi l Pipelin e Statio n 4861 1 Pipelin e Transportatio n o f

Crud e Oi l Petroleu m Termina l 4226 9 Othe r

Chemica l an d Allie d Product s Wholesaler s 4227 1 Petroleu mBul k Station s an d Terminal s 45431 1 Heatin g Oi l Dealer s 45431 2 L P Ga s Dealer s Tota l Numbe r o f Establishments ' 24 4 391 1 121 3

48 2 8,89 2 6,72 9 565 7 662 3 Tota l

Numbe r o f Affecte d Facilitie s 11 1

9 4

3 5

41 b % ofSourc e

Categor y tha t i s Affecte d 45.5 %

1.8 %

7.3 %

0.1 %

" U.S . Censu s Bureau . Februar y 1998 . "Statistic s fo

r Industr y Group s an

d Industries. " 1997

Economic Census, Manufacturing—Industry Series, E97M-3251I . Washington , DC : Governmen t Printin g Office . U.S . Censu s Bureau . Septembe r 1999f . "Petroleu mRefinery. " 1997

Economic Census, Manufacturing—Industry Series. E97M-3251I , Washington , DC : Governmen t Printin g Office . U.S . Censu s Bureau . Januar y 2000c . "Transportation an d Warehousing. " 1997

Economic Census, Manufacturing—Industry Series. E97M-3251I , Washington , DC : Governmen t Printin g Office . U.S . Censu s Bureau . Januar y 2000d . "Wholesale Trade. " 199 7 Economic Census , Manufacturing—Industr

y Series . E97M-3251I , Washington , DC : Governmen t Printin g Office . U.S . Censu s Bureau . Marc h 2000b . "Retail Trade. " 1997 Economic Census, Manufacturing—Industry Series, E97M-3251I . Washington , DC : Governmen t Printing Office . b Thi s i s th e combined estimated numbe r of affecte d facilitie s i

n thi s industry . Throughout

th e 1990s , th e U.S . refining an dmarketing industr

y wa s characterize d by unusually'lo w produc t

margins , lo w profitability , selectiv e retrenchment , andsubstantia l restructuring . During 1997 , th e profitabilit y of U.S . refining an

dmarketin g wa s th e highes t 2-3 1 

# j&P.4 8

Tabl e 2-12 . Smal l Busines s Siz e Standard s fo r OL D Industrie s NAIC S Code NAIC S Descriptio n SB A Smal l Busines s Standar

d Petroleu m Refiner

y 3241 1 PetroleumRefinerie s

Petroleum Termina

l 4226 9 Chemical s an

d Allied Products , NE

C 4227 1 PetroleumBul k Station s an

d Terminal s 45431 1 Heatin g Oi

l Dealer s 45431 1 L

P Ga s Dealer s 1,50 0 employee s an

d 75,00 0 barrel s pe r da y capacit y of petroleum-base d inputs " Liqui d Termina

l 4931 1 Genera

l Warehousing an

d Storag e 4931 9 Othe

r Warehousing an

d Storag e Crude Oi l Pipelin e Station 461 2 Crud

e Petroleu mPipeline s $18.5millionb 1,50 0 employee s 10 0 employee s 10 0 employee s $9. 0 millio n $5. 0 millio n

" Petroleum-base

d input s includ e crud e oi l o r bon afide feedstocks . b Th e SB A smal l busines s standar

d fo r NAIC S cod e 493 represent

s annua l firmrevenue . Fir

msiz e b y revenu e i s no t availabl e i n Statistics of

U.S. Businesses 1996. Sources : Smal

l Busines s Association . Smal

l Busines s Siz

e Standard s Matche d t o NAIC S code s a s o f Octobe r 1,2000 . Speed , Philli p J . "Th e Changin g Competitiv

e Landscap e ofth e Chemica l Industry. " Chemicalbond. <http://www.socma.org/bond/featurel.html> . A s obtaine d o n Septembe r 2 , 1999 . U.S . Departmen

t o f Energy, Energ

y Informatio

n Administration . Jul

y 1999 . Petroleum: An Energy Profile 1999. DOE/EIA-0545(99) . Washington , DC . sinc e 1989 , whic h wa s i n par t achieve d b y lo w energ y cost s a s wel l a s cost-cuttin g measures , includin g a numbe r

o f merger s an d join t

venture s i n th e downstrea msecto r (DOE , EIA , 1999d) . Th e crud e petroleu mpipelin e industry ha s experience d modes t bu t stead y growt h sinc e 1993 . A s aresult , compan y profit s hav e als o increased . Thi s tren d ha s bee n a resul t o f lowe r operatin g cost s an d moderat e expanse s i n deliverie s (Gal e Busines s Resources , 1999b ; DOE , EIA , 1999a) .

2-3 2

& .P.4 9

( AFirnr ontage

u 0 ) Q . 70 % n 60 % - 50 % - 40 % - 30 % - 20 % - mo/ „ _ 

# • I

Less tha n $5Mto$5 0 $50 M t o $500 M to $1Bt o $10Bt o $5 M $500 M $1 B $10 B $100 B Compan y Sales over$100 B Figure 2-8 . Th e Siz e Distributio n o f Companie

s tha tow n OL D Facilitie s that Responde d t

o th e ICRSurve

y an d ar e Involve d in th e Distributio n o

f Nongasolin e Petroleu m Liquids , b

y 1998 Sales (in $1997

) Note : Sale s dat

aar e from199 8 bu

t wer e converte d int o 199 7 dollar s t o facilitat e comparison wit

h othe r figures reporte d i

n thi s profile an

d allow eas y compariso

n wit h estimated complianc e costs , whic h ar e calculate d i

n 199 7 dollars . Sources : Du

n & Bradstreet . 1999 . Compan y Capsules . A s availabl e o

n EBSCO . Genera l Busines s Fil e Internationa

l (formerl y Busines s ASAP) . 1999 . Gale Grou p Collections . A s obtained fro

mInfoTra c Web . Hoover' s Incorporated . 1999 . Hoover' s Compan y Profiles . Austin , TX : Hoover' s Incorporated . <http://www.hoovers.com/> . Compan y websites . Compan y 10 k reports . U.S . Environmenta

l Protection Agenc

y (EPA) . Novembe

r 2000 . Technical

Support Document

for the Organic Liquids Distribution (Non-gasoline) Industry. Washington , DC : USEPA , Offic e of Ai r Qualit y Planning an

d Standards , Emissio

n Standard s Division . Tabl e 2-1 3 show s that , fo

r th e firms tha

t ow n th e 12 6 facilitie s tha

t responde dt o th e EP A survey, 6 th e averag e (median) profi t margi n wa s (4.7 ) 4. 3 percent . Figur e 2-1 0 show s th e distributio n of

profi t margin s amon

g firms tha t ow n petroleumliquid s distributors .

6 Forty-fiv e firms ow

n surveyed facilitie s distributing petroleu mproduct s o

r performing merchan

t distribution . Profit , employment , an

d sale s dat awer e identifie d fo r onl y 4 3 o f thos e facilities . 2-3 3 

# SOP.5 0

d > D ) ra C o u ._ - » Q . 70 % 60 % 50 % 40 % 30 % 20 % - 10 % - 0 % les s tha n 50 0 50 0 t o 1,00 0 1,00 0 t o 5,00 0 5,00 0 t o

10,00 0 10,00 0 t o

100,00 0 ove r100,00 0 Numbe r o f Employee s Figur e 2-9 . Siz e Distributio n o f Companie s tha t

ow n OL D Facilitie s tha t Responde d t o th e IC RSurve y an d ar e Involve d i n th e Distributio n o f Nongasolin e Petroleu mLiquid s Sources : Du

n & Bradstreet. 1999 . Compan y Capsules . A

s availabl e o n EBSCO . Genera l Busines s File Internationa

l (formerl y Busines s ASAP) . 1999 . Gale Grou p Collections . A s obtaine d fromInfoTra

c Web . Hoover' s Incorporated . 1999 . Hoover' s Compan y Profiles . Austin , TX : Hoover' s Incorporated . <http://www.hoovers.com/> . Compan y websites . Compan y 10 k reports . U.S . Environmenta

l Protection Agenc

y (EPA) . Novembe

r 2000 . Technical

Support Document

for the Organic Liquids Distribution (Non-gasoline) Industry. Washington , DC : USEPA , Office of Ai r Qualit y Plannin g an

d Standards , Emissio

n Standard s Division . Tabl e 2-13 . Profi t

Margin s o f

Firm s tha t

ow n Organi c Chemica l Liquid s Distributio n Facilitie s tha t

responde d t o th e IC RSurve y Media n Averag e Maximu m Minimu m 0.04336 4 0.0473 2 0.34737 7 -0.0693 5 Source : Nonclassified response s to the 199 8 Industr y Specific Informatio

n Collection Reques t

fo r th e Developmen

t o f a n Organi c Liquid s Distribution Maximu mAchievable Contro l Technology . 2-3 4 

# £7P.5 1

jj j 35 % • r 30 %

<0 % 0%-3 % 3%-5 % Profi t Margi n 5%-10 % >10 % Figur e 2-10 . Distributio n o f Companie s Ownin g Petroleu m Liqui d Facilitie s tha t Responde d t o th e IC RSurvey , b y Profi tMargi n Sources : Du

n & Bradstreet . 1999 . Compan y Capsules . As available o

n EBSCO . Genera l Busines s File Internationa

l (formerl y Busines s ASAP) . 1999 . Gale Grou p Collections . A s obtaine d fromInfoTra

c Web . Hoover' s Incorporated . 1999 . Hoover' s Compan y Profiles . Austin , TX : Hoover' s Incorporated . <http://www.hoovers.com/> . Compan y websites . Compan y 10 k reports . U.S . Environmenta

l Protection Agenc

y (EPA) . Novembe

r 2000 . Technical

Support Document

for the Organic Liquids Distribution (Non-gasoline) Industry. Washington , DC : U S Environmenta l Protectio n Agency , Offic

e o f Ai r Qualit y Plannin g an d Standards , Emission Standard s Division . Du n & Bradstreet . 1997 . Industry Norms & Key Business Ratios. Desk-To p Edition 1996-1997 . 2.3.4 Uses and

Consumers Fiv e majo r

economi c sector s consum e petroleu mproduct s (DOE , EIA , 1999e) : th e residentia l sector , th e commercia l sector , th e industria l sector , th e transportatio n sector , an d th e electri c utilit y sector . Th e deman d for

petroleu mproduct s i s influence d b y severa l factors , includin g crud e oi l prices , economi c growth trends , an d weathe r conditions . Lo w oi l price s ten d t o stimulat e demand . Deman d als o increase s durin g period s o f economi c expansion , particularl y i n th e industria l an d transportatio n sectors . Economi c expansion s lea d t o a n increas e i n th e productio n o f

goods , whic h contribute s i n turn t o an increas e i n th e deman d fo r transportatio n o f ra w material s an d th e deliverie s o f finished products . Petroleu mdeman d i s als o 2-3 5 

# K2.influenced b y weathe r conditions . Extrem

e weathe r tend s t o eithe r increas e o r decreas e the us e of heatin g oil an

d electricity , which contribute s t o th e deman

dfo r petroleu mproducts . Weathe r ca n als o contribut

e to th e seasona

l variation s in demandfo

r transportatio n fuel s (such a s gasoline) . 2.3.4.1 Characterization of Demand—Derived

Demand Elasticity The deman

d fo r petroleumi s als o influence db y th e pric e of

petroleu mitsel f an d th e pric e of availabl e substitutes . Th

e degree t o whic h th e pric e of

petroleuminfluence s th e quantit y o f petroleumproduct s demandedi s calledth e pric e elasticit y b f demand . Generall

y speaking , th e pric e elasticit

y of deman drepresents th e percentag e chang e in th e quantit y demanded resultin g from a1 percen t chang e i n th e pric e ofth e product . Table 2-1 4 list s th e pric e elasticitie s of

deman d fo r severa l ofth e majo

r petroleumproducts . I

n modelin g th e demand fo r th e composit

e petroleumproduct , EP

A ha s assumedademan

delasticit y of-0.6 . Tabl e 2-14 . Estimates o

f Price Elasticit

y o f Deman d for Petroleu

m Product

s Je t fue l -0.1 5 Residua l fue l oi l -0.6 1 t o -0.7 4 Distillat e fue l oi l -0.5 0 to-0.9 9 Liquifie d petroleu mgases -0.6 0 t o -1. 0 Source : U.S . Environmenta l Protection Agenc

y (EPA) . Jul

y 1995 . Economic Impact Analysis for the Petroleum Refinery NESHAP, Revised Draf t fo r Promulgation . The elasticit

y estimate s indicat

e tha t eac h of thes e product s ha s inelasti c demand . Regulator y contro l cost s ar

e mor e likel y t o b e pai dby consumer s o f

product s wit

h inelasti c demand a s compared to product s wit h elasti c demand , all othe

r factor s hel dconstant . Pric e increase s fo

r product s wit

h inelasti c deman

dlea dt o revenu e increase s fo

r th e producers . Thus , one ca

n predic t tha t pric e increase s resulting fromimplementatio n of regulator y contro l cost s wil l lea

d to highe r gros s revenue s fo

r the producer s (EPA , 1995) . Deman d become s mor

e elasti c wit

h th e availabilit

y of substitute s an

dth e passag e of time . In th e shor

t run , ther e ma y no t b e substitute s readily availabl e fo r consumption . However , ove

r time , consumer s hav e th e opportunit y to adjust to th e pric e increas e and will see k alternatives . In th e cas e ofth e petroleu mindustry , a s th e price s of crud e oi l and 2-3 6 

# S3P.5 3

petroleu mproduct s increase , consumer s ma y no t b e abl e t o respon d immediately . Th e short

ru n deman d elasticit y i s inelasti c becaus e petroleu mplay s acritical rol e i n today' s lifestyle s (Oil & Gas Journal, 1999) . A s tim e passes , consumer s can adjus t t o pric e changes , an d consume r behavio r may change , an d th e pric e elasticity o f deman d wil l b e higher . 2.3.5 Markets Th e petroleu mindustry i s amajo r secto r i n th e U.S . economy . A significan t portio n ofth e petroleu mconsume d domesticall y i s imported . Th e industr y experience d relativel y hig h price s i n 199 6 an d 1997 ; however , petroleu mprice s decline d substantiall y i n 199 8 (Gal e Busines s Resources , 1999b) . 2.3.5.1 Market

Volumes Petroleu mrefinin g i s on e ofth e leadin g manufacturin g industrie s i n th e Unite d States . Th e valu e o f

shipment s b y th e petroleu mrefinin g industry account s for abou t 4 percen t ofth e valu e o f shipment s b y th e entir e manufacturin g secto r ofth e U.S . economy . I n 1996 , th e valu e o f shipment s b y th e petroleu mrefinin g industry wa s an estimate d $15 8 billio n (DOE , EIA , 1999b) . Tabl e 2-1 5 show s domesti c productio n an d consumption , imports , an d export s ofth e aggregate dpetroleu mproduc t i n 1997 . Tabl e 2-15 . Petroleu m Produc tMarke tVolumes , 199 7 (IO 6 Mt ) Domesti c Suppl

y Import s Tota l 1,92 4 44 1 2,36 5 Source : EP A OL D Industr y Questionnair

e Database ; ChemExpo . <http://www.chemexpo.com> . Report s fo r al l chemicals distribute

d b y OL D facilities . Accesse

d Jun e 2000 . Foreig n trad e play s acritica l rol e i n th e U.S . crud e oi l market , an d import s o f crud e oi l i n th e Unite d State s fa r outweig h export s o f

crud e oil . Wit

h adeclin e i n domesti c productio n an d an increas e i n consumption , crud e oi l import s provid e th e missin g lin k a s U.S . oi l deman d continue s t o increase . U.S . import s o f crud e oi l hav e increase d 4 9 percen t i n th e las t decad e alone . Import s o f refine d petroleu mproducts , o n th e othe r hand , hav e 2-3 7 

# srP.5 4

decline d sinc e th e mid-1980s , accountin g for slightl y mor e tha n one-thir d o f tota l petroleu m import s i n 1985 , bu t

les s tha n one-fift

h b y 199 7 (DOE , EIA , 1999a) . Althoug h th e Unite d State s i s ane t importe r o f petroleum , som e export s o f crud e oi l an d petroleu mproduct s d o occur . Th e Unite d State s exporte d acombine d 1 millio n barrel s pe r da y o f crud e oi l an d petroleu mproduct s i n 1997 , matchin g th e recor d leve l se t i n 1993 . Th e five leadin g countrie s tha t receiv e Unite d State s export s o f petroleu mar e Mexico , Canada , Japan , Republi c o f Korea , an d Spain . Crud e oi l export s average d 110,00 0 barrel s pe r da y i n 1998 . Thi s averag e i s dow n fromit s pea k i n 198 0 o f

287,00 0 barrel s pe r

day . Produc t export s hav e average d mor e tha n 600,00 0 barrel s pe r day sinc e 198 6 an d reache d 896,00 0 barrel s pe r

da y i n 1997 , whe n the y accounte dfor mor e tha n 8 9 percen t

o f petroleu m exports . Thi s numbe r

droppe d i n 199 8 t o 835,00 0 barrel s pe r day , representin g 8 8 percen t o f tota l petroleu mexports . Th e thre e leadin g petroleu mproduc t exports , i n orde r

o f volum e exported , ar e petroleu mcoke , distillat e fuel oil , an d moto r gasolin e (DOE , EIA , 1999b,c) . 2.3.5.2 Market

Prices Crud e oi l price s ar e se t

i n internationa l marke t

an d hav e bee n o n agenera l declin e sinc e 1981 . Th e Organizatio n o f Petroleu mExportin g Countrie s (OPEC ) ha s th e abilit y t o influenc e oi l price s worldwid e becaus e it s member s posses s suc h alarg e portio n ofth e world' s oi l supply . I f

OPE C restrict s supply , price s increase . I f OPE C flood s th e marke t wit h crud e oil , price s decrease . Th e shar p pric e declin e i n 199 8 was attributabl e t o plentifu l crud e oi l supplie s (partl y du e t o Iraq' s increase d production) . Ther e ha s als o bee n agenera l tren d o f pric e declin e i n petroleu mproducts . Part o f thi s declin e i s du e t o areductio n i n deman d fromsufferin g Asia n economie s an d adecreas e i n Unite d State s deman d for heatin g oi l becaus e o f

unseasonabl y warmweathe r (API , 1999) . I n modelin g th e marke t for th e aggregat e petroleu mproduct , EP A estimate d th e pric e ofth e composit e commodit y a s th e quantity-weighte d average ofth e petroleu mproduct s distribute d b y OL D facilities . Th e marke t pric e use d i n th e model i s $191.8 4 pe r metri c ton . 2.3.5.3 Future Projections Th e curren t

statu s ofth e potentiall y affecte d industrie s i s importan t t o establis h a baselin e for

th e economi c impac t

analysis . However , sinc e complianc e cost s wil l no t b e incurre d unti l som e tim e i n th e future , i t i s als o importan t

t o conside r

projection s o f

futur e economi c trend s whe n estimatin g likel y impact s o f aregulation . 2-3 8 

# ^S "P.5 5

Th e Energ y Informatio n Administratio n (EIA ) publishe s th e Annua l Energ y Outlook , whic h present s midter mforecast s o n energ y supply , demand , an d prices . Th e analysi s performe d focuse s o n areferenc e cas e an d fou r othe r case s tha t

assum e highe r

an d lowe r economi c growth an d highe r an d lowe r

worl d oi l price s tha n i n th e referenc e case . Th e projection s ar e base d o n result s fromEIA' s Nationa l Energ y Modelin g Syste m(NEMS) . Informatio n o n petroleu mfoun d i n thi s sectio n i s base d o n th e 199 9 Annua l Energ y Outlook . Domesti c crud e oi l productio n i s expecte d t o continu e t o declin e throughou t th e nex t 2 0 years . I t

i s expecte d t o decreas e b y 1. 1 percen t ayear , from6. 5 millio n barrel s pe r day i n 199 7 t o 5. 0 millio n barrel s pe r day i n 2020 . Thi s declin e i n domesti c productio n wil l lea dt o adeclin e i n domesti c petroleu msupply . Domesti c suppl y i n 199 7 was 9. 4 millio n barrel s per . day . I n NEMS' s lo w pric e projection , suppl y drop s t o 7. 6 millio n barrel s pe r da y i n 2020 ; i n it s hig h pric e projection , suppl y drop s t o 9. 3 millio n barrels . Domesti c consumptio n o f petroleu mi s expecte d t o increas e ove r th e nex t 2 0 years . Unite d State s petroleu mconsumptio n i s projecte d t o increas e b y 6. 0 millio n barrel s pe r day betwee n 199 7 an d 202 0 i n th e referenc e case , 3. 9 millio n barrel s pe r da y i n th e lo w growt h case , an d 8. 2 millio n i n th e hig h growth case . Th e transportatio n secto r i s expecte d t o accoun t fo r mos t ofth e increas e i n petroleu mconsumption . However , achang e i n th e consumptio n patter n ofth e transportatio n secto r i s expecte d t o occur . Gasolin e accounte d for 6 5 percen t

ofth e petroleu mconsume d for transportation . However , thi s shar e i s expecte d t o decreas e t o 6 1 percen t

i n 202 0 a s alternativ e fuel s ar e introduce d t o th e transportatio n market . Th e shar e o f

je t fue l i s expecte d t o increas e from1 3 percen t t o 1 7 percen t

a s ai r trave l continue s t o expand . A s domesti c productio n continue s t o declin e an d domesti c consumptio n continue s t o grow , oi l import s wil l continu e t o increase . Th e projection s for ne t petroleu mimport s i n 202 0 rang e from ahig h o f 18. 3 millio n barrel s pe r

da y i n th e lo w oi l pric e cas e t o alo w o f 14. 3 millio n barrel s pe r

da y i n th e lo w growt

h case . Thi s i s mor e tha n doubl e th e 199 7 leve l o f 9. 2 millio n barrel s pe r

day . Tabl e 2-1 6 show s consumptio n an d ne t import s o f

crud e oi l an d petroleu mproduct s for 199 7 an d projection s for

2020 . A s discusse dearlier , crud e oi l import s currentl y accoun t for th e majority o f

foreig n import s o f

petroleum . Crud e oi l i s expecte d t o continu e a s th e majo r componen t

o f petroleu mimports . However , th e import share o f refine d product s i s expecte d t o increas e i n th e future . Mor e import s o f petroleu mproduct s wil l b e neede d a s growth i n deman d for refine d product s exceed s th e expansio n o f domesti c refinin g capacity . 2-3 9 

# S&>P.5 6

Tabl e 2-16 . Petroleu

m Consumption an

d Ne tImport s i n 199 7 an d 202 0 (IO

6 barrels / day ) Yea r an d Projectio n 199 7 202 0 Projection s Referenc e Lo w oi l pric e Hig h oi l pric e Lo w growt h Hig h growth Consumptio n

18. 6 24. 7 26. 0 24. 0 22. 5 26. 8 Ne tImport s

9. 2 16. 0 18. 3 14. 6 14. 3 17. 7 Ne tCrud e Import s

8. 1 12. 0 13. 1 11. 5 11. 4 12. 6 Ne tProduc t

Import s 1.0 4. 0 5. 2 3. 1 2. 9 5. 1 Source : U.S . Departmen

t o f Energy , Energ

y Informatio

n Administration . 1999a . Annual Energy Outlook, 1999. Futur e export s of

petroleumfromthe UnitedState s will dependon economi c condition s worldwid

e an d th e restriction s placedor

i trade bot h in th e Unite dState s an

d abroad . The industrialize d countrie s will continu e t o b e th e majo

r oil consumer s ove

r th e next 2 0 years . However , petroleumus e wil l increas e a

t th e fastes t rat e in developin g countries . Th

e Unite d State s will continue t o expor t petroleumproduct s (especially th e heavy products , which ar

e i n les s deman

din thi s country ) (DOE , EIA , 1999c) . Oil price s hav e fluctuated greatl y i n the past , which make s futur e pric e projection s uncertain . However , futur

e oi l price s ar

e expectedt

o b e highe r tha n curren t prices . The lates t yea r fo r whic h comprehensiv e dat

ai s availabl e i s 1998 , ayea r which sa w uncharacteristically lo w price s fo r petroleum-basedproducts . Th e worldpric e fo

r crude oi l i s mos t heavily influenced by OPEC' s limit s on production . A s ofth e publicatio n of thi s document , price s fo

r crude oi l an

dpetroleum-basedproduct s ar e muc h highe r tha n durin g th e year s presente d i n th e table s i n thi s report . Increase dworl ddemandha s no t been met wit h productio n increases , resultin g in highe r prices . The referenc e cas e fo

r oi l project s price s to ris e b

y abou t 0. 9 percen

t ayear , reachin g $22.7 3 i n constan

t 1997 dollar s in 2020 . I

n nomina l dollars , th e referenc e cas e pric e exceed s $4 3 i n 2020 . Th e lo w pric e cas e project s price s rising to $14.5 7 by 200 5 an dremainin g a

t abou t tha t level unti l 2020 . Th

e high pric e cas e ha s apric e ris e of abou t 2. 5 percen

t pe r yea r unti l 201 5 and the n remain s a t $29.3 5 unti l 2020 . The levelin g of f a t about $29.3 5 i n th e 2-4 0 

# S7P.5 7

high pric e cas e i s due t

o th e marke

t penetratio n o

f alternativ e energy supplie s tha t coul d becom e economically viabl e a

t tha t pric e (DOE , EIA , 1999a) .

2-4 1 

# SBP.5 8

References - Chapter 2 (EPA) . 200 0 2-12 , 2-16 , 2-3 3 199 8 Industr

y Specific Information Collectio n Reques t 2-1 5 (DOE , EIA , 1999e 2-3 4 (EPA) . 200 0 2-5 , 2-17 , 2-19 , 2-3 4 (EPA) . July 199 5 2-3 5 199 8 Industr

y Specific Information Collectio n Reques t 2-2 9 199 8 Industr

y Specific Information Collectio n Reques t 2-18 , 2-3 3 America n PetroleumInstitute . Augus t 199 8 2- 5 API , 199 9 2-3 7 Arnold , 198 9 2-9 , 2-1 0 ChemExpo , 200 0 2-2 0 CMA , 1995a, b 2- 9 CMA , 199 9 2-20 CMA , 200 0 2-2 0 Compan y 10 k report s 2-3 2 Compan y 10 k Reports . 2-16 , 2-17 , 2-19 , 2-33,2-3 4 Compan y Website s 2-16 , 2-17,2-19 , 2-32 , 2-3 3 Distribution , 199 6 2- 3 DOE , EIA , 1999 a 2-31 , 2-3 7 DOE , EIA , 1999a ) 2-4 0 DOE , EIA , 1999 b 2-21 , 2-3 6

2-4 2 

# m.P.5 9

DOE , EIA , 1999b, c 2-3 7 DOE , EIA , 1999c 2-3 9 DOE , EIA , 1999d 2-25 , 2-3 1 DOE , EIA , 1999 e 2-7 , 2-9,2-21 , 2-24 , 2-25 , 2-27 , 2-2 9 Dun & Bradstreet . 1997 2-19 , 2-3 4 Du n & Bradstreet . 199 9 2-16 , 2-17 , 2-19 , 2-32 , 2-3 4 Du n & Bradstreet . 199 9 2-3 3 EP A OL D Industr y Questionnair

e Database ; ChemExpo . <http://www. c 2-20 , 2-3 6 EPA , 199 5 2-18 , 2-29 , 2-3 5 Gal e Busines s Resources . 1999 b 2- 5 Gale Busines s Resources , 1999a,b, c 2- 3 Gal e Busines s Resources , 1999 b 2-25 , 2-29 , 2-31 , 2-3 6 Gale , 1999a ; 2- 9 Genera l Busines s Fil e Internationa l (formerl y Busines s ASAP) . 1 2-19,2-32-3 4 Hoover' s Incorporated . 1999 2-16 , 2-17 , 2-19,2-33 , 2-3 4 Hoover' s Incorporated . 199 9 2-3 2 MACT Floo r

Developmen

t fo r th e OL D Sourc e Category, " Memo , Ma y 5 2- 4 NESHA P (1995 ) 2-2 4 Oil & Ga s Journal , 199 8 2- 4 Oil & Ga s Journal , 199 9 2-18 , 2-3 6 Small Busines s Association . Smal l Busines s Siz e Standard s Match 2-3 0 Speed (1999 ) 2-1 0 Speed , 199 9 2-11 , 2-27 2-4 3 

# (cXP.6 0

Speed , Phillip J . "The Changing Competitive Landscap e of the C h 2-3 0 U.S . Censu s Bureau . Augus t 1999 2-1 2 U.S . Censu s Bureau . Augus t 1999 a2-1 2 U.S . Censu s Bureau . Augus t 1999 b 2-1 2 U.S . Censu s Bureau . Augus t 1999 c 2-1 2 U.S . Censu s Bureau . Augus t 1999d2-1 2 U.S . Censu s Bureau . Augus t 1999e 2-1 2 U.S . Censu s Bureau . Augus t 1999g 2-1 2 U.S . Censu s Bureau . Augus t 1999 h 2-1 2 U.S . Censu s Bureau . Februar y 199 8 2-3 0 U.S . Censu s Bureau . Januar y 2000 c 2-3 0 U.S . Censu s Bureau . Januar y 2000 d2-3 0 U.S . Censu s Bureau . Marc h 2000 a2-8 , 2-2 3 U.S . Censu s Bureau . Marc h 2000 b 2-3 0 U.S . Censu s Bureau . Septembe r 1999f . 2-3 0 U.S . Departmen

t of Commerce , 1998,200 0 2-2 1 U.S . Departmen

t of Commerce , Burea

u ofth e Census . 1992 2-1 1 U.S . Departmen

t o f Commerce , Burea

u ofth e Census . 199 2 2-2 6 U.S . Departmen

t o f Energy , Energy Information Administration . J 2-22 , 2-3 0 U.S . Environhienta

l Protectio n Agency . Technica l Suppor t Documen t (TSD ) fo r th e Organi c Liquid s Distributio n (Non-gasoline ) NESHA P - ProposedStandards . Research Triangl e Park , NC . Novembe r 200 0 2-2 , 2-7 , 2-3 2 Variou s background document s 2- 5

2-44 

# 6? IP.6 1

SECTIO N 3 ENGINEERING COS T ANALYSIS HA P emission s occu

r a t severa l commo n point s during th e storag e an ddistributio n o f organi c liquid s othe

r tha n gasoline . T

o contro l thes e emissions , EP A ha s develope dMACT floo r level s of contro l unde

r th e authorit

y o f Section 11 2 ofth e CAA . Thi s sectio n summarize s EPA' s contro l cost s estimate s fo r th e proposedrule . The Technica l Suppor t Documen t (TSD ) contain s adetaile ddiscussio n ofth e methodologie s use dto develop thes e cos t estimates . 3. 1 Control CostEstimates The engineering analysi s identified64 9 majo r source s tha

t ar e potentially affecte

db y th e rule . To estimat

e nationwid

e costs , EP

A developed1 3 mode

l plant s wit

h contro l cost s fo r th e following emissio n points :

• storag e tanks , • carg o tan

k transfers , an

d

• equipmen

t leaks . The cost s include capita

l cost s associate dwit

h tank , rack , an

dlea k detectio n an

drepair device s (appropriately annualizedusing th e equipmen t lifetim e an ddiscoun t rate ) an d variabl e cost s associate d wit h operating an

dmaintaining pollutio n contro l device s an dothe r cost s associate d wit

h monitoring , recordkeeping , an dreportin g (MRR) . Th

e Agency identifie d 42 9 facilities , o

r 6 6 percen t ofth e tota l tha t wil l incu r contro l an dMR Rcosts , wit

h th e remainin g 22 0 facilitie s incurring MR Rcos t only .

3- 1 

# <£ PP.6 2

Th e nationwid

e complianc e cos t

estimate s fo

r the propose drul e ar

e $41.3 8 millio n fo r th e require d control s (see Table 3-1). 1 Thes e cost s ar e distribute db

y industr y a s follows : Mode l Plan t 2 8 Chemica

l Production—$20.4 9 millio n (49. 5 percent ) Mode l Plan t 2 9 Petroleu

mRefineries—$4.5 4 millio n (11. 0 percent ) Model Plan

t 4 2 Liqui dTerminals—$11.6 2 millio n (28. 1 percent ) Model Plan

t 4 6 Crud e Oil Pipelines—$2.1 1 millio n (5. 1 percent ) an d Mode l Plan t 5 1 Petroleu

mTerminals—$2.6 2 millio n (6. 3 percent ) EP A expresse d thes e contro l cost s on aper-unit basi s fo r inpu t in th e marke

t model describe d in Appendi x A . EP

A als o assignedrepresentativ e cost s t o individua

l facilitie s withi n each industry , a s describe d i

n Appendix B . I

n addition , th e Agenc

y assigne dmode

l plant cost s t o eac h ofth e 24 8 surve

y facilities 2 to comput

e cost-to-sale s ratio s (CSRs ) fo r facilitie s and their ultimat e parent companie s (se e Appendix B) .

'Althoug h mos t

of EPA' s analysi s employ s NAIC S codes , mode l plant s wer

e develope d based o

n th e SI C code s liste d i

n th e facilities ' surve

y response . 2 Th e Agency collecte d surve

y dat afo r 24 8 of 64 9 potentiall

y affecte d facilitie s (4 0 percent

) an d thes e ar e referre d t o a s the "known " facilitie s i n th e analysis .

3- 2 

# 4 3Tabl e 3-1 . Facility an d Nationwid e Contro l Cost s fo r th e Propose dOL D MAC T Tan k Tan k Rac k Rac k LDA RLDA RTota l Annua l Numbe r Capita l Annua l Capita l Annua l Capita l Annua l Capita l Contro l o r Cos tpe r Cos tpe r Cos tpe r Cos tpe r Cos tpe r Cos tpe r Cos tpe r Cos tpe r MR RAnnua l Tota l Ann . Tota l Capita l Cos tfo r Tota l

Annua l Cos tfo r Mode l Facilitie s Facilit y Facilit y Facilit y Facilit y Facilit y Facilit y Facilit y Plan tAffecte d (1997$ ) ($/yr ) (1997$ ) ($/yr ) (199 7 S ) (S/yr ) (1997$ ) Facilit y Cost/Facil . (S/yr ) (S/yr ) Cost/Facil . Al l Facilitie s Al l Facilitie s (199 7 $ ) ($/yr ) 28- 1 6 7 0 0 0 0 0 0 2,50 0 0 16,30 0 16,30 0 167,50 0 1,092,10 0

8 5 0 0 0 0 7,35 0 22,78 5 9,85 0 22,78 5 18,50 0 41,28 5 837,25 0 3,509,22 5 4 0 200,25 2 -6,48 8 40,80 0 69,91 5 7,35 0 22,78 5 250,90 2 86,21 2 33,90 0 120,11 2 10,036,08 0 4,804,48 0 3 200,25 2 -6,48 8 0 0 7,35 0 22,78 5 210,10 2 16,29 7 18,50 0 34,79 7 630,30 6 104,39 1 Total s

Total s 19 5

10 5 11,671,13 6

13,425,08 6 9,510,19 6 28- 2 3 6 0 0 0 0 0 0 2,50 0 0 15,70 0 15,70 0 90,00 0 565,20 0

4 6 0 0 0 0 7,35 0 22,78 5 9,85 0 22,78 5 18,50 0 41,28 5 453,10 0 1,899,11 0 2 1 505,13 2 -15,46 7 49,40 0 75,50 0 7,35 0 22,78 5 564,38 2 82,81 8 34,00 0 116,81 8 11,852,02 2 2,453,17 8 2 505,13 2 -15,46 7 0 0 7,35 0 22,78 5 514,98 2 7,31 8 18,50 0 25,81 8 1,029,96 4 51,63 6 4,969,12 4 28- 3 2 3 0 0 0 0

3 2 0 0 0 0 1 4 1,458,72 9 -^5,88 3 58,80 0 80,73 0 1 1,458,72 9 -45,88 3 0 . 0 0 0 2,50 0 0 15,70 0 15,70 0 57,50 0 361,10 0 11,79 8 87,75 2 14,29 8 87,75 2 18,50 0 106,25 2 457,53 6 3,400,06 4 11,79 8 87,75 2 1,531,82 7 122,59 9 34,00 0 156,59 9 21,445,57 8 2,192,38 6 11,79 8 87,75 2 1,473,02 7 41,86 9 18,50 0 60,36 9 1,473,02 7 60,36 9 Total s 7 0 23,433,64 1 6,013,91 9 Total s fo r SI C 2 8 37 0 48,529,86 3 20,493,23 9

(continued )

^



## - £Tabl e 3-1 . Facility an d Nationwid e Contro l Cost s fo r th e Propose dOL D MAC T (continued ) Tan k Tan

k Rac k Rac k LDA

RLDA

RTota

l Annua

l Tota l Tota

l Capita l Annua

l Capita l Annua l Capita

l Annua

l Capita

l Contro

l Capita l Annua

l Numbe r o f Costpe r Cos tpe r Cos tper Costpe

r Costper Cos

tpe r Costpe

r Cos tpe

r MR RAnnua l Tota l Ann . Costfor Costfor Mode l Facilitie s Facilit

y Facilit

y Facilit y Facilit y Facilit

y Facilit

y Facilit

y Facilit

y Cost/Facil . Cost/Facil . All Facilitie s Al l Facilitie s Plan tAffecte

d (1997$ ) ($/yr

) (1997$ ) (S/yr

) (1997$ ) ($/yr) (1997$ ) ($/yr ) ($/yr) ($/yr) (1997 $ ) ($/yr) 29- 1 19 0 0 0 0 0 0 2,50 0 0 15,70 0 15,700 47,50 0 298,30 0 2 3 0 0 0 0 7,35 0 22,78 5 9,85 0 22,78 5 18,700 41,48 5 226,55 0 954,15 5 1 2 99,34 5 16,78 3 0 0 7,35 0 22,78 5 109,19 5 39,56 8 18,70 0 58,26 8 1,310,340 699,21 6 Total s 5 4 1,584,390 1,951,67 1 29- 2

Totals i 4 ^ 1 0 0 0 0 0 0 0 2,50 0 0 15,70 0 15,70 0 25,00 0 157,00 0

1 2 0 0 0 0 7,35 0 22,78 5 9,85 0 22,78 5 18,80 0 41,58 5 118,20 0 499,02 0 8 197,23 0 36,79 3 0 0 7,35 0 22,78 5 207,08 0 59,57 8 18,80 0 78,37 8 1,656,64 0 627,02 4 3 0 1,799,84 0 1,283,04 4 29- 3 9

1 0 0 0 7,35 0 22,78 5 2,50 0

9,85 0 0

22,78 5 15,70 0

18,90 0 15,70 0

41,68 5 22,50 0

98,50 0 141,30 0

416,85 0 Total s Total s fo r SI C 2 9 8

2 7 11 1 280,71 6 51,40 9 0 0 7,35 0 22,78 5 290,56 6 74,19 4 18,90 0 93,09 4 2,324,52 8 2,445,52 8 5,829,75 8 744,75 2

1302,90 2 4,537,61 7 42- 1

4 213,45 9 31,33 1 0 0

8 213,45 9 31,33 1 40,80 0 69,91 5 0 7,35 0 0 22,78 5 2,50 0

9,85 0 0

22,78 5 16,40 0

19,40 0 16,40 0

42,18 5 22,50 0

39,40 0 147,60 0

168,74 0 7,35 0 22,78 5 223,30 9 54,11 6 19,40 0 73,51 6 893,23 6 294,06 4 7,35 0 22,78 5 264,10 9 124,03 1 23,30 0 147,33 1 2,112,87 2 1,178,64 8 Total s 2 5 3,068,00 8 1,789,05 2 (continued )^ ^ Tabl e 3-1 . Facility an d Nationwid e Contro l Cost s fo r th e Propose d OL D MAC T (continued )

Mode l Plan t 42- 2

Total s 42- 3

V ^ Total s Total s fo r SI C 4 2 46- 1

Total s 46- 2

Total s Total s fo r SI C 4 6 Numbe r

o f Facilitie s Affecte d 1 0 7 1 0 4 3 1 1 3 8 1 2 5 3 8 9 4 9 1 1 6 2 6 3 3 3 9 3 5 Tan k Capita l Cos tpe r Facilit y (199 7 $ ) 0 0 423,15 8 423,15 8 0 0 1,238,32 6 1,238,32 6

0 0 600,32 5 0 0 467,98 7 Tan k

Annua l Cos tpe r Facilit y ($/yr ) 0 0 63,94 0 63,94 0 0 0 187,64 2 187,64 2

0 0 127,61 5 0 0 112,21 6 Rac k

Capita l Cos tpe r Facilit y (199 7 $ ) 0 0 49,40 0 0 0 0 58,80 0 0

0 0 0 0 0 0 Rac k Annua l Cos tpe r Facilit y ($/yr ) 0 0 75,50 0 0 0 0 80,73 0 0

0 0 0 0 0 0 LDA R Capita l Cos tpe r Facilit y (199 7 $ ) 0 7,35 0 7,35 0 7,35 0 0 11,79 8 11,79 8 11,79 8

0 7,35 0 7,35 0 0 7,35 0 7,35 0 LDA R Annua l Cos tpe r Facilit y ($/yr ) 0 22,78 5 22,78 5 22,78 5 0 87,75 2 87,75 2 87,75 2

0 22,78 5 22,78 5 0 22,78 5 22,78 5 Tota l

Capita l Cos tpe r Facilit y (199 7 $ ) 2,50 0 9,85 0 482,40 8 433,00 8 2,50 0 14,29 8 1,311,42 4 1,252,62 4

2,50 0 9,85 0 610,17 5 2,50 0 9,85 0 477,83 7 Annua l

Contro l Cos tpe r Facilit y ($/yr ) 0 22,78 5 162,22 5 86,72 5 0 87,75 2 356,12 4 275,39 4

0 22,78 5 150,40 0 0 22,78 5 135,00 1 MR R

Annua l Cost/Facil . (S/yr ) 16,40 0 19,40 0 23,20 0 19,40 0 16,40 0 19,30 0 23,10 0 19,30 0

13,30 0 13,80 0 13,80 0 13,30 0 14,70 0 14,70 0 Tota

l Ann . Cost/Facil . i (S/_yr ) 16,40 0 42,18 5 185,42 5 106,12 5 16,40 0 107,05 2 379,22 4 294,69 4

13,30 0 36,58 5 164,20 0 13,30 0 37,48 5 149,70 1 C Tota l

Capita l Cos tfo r \l l Facilitie s (199 7 $ ) 25,00 0 68,95 0 4,824,08 0 1,732,03 2 6,650,06 2 32,50 0 114,38 4 15,737,08 8 6,263,12 0 22,147,09 2 31,865,16 2 22,50 0 108,35 0 3,661,05 0 3,791,90 0 7,50 0 29,55 0 1,433,51 1 1,470,56 1 5,262,46 1 Tota l

Annua l Cos tfo r Al l Facilitie s (S/yr ) 164,00 0 295,29 5 1,854,25 0 i 424,50 0 2,738,04 5 213,20 0 856,41 6 4,550,68 8 1,473,47 0 7,093,77 4 11,620,87 1 1 19,70 0 402,43 5 985,20 0 1,507^3 5 39,90 0 112,45 5 449,10 3 601,45 8 2,108,79 3 (continued )< ^ 

# - a Tabl e 3-1 . Facility an d Nationwid e Contro l Cost s fo r th e Propose dOL D MAC T (continued )

Mode l Plan t 51- 1

Total s 51- 2 O J O S

Total s Total s fo r SI C 5 1 Gran d Total s Note : Numbe r

o f Facilitie s Affecte d 7 6 5 6 2 4 5 4 4 4 1 7 4 1 65 1 Tan k

Capita l Cos tpe r Facilit y (199 7 $ ) 0 0 114,25 6 114,25 6

0 0 119,22 9 119,22 9 Tan k

Annua l Cos tpe r Facilit y ($/yr ) 0 0 26,66 8 26,66 8

0 0 20,31 4 20,31 4 Rac k Rac k

Capita l Annua l Cos tpe r Cos tpe r Facilit y Facilir y (199 7 $ ) ($/yr ) 0 0 0 0 0 0 40,80 0 69,915 *

0 0 0 0 0 0 40,80 0 69,91 5 LDA R

Capita l Cos tpe r Facilit y (199 7 $ ) 0 7,35 0 7,35 0 7,35 0

0 7,35 0 7,35 0 7,35 0

rw o facilities , on e in Mode l Plant29-N D an d on e in Mode l Plan t5 1 - affecte d facilitie s i s 649 . LDA R Annua l Cos tpe r Facilit y Mr ) 0 22,78 5 22,78 5 22,78 5

0 22,78 5 22,78 5 22,78 5 Tota l

Capita l Cos tpe r Facilit y (199 7 $ ) 2,50 0 9,85 0 124,10 6 164,90 6

2,50 0 9,85 0 129,07 9 169,87 9 Annua l

Contro l Cos tpe r Facilit y ($/yr ) 0 22,78 5 49,45 3 119,36 8

0 22,78 5 43,09 9 113,01 4 MR RAnnua l Tota l Ann .

Cost/Facil . (S/yr ) 16,40 0 19,40 0 19,40 0 23,30 0

16,40 0 19,50 0 19,50 0 23,40 0

1 , hav e bee n found t o b e exemp tdu e t o thei r ver y sma l Cost/Facil . ($/yr ) 16,40 0 42,18 5 68,85 3 142,66 8

16,40 0 42,28 5 62,59 9 136,41 4

throughput . Tota l

Capita l Cos tfo r Al l Facilitie s (199 7 $ ) 17,50 0 59,10 0 620,53 0 989,43 6 1,686,56 6 12,50 0 39,40 0 516,31 6 679,51 6 1,247,73 2 2,934,29 8 94,421,54 2 -

Tota l Annua l Cos tfo r Al l Facilitie s ($/yr ) 114,80 0 253,11 0 344,26 5 856,00 8 1,568,18 3 82,00 0 169,14 0 250,39 6 545,65 6 1,047,19 2 2,61537 5 41375,89 5 Th e actua

l gran d total numbe r o f

-P.6 7

SECTIO N 4 ECONOMI C IMPAC T ANALYSIS : METHOD S AN D RESULT S Th e propose d NESHA

P require s distributor s of

nongasoline organi c liquid s t o mee t emissio n standard s fo

r th e releas e of

HAP s int o th e environment . T o mee t thes e standards , firms wil l hav e t

o modif y thei r plan t an dequipmen

t an dinstitut e lea k detectio n an

drepair procedures . Thes e change s resul t in highe r costs o f productio n fo

r th e affecte dproducers . The y ma y als o hav e broade

r societa l implication s becaus e thes e effects ar e transmitte d throug h market

relationship s t o their

customers . Th e OL D rulemakin g will increas e th e cost s o f distributin g organi c liquids . Specifically , th e cost s o f

severa l genera l types of businesse s ar

e expecte dt o increase . Thes e businesse s include facilitie s tha t manufactur

e an ddistribut e organi c chemical s and/o

r nongasolin e petroleumproduct s an dfacilitie s tha

t specializ e i n th e distributio n o f thes e products . Ofth e latter

facilities , som

e ar e owne dby companie s tha

t als o manufactur

e th e products , whil e other s ar

e independen

t businesse s tha

t onl y distribut e th e products . 4. 1 Overvie w o f

Economi c Modelin g Approache s Severa l types o f economi c impact

modelin g approache s hav e been develope dto suppor t regulator y development . Model s incorporatin g differen t level s o f economi c decisionmakin g ca

n generall y b e categorizeda s with behavior response s (behaviora

l approach ) an d without

behavior response s (nonbehavioral/accounting approach) . Th e behaviora

l approach i s grounde

di n economic theor

y relate dto produce

r and consume r behavio r i n respons e t o change s in marke t conditions . I n essence , thi s approach model s th e expecte d reallocatio n of society' s resource s i n respons e t o aregulation . The behaviora l approac h explicitly model s the change s in marke t price s andproduction . Resultin g change s i n pric e and quantit y ar e ke y input s into th e determinatio n o f anumbe r o f importan t phenomen ai n a

n EIA , suc h a s change s in produce

r surplus , change s i n consume r surplus , and ne t

socia l welfar e effects . Fo

r example , alarg e pric e increas e ma y impl y tha t consumer s bea

r alarg e shar

e ofth e regulator

y burden , thereb y mitigatin g th e impac t o n 4- 1 

# 6&P.6 8

producers ' profit s an

d plan t closures . Th

e followin g describe s th e method s an dresult s of

thi s approach . I n contras t th e nonbehavioral/accounting approach essentially hold s fixed al l interactio n between facilit

y production an

dmarke t forces . I n thi s approach , asimplifying assumptio n i s mad

e tha t the firmabsorb s all contro l costs , an dth e analysi s assesse s th e burden ofth e contro l cost s unde r thi s assumption . Typically , engineerin g contro l cost s ar e the n compare d to facility , company , o r industr y sale s to evaluat

e th e regulation' s economi c impact . The Agency employe d anonbehaviora

l approach t

o conduc t a n initia l screenin g analysi s o f

impact s o n smal

l businesse s (describe din Section 5) . 4. 2 Conceptua l Approac h EP A develope d asimple competitiv e marke t mode l i n whic h buyer s andseller s exer t n o individua

l influenc e on marke

t price s of thre e commoditie s potentiall y affecte dby th e rule : petroleu mand chemica l product s an

dmerchan t organi c liqui ddistributio n services . Price s i n thes e market s ar

e se t b y th e collectiv e action s of

producer s andconsumers , who tak e th e market

pric e a s agive

n in making their

productio n an

dconsumptio n choices . EPA' s model compare s baselin e condition s in th e tw o produc t market s andth e merchan

t distributio n servic e market

t o with-regulatio n condition s in thos e markets . Becaus e th e supplier s of organi c chemical s and petroleu mliquid s ar

e als o th e demander s o f

merchant services , EP

A pai d particula

r attentio n to th e interaction s betwee n th e markets . Wit h th e regulation , th e cost s of productio n increas e fo

r organi c liqui dsupplier s and distributor s becaus e the

y incu r additiona l cost s associate dwit

h th e propose drule . Incorporatin g thes e regulator y contro l cost s i s represente db y a n upwar dshif t ofth e aggregat

e supply curv e i n eac h ofth e thre e markets . In addition , th e increase dcost s incurre db y organi c liqui d and petroleumproduc t facilitie s reduce s their

deman dfo r merchan t distributio n services . At th e ne w equilibriumwit

h th e regulation , th e marke

t price s o f organi c chemcial s and petroleu mproduct s increas e andoutpu t i n thos e market s (a s determine dfro mth e market demand curve , D" ) declines . In th e marke t fo r merchan t distributio n services , market quantit y declines . However , depending o n th e interactio n ofth e decreas e i n demandan d th e decreas e i n supply i n tha

t market , th e marke

t pric e ma y eithe r increas e o r

decrease . Figur

e 4- 1 illustrate s th e theor

y underlying estimatio n ofth e economi c impact s ofth e rule .

4- 2 

# (*"1P.6 9

% <l l q/ t a) Quantit

y of organic liquid distribute

d by SIC s 28 an

d 29

P , "T7 >

b ) Quantit

y of organic liquids distributed b y merchan tdistributors Figur e 4-1 . Marke tResponse s t o th e OL D NESHA P 4- 3 

# 70P.7 0

4.2.1 Operational

Model To develop quantitativ e estimate s o f economic impacts , th e Agency develope da n operationa l model using spreadshee

t software . As describedbelo w andin detai l in Appendix A , thi s model characterize s baseline suppl y an ddeman dan dth e behaviora

l response s to change s i n cost s and/o

r marke t prices . 4.2.1.1 Market

Supply Fo r eac h organi c liqui d market , EP A define s market

supply a s th e su

mo f domesti c and foreig n supply . Domestic suppl y i s th e su mof baseline quantitie s supplie dby facilitie s withi n th e market . EP

A obtaine d questionnair

e dat ao n baselin e quantitie s of

liquid s distribute d by asample of

facilities , an

destimatedth e quantitie s distribute db y th e res t ofth e estimate d univers e of

OL D facilitie s a s describedin Appendix B . Each suppl y function' s parameter s wer

e calibrate d usin g baseline production , pric e data , andth e responsivenes s o f supply t o change s i n pric e (suppl y elasticity) . 4.2.1.2 Market

Demand Simila r to supply , th e Agency modeledtw o aggregat e consumer s (domesti c and foreign ) i n eac h produc t

market , an

ddomesti c deman

dfo r distribution , wit

h downward

slopin g demand curve s tha

t ar e consisten

t wit h th e theor y o f demand . Thi s characterizatio n simply indicate s tha

t consumptio n o f

commoditie s i s high a

t lo w price s andlo w a

t hig h prices . Th e Agency constructe d deman dfunction s fo

r eac h consume r usin g baselin e quantity , pric e data , an

d assumption s abou

t th e responsivenes s t o change s i n pric e (demand elasticity) . EP

A obtaine d estimate ddeman delasticitie s fo

r th e liqui dmarket s fro

mpreviou s EP A economi c impac t

analyses . Th

e elasticit y o f deman dfo r distributio n services , like th e deman d itself

, i s derived fromth e demandfo r th e Uquid s bein g distributed . 4.2.1.3 Control

Cost Inputs and

With-Regulation Equilibrium Th e propose d OL

D NESHA

P wil l increas e th e cos t

o f distributin g organi c liquids , whic h wil l increas e th e cost s o f facilitie s producing organi c liquid s bot h directly (becaus e they als o distribut

e organi c liquids ) andindirectl y (becaus e they purchas e merchan t distributio n services , whos e cost s wil l als o increas e du e to th e propose dregulation) . Th e increase d cos t

and reduced quantit

y o f organi c liquid s distribute db y producin g facilitie s als o reduce s th e demand fo

r merchan t distributio n services . EPA' s analysi s estimate s th e

4-4 

# T lP.7 1

adjustmen t i n equilibriumquantit

y a t eac h distributio n facilit

y an di n eac h market , using th e model describe d i

n Appendix A . Man y ofth e facilitie s potentiall

y affecte db y the proposedregulatio n ar e located i n 1-hou r ozone nonattainmen

t areas . Thes e facilitie s probabl y have man

y ofth e control s an

d processe s o n which th e estimatedcost s o f complianc e ar

e basedin plac e a

t baseline . Th

e cost s o f complianc e fo

r thes e facilitie s wouldlikel

y b e muc h lowe r tha n th e cost s estimate d by EPA . The

y would therefor

e incu r lowe r impact s a s aresult

ofth e regulation , andth e market adjustment s would b e somewha t smaller . T

o accoun t fo r thes e differences , EP

A conducte d tw o sensitivit

y analyses . Sensitivit

y Analysi s A decrease s estimate dcomplianc e cost s fo r facilitie s located in 1-hou

r ozon e nonattainmen

t area s b y th e amoun

t o f lea k detectio n an

d repair (LDAR ) cost s an dmonitoring , recordkeeping , andreportin g (MRR ) costs . Sensitivit

y Analysi s B reduce s thei

r cost s b y th e amoun

t of MR Rcost s only . Th

e result s o f thes e tw o sensitivit

y analyse s ar

e show n in Appendix C . 4.2.2 Results Th e theor y presente d above suggest s tha t producer s attempt

t o mitigat e th e impact s o f higher-cos t

productio n by shiftin

g the burde

n on to othe

r economic agent s to th e exten t th e market condition s allow . W

e woul dexpect th e mode l to project upwar dpressur e o n price s fo r merchan t distributio n service s a s producers reduc e outpu t rate s i n respons e to highe

r costs . Increase d pric e of

merchan t services , plu s direc t

cost s o f complianc e fo

r organi c liqui d producer s tha

t als o distribute , result s i n increasedprice s fo r organi c liquid s a s producer s reduc e output

rate s to respond to highe

r costs . Highe

r price s reduc e quantit

y demanded an

d output fo r organi c liquids , leading to change s i n economi c surplu s t o consumer s and profitabilit y o f firms . Reduced production of organi c liquid s reduce s th e demandfo r merchan t distributio n services . Thes e interacting marke t adjustments determine th e socia l cost s ofth e regulatio n and it s distributio n acros s stakeholder s (producer s andconsumers) . 4.2.3.1 Market- and

Industry-Level

Impacts Th e increase d cos t

o f production du e t

o th e regulatio n i s expecte dto slightly increas e th e pric e o f

petroleuman

d chemica l product s an

dreduc e their

production/consumptio n from baselin e levels . A s shown i n Tabl e 4-1 , th e regulator y alternativ e i s projecte dt o increas e price s b y les s tha

n 0.0 2 percen

t in th e market s fo

r petroleumproduct s andorgani c chemicals . Domesti c productio n o f

petroleumproduct s decline s b y 0.05 5 millio n Mt

anddomesti c chemica l productio n decline s b

y 0.03 5 millio n Mt . Suppl

y fromforeign producer s (imports ) 4- 5 

# 7 2P.7 2

Tabl e 4-1 . Market-Leve l Industr y Impact s o f th e Propose dOrgani c Liqui d Distributio n (OLD ) NESHAP : 1997

Petroleu m Product

s Pric e ($/metri c ton ) Quantit y (IO 6 metric tons/yr

) Domesti c Foreign Chemica l Product s Pric e ($/metri c ton ) Quantit y (IO 6 metri c tons/yr

) Domesti c Foreig n Distribution Services Pric e ($/metri c ton ) Quantit y (IO 6 metri c tons/yr) Baselin e $191.8 4 2,36 5 1,92 4 44 1 $498.6 5 202 19 1 1 1 $12.3 2 36 8 Wit

h Regulation $191.8 5 2,36 5 1,92 4 44 1 $498.7 0 20 2 19 1 1 1 $12.3 6 36 8 Chang < Absolut e $0,00 5 -0.0 4 -0.0 5 0.0 1 $0,05 4 -0.0 3 -0.0 3 0.00 $0.0 4 -0.0 2 k

Relative 0.003 % -0.002 % -0.003 % 0.003 % 0.011 % -0.016 % -0.018 % 0.016 % 0.356 % -0.004 % increase s by 0.01 5 millio n M t in th e petroleu

mmarke t an d0.00 2 millio n M

t i n th e chemica

l market , resultin g i n ane t

declin e o f 0.0 4 millio n M

t and0.03 3 millio n Mt

respectively (les s tha n 0.0 2 percent) . In th e market fo r merchan t distributio n services , equilibriu mquantit y i s projecte d to decline by 0.01 6 millio n Mt , les s tha n 0.0 1 percent , an

dmarket pric e i s projecte d t o increas e b y $0.04 , les s tha n 0. 5 percent . Revenue , costs , and profitabilit y ofth e directly affecte

dindustr y als o chang e a s price s and productio n level s adjus t t o increasedcost s associate dwit h compliance . For

domesti c petroleu mproducers , operatin g profit s ar e projectedt o declin e b y $8. 7 millio n (se e Tabl e 4-2) . Operatin g profit

losse s ar e th e ne t result o f thre e effects : decrease drevenue , reduction s i n productio n cost s a s output declines , an

dincrease dcontro l costs . For domesti c chemica

l producers , operatin g profit s ar e projectedt o decline b y $11. 4 million .

4- 6 

# 7 3P.7 3

Tabl e 4-2 . National-Leve l Industr y Impact s ofth e Propose d Organi c Liqui d Distributio n (OLD ) NESHAP : 199 7 Absolut e Chang e Petroleu m Revenue -$0.1 3 Cost s $8.6 1 Operating Profi

t -$8.7 4 Facilitie s 0 Chemical s Revenue -$6.9 4 " Cost s $4.5 1 Operating Profi

t - $ 11.4 5 Facilitie s 0 Distribution Services Revenue $15.94 Cost s $15.6 1 Operating Profi

t $0.3 3 Facilitie s 0 Tota l Revenue $8.8 7 Cost s $28.7 3 Operating Profi

t -$19.8 6 Facilitie s 0

4.2.3.2 Facility-Level

Impact Results Usin g th e quantity adjustmen tequatio n show n i n Appendi x A , EP A estimate d eac h facility' s adjustmen tt o th e propose d regulation . First , EP A estimate s th e chang e i n th e facility' s quantit y distributed . EP A the n combine s th e estimate d decreas e i n quantity , couple d wit h th e chang e i n th e marke tpric e fo r th e commodit y distributed , t o estimat e th e facility' s chang e i n revenue .

4- 7



# HP.7 4

Detaile d information abou

t facility-level profitabilit

y wa s unavailabl e fro

mIC R surve y responses . However , Agenc y estimatedth e chang e i

n eac h facility' s profit , usin g the following formula : An = (A p - Cj)-q

n + 0.5(A p - c^-Aq

j (4.1 ) Thi s formul aestimate s th e facility' s chang e in produce r surplu s basedon th e chang e in th e market pric e and th e facility' s quantit y an dcomplianc e costs . Facilit

y cost s ar e estimate d by subtractin g estimate d with-regulatio n facilit y profit s fromwith-regulatio n facilit y revenues . EP A the n aggregate d th e change s in facilit y revenues , costs , andprofit s acros s facilitie s i n eac h market

to estimat e national-level industr

y impact s show

n i n Tabl e 4-2 . I n th e petroleummarkets , revenue s fel l slightly , an

dcost s increased , s o tha

t overall , profit s decrease d b y approximatel y $8. 7 million . In th e chemical s market , revenue s fel l b y $6. 9 million , and cost s increased by $4. 5 million , s o tha t overall profit s fel

l $11. 4 million . For th e merchan

t distributors , revenue s increasedb y $15. 9 millio n an

dcost s increase db y $15. 6 million , s o profit s increasedslightly , b y $0. 3 million . Nationwide , profit s fell by nearly $2 0 millio n acros s all thre e affecte dsectors . 4.2.3.3 Company-Level

Impacts Results T o analyz e th e impact s ofth e proposedrul e o n th e companie s owning affecte d facilities , EP

A estimate d th e chang e in profits the y wouldexperienc e a s aresult ofth e regulation . Thes e result s ar e show n i n Table 4-3 . Generally , th e propose dregulatio n i s projecte d t o result

i n sligh t reduction s i n th e profit s o f

companie s owning OL

D facilities . N o compan y tha t wa s profitabl e a

t baseline i s projectedto becom e unprofitabl e du e t o th e regulation . O f

th e 4 1 companie s owning facilitie s analyze di n th e market model , tw o are projecte d t o experienc e increased profit s a s aresult ofth e regulation. : Onl

y on e compan

y i s projecte d t o experienc e areductio n i n profit s o f mor e tha n $0. 5 million . Eighteen are projecte d t o experienc e reduction s i n profit s les s tha n $0. 1 million , andanothe

r 1 3 are projecte d t o experienc e reduction s i n profit s betwee n $0. 1 millio n and$0. 3 million . The remainin g seve n companie s ar e projectedt o experienc e reduction s i n profit s o f between $0. 3 millio n an d $0. 5 million . I n additio n t o th e companie s owning facilitie s include di n th e market model , th e companie s ownin g th e Trans-Alask aPipeline (TAP) wil l als o b e impacted . (The TA P wa s 4- 8 

# ?x-P.7 5

Tabl e 4-3 . Estimate d Company-Leve l Impact s ofth e OL D NESHAP : 199 7 Chang e i n Profit s ($10 6 million ) Numbe r o f Companie s Positiv e 2 Between-0. 1 an

d 0 18 Between-0. 3 and-0. 1 1 3 Betwee n -0. 5 an d -0. 3 7 Greate r tha n -0. 5 1 Tota l 4 1 omitte d fromthe marke

t impact s mode

l becaus e the volum

e o f petroleumtransferre dvi ath e pipelin e i s s o large , an

d becaus e it

i s not reall y competing wit

h othe r pipelin e facilitie s affected. ) EP

A analyze d th e impact s ofth e proposedrul e o n th e compan y ownin g th e TA

P by comparin g th e cost s o f

complianc e wit

h compan y sales . Affecte

dTA P facilitie s include 1 1 pipelin e pum

p station s an

d th e Valdez Marin

e Terminal . Th

e TA P i s ownedby th e AlyeskaPipelin e Company , th e majo r partne r in whic h i s BP-Amoco . To b e conservative , EP A compared th e TAP' s cost s wit h th e revenue s o

f BP-Amoco , ignorin g revenue s of othe r partners . The TA

P i s estimate d t o incu

r $2. 7 millio n t o compl

y wit h th e regulation , whic h i s 0.00 4 percent of Amoco' s annua

l sales . I f revenue s of

othe r pipelin e owner s wer

e included , th e estimate d cost s ofth e proposedrul e woul drepresen t a n eve n smalle r share . EP A thu s believe s tha

t th e propose d rul e wil l no t

impos e significan

t impact s on th e owner s ofth e TAP . I n additio n t o analyzing impact s o n companie s i n general , EP

A als o examine dth e impact s ofth e regulatio n o n small businesses . Thi s analysi s i s presente di n Sectio n 5 . 4.2.3.4 Social

Costs The valu e o f

aregulator

y actio n i s traditionally measuredby th e chang e i n economi c welfar e tha t i t generates . Th

e regulation' s welfar

e impacts , or

th e socia l cost s require d to achiev e environmenta

l improvements , will extendto consumers andproducer s alike . Consumer s experienc e welfar e impact s du

e to change s i n marke

t price s andconsumptio n level s associate d wit

h th e rule . Producer s experienc e welfar e impact s resultin g fromchange s i n profit s correspondin g wit h th e change s in productio n level s andmarket prices . However , i t i s importan

t to emphasiz e tha

t thi s measur

e doe s no t include benefit s tha

t occu r outside th e market , tha

t is , th e valu e o f

reducedlevel s of

ai r pollutio n wit

h th e regulation . 4- 9 

# 7<eP.7 6

Th e economi c analysi s account s fo r behaviora l response s b y producer s an d consumer s t o th e regulatio n (i.e. , shiftin g cost s t o othe r economi c agents) . Thi s approac h provide s insight s o n ho w th e regulatory burde n i s distribute d acros s stakeholders . A s show n i n Tabl e 4-4 , th e economi c mode l estimate s th e tota l social cos t ofth e rul e o f

$41. 4 million . A s a resul t o f highe r price s an d lowe r

consumptio n levels , consumer s (domesti c an d foreign ) ar e projecte dt o los e $21. 8 million , wit h chemica l consumer s accountin g for 8 0 percen t

ofth e total . Domesti c producer s los e $22. 3 millio n i n profits , wit h chemica l producer s accountin g fo r 8 5 percen t

ofth e total . Foreig n producer s unambiguousl y gai n a s aresul t ofth e regulatio n wit h profit s increasin g b y $2. 7 million . Thes e producer s benefi t fromhighe r price s wit h additiona l contro l cost s associate d with production . Tabl e 4-4 . Distributio n o f Socia l Cost s Associate d wit h Organi c Liquid s Distributio n (OLD ) NESHAP : 199 7 Valu e ($10 6 /yr) Chang e in Consume r

Surplu s -$23.7 7 Petroleu m-$12.8 0 Chemica l -$10.9 7 Chang e in Produce r

Surplu s -$16.8 9 Domestic Producer s -$19.8 6 Petroleu m-$8.7 4 Chemica l -$11.4 5 Distribution Service s $0.3 3 Foreig n Producer s $2.9 7 Petroleu m$2.3 9 Chemica l $0.5 8 Tota l Socia

l Cos t -$40.7 0

4-1 0 

# 7 7P.7 7

SECTIO N 5 SMAL L BUSINES S IMPACT ANALYSI S Although environmenta

l regulation s ca

n affec t al l businesses , small businesse s ma y hav e specia

l problem s complying wit

h suc h regulations . The Regulator y Flexibilit

y Ac t (RFA ) of 198 0 require s tha

t specia l consideratio n b e give

n to small entitie s affecte

db y federa l regulations . Th

e RF A wa s amendedi n 199 6 by th e Smal l Busines s Regulator

y Enforcemen

t Fairnes s Act

(SBREFA

) t o strengthe n it s analytica

l an dprocedura

l requirements . Unde

r SBREFA , th e Agency mus t perfor maregulator

y flexibility analysi s fo

r rule s tha t wil l hav e asignifican

t impact on asubstantia

l numbe r of small entities . Thi s sectio n focuse s o n th e complianc e burde n fo r th e smal l businesse s to determine whethe r thi s propose d rul e i s likel

y t o impos e asignifican

t impact o n asubstantia

l numbe r ofth e affecte

d small entitie s (SISNOSE) withi n thi s industry . 5. 1 Identifyin g Smal

l Businesses The Small Busines s Administratio n (SBA) define s asmall busines s i n term s ofth e sale s or employmen

t ofth e owning entity . Thes e threshold s var y by industr

y an dar e evaluate d base d on th e industr y classificatio n (NAIC S code ) ofth e affecte dfacility . EP

A identifie d 2 6 differen

t four-digi t SI C codes , an

da n eve n large r numbe r o f NAIC S codes , fo

r th e affected companies . Th e siz e standard s fo

r thes e industrie s rang e from amaximumO f 10 0 to 1,50 0 employee s o

r fromamaximu

mof $ 5 millio n to $18. 5 millio n i n revenues . Based o n th e reporte d compan y employmen

t o r revenue an

dSI C siz e standards , EP

A classifie d seven ofth e 6 5 known companie s in th e surve y a s small , or

10. 6 percent

ofth e total . Using th e scaling method s describedin Appendix B , th e Agency estimate dthere ar e potentiall y 2 8 small firms affecte d b y th e rule , 1 9 smal

l firms tha t incu r contro l andMR

R costs , and 9 small firms tha t incu r onl y MR Rcosts . 5. 2 Screening-Leve

l Analysi s For th e purpose s of

assessin g th e potentia

l impact of thi s rul e o n thes e smal l businesses , th e Agency calculate dth e shar e ofth e annua

l complianc e cos t

relativ e t o baselin e sale s fo r eac h company . Whe

n acompan

y own s mor

e tha n one affecte

dfacility , th e cost s fo

r each facilit y i t own s ar e summe d to develo

p th e numerato

r ofth e tes t ratio . Fo r thi s screening-leve l analysis , annua l complianc e cost s wer

e defineda s th e engineerin g contro l cost s impose d o n thes e companies ; thu s they d o not reflect th e change s in productio n 5- 1P.7 8

expecte d t o occu r in respons e t

o imposing thes e cost s an

dthe resultin g marke

t adjustments . Th e Agency estimate d 2 6 ofth e 2 8 smal l firms have cost-to-sale s ratio s (CSRs ) between 0 an d 0. 5 percent . Tabl e 5- 1 show s CSRs fo r firms incurring contro l an

dMR Rcosts . Th

e remainin g tw o small firms incu r cost s tha t ar e betwee n 1 an d3 percen t of sales . Bot

h of thes e firms ar

e classified i

n mode l plan t grou p 4 2 (NAIC S 493 ) an

dincu r contro l an dMR R costs . All ofth e nin e smal

l firms incurring onl

y MR Rcost s have CSR s betwee

n 0 an d 0. 5 percent . Th

e distributio n o

f CSRs presente di

n Figure s 5- 1 an

d5- 2 als o show s tha

t small firms ar e no t disproportionately affecte

dcomparedt

o larg e firms. 5. 3 Economi c Analysi s Th e Agency als o examine

d th e economi c impact s o n small businesse s unde r with

regulatio n condition s expected t o result fro mth e rule . Unlik

e th e screening analysi s describe d above , thi s approac h examine s smal

l busines s impact s i

n ligh t ofth e expecte d behaviora l response s o

f producers an

dconsumer s a s describedin Sectio n 4 . Fo r small companie s facing contro l an d MR Rcosts , profit s decline from<0.0 1 to 32. 5 percent . The media n smal l company' s profits decline b y approximatel

y 3 percent . Fo

r small companie s facing MR

Rcost s only , profi

t change s rang e from+0. 1 t

o -7. 3 percent . Th

e media n small company' s profit s decline b y les s tha n 0. 5 percent . N o facilitie s ownedb y small businesse s ar e projecte d to close . I

n addition , no smal

l firms becom

e unprofitabl e a s aresult

of incurrin g th e complianc e cost s o f thi s regulation . 5. 4 Assessmen t The RF A generall y require s a

n agenc y t o prepar e aregulator

y flexibility analysi s of an y rul e subject

to notic e an

d commen t rulemaking requirement s unde r th e Administrativ e Procedur e Act or an y othe r statut e unles s th e agency certifie s tha t th e rul e wil l no t

hav e a significan t economi c impact

on asubstantia

l numbe r o f smal l entities . Smal

l entitie s include small businesses , small organizations , an dsmall governmenta

l jurisdictions . For purpose s o f

assessing th e impact s o f

today' s proposedrul e o n small entities , small entit y i s defined a s

• asmall busines s whos e paren t compan y ha s fewe r tha n 10 0 o r 1,50 0 employees , dependin g o n siz e definition fo r th e affecte dSI C o r NAIC S code , o

r amaximu m o f $ 5 millio n to $18. 5 millio n i n revenues ;

5- 2 

## £? 0Tabl e 5-1 . Complianc e CSR s fo r Companie s b y Industr y an d Compan y Size : [Contro l an d MR RCosts ] (1997) "

Of t <~r. Mea n Media n Maximu m Minimu m

Tota l Complianc e cost s ar

e <1 % o f sale s Complianc e cost s ar

e s l t o 3 % o f

sale s Complianc e cost s ar

e z. 3 % o f sale s Mode l Plan t

Grou p 2 8 Smal l Larg e 0.13 % 0.01 % 0.13 % <0.01 % 0.13 % 0.02 % 0.13 % <0.01 % Mode l Plan t Grou p 2 8 Smal l Larg e 2 5 3 2 5 3 0 0 0 0 ] Mode l Plan t Grou p 2 9 Smal l Larg e 0.09 % <0.01 % 0.09 % <0.01 % 0.18 % 0.02 % <0.01 % <0.01 % Mode l Plan t Grou p 2 9 Smal l Larg e 3 1 6 3 1 6 0 0 0 0 Summar y Statistic s Mode l Plan t Grou p 4 2 Smal l Larg e 1.14 % 0.20 % 1.14 % 0.04 % 2.11 % 1.21 % 0.17 % <0.01 % Numbe r o f

Companie s Mode l Plan t Grou p 4 2 Smal l 4 2 2 0 Larg e 2 9 2 7 2 0 Mode l Plan t Grou p 4 6 Smal l Larg e N A N A N A N A Mode l Plan t Grou p 4 6 Smal l 0 0 0 0 Large

3 3 0 0 0.Q1 %

<0.01 % 0.01 % <0.01 % Mode l Plan t

Grou p 5 1 Smal l Larg e

Mode l Plan t Grou p 5 1 Smal l Larg e 1 0 1 9 0 1 9 1 0 0 0 0 N A 0.01 %

N A 0.01 % N A 0.02 % N A <0.01 % Al l Affecte d Industrie s Smal l Larg e 1 9 12 0 1 7 11 8 2 2 0 0 N A = Not availabl e

" Facilitie s wer

e assigne d t o model plant s 28 , 29 , 42 , 46 , an d 5 1 dependin g o n th e OL D activit y takin g plac e a

t th e facility . Thes e two-digi t SI C mode l plant s do no t

alway s correspond to th e SIC o r NAIC S cod e fo

r th e paren

t compan y ownin g th e plant . The determinatio n o f small busines s statu s i s based o n th e parent

company' s NAIC S code .P.8 0

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 % CS R Rang e a ) Smal l Companie s aSIC 2 8 aSIC 2 9 m SIC 4 2 m SIC 4 6 • SIC 5 1

a SI C 2 8 D SI C 2 9 g , SIC 4 2 ffl SIC 4 6 • SIC 5 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 % CS R Rang e b ) Larg e Companie s Figur e 5-1 . Distributio n o f Complianc e CSR s b y Industry : [Contro l an d MR RCosts ] (1997 ) Note : SIC s 28,29,42,46 , an d 5 1 reflect

th e mode l plant s to whic

h facilitie s ar

e assigned .

5- 4

^P.8 1

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 % CS R Rang e a ) Smal l Companie s >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 SI C 2 8 D SI C 2 9 a SI C 4 2 g|SIC4 6 • SI C 5 1

a SI C 2 8 D SI C 2 9 H SI C 4 2 I B SI C 4 6 • SI C 5 1

CS R Rang e b ) Larg e Companie s Figur e 5-2 . Distributio n o f Complianc e CSR s b y Industry : [MRROnl y Costs ] (1997 )

5- 5 

## £ 3P.8 2

• asmal l governmenta

l jurisdictio n tha

t i s agovernmen

t of acity , county , town , schoo l distric t

o r specia l distric t wit h apopulatio n of

les s tha n 50,000 ; an

d

• asmal l organizatio n tha

t i s an y not-for-profi

t enterpris e independentl

y owne d an d operate d an

d i s not dominan t i n it s field. It shoul d b e noted tha

t companie s i

n 2 6 four-digi

t SI C code s an

d4 2 NAIC S code s ar

e affecte d b y thi s propose d rule , an

dthe smal l busines s definition applie dt o eac h industr y b y SIC code or

NAIC S code i s tha

t liste din th e SB A siz e standard s (1 3 CF R121) . For

mor e informatio n on siz e standard s fo r particula r industries , pleas e refe

r to th e economi c impact analysi s in th e docket . Afte r considering th e economic impact s ofth e proposedrul e o n small entities , EP A certifie s tha

t thi s actio n will not

have asignifican

t economi c impact

o n asubstantia

l numbe r of small entities . W

e hav e determinedtha

t onl y 1 9 small firms in th e industrie s affecte d by thi s rul e ma

y b e affected . Ou

t of the 1 9 affecte

dsmal l firms, onl

y tw o firms ar

e estimate dt

o hav e complianc e cost s tha

t excee d1 percen

t of their revenues . Th

e reporte dimpact s on th e small firms ar

e therefor e no t consideredt

o b e significant . I

n addition , th e rul e i s likely to als o increas e profit s a

t th e man y smal l firms no t affecte db y th e rul e due to th e ver

y sligh t increas e in market

prices . Finally , while ther

e i s adifferenc e between th e media n complianc e cost-to-sale s estimate s fo

r th e affecte dsmal l an dlarg e firms (0.2 6 percent

comparedt

o 0.0 1 percent fo r th e larg e firms) , no smal

l o r larg e firms ar

e expectedto clos e in respons e t o incurrin g th e complianc e cost s associatedwit h thi s rule . Therefore , th e affecte dsmall firms ar e no t disproportionately affecte

db y thi s rul e a s comparedt

o th e affecte

dlarg e firms. It als o shoul d b e noted tha

t the result s o

f thi s small busines s analysi s ar e th e sam e regardles s o f

which industria

l classification (SIC o

r NAICS ) i s used . Althoug h thi s propose d rul e will no t hav e asignifican

t economi c impac t

o n a substantia l numbe r of small entities , EP

A nonetheles s ha s trie dto reduc e th e impac t of thi s rul e o n small entities . I

n addition , in thi s rul e th e Agency i s applyin g th e minimumlevel of contro l t o affecte

d source s allowedby th e Clea n Air Act . W e continu e to b e intereste di n th e potentia l impact s ofth e proposedrul e on smal l entitie s an

dwelcom e comment s o n issue s relate d to such impacts .

5- 6 

## <g HP.8 3

Du n & Bradstreet , 199

7 5- 2

5- 7

^ <P.8 4



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Printin g Office . U.S . Censu s Bureau . Augus t 1999a . "Al l Other

Basi c Inorgani c Chemica l Manufacturing. " 1997 Economic Census, Manufacturing

— Industry Series, E97M-3251I , Washington , DC : Governmen t

Printin g Office . U.S . Censu s Bureau . Augus t 1999b . "Al l Other

Basi c Organi c Chemica l Manufacturing. " 1997 Economic Census, Manufacturing

— Industry Series, E97M-3251I , Washington , DC : Governmen t

Printin g Office . U.S . Censu s Bureau . Augus t 1999c . "Ethy l Alcoho l Manufacturing. " 1997 Economic Census, Manufacturing

— Industry Series, E97M-3251I , Washington , DC : Governmen t

Printin g Office . U.S . Censu s Bureau . Augus t 1999d . "Industria l Ga s Manufacturing. " 1997 Economic Census, Manufacturing—Industry Series, E97M-3251I , Washington , DC : Governmen t

Printin g Office . U.S . Censu s Bureau . Augus t 1999e . "Petrochemica l Manufacturing. " 1997 Economic Census, Manufacturing

— Industry Series, E97M-3251I , Washington , DC : Governmen t

Printin g Office . U.S . Censu s Bureau . Septembe r 1999f . "Petroleu mRefinery. " 1997 Economic Census, Manufacturing—Industry Series. E97M-3251I , Washington , DC : Governmen t Printin g Office . U.S . Censu s Bureau . Augus t 1999g . "Plastic s Materia l an d Resi n Manufacturing. " 1997 , Economic Census, Manufacturing

— Industry Series, E97M-3251I , Washington , DC : Governmen t

Printin g Office . U.S . Censu s Bureau . Augus t 1999h . "Syntheti c Organi c Dy e an d Pigmen t Manufacturing. " 1997 Economic Census, Manufacturing

— Industry Series, E97M-3251I , Washington , DC : Governmen t

Printin g Office .

R- 3 

## <£%U.S . Censu s Bureau . Marc h 2000a . "198 7 SI C Matche d to 199 7 NAICS. " <http://www.census.gov/epc d /naics/NSIC3B.HTML> . A s obtaine d o n Marc h 13 , 2000 . U.S . Censu s Bureau . Marc h 2000b . "Retai l Trade. " 1997 Economic Census, Manufacturing

—

Industry Series, E97M-3251I . Washington , DC : Governmen t Printin g Office . U.S . Censu s Bureau . Januar y 2000c . "Transportatio n an d Warehousing. " 1997 Economic Census, Manufacturing

— Industry Series. E97M-3251I , Washington , DC : Governmen t

Printin g Office . U.S . Censu s Bureau . Januar y 2000d . "Wholesal e Trade. " 199 7 Economi c Census , Manufacturing—Industry Series . E97M-3251I , Washington , DC : Governmen t Printin g Office . U.S . Departmen t

o f Commerce , Bureau ofth e Census . 1998 . U.S. Industry and Trade Outlook 1998: Chemicals and

Allied Products. Washington , DC : Governmen t Printin g Office . U.S . Departmen t

o f Commerce , Bureau ofth e Census . 2000 . U.S. Industry and Trade Outlook 2000: Chemicals and

Allied Products. Washington , DC : Governmen t

. Printin g Office . U.S . Departmen t

o f Commerce , Bureau ofth e Census . January 1996 . Current Construction Reports: Value of

New Construction Put

in Place. Washington , DC . U.S . Departmen t

o f Commerce , Bureau ofth e Census . Decembe r 1995/January 1996 . Housing Completions. Washington , DC .

< U.S . Departmen t

o f Commerce . 199 6 Annua l Surve y o f Manufactures . Washington , DC : Governmen t

Printin g Office . <www.census.gov/proaVwww/abs.industry.html> . U.S . Departmen t

o f Commerce . 199 2 Censu s o f Manufactures . Washington , DC : Governmen t

Printin g Office . <www.census.gOv/prod/l/manmin/92mmi/92manuff.html> . U.S . Departmen t

o f Commerce , Bureau ofth e Census . 1992 . Economi c Census . Washington , DC : Governmen t Printin g Office . <http://www.census.gov/epcd/www/92result.html> . R- 4 

# &lU.S . Departmen t o f Energy , Energ

y Information Administration . Jul y 1999b . Petroleum: An Energy Profile 1999. DOE/EIA-0545(99) . Washington , DC . U.S . Departmen

t o f Energy , Energ

y Information Administration . 1999a . Annual Energy Outlook, 1999. U.S . Departmen

t o f Energy , Energ

y Information Administration . "The U.S . Petroleum Refinin g an d Gasoline Marketing Industry. " Overview of Domestic Petroleum Refining and

Marketing. <http://www.eia.doe.gov/emeu/finance/usi&to/downstream/> . A s obtaine do n Jul y 9 , 1999e . U.S . Departmen

t o f Energy , Energ

y Information Administration . "The U.S . Petroleum Refining an

d 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/> . A s obtaine don Jul y 9 , 1999d . U.S . Departmen

t o f Energy , Energ

y Information Administration . June 1999c . Petroleum Supply Annual

1998. Volum

e 1 . DOE/EIA-0340(98)/1 . Washington , DC . U.S . Environmenta

l Protectio n Agenc

y (EPA) . Jul

y 1995 . Economic Impact Analysis, for

the Petroleum Refinery NESHAP, Revise dDraf t fo r Promulgation . U.S . Environmenta

l Protectio n Agenc

y (EPA) . Ma

y 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 

# 90P.8 9

U.S . Environmenta

l Protectio n Agenc

y (EPA) . Novembe

r 2000 . Technical

Support Document

for the Organic Liquids Distribution (Non-gasoline) Industry. Washington , DC : U.S . Environmenta l Protection Agency , Offic

e o f Ai r Qualit y Planning an

d Standards , Emission Standard s Division . U.S . Internationa

l Trad e Commission , Datawe

b database , <www.dataweb.usitc.gov> .

R- 6 

# llP.9 0

APPENDIX A REVISE D ORGANI C LIQUID S DISTRIBUTIO N (OLD ) METHODOLOG Y Th e primar y purpos e fo

r the economic impact

analysi s (EIA) fo

r th e propose d Organi c Liquid s Distributio n (OLD ) rul e i s t o "describ e an

dquantify " th e reallocatio n o f society' s resource s in respons e t o the regulator

y action . T

o develo p thes e estimates , w e wil l us e abasi c framework

tha t i s consisten

t wit h othe r EIA' s performedb y th e ISEG . Thi s approach employ s standar

d microeconomi c concept s t o mode l behaviora

l response s expecte d t o occu r wit h regulation . W e compar e baseline condition s i

n tw o organi c liqui d product market s (chemical s and petroleumproducts ) an d aservic e marke

t (distribution ) in 1997 wit

h with-regulatio n condition s i n th e sam

e markets . B y including th e servic e market , w e plac e particula r emphasi s th e interaction s betwee n th e marke

t fo r organi c liqui dproduct s and the market

fo r distributio n services . Th e propose d regulatio n wil l increas e th e cost s o f performin g distributio n services . Thi s wil l increas e th e cost s of facilitie s producing organi c liquids , eithe r directly or indirectly . For

example , cost s will increas e fo r chemica l an dpetroleummanufacturing compame s performing on-sit e distributio n services . W

e assum e tha t all producer s o f

organi c liquid s perfor

monsit e distribution , eithe

r whil e bringin g their

organi c liqui dinput s into th e facility , whil e sending their organi c liqui dproduct s ou

t ofth e facility , or

both . Cost s wil l als o increas e fo

r stand-alone distributio n servic e providers , bot h independen

t merchan t distributio n facilitie s and captiv e distributio n facilitie s ownedb y th e sam e companie s producin g th e organi c Uquids . Th e increas e i n th e pric e o f

merchan t distributio n service s wil l indirectly increas e the cost s o f chemica l an dpetroleumproducer s purchasin g distributio n services . Figur

e 4-1 , in Section 4 , illustrate s th e interactin g marke t responses . Thi s methodology pla

n describe s th e propose dmodel i n detai l anddiscusse s ho w th e Agenc y wil l

• characteriz e th e suppl

y anddemandofth e affecte dcommoditie s andservice s a t th e marke t level , A- 1



## 7"=

*P.9 1

• lin k thre e standar

d partia l equilibriu mmodel s b

y specifyin g th e interaction s betwee n suppl y function s an

dthe n solving fo

r price s an dquantitie s acros s all market s simultaneously , • introduc e apolic y "shock " i n the mode

l wit h contro l cost s inducin g shift s i n th e affecte d suppl y functions , an

d

• us e asolutio n algorith

mto determine ane

w with-regulatio n equilibrium . A. 1 Baselin e Dat aSet ISE G collecte d th e following marke t information t

o characteriz e the baseline :

• Market

quantities —Using response s fromth e EP A industr y survey , th e Agency identified known facilitie s producing petroleuman dchemica l product s potentiall y affecte d b y th e propose drule . Quantitie s fo r unknown facilitie s wer

e develope d using th e procedur

e describedin Appendix B . Impor t an dexpor t quantitie s fo

r thes e commoditie s wer

e collectedfromChemExpo . Domesti c andimpor t quantitie s wer

e aggregatedt

o develo p baseline marke

t quantitie s fo

r th e petroleum and chemica

l market s (se e Tabl e A-1) . Th e market quantit y o f distributio n service s i s computed b

y multiplying th e estimate dshar e (a ) ofth e organi c liqui d produc t distribute d by merchan

t servic e provider s andth e tota l baselin e quantitie s ofth e known and unknow

n facilities . Using datacontainedi n th e facilit y database , th e Agency estimateda= 17.4% . • Market

prices —Petroleuman

dchemica l price s wer

e collecte dfromth e Chemica l Marke t Reporter . A weightedaverag e pric e fo r each aggregat

e market wa s computed based o n th e petroleu man dchemica l quantities . Absen

t datao n th e market pric e fo r distributio n services , w e assum e tha t th e market

pric e i s set

b y th e highes t

uni t cos t servic e supplier . Usin g a

n engineering cos t

function 1 and quantitie s fo

r servic e providers , th e baselin e market pric e fo r service s wa s estimate d t o b e $ 12.3 2 pe

r metri c ton . • Supply and

demand elasticities —For

th e chemica

l an dpetroleumindustries , w e utilize d industr

y (SIC ) elasticitie s gathere dfrompreviou s EP A economi c impact s analyse s (EPA , 1995 ; Shapiro , 1987) . For th e distributio n servic e industry , w e hav e assume d asuppl

y elasticit y o f one . Th e model doe s no t

specif y a n exogenou s demand functio

n fo r service s becaus e thi s demandi s derive dfromth e suppl y decision s ofth e chemica

l an dpetroleumproducers . Tabl e A- 2 show s th e elasticitie s used . 'Th e engineerin g cos t functio n use d fo r this analysi s is a s follows : T C = 598(q/29)

og . A- 2



## 3^*7 ^P.9 2



# 41 Tabl e A-1 . Baselin e Dat aSet , 1997

Marke t Petroleu m Chemica l Distributio n Service s Averag e Pric e ($/metri c ton ) $191.8 4 $498.6 5 $12.3 2 Domesti c

Productio n (10 ' metri c tons ) 1,92 4 19 1 36 8 Import s

(10 ' metri c tons ) 44 1 1 1 N A Export s

(10 ' metri c tons ) 2 5 8 N A Tabl e A-2 . Suppl

y an d Deman d Elasticitie s Use

din the Marke

tMode l Marke t Petroleu m Chemica l Distributio n Service s Suppl y 1. 2 1.5 1 Deman d -0. 6 -1. 5 derive d deman d

A. 2 Marketfor Organic Liqui d Product s A. 2.1 Market

Supply Marke t suppl y fo r th e organi c liqui dproduct

marke t i ca n b e expresse das : 

### Q S i 

### = E q

, + 

### 9? (A-1) wher e Si q j = produc t

(i ) suppl y fromplan

t (j) , an d q F= produc t

(i ) suppl y fromforeig

n source s (imports) . Domestic Facility-Level

Supply Domesti c facilitie s wil l b e affecte db y th e chang e i n cost s o f

distributio n on-sit

e and b y change s i n th e pric e fo

r distributio n services . Foreign producer s d o no t fac e additiona

l A- 3P.9 3

cost s o f productio n with regulation . However , thei r outpu t decision s ar e affecte d b y pric e change s expecte d t o resul t fromth e regulation . Th e facilit y surve y di d provid e sufficien t informatio n o n baselin e revenues , costs , o r profits . Therefore , estimate s ofth e chang e i n suppl y wer e generate d a s follows :

S i Si % = <ljO ' 1 + 8 ' Si Ap-Cj-aAp s

PiO J

J (A.2 ) wher e S i qj ! i s th e wit h regulatio n suppl y for facilit y j , S i qj 0 i s th e baselin e suppl y for facilit y j ,

a A p e 5 " i s th e domesti c suppl y elasticity , AP j i s chang e i n pric e fo r

marke t i ,

cj i s th e per-uni t

contro l cost s for

facilit y j , i s th e shar e o f

outpu t distribute d throug h merchan t terminals , i s th e chang e i n th e pric e o f merchan t services , an d Pi O i s th e baselin e pric e fo r marke t i . Foreign Supply (imports) Foreig n producer s d o not fac e additiona l cost s o f

productio n wit h regulation . However , thei r

outpu t decision s ar e affecte d b y pric e change s expecte d t o resul t fromth e regulation . Therefore , change s import s wer e modele d a s follows :

„ S i

- X

1 <1FI

- <1FV 

### I

l + e 5 ' l + Pto (A.3 ) A- 4 

# f&-P.9 4

wher e S

i q F 1 i s th e with regulatio n import s for marke t i , S i q F 0 i s th e baselin e import s fo r marke t i , e 5 " i s th e foreig n suppl y elasticity , AP j i s th e chang e i n pric e for marke t i , an d Pi o i s th e baselin e pric e for marke t i . A.2.2 Market

Demand Marke t deman d for

marke t i ca n b e expresse d a s th e su mo f domesti c an d foreig n demand , tha t

is , Q D i D i D i

= qdom + q F (A.4 ) wher e q

d0 ' mi s th e domesti c deman d an d q F ' i s th e foreig n deman d (o r exports) . Domestic Demand Change s i n domesti c deman d for eac h marke t

wa s compute d a s follows :

D i _Di ^doml " QdomO 1 + n Di 1 + AP , (A.5 ) wher e D

i q dom l i s th e with regulatio n deman d for marke t i , D i q<iom o i s m e baselin e domesti c consumptio n fo r rnarke t i , A- 5 

## XffrP.9 5

r\ i s the domesti c deman delasticity , AP j i s the chang e i

n pric e fo r marke t i , an d PJ O i s the baselin e pric e fo

r marke t i . Foreign Demand

(Exports) Change s in domesti c deman dfo r eac h marke t wa s compute

da s follows :

D i Di 1 + xf' • 

# M l

I 

### p«)\ (A.6 ) wher e D i q F 1 i s th e wit

h regulatio n export s fo

r marke t i , D i q F 0 i s th e baselin e export s fo r marke t i , r| D l i s th e foreign deman

delasticity , Ap( i s th e chang e i n pric e fo r marke t i , an d Pi o i s th e baselin e pric e fo

r marke t i . A 3 Marketfo r Ol d Distributio n Services A.3.1 Market

Supply Market supply fo r OL D distributio n service s ca

n b e expresse da s 

## Q s 

## ~ - E 

## i f (A.7 )

A- 6 

# 1Z.wher

e suppl

y fro mplant (j ) providing distributio n services . Domestic Facility-Level

Supply P.9 6

S i S i <lj l = Ijo 1 + e' Si PiO (A.8 ) wher e S i q j i i s th e wit

h regulatio n suppl

y fo r facilit y j , S i q j 0 i s the baseline suppl

y fo r facilit y j , e i s th e domesti c suppl

y elasticity , A p S v c i s th e chang e in pric e fo

r th e servic e market , c j i s th e per-unit

contro l cost s fo

r facilit y j , an d Psvc o i s th e baseline pric e fo

r th e servic e market . A.3.2 Market

Demand Q D

- = E qj ' Dsvc (A.9 ) A s note d above , demand fo r service s i s derivedfor

mth e supply decision s o f

chemica l and petroleu mproducers . Therefore , individua l facilit y demand , q

j ,vc , i s computeda s follows : Dsvc S i q j = a-q , (A.10 ) A- 7 

# TX.P.9 7

EPA , 200 0 A

_ 2

A- 8 

# 3±P.9 8

APPENDIX B ECONOMI C COMPUTATION S To prepar e th e baseline fo

r the economic impact

analysi s ofth e OL

D NESHAP , EP

A used dat afro

mavariet y of sources , including publicl

y availabl e dat

ao n th e chemica

l an d petroleumindustry , publicl y available dat

aon distributio n firms an

dth e independen

t liqui d terminals , and dataprovide d b y respondent s t

o th e Agency' s Organic Liqui dDistributio n Questionnaire . T

o establis h th e baseline fo

r each affecte

dfacilit y an dsector , EP

A neede d to estimat e

• baseline quantit

y o f product (chemica l o r petroleumliquid) a

t each facilit

y an d fo r th e secto r a s awhole ;

• baselin e quantit

y distributedthrough captiv e distributio n system , fo r each facilit

y an d sector-wide ;

• baselin e quantit

y distribute dthrough merchan t distributors , fo

r eac h facilit y and sector-wide ; and

• baselin e pric e o f

chemicals , petroleu

mliquids , an

dmerchan t distributio n services . B. 1 Baselin e Quantities o f Chemical s an d Petroleu m Liquids Distributed b

y Eac h Faciht y Al l organi c liquid s producedan dmarketedin th e Unite dState s mus t b e distributed . Thus , EP A expect s tha

t al l organi c liquid s (excep t

gasoline ) sol din th e U.S . wil l b e affected b y th e propose d OL

D NESHAP . EP

A ha s datao n organi c liquid s distributio n facilitie s respondin g t o th e OL

D questionnaire , an

dth e quantitie s o f

organi c liquid s they distribute . Th e questionnair

e dataprovide infonnation o n asubse t o f organi c liquids , distribute dby a subset o f organi c liqui d distributors . T o construct th e model' s baseline , EP

A first examine d th e databas e information , then developedametho dfo r estimatin g the volum

e of organi c liquid s distribute d b y th e "unknown " organi c liquid s distributio n facilities . Thi s sectio n describe s thes e methods .

B- l 

# ; 

# /oOP.9 9

B.I.I Quantities of

Organic Liquids Distributed Onsite and

Off-site by Known OLD Facilities T o comput

e th e baseline quantit

y of product distribute da

t each facility , EP

A bega n wit h th e OL D questionnair

e databas e information o

n quantitie s o

f eac h organi c liqui d transferre d a

t eac h facility . EP

A first designatedeac

h product distribute db

y thes e "known " facilitie s a s eithe

r organi c chemica

l o r petroleu mliquid , then aggregatedacros s product s t o estimat e th e quantit

y o f chemical s and/o

r petroleu mproduct s distribute da

t each know n facility .Facilitie s i

n mode l plant group s 2 8 an

d2 9 ar e assumedto bot

h produc e an

ddistribute organi c liquids . Th

e increased cost s associatedwit h th e propose dregulatio n ar e assume d to directl y increas e thei

r cost s of supplying deliveredorgani c liquid s to th e organi c liqui d market s they serve . Facilitie s i n model plant group s 42,46 , and5 1 offe

r off-sit e distributio n service s to th e producer s and consumer s o f organi c liquids . EP

A doe s no t

have sufficien

t dat ato b e abl e to determine which ofth e off-sit e supplier s of

OL D service s offe

r thei r distributio n service s t o each organi c liqui dproducer . Thus , EP A ha s assumedtha

t al l ofth e off-sit e distributio n facilitie s ar

e merchan t supplier s of

distributio n services , wh

o supply thes e service s to the distributio n market . Similarly , EP A i s no t abl e to determine whic h o f th e organi c liqui d producer s purchas e off-sit e distributio n service s an

dwhich one s supply thei r organi c liquid s directly t o customers . EP A ha s computedth e shar

e o f organi c liqui d distributio n tha

t take s plac e a

t off-sit e facilitie s (17. 4 percent

) an dassume s tha

t all organi c liqui d producer s distribut

e 17. 4 percen

t of thei r outpu t through off-sit

e distributors . Thi s i s clearly asimplificatio n tha

t reduce s th e variabilit

y of secondar y impact s ofth e NESHAP o n organi c liqui d producers . I n th e absenc e o f mor e detaile dinformation , however , i t i s a reasonabl e simpUfyin

g assumption . Fo r th e marke t model , EP

A assume s tha

t companie s owning mor

e tha n on e OL D facilit y regar d their individua l facilitie s a s par

t o f asingl e integrate dproductio n and distributio n operation . Thus , w e model suppl y a t th e compan

y level , rathe

r tha n at th e facilit y level , b y summing th e quantitie s distribute da t al l facilitie s ownedb y acompan y withi n eac h model plant

group . Thi s i s probabl

y asimplificatio n i n tha

t companie s woul d conside r th e profitabilit

y o f individua l facilitie s incurring unusuall y hig h complianc e cost s i n additio n t o considerin g th e profitabilit y ofth e overall operation .

B- 2 

# ZOLB.1.2 Estimating Quantities of Organic Liquids Distributed by Unknown OLD Facilities To complet

e th e baseline characterization o f quantitie s o

f organi c liquid s distribute d b y OL D facilities , EP

A created pseudo-facilitie s an dassignedquantitie s o

f organi c liquid s t

o them . EP A ha s a n estimat e of th e numbe

r of OL D facilitie s represente db

y eac h model plant . Subtractin g know

n OL D facilitie s fromth

e databas e tha

t ar e assignedt

o eac h mode l plan t fro mth e tota l numbe r representedb

y eac h mode l plan t yield s a n estimate dnumbe

r o f unknown plant s in amode

l plan t group . Th

e unknow n facilitie s ar

e divide dbetwee

n thos e incurrin g onl

y monitoring , recordkeeping , an dreporting cost s (MRR-onl y facilities ) an

d thos e incurrin g cost s o f

complianc e contro l an

dMR Rcosts . Tabl e B- l present s th e numbe r o f know n an d unknown facilitie s b

y mode l plan t group . Tabl e B-l . Number o

f Know n an d Unknow

n Facilities b

y Mode l PlantGrou

p Mode l Plan t Grou p 2 8 2 9 4 2 4 6 5 1 Tota l Tota l

Facilitie s 370 11 0 9 4 3 5 4 0 64 9 Know n

Facilitie s 5 3 3 3 1 8 7 5 11 6 Unknow n Facilitie s Incurrin g

Contro l an d MR RCost s

19 1 3 8 4 4 1 6 2 2 31 1 MRR-Onl y

Facilitie s 12 6 3 8 3 2 1 2 1 2 22 0 EP A use d atwo-ste

p proces s to estimat

e th e quantit

y o f organi c liquid s distribute d by th e unknow n facilities . First , fo r mode l plan t group s 2 8 an

d29 , EP A assigne dquantitie s randomly ove

r th e interva

l betwee n th e minimu

man dmaximu mquantitie s distribute db y facilitie s i n eac h model plant group . Then , EP

A estimate dth e tota

l quantit y o f merchan t distributio n service s demanded by thes e unknown facilitie s in model plant group s 2 8 and 2 9 b y multiplyin g thei r

tota l distributio n time s 0.174 . EP A allocate demploymen

t to th e unknow n facilitie s within eac h mode l plan t grou p randoml y ove r th e rang e o f

actua l employmen

t fo r known facilitie s i n eac

h mode l plan t grou p andallocate dth e merchan t distributio n quantit

y t o thes e facilitie s proportiona l t o their estimate demployment . I n th e absenc e o f

information abou

t compan y ownershi

p ofth e unknown facilities , EP A make s th e conservativ e assumptio n tha t th e facilitie s are ownedb y single-faciUt y B- 3 

# S03.p. 1

companies . Thi s mean s tha t the companie s ownin

g th e unknow

n facilitie s ar

e modeleda s bein g smalle

r tha n th e companie s ownin

g th e known facilities , o

n average . It shoul d b e note d tha

t EP A analyzedth e Trans-Alask aPipelin e (TAP) differentl

y fromothe r merchan t distributors . Accordin

g t o the OL D database , the TA

P distribute s 715,851,79 4 M

t pe r year , 5 5 time s the tota

l fo r all othe r mode l plan t grou p 4 6 firms. Thi s volume o f crude oi l als o represent s mor e tha n hal f o f th e tota l marke t quantit y o f petroleu m product s distribute d i n th e U.S . in ayear . Clearly , th e TA P i s completel

y differen t fro mth e othe r "merchant " distributor s i n ou r database . For

thi s reason , EP

A ha s chose

n t o model th e impact s ofth e NESHA

P o n th e TA

P separatel y fro mth e marke

t model . Th

e impact ofth e propose d rul e o n th e owner s ofth e TA P will b e approximatedb

y examining th e cost s ofth e rul e fo r th e TA P a s ashar e ofth e baseline compan

y revenue s ofth e larges t

shareholde

r i n th e consortiumtha

t own s and operate s th e TA

P (BP/Amoco) . B. 2 MarketPrice s o

f Organic Liquids an

d Distributio n Services EP A obtaine d datao n product-specifi c price s fo r organi c liquid s mentione din th e OL D database . EP

A estimate s th e marke

t pric e fo r organi c chemical s a s th e quantity

weighte d averag e ofth e price s fo r organi c liquid s designate da s organi c chemicals . Similarly , EP

A estimate s th e marke

t pric e fo r petroleumliquid s a s th e quantity-weighte d averag e ofth e price s fo

r organi c liquid s designate da s petroleu mliquids . Th e market

pric e o f organi c liqui ddistributio n service s was foun db y first estimatin g th e cos t o f OL D services , then setting th e pric e equa l t o th e maximu

maverag e cost . The cost s o f distributio n service s wer

e estimatedbase do n loading , unloading , andtan k storag e costs , scale d to th e volum

e o f liqui ddistributed . Baseline cost s o f merchan t distributio n service s rang e from$1.68/Mt to $12.32/Mt . The baselin e marke t pric e o f distributio n service s i s thu s se t

a t $ 12.32/Mt . B. 3 Compliance Cost

s pe r Facilit

y EP A estimate d cost s o f

complying wit

h th e proposedrul e base do n 1 3 model plants , and assigne d eac h know n facilit y to amode

l plant . Within eac

h model plant , arang e o f complianc e cost s are possibl e depending o n th e baselin e equipmen t andprocesse s i n plac e a

t afacility . EP

A ha s estimate d cost s fo

r facilitie s tha

t wil l onl y hav e t o implemen

t monitoring , recordkeeping , and reportin g (MRR) . All ofth e MRR-onl y facilitie s fall withi n th e unknown facilit y group . Fo r

facilitie s needing to implemen t contro l an dMRR , EP

A ha s estimate d cost s tha t reflec t thi s rang e o f

complianc e experiences , but i s unabl e to determin e whic h B- 4



### ^ /< ?P. 2



# /°*1,

specifi c cost s within amode l plan t appl y t o aparticula

r know n facility . T

o implemen

t th e economi c impact

analysis , EP

A ha s therefor

e assignedthe media

n contro l an

dMR R complianc e cos t

fo r eac h mode l plan t t o al l know n facilitie s assignedt

o tha t mode l plan . EP A then allocate d the residua l cost s acros s th

e unknow n facilitie s simulatedfo

r eac h mode l plan t grou p code , based o n th e tota

l numbe r o f facilitie s within eac

h mode l plan t incurrin g th e high , low , o

r mediu mcost s fo r tha t mode l plant , show

n i n Tabl e 3-1 . Becaus e th e cost s ar e randoml y assigned t

o individua

l simulatedfacilities , EP

A ma y b e over- o

r under

estimatin g th e cost s of

complianc e tha

t woul dbe experiencedb

y plant s suc

h a s thos e simulate d fo

r thi s analysis . Becaus e som

e ofth e OL

D facilitie s ar

e locatedi n ozone nonattainmen t areas , and would therefor

e b e likely to hav e LDA

Ran dMR Roperation s i

n effec t a t baseline , EP

A als o prepare d sensitivit

y analyse s tha

t reduc e the cost s o f

complianc e fo

r each facilit

y locate d withi n anonattainmen

t are ab y th e amoun

t of MR Rcost s an db y th e su mo f MR Ran dLDA R costs . B.3.1 Scaling Nonbehavioral Impacts to Provide Industry- Wide Estimates Ofth e 65 1 facilitie s potentially affecte db y the rule , 43 1 ar

e estimate dt

o incu r cost s fo r contro l an

d MRR . For

th e nonbehaviora

l analysis , o f

compan y impact s usedi n th e SBREF A screening analysis , EP

A di dno t creat e simulatedfacilities . Instead , EP A computed scalin g factor s relatin g th e numbe r of know n facilitie s t

o th e tota l numbe r of facilitie s withi n eac h model plant

grou p (se e Tabl e B-2) :

wher e N : (B.l ) N j = numbe

r o f facilitie s estimatedt

o incu r complianc e cost s fo

r contro l andMR

R fo r model plant

grou p i , an d i ^ = numbe

r o f known facilitie s in mode

l plan t grou p i . Usin g thes e scalin g factors , w e estimat e th e impact s incurre dby th e all 43 1 facilitie s tha t hav e cost s fo

r contro l and MRR . Not

e that , becaus e th e numbe

r o f known facilitie s i n model plant

grou p 4 6 exceed s th e numbe

r i n th e engineering cos t

analysis , w e scal e impact s down fo r thi s model plant

group . Thi s methodals o assume s tha t th e 18 3 facilitie s estimate d to B- 5P. 3

Tabl e B-2 . Facilit

y Count s an d Scalin g Facto r for eac h Mode l Plan t

Grou p

Mode l plan t 28 29 4 2 4 6 5 1 grou p Numbe r o f Facilitie s i

n Mode l Plan tGroup , Accordin g t o Cos t Analysi s 244 7 3 62 2 3 2 9 Numbe r o f Facilitie s i n Mode l Plan tGrou p in Databas e 12 0 5 9 3 2 2 7 1 0 Scalin g Facto r 2.03 3 1.23 7 1.93 7 0.85 1 2.90 0 incu r cost s fo r contro l and MR

Rtha t ar e unknow n ar e simila r t o th e know

n facilitie s i

n th e sam e model plant

group . I n additio n to th e 18 3 facilitie s accountedfo r usin g th e scalin g factors above , there ar e 22 0 facilitie s projecte d to incu r onl y MR Rcosts . To estimat

e th e cost s fo

r these , w e us e a differen t scalin g facto

r (se e Tabl e B-3) . First , we estimat e tes t ratio s fo r know n facilitie s b

y model plan t

group , usin g onl

y th e MR Rcosts . The

n w e scal e thos e result s usin g th e rati o M s n . (B.2 ) wher e , M f = numbe

r o f facilitie s estimatedt

o incu r only MR Rcost s in model plant

grou p i , an d n ^ = numbe

r o f known facilitie s in mode

l plant grou p i . Usin g thi s method , w e estimat e impact s tha

t wouldb e incurre dby al l facilitie s in eac h model plan t group code incurrin g onl

y MR Rcosts . Thi s metho dassume s tha t th e facilitie s incurrin g only MR Rcost s ar e simila r to th e known facilitie s in th e sam e model plan

t grou p code .

B- 6 

# /os~P. 4

B. 4 Company-Leve l Factors : Cost-to-Sale s Ratio s (CSRS ) an dScalin g Factor s T o asses s the potentia

l economic impac

t ofth e rul e o

n companies , the Agenc

y calculate d acost-to-sale s rati o as follows : CS R(% ) i = l

Sale s 10

0 (B.3 )

wher e EC f l i s th e su mofth e annua

l control cos t

fo r all facilitie s owne

db y compan y p an d sale s i s th e tota

l revenu e fo

r compan y p . Tabl e B-3 . Scalin g Factor s for Facilitie s Incurrin g Onl y MRRCost s Mode l Plan t Cod e 2 8 2 9 4 2 4 6 5 1 Grou p Numbe r

o f Facilitie s i

n Mode l Plan t

Grou p Wit h Only MR

RCost s 12 6 3 8 3 2 1 2 1 2 Number

o f Facilitie s i

n Mode l Plan t

Grou p in Databas e 12 0 5 9 3 2 27 1 0 Scalin g Facto r

1.05 0 0.64 4 1.00 0 0.44 4 1.20 0

Baseline compan

y profit margin s wer

e collecte dfromsecondar

y sourc e dat a(se e Sectio n 2) . I f

thes e margin s wer

e not available , a

n industr y profi t margin (D&

B return-on sales ) wa s use d fo

r th e company . With-regulation profi t margin s wer

e compute db y subtractin g th e CS Rfromth e baseline profi t margin . B.4.1 Scaling Company Impacts to Provide Industry-Wide Estimates T o estimat e compan y impact s on a

n industry-wide basis , th e Agency use dascalin g proces s simila

r to th e approach usedfo

r facilities . First , w e assign acompan y model plant grou p based o n th e model plant

grou p fo r th e larges t

numbe r o f facilitie s ownedby th e B- 7 

## /£>GP. 5

company . Next , w

e comput e the averag e numbe

r o f facilitie s pe

r compan y b y mode l plan t group , based o

n the facilitie s an

d companie s i

n the databas e a s follows :

n . (B.4 ) wher e F = numbe

r of firms, n = numbe

r of facilities , an

d k = know n facilitie s in database . W e then creat

e acompan

y scaling facto

r fo r eac h modelplan t

grou p by dividin g th e tota

l numbe r o f facilitie s (wit

h contro l an

dMR Rcost s o r MR Rcost s only ) by th e averag e numbe r of facilitie s pe

r company . Thi s metho dprovide s a n estimat e ofth e total numbe

r o f companie s i n tha

t model plant

group .

n t

n, . (B.5 )

wher e F = numbe

r o f firms , n = numbe

r o f facilities , k = know n i n database , and t = tota

l numbe r affected . Next , w e comput

e th e scalin g facto

r fo r th e mode l plant grou p a s th e rati o ofth e estimate d tota l numbe r o f companie s divide db

y th e companie s in th e database .

B- 8 

# /°iifi _



## s = (B.6 ) Finally , w e tabulat

e th e cost-to-sale s an

dprofi t margin result s by mode

l plan t grou p an d scal e i t u p usin g th e scaling factor .

B- 9

/ *P. 7

APPENDI

X C OL D ECONOMI C IMPAC T ANALYSIS : SENSITIVIT Y ANALYSI S To provid e a n alternativ e se

t of result s tha t incorporat e differin g assumption s about baselin e control s a

t affecte d plants , EP

A conductedsensitivit

y analysis , varying th e cost s assigne d t o facilitie s depending o n whethe r the y ar e locate din ozone nonattainmen t areas . EP A expect s tha

t facilitie s locate di

n 1-hou r ozone nonattainmen

t area s will hav e MR

Rand perhap s als o LDA

Roperation s in effec

t a t baseline . Suc

h facilitie s wouldnot

incu r th e ful l estimate d complianc e costs , but rathe r the y wouldincu

r th e estimatedtota

l annua l cos t minu s either monitorin g recordkeepin g an dreporting andlea

k detectio n an

drepai r cost s (Sensitivit

y Scenari o A ) or

tota l annua l cost s minu s monitoring , recordkeeping an dreportin g (Sensitivit

y Scenari o B) . Thi s appendix present s result s of thes e sensitivit

y analyses . Table s C- l throug h C- 3 present

th e result s of

Sensitivit y Scenario A , an

dTable s C-4 throug

h C- 6 present

th e result s o f Sensitivit y Scenari o B . Overall , i f facilitie s in ozone nonattainmen t area s hav e monitoring , recordkeeping , and reportin g operation s i n plac e a t baseline (Sensitivit

y Scenari o B) , th e socia

l cos t ofth e propose d rul e will b e $39. 7 millio n instea dof $40. 7 million . Operating profit s wil l fal l b y $19. 4 millio n nationwid

e a s opposedt

o $19. 9 million . Pric e an

doutpu t change s wil l als o b e somewha t diminished . If

in fac t affecte dfacilitie s locate din ozone nonattainmen t area s hav e bot h lea k detectio n and repair

andmonitoring , recordkeeping , andreportin g operation s i n effect a t baseline , estimate d impact s ofth e proposedrul e will b e eve n smaller . Socia

l cos t wil l b e $38. 2 millio n rathe

r tha n $40. 7 million , an

dprofit s will fal

l b y $18. 7 millio n rather tha n $19. 9 million .

C- l

/ * $P. 8

Tabl e C-l . Market-Leve l Industr y Impact s ofth e Propose dOrgani c Liqui d Distributio n (OLD ) NESHAP : 199 7 Sensitivity A : N o LDA Ro r MRRfo r Nonattainmen t

Are aFacilitie s

Petroleu m Product s Pric e ($/metri c ton ) Quantit y (IO 6 metri c tons/yr ) Domesti c Foreig n Chemica l Product s Pric e ($/metri c ton ) Quantit y (IO 6 metri c tons/yr ) Domesti c Foreig n Distributio n Service s Pric e ($/metri c ton ) Quantity . (IO 6 metri c tons/yr ) Baselin e $191.8 4 2,36 5 1,92 4 44 1 $498.6 5 20 2 19 1 1 1 $12.3 2 36 8 Wit

h Regulatio n $191.8 4 2,36 5 1,92 4 44 1 $498.7 0 20 2 19 1 1 1 $12.3 6 36 8 Chang i

Absolut e $0,00 5 -0.0 4 -0.0 5 0.0 1 $0,05 2 -0.0 3 -0.0 3 0.0 0 $0.0 4 -0.0 1 Relativ e

0.003 % -0.002 % -0.003 % 0.003 % 0.010 % -0.016 % -0.017 % 0.016 % 0.329 % -0.004 %

C- 2 

# y/oP. 9

Tabl e C-2 . National-Leve l Industr y Impact s ofth e Propose dOrgani c Liqui d Distributio n (OLD ) NESHAP : 1997 Sensitivit y A : N o LDA Ro r MR Rfo r Nonattainmen

t AreaFacilitie s

Absolut e Chang e Petroleu m Revenu e -$0.1 2 Cost s $7.9 2 Operating Profi

t -$8.0 4 Facilitie s 0 Chemicals Revenue -$6.6 0 Cost s $4.3 3 Operatin g Profi

t -$10.9 4 Facilitie s 0 Distribution Service s Revenue $14.7 5 Cost s $14.5 1 Operating Profi

t $0.2 4 Facilitie s 0 Tota l Revenu e $8.0 3 Cost s $26.7 7 Operatin g Profi

t -$18.7 4 Facilitie s 0

C- 3

/ / /P.1 0

Tabl e C-3 . Distributio n o f Socia l Cost s Associate d wit h Organi c Liquid s Distributio n (OLD ) NESHAP : 199 7 Sensitivit y A : N o LDA Ro r MR Rfo r Nonattainmen

t AreaFacilitie s

Valu e (SlOVyr ) Chang e i n Consume

r Surplu s -$22.1 8 Petroleu m-$11.7 4 Chemica l -$10.4 5 Chang e i n Produce r Surplu s -$16.0 0 Domestic Producers -$18.7 4 Petroleu m-$8.0 4 Chemica l -$10.9 4 Distribution Service s $0.2 4 Foreign Producer s $2.7 4 Petroleu m$2.1 9 Chemica l $0.5 5 Tota l Socia l Cost-$38.2 0

C- 4 

# //? -P.1 1

Tabl e C-4 . Market-Leve l Industr y Impact s ofth e Propose d Organi c Liqui d Distributio n (OLD ) NESHAP : 199 7 Sensitivit y B : N o MRRfo r Nonattainmen t

Are aFacilitie s

Petroleu m Product s Pric e ($/metri c ton ) Quantit y (IO 6 metri c tons/yr ) Domesti c Foreig n Chemica l Product s Pric e ($/metri c ton ) Quantit y (IO 6 metri c tons/yr ) Domesti c Foreig n Distributio n Service s Pric e ($/metri c ton ) Quantit y (IO 6 metri c tons/yr ) Baselin e $191.8 4 2,36 5 1,92 4 44 1 $498.6 5 20 2 19 1 1 1 $12.3 2 36 8 Wit

h Regulatio n $191.8 5 2,36 5 1,92 4 44 1 $498.7 0 20 2 19 1 1 1 $12.3 6 36 8 Changr

Absolut e $0,00 5 -0.0 4 -0.0 5 0.0 1 $0,05 3 -0.0 3 -0.0 3 0.0 0 $0.0 4 -0.0 2 2

Relativ e 0.003 % -0.002 % -0.003 % 0.003 % 0.011 % -0.016 % -0.018 % 0.016 % 0.347 % -0.004 %

C- 5

/ 

### ££g^//3 >Tabl e C-5 . National-Leve l Industr y Impact s o f th e Propose dOrgani c Liqui d Distributio n (OLD ) NESHAP : 1997 Sensitivit y B : N o MR Rfo r Nonattainmen

t AreaFacilitie s Absolut e Chang e Petroleu m Revenue -$0.1 3 Cost s $8.3 7 Operating Profi

t -$8.5 0 Facilitie s 0 Chemicals Revenue -$6.7 9 Cost s $4.4 5 Operating Profi

t -$11.2 4 Facilitie s 0 Distribution Services Revenue $15.5 6 Cost s $15.27 Operating Profi

t $0.2 9 Facilitie s 0 Tota l Revenue $8.64 Cost s $28.0 8 Operatin g Profi

t - $ 19.4 4 Facilitie s - 0

C- 6 

# //HP.1 3 12 *

Tabl e C-6 . Distributio n o f Socia l Cost s Associate dwit

h Organi c Liquid s Distributio n (OLD ) NESHAP : 199 7 Sensitivit y B : No MR

Rfo r Nonattainmen

t AreaFacilitie s Valu e ($106 /yr ) Chang e i n Consume

r Surplu s -$23.1 6 Petroleu m-$12.4 1 Chemica l -$10.7 4 Chang e i n Produce r Surplu s -$16.5 6 Domesti c Producers - $ 19.4 4 Petroleu m-$8.5 0 Chemica l -$11.2 4 Distribution Service s $0.2 9 Foreign Producers $2.8 8 Petroleu m$2.3 1 Chemica l $0.5 7 Tota l Socia l Cos t-$39.7 0

C- 7

/ / •