1

January 31, 2012

MEMORANDUM

SUBJECT: Economic Impact Analysis for Risk and Technology Review: Chromium 

Electroplating and Chromic Acid Anodizing Source Categories 

FROM: Robin Langdon and Tom Walton

Economists

AEG (C439-02)

TO: Phil Mulrine

 Environmental Engineer

MMG (D243-02)

This document addresses the economic impacts of Risk and Technology Review for 

Chromium Electroplating and Anodizing source categories. The total capital and total 

annualized costs for the proposed amendments are estimated to be $3.7 million and 

$2.8 million/year, respectively. The cost estimates are provided in “Procedures for 

Determining Control Costs and Cost Effectiveness for Chromium Electroplating 

Supplemental Proposal”, which is available in the docket. Also available in the docket is 

“Profile of Chromium Electroplating Processes and Emissions, Emission Standards 

Technical Support and Post Promulgation Activities”, which includes information used in 

this analysis regarding number of employees and other industry statistics.

Small Business Impacts Analysis

The Small Business Administration defines a small entity in the chromium electroplating

industry1 as an entity with fewer than 500 employees.2

 In addition, the U.S. Census 

Bureau’s 2009 Statistics of U.S. Businesses indicate there were 2,434 firms in NAICS 

code category 332813 and 31 firms, or 1.27 percent, had more than 500 employees.3 

Based on this information, we conclude that more than 98 percent of the entities in the 

chromium electroplating industry are considered small entities. As such, for the small 

business impacts analysis we included all of the affected entities. 

 1 The chromium electroplating industry falls within the North American Industry Classification System 

code 332813 – electroplating, plating, polishing, anodizing, and coloring. 2 Refer to http://www.sba.gov/sites/default/files/Size_Standards_Table.pdf for more information on SBA 

small business size standards. 

3 U.S. Census Bureau, Statistics of U.S. Businesses --

http://www2.census.gov/econ/susb/data/2009/us_6digitnaics_2009.xls. NAICS code category 332813 

also includes firm types not affected by this rulemaking.
2

Approximately 1,454 facilities, or entities, are in the chromium electroplating industry 

and the new proposed requirements will affect approximately 1,116 facilities.

4

 EPA 

performed a screening analysis for impacts on all affected small entities by comparing 

compliance costs to average sales revenues by employment size category. This is known 

as the cost-to-revenue or cost-to-sales ratio, or the “sales test.” The “sales test” is the 

impact methodology EPA primarily employs in analyzing small entity impacts as opposed 

to a “profits test,” in which annualized compliance costs are calculated as a share of 

profits. The sales test is frequently used because revenues or sales data are commonly 

available for entities impacted by EPA regulations, and profits data normally made 

available are often not the true profit earned by firms because of accounting and tax 

considerations. The use of a “sales test” for estimating small business impacts for a 

rulemaking is consistent with guidance offered by EPA on compliance with SBREFA5 and 

is consistent with guidance published by the U.S. SBA’s Office of Advocacy that suggests 

that cost as a percentage of total revenues is a metric for evaluating cost increases on 

small entities in relation to increases on large entities (U.S. SBA, 2010).6 

Table 1 below presents the results of the cost-to-sales screening analysis; the table 

reflects a cost per plant increase of 15 percent to reflect estimated additional costs for 

using WAFS that do not contain perfluorooctyl sulfonates (PFOS).7 Table 2 provides the 

numbers of Facilities Subject to the Requirements, by Industry Subcategory and 

Employment Size Category. 

 4 Approximately 1,454 chromium electroplating facilities are located in the U.S. Of these, approximately 

338 are located in California and the remaining 1,116 are outside of California. This information can be 

found on page 1 of the “Procedures for Determining Control Costs and Cost Effectiveness for Chromium 

Electroplating Supplemental Proposal.” 5 The SBREFA compliance guidance to EPA rulewriters regarding the types of small business analysis that 

should be considered can be found at http://www.epa.gov/sbrefa/documents/Guidance-RegFlexAct.pdf. 

See Table 2 on page 36 for guidance on interpretations of the magnitude of the cost-to-sales numbers. 6 U.S. SBA, Office of Advocacy. A Guide for Government Agencies, How to Comply with the Regulatory 

Flexibility Act, Implementing the President’s Small Business Agenda and Executive Order 13272, June 

2010.

7 Although the costs for non-PFOS WAFS are comparable to the costs of PFOS-based WAFS, non-PFOS 

WAFS are depleted more quickly in the electroplating bath. For plants, that regularly electroplate, the 

depletion of non-PFOS WAFS is negated by drag-out. However, for plants that do not electroplate 

regularly (i.e., do not electroplate daily for several hours per day), the depletion rate can be up to 20 

percent. Estimating increased WAFS costs of 15 percent across the board for all electroplating plants that 

use WAFS provides estimated costs for non-PFOS WAFS that are biased high. For additional information, 

refer to page 4 and Table 12 (page 24) of the “Procedures for Determining Control Costs and Cost 

Effectiveness for Chromium Electroplating Supplemental Proposal.”
3

Table 1. Summary of the Screening Analysis Results Based on Cost-to-Sales Ratios, by Industry 

Subcategory and Employment Size Category 

Employment Size Category <20 Employees 20-99 Employees >100 

Employees

Average Sales by Employment Size Category8 $708,132 $4,330,616 $10,827,407

Total Number 

of Affected 

Facilities

Annualized Costs, 

by Compliance 

Option

Decorative 

Chromium 

Electroplating

480

Test Only 7 $1,306 .18% 0.03% 0.012%

WAFS Only9 340 $429 .06% 0.01% 0.004%

WAFS & Test 8 $4,163 .59% 0.10% 0.038%

Retrofit APCD6 & 

Test -- -- -- -- --

Chromium 

Anodizing 146

Test Only 10 $1,262 0.18% 0.03% 0.012%

WAFS Only 56 $207 0.03% 0.00% 0.002%

WAFS & Test 11 $2,638 0.37% 0.06% 0.024%

Retrofit APCD & Test -- -- -- -- --

Small Hard 

Chromium 

Electroplating

271

Test Only 26 $1,484 0.21% 0.03% 0.01%

WAFS Only 24 $1,197 0.17% 0.03% 0.01%

WAFS & Test 50 $9,467 1.34% 0.22% 0.09%

Retrofit APCD & Test 5 $22,184 3.13% 0.51% 0.20%

Large Hard 

Chromium 

Electroplating

219

Test Only 27 $1,907 0.27% 0.04% 0.02%

WAFS Only 3 $8,327 1.18% 0.19% 0.08%

WAFS & Test 33 $57,420 8.11% 1.33% 0.53%

Retrofit APCD & Test 4 $55,872 7.89% 1.29% 0.52%

 8 By NAICS code, the average sales receipts by employment size category are from the U.S. Census Bureau, 

2008, “Firm Size Data from the Statistics of U.S. Businesses: U.S. Detail Employment Sizes: 2007” and can 

be found <http://www.census.gov/econ/susb/data/download_susb2007.html>. 9 WAFS is wetting agent fume suppressant and APCD is air pollution control device.
4

Table 2. Number of Facilities Subject to the Requirements, by Industry 

Subcategory and Employment Size Category10

Employment Size Category11

<20 

Employees

20-99 

Employees >100 Employees

Total Number of 

Affected 

Facilities12

Decorative Chromium 

Electroplating 480 123 245 112

No Requirements 125 32 64 29

Test Only 7 2 4 2

WAFS Only 340 87 174 79

WAFS & Test 8 2 4 2

Retrofit APCD & Test -- -- -- --

Chromium Anodizing 146 13 106 27

No Requirements 69 6 50 13

Test Only 10 1 7 2

WAFS Only 56 5 41 10

WAFS & Test 11 1 8 2

Retrofit APCD & Test -- -- -- --

Small Hard Chromium 

Electroplating 271 91 91 91

No Requirements 166 55 55 55

Test Only 26 9 9 9

WAFS Only 24 8 8 8

WAFS & Test 50 17 17 17

 10 Some totals may not add due to rounding. 11 By potential requirement, we allocated the facilities among the employment size categories according 

to percentages in Table 28, page 106 of the “Profile of Chromium Electroplating Processes and Emissions, 

Emission Standards Technical Support and Post Promulgation Activities.” For example, for decorative 

chromium electroplating, we allocated 25.6 percent of facilities to the employment size category of fewer 

than 20 employees; allocated 51.2 percent of facilities to the employment size category of between 20 

and 99 employees; and allocated 23.3 percent of facilities to the employment size category of more than 

100 employees.

12 The 1,116 facilities located outside of California were allocated among the industry subcategories in this 

table based on the methodology described in the following document available in the docket: “Simulation 

of Actual and Allowable Emissions for Chromium Electroplating Facilities Emission Standards Technical 

Support and Post Promulgation Activities”.
5

Retrofit APCD & Test 5 2 2 2

Large Hard Chromium 

Electroplating 219 39 106 74

No Requirements 152 26 73 52

Test Only 27 5 13 9

WAFS Only 3 1 1 1

WAFS & Test 33 6 16 11

Retrofit APCD & Test 4 1 2 1

See Appendix A (Methodology Used to Determine Number of Plants Subject to the 

Requirements of the Proposed Amendments for Chromium Electroplating) to the 

“Procedures for Determining Control Costs and Cost Effectiveness for Chromium 

Electroplating Supplemental Proposal” document for a discussion of the methodologies 

used to calculate the number of facilities by potential requirement.

From the screening analysis, we estimated that approximately 96% of all affected 

facilities would have a cost-to-sales ratio less than 1% (i.e., only about 4% would have 

cost-to-sales greater than 1%). We also estimated that about 1% of all affected facilities, 

or 9 facilities with fewer than 20 employees, may have cost-to-sales ratios between 3 to 

8 percent. All of these facilities are in the hard chromium category, with two of the 

facilities in the small hard chromium category and seven in the large hard chromium 

category.

Additional Small Business Impacts Analysis – Large and Small Hard 

Chromium

We examined the large and small hard chromium categories in more detail and 

determined that the cost-to-sales impact estimated in the screening analysis may be 

overstated for one or more of the following reasons:

• The American Business Directory includes employment and sales data by firm. 

We reviewed the American Business Directory and located some sales data for 

the employment size category of fewer than 20 employees in the large and small 

hard chromium categories; this data suggests that sales receipts for these 

entities may be as much as two times the average sales receipts data used in 

the screening analysis.

• The small and large hard chromium electroplating facilities affected by the 

proposed rule may have higher emissions associated with higher production 

than the facility production rates reflected in the average sales receipts data. 
6

Profits Test

If market conditions limit the ability to pass compliance costs to customers, the 

establishment could bear more of the economic burden through reduced profits. As 

such, we calculated a “profits test” to assess the compliance costs relative to firm 

profits. 

To better understand industry profitability thresholds, we collected average industrylevel net income after taxes and total net sales reported by the U.S. Bureau of Census. 

After dividing net income after taxes by total net sales, the statistics suggest that each 

$1,000 of sales produced $40 to $60 of after tax accounting profits (4 to 6 percent of 

sales) (see Table 3). As a result, sales tests results exceeding 3 percent would eliminate 

a significant portion of net income if firms cannot pass on compliance costs to 

customers in the form of higher market prices. To further understand the issue, we 

evaluated how existing market demand conditions influence ability to pass compliance 

costs to customers. 

Table 3. Quarterly Financial Reports for NAICS 332 Fabricated Metal Products

Year

Ratio of Net Income After Taxes

to Total Net Sales

2010 6.2

2009 3.6

2008 6.2

2005 6.0

U.S. Census Bureau. Quarterly Financial Reports http://www.census.gov/econ/qfr/.

Market Demand Characteristics

In markets with perfect competition, the economic burden of compliance costs will fall 

more heavily on the side of the market that is more sensitive to market price changes. 

The relationship between pass through and elasticities can be expressed as:

Percentage of cost pass through = Supply Elasticity/(Supply Elasticity-Demand Elasticity)

On the demand-side, we found several factors suggesting that the demand for hard 

chromium electroplating services is highly inelastic, which means when market prices 

change there is little change in the quantity of services that customers demand.

13 All 

other things equal, these factors suggests the industry may have the ability to pass on 

compliance costs to customers. 

 13 Previous economic impact analysis suggests demand elasticity values around -0.25, which suggests that 

a one percent increase in price would result in 0.25 percent reduction in the quantity of services demand 

(EPA, 1993). Using this value and the earlier example, 80 percent of the costs could be passed to 

customers -- 80% = 1/[1-(-0.25)]
7

First, business customers using hard chromium electroplating services have limited 

alternative technologies available that provide the desirable properties for their 

products.

14 For example, thermal spraying is one possible replacement for hard 

chromium electroplating, but it is more technically challenging and has much higher 

capital costs. Thermal spraying also does not coat the crevasses of the equipment as 

well. Therefore, thermal spraying is not a perfect substitute and would not replace 

most hard chromium facilities. Industry reports suggest adopting alternative 

technologies in some industries has stalled as sectors, such as the airline industry, weigh 

the costs and benefits of adopting new technologies.15

Second, hard chromium electroplating tends to be used in highly segmented and 

specialized end products with limited product substitutes and customers appear 

uninterested in giving up chrome.16 For example, EPA review of industry survey 

responses suggests one facility supplies hard chrome plating services for exotic objects 

for the aviation industry; plated tubes and hydraulic rods; and large extrusion screws 

and rolls for paper industries. Another facility works with specialized aerospace, 

defense, industrial, recreational and electronics markets. Airline companies have used 

plating operations provided by the facility. 

Lastly, anecdotal evidence suggests that customers who wish to have a piece of 

equipment electroplated generally take it to a local job shop. Large objects that require 

electroplating are expensive to transport over long distances, so job shop proximity is an 

important economic factor that customers consider. 

Conclusions

Employing the sales test screening methodology produces the following results --

approximately 96% of all affected facilities will experience minimal impact, or a cost-tosales ratio of less than 1%. In addition, for approximately 1% of all affected facilities, or 

9 facilities with fewer than 20 employees, the potential for cost-to-sales impacts may be 

between 3 and 8 percent. All of these facilities are in the hard chromium category, with 

two of the facilities in the small hard chromium category and seven in the large hard 

chromium category. For these categories, because the average sales receipts used for 

the analysis likely understate sales for a number of facilities and because these facilities 

are likely to be able to pass cost increases through to their customers, we don’t 

anticipate the regulatory proposal to result in firm closures, significant price increases, 

or substantial profit loss. We conclude that this proposal will not have a significant 

economic impact on a substantial number of small entities. 

 14 Hard Chrome Plating... Its Past, Present and Future <http://66.192.79.183/articles/web120301.html> 15 Chrome Plating Alternatives: Thermal Spray, Electroless Plating, and Others 

http://www.thintri.com/chrome-plating-report.htm. 16 Chrome Plating Alternatives: Thermal Spray, Electroless Plating, and Others 

http://www.thintri.com/chrome-plating-report.htm.