SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DISTRICT

Appendix C: Cost And Cost Effectiveness Anal ysis October 21, 2010



### APPENDIX C

COMPLIANCE COSTS AND COST EFFECTIVENESS ANALYSIS FOR

REVISED PROPOSED AMEN DMENTS TO RULE 4570 (CONFINED ANIMAL FACILITIES)

October 21, 2010

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APPENDIX C

COSTS AND COST EFFE CTIVENESS ANALYSIS

I. SUMMARY

Cost effectiveness is the change in capital and operating costs between the current rule and the draft rule divided by the estimat ed emission reductions associated with the change. For this rule project, the changes to the regulatory thresholds will cause sources that are currently exempt from t he rule to become subject to the rule. Additionally, for certain CAFs already subj ect to the rule, there are changes in the management practices that would result in additional compliance costs. Table 1 summarizes the estimated total compliance costs for each type of CAF. Details of the calculations are discussed later in this appendix.

Table 1 – Estimated Compliance Costs a nd Cost Effectiveness by CAF Type

CAF Type Annual Cost ($/yr) Estimated 2012

Emission Reductions (tpy) Cost Effectiveness ($/ton VOC

reduced) Dairy $61,312,210 9,158 $6,695

Beef Feedlot $0 0 not affected

Other Cattle $0 0 not affected

Swine $0 0 not affected Poultry $274,000 51.1 $5,362
Other, not listed

above $0 0 not affected

Total $61,586,210 9,209 $6,688

II. REQUIREMENTS OF ANALYSIS

The California Health and Safety Code 40920.6(a) requires an air district conduct both an absolute cost effectiveness analysis and an incremental cost effectiveness analysis of available emission control options befor e adopting each Best Available Retrofit Control Technology (BARCT) rule. The purpose of conducting a cost effectiveness analysis is to evaluate the economic reasonablen ess of the pollution control measure or rule. The analysis also serves as a guidelin e in developing the control requirements of

a rule.

Absolute cost effectiveness of a control technology is the added annual compliance cost in dollars per year divided by the emissi on reduction achieved in tons of VOC reduced per year. This report pres ents the District staff's analysi s of both the absolute and

incremental cost effectiveness of proposed amendments to Rule 4570.

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Incremental cost effectiveness is intended to measure the change in costs, in dollars per year, and emissions reductions, in t ons of VOC reduced per year, between two progressively more effective control tec hnologies. Incremental cost effectiveness compares the differences in costs and the diffe rences in emissions reductions of the two candidate control technologies. Incremental cost effectiveness does not reveal the emission reduction potential of the control te chnologies, merely the additional cost of adding the next most effective control to a gi ven control measure. Unlike the absolute cost effective analysis that identifies the control technology with the greatest emission reduction; incremental cost effectiveness does not present a meaningful correlation between emissions reductions and cost effectiveness. Therefore, the relative values produced in the incremental cost effe ctiveness analysis and the absolute cost effectiveness values are not comparable and cannot be evaluated using similar

standards.

III. ANNUAL COMPLIANCE COST METHODOLOGY AND RESULTS

Absolute cost effectiveness is the total annual compliance costs divided by the

estimated emission reductions. In order to calc ulate the cost effectiv eness, District staff must first estimate the compliance costs and the associated emission reductions. The

emission reductions calculations are detailed in Appendix B of this staff report. This section of Appendix C outlines the estimated compliance costs for each type of CAF affected by the proposed am endments to Rule 4570.

Rule 4570 allows operators to implement a combination of mand atory measures and choose additional requirements fr om a table. For the additi onal measures, District staff selected the mitigation measur es that are most likely to be chosen by operators and evaluated the compliance costs associated with implementing the preferred mitigation measures. In choosing the measures, Distric t staff expects that operators would elect to put in place only those measures that are least costly to execute.

In general, implementing miti gation measures is a func tion of labor costs and, depending on the measure, t here may be equipment that needs to be purchased. Therefore, implementing mitigation measures is a function of the labor hours to perform the measures and the cost of equipment, annualized over the life of the equipment.

District staff estimated that labor cost was $19.00 per hour and represents the wages and overhead for a typical CAF employee as determined from the Employment Development Department (EDD). For some of the chosen mi tigation measures, there is no cost associated with implementing the measure because it can easily be incorporated into current practices.

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IV. COMPLIANCE COSTS FOR INDI VIDUAL MITIGATION MEASURES

The following paragraphs outline the costs for individual mitigation measures and

estimate what fraction of dairies wil l be implementing the mitigation measures.

A. Dairy CAF Compliance Costs

Dairy CAF compliance costs affect two diffe rent dairy populations. Because District staff is proposing that the r egulatory threshold for dairies be reduced from 1,000 milking cows to 500 milking cows, ther e will be dairies that will be r equired to institute mitigation

measures that are not current ly required to do so. These dairies have between 500 and 999 milking cows and are defined in the ru le as medium dairi es. In order to conservatively estimate the costs, it will be expected that the same percentage of medium size dairies as the large dairies is currently implementing certain measures.

The second affected group is those already s ubject to the rule’s control provisions. District staff is proposing that these dairies increase the frequency that certain control measures are performed. The following paragr aphs outline the methodology used to estimate costs and present t he results of the analysis.

1. Compliance Costs for Dairy Feed Menu

Feed to NRC Guidelines

Based on information obtained from a local dairyman and a dairy industry representative, the average cost for a nutriti onist required to provide proper guidelines on NRC feeding is $1,200 per month. This co st is for a typical/average dairy. The District projects that by 2012 the average number of cows per dairy in the valley will be 1,277. Based on this information, the cost per cow per year for the services of a nutritionist is $12/cow/yr. Statistics from the District’s permits database (PAS) were used to estimate the percentage of facilities already performing this measure. Based on these statistics, 14% of all dairies are cu rrently implementing this measure, so the annual cost per cow is adjusted to $10.32.

However, this cost may be slightly lower than the actual cost of t he measure because it considers only the services of the nutri tionist. Other costs than can reasonably be expected include the purchase of additive s and minerals required to meet NRC guidelines, additional labor required to formulate feed rations per nutritionist’s instructions, and also additional labor to feed a wider variety of rations depending on the specific diet required for different groups of cows.

Push Feed Within 3 Feet of Feedlane Fence

Data was obtained from a local dairy and da iry industry represent ative. The dairy indicated that their monthly expense for cleaning out feed from the lanes is

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approximately $3,000. This expense covers a herd of 6,000 milk cows. Based on this information, the cost per cow per year is $6. 00/cow/yr. About 50% of the facilities are expected to already be performing this miti gation measure and, ther efore, the cost is adjusted to $3.00 per cow per year.

Remove wet feed from bunks

For 150 cow herd, amount of labor required per week is 0.25 hr. The District estimates

that the total number of rain events in the San Joaquin Valley will not exceed 12. Rain in the San Joaquin Valley gener ally occurs over a 20-week period between November and March. Cost per cow per year is $0.38. Statistics from t he District’s permits database (PAS) were used to estimate the percentage of facilities already performing this measure. Based on these statistics, 13% of all large dairies are currently implementing this measure. The annual cost per cow for this measure is adjusted to $0.33.

Begin feeding or disposing of ra tions within 2 hours of grinding

No additional cost to coordinate feeding times with ration prep times. Rations are generally fed immediately after grinding/mixing.

Store grain in a weatherproof storage structure/covering

A cattle industry representative provided statistics showing that the capital cost of grain storage structures is generally $250/ton of grain. This figure was supported by a university research extension document discussing the economics of using grain storage structures.

The grain consumption of an average dairy co w is estimated to be 1.46 tons/yr. The capital cost per-cow per year for grain st orage structure is ther efore $365. The grain

structure is estimated to have a useful life of at least 25 y ears. This cost is therefore annualized over the 25-yr life to obtain the equivalent cos t/yr of $40.21. It will be

estimated that 50% of all la rge dairies are currently implementing this measure. The costs are adjusted to $20.11.

2. Compliance Costs for Silage Menu

Cover Silage Piles

Based on information obtained from a local dairyman and a dairy industry representative, the typical cost for covering silage is $0.80/ton. Since a typical dairy cow consumes about 4.56 tons/y r (25 lb/day) of silage, t he cost per cow per year = $0.8/ton x 4.56 tons/cow/yr = $3.65. Statis tics from the District’s permits database (PAS) were used to estimate the percentage of facilities already performing this

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measure. Based on thes e statistics, 41% of all dairies are currently implementing this measure so the cost is adjusted to $2.15.

Increase Silage Bulk Density

Based on papers containing information on silage quality, most corn silage piles have a bulk density of about 40 pounds per cubic foot or less and most alfalfa silage piles have a bulk density of about 36 pounds per cubic foot or less. Thus, this mitigation measure requires the density to be increased by at least 10%. Increasing silage density can be achieved most cost effectively by using thinner layers when building the pile and compacting the layers as much as possible, with special attention being paid to the side slopes of the pile and the outer layers. Using this approach, the pr imary cost associated with increasing silage dens ity will be additional labor and addi tional fuel for compacting equipment.

Based on statistics from a cooperative extens ion research document, the time required for ensiling (storage) is 4 hours for 200 tons of silage. The quantity of fuel required is 13 gallons for 200 tons. The District estima tes that this measure requires double the amount of ensiling time and fuel to accomp lish. The additional times required is

therefore 4 hours for 200 t ons and the additional fuel ex pense will be 13 gallons per 200

tons. The annual cost s are $2.40 per cow.

Maintain Silage Face

The prevailing method for remo val of silage from a silage bunker is the use of a frontend load. Silage is excavated from the bottom area of the face, which makes the top part of the face collapse downw ards. This process produces an uneven face since it is hard to control the way the upper portion of the face collapses.

An alternative to this method would be the us e of a silage facer. This is a simple implement that can be used as an attachment to a skid steer or similar small or medium sized tractors. The implement resembles a large rake, with a long boom by which it is attached to the tractor. It is operated by being pulled downwards from the top to the bottom of the silage face. As is it drawn downwards, it s haves off a uniform amount of silage from the entire height of the face, thereby leaving a clean and evenly cut face.

Available marketing information as well as university cooperative extension research documents indicates that this implement can be purchased for approximately $5,000. The District estimates that it will have a useful life of 10 years, hence the initial cost is annualized over 10 years to obtain an equi valent annual cost of $0.28.

Using this device is also expected to increas e labor costs slightly. Usually the operator

uses the front-end loader for remo ving silage from the pile and also for loading it into the mixer, in one continuous operation. The use of a silage facer will require the operator to rake out the silage first, and then change equi pment for loading the silage into the

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mixer. The District estimated an additional 1 hour per day will be required for this added step in the feed preparati on process. Using this informati on, the cost for the mitigation measure is the annual cost of the facer plus the annual operation cost of $5.71 per cow

per year.

Silage Additives

Various additives may be added to silage at the ti me of ensiling to im prove its nutritional

value or to foster desirable fermentation conditions. One of the most common additives used is inoculum containing lactic acid bacte ria. This inoculation is intended to boost the preexisting population of lactic acid bacteri a in the forage being ensiled in order to produce as much lactic as possible in t he shortest period possible after ensiling.

Production of lactic acid is desirable because lactic acid itself is a valuable energy source, and its presence lowers the pH of the silage enough to inhibit the growth of other microbes that cause spoilage.

The document cited in this analysis indicated that the typical co st of inoculating silage is $1.00/ton, but the range may be anywhere from $0.60 to $2.00. Due to lack of sufficient

data from which a more concrete cost va lue may be derived, the District will use the more conservative estimate of $0.60 per ton. The cost of inoculation is $2.76/cow/yr.

3. Compliance Costs for Dairy Milking Parlor Menu

Flush or hose milk parlor

No additional cost; parlor cleanliness is practiced for food safety purposes.

4. Compliance Costs for Dairy Freestall Menu

Pave feedlanes at least 8’ along corral side

All the dairy freestall barns in the San Joaqu in Valley are currently in compliance with

this measure. To the best knowledge of the District, there are no freestall barns with dirt feedlanes anywhere within the Distr ict. Therefore, no dairies will incur costs associated with this mitigation measure.

Flush or scrape freestall feedlanes after ev ery milking or at least 3 times/day

Based on estimates obtained from a local dairy, a single flush takes about 1 hour, using a 30-horsepower electric motors . It is estimated that facilit ies currently flush two times per day as standard practice, hence only an addi tional one flush per day will be required for full compliance. Using an average electric al cost of $0.0974/kWhr , the cost to flush one additional time per day is $0.18 per cow per year.

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Statistics from the District’s permits database were used to estimate the percentage of facilities already performing this measure. Based on these statistics, 24% of all large dairies are currently implementing this m easure. The annual cost is $0.14 per cow.

Remove manure that’s not dry from individual stalls

- Medium Dairy - Remove wet manure fr om individual stalls every 14 days - Large Dairy - Remove wet manure from individual stalls every seven days

Based on estimates obtained from a local dairy , removing manure from freestalls takes about 10 hours to complete, per event. When removing it once every 14 days, the cost per cow per year is $0.88. The cost for im plementing this measure every week is $1.78 per cow per year or twice the cost of removing the manure every 14 days.

Statistics from the District’s permits dat abase (PAS) were used to estimate the percentage of facilities already performing th is measure. Based on these statistics, 27% of all large dairies are currently implem enting this measure. The cost is adjusted to $0.64 per cow for removing manure ev ery 14 days and $1.28 per cow for removing manure weekly.

5. Compliance Costs for Dairy Corral Menu

Pave feedlanes at least 8’ along corral side

The length of feedlane space per cow is estimated to be approximately 2 feet. Thus feedlane area to be paved per cow is 16 squar e feet. Cost of poured concrete is generally about $2.65/sq. ft., based on in formation obtained from a local dairy construction company. Using a ten-year life for the concrete, the annual cost is $6.90

per cow per year.

Most corrals feedlanes within the District ar e expected to be alread y in compliance with this measure. However, it is possible t hat a certain proportion of dairies, especially older facilities, still have dirt feedlanes that may need to be paved in order to comply

with this measure. The District estimates th at such facilities will not exceed 5% of the dairy facilities that become subject to the rule . In this case, the cost is equivalent to $0.35 per cow per year. It is expected that both large and sm all dairies will be affected by this mitigation measure.

Clean manure from corrals at least 4 times per year

Data was obtained from a local dairy and da iry industry representative. The dairy indicated that it costs $24/load to remove manure from corrals. Per occurrence, they generally remove 500 loads for their entire faci lity. The manure is usually removed by a contractor and applied to land. Using the herd breakdown by cow type (milking, dry,

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heifers, calves) District staff estimates that the annual per-cow cost of this mitigation measure is $5.16 per cow per year.

Statistics from the District’s permits dat abase (PAS) were used to estimate the percentage of facilities already performing this measure. Based on these statistics, 6% of all large dairies are currently implementi ng this measure. The total cost for this mitigation measure is $4.85.

Scrape or flush concrete lanes in corrals every 7 days

Based on estimates obtained from a local dairy , a single flush of concrete lanes takes about 4 hours, using a 30-horsepower electric motor. The local dairy has 4,500 milking

cows. The annual cost is $0.10 per cow per year.

Statistics from the District’s permits dat abase (PAS) were used to estimate the percentage of facilities already performing this measure. The annual cost is adjusted to $0.04 per cow.

Inspect water pipes and troughs and repair leaks

Based on estimates obtained from a local dai ry, this measure takes about 2 hours to complete, per event. The dairy has 156 tr oughs for watering 10,000 cows. It will be estimated that over the course of one year 10% of the trough float valves (16 valves) will need to be replaced. Each float valve costs $23 and the labor for replacement is $10; therefore the cost to perform the ins pection and repair pipes and water troughs is $0.18 per cow per year.

Statistics from the District’s permits dat abase (PAS) were used to estimate the percentage of facilities already performing th is measure. Based on these statistics,

64% of all dairies are current ly implementing this measure. The adjusted cost is $0.06

per cow per year.

Harrow, rake or scrape corrals to maintain dry surface

Based on estimates obtained from a local dai ry, this measure takes about 10 hours to complete, per event. The frequency of the measure is once per week, however, for a more conservative cost estimate, the cost s will be evaluated for 26 weeks per year. Using these assumptions the annual cost per-cow is $0.51 per year.

Statistics from the District’s permits dat abase (PAS) were used to estimate the percentage of facilities already performing th is measure. Based on these statistics, 41% of all dairies are currently implementi ng this measure. The adjusted cost is $0.30

per year per cow.

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Install shade structures with light-permeable roofing

Based on information obtained from a local dai ry construction company, the cost of shade structures is generally around $4 per s quare foot. Shade structures are usually

sized so that there is at least 40 square feet of shade per cow. The light-permeable material of choice for roofing sh ade structures is shade cloth.

For this measure, it will be expected that a fa cility will need to remove existing roofing material and replace the shade structures’ r oofs with shade cloth. It will be estimated that, the cost of shade cloth and the labor to in stall it will be about 25% of the cost of a
brand new shade structure. Shade cloth is estimated to have a useful life of 5 years, hence this upfront cost will be annual ized over the 5-year useful life. Overall the cost on a per-cow basis is $10.55 annually.

Statistics from the District’s permits dat abase (PAS) were used to estimate the percentage of facilities already performing th is measure. Based on these statistics, 39% of all large dairies are currently implem enting this measure. The adjusted cost is $4.11.

Clean concrete lanes such that the depth of manure does not exceed 12 inches

Based on estimates obtained from a local dai ry, this measure takes about 10 hours to complete, per event. The amount of fuel r equired for equipment used is 12 gallons. The labor rate is $12.00/hr, and fuel costs $2.25 per gallon. The frequency of the measure is once per week. Using this information the cost is $0.51 per cow per year.

6. Compliance Costs for Dairy Solid Manure Handling Menu

Within 72 hours of removal from cow hous ing, cover dry manure pile with a weatherproof covering (large dairy only)

Large dairies already have this mitigation measure in the Phase I so they will incur no

costs. Medium dairies are not subject to the solid m anure handling menu and therefore,

incur no costs.

7. Compliance Costs for Dairy Liquid Manure Handling Menu

Remove solids from waste water

The capital cost for a separator syst em, including pumps and plumbing and solids storage, is $105.81 per cow. Th is system is expected to have a useful life of 10 years. The annual capital cost is $17.22.

Statistics from the District’s permits dat abase (PAS) were used to estimate the percentage of facilities already performing th is measure. Based on these statistics,

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38% of all dairies are currently implementing th is measure. The cost to implement this measure is adjusted to $10.68.

8. Compliance Costs for Dairy Land Application Menu

Land-incorporate manure within 72 hours

Incorporation of manure is a typical prac tice required to provide maximum benefits

within soil. A 72-hour time limit is unlikely to cause any added costs.

Allow liquid manure to st and in fields no more than 24 hours after irrigation

Incorporation of manure is a typical prac tice required to provide maximum benefits within soil. The mitigation measure is unlikely to cause any added costs.

B. Beef Feedlot CAF and Other Cattle CAF Compliance Costs

No significant changes will need to be impl emented for beef feedlots and other cattle facilities and since there is no change to t he thresholds for these categories, no new facilities are expected to becom e subject to Rule 4570; ther efore cost of compliance is

minimal.

C. Swine CAF Compliance Costs

There is no change to the swine threshold and, therefore, staff be lieves there will be no new swine facilities subject to Rule 4570. The single facility that is currently subject to the control requirements is expected to conti nue to comply without any additional costs to the facility. In summar y, swine operations would have $0 per year in compliance costs associated with the pr oposed changes to Rule 4570.

D. Poultry CAF Compliance Costs

As with the dairy CAFs, there are CAFs t hat would be new to the rule’s control requirements. The requirements for layer oper ations are similar but not identical to broiler/duck/turkey requirements. In t he following paragraphs, eac h mitigation measure cost is prefaced with whether it is on the la yer menu, the broiler/ duck/turkey menu or

both.

1. Compliance Costs for Poultry Feed Menu

Layer and Broiler/Duck/Turkey – Feed according to NRC guidelines

This measure is a good practice that would not be difficult for most commercial growers to implement but there will be additional costs associated with recordkeeping for this

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measure to newly subject facilities. The addi tional labor for facility staff and a registered nutritionist would cost $1, 000 per facility per year.

2. Compliance Costs for Poultry Housing Menu

Broiler/Duck/Turkey – Us e a dry cleaning method

This measure is a good practice that would not be difficult for most commercial growers to implement. Additional administrative costs are all incurred wit recordkeeping and management oversight. The cost to implem ent this mitigation measure is $1,000 per facility per year.

Layer and Broiler/Duck/Turkey – Use drin kers that do not drip continuously

Precluding the use of less ex pensive drinkers and alternative water measures adds about $3,000 per facility per year.

Broiler/Duck/Turkey – Inspect drinkers at least once every seven (7) days and adjust the height, volume, and location

The additional time for recordkeeping and managem ent oversight for this practice adds about $2,000 per facility per year.

Layer and Broiler/Duck/Turkey - Inspect water pipes daily

District staff is expecting that 0.5% of drin kers will leak and that piping leaks and breaks very rarely occur. This measure required that the ranch staff have the necessary time, expertise, and supplies on hand to perform the needed repairs. Small leaks and drips cannot be left for specialized maintenance crews in between flocks. There are additional costs for the actual inspecti on, recordkeeping and management oversight.

The annual cost for this measure is about $5,000 per ranch per year.

Turkey - If the facility houses turkeys in pens: install mounds or berms.

Implementation of this control measure is expected to be $0, since it would be in the best interest to prevent water from accumu lating in the pens. Turkeys are the animals most likely housed in outdoor pens, and allowing the birds to stand in water for any length of time would be detri mental to the birds’ health.

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3. Compliance Costs for Poultry Solid/Liquid Manure Handling Menu

Layer and Broiler/Duck/Turkey – Within 72 hours of removal from housing, either
remove all litter/manure from facility or cover piles

Ranches will normally not have difficulty meet ing this requirement. Occasional extra costs will be required for collection crews and tr ucker. The estimated average cost for this measure is $2,000 per ranch per year.

4. Compliance Costs for Poultry Land Application Menu

For land application, District staff expects that the operators will modify their processes to land-incorporate in a very short time , however the changes will not be extensive enough to change the expenses already incurred by the operator.

V. TOTAL COMPLIANCE COSTS

A. Dairy Annual Costs

1. Medium Dairy CAF Costs

For each required mitigation measure, the per-c ow cost was multiplied by the projected

number of cows on medium dairi es in 2012. Since a cow is housed in either a freestall or a corral, the housing costs were allocat ed between the two. It is estimated that milking cows are split evenly between fr eestalls and corrals and 10% of the support

stock is in freestalls and 90% in corrals. Re sults of the calculati ons are shown in Table

2.

Table 2 – Medium Dairy CAF Compliance Costs

Menus Annual Cost $/cow/yr Annual Cost $/yr

Total Feed Menu $33.76 $15,270,593
Total Silage Menu $13.02 $5,889,311
Total Milking Parlor Menu $0.00 $0
Total Manure Handling Menus $17.22 $7,789,088
Total Land Application Menu $0.00 $0
Weighted Housing Menu - M ilk Cows $3.73 $1,091,010 Weighted Housing Menu - S upport Stock $8.96 $1,428,643

Grand Total $76.68 $31,468,645

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2. Large Dairy CAF Costs

The calculations for large dairies are perform ed in the same way as for medium dairies except that the milking cows are alloca ted 70% to freestalls and 30% corrals. The support stock is allocated similar to the medi um dairies. The resulting costs are shown

in Table 3.

Table 3 – Large Dairy CAF Compliance Costs

Menu Annual Cost $/cow/yr Annual Cost $/yr

Feed Menu $3.00 $4,739,199
Silage Menu $13.02 $20,568,124
Milking Parlor Menu $0.00 $0
Manure Handling Menus $0.00 $0
Land Application Menu $0.00 $0
Weighted Housing Menu - M ilk Cows $2.20 $2,217,693
Weighted Housing Menu - S upport Stock $4.05 $2,318,550

Grand Total $22.27 $29,843,565

B. Poultry Total Annual Costs

There are 18 broiler facilities and 2 layer fac ilities that would incur costs because of the change in the regulatory threshold for these CAFs for a total of 20 a ffected facilities. Poultry operations already subject to this ru le are not expected to incur any additional costs for implementing the Phase II. The co sts for poultry facilities are displayed in

Table 4.

Table 4 – Poultry Annual Costs

Process Menu Layers ($/yr) Broiler/Duck/Turkey ($/yr) Total Annual Cost ($/yr)

Feed $2,000 $18,000 $20,000
Housing $16,000 $198,000 $214,000
Solid and Liquid Manure Handling $4,000 $36,000 $40,000
Land Application $0 $0 $0

Grand Totals $22,000 $252,000 $274,000

VI. ABSOLUTE COST EFFECTIVENESS ANALYSIS

Absolute cost effectiveness is the total es timated annual compliance cost divided by the

estimated emission reductions associated with the changes to the rule. District staff used the compliance costs above and the emissi on reductions from Appendix B of this

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staff report. Table 5 lists the absolute cost effectiveness for each type of CAF. The cost effectiveness ranges from $5,362 per ton VOC reduced to $6,695 per ton for the various CAFs and is $6,688 per ton for the entire rule.

Table 5 – Absolute Cost Effectiveness

CAF Type Annual Cost ($/yr) Estimated 2012

Emission Reductions (tpy) Cost Effectiveness ($/ton VOC reduced)

Dairy $61,312,210 9,158 $6,695

Beef Feedlot $0 0 not affected

Other Cattle $0 0 not affected

Swine $0 0 not affected
Poultry $274,000 51.1 $5,362
Other, not listed

above $0 0 not affected

Total $61,586,210 9,209 $6,688

VII. INCREMENTAL COST EFFECTIVENESS ANALYSIS

Incremental cost effectiveness compares the di fferences in costs and the differences in

emissions reductions of the two candidate co ntrol technologies. This rule has a combination of required and addi tional mitigation measures av ailable to the operator, depending on the source category. For beef feedlots, other cattle, swine and poultry operations, there are no more effective c ontrol technologies than the ones provided in the draft rule. Since we are not compari ng two technologies again st each other, the “more effective” control technology is already included in the rule’s provision. Since there is no more stringent technology t han what is proposed in Rule 4570, no incremental cost effectiveness analysis for th ese types of operations was performed.

A. Dairy Operations

The dairy menus are made up of a combinat ion of mandated and additional measures. Generally, the most effective and practical m easures are required while measures that may need more flexibility or require higher costs may be additional. Cost for the additional measures that facilities are expe cted to choose have been determined as part of the absolute cost effectiveness analysis abov e. This analysis will determine the costs

of the additional measures t hat are less likely to be chosen to determine the economical feasibility of requiring these measures.

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1. Compliance Costs for Additional Feed Measures

Feed steam-flaked corn or other steam-flaked cereal grains.

A research document on the economics of feedi ng steam-flaked corn indicated that the cost of steam-flaking ranges from $6.79 to $7.16 per ton of corn. An average of $6.98 per ton was used for this estimate. The av erage grain corn consumption per dairy cow is estimated at 8 lb/day (mixed into ration that contains mostly silage). The annual consumption is 1.46 tons. The additional cost of flaked corn is therefore estimated to be $10.19 per cow per year.

For total mixed rations that contain at least 30% by weight of silage, feed animals total

mixed rations that contain at least 45% moisture.

The District acknowledges that there is a co st for adjusting the moisture content of the TMR to the required range, but it is not possible at this time to determine an approximate cost. The adjus tment may be done using molasse s, whey, water, or the addition of moisture rich vegetables such as beets, potatoes or carrots. In addition, the level of adjustment depends on the starting moisture content of the main ingredient. Silage-based TMRs usually have high moisture content and may require little adjustment since silage is generally moist in nature, whereas hay-based rations will require a greater degree of adj ustment due to the dry nature of the main ingredient.

The measure remains additional due to stakeholder concerns of the possible detriment
to the health of cows. Califo rnia dairies in the San Joaquin Valley have access to an amazing variety of food processing resi duals that also happen to be appropriate for dairy feed. The moisture of the TMR c an be influenced by both the NRC guidelines and the available commodity. In addi tion, adding excessive moisture to a TMR that contains a high percentage of fermented forage may decrease cows’ in take of feed dry matter and reduce their consumption of neutral detergent fiber. Decr eased intake of dry matter and fiber may decrease milk production. Reduced fiber intake can also adversely affect the health of cows by increasing the risk of ruminal acidosis and other ailments; therefore, making the moistu re content a required element would limit the operator’s flexibility in provid ing appropriate nutrition for the health and productivity of the animals.

2. Compliance Costs for A dditional Silage Measures

Utilize a sealed feed storage system (e.g., AG-BagTM) for silage.

Information from a bagged silage making contract or was used the estimate the cost of bagged silage. The cost per ton is estimated to be $12. 04 per ton silage harvested.

Since chopping silage is a cost that will be in curred regardless of whether the silage is bagged or ensiled in traditional bunkers, the cost of cho pping alone must be subtracted from the combined chopping and bagging cost in order to estimate the cost of bagging

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Appendix C: Cost And Cost Effectiveness Anal ysis October 21, 2010

alone. The cost of chopping is estimated at $15/acre, and an acre generally yields about 20 tons of silage. The cost per ton is t herefore $0.75 per cow per year. Based on the above information, the cost of baggi ng is $11.29 per ton of silage.

Based on a cow’s silage consumption rate of 4. 56 tons (dry matter) per year, the cost of bagged silage = $51.48 per cow per year.

The measure remains a choice since it is not pr actical for most dairy facilities to store all of the silage crops that they harvest in a sealed forage system. For many dairies using a sealed forage system for all of their silage would require miles of bags. Because of space constraints at existing dairies, many operators must stor e the harvested silage crops in piles or bunkers that are exceptionally high. It is clear that many facilities do not have sufficient space available for the miles of bags required for a sealed forage system. In addition, with usage of seal ed forage systems much larger amounts of plastic would need to be disposed. This will increase the already higher costs of the system compared to silage piles. Therefore, this measure must remain a choice to allow individual operators to determine if it is feasible for their operation.

3. Compliance Costs for Additonal Freestall Measures

Use non-manure-based or separated solids-ba sed bedding for at least 90% of the bedding material.

Sand is a typical non-manure based bedding mate rial. Artificial beddi ng materials such as water mattresses are also used, but thes e would not be represent ative of most dairy operations. Small and medium dairies in partic ular might not consider artificial bedding systems due to high initial costs. Just lik e manure bedding, sand is a loose material that is continually displaced from the bedding stall by the cow’s movements, especially when rising from a lying position. The displa ced sand falls into the flush lanes below the

stalls and is removed with t he manure during lane flushing/ scraping/vacuuming. Some

of the sand also is contaminated with fresh manure in the stall and has to be removed for sanitary reasons. Sand therefore has to be replenished frequently to maintain the optimum level in the stall. The informati on reviewed indicates that this on-going replenishment requires an average of 40 lb of sand per day per cow, or 7.3 tons/cow/yr.

Some sand can be reclaimed and if a flus h system is used for cleaning manure lanes, but reclamation may not always be cost effect ive. For this analysis, it is expected no

reclamation is used and that all the sand is purchased fresh. The cost of sand varies greatly depending on the region, season, distanc e from supplier, etc. Based on this cost, the total expe nse for replenishment sand = $63.88/cow/yr

It is important to note that this estimate is very conservative. The costs are expected to be higher because often special equipment, or attachments to existing equipment, is required for raking sand in the stalls for repl enishing sand. The sand also gets into the manure system and facilities using flus h systems for manure removal will incur

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Appendix C: Cost And Cost Effectiveness Anal ysis October 21, 2010

increased wear on the pumps and other liquid manure handli ng equipment, as well as extra labor removing sand from the settling ponds.

Have no animals in exercise pens or corrals.

Total cost: $0.00/cow/yr

There are no foreseeable additional costs to restrict animals to indoor housing based on typical dairy operation practices. However, restricting access to exercise pens by enclosing the barn may exacerbate animal welfare and animal health concerns, as access to open exercise pens is import ant for good breeding and pregnancy rates and

hoof health. This measure would reduce emi ssions by reducing the area in which the

animals have to excrete. This measure c ould affect animal health and therefore remains as a choice for operators.

4. Compliance Costs for A dditional Corral Measures

Knockdown fence line manure build-up prior to it exceeding a height of twelve (12) inches at any time or point.

This measure is estimated to be similar to raking corrals which costs $0.51/cow/yr.

Use lime or a similar absorbent material or thymol in the corrals according to the

manufacturer's recommendation to mi nimize moisture in the corrals

The cost of the measure to apply lime to the corrals is depende nt on the amount of space to which lime must be applied and the quantity of lime needed. The total cost

must also include the costs of labor and equipment used for spreading and applying the absorbent. The application of lime/absor bent will need to be done every 5 years, hence cost is annualized over a 5-year period to be = $166.23 per cow per year.

Like lime, the cost to apply thymol includes the quantity of thymol r equired and the cost for the labor and equipment used for spr eading and applying thymol. Thymol would need to be applied every two weeks. The resu lting cost is = $375.68 per cow per year.

5. Compliance Costs for Additional Solid Manure Measures

Within 72 hours of removal from cow housing, cover separated solids pile with a weatherproof covering.

This measure would need to take into consi deration the surface ar ea for the pile, the price of the plastic cover and labor to cover the manure pile.

The following assumptions were made:

• Surface area of manure pile for 150 cows = 10, 000 sq. ft

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Appendix C: Cost And Cost Effectiveness Anal ysis October 21, 2010

• Price for plastic cover = $0.09 per square foot

• Plastic tarp lasts 5 years

• Labor for covering 150 cow manure pile is 1 hour @ $19/hr

Therefore the total cost would be = $1.71 per cow per year

6. Compliance Costs for Additi onal Liquid Manure Measures

Use a phototropic lagoon.

The primary costs associated with a photot rophic lagoon system are lagoon capacity, solids separation and mechanical aerators. For this analysis it will be expected that a typical dairy will have to construct one additi onal lagoon, install a manure separator system, and install mechanical aerators.

The annualized capital cost of a lagoon over 25 years = $27.02. The annualized capital cost of a separator system, including pumps and plumbing and solids storage, over 10 years is = $17.22. One $8,000 mechanical aera tor is required for every 66 cows. The capital cost per cows = $121. 21. The aerator is expected to have a useful life of 10 years. The annualized capital co st = $19.73. The electricity cost per separator is = $1.03 per cow per year.

Therefore, the total cost per cow per year = $65.00

Use an anaerobic treatment lagoon designed in accordance with NRCS Guideline No.

359.

The primary costs associated with anaerobic treatment are lagoon capacity and solids separation. In this analysis it will be expected that a typical dairy will have to construct one additional lagoon and install a manure separator system.

The annualized capital cost of the lagoon over 25 years = $27. 02. The annualized capital cost of a separator system, includi ng pumps and plumbing and solids storage, over 10 years is = $17.22.

Therefore, the total cost per cow per year = $44.24

Remove solids from the waste system with a solid separator system, prior to the waste entering the lagoon

.

The annualized capital cost separator system , including pumps and plumbing and solids storage, over 10 years = $17.22 per cow per year.

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Appendix C: Cost And Cost Effectiveness Anal ysis October 21, 2010

Total Cost for Additional Mitigation Measures

Table 7 summarizes the costs discussed above.

Table 7 – Costs to Implement All Addi tional Measures in All Dairy Menus

Additional Mitigation Measures Cost (per cow per year)

Feed steam-flaked corn or other steam-flaked cereal grains. $10.19

Feed animals TMR that contain at least 45% moisture. $0.00

Utilize a sealed feed storage system (e .g., AG-Bag) for silage. 51.48

Use non-manure-based for at least 90% of the bedding material. $63.88

Have no animals in exercise pens or corrals. $0.00

Knockdown fence line manure build -up prior to it exceeding a height of 12 inches. $0.51

Use lime in the corrals. $166.23
Use thymol in the corrals. $375.68
Within 72 hours of removal from cow housing, cover separated solids pile with a weat herproof covering. $1.71
Use a phototropic lagoon. $65.00

Use an anaerobic treat ment lagoon. $44.24

Remove solids from the waste syst em, prior to the waste entering the lagoon. $17.22

Total Annual Cost (per cow per year) $796

Since the measures to feed animals TMR that contain at least 45% moisture, use an ag bag and have no animals in exercise pens or corrals remain additional due to technical feasibility, as described above, the potent ial costs and emission reductions resulting from implementing these m easures have not been included in the cost effectiveness

shown in Table 8.

Table 8 – Cost Effectiveness of Additional Dairy Measures
Total Annual Cost (per cow per year) $745

Total Annual Cost for Medium Dairy $301,823,357

Total Annual Cost fo r Large Dairy $1,037,893,704

Total Annual Cost for Dairy CAFs $1,339,717,061
Est. Emission Reductions (tons/year) 2890.8

Cost Effectiveness ($/ton/year) $463,442

As discussed in the Staff Report, a menu approach provides much needed flexibility for the variability of Valley operations. Allowing for some additional measures rather than

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Appendix C: Cost And Cost Effectiveness Anal ysis October 21, 2010

specifically mandating all requirements not onl y allows the flexibility for producers to

select measures that will work best for their facility based on their own type of housing, manure management practices, and feed storage and management but also helps minimize compliance costs while achieving the same emission reductions. Based on the socioeconomic analysis, dairies will sp end approximately 22.5% (for large) and 84.3% (for medium) of their profits, at $6,768 per ton of reduction, to comply with the proposed rule revisions. This is a significant cost to bear to implement the rule. The emission reductions achieved by the measur es included in the proposed rule are already projected to exceed the reductions required from this rule in the District’s attainment plan. Therefor e, mandating additional requi rements would result in increased compliance costs and a higher cost per ton for the emission reductions. This impact will have a detrimental impact to t he health of the industry and go far beyond
RACT and BARCT requirements.

V. REFERENCES

1. De Groot, Tony, and Kevin Abernathy. Personal communication via telephone. 9 Sept. 2010.

2. Oldfield, Justin. “Typical Capital Co sts for Grain Storage St ructures.” Personal communication via email. 7 Sept. 2010.

3. Jones, Todd. “Typical Cost of Poured Concrete.” Personal communication via telephone. 11 Sept. 2010.

4. Gooch, C.A.; A.W. Wedel; and J. Kar szes. “Economic Analysis of Mechanical Sand-Manure Separation of Flushed Sand-Laden Dairy Manur e.” ASAE Meeting Presentation. Paper Number: 03-4016.

5. De Groot, Tony. “Cost of Grooming Freestall Beds.” Personal communication via e-mail. 13 Sept. 2010.

6. De Groot, Tony. “Cost of Flushing Freestall Lanes.” Personal communication via e-mail. 13 Sept. 2010.

7. U.S. Energy Information Administration. “Average Retail Price of Electricity to Ultimate Customers by End- Use Sector, by State.” Independent Statistics Analysis. 15 Sept. 2010. <www.eia.doe.gov/cneaf/electri city/epm/table5_6_b.html>.

8. De Groot, Tony., and Kevin Abernathy. Pe rsonal communication via telephone. 9 Sept. 2010.

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Appendix C: Cost And Cost Effectiveness Anal ysis October 21, 2010

9. De Groot, Tony. “Cost of Flushing Corral Lanes.” Personal communication via email. 13 Sept. 2010.

10. De Groot, Tony. “Cost of Raking/Scraping Corrals.” Personal communication via e-mail. 13 Sept. 2010.

11. De Groot, Tony. “Cost of Inspecti ng and Repairing Water Troughs.” Personal communication via e-mail. 13 Sept. 2010.

12. Jones, Todd. “Typical Cost of Shade St ructures.” Personal communication via email. 11 Sept. 2010.

13. De Groot, Tony. “Cost of Flushing Corral Lanes.” Personal communication via email. 13 Sept. 2010.

14. Cooper, Rob; Terry J. Klopfenste in; Todd Milton; and Dick Clark. 2001. “Economic Evaluation of Corn Processing for Finishing Cattle.” 2001. Nebraska Beef Cattle Reports.

< http://digitalcommons.unl.edu/cgi/view content.cgi?article=1289&context=animal

scinbcr >.

15. Gooch, C.A.; A.W. Wedel; and J. Kar szes. “Economic Analysis of Mechanical Sand-Manure Separation of Flus hed Sand-Laden Dairy M anure.” An ASAE Meeting Presentation. Paper Number: 03-4016. 2003.

16. San Joaquin Valley Dair y Manure Technology Feasibi lity Assessment Panel. “An Assessment of Technologies For Management and Treatment of Dairy Manure in California’s San Joaquin Valley." 2005. Page 159.

< http://www.arb.ca.gov/ag/ caf/dairypnl/dmtfaprprt.pdf >.

17. Liu, Qinghua; Richard C. Shumway; and Kelly J. My ers Collins. “The Economics of Dairy Nutrient Management.” Farm Business Management Reports

. Cooperate Extension, Washi ng State University. 2003. < http://farmmgmt.wsu.edu/PDF-docs/dairy/eb1947e.pdf >.

18. R.B. Family Farms, Inc. “Bagged Silage Analysis.” 2010.

< http://www.rbfamilyfarms.com/baggedsilage.htm >.

19. Pastoor, Jeff. “Corn Silage: A New Look at an Old Friend.” 2010.

< http://www.beeflinks.com/C orn%20Silage%20Value.htm >.

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