ISIS-Cement Import Modeling

Meeting with the Portland Cement Association (PCA)

Portland Cement Association and cons tituents joined EPA over the phone Tyrone Wilson Ed Sullivan Tian Lu Stu Sessions Doug Roark Bob- contractor with PCA

EPA Elineth Torres Ravi Srivastava

Contractor to EPA Samudra Vijay- Sam Analytic Solutions LLC – over the phone

Topics for discussion

Imports

o Ravi Srivastava explained that Dallas Burtraw with Resources for the Future (RFF) econometrically determined the elas ticity of cement imports to be 3.94. For his analysis Dallas used USGS da ta. Import data was aggregated for 5 countries and the rest of the world- us ing the c.i.f- custom price. More information to be found in the memo from Dallas to EPA.

o Ed commented that the current function underestimate the cost of imports and underestimate the welfare. The cost of im ports relates to the freight rate per custom district and this is a function of oil prices which relates to demand of ships. Per Ed, a correlation of freight pr ices and oil prices is needed to augment the import function in ISIS.

o Ravi- proceeded to present to PCA th e main equations of ISIS-cement.Objective FunctionConstraintImports Domestic sideEconomic welfareSupply Imports Domestic sideCalibrationNew methodology for calibration will cap ture a horizon of 4 to 5 years (2004-2009) - match the historical quantities and s ee how the model behaves. Calibration

Stu agreed that the calibration should account for a time horizon of multiple years.

We will follow-up this meeting with a cal l with Dallas Burtraw from RFF on March 18 2010.

Model key Equations discussed with PCA Objective Function

Total surplus = area under the demand curve – area under the supply curve

The objective is to maximize total surplus, or minimize the negative of total surplus. Then,

Minimize z = (1) 

# ∑ ∑ ∑ ⎥ ⎥ ⎦ ⎤ ⎢ ⎢ ⎣ ⎡ ⎟ ⎟ ⎠ ⎞ ⎜ ⎜ ⎝ ⎛
++ +−

−

= = t k j IP DP cc tc)(I pc)(D l

1j k h

1j j

where, D j = demand quantity (tons) in the j th slice of the demand-price curve in year t

P(D j ) = cement price ($/t on) corresponding to D j

pc = production cost ($) in year t

I

k = import quantity (tons) in the k th slice of the imports-price curve in year t

P(I k ) = cement price ($/ton) corresponding to I k

tc = transportation cost ($) in year t

cc = control costs ($) in year t

σ 1

0 0 )( ⎟ ⎟ ⎠ ⎞ ⎜ ⎜ ⎝ ⎛

= D D PDP j j

λ 1

0 0 )( ⎟ ⎟ ⎠ ⎞ ⎜ ⎜ ⎝ ⎛

= I I PIP k kσ and λ are elasticities of demand and imports relative to price

Note that in (1), the area under the dema nd curve is approximated by adding areas of h equal segments with j denoting the j th segment. A similar procedure is followed for the imports term.

Supply Constraint

prodn(t) + I(t) >= D(t) (2)

where, prodn(t) = quantity (tons) produced domestically in year t I(t) = quantity (tons) imported in year t , and D(t) = demand(tons) for the commodity in year t

.

Emissions Constraint

ISIS framework can accommodate several different types of emissi ons constraints (e.g., cap-and-trade, emission limits).

For example, in the case of cap-and-trade,

em(t) = ec(t) + bnk (t) – bnk (t+1) (3)

where, em(t) = industry emissions (tons) of a given pollutant in year t , ec(t) = emissions cap (tons) in year t , bank (t) = banked allowances in year t , bank (t+1) = banked allowances in year t+1

.