1

MEMORANDUM

TO : Kim Teal and Keith Barnett, U.S. Environmental Prote ction Agency

FROM : Eastern Research Group, Inc. (ERG)

DATE : January 12, 2015

SUBJECT : Estimated Cost Impacts for Proposed Amendments to 40 CFR 63, Subpart GG,

National Emission Standards for Aerospace Manufacturing and Rework Facilities

1.0 INTRODUCTION AND SUMMARY OF COSTS

This memorandum describes the methodology and summarizes the results of estimating the annual costs of compliance for the proposed amendments to the Aerospace NESHAP. Cost impacts were calculated for complying with the requiremen ts to meet VOC and HAP content limits for specialty coating operations, and for complyi ng with requirements to use high efficiency application methods for spray applied specialty coatings. The cost impact for the proposed compliance demonstration alternative using coat ing manufacturers’ supplied data to

document VOC and HAP content is also discussed.

The proposed amendments would not affect compliance cos ts for operations already being regulated by the NESHAP.

Of the 144 existing sources currently covered by this standar d, 109 facilities have specialty coating operations. Therefore, the annual costs affecti ng specialty coating operations are calculated for only the 109 aerospace manufacturing and rewo rk facilities that reported having these operations.

The recordkeeping and reporting costs were estimated for ea ch facility based on data reported by industry in the information collection request (ICR) sent to all known facilities in February 2011. The ICR requested information on material usage and contr ol techniques used on all of the regulated and unregulated emission sources at aerospace faci lities for 2008.

The estimated annual costs for the industry to comply with the proposed amendments are about $848,000 in the first year and about $590,000 in succeeding years. T he estimated average cost per facility is about $7,800 in the first year and about $5,400 per year in succeeding years.

2.0 INPUTS FOR SPECIALTY COATING COST ESTIMATES

Appendix 1 includes tables summarizing the activities and cost elements used to estimate the compliance costs in Year 1 and in Years 2 and later. Th ese activities are the same as those www.erg.com2

required in the Office of Management and Budget (OMB) burden estimate and the supporting statement for the proposed amendments, which is also i ncluded in docket EPA-HQ-OAR-2014- 0830 for the proposed amendments. 1 Labor rates for this cost estimate were assumed to b e $127.72 per hour for executive, administrative, and managerial labor; $101.60 per hour for technical labor, and $38.58 per hour for clerical labor. 2 These rates account for operating overhead and benefit packages. A significant number of the compliance activities usually considered in the OMB burden estimate are already accoun ted for under the compliance costs for existing coating operations and would not be repeated to comp ly with the proposed amendments.

Year-1 costs include one-time costs plus annual costs that apply in Year 1. One-time costs are assumed to be incurred by all 109 facilities and include "start -up" activities such as reading instructions, planning activities, developing a record system, and training personnel. Annual costs in both Year-1 and subsequent years include only compl iance costs associated with maintaining records to demonstrate compliance with the spe cialty coating VOC and HAP content limits. These costs vary for each facility, and are calculated assuming one hour per year per specialty coating used by each facility. Appendix 2 shows the estimated number of specialty coatings used per facility, based on the 2011 ICR survey res ponses, and the estimated cost per facility in Year 1 and in following years.

The EPA expects that the proposed amendments will not require any capital costs, other than the possible purchase of high efficiency coating application equ ipment for spray applied coatings. The EPA assumed that specialty coatings operations woul d not require installation of additional spray booths to control inorganic HAP emissions, because these spray booths are already present as part of the existing primer and topcoat application opera tions. The EPA does not estimate any additional startup or operation and maintenance costs.

3.0 SPECIALTY COATING COST IMPACTS ON THE INDUSTRY

The estimated annual costs to comply with the organic HAP and VOC content limits for specialty coatings in this proposed rule are about $848,000 in the first year and about $590,000 in succeeding years. Thus, the average cost per facility is about $7,800 in the first year and about $5,400 per year in succeeding years. These costs are based on the need to maintain records of the HAP or VOC content and the annual volume purchased of eac h specialty coating at a facility. The costs are higher in the first year because they i nclude some activities that do not need to be repeated in following years, such as reading the rule amend ments and setting up recordkeeping systems for specialty coatings. Appendix 2 also includes s ales data for some of the 109 facilities that reported specialty coating operations, when that information could be located from an online search. The 2011 ICR did not request sales data for res ponding facilities.

1 However, the OMB burden estimate differs slightly from this cost estimate in two respects. First, it did not consider Federal government-operated facilities the same as privately owned facilities, and their comp liance costs are counted as part of the annual Federal governmen t (Agency) cost. Second, the OMB estimate used diff erent labor rates for privately-operated facilities and F ederal government-operated facilities. For the OMB estimate, the EPA estimated that approximately 27 Federal governm ent-operated facilities and 82 privately-operated f acilities have specialty coating operations.

2 U.S. Department of Labor, Bureau of Labor Statisti cs, March 2013, Table 2. Civilian Workers, by Occup ational and Industry group.3

4.0 COMPLIANCE COSTS FOR HIGH EFFICIENCY COATING APP LICATION

METHODS

The EPA does not have sufficient data from the 2011 ICR to estimate the total cost impacts for specialty coatings having to comply with the proposed high-e fficiency application equipment requirement. Because high-efficiency application equipme nt generates less coating overspray than conventional equipment, the costs of upgrading to new equipment can be offset by cost savings from reduced coating consumption and reduced spray booth filter maintenance. For these reasons, many facilities are likely to have already s witched to high-efficiency application methods for specialty coating operations, as they are al ready required to for primer and topcoat application operations. The 2011 ICR did not request informat ion on which specialty coatings were being applied with spray application equipment, or on the types of spray application equipment being used.

However, it is possible to estimate the savings that woul d be needed to offset the costs of purchasing new spray guns for a typical facility. Based on the 2011 ICR data, the average volume of specialty coatings used per facility is 3,000 gallo ns per year. The estimated purchase cost for an industrial-quality high-volume, low-pressure (HVLP) spray gun is $700 for the gun and accessories (e.g., larger diameter hoses, gauges, ext ra air caps), based on vendor

information. 3 If a typical facility had to purchase three new HVLP s pray guns, and the facility was spending an average of $30 per gallon of spray applied coat ing, the facility would need to see a decrease in coating consumption of only 70 gallons pe r year to recover the initial cost of those three spray guns in one year:

Three HVLP spray guns @ $700 per gun = $2,100

($2,100 for three guns) ÷ ($30/gallon specialty coating) = 70 gallo ns of specialty coatings saved to recover the cost of three HVLP spray guns

This reduction in coating consumption needed to recover the cost of the spray guns would be equal to 2.3 percent of coating consumption at a facility using 3,000 gallons of specialty coatings per year. Therefore, the EPA expects that the requireme nt to apply specialty coatings with highefficiency methods when spray applying these coatings would no t have negative cost impact on facilities using spray applied specialty coatings.

5.0 COMPLIANCE COST IMPACTS FROM ALTERNATIVE COMPLIA NCE

DEMONSTRATION PROVISIONS

The EPA expects some additional potential cost savings fr om the proposed alternative compliance demonstration provision included in 40 CFR 63.750(c), (e), (k) and (m). This provision would allow owners or operators using primers, t opcoats, specialty coatings and

3 For the cost of HVLP spray guns, see the memo, Est imate of Capital and Annual Costs For Automotive Re finishing Operations and Miscellaneous Surface Coating Operat ions Subject to the Proposed National Emission Stan dards for Hazardous Air Pollutants for Paint Stripping an d Miscellaneous Surface Coating Operations at Area Sources

, May, 2007, included in the docket for the proposed amendments to subpart GG, EPA-HQ-OAR-2014-0830.4

chemical milling maskants to use coating manufacturer’s supplied data to demonstrate compliance with the VOC and HAP content limits for t hose coatings, instead of using EPA Method 24 and performing certain compliance calculations t o determine VOC and HAP content.

We do not have sufficient data to estimate the cost savi ngs associated with the proposed alternative compliance demonstration for individual faci lities or for the industry as a whole. However, the estimated cost to perform an analysis of VOC content according to EPA Method 24, based on published vendor data, is about $575 per sample. 4 Because the proposed alternative compliance demonstration would allow facilities to use c oating manufacturers’ supplied data to determine the VOC or HAP content of coatings, based on coating formulation, the cost of these coating analyses using EPA Method 24 would be avoided.

4 See, for example, http://www.cleanair.com/Home/downloads/DocServerReq uest.php?short=Analytical-PriceSchedule.pdf , accessed January 9, 2015.