### ESTIMATION OF THE MARGINAL GREENHOUSE GAS ABATEMENT CURVE FOR THE BENEFICIAL USE OF FLY ASH AS A SUBSTITUTE FOR PORTLAND CEMENT IN READ Y-MIX CONCRETE PRODUCTION

Economic and Risk Analysis Staff Program Management, Communicat ions, and Analysis Office Office of Resource Conservation and Recovery

U. S. Environmental Protection Agency 1200 Pennsylvania Ave., N. W. Washington, DC 20460

June 19, 2009

### 2 ACKNOWLEDGMENTS

The Agency recognizes Industrial Economics, In c. (IEc), for the overall organization and development of this paper. Significant input was also received from David Goss, former
Executive Director of the American Coal Ash Association. Lyn D. Luben of the U.S. Environmental Protection Agency, Office of R esource Conservation and Recovery, provided guidance and review.

### 3 Introduction:

One of the benefits of the Coal Combustion Products Partnership (C 2 P 2 ) program is reduced emissions of greenhouse gases, such as carbon dioxid e and methane. The use of coal combustion products as a substitute for virgin materials ge nerally results in abatement of greenhouse gas emissions associated with the production of these materials. 1

To help assess the C 2 P 2 program’s potential for reducing greenhouse gas emissions, we developed a marginal GHG abatement curve for the beneficial use of coal fly ash (generated by coal-fired power plants) as a substitute for portland cement in the production of read y-mix concrete. This marginal abatement curve (MAC) graphically illu strates the extent to which abatement of CO 2 equivalents (CO 2 eq) would increase if the abatement costs incurred by private entities (i.e., power plants and concrete producers) were to decline.

Several factors may contribute to a decline in abatement costs. These may include reduced power plant input costs (that are passed on in the form of lower fly ash costs) or a cost increase for portland cement (thereby reducing the price of coal fly ash relative to portland cement). In most cases, transportation costs have been found to be the single most limiting factor preventing the increased beneficial use of coal fly ash. Trans portation costs become especially critical when accounting for the disparities in generation and u se patterns between regions of the U.S. The limited scope of this analysis does not allow for a complex assessment of multiple cost impact factors. As such, our MAC analysis focuses only on hypothetical transporta tion cost adjustments. In effect, for this analysis, we assume that some outside entity (e.g., government, third-party certifying body (e.g., Green Building Council)) c ontributes to, or “incentivizes” the transportation of coal fly ash for beneficial use as a portland cement substitute. 2 This makes the expanded use of coal fly ash less expensive to both the supplier and the user (that is, it is cost effective to transport it greater distances). We apply this “ pollution avoidance” approach for development of our modified marginal abatement curve.

The purpose of this paper is to present our deri vation of the marginal abatement curve based on the assumptions and limitations inherent in this an alysis. The paper begins with a conceptual overview of marginal abatement curves, then pr esents the methodology used for developing the MAC used in this analysis, and finally presents our representation of the marginal abatement

curve.

Conceptual Overview:

The marginal abatement curve developed for this paper graphically illustrates the extent to which
abatement of CO 2 eq emissions would increase if the beneficial use of coal fly ash were made less expensive to the generators and users of this mate rial, as shown in Exhibit 1. The horizontal axis in Exhibit 1 represents the transportation cost adju stment provided for the beneficial use of coal

1 The reduced environmental impact associated with the beneficial use of fly ash as a substitute for virgin materials results in pollution

avoidance rather than pollution abatement. Throughout this paper, however, we use the term “pollution abat ement” rather than “pollution avoidance” to highlight paralle ls and differences between the analysis pres ented in this paper and marginal abatemen t curves frequently developed by EPA in its analysis of air pollution policies and programs.

2 The analytical approach applied in this pa per should not be construed as a recommendation or policy consideration for the expa nded beneficial use of coal fly ash.

### 4 fly ash, expressed in dollars per ton of C02eq abat ed, and the vertical axis represents the total level of abatement that would occur at each cost adjustment level.

As the graph indicates, some abatement would o ccur if no cost adjustment were provided (i.e., where the adjustment is $0, abatement is approxi mately 17 million tons (MMton) per year in this hypothetical example. This would occur because pow er plants find it in their economic interest to supply coal ash as a portland cement substitute (i .e., engage in abatement activity) under the market conditions assumed for this analysis. Ho wever, according to the hypothetical marginal abatement curve in Exhibit 1, if a cost adjustme nt of $15 per ton were provided, total abatement would increase to 26 MMton per year. In other word s, as the transport cost of coal fly ash is more heavily adjusted downward, more coal-fire d power plants would find it in their economic interest to manage their coal fly ash through beneficial use.

EXHIBIT 1. HYPOTHETICAL MARGINAL ABATEMENT CURVE FOR COAL FLY ASH

The MAC presented in Exhibit 1 differs from the ma rginal abatement cost curves often used in analyses of air pollution control costs. This hypo thetical curve reflects how power plant behavior would change in response to a transport cost adjust ment for the beneficial use of coal fly ash. In other words, it reflects how abatement would increase as abatement cost s decline (or profits associated with abatement activities increase). In contrast, a conventional marginal abatement
cost curve shows how costs increase as abatemen t increases. More specifically, a standard marginal abatement cost curve normally shows how the per-ton cost of abatement would increase with increasing levels of abatement, if abatement were to occur (i.e., a marginal abatement cost curve does not reflect an explicit representation of facility decision-making).

Exhibit 2 below presents a hypothetical conventional marginal cost curve for the beneficial use of coal fly ash as a portland cement substitute in ready-mix concrete production. Based on this hypothetical figure, the abatement cost for the 5th MMton of abatement would be $6 per ton, but as abatement increases, the increm ental abatement cost per ton would also increase. Achieving the 30th MMton of abatement would cost approximate ly $40 per ton in this hypothetical example, more than six times the per ton cost for the 5th MMton. 

### 0 5 10 15 20 25 30 35 40 45

$0 $15 $30 $45 $60
Transportation Cost Adjustment, in $/Ton CO2eqAbatement (MMtons of CO2eq)

### 5 EXHIBIT 2. HYPOTHETICAL CONVENTIONAL MARGINAL ABATEMENT COST CURVE FOR

COAL FLY ASH



### Summary of Methodology:

To generate a marginal abatemen t curve for the beneficial use of coal fly ash in ready-mix concrete production, we designed a methodology that accounts for (1) the costs and benefits that individual power plants would realize if they were to send their coal fly ash offsite for beneficial use, (2) the national capacity for ready-mix conc rete facilities to use coal fly ash as a portland cement substitute, and (3) the distribution of this capacity across different regions of the U.S. The following steps comprise our methodology.

1. Estimate coal fly ash generation by plant. As an initial step in our analysis, we estimate the tonnage of coal fly ash generated by each coal-fired power plant in the U.S. According to data from the U.S. Department of Energy’s EIA-767 survey data, coal-fired utilities generated approximately 77 milli on tons of coal fly ash in 2004. 3 We distribute this tonnage to individual coal-fired electri c generating units (EGUs) in proportion to their share of national coal-fired EGU capac ity. We obtained capacity information for each coal-fired EGU from EPA’s 2006 National Electric Energy Data System (NEEDS).

2. Estimate benefits and costs of coal fly ash beneficial use for power plants. For each coal-fired EGU, the benefits of sending coal fly ash offsite for beneficial use include avoided disposal costs (including transporta tion for EGUs that send their coal fly ash offsite for disposal) and the revenue rece ived from the sale of coal fly ash. The corresponding costs include transportation and, in the case of coal fly ash with a high

3 U.S. Department of Energy, Energy Information Administration , EIA-767: Annual Steam-Electric Pl ant Operation and Design Data f or
2004, as cited in U.S. EPA, Study on Increasing the Usage of Recovered Mineral Components in Federally Fu nded Projects Involving

Procurement of Cement or Concrete to Addr ess the Safe, Accountable, Flexible, Efficien t Transportation Equity Act: A Legacy for

Users , June 3, 2008. Data from the 2005 edition of EIA-767 also sugge st that fly ash generation among power plants is approximatel y 77 million tons per year, although the geogra phic distribution by state in the 2005 EI A-767 data differs from the distribution suggested
by the 2004 data. This most likely refl ects normal year-to-year variation. $0 $10 $20 $30 $40 $50 $60 $70 $80 $90

5 10 15 20 25 30 35 40 45 50
Abatement (MMtons of CO2eq)Cost of Abatement ($/ton ofCO2eq)

### 6 carbon content, beneficiation. Exhibit 3 summarizes the per-ton monetary value of these
benefits and costs.

EXHIBIT 3. SUMMARY OF AVERAGE NATIONWIDE BENEFITS AND COSTS ASSOCIATED WITH

THE BENEFICIAL USE OF COAL FLY ASH AS A SUBSTITUTE FOR PORTLAND CEMENT 1

BENEFITS COSTS

Avoided coal fly ash disposal costs 2 : Estimate 1 (onsite): $12.50 per ton Estimate 2 (onsite/offsite): $32.50 per ton

Revenue from the sale of coal fly ash: $34 per ton 3 Transportation: $0.15 per ton-mile 4

Beneficiation: $1.46 per ton 5

Notes:

1. All values presented in this table are expressed in year 2007 dollars.
2. The fly ash disposal cost estimates presented in th is exhibit were provided by David Goss, American Coal Ash Association (ACAA), September 9, 2008. The lower of the two estimates (Estimate 1) represents the midpoint of the $10 - $15 per ton cost for onsite disposal. According to David Goss of the ACAA, 70 percent of fly ash is disposed onsite by electric generating units. The higher of the two estimates (Estimate 2) represents the midpoint of the $30 - $35 national average (i.e., mean) disposal cost per ton for all fly ash (i.e., fly as h disposed onsite and fly ash shipped offsite for disposal).

3. According to ACAA’s David Goss (personal communication, June 18, 2008), fly ash has historically been valued at one-third the price of cement. The $34 per ton estimate represents one-third of the 2007 price of portland cement as reported by the U.S. Geological Survey, 2008 Mineral Commodity Summary for Portland Cement, available at http://minerals.usgs.gov/minerals/pu bs/commodity/cement/mcs-2008-cemen.pdf , accessed July 28, 2008.
4. Personal communication with a transportation and logistics firm located in the western U.S., June 18, 2009.
5. According to ACAA’s David Goss (personal communication, June 25, 2008), approximately 2 million of the 15 million tons of fly ash beneficially us ed in concrete in the U.S. (or 13.3 percent) undergoes beneficiation. In addition, based on the range of beneficiation costs presented in Electric Power Research Institute, Beneficiation of Fly Ash Containing Mercury and Carbon , we estimate that a reasonable centra l tendency value for the cost of beneficiation is approximately $10 per ton. The estimate of $1.46 per ton presented in this exhibit reflects this $10 estimate multiplied by the probability of fly as h requiring beneficiation (13.3 percent).

As indicated in Exhibit 3, we identified two estimates for coal fly ash disposal costs. Estimate 1 ($12.50 per ton) represents the typical cost of onsite disposal, whereas Estimate 2 represents the average (i.e., mean) disposal cost per ton for all coal fly ash (i.e., fly ash disposed onsite and fly ash shipped offsite for disposal). According to David Goss of the American Coal Ash Association, approximately 70 percent of all coal fly ash is disposed onsite by electric generating units. 4 Therefore, the $12.50 per ton estimate (Estimate 1) represents a reasonable approximation of the median disposal cost per ton (i.e., the 50 th percentile). Because Estimate 1 repr esents the median cost per ton and Estimate 2 represents the mean, we develope d two versions of the marginal abatement

4 Personal communication with David Goss, Amer ican Coal Ash Associat ion, September 9, 2008.

### 7 curve for the beneficial use of coal fly ash as a portland cement substitute: one curve
based on Estimate 1 and a second based on Estimate 2.

3. Assess national and regional beneficial use capacity: Based on information obtained from the American Coal Ash Association, U.S. ready-mix concrete producers could potentially use up to 35 million tons of coal fly ash per year as a substitute for portland

cement. 5 This represents 20 million tons more than the industry currently uses. For the purposes of this analysis, we distribute th ese 35 million tons of capacity to individual Census Divisions in proporti on to each Census Division’s share of ready-mix concrete production. 6 Exhibit 4 presents a map that shows the states that make up each Census
Division.

EXHIBIT 4. MAP OF U.S. CENSUS DIVISIONS

5 Personal communication with David Goss, Am erican Coal Ash Associ ation, July 16, 2008.

6 Each Census Region’s share of ready-mi x production was derived from U.S. EPA, Study on Increasing the Usage of Recovered Mineral
Components in Federally Funded Projects Involving Procurement of Cement or Concrete to Address the Safe, Accountable, Flexible,
Efficient Transportation Equity Act: A Legacy for Users , June 3, 2008.

### 8 4. Estimate breakeven transport distance by EGU, assuming no transport cost adjustment: Based on the benefit and cost info rmation presented in Exhibit 3, we estimated the average breakeven transpor t distance below which each coal-fired EGU
would find it in its economic interest to send coal fly ash offsite for beneficial use. Assuming no transport cost adjustment, we est imate that this breakeven distance is approximately 292 to 422 miles for each coal-fired EGU in the U.S. 7 The low end of this range reflects the disposal cost of $12.50 pe r ton presented in Exhibit 3, and the high end reflects fly ash disposal costs of $32.50 per ton.

5. Estimate distance to nearest ready-mix plant: For each coal-fired EGU, we estimated the distance to the nearest ready-mix concre te facility that would accept coal fly ash
based on EGU locational information in EPA’s NEEDS database and U.S. Census County Business Pattern data that indicate wh ich counties in the U.S. have ready-mix concrete facilities with 100 or more employees. 8,9 We measured these distances based on
the centroids of the counties where coal -fired EGUs and ready-mix facilities are

located. 10

6. Determine which EGUs are most likely to send coal fly ash offsite for beneficial use, assuming no transport cost adjustment. In Step 4, we estimated that EGUs would find it

in their economic interest to send their coal fly ash to a ready-mix facility if such a facility was located within 292 to 422 miles of the EGU. Based on this information and the distances estimated in Step 5, we can determine which EGUs would realize an economic benefit by sending their coal fly ash offsite for beneficial use. Due to regional capacity constraints, however, not all of these EGUs would be able to send their coal fly ash to a ready mix facility. Therefore, in re gions where the tonnage of coal fly ash that EGUs would like to send to a ready-mix facility exceeds regional capacity, we assume
that those EGUs that are closest to a read y-mix facility would send their coal fly ash offsite for beneficial use. For example, if two EGUs in a given region would find it in their interest to send coal fly ash offsite for beneficial use but regional capacity constraints would prohibit one from doing so, we assume that the EGU that is closest to a ready-mix facility would send its coal fly ash offsite. We assume that the other EGU would either dispose of its coal fly ash or recycle it through some other means.

7. Estimate CO 2 eq Impact: To estimate the extent to which th e beneficial use of the coal fly ash identified in Step 6 leads to a reduction in CO 2 eq emissions, we use lifecycle information presented in EPA’s 2008 Report to Congress on the use of recovered mineral components in federally funded construction pr ojects. Based on this report, each ton of coal fly ash used as a substitute for portl and cement in the production of ready mix
concrete reduces CO 2 eq emissions by approximately 0.72 tons. 11 This estimate reflects

7 [(Avoided disposal cost + re venues) – beneficiation]/(transp ortation cost per ton-mile).

8 According to David Goss of the American Coal Ash Association (persona l communication, July 16, 2008), ready-mix concrete facil ities
that do not have significant storage capaci ty for fly ash often cannot use fly ash as a portland cement su bstitute. Therefore, for the
purposes of this analysis, we assu me that only those ready-mix facilities with 1 00 or more employees have significant storage c apacity
and would be able to accept fly ash.

9 U.S. Census Bureau, 2006 County Business Pattern Data, available at http://www.ce nsus.gov/epcd/cbp/view/cbpview.html.

10

Due to resource constraints, we estima ted these distances as straight-line dist ances rather than as road distances.

11 Derived from U.S. EPA, Study on Increasing the Usage of Recovered Mineral Components in Federally Funded Projects Involving

Procurement of Cement or Concrete to Addr ess the Safe, Accountable, Flexible, Efficien t Transportation Equity Act: A Legacy for

Users , June 3, 2008, Table D-10.

### 9 emissions reductions associated with avoide d portland cement production and transport (to ready-mix concrete facilities) and th e increase in emissions associated with transporting coal fly ash to ready-mix concrete facilities. For coal fly ash that is currently disposed offsite, however, this estimate does not reflect the emissions reductions associated with avoided transport to a disposal facility.

8. Determine which EGUs are most likely to send coal fly ash offsite for beneficial use under each transport cost adjustment scenario. To determine which EGUs would send their coal fly ash offsite under each transpor t cost adjustment scenario, we follow an approach similar to that outlined above for the no-adjustment scenario. Our analysis of
the scenarios assumes that EGUs that send thei r coal fly ash offsite for beneficial use under the no-adjustment scenario would continue to do so if a cost adjustment were in place. We then estimate how a transport co st adjustment would increase the beneficial use of coal fly ash based on (a) the proximity of EGUs that do not send their coal fly ash offsite under the no-adjustment scenario to th e Census Divisions with capacity available and (b) the extent to which each cost adjust ment affects the breakeven distance estimated in Step 4. We account for regional capacity constraints using the same general approach outlined in Step 6, but we also constrain to tal beneficial use so that it cannot exceed the capacity of 35 million tons per year referenced in Step 3.

9. Estimate CO 2 eq Impact for each cost adjustment scenario: For each transport cost adjustment scenario analyzed, we estimate CO 2 eq impacts using the approach described in Steps 7 and 8.



### Estimated Marginal Abatement Curve:

Exhibit 5 presents the marginal abatement curves th at we developed for the beneficial use of coal fly ash as a substitute for portland cement based on the methodology outlined in the previous section. As indicated above, we developed two ma rginal abatement curves: one that reflects coal fly ash disposal costs of $12.50 per ton (referred to as the low end MAC in Exhibit 5) and a second that reflects disposal costs of $32.50 per ton (referred to as the high end MAC in Exhibit 5).

When the transport cost adjustment is below $5 per ton of CO 2 eq reduced, the high end MAC suggests slightly more significant reductions in CO 2 eq emissions than the low end MAC, as
shown in Exhibit 5. This is because the trans port cost adjustment increases the EGU breakeven distance more significantly under our high disposal cost assumptions than under our low disposal cost assumptions. When the cost adjustment is between $5 and $30 per ton of CO 2 eq reduced, both curves remain relatively flat. This reflects the spatial disconnect between where coal fly ash is generated and where capacity exists to use coal fly ash as a substitute for portland cement in ready-mix concrete production. Once the trans port cost adjustment reaches $5 per ton of CO 2 eq reduced, our analysis suggests that most of the remaining capacity among ready mix concrete producers to accept coal fly ash is concentrated in the Pacific Census Division (i.e., at lower cost adjustment levels, our analysis suggests that cap acity in the Midwest and other regions is fully utilized). Because most coal fly ash is generated in other regions, a cost adjustment greater than

### 10 $30 per ton of CO 2 eq reduced would be necessary to cover th e cost of transporting this material
to the west coast.

As indicated in Exhibit 5, both marginal ab atement curves plateau wh en the transport cost adjustment reaches $45 per ton of CO 2 eq reduced. This reflects the national capacity constraint referenced in the methodology section above. At a cost adjustment level of $45 per ton, we estimate that the coal fly ash re-directed to be neficial use will fully consume the 35-million ton capacity of U.S. ready-mix concrete facilities. Therefore, our analysis suggests that cost adjustments beyond $45 per ton of CO 2 eq reduced would yield no additional abatement impact. For additional context, Exhibit 6 presents the tonnage of coal fly ash diverted to beneficial use under each transport cost adjustment scenario reflected in Exhibit 5.

EXHIBIT 5. ESTIMATED MARGINAL ABATEMENT CURVE FOR THE BENEFICIAL USE OF COAL

FLY ASH AS A SUBSTITUTE FOR PORTLAND CEMENT IN THE PRODUCTION OF READY-MIX

CONCRETE

0.0 5.0 10.0 15.0 20.0 25.0 30.0

$0 $5 $10 $15 $20 $30 $45 $65
Transport Subsidy (2007$/ton of CO2eq reduced)MMT CO2eq

MAC (low end) MAC (high end)

### 11 EXHIBIT 6. BENEFICIAL USE OF COAL FLY ASH UNDER EACH TRANSPORT COST

ADJUSTMENT LEVEL

ESTIMATED QUANTITY OF COAL FLY AS H BENEFICIALLY USED IN READY-MIX
CONCRETE PRODUCTION (MILLIONS OF TONS)

COST ADJUSTMENT

($ PER TON OF CO2EQ) LOW END ESTIMATE 1 HIGH END ESTIMATE 1

$0 15 15

$5 30 34

$10 30 34

$15 30 34

$20 30 34

$30 31 34

$45 35 35

$65 35 35

1. The low end estimate reflects fly ash disposal costs of $12.50 per ton, and the high end estimate reflects fly ash disposal costs of $32.50 per ton.



### Sensitivity Analysis: Estimated Margin al Abatement Curve Under Alternative Transportation Cost Assumptions

As indicated above, one of the main assumptions of our analysis is that the cost of transporting fly ash is approximately $0.15 per ton-mile. Data from EPA’s economic assess ment of the use of chat in transportation projects indicates, however, that this cost may be as high as $0.37 per tonmile. 12 As a sensitivity analysis, we re-estimated the low-end and high-end MACs based on this value. Exhibit 7 presents these alternative ve rsions of the MAC, and Exhibit 8 shows the corresponding fly ash tonnag es associated with the CO 2 eq values in the alternative MACs.

To achieve a given CO 2 eq reduction, the alternative MACs in Exhibit 7 suggest that a higher transport cost adjustment would be necessary th an the primary MACs s hown in Exhibit 5. Because the alternative MACs reflect higher b aseline transportation costs than the primary MACs, more significant transport cost adjust ments would be necessary to achieve a given CO 2 eq reduction under the alternative scenario.

Despite the difference in the transport cost adjustments necessary for a given CO 2 eq reduction, the primary and alternative MACs share two key similarities. First, both MACs initially slope upward but then remain fairly flat over a significant range of potential transport cost adjustments before increasing again. As suggested in the above discussion regarding the primary MAC, this reflects the location of fly ash generation relative to ready-mix concrete capacity. While much of the fly ash generation in the U.S. is concentrated in the eastern half of the country, much of the capacity among ready-mix concrete facilities is located in the Pacific Census Division. The second similarity between the two MACs is that both plateau at approximately 25 million tons of

12

U.S. EPA, Assessment of the Potential Costs, Benefits, and Othe r Impacts of Chat Use in Transportation Projects , January 2006.

### 12 CO 2 eq, which is consistent with the 35-million ton (of fly ash) capacity of U.S. ready-mix
facilities referenced above.

EXHIBIT 7. MARGINAL ABATEMENT CURVE FOR THE BENEFICIAL USE OF COAL FLY ASH

UNDER ALTERNATIVE BASELINE TRANSPORTATION COST ASSUMPTIONS

EXHIBIT 8. BENEFICIAL USE OF COAL FLY ASH UNDER ALTERNATIVE BASELINE

TRANSPORTATION COST ASSUMPTIONS

ESTIMATED QUANTITY OF COAL FLY AS H BENEFICIALLY USED IN READY-MIX
CONCRETE PRODUCTION (MILLIONS OF TONS)

COST ADJUSTMENT

($ PER TON OF CO2EQ) LOW END ESTIMATE 1 HIGH END ESTIMATE 1

$0 15 15

$15 15 26

$30 28 29

$45 29 29

$60 29 29

$135 30 34

$240 35 35

$300 35 35

1. The low end estimate reflects fly ash disposal costs of $12.50 per ton, and the high end estimate reflects fly ash disposal costs of $32.50 per ton. 0.0 5.0 10.0 15.0 20.0 25.0 30.0

$0 $15 $30 $45 $60 $135 $240 $300
Transport Cost Adjustment (2007$/ton of CO2eq reduced)MMT CO2eq

MAC (low end) MAC (high end)