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OAR Box 1781 

Prepped by Ollie Stewart 

Document Number: 

29) 11-1-21 

Docket Number: 

A-90-37 

Printed 10/29/2008 10:46:19 AM Sheet 29 of 142 
• - -^ 1 P.2 

112-27- J/ 

" \ 

CALIFORNIA CLEAN 

AIR ACT 

COST-EFFECTIVENESS 

GUIDANCE 

V 

September 1990 

Air Resources Board 

Office of .Air Quality Planning & Liaison 
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Principal Authors: 

Catherine Witherspoon 

Patrick Nevis 

Contributors 

Bob Cross, Mobile Source Division 

Malcolm Dole, Research Division 

Randy Guensler, Office of Strategic Planning 

Reza Mahdavi, Research Division 

Todd Wong, Stationary Source Division 

Andy Horwatt, South Coast AQMD 

Tom Perardi, Bay Area AQMD 
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TABLE OF CONTENTS 

I. INTRODUCTION 1 

II. LEGAL REQUIREMENTS RELATED TO COST-EFFECTIVENESS 2 

III. DEFINITION OF COST-EFFECTIVENESS 3 

A General Orientation 3 

Cost-Effectiveness Versus Cost-Benefit Analyses 5 

Cost-Effectiveness Versus Socio-Economic Impact Analyses 5 

IV. AVAILABLE METHODS FOR DETERMINING COST-EFFECTIVENESS 6 

Methods for Determining Cost 6 

Methods for Determining Effectiveness 7 

Putting It All Together 9 

V. SPECIAL TOPICS RELATED TO COST-EFFECTIVENESS DETERMINATIONS 9 

Accounting for Multi-Pollutant Reductions 9 

Assessing Transportation Control Measures 10 

Selecting the Appropriate Timeframe 10 

Adjusting for Reactivity 11 

VI. RELATIONSHIP OF COST-EFFECTIVENESS TO OTHER CONSIDERATIONS 12 

VII. DISTRICT OPTIONS FOR SATISFYING COST-EFFECTIVENESS REQUIREMENTS 13 

REFERENCES 15 

APPENDICES 

A. Stationary Source Control Cost Calculation Worksheets 

B. Procedure to Calculate Annualized Costs 

C. Procedure to Calculate Net Present Value (SCAQMD Method) 

D. Procedure to Calculate Net Present Value (BAAQMD Method) 

E. Determining Reactivity (excerpt from "Proposed Regulations 

for Low-Emission Vehicles and Clean Fuels, Technical Support 

Document") 
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I. INTRODUCTION 

The California Clean Air Act (Act) requires air pollution control and 

air quality management districts (districts) to develop and implement 

programs that will attain the health-based ambient air quality standards set 

by the State. These standards are necessary to protect public health, 

especially the health of children, the elderly, and those with respiratory 

diseases. 

In adopting measures to achieve the state air quality standards, 

district boards must weigh many important considerations. One of them is 

"cost-effectiveness." 

Cost has always been a consideration in the Air Resources Board's and 

the districts' regulatory proceedings. The cost of emission control 

measures has also been addressed, to varying degrees, in district attainment 

plans. Not all agencies use the same methods. The Board has a particular 

approach to evaluating costs associated with motor vehicle regulations. 

Districts employ a different set of methods for stationary source controls. 

Some districts focus on direct costs only; at least one district has 

expanded its cost analyses to include socio-economic impacts. 

Effectiveness is usually described in terms of emission reductions. A 

control measure is said to be "effective" if it prevents future increases in 

emissions or reduces those emissions absolutely. Districts with reliable 

modeling capability have attempted to take this a step farther; to describe 

effectiveness in terms of air quality improvement. With this approach, 

control measures are "effective" if they reduce the ambient concentrations 

of air pollutants or prevent further deterioration in air quality. 

The California Clean Air Act makes cost-effectiveness a necessary 

component of air quality planning and rulemaking. Under the Act, certain 

control measures must be deemed cost-effective prior to adoption. The 

collection of available measures must be ranked (from least to most costeffective) in district plans, and those rankings must be considered in the 

development of adoption and implementation schedules for individual 

measures. Finally, each district's attainment plan must be a cost-effective 

strategy for attaining state air quality standards, when viewed in its 

entirety. 

The Act's cost-effectiveness provisions explicitly promote regulatory 

efficiency. This inducement was key to the consensus that enabled the Act 

to become law. Achieving state air quality standards is an enormous task 

that will take unprecedented effort, cooperation, and individual commitment. 

Doing so with a minimum of economic impacts is a common aspiration. 

Yet while cost-effectiveness is given great emphasis in the California 

Clean Air Act, it is neither the sole nor the dominant criterion for 

decisionmaking. The primary mandate is to achieve the state air quality 

standards by the earliest practicable date: 
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"Districts shall . . . consider the cost-effectiveness of their air 

quality programs, rules, regulations, and enforcement practices . . . 

and shall strive to achieve the most efficient methods of air 

pollution control. However, priority shall be placed upon expeditious 

progress toward the goal of healthful air. (Health & Safety Code 

Section 40910, emphasis added.) 

The purpose of this document is to advise districts of the legal 

requirements pertaining to cost-effectiveness, as they prepare their 1991 

attainment plans. The Guidance will be revised periodically as necessary 

and will be revised in 1993, prior to the preparation of the second round of 

air quality plans due in 1994. Similarly, districts are expected to revise 

and improve their cost-effectiveness estimates, both as specific controls 

and subsequent plans are developed. 

This paper contains a discussion of: 

o the cost-effectiveness requirements of the Act; 

o available methods for analyzing the cost of control measures; 

o special issues related to cost-effectiveness evaluations; 

o the relationship of cost-effectiveness to other considerations; 

and 

o district options for satisfying cost-effectiveness mandates. 

II. LEGAL REQUIREMENTS RELATED TO COST-EFFECTIVENESS 

Five provisions in the California Clean Air Act address costeffectiveness. One is a general directive to districts. Two pertain to 

district plans and the control measures within those plans. The remaining 

provisions concern regulations developed by the Board for motor vehicles and 

other mobile sources. Each one of these provisions is discussed in detail 

below. All sections are within the California Health & Safety Code. 

Section 40910 directs districts to consider the cost-effectiveness of 

their air quality programs, rules, regulations, and enforcement practices, 

in addition to other relevant factors. That section also admonishes 

districts to strive for efficiency in air pollution control. 

Section 40913(b) requires each district board to make a determination 

that its plan is a cost-effective strategy to achieve the state standards by 

the earliest practicable date. 

Section 40922 addresses the individual control measures within district 

plans. Subdivision (a) requires districts to include an assessment of the 

cost-effectiveness of available and proposed control measures, and to 

include a list which ranks the measures from the least cost-effective to the 

most cost-effective. Subdivision (b) requires districts to consider the 

relative cost-effectiveness of control measures when developing an adoption 

and implementation schedule for any specific measure. Pursuant to that 

subdivision, districts must also consider several other factors including: 

technological feasibility, total emission reduction potential, the rate of 

reduction, public acceptability and enforceability. 
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Section 43013 authorizes the Air Resources Board (Board) to adopt 

standards, regulations and specifications for a host of vehicular and mobile 

sources, provided those measures are necessary, technologically feasible, 

and cost-effective. 

Section 43018 directs the Board to exercise its regulatory authority in 

accordance with specified schedules and objectives. Subdivision (b) 

requires the ARB to take whatever actions are necessary, cost-effective and 

technologically feasible to achieve a 55X reduction in emissions of reactive 

organic gases, and a 15% reduction in emissions of nitrogen oxides, from 

motor vehicles by the year 2000. Subdivision (c) directs the ARB to aaopt 

standards and regulations that will result in the most cost-effective 

combination of control measures on all classes of motor vehicles and motor 

vehicle fuel. 

III. DEFINITION OF COST-EFFECTIVENESS 

A General Orientation 

In plain English, "cost-effective" means worth the effort and expense. 

In the regulatory domain, the worthiness of certain actions is largely 

predetermined. The California Legislature and the United States Congress 

have established clear and unambiguous mandates to protect public health. 

Thus, actions designed to achieve that end are inherently worthwhile. 

However, the cost of individual actions is still relevant. Cost matters 

when there are choices between alternative actions that achieve the same 

ultimate objective. Cost is also relevant when regulations to protect 

public health encroach upon other important public values, such as the 

welfare of the poorest among us. 

"Cost-effective" has had particular meaning to air quality agencies for 

the last several years. The Board and several districts use this term to 

describe measures that will achieve emission reductions or improve air 

quality at a reasonable cost. 

Cost-effectiveness is expressed as a rate: the dollars per ton of 

pollutants reduced, or the dollars per unit of air quality improvement. 

(An example of the latter is the expected part per million change in ambient 

ozone concentrations.) The use of rates makes comparisons between different 

control measures possible. Motor vehicle standards, solvent controls, fuel 

specifications, transportation measures, and industrial controls may vary 

widely in absolute costs, yet be equivalent on a dollar per ton basis. 

Cost-effectiveness is a relative concept. The Board and districts 

typically compare measures under consideration to those recently adopted or 

scheduled for action. A measure is deemed cost-effective if it reduces 

emissions at a cost comparable to other measures, again, on a per ton basis. 
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Over time, a "going rate" for pollutant reductions has been 

established. This rate is the upper cost bound for measures recently 

adopted or proposed for adoption. The "going rate" functions as an 

approximate limit on cost-effectiveness determinations but is not an 

absolute limit. The "going rate" increases over time, due to inflation and 

increasing costs of pollution control technology. Where they are needed to 

attain or maintain standards, measures below the going rate are said to be 

cost-effective; hence, the universe of cost-effective measures can be quite 

large. 

The current "going rates" for pollution control are listed in Table 1. 

Note that there is a separate rate for each pollutant. 

Table 1 

Cost-Effectiveness of Recently Adopted Measures 

Pollutant 

Reactive Hydrocarbons 

Oxides of Nitrogen 

Carbon Monoxide 

Particulate Matter 

Average Rate 

$ 2-5/pound 

$ 1-5/pound 

$ 0.10/pound 

Highest Rate 

$ ll/pound 

$ 12/pound 

$ 1/pound 

$ 5/pound 

Cost-effectiveness is determined for each individual control measure. 

The determination is usually limited to the direct costs and the direct 

results of the measure being evaluated. To find the dollar per ton rate, 

the direct costs of the control measure are divided by the total emissions 

reduced over a specified timeframe. For example, a measure that costs 

$300,000 and which reduces emissions by 100 tons per year over a ten year 

period has a cost-effectiveness of $3,000 per ton or $1.50 per pound. 

In cost-effectiveness calculations, the emission reductions are 

additive. A measure that reduces emissions by ten tons per day (TPD) in 

1994 and maintains those reductions through 2004, has a total emission 

reduction of 36,500 tons (10 TPD x 10 years x 365 days/year). A measure 

that reduces emissions by ten tons per day in 1994, then an additional three 

tons per day in 1997 has a total ton reduction of 44,165 tons [(10 TPY x 3 

years x 365) + (13 TPY x 7 years x 365)]. 

Cost-effectiveness is often normalized to annual costs per ton, to 

enable comparisons between measures. The available methods for preparing 

cost-effectiveness evaluations are discussed in Chapter IV. 
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Cost-effectiveness is determined by each district in consideration of 

local factors. The cost of a particular control measure may vary from one 

district to another depending on the extent of control already implemented, 

and the potential emission reductions. However, all things being equal, 

there is little variation from place to place. 

Cost-Effectiveness Versus Cost-Benefit Analyses 

A cost-effectiveness evaluation is much more limited in scope than a 

cost-benefit analysis. A cost-effectiveness evaluation usually addresses 

just the direct costs (or savings) of a measure; for example planning, 

research and development, installation, engineering, equipment and other 

materials, operations, and maintenance. Furthermore, in most costeffectiveness evaluations, benefits are described only in terms of emission 

reductions or air quality improvement. 

A cost-benefit analysis attempts to quantify all the costs and benefits 

of a control measure, including social and environmental effects. The 

objective is to determine whether the measure will produce a net societal 

gain or loss, in monetary terms. Because costs and benefits are weighed 

directly one against the other, both must be quantified in dollar terms. 

This is an obstacle to using cost-benefit analysis for air pollution control 

decisions as it is difficult to assign monetary value to air quality and 

public health protection. 

Cost-Effectiveness Versus Socio-Economic Impact Analyses 

Socio-economic impact analysis is also broader in scope than a costeffectiveness evaluation. Socio-economic analysis attempts to discern the 

ripple effect of control measures through other sectors of the economy, and 

to identify the groups, types of persons, or institutions most heavily 

affected. 

An example will help to illustrate the difference. Assume the control 

measure is the substitution of natural gas for fuel oil at industrial 

boilers. A cost-effectiveness evaluation would address costs to owners and 

operators of industrial boilers, such as the differential price between the 

two fuels, the extent to which new equipment is required (and its cost), 

changes to maintenance and operational costs, and the total emissions 

reduced by the measure. A socio-economic analysis goes several steps 

further. This type of analysis might examine the effect of the measure on 

natural gas availability, the potential for monopolistic pressures in the 

market, changes in fuel oil sales and resulting income and employment 

effects to fuel oil producers, the ethnicity of displaced workers, and any 

other effects that can be determined based on available data. 

Socio-economic analyses require a tremendous amount of data to perform 

adequately and may require a regional economic model. Only one air 

pollution control district has this capability at the present time: the 

South Coast Air Quality Management District. The South Coast District 

recently contracted with Regional Economic Models, Inc. (REMI) to develop an 
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econometric model for assessing indirect socio-economic impacts. The REMI 

model consists of economic and demographic elements (such as employment 

demand and occupation by industry, market shares by industry, population and 

labor supply) and can both forecast and simulate policy changes in a 

regional economy. REMI uses published data from the state and counties to 

link economic activities in the four-county air basin. 

The District's economic analyses for pending regulations currently 

identify the types of affected industries, the range of probable costs, the 

cost-effectiveness of control alternatives, and public health benefits. 

District staff plans to refine these analyses further in its 1991 plan 

using the REMI model. The District is devoting particular attention to job 

loss and impacts on ethnic groups. 

The Air Resources Board usually includes two socio-economic impacts in 

its cost analyses: cost to individual consumers and costs to small 

businesses. For each fuel regulation, the Board estimates the price change 

per gallon at the retail pump. For regulations affecting new motor 

vehicles, the Board computes the potential increase in new car prices on a 

per unit basis. Costs to small businesses are routinely identified in the 

staff reports accompanying regulatory proposals, and where they are found 

overly burdensome by the Board, form a basis for modifications to those 

proposals. 

IV. AVAILABLE METHODS FOR DETERMINING COST-EFFECTIVENESS 

Methods for Determining Cost 

There are two basic methods for evaluating the cost of individual 

control measures: the levelized cash flow method, and the discounted cash 

flow method. These are commonly referred to as "annualized" and "netpresent value," respectively. The first method is the simplest. The second 

method factors in the present value of future expenditures. The second 

method is used by both the Bay Area and South Coast Air Quality Management 

Districts, and is starting to be used more frequently by the Air Resources 

Board for fuel related measures. 

The annualized method translates capital cost into an equivalent annual 

cost, by multiplying capital cost against a factor which is a function of 

the interest rate and equipment life. The resulting annual cost is added to 

the yearly operating costs to get a total, levelized annual investment. The 

annualized method works best when capital costs are incurred in the first 

year only and the interest rate remains constant. 

The net-present value method calculates the cost of buying and 

operating pollution control equipment, over the equipment life, in today's 

dollars. With this method, annual operating costs are weighted and 

progressively lower weights are assigned to costs the farther they are from 

the present. These weighted annual costs are then added together and summed 

with the first year capital cost. The resulting figure represents the total 

costs associated with the control measure, in current dollars. 
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Both methods require the same essential information. The first order 

of business is to calculate capital and other costs associated with the 

control measure. "Capital cost" is the one-time, non-recurring expense of 

purchasing pollution control equipment and other hardware. "Other costs" 

might include operation, planning, research and development, installation, 

maintenance, enforcement, monitoring, and interest on borrowed money. 

Districts in the forefront of regulatory activity can provide much of 

the necessary cost information to other districts (though some adjustment 

for inflation and local conditions may be required). Appendix A contains 

worksheets developed by the South Coast AQMD that can be used to estimate 

costs for new stationary source controls. Vendors of pollution control 

technology and regulated industries can also be consulted, but districts may 

want to exercise some caution. Vendors eager for business have been known 

to underestimate control costs; it is best to rely only upon guaranteed 

prices and availability. Industry estimates, by contrast, may represent 

worst case or maximum possible cost. Cross checking all estimates with 

other districts and similarly situated industries is a good practice. 

For further information on cost calculation methods, districts can 

refer to Appendix IV-D of the South Coast AQMD's 1989 Air Quality Management 

Plan, entitled, "Discount Cash Flow Method As Applied to the Cost Analyses 

of Control Measures." Copies of Appendix IV-D can be obtained from the 

District. A simplified procedure for applying the annualized method is 

provided in Appendix B. Appendix C of this paper contains two formulas for 

applying the net-present method, based on the methods used by the Bay Area 

and the South Coast districts. 

Methods for Determining Effectiveness 

As noted in the Introduction and Definition sections, past estimates of 

the effectiveness of control measures have been usually expressed in terms 

of emissions reduced. This practice is consistent with the California Clean 

Air Act, which defines progress toward attainment in emission reduction 

terms (five percent per year, averaged over each consecutive three year 

period - Section 40914). The typical unit of measurement is tons per day or 

tons per year. The total quantity of tons reduced is calculated by 

comparing controlled emissions to what would otherwise have been emitted 

during each year of the equipment's life, then adding those emission 

reductions together. 

A crude estimate of emission reductions can be developed by applying 

control factors to future emissions inventories. Thus, a measure that 

achieves 852 control would reduce future emissions by 852. Better estimates 

can (and should) be developed by conducting surveys of affected industries 

to refine current and future emission estimates, factoring in any likely 

exemptions to the control measure (such as a threshold below which no 

control would be required), the degree of control already implemented, and 

the probable compliance rate. 
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In many cases, emission reduction estimates will be preliminary and 

subject to change. Districts may want to identify a range of estimates in 

their plans to reflect the uncertainties inherent in calculating emission 

reductions. 

In addition to using emission reductions as the basis for estimates of 

effectiveness, the Act's requirements can be met by using a more 

sophisticated measure of air quality improvements such as the change in 

ambient ozone expected. Some efforts have been made to express 

effectiveness in such terms. However, to do this, a reliable model of each 

pollutant's behavior in the atmosphere is essential. In 1982, the Bay Area 

AQMD attempted to define the air quality benefits of ozone precursor 

controls. The District ran sensitivity tests through its Livermore Regional 

Air Quality Model (LIRAQ), to see how the atmosphere responded to 

hydrocarbon reductions versus reductions in nitrogen oxides, phasing of 

controls, and the spatial distribution of emission changes. After observing 

the percent change in predicted ozone for various alternative strategies, 

the District developed effectiveness factors for individual control 

measures, and ranked those measures in terms of ambient impacts. The units 

for this analysis were parts per million of ozone (improvement or 

deterioration). 

Under current photochemical modeling protocols, the Bay Area's 1982 

analysis of control measure effectiveness is no longer deemed reliable. 

This is largely due to data limitations; there were insufficient field 

measurements to verify the performance of the LIRAQ model in 1982. Also, it 

has since been shown that critical input data were flawed. However, the Bay 

Area and several other districts are conducting new field studies and hope 

to have reliable models up and running for their 1991 plans. If successful, 

these districts will be able to compute the effectiveness of control 

measures in both emission reductions and air quality terms, and may wish to 

employ an approach to cost-effectiveness that considers the cost per unit of 

air quality improvement. 

There is no reference document for calculating cost-effectiveness in 

air quality terms nor any acknowledged "state-of-the-art." The Bay Area's 

1982 plan and 1988 Reasonable Further Progress Report are instructive 

though, as to the approach used in that District. The Air Resources Board's 

Technical Guidance Document on photochemical modeling provides ample 

assistance on developing the tools for air quality analysis. That document 

also contains, as an appendix, a brief report on the feasibility of using 

photochemical models and other techniques to distinguish between emission 

control measures. 

Districts using the modeling approach may want to qualify their costeffectiveness findings and rankings. Photochemical modeling adds an order 

of complexity to cost-effectiveness evaluations. Furthermore, all modeling 

applications have some degree of uncertainty. Where modeling uncertainties 

exceed the magnitude of the measures being evaluated, caution is indicated. 

Care must be taken to avoid mistaking modeling "noise" for actual results. 

The Board's technical guidance on photochemical modeling discusses this 

consideration in detail. 
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Putting It All Together 

The preceding sections described methods for determining cost and for 

determining the effectiveness of individual control measures. Costeffectiveness is the ratio of these two outputs and its relationship to 

other control measures. 

When matching one output (cost) to the other (effectiveness), the most 

important consideration is the timeframe. It is critical that cost and 

effectiveness be calculated for the same period. It's also critical that 

the district use a consistent approach when comparing various types of 

measures to one another. The subject of timeframes - what is appropriate 

and what is not - is discussed in the following chapter. 

The greatest obstacle to cost-effectiveness determinations is limited 

data. It is not always possible to precisely determine the emission 

reduction potential or air quality impact of future control measures, 

particularly those which force the development of new technology. Costs may 

be equally hard to predict before the components of a rule or regulation 

have been fully hammered out and the affected industry has had an 

opportunity to comment. Reasonably complete analyses and informed judgment 

are the best tools each district has at its disposal. 

V. SPECIAL TOPICS RELATED TO COST-EFFECTIVENESS EVALUATIONS 

Accounting for Multi-Pollutant Reductions 

Some control measures may reduce more than one pollutant. How is costeffectiveness handled in this circumstance? One option is to divide control 

costs by the total reductions of the most important pollutant. This 

approach makes sense when the control is targeted at a single pollutant, and 

the additional reductions are merely side benefits. Another option is to 

apportion costs across each of the pollutants reduced, e.g., to assign 402 

of the costs to one pollutant and 602 to another. The latter approach makes 

sense when both pollutants must be reduced in order to achieve air quality 

objectives. 

It is not appropriate to apportion costs to pollutants that are not 

targeted for control. The cost-effectiveness calculations should only be 

conducted for those pollutant emissions that pertain to the standard or 

objective to be met. Assuming the goal is to meet ozone and carbon monoxide 

(CO) standards, and the measure in question reduces hydrocarbons (HC), 

nitrogen oxides (NOx), CO and particulate matter (PM), the total cost could 

be apportioned among HC, NOx and CO, but not PM. 

A simple way to apportion costs is to treat all emissions as the same. 

Thus, HC, NOx, PM, and CO tons are added together to create a total ton 

figure, and the control measure costs are divided by this sum. The one 

drawback to this approach is that it assumes all reductions are equally 

effective or valuable. It also results in misleading cost-effectiveness 

estimates for vehicular measures, since CO reductions typically exceed HC 

and NOx reductions by a factor of seven. This latter effect can be 

corrected by discounting CO reductions by a factor of seven, or by assigning 
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an equal percentage of the costs to each pollutant of concern without regard 

to their quantities. 

Another apportionment method is to weight individual pollutants by 

their ambient impacts. Such variable weighting may be especially 

appropriate for ozone precursors, since the effectiveness of HC and NOx 

reductions varies based on existing pollutant concentrations. Determining 

the appropriate weights requires a photochemical model, though, that can 

reliably distinguish between HC and NOx reductions. Variable weighting may 

also be appropriate hydrocarbons with different reactivities (this is 

discussed further below). 

Assessing Transportation Control Measures 

Transportation control measures (TCMs) are those measures that reduce 

vehicle miles travelled, idling, traffic congestion, or vehicle trips for 

the purpose of reducing vehicular emissions. Transportation control 

measures include both direct regulatory strategies (like ridesharing rules) 

and modifications to the overall transportation system (e.g., adding High 

Occupancy Vehicle lanes). 

Transportation control measures, unlike direct controls on stationary 

or mobile sources whose sole purpose is improved air quality, are designed 

to meet several different societal needs. These include increased mobility, 

greater public safety, air quality protection, and efficient movement of 

goods and people. The costs of TCM's have to be allocated among all their 

purposes and benefits. Some transportation projects may also have extremely 

long depreciation periods given their extraordinarily high capital costs. 

This makes comparisons to industrial controls difficult. Costs may need to 

be depreciated over a number of decades. Industrial controls are typically 

depreciated over 10 years - the presumed "useful life" of the control 

equipment. 

Identifying which TCM costs are attributable to air quality objectives 

is quite difficult. There is no accepted method for assigning costs to 

various objectives. Furthermore, the costs of the TCM's themselves often 

defy analysis. Where road construction and maintenance stops and TCM's 

begin is a matter of judgment, often subjective judgment. 

Because of these differences, the cost-effectiveness of TCM's requires 

special consideration. The plan should try to provide cost and emission 

estimates for TCM's. To the extent that costs can be determined and 

effectively assigned to various objectives, those estimates should be 

included in the plan and the cost-effectiveness of the TCM for its 

contribution to reduced emissions or improved air quality can be compared 

with other measures. However, where such an apportionment of costs is not 

possible, TCM's need not be compared directly with other control measures in 

a district's plan. 

Selecting an Appropriate Timeframe 

The timeframe over which costs are considered can make a considerable 

difference as to which measures will be more cost-effective. A project 

involving a large capital investment may be highly cost-effective in the 

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P.15 

long run, yet will rate low in cost-effectiveness if evaluated over a short 

timeframe. 

The objective of the California Clean Air Act's ranking requirement is 

to put all measures on equal footing. This suggests that a similar 

timeframe should be used for all, but that clearly disadvantages some of the 

longer term measures. It also ignores differences in the service life of 

various control technologies. 

Cost-effectiveness could be computed using the actual service life of 

each control measure, whatever that service life happens to be. This would 

tend to equalize short term versus longer term measures. Cost-effectiveness 

could also be calculated using the projected attainment date as a cut off. 

This would prevent unreasonably long depreciation periods, but would not 

account for measures needed to maintain state standards. Lastly, a common 

depreciation period could be used for all measures, the drawbacks noted 

above notwithstanding. As may be obvious from this discussion, there is no 

perfect method. 

District plans should identify which of these approaches was used to 

calculate the cost-effectiveness of available measures. 

Adjusting for Reactivity 

Not all hydrocarbons are the same. Highly reactive hydrocarbons tend 

to accelerate the build-up of ozone in the atmosphere when sufficient 

quantities of NOx are present. The Board and many districts would like to 

account for these differences when designing control strategies and when 

computing cost-effectiveness of various hydrocarbon measures. 

Like other factors in ozone formation, reactivity is best understood 

through the use of a photochemical airshed model. But questions have been 

raised. Is there a simpler method? Can specific reactivity factors be 

applied to individual hydrocarbons? If that were possible, the Board and 

the districts could assign a higher value to the measures that reduce the 

most reactive hydrocarbons. 

The Board has been working on just such a method as part of its 

upcoming low emission vehicle/clean fuel regulations. Relying on the work 

of Dr. William Carter of the State Air Pollution Research Center at the 

University of California Riverside, staff is proposing to create reactivity 

adjustment factors from the identified "maximum incremental reactivity" for 

each hydrocarbon. Incremental reactivity is the change in ozone caused by 

the addition of a small increment of hydrocarbons to a polluted environment, 

divided by the amount of hydrocarbons added. The maximum reflects the 

highest ozone forming potential under a set of assumed conditions. 

Dr. Carter's work and the staff's proposal are described in the technical 

support document for the proposed low emission vehicle/clean fuels 

regulations, and is included in Appendix E of this document. 

Much work remains to be done. This year, Dr. Carter will recalculate 

the maximum incremental reactivities using environmental conditions that are 

representative of ozone episodes in California. The uncertainty bounds will 

also be calculated to account for gaps in the current understanding of 

atmospheric chemistry. 

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Districts wishing to make reactivity adjustments will need to speciate 

hydrocarbon emissions data. Districts may also need to account for regional 

differences in atmospheric chemistry or pollutant loading. The Board's 

approach is necessarily generic, because motor vehicle and fuel measures 

have statewide application. This approach may not be supportable for 

individual jurisdictions. 

VII. RELATIONSHIP OF COST-EFFECTIVENESS TO OTHER CONSIDERATIONS 

Cost-effectiveness is just one of several criteria that must be 

considered in the planning process. The California Clean Air Act expressly 

states that "priority shall be placed on the goal of healthful air" (Section 

40910), and requires districts to consider all of the following when making 

regulatory choices: 

Technological feasibility: Districts may want to take advantage of the 

best available control technology, even if it is not the cheapest 

alternative on a per ton basis. Conversely, highly cost-effective 

measures that are not technologically feasible may be assigned low 

overall priority until their feasibility improves. 

Total emission reduction potential: Two measures with the same costeffectiveness may have vastly different emission reduction potential. 

One might reduce emissions by a half ton; the other by 12 tons - even 

though both have a cost-effectiveness of $8,000/ton. Districts may be 

obliged to adopt the latter measure first to meet the Act's five 

percent annual emission reduction requirement. Districts may also 

adopt measures that are less cost-effective on a dollars per ton basis, 

if the potential emission reductions are greater. For example, a rule 

that achieves 15 tons per day reductions at a cost of $10,000/ton may 

be adopted and implemented before a rule that achieves 2 tons per day 

reductions at $7,000/ton. 

Rate of reduction: The Act places priority on expediency. The 

earliest practicable attainment date must be considered in developing 

adoption and implementation schedules. However, balance is important. 

Long term strategies are needed in several areas to attain and maintain 

healthful air quality. Investing in these strategies is important, and 

should not be neglected when designing the 1991 plans or in setting 

regulatory priorities. 

Public acceptability: Some measures that would be highly costeffective may be unacceptable to the public. No-drive days or highrise 

developments to limit trips are two cogent examples. Lack of public 

support does not mean that the mandates of the Act can be set aside. 

When unpopular measures are critical for attainment, public support 

needs to be built. But while public education and outreach are 

changing peoples' attitudes, districts may wish to move ahead on more 

acceptable measures. 

Enforceability: Volunteerism, market incentives, and other flexible 

approaches may be less costly than traditional command and control 

regulations. Without sufficient monitoring and enforcement methods, 

12 
P.17 

though, the presumed emission reductions may never come to pass. 

Districts must consider these difficulties when crafting their plans. 

Although not explicitly required by the Act, districts may consider any 

and all other factors they deem relevant. Possible considerations include 

energy conservation, water conservation, waste minimization, global warming, 

and potential reductions in toxic air contaminants. 

VI. DISTRICT OPTIONS FOR SATISFYING COST-EFFECTIVENESS REQUIREMENTS 

Every district subject to the planning requirements in the California 

Clean Air Act must address the cost-effectiveness provisions. Failure to do 

so would be inconsistent with the Act, could provoke criticisms during the 

plan adoption process, and may subject districts to legal challenge. 

The cost-effectiveness presentation can be simple. The chief objective 

is to identify the costs associated with various control measures. Being 

consistent, straightforward and reasonably thorough is sufficient. 

Districts may choose to perform cost-benefit or socio-economic analyses, but 

that is not necessary to satisfy the requirements of the Act. 

Cost-effectiveness calculations may be preliminary and approximate. It 

is important to remember that cost and effectiveness estimates will be 

substantially refined in the rulemaking process. The plan need only relate 

the best available information. The districts need to make this information 

and the methods used to calculate cost-effectiveness available to the 

public, and should seek public comments on the methods used through 

workshops or other review mechanisms. 

The cost-effectiveness evaluations need only go so far as the plan 

itself. If the cost or effectiveness of any individual measure is unknown, 

ranking that measure can be deferred until the second (or third) plan 

revision. This is especially true for future study measures and contingency 

measures the district is not expressly committing for adoption. We suggest 

grouping such measures under a heading - "Controls for which costeffectiveness cannot currently be determined" - or a similar title so that 

it is clear that cost-effectiveness was considered, but could not be 

adequately quantified. 

Districts may rank measures by several different indices as long as the 

plans include at least one list that ranks measures from the most costeffective to the least cost-effective. We suggest that a separate list be 

prepared for each pollutant and for each precursor, to facilitate 

comparisons between measures. Districts do not have to include lists for 

pollutants that are not part of their attainment strategy. 

Districts are not obligated to adopt or implement control measures in 

rank order of cost-effectiveness. As discussed in detail above, the 

California Clean Air Act mandates consideration of several different factors 

and places an emphasis on expeditious attainment. But districts must 

consider cost-effectiveness ranks when developing rulemaking schedules for 

individual measures. This can be accomplished by cross-referencing the 

annual regulatory calendar required under Section 40923 to the costeffectiveness lists in the plan, or by mentioning cost-effectiveness 

13 
P.18 

rankings in the public notice documents and staff reports for individual 

controls. The Plan itself will serve as documentation for each district's 

chosen schedule. 

The districts and the Board share responsibility for calculating cost 

effectiveness estimates, but districts are responsible for compiling that 

information into a single analysis. Districts must calculate costeffectiveness for all control measures under local jurisdiction. This 

includes stationary sources controls, transportation control measures, 

controls for area sources, and indirect source controls. The Air Resources 

Board will provide districts with cost-effectiveness data for mobile source, 

consumer product, and utility engine controls, so that these measures can be 

compared with those subject to local jurisdiction. 

14 
P.19 

REFERENCES 

(1) Bay Area Air Quality Management District. "Calculation Sheet for 

Equivalent Annual Cost." 

(2) Environmental Reporter. "EPA Draft Guidelines for Performing 

Regulatory Impact Analysis Under Executive Order 12291". July 16, 

1982, p. 386. 

(3) South Coast Air Quality Management District. Draft Best Available 

Control Technology Guidelines. October 7, 1988. 

(4) . Final Appendix IV - D. Discount Cash Flow Method as Applied to 

the Cost Analvsis of Control Measures. March 1989. 

(5) . Final Report. Public Health and Socio-Economic Task Force. 

February 1990. 

15 
P.20 

Appendix A 

STATIONARY SOURCE CONTROL COST CALCULATION WORKSHEETS 

(South Coast Air Quality Management District) 

Following is a brief discussion on some frequently 

encountered capital and annual operating cost elements, 

along with an associated list of assumptions. (In the event 

costs are not readily available, default values are given in 

parentheses.) 

II-A.l CAPITAL COSTS (assumed to occur only in the first 

year) 

Equipment purchase, costs: 

Accessory costs: 

Transportation & sales tax: 

Installation costs 

Engineering costs (§ $50/hr) 

Contingency costs 

Total capital costs ; 

Equipment costs 

For cost analysis, the equipment requirements have to be 

specified properly. The specifications include, but not 

limited to, the contaminants being treated, the type of addon controls required, contaminant concentrations in the 

exhaust, the exhaust flow rate, the temperature of the 

exhaust gas, and the operating hours of the equipment. 

Accessory costs 

Sometimes, accessory costs can constitute up to 30% of the 

equipment cost. They include, but are not limited to, the 

following: 

o Piping for steam, water, or electricity 

o Instrumentation 

o Ductwork for inlet and outlet gases 

o Insulation 

o Booster fans 
P.21 

Transportation costs 

Relatively speaking, transportation costs are fairly minor 

in most cases. However, if the specified control equipment 

requires special handling or if there is a recurring need 

for transportation during the project, such as frequent 

shipping in raw materials and transport of waste products, 

transportation costs could be quite significant and should 

be addressed. 

Installation costs 

These include material and labor for: 

o Site preparation 

o Construction of platforms 

o Actual installation of equipment and accessories 

Engineering costs 

o System specification/creation/design 

o Performance testing of the equipment 

o Start-up 

Contingency costs 

Contingency costs are costs that are expected to occur but 

are uncertain at the time of the cost estimation. These 

uncertain costs are minimal for mature technology but are 

significant for newer technology. A maximum of 10% of 

capital for mature technology and a maximum of 3 0% for 

untried technology are recommended1. 

"Please see EPRI, 1982 for more details. 
P.22 

II-A.2 ANNUAL OPERATING & MAINTENANCE COSTS 

Raw material costs 

Fuel costs 

Other utility costs 

Maintenance costs (5% of equip.) 

Operator costs ($25/hr) 

Engineer costs ($50/hr) 

Miscell. credits 

Waste processing costs 

Total annual operating costs 

Annual operating hours 

Multiply the number of operating hours a day by the number 

of working days a year. 

Raw material costs 

Multiply raw material costs per hour by the annual operating 

hours. 

Fuel/Utilities costs 

Multiply the utilities used per hour by the cost per unit. 

Then multiply the product by the annual operating hours. 

Maintenance costs 

Multiply the average wage of the maintenance personnel per 

hour by the average annual hours used by the maintenance 

personnel to repair the equipment. 

Operator costs 

Multiply operator cost/hour by operator annual hours. 
P.23 

Waste disposal costs 

These costs apply only to the waste created by the pollution 

control equipment. In other words, this cost pertains to 

the cost that would not have existed if the firm did not 

have to install the control equipment. The waste costs that 

fall into this category are associated with: 

o 

o 

o 

o 

Waste handling or treatment prior to shipment 

Waste transportation 

Waste regulatory fees 

Waste disposal or waste offsite treatment 

Miscellaneous credits 

As a result of installing the compliance technology, a firm 

may generate some cash inflows—defined here as credits. 

These credits could accrue from several sources, e.g,: 

o Product recovery (e.g., solvent recycling) 

o Reduction in treatment and disposal costs ( e.g., less 

solvent waste to be treated) 

o Reduction in liability to workers (e.g., reducing 

exposure to dangerous materials) 

o Reduced fire hazards, that may transalate into reduced 

insurance premiums 

o Reduction in regulatory fees (e.g., emission fees) 

II-A.3 ASSUMPTIONS 

Equipment's economic life (n) (10 yrs) 

Market rate of interest (r) (9%) 

Expected inflation rate (i) (5%) 

Hence, Real interest rate (r - i) (4%) 

Tax rate (t) (45%) 

Equipment's economic life 

It is defined as the economically viable life expected of 

the equipment. This may be different from the actual life 

over which the equipment is expected to last. Competition 

and technology changes could make the economic life much 

shorter than the actual life. For long lived equipment, an 

economic life of 10 years is assumed. 
P.24 

a 

Q?* -

Inflation rate 

It is the anticipated annual inflation rate over the 

economic life of. the equipment. All annual operating costs 

are assumed to be adjusted by this rate. 

Market interest rate 

It is the average annual interest expected over the 

equipment's economic life. The interest rate on a 10 year 

Treasury bill would be a good proxy. 

Effective corporate tax rate 

o Federal taxes 35% 

o State taxes 10% 

o Total 45% 

Price indices 

Ideally, up-to-date price quotes should be obtained from 

vendors. If that is not possible due to time or manpower 

constraints, price indices can be used to convert prices in 

previous years to prices in the current year. For chemicalrelated equipment, the Chemical Plant Cost Index should be 

used. The Consumer Price Index should be used only as a 

last resort, when other more appropriate indices are not 

easily available. 

 
P.25 

Appendix B 

PROCEDURES TO CALCULATE ANNUALIZED COSTS 

This is an example of using the annualized method of estimating the 

cost-effectiveness of a control measure that will help attain the ozone 

standard. For this example, the following is assumed: 

o Equipment life 10 years 

o Real interest rate 6 percent (Real interest rate equals the actual 

interest rate assumed to be 10 percent minus 

the rate of inflation assumed to be 4 

percent) 

o Emissions reduced 10 tons per day 

o Capital costs $10 million 

o Annual operating costs $1 million 

The first step is to calculate the annualized capital costs. This is 

done by determining the Capital Recovery Factor obtained from standard 

Compound Interest Factor tables. In this example, using an equipment life 

of 10 years and a real interest rate of 6 percent, the Capital Recovery 

Factor is .136 (rounded). To get the annualized capital costs, multiply the 

estimated capital costs by the Capital Recovery Factor: 

$10 million times .136 = $1,360,000 in annualized capital costs 

The second step is to add the annualized capital costs to the annual 

operating costs to obtain the annualized cash flow: 

$1,360,000 + $1,000,000 = $2,360,000 

The third step is to divide the annualized cash flow by 365 days per 

year to obtain the daily cash flow: 

$2,360,000 / 365 = $6466 

The final step is to divide the tons per day in emissions reduction 

into the daily cash flow to obtain the dollars per ton cost: 

$6466 / 10 TPD = $646 per ton reduced 
P.26 

Appendix C 

PROCEDURE TO CALCULATE NET-PRESENT VALUE: SCAQMD METHOD 

To determine the cost of control in terms of dollars per ton 

of emissions reduced, the present value of the equipment and 

its operating costs are first calculated. This is done by 

using a present value factor to convert the annual 

equipment's operating cost into a fixed sum, and adding that 

sum to the capital cost. This present value is then divided 

by the emissions reduced over the life of the equipment: 

Cost of Control = 

Present Value 

Emissions Reduced Over the Equipment Life 

II-B.l PRE-TAX PRESENT VALUE 

To calculate the pre-tax present value, the following 

formula should be used: 

PV - C + A*PVFl(n,r-i) 

where C = upfront capital outlay, 

A = annual operating costs, 

n = economic life of the project, 

r = market interest rate, 

i = inflation rate, and 

PVF1 = present value factor 1, calculated from 

the formula in II-B.4. 

For example, if n=10 years, r=10%, i=6%; PVF1 =8.11 

II-B.2 POST-TAX PRESENT VALUE 

The present value of the equipment can be calculated after 

adjusting for inflation, taxes, and depreciation: 

PV = A*(l-t)*PVTl(n,r-i) - D*t*PVF2(f,r) 

where t = the tax rate, generally 45% 

n = the economic life of the project, 

D = depreciation, where D = C/f 

f = the period over which the equipment can be 

written off, generally 5 years. 

PVF2 = present Value Factor 2, given by the 

formula in II-B.4. 
P.27 

For example, if f=5 years, r=10%, i=0%; PVF2 = 3.79. 

(Unlike the "real" annual operating component, depreciation 

is a "nominal" component. Hence, the interest rate used for 

the latter is also nominal). 

II-B.3 STEPS TO CALCULATE PRESENT VALUE 

To calculate pre-tax present value, use only steps l, 4, 5, 

6, and 8. To calculate post-tax present value, use all the 

following steps. 

1) Add all the components of the annual operating costs. 

2) If taxes are considered, multiply the sum of the annual 

operating costs by (1-tax rate), where the tax rate is 

the marginal corporate tax rate. 

3) Again, if taxes are considered, and assuming that the 

salvage value is zero, calculate the annual straightline component of depreciation by dividing the capital 

costs by its write-off period, typically 5 years. 

Multiply this component by the tax rate. 

4) Select a market interest rate, e.g., 10%. Adjust the 

market interest rate for inflation, e.g., 6%, by 

subtracting the inflation rate from the market rate. 

The adjusted rate is known as the "real" interest rate 

which, in this case, is 4%. 

5) Select two present value factors (PVF1 and PVF2). The 

PVFs are functions of interest rates and equipment 

lives. These can be obtained from the PVF formula in 

II-B.4. For a 10-year equipment life and a 4% real 

interest rate, PVF1 is 8.11. For a 5-year depreciation 

period and a market interest rate of 10%, PVF2 is 3.79. 

6) Determine the present value of the annual cost, by 

multiplying the result from Step l (or Step 2 If taxes 

are taken into account) by PVF1. The product is known 

as the present value of the annual operating cost. 

7) Determine the present value of the tax-adjusted 

depreciation component by multiplying the result from 

Step 3 by PVF2. This gives the present value of the 

annual depreciation. 
P.28 

8) Add the present values of the annual cost from Step 6 

and the present value of the annual depreciation from 

Step 7 to the first year capital cost. This would give 

the total present value of the capital investment. 

The cost of control per ton of emissions reduced is 

calculated by dividing the total present value, from Step 8, 

by the amount of emissions reduced over the life of the 

equipment. 

The formulae in Section II-B.l and II-B.2 need to be 

adjusted for more complex situations such as changing 

interest rates or changing annual cash flows over time, the 

occurence of capital costs beyond the first year, risk 

factors, etc. A more generalized DCF formula would be 

needed: 

n 

NPV = Q CF/(l+r)t 

t=0 

where NPV is the net present value, 

CF is the net cash flow in period "t", 

r is the weighted equity and debt discount rate that 

could vary in each period, and 

n is the life period of the cash flow 

zSee EPA 1985 for more details. 
P.29 

II-B.4 FORMULA TO CALCULATE PRESENT VALUE FACTOR fPVF^3: 

This formula is valid for discrete cash flows. It 

calculates the Present Value of a $1 spent every year for 

"n" years: 

PVF = {1 - 1/(1 + r)n)/r 

where "r" is the interest rate. 

This is an formula based on an approximate inflation 

adjustment. For 10% nominal interest rate, 6% inflation 

rate and 10 year economic life, this varies from the exact, 

but more complex, adjustment by less than 5% . 

JMost spreadsheet software packages, like Lotus, provide 

present value functions. 

4The exact formula for the PVF is = 

[1 - 1/(1 + ir)

n] 

ir d + f) 

where ir = (i - f)/(l + f) , 

i = nominal interest rate, and 

f = inflation rate 
P.30 

Appendix "D 

PROCEDURE TO CALCULATE NET-PRESENT VALUE: BAAQMD METHOD 

The District is working (with co-lead agencies ABAG and MTC) on an update to 

the regional Ozone Nonattainment Area Plan. 3AAQMD responsibilities in this 

project include air quality modeling, evaluation of stationary source controls, 

and attainment strategy development. For the 1982 Plan we developed a new 

technique to compare and rank alternative control measures. The procedure is 

simple in principle, but innovative in its combination of air quality modeling 

and economic analysis. We wish to retain this methodology in the present Plan 

Update. The information below is intended as guidance for those evaluating 

candidate control measures. It sets forth the assumptions and definitions 

required to keep the economic assessments consistent, so that the various 

measures can be compared and ranked objectively. 

I. GOAL - To provide realistic and consistent cost estimates for various 

proposed control measures. 

II. BASIS OF COMPARISONS/RANKING - Measures are rzr.tei ir. tersis cf cost per 

unit ozone reduction; the units are $/pphm. Costs are expressed as equivalent annual costs (EAC) in 1987 dollars. The methodology for calculating 

EAC is given in section III below. A photochemical model is used to estimate the ambient ozone reduction achievable from the control measure. The 

ozone reduction will depend on the amount of precursor (HC and N0X) emission reductions, and their chemical composition and reactivity. 

III. PROCEDURE TO CALCULATE EQUIVALENT ANNUAL COST 

A. Assumptions: 1) time period to be considered is 12 years from Jan. 1, 

1988 to Dec. 31, 1999. 2) discount rate = 10% per year. 

B. Estimate precursor emission reductions attainable, year-by-year during 

the 12-year period, assuming a reasonable schedule for rule development, adoption and implementation.(columns 1 and 2 of Table 1) 

C. Estimate the year-by-year direct costs required to achieve the emission 

reductions. Consider capital costs, maintenance, repair, and operating 

expenses.* (columns 3 and 4 of Table 1) 

D. Convert the year-by-year costs to present value, using the factors** in 

column 5 of Table 1. Enter the present values in column 6. 

E. Add the individual year present values to get a Total Present Value 

(Total of column 6 in Table 1). TPV represents the sum which, if 

available and invested at 10% return, would cover all of the estimated 

costs of the control program as listed in columns 3 and 4. 

F. Multiply the TPV by 0.147 to get the Equivalent Annual Cost (EAC). 

This is ihe uniform annual expenditure from 1988 through 1999 which 

would be equivalent to the actual (non-uniform) costs of the controls. 

* If no better information is available, annual "MRO" is often assumed to be 10% 

of capital costs. 

**These factors are a function of the discount rate, and are sometimes called 

"present worth" factors. 

NOTE: A widely used (but less relevant) cost comparison is on the basis of $ per 

ton of precursor organic reduction. This value can be obtained from Table 

1 by dividing TPV (column 6) by Total Tons, from column 1. 
P.31 

TAeteL. CALCULATION SKC T FOR-^owManr P\NNU*L C&ST* 

VJo^luzd. e)tcv*\&&Z, q.s^w^w\v^cm*tJLloA^ce. ddte.% \/\/*)0 *~*C */\/l& •' 

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Precursor ReAac^o^ 

ROG 

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TOTALS ! \2.3 

(x3C5=) 

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To-ta\ To vis 

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1.71% 73<= 

i • > 

T P V 

(x0.\41 = 

E7\C-#^ 2^

C 

•*• Faawalew-r Annual Cost EAC= . \ 

uiUcve; "TPV - "fotal R-esswt Value. ( I + P\\ 

f? - Discc?uwt fcxte. = CUO ) 

^ ^ R'esen-t Value. =• 

Cost .n Mg^v ><- W 

Pvese 
P.32 

TABLE 1. CALO)LAT\OU SvtECT FOR G^OWALBNT ^NUAI L COST* 

Cov\Wc\ NWsiire. 

TPV x R 

-*- Equivalen t Annual Oos"t EAC — 

uiKeve-: TT V = Total ReseatVxUe . 

K =• Discount Pa.+e = o.W 

=• 0.147 x TP V 

(l + R) m 

•X^ R'esewt Value =• 

J=? /9ft » ;W i 

Co&t tn Me<xv <c 

0 + R)* x-/ W Pve se wt Vd.1 u «, -foctpv =r (\ +R ) 

W 
P.33 

f 

Appendix E 

DETERMINING REACTIVITY 

INTRODUCTION 

The staff of the Air Resources Board (ARB) proposes to use the 

"maximum incremental reactivity" of each hydrocarbon to develop 

hydrocarbon reactivity adjustment factors for low-emission 

vehicle/clean fuel regulations in California. All vehicle/fuel 

combinations will have to meet the same emission standards for oxides 

of nitrogen (NOx), formaldehyde, evaporative hydrocarbons and carbon 

monoxide. 

Conditions of maximum incremental reactivity occur well within 

the range of hydrocarbon to NOx ratios observed in California. The 

linearity assumption Implicit 1n Incremental reactivity appears valid 

up to a 30S change in bas1n-w1de hydrocarbon emissions. The 

reactivities correlate well with ozone dose in a wide variety of cityspecific box model scenarios, Including those with hydrocarbon to NOx 

ratios far higher than maximum reactivity conditions. 

In May 1990, Dr. William Carter of the Statewide Air Pollution 

Research Center at the University of California at Riverside 

determined an Interim set of maximum Incremental reactivities for 

Individual hydrocarbons, based on environmental conditions 

representing a wide variety of ozone episodes throughout the United 

States. During the same time frame, Professor Arm1stead Russell of 

Carnegie Mellon University calculated incremental reactivities for a 

limited number of hydrocarbons with his airshed model for comparison. 

Other groups will compare these Incremental reactivities with values 

derived from other chemical mechanisms and models. Dr. Carter's 

interim reactivities, presented in Appendix A-l, are proposed for 

adoption in the regulation for calculating reactivity adjustment 

factors until the final reactivities are available in 1991. 

By the end of 1990, Dr. Carter will recalculate the maximum 

incremental reactivities using environmental conditions representative 

of ozone episodes in California, and estimate an uncertainty bound on 

each reactivity due to gaps in the current understanding of 

atmospheric chemistry. Therefore, fuel suppliers and vehicle 
P.34 

manufacturers will better understand the risks of tailoring fuels and 

control technologies to remove specific hydrocarbons. 

From now until the end of 1991, the staff will develop reactivity 

adjustment factors with hydrocarbon speciation profiles from 

vehicle/fuel emission tests. Professor Russell will use the 

reactivity-adjusted vehicle emission standards to predict if the 

regulations will have the intended effect of equal ozone impacts for 

any vehicle/fuel combination. These calculations will be repeated 

when the Southern California Air Quality Study (SCAQS) modeling work 

is complete. 

The ARB will continue to sponsor laboratory studies to reduce 

uncertainties in incremental reactivities, particularly for aromatic 

compounds, and to review research sponsored by other organizations. 

The staff plans to update the reactivities for individual hydrocarbons 

every three years. 

In the following sections, 

reactivity adjustments and a br 

ozone formation are provided, 

reactivity that can be used to 

vehicles are evaluated, and the 

Incremental reactivity approach 

protocols to develop reactiviti 

calculate the hydrocarbon react 

background information on the need for 

1ef discussion of the fundamentals of 

Next, the available measures of 

compare emissions from alternate fueled 

reasons for selecting the maximum 

are discussed. In the final section, 

es for individual hydrocarbons and to 

1v1ty adjustment factors are given. 

Traditionally, an emission standard sets limits on the amounts of 

non-methane hydrocarbons, carbon monoxide and NOx permitted from 

automobiles during standardized emission tests. Non-methane 

hydrocarbon emissions are composed of many different hydrocarbons and 

other organic gases. (The terms hydrocarbon and organic gas will be 

used interchangeably throughout the document.) Some of these 

hydrocarbons can lead to much higher ozone levels than others. So 

long as all automobiles with similar control technologies burn similar 

fuels, the mix of emitted hydrocarbons Is roughly the same, and there 

1s no need to consider the mixture in setting standards. However, the 

mix of emitted hydrocarbons can be very different when automobiles 

burn different fuels or use different control technologies. 

While current emission standards apply to non-methane 

hydrocarbons measured by standard techniques, other organic gases 

emitted by automobiles also play Important roles in the ozone problem. 

Methanol and acetaldehyde are examples of non-regulated organic gases 

that must be considered in order to evaluate ozone impacts due to the 

use of different fuels. 

& 
P.35 

4 

•7 

'f 

d 

.A 

a» 

51 

VI. 

OZONE FORMATION 

The fundamentals of ozone formation in the troposphere have been 

described elsewhere (Finlayson-Pitts and Pitts, 1986; Atkinson, 1990), 

and only the key points are summarized here. 

A. OXIDES OF NITROGEN VERSUS HYDROCARBON CONTROL 

Oxides of nitrogen are required for ozone formation. If NOx were 

not emitted, ozone formation would not occur. Hydrocarbons greatly 

enhance the build-up of ozone from NOx. If hydrocarbons were absent, 

ozone concentrations would remain acceptably low. Oxides of nitrogen 

have a shorter lifetime 1n the atmosphere than hydrocarbons, and their 

natural emissions are negligible. Therefore, man-made emissions of 

NOx ultimately limit how much ozone will be formed. Controlling NOx 

Increases the rate of Initial ozone formation, and may cause higher 

ozone near the source, where ozone concentrations are well below their 

peak values. 

Controlling hydrocarbons slows the rate at which ozone builds up. 

The benefits of controlling hydrocarbons are greatest near the source, 

and less for the peak ozone concentrations downwind. Any 

comprehensive ozone control strategy needs to reduce the emissions of 

both NOx and hydrocarbons. 

B. REACTIVITY 

The most basic definition of reactivity is the tendency of an 

organic gas to contribute to the build-up of ozone in atmospheres 

containing NOx. Carter and Atkinson (1987) have approximated 

reactivity as the product of two components, the fraction of the 

hydrocarbon that reacts over the course of a day (kinetic reactivity) 
and the amount of ozone formed by the fraction reacted (mechanistic 

reactivity). 

For most hydrocarbons, reaction with hydroxyl radicals is the 

only significant route towards ozone formation. Therefore, their 

kinetic reactivity can be calculated from the hydroxyl radical rate 

constant and radical levels. The hydroxyl radical rate constant has 

been measured (Atkinson, 1989) or can be estimated (Atkinson, 1987) 

for most hydrocarbons. Reactions of alkenes with ozone, and 

photolysis of aldehydes and ketones are alternate routes toward ozone 

formation. These rates of reaction are also known (Atkinson, 1990). 

In contrast to the kinetic reactivities, the mechanistic 

reactivities are uncertain for most hydrocarbons (Atkinson, 1990). 

Suitable laboratory data are available for testing the mechanisms of 

only a limited number of hydrocarbons, and the mechanisms for most 

other compounds are based on estimates and extrapolations (see Table 

VI-1). The mechanistic reactivities for higher molecular weight 

hydrocarbons are particularly uncertain. 

An additional complication is that laboratory (Carter and 

Atkinson, 1987) and modeling studies (Dodge, 1984; Carter and 

Atkinson, 1989) show that mechanistic reactivity is a complicated 

function of environmental conditions, particularly NOx levels. Some 

hydrocarbons that are normally considered to be highly reactive, such 

as aromatics, can even slightly suppress ozone build-up under low NOx 

conditions. 

C. HYDROCARBON AND OXIDES OF NITROGEN DATA IN CALIFORNIA 

The ratio of hydrocarbons to NOx serves as a useful measure of 

the relative availability of NOx. Table VI-2 summarizes 6:00 to 9:00 

a.m. PDT average hydrocarbon to NOx ratios measured during the summer « 

of 1989 1n California. The ratio is quite variable from site to site | 

and from day to day at the same site. The ratio also varies across an | 

air basin (Lonneman and Sella, 1989). % 

Observed hydrocarbon spedatlon data are very similar at the | 

sites listed in Table VI-2. The spedatlon is consistent with motor .£ 

vehicle exhaust and any inconsistencies can be attributed to 

stationary sources (Poore et al., 1990). There are very few 

measurement programs for formaldehyde, the single most important 

contributor to reactivity, but primary emissions of formaldehyde 

appear to correlate well with early morning carbon monoxide and NOx 

concentrations (Lawson et al., 1990; Fujita et al., 1990). 

1 
„P.37_ 

Table VI-1. Status of Ability to Model Mechanistic Reactivities 

Mechanisms for these compounds are estimated from 

basic kinetic and mechanistic knowledge: 

- methane ethane - propane - ethanol 

Experimentally-tested mechanisms exist for the following, 

although there are some uncertainties: 

- n-butane 

- formaldehyde 

- methanol 

- ethene 

- acetaldehyde 

- acetone 

- propene 

- propionaldehyde 

- methylethyl ketone 

Experimentally-tested mechanisms are available for the following, 

but there are major uncertainties: 

- several Cc alkanes 

- 1,3,5-trimethylbenzene 

- 2,3-dimethylnapthalene 

- several C. alkenes 

4* 

- toluene - xylenes 

- benzene - napthalene 

Mechanisms for all other organic gases are approximated 

by those of chemically similar compounds. 

Carter (1990a) 

Table VI-2. Sunnary of California Hydrocarbon to NOx Ratios 

Site 

Bakersfleld-Chester 

Los Angeles-N. Main 

Sacramento-Citrus Heights 

San Diego-Island 

Redding-Continental 

Chico-Manzanita 

San Luis Obispo 

All Sites 

Mean 

10.5 

6.6 

12.2 

8.3 

17.5 

11.2 

24.3 

12.9 

Median 

8.9 

6.0 

10.4 

6.6 

16.7 

9.9 

15.9 

9.3 

Ranae 

5.2 to 23.3 

3.0 to 12.0 

4.1 to 31.1 

1.7 to 21.2 

7.0 to 44.1 

4.2 to 23.3 

5.9 to 260 

1.7 to 260 

6:00 to 9:00 a.m. PDT average, every third day on PM10 schedule, 

June to September 1989. 
P.38 

VII. 

MEASURES OF REACTIVITY 

Atmospheric scientists have proposed six measures of reactivity. 

In this section, the advantages and disadvantages of each measure are 

discussed, the rationale for selecting the maximum incremental 

reactivity approach is provided, and all evaluations of the method to 

date are summarized. 

.« A. REVIEW OF MEASURES OF REACTIVITY 

The measures are ordered by Increasing complexity of the 

calculation and data requirements. 

1. Total Mass (Exempting Some Compounds) 

Current hydrocarbon control strategies 1n California regulate the 

total mass of emissions. Methane and chlorofluorocarbons are exempt 

from control because of their extremely low reactivities. This 

approach does not depend on environmental conditions or uncertainties 

in the knowledge of atmospheric chemistry. It 1s also relatively easy 

to enforce because it does not need speciated hydrocarbon 

measurements. 

The total mass approach Ignores large differences 1n reactivity 

between hydrocarbons, and can be an Inefficient means of hydrocarbon 

control. Traditionally, oxygenated compounds such as formaldehyde and 

acetaldehyde have been ignored by the emission standards because of 

the specialized measurement techniques required. In extreme cases, 

this approach to hydrocarbon control could lead to ozone increases if 

it allows increases in reactivity despite reductions in the mass of 

emissions. 
P.39 

2. Hydroxyl Radical Rate Constant 

A simple approach for considering reactivity 1s to use the 

relative rate of reaction with the hydroxyl radical (Darnall et al., 

1976). This approach depends on the fact that most hydrocarbons react 

only with the hydroxyl radical. It 1s not a strict measure of 

reactivity as defined earlier, but Its lack of dependence on 

environmental conditions allows the derivation of a single reactivity 

scale. 

The hydroxyl radical rate constant approach 1s deficient in 

several respects. It can underestimate or overestimate reactivity by 

ignoring other loss processes of hydrocarbons, as well as all of the 

subsequent reactions that contribute to ozone formation. It also 

overestimates the relative reactivity of rapidly reacting 

hydrocarbons. A hydrocarbon that reacts in 30 minutes could have a 

similar reactivity as one that reacts 1n 300 minutes, because they 

both completely react during the course of a day. But the hydroxyl 

radical rate constant approach will always indicate that one 

hydrocarbon is ten times more reactive than the other. 

These various deficiencies offset one another for mixtures of 

many hydrocarbons, but errors can be quite large for single compounds. 

3. Relative Reactivity 

In order to approximate the effects of large changes in emissions 

on ozone, a simplified linear modeling technique, relative reactivity, 

was developed. This technique assumes the change in peak one-hour 

ozone concentrations is proportional to the change in emission levels 

of broad hydrocarbon groupings. It has been used to derive the 

reactivities of methanol and formaldehyde relative to other 

hydrocarbons (Gold and Moulls, 1988; Chang et al., 1989), and has been 

extended to ethane, propane, ethanol and acetaldehyde (Chang and Rudy, 

1990). Dunker (1990) used a similar measure for reactivity 'M 

comparisons of methanol-fueled vehicles. f 

'.¥a 

The disadvantages of relative reactivity are that it is dependent "1 

on environmental conditions, and the technique quickly becomes 

cumbersome as the number of hydrocarbon species is increased. 

4. Incremental Reactivity 

A measure that corresponds closely to the basic definition of 

reactivity 1s "incremental reactivity," the change in ozone caused by 

the addition of a small increment of hydrocarbons to a polluted 

environment, divided by the amount of hydrocarbons added (Carter and 

Atkinson, 1987; 1989). Incremental reactivity can be determined 

experimentally (Carter and Atkinson, 1987) or with model calculations 

(Dodge, 1984; Carter and Atkinson, 1989), but 1s very dependent on 

environmental conditions. It 1s even possible to calculate with an 

3 

1 
P.40 

I 

airshed model (Russell, 1990). Calculations by Carter (1990c), Chang 

and Rudy (1990) and Dunker (1980) indicate that the linearity 

assumption implicit in incremental reactivity appears valid up to a 

301 change in bas1n-w1de hydrocarbon emissions. 

The disadvantage of incremental reactivity is that the 

environmental conditions must be set to derive a single reactivity 

scale. 

5. Maximum Incremental Reactivity 

A single Incremental reactivity can be derived for each 

hydrocarbon by using the maximum incremental reactivity for a range of 

environmental conditions (Carter, 1989ab). This measure reflects the 

maximum potential for ozone formation of the hydrocarbon. This is an 

appropriate definition to use for regulatory purposes, since 

conditions where hydrocarbon reactivities tend to be the highest are 

by definition those where hydrocarbon control 1s the most effective 

control strategy for reducing ozone. In general, maximum incremental 

reactivities are found at a hydrocarbon to NOx ratio of six to eight, 

with some dependence on other environmental conditions. 

In contrast to previous work (Carter, 1989b), Carter (1990d) has 

developed a scale that represents maximum reactivity only with respect 

to NOx availability, and represents average reactivity for other 

environmental conditions. These reactivities correlate well with 

ozone dose in a wide variety of dty-specific box model scenarios, 

including those with hydrocarbon to NOx ratios far higher than maximum 

reactivity conditions. 

The disadvantage of the maximum Incremental reactivity approach 

is the uncertainty 1n the mechanistic reactivities. However, Carter 

(1990e) 1s working on an approach to determine maximum mechanistic 

reactivities with laboratory studies. 

6. Airshed Modeling 

An airshed model incorporates all known considerations of 

environmental conditions, and will also give the full ozone impact of 

a large change 1n emissions. Such models use condensed photochemical 

mechanisms, but current research (Carter and Atkinson, 1988) suggests 

that these mechanisms can give ozone predictions which are very close 

to those of more detailed mechanisms. 

The major disadvantage of airshed models 1s that the relative 

amounts of hydrocarbons and NOx predicted by the models do not always 

agree with air quality measurements. Until this discrepancy 1s 

resolved, it is better to use measured environmental conditions as a 

reference point. Another disadvantage is that, strictly speaking, the 

results are only applicable to the particular episode being modeled. 

*£••,--
P.41 

Also, use of airshed models is not practical for assessing a large 

number of control strategy options. 

V. 

B. RECOMMENDED MEASURE OF REACTIVITY 

The staff recommends the use of the maximum incremental 

reactivity approach to develop hydrocarbon reactivity adjustment 

factors. While this approach has significant uncertainties for many 

hydrocarbons, it provides a systematic and scientifically justifiable 

basis for Incorporating present knowledge of atmospheric chemistry in 

the derivation of reactivity adjustment factors for regulatory 

purposes. The approach estimates hydrocarbon reactivity for 

environmental conditions which yield the greatest ozone reductions. 

Conditions of maximum incremental reactivity occur well within the 

range of hydrocarbon to NOx ratios observed 1n California. Maximum 

incremental reactivity 1s a generalized scale which avoids the issue 

of which area is being modeled when using airshed models and the 

applicability of the results to other areas. 

C. EVALUATION OF MAXIMUM INCREMENTAL REACTIVITY 

Carter (1989b) has compared maximum incremental reactivities with 

the hydroxyl radical rate constant approach for alternate fuels where 

some exhaust spedatlon data are available (ARB, 1989). Despite 

errors in the hydroxyl radical rate constant approach, there is quite 

good agreement for alternate fuels other than methanol. Chang and 

Rudy (1990) found good agreement between maximum incremental 

reactivities and relative reactivities. 

Dunker (1990) and Schleyer (1990) have compared reactivities 

derived using both the Lurmann, Carter, Coyner (LCC) and Carbon Bond 4r 

(CB4) condensed photochemical mechanisms. Dunker found large 

differences at high hydrocarbon to NOx ratios, where reactivity is -

less important. Schleyer observed differences in the reactivity of 

formaldehyde. This Issue requires additional Investigation. 

Russell (1990) updated his airshed model with the LCC mechanism, 

and 1s in the process of calculating Incremental reactivities for 

lumped hydrocarbon classes. Preliminary comparisons of these results .* 

to maximum Incremental reactivities show good agreement for alkanes, ». 

ethene, other alkenes, toluene, formaldehyde, other aldehydes and :?v 

methanol. There are large discrepancies for non-toluene aromatlcs .iL 

that warrant additional Investigation. )A*j 

«& 

:.3TJ 
P.42 

* ' a 

VIII. 

PROTOCOLS 

The reactivities of individual hydrocarbons are used with 

speciated exhaust profiles for the alternate fueled vehicles and base 

gasoline to develop the hydrocarbon reactivity adjustment factors. In 

this section, several ARB-sponsored projects for developing 

reactivities for individual hydrocarbons are described, and a protocol 

for developing the reactivity adjustment factors is proposed. 

A. PROTOCOL FOR DEVELOPING REACTIVITIES FOR INDIVIDUAL HYDROCARBONS 

1. Peer Review 

The reactivity method was presented to the Modeling Advisory 

Committee (MAC) at Its public.meeting on May 31, 1990 at Sacramento 

Airport. The MAC provides scientific guidance to the ARB, and is 

chaired by Professor John Seinfeld of the California Institute of 

Technology. The ARB Is also receiving Input from an ad-hoc reactivity 

advisory pane!, with representatives from the California Energy 

Commission, Assembly Bill 234 Advisory Board, South Coast Air Quality 

Management District, Auto/011 Air Quality Improvement Program, Motor 

Vehicle Manufacturers Association, Western States Petroleum 

Association, California Natural Gas Vehicle Coalition, California 

Renewable Fuels Council, and Western Liquid Gas Association. 

2. Interim Maximum Incremental Reactivities 

By the end of May, Dr. Carter will publish a set of interim 

maximum incremental reactivities for individual hydrocarbons based on 

environmental conditions representing a wide variety of ozone episodes 

throughout the United States (Carter, .1990d) and using the latest 
SHE 

r ".•*r 

version of his photochemical mechanism (Carter, 1990b). These 

reactivities will be contained in the regulation for use in 

calculating reactivity adjustment factors. 

3. Further Studies Of Maximum Incremental Reactivities 

By the end of 1990, Dr. Carter will recalculate the maximum 

Incremental reactivities using environmental conditions representative 

of ozone episodes 1n California. This study will use observed data I %_ 

from ozone episodes captured during SCAQS' and ARB's 1989 and 1990 f 7% 

hydrocarbon measurement programs, as well as trajectories from all 

airshed simulations available for California. One area of § 

investigation will be the reactivity effect of nitrous ad d and methyl ?> 

nitrite emissions, and the ratio of nitrogen dioxide to nitric oxide S 

1n the exhaust. The staff anticipates a recommendation will be made p: 

to measure these compounds during vehicle tests. If these studies * 

Indicate changes are necessary to the Interim maximum incremental 

reactivities contained 1n the regulation, or that the maximum kM 

incremental reactivity method Itself should be modified, the staff 7-p 

will recommend changes to the regulation. || 

Dr. Carter will also Investigate the effect of uncertainties 1n 

rate constants and mechanisms on the maximum Incremental reactivities. 

He will estimate an uncertainty bound on the maximum incremental 

reactivity for each hydrocarbon. With this Information, the ARB and 

other organizations can focus research efforts on important 

hydrocarbons with large uncertainties, and fuel suppliers and vehicle 

manufacturers will better understand the risks of tailoring fuels and 

control technologies to remove specific hydrocarbons. The staff 

anticipates that this will be particularly important for aromatic 

compounds. 

4. Compare Maximum Incremental Reactivities With Airshed Model 

Professor Russell will compare the maximum Incremental 

reactivities with the results of his airshed model for the August 30 -

September 1, 1982 episode. This was a severe stagnation episode where 

the ozone peaks were NOx-limited (Mllford et al., 1989). The modeling 

simulations will address concerns as to whether the slight negative 

reactivity aromatic compounds exhibit under NOx-limited conditions 

warrants a different basis for a reactivity scale. Both peak ozone 

and exposure statistics will be used 1n the comparison. This will be 

done for mixtures of many hydrocarbons and for single compounds. The 

comparison will be completed by the end of May. Other groups will 

compare the Incremental reactivities with those derived from other 

chemical mechanisms and models. 

The staff will develop hydrocarbon reactivity adjustment factors 

by the end of 1991, with spedatlon profiles from vehicle/fuel 

emission tests. Professor Russell will use the reactivity-adjusted 

vehicle emission standards to predict if the regulations will have the 
P.44 

I 

I 

Vi 

t 

intended effect of equal ozone Impacts for any vehicle/fuel 

combination. This calculation will be repeated when the SCAQS 

modeling work is complete. 

5. Update Reactivities Every Three Years 

The ARB will continue to sponsor laboratory studies to reduce 

uncertainties in current understanding of atmospheric chemistry, 

particularly for aromatic compounds, and to review research sponsored 

by other organizations. The staff plans to update the reactivities 

f§ for individual hydrocarbons every three years. One research topic 

* that deserves attention 1s whether low reactivity hydrocarbons 

contribute significantly to ozone formation at far downwind NOx 

sources. This transport issue needs to be addressed with detailed 

| regional models. 

B. PROTOCOL FOR CALCULATING REACTIVITY ADJUSTMENT FACTORS 

1. Calculation Procedure 

Step 1 - Calculate total reactivity of exhaust per mile. 

Multiply the exhaust emission rates (1n grams per mile) of each 

non-methane organic gas (Including aldehydes, ethers, ketones and 

alcohols) by the corresponding reactivity (on a per gram basis). The 

sum of the products 1s the total reactivity of the exhaust per mile. 

Step 2 - Calculate total reactivity of exhaust per gram of 

non-methane organic gases. 

Divide the total reactivity of the exhaust (per mile) by the 

total emission rate (1n grams per mile) of the non-methane organic 

gases (Including aldehydes, ethers, ketones and alcohols). 

Step 3 - Calculate reactivity adjustment factor. 

Divide the total reactivity of the exhaust (per gram) by the 

corresponding measure for base gasoline. This 1s the reactivity 

adjustment factor. 

2. Oxides Of Nitrogen Emission Standards 

In many areas of the state, maximal ozone concentrations are 

determined largely by the availability of NOx. In these areas, 

hydrocarbon reactivities are a less critical factor in determining the 

total amount of ozone formed during an episode. Accordingly, emission 

standards for NOx will be established independently of emission 

standards for hydrocarbons. 
P.45 

3. Carbon Monoxide And Evaporative Emissions 

Carbon monoxide and evaporative emissions 

formation, but will not be considered with the 

reactivity adjustment factors are calculated, 

carbon monoxide and evaporative emissions will 

contribute to ozone 

other hydrocarbons when 

Emission standards for 

be established 

independently of emission standards for exhaust hydrocarbons. 

4. Refining And Marketing Emissions 

The reactivity adjustment factors will not include changes in 

refining or marketing emissions. These stationary sources must meet 

emission standards established by local air pollution control 

agencies. 

f 

* 

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