## DRAFT March 31, 2011

—Does not contain TSCA CBI—

Prepared by:

Economic and Policy Analysis Branch Economics, Exposure and Technology Division Office of Pollution Prevention and Toxics

U.S. Environmental Protection Agency 1200 Pennsylvania Avenue

Washington, D.C. 20460

_ 

# Economic Analysis for the Proposed Biotechnology Exemptions Rule for Trichoderma reesei and Bacillus amyloliquefaciensii 

# Contributors

The EPA analysts responsible for this report are Carol Rawie and Stephanie Suazo of the Economic and Policy Analysis Branch; Economics, Exposure and Te chnology Division; Office of Pollution Prevention and Toxics. Analytical and draft preparation support was provided by Abt Associates Inc. under EPA Contract No. EP-W-08-010.iii 

# Abstract

EPA proposes to list Trichoderma reesei (T. reesei) strain QM6a and its derivatives, and Bacillus amyloliquefaciens (B. amyloliquefaciens)
, as candidates for Tier I and Tier II exemptions from full reporting for new chemicals under the Toxic Substances Control Act (TSCA). The exemptions fall under TSCA Section 5(h)(4). EPA proposes to add the tw o microorganisms to the existing list at 40 CFR 725.420 of ten recipient microorganisms that are candidates for exemptions from the requirement to submit a Microbial Commercial Activity Notice (MCAN). EPA is proposing these exemptions in response to industry petitions. The candidate microor ganisms and their uses would need to meet certain requirements to qualify for an exemption. Qualifying microorganisms would require an abbreviated Tier I or Tier II submission, with less lead time before commercial production, as compared with the MCAN.

T. reesei and B. amyloliquefaciens are both used in enzyme production. The use of intergeneric T. reesei has been increasing due to its use in fuel ethanol production from corn and cellulosic biomass. Other uses for the enzymes from the microorganisms include pulp and paper, textile production, laundry detergents, and specialty chemical production.The benefits of the proposed rule include both quantified savings in submission costs, and nonquantified benefits due to faster development of improved microorganisms. The proposed rule is expected to reduce submission-related costs for both industry and the Agency. EPA estimates that industry will save approximately $1.98 million over a ten-year period and the Agency will save approximately $3.68 million, for a total savings to society of $5.66 million over ten years, before discounting. This assumes that over ten years, firms would submit 60 Tier I notices and three Tier II notices for T. reesei and B. amyloliquefaciens

. In addition, the simpler submissions with their redu ced EPA review periods -- especially the Tier I submissions -- are expected to increase innovation in th e biotechnology market. Industrial, institutional, and household consumers would benefit from more co st-effective products, such as detergent enzymes, made using new T. reesei and B. amyloliquefaciens strains. T. reesei strains modified to enhance production of enzymes that degrade biomass could help bring down costs of pr oducing cellulosic ethanol, which may lead to lower greenhouse gas emissions and less global climate impact as compared with corn ethanol or gasoline.

Because T. reesei, strain QM6a and its derivatives, and B. amyloliquefaciens are safe, wellcharacterized organisms, there is not expected to be any increased health or environmental risk associated with the proposed rule. Comment [ccr1]: PLACEHOLDER PENDING RISK ASSESSMENT.iv 

# Table of Contents

Contributors .................................................................................................................. .............................. ii

Abstract ...................................................................................................................... ................................. iii

Table of Contents ............................................................................................................. .......................... iv List of Tables and Figures .................................................................................................... ..................... vi Executive Summary ............................................................................................................. .................... viii Chapter 1. Introduction ....................................................................................................... ....................... 1 1.1 Statutory Authority ........................................................................................................... ............... 1 1.2 Regulatory History ............................................................................................................ ............... 1 1.3 Statement of Need ............................................................................................................. ............... 3 1.4 Organization of the Report .................................................................................................... ........... 3 Chapter 2. Regulatory Require ments, Affected Entities, an d Substitutes for the Modified Microorganisms ................................................................................................................ ........................... 4 2.1 Overview of Regulatory Requirements............................................................................................ 4 2.2 Microorganisms and their Uses ................................................................................................. ...... 4 2.2.1 Trichoderma reesei ............................................................................................................. 5 2.2.2 Bacillus amyloliquefaciens ................................................................................................. 6 2.3 Overview of the Regulated Community .......................................................................................... 8 2.3.1 Enzyme Producers .............................................................................................................. 8 2.4 Overview of Indirectly Affected Entities ...................................................................................... . 11 2.4.1 Enzyme Customers ........................................................................................................... 11 2.4.2 Ethanol Producers and Consumers ................................................................................... 11 2.5 Substitutes for the Modified Microorganisms ............................................................................... 11 2.5.1 Alternatives to Intergeneric T. reesei ................................................................................ 11 2.5.2 Alternatives to Intergeneric B. amyloliquefaciens ............................................................ 12 Chapter 3. Health, Safety, Enviro nmental Risks ................................................................................ ... 13 3.1 Health, Safety, and Environmental Risks Associated with T. reesei ............................................. 13 3.1.1 Rule case: Only T. reesei , QM6a Strain and Derivatives Are Listed ............................... 13 3.1.2 Rule option: All T. reesei Strains Are Eligible for Exemptions ....................................... 13 3.2 Impacts if Entire T. reesei Species is Eligible for Exemption ....................................................... 14 3.3 Health, Safety, and Environmental Risks Associated with B. Amyloliquefaciens ......................... 14 Chapter 4. Benefits of the Prop osed Rule ...................................................................................... ......... 16 4.1 Industry Cost Savings ......................................................................................................... ........... 16 4.1.1 Method for Estimating Compliance Cost and Burden ...................................................... 16 4.1.2 Labor Costs per Hour ........................................................................................................ 1 8 4.1.3 Rule Familiarization Cost per Firm .................................................................................. 19 4.1.4 Report Preparation, Submission and Recordk eeping Unit Cost ....................................... 20 4.1.5 Estimating the Number of Submissions and Submitting Companies ............................... 27 4.1.6 Base Case and Change in Industry Burden and Cost due to the Proposed Rule for T. reesei and B. amyloliquefaciens ....................................................................................... 32 4.2 Health, Environmental, Consumer and Other Benefits .................................................................. 38v 4.2.1 Benefits of Reduced Delays in Bringing Products to Market and Increased Market Entry

.............................................................................................................................. ............ 38 4.2.2 Health, Environmental and Other Benefits of Improved Microbe Strains ........................ 41 4.2.3 Benefits of Improved B. Amyloliquefaciens Strains ......................................................... 43 4.3 Limitations of the Analysis ................................................................................................... ......... 43 4.3.1 Uncertainties in the Number of Tier I and Tier II Submissions ........................................ 44 4.3.2 Uncertainties in Cost Estimates ........................................................................................ 46 4.3.3 Uncertainties regarding Innovation Benefits .................................................................... 47 Chapter 5. Agency Burden and Cost Savings ........

............................................................................. .... 48 5.1 Methodology for Estimating Agency Costs ................................................................................... 48 5.2 Agency Costs per Submission ................................................................................................... .... 48 5.2.1 Agency Wage Rates .......................................................................................................... 48 5.2.2 Federal Cost per MCAN Submission ............................................................................... 49 5.2.3 Agency Cost per Tier I and Tier II Submissions .............................................................. 50 5.3 Change in Agency Cost due to Exemptions for T. reesei and B. amyloliquefaciens ..................... 51 5.3.1 Agency First-Year Cost Savings ....................................................................................... 51 5.3.2 Agency Ten-Year Cost Savings ........................................................................................ 52 5.3.3 Uncertainties in Agency Cost Estimates ........................................................................... 52 Chapter 6. Summary of Social Costs and Benefits................................................................................ . 55 6.1 Social Cost Savings and Other Benefits ........................................................................................ 55 6.1.1 Quantified Social Cost Savings ........................................................................................ 55 6.2 Health, Safety, and Environmental Costs and Benefits ................................................................. 57 6.2.1 Benefits of New Intergeneric T. reesei and B. amyloliquefaciens .................................... 57 6.2.2 Benefits of Reducing the Cost of Cellulosic Ethanol ....................................................... 57 6.2.3 Rule Costs and Risks ........................................................................................................ 5 7 Chapter 7. Additional Analyses ................................................................................................ ............... 59 7.1 Regulatory Flexibility Act (RFA) .............................................................................................. .... 59 7.2 Unfunded Mandates Reform Act (UMRA) ................................................................................... 60 7.3 Paperwork Reduction Act (PRA) ................................................................................................. .. 60 7.3.1 Industry Burden ............................................................................................................... . 60 7.3.2 Government Burden .......................................................................................................... 61 7.4 Executive Order 13132 - Federalism ............................................................................................ . 61 7.5 Executive Order 13045 – Children’s Health .................................................................................. 61 7.6 Executive Order 13175 – Consultation and Coordination with Indian Tribal Governments ......... 61 7.7 Executive Order 13211 – Energy Supply, Distribution, or Use ..................................................... 62 7.8 National Technology Transfer Advancement Act ......................................................................... 62 Chapter 8. References ......................................................................................................... ...................... 63vi 

# List of Tables and Figures

Table ES-1-1: Summary of Costs and Benefits of the Proposed Rule for T. reesei and B. amyloliquefaciens

.............................................................................................................................. .. xi Table 2-1: Regulatory Requirements of MCANs and Tier I/Tier II Exemptions ......................................... 4 Table 4-1: Base Case and Change in Industry Cost (Year 1 Summary) ..................................................... 17 Table 4-2: Base Case and Change in Industry Cost (10 Year Summary) ................................................... 18 Table 4-3: Derivation of Loaded Wa ge Rates for the Private Manufacturin g Sector in 2009$

............. ..... 19 Table 4-4: Additional Cost per Company of Rule Familiarization ($2009) ............................................... 20 Table 4-5: Hours Burden per Respondent by Submission Type and Labor Category ................................ 23 Table 4-6: Total Hours Burden per Respondent by Submission Type and Cost Component ..................... 24 Table 4-7: Total Costs per Respondent by Submission Type and Cost Component .................................. 25 Table 4-8: MCAN Submissions for B. amyloliquefaciens and T. reesei October 1, 1998 through September 30, 2010 ............................................................................................................ ................ 28 Table 4-9: All MCAN, Tier I, and Tier II Exemption Notices, FY1998 through Present .......................... 29 Table 4-10: All Tier I and Tier II Submissions from 1998 through 9/30/2010 .......................................... 30 Table 4-11: Nonconfidential Submissions for Microbes Listed at §725.420 through 9/30/2010 .... ........... 31 Table 4-12: Assumed Number of Companies Maki ng First-Time Tier 1/Tier 2 Submissions for B. amyloliquefaciens and T. reesei over a 10-Year Period ...................................................................... 31 Table 4-13: Estimated Numbers of MCAN, Tier I, and Tier II Submissions for B. amyloliquefaciens and T. reesei over a 10-Year Period ........................................................................................................ .. 32 Table 4-14: Total Industry Burden for Rule Familiarization (Year 1) ........................................................ 33 Table 4-15: Base Case and Change in Industry Burden Hours (Year 1) .................................................... 33 Table 4-16: Base Case and Change in Industry Cost (Year 1) ................................................................... 34 Table 4-17: Base Case and Change in Industry Hours Burden (All Years) ................................................ 35 Table 4-18: Base Case and Change in Industry Cost in Thousands of Dollars ($2009) (All Years) .......... 37 Table 5-1: Agency MCAN and Tier I/Tier II Regulatory Activities .......................................................... 48 Table 5-2: Derivation of Loaded Agency Wage Rates ($2009).................................................................. 49 Table 5-3: Agency Burden Hours and Cost per MCAN, Tier I, and Tier II Submission ($2009) .............. 51 Table 5-4: Base Case and Change in Agency Burden Hours (Year 1) ....................................................... 52 Table 5-5: Change in Agency Cost (Year 1) ..................................................................................... .......... 52 Table 5-6: Agency Burden Hours Reduction due to Rule (All Years) ....................................................... 54 Table 5-7: Agency Cost Reduction due to Rule - Thousa nds of Dollars ($2009) (All Years) ........ ........... 54 Table 6-1: Change in Total Burden Hours to Society Due to Rule............................................................. 56 Table 6-2: Change in Total Costs to Society Due to Rule ....................................................................... ... 56 Table A-1: Base Case and Change in Industry Burden Hours (Year 2) ................................................... A-1 Table A-2: Base Case and Change in Industry Burden Hours (Year 3) ................................................... A-2 Table A-3: Base Case and Change in Industry Burden Hours (Year 4) ................................................... A-2 Table A-4: Base Case and Change in Industry Burden Hours (Year 5) ................................................... A-3 Table A-5: Base Case and Change in Industry Burden Hours (Year 6) ................................................... A-3 Table A-6: Base Case and Change in Industry Burden Hours (Year 7) ................................................... A-4 Table A-7: Base Case and Change in Industry Burden Hours (Year 8) ................................................... A-4 Table A-8: Base Case and Change in Industry Burden Hours (Year 9) ................................................... A-5 Table A-9: Base Case and Change in Industry Burden Hours (Year 10) ................................................. A-5 Table A-10: Base Case and Change in Industry Cost (Year 2) ................................................................. A- 6 Table A-11: Base Case and Change in Industry Cost (Year 3) ................................................................. A- 6 Table A-12: Base Case and Change in Industry Cost (Year 4) ................................................................. A- 7 Table A-13: Base Case and Change in Industry Cost (Year 5) ................................................................. A- 7 Table A-14: Base Case and Change in Industry Cost (Year 6) ................................................................. A- 8vii Table A-15: Base Case and Change in Industry Cost (Year 7) ................................................................. A- 8 Table A-16: Base Case and Change in Industry Cost (Year 8) ................................................................. A- 9 Table A-17: Base Case and Change in Industry Cost (Year 9) ................................................................. A- 9 Table A-18: Base Case and Change in Industry Cost (Year 10) ............................................................. A-10

Figure 1: Simplified cellulosic ethanol production process .................................................................... ...... 7 Figure 2: Simplified corn-based ethanol dry mill production process ...................................................... B-1viii 

# Executive Summary

EPA proposes to add Trichoderma reesei (T. reesei), strain QM6a and its derivatives, and Bacillus amyloliquefaciens (B. amyloliquefaciens) to the list at 40 CFR 725.420 of recipient 1 microorganisms eligible for Tier I and Tier II exemptions from Microbial Commercial Activity Notice (MCAN) Reporting under Section 5(h)(4) of the Toxic Substances Control Act (TSCA). In 1997, under the authority of TSCA Section 5, EP A promulgated a final rule, “Microbial Products of Biotechnology,” that described reporting requir ements for microorganisms. Under this rule, EPA requires companies to submit an MCAN to EPA 90 days prior to commercial production of a “new” microorganism, unless the activity is eligible for one of the specific exemptions. A “new” microorganism is one modified with genetic material from anot her genus and not listed on the TSCA Inventory. 2 The MCAN submitter must provide EPA with a description of genetic construction, phenotypic and ecological characteristics, and by-products of the microorganis m, as well as production volume, worker exposure data, environmental release information and any test data in the submitter’s possession. For new microorganisms being manufactured for introduction to commerce, there are two exemptions from MCAN requirements: Tier I and Tier II exemptions. Ten microorganisms were listed at 40 CFR 725.420 as eligible for Tier I and Tier II exemptions under the 1997 Final Biotechnology rule

. Under provisions of that rule, EPA has received two requests to add additional microorganisms to the list; Trichoderma reesei ( T. reesei), strain QM6a and its derivatives, and Bacillus amyloliquefaciens (B. amyloliquefaciens) . These requests follow the procedures specified in § 725.67(iii) regarding listing under § 725.420.

T. reesei is a fungus used in the production of industrial enzymes, which has the capacity to produce large amounts of cellulase enzymes (BIO and ETA, 201 0). Applications include cellulases for corn-based ethanol, textiles, pulp and paper processing, and bi opolymer production. It may also have a significant role in the manufacture of cellulosic ethanol. B. amyloliquefaciens is a bacterium that is used for production of enzymes and specialty chemicals (Novo Nordisk, 1997). B. amyloliquefaciens enzymes are used in laundry and dishwasher detergents, textile pr ocessing, and other areas (Novo Nordisk, 1997, p.2, Aehle, 2007 and Uhlig, 1998). Both microorganisms have applications not subjec t to TSCA jurisdiction, such as food and animal feed (Genen cor, 2006, Genencor, 2005, page 6). B . amyloliquefaciens is registered as a pesticide (EPA, 2000a). In the Tier I exemption, if certain criteria are met concerning the nature of the introduced genetic material and containment of the microorganism, manuf acturers are only required to notify EPA 10 days before commencing manufacture and to keep certain records. The notice is typically two or three pages, with minimal information. A manufacturer is not required to wait for EPA approval before commencing manufacture. A manufacturer who meets all of the conditions of the Tier I exemption except for those concerning containment may submit a Tier II exemption notice. The Tier II exemption requires manufacturers to submit an exemption request with co ntainment and other information (more data than in a Tier I notice but less than in the MCAN) at leas t 45 days prior to commercial production. Unlike the case for MCANs and Tier I certifications, under the Tier II exemption, the manufacturer may not proceed with production until EPA approves the exemption.

1 The recipient is the microorganism that receives genetic material.

2 However, “introduced genetic material consisting of onl y well-characterized, non-coding regulatory regions from another genus” does not cause an unlisted microbe to be “new” (EPA, 1997b, p.17934).ix To add a recipient microorganism to the 40 CFR 725.420 list, EPA must find that the microorganism does not present an unreasonable health or environmental risk. The finding must take into account environmental and public health effects, as well as economic and social consequences, including effects on the national economy, small business, and technological innovation (40 CFR 725.67 )

. While the proposed rule may increase the probability of environmental or human exposure to a harmful or toxic microbe, there is no expected increase in health and safety risk associated with the proposed rule, as both organisms are well character ized and are not pathogenic or toxigenic. The combined lack of any known safety concerns and the inherent safety of the microorganisms indicate there is no increased environmental or health risk expected to be associated with the proposed exemption and the reduction in EPA’s regulatory requirements. The proposed addition of T. reesei QM6a derivatives and B. amyloliquefaciens to the list of recipient microorganisms eligible for Tier I and Tier II exem ptions will decrease the regulatory burden of both EPA and industry. EPA typically receives several MCANs per year, some of which would be replaced by Tier I and Tier II exemptions. Historically, most Tier I and Tier II submissions have been Tier I notices. Over the first 10 years of the proposed rule, EPA estimates that the proposed addition of the two microorganisms to the list will generate a total cost savings to society of $5.68 million. Industry would save approximately $1.98 million and the Agency would save approximately $3.68 million. The equivalent, annualized cost savings are expected to be $552,000 and $535,000at a three and seven percent discount rate, respectively (see Table 6-2). 3 EPA estimates that there will be a net decrease in burden to society of 72,500 hours over a 10-year period (see Ta ble 6-1). Most of the avoided MCAN submissions, and thus most of the savings, are likely to be for T. reesei strains. In addition to cost savings to both industry and the Agency, the proposed rule is expected to increase the rate of innovation in industry. Presently, if a company 4 identifies a promising strain, they must prepare and file an MCAN, and wait through a 90-day review period before commercial use, which may include “demonstration” or “pilot” scale production. “Demonst ration” or “pilot” scale production is conducted using small scale commercial volumes, to test the cost effectiveness of the enzyme. Biotechnology industry groups have suggested that the burden associated with the MCAN process can make it difficult for a company to test multiple strains of a microorganism at the same time (BIO and ETA, 2010). The proposed exemption would allow companies to expedite the full demonstration-scale testing process and bring products to market more quickly. The rate of inn ovation is expected to increase especially in cases of the Tier I exemption, which has only a brief notice and no requirement to wait for EPA approval before commencing commercial production, once the 10 days have elapsed. The expected benefits from increased innovation were not quantified for this report. Some of the benefits from lower cost or better performing microorganism may accrue to small businesses, as developers of the exempt microorganisms, as producers of fermentation chemicals using the live microorganisms, or as customers for enzymes from the microorganisms.

T. reesei may be a key component in bringing down costs of producing cellulosic ethanol through fermentation. Cellulosic ethanol is a second-generation biofuel that is made from cellulosic biomass that comes from feedstocks like corncobs, switchgrass, woodchips, and other inedible plant fibers. As of the writing on this report in late 2010 cellulosic ethano l is not a commercially viable substitute for gasoline or corn-based ethanol. Genetically modifying the T. reesei fungus can increase the amount of cellulase and

3 All values are in year 2009 dollars.

4 Through calendar 2010, most or all past MCAN submitters were companies, and “company” or “industry” is often used to mean “submitter” in this report. However, future submissions could come from government, academic, or other non-industry organizations. Comment [ccr2]: PLACEHOLDER PENDING RISK ASSESSMENTx other related biotransformation enzymes produced by the organism, therefore bringing down enzyme costs. In addition, modifications of the structure of the enzyme can make it more efficient, requiring less of the enzyme to produce the same amount of sugars. Native T. reesei has a limited complement of degrading enzymes, but introduction of other useful en zyme genes from intergeneric sources is a useful application for this microorganism beyond just increased cellulose production. Because enzymes are one of the largest cost components of cellulosic ethanol production, less expensive enzymes are necessary for the commercialization of cellulosic ethanol. The proposed rule may reduce the costs of producing these enzymes and help reduce cellulosic ethanol cost. In addition, the proposed rule may help U.S. progress toward meeting the goals of the Energy Independence & Security Act (EISA) of 2007 which require the US to consume 6.6 million gallons of cellulosic ethanol in 2011 and 500,000 million gallons of cellulosic ethanol in 2012 (EPA, 2010c and EPA, 2010d). The production and use of cellulosic ethanol is e xpected to have lower greenhouse gas emissions, which contribute to global climate change, when co mpared with the production of gasoline and cornbased ethanol. Environmental and health benefits of reducing global climate change were not quantified for this report. Faster introduction of intergeneric T. reesei and B. amyloliquefaciens may also reduce cost and/or improve performance of enzymes and other fermentation products made using the intergeneric microorganisms, for other areas subject to TSCA jurisdiction such as textile treatment, laundry and dishwashing detergents, and biopolymers. The industry application requested that all T. reesei strains be eligible for Tier I/Tier II exemptions. However, EPA proposes to list only the T. reesei QM6a strain and its direct derivatives. The QM6a strain was isolated in the Solomon Islands from canvas during World War II. All current industrial T. reesei strains appear to have descended from QM6a, so any loss of economic benefit from restricting the Tier I/Tier II exemption listing to QM6a derivatives is likely to be low. Table ES-1contains a summary of costs and benefits associated with the proposed rule.xiTable ES-1: Summary of Costs and Benefits of the Proposed Rule forT. reeseiandB. amyloliquefaciensAffectedEntityDirect and Indirect Costs of the RuleDirect and Indirect Benefits of the RuleIndustryMinor initial rule familiarization costs of approximately $8,190over 10 years.Simplicity and speed of the Tiered exemptions will reduce industrycost, especially for Tier I notices. $1.98 million cost savings to industryover ten years. Simpler, faster Tier I submissions encouragedevelopment of new microorganisms, increase profits, and encourageentry into TSCA-regulated microbial markets. The non-quantifiedbenefits of enhanced innovation may well exceed the quantified costsavings.EPANoneRule reduces Agency cost by $3.66 million over ten years, due to fewerMCANs.ConsumersNoneIncreased innovation inT. reeseiandB. amyloliquefaciensmay lead tomore cost-effective products in areas such as fuel ethanol, detergentsand textiles, compared with the base case.TheEnvironmentForegoing MCAN review increases probability that potentiallyharmful microorganisms could be released into the environment.However, these microorganisms have minimal risk, especially incontained use. The costs of an increase in risk, if any, are notquantified but expected to be negligible and more than offset bythe indirect environmental and health benefits.T. reeseiQM6a exemption may indirectly reduce cost of cellulosicethanol, leading to reduced greenhouse gas emissions versus gasolineand corn ethanol (EPA, 2010b). This could help mitigate global climatechange and its negative environmental impacts.Other indirect environmental benefitsinclude reductions in energy use,water use, wastewater, pumice stone sludge, hydrogen peroxide use;reduced harm to sewage treatment processes and aquatic life. Potentialreduced fertilizer and pesticide use if increase in cellulosic biomassvolume does not offset the reductions per gallon of ethanol.Worker,Consumer, andPublic HealthForegoing MCAN review increases the probability that workersand/or consumers could be exposed to potentially harmfulmicrobes. However, there is minimal risk associated with thesemicroorganisms which are intrinsically low-risk and largelydeactivated before entering any downstream product. The costassociated with the increase in risks is not quantified.The proposed rule may indirectly improve worker and consumer healththrough the reduction of green house gas emissions, relative to the basecase. Lower GHG emissions would mitigate climate change and itspublic health impacts, which include increased incidents of vector bornediseases and harm from extreme weather events (EPA, 2009a)OtherCellulosic ethanol biomass may be grown onland currently used for food crops.Lower cost cellulosic ethanol may help meet thegoals of the Energy Independence & Security Act.The proposed T. reeseilisting could increasecommercial viability of cellulosic ethanol from nonfood crops produced on marginal lands, withpotentially less negative impact on food crops thancorn ethanol.Note:All costs are in $2009. Benefits and costs are relative to the Base Case in which the proposed rule is not promulgated.1 

# 1 :Introduction

1.1 

## Statutory Authority EPA proposes to add Trichoderma reesei (T. reesei) strain QM6a and its derivatives, and Bacillus amyloliquefaciens (B. amyloliquefaciens) to the list at 40 CFR 725.420 of recipient 5 microorganisms eligible for Tier I and Tier II exemptions from Microbial Commercial Activity Notice (MCAN) reporting. The exemptions are allowed under Section 5(h)(4) of the Toxic Substances Control Act (TSCA). TSCA Section 5(a)(1) requires that firms notify EPA at least 90 days before they manufacture or import for commercial purposes a “new” chemical substance or manufacture, import, or process a chemical substance for a “significant new use.” TSCA defines “chemical substance” broadly and in terms that cover microorganisms as well as traditional chemicals. 6 Premanufacture Notices (PMNs) are used to report new conventional chemicals. MCANs are us ed to report new microorganisms. TSCA section 5(h)(4) authorizes EPA to exempt manufacturers, importers, and processors of chemical substances from notification requirements. Granting a Section 5(h) (4) exemption requires a determination that the activities will not present an unreasonable risk of injury to health or the environment (EPA, 1997b, p.17940). Ten recipient microorganisms are already listed as eligible for exemptions under Section 5(h)(4) from full reporting for new chemicals. Th is proposed rule adds two more recipient microorganisms to the list.



### 1.2 

## Regulatory History On April 11, 1997, EPA promulgated a final rule , “Microbial Products of Biotechnology,” covering microorganisms (EPA, 1997b). The 1997 rule (codifie d at 40 CFR 725) establishes specific reporting requirements for manufacturers, importers, and processors of microorganisms: any manufacturer, importer, or processor of new microorganisms subject to TSCA must file an MCAN with EPA unless the activity is eligible for a specific exemption. The 1997 rule establishes Tier I and Tier II exemptions from MCAN submission requirements. The Tiered exem ptions are codified at 40 CFR 725.424-470. EPA’s 1997 biotechnology rule created the MCAN as a notice distinct from the PMN, and implemented EPA’s program for oversight of micr obial organisms. The rule established reporting requirements under TSCA Section 5 for manufacturers and processors of microorganisms subject to TSCA that are manufactured for commercial purposes, including research and development (R&D) for commercial purposes. The rule also established seve ral mechanisms for reporting to EPA, including specific exemptions that provide an alternative reporting mechanism that reduces the amount of information to be reported. 7 Under the 1997 rule, manufacturers are required to report information to EPA 90 days before commencing the manufacture of intergeneric microorganisms not listed on the TSCA inventory, i.e. “new” microorganisms. Any manufacturer, importer, or processor of a living microorganism required to report to EPA under section 5 of TSCA must file an MCAN with EPA, unless the activity is eligible for one of the specific exemptions described in the rule.

5 The recipient is the microorganism that receives genetic material.

6 Parts of this section are quoted or paraphrased from the preamble to the 1997 biotechnology rule (EPA, 1997b, pages 17910-17912).

7 Parts of this section are quoted or paraphrased from the preamble to the 1997 biotechnology rule (EPA, 1997b, pages 17910-17912).2 The rule established two exemptions for new micr oorganisms being manufactured (after the R&D and test marketing stage) for introduction to commerce: Tier I and Tier II exemptions. For both exemptions, the recipient (host) microorganism must be listed under 40 CFR 725.420, and the introduced DNA must be well-characterized, limited in size, poorly mobilizable, and free of certain sequences (EPA, 1997b, p.17912). The 1997 rule describes the toxin-encodi ng sequences to be avoided (EPA, 1997b, p.17952). In the Tier I exemption, if certain criteria are met concerning the microorganism and its containment, manufacturers are only required to submit a notice to EPA certifying that they are manufacturing a new microorganism that qualifies for this exemption an d providing minimal information on waste disposal. A manufacturer is not required to wait for EPA approval, and can commence manufacture in 10 days. Manufacturers are also required to keep certain records. A manufacturer who wishes to modify the containment restrictions but otherwise meets the conditions of the Tier I exemption may submit a Tier II exemption request. The Tier II exemption requires manufacturers to submit an abbreviated notice describing the containment method and certain other information (see Table 2-1). The rule provides for a 45-day period during which EPA reviews the proposed containment. Unlike with MCAN submissions or Tier I exemptions, where the manufacture can proceed with production if EPA takes no action, the manufacturer submitting under a Tier II exemption may not proceed with production until EPA determ ines that the microorganism will not present unreasonable risk and approves the exemption (40 CFR 725.470). After a company commences manufacture or import of a microorganism that was the subject of an MCAN, it sends EPA a Notice of Commencement (NOC). When EPA receives an NOC, it adds the microorganism to the TSCA Inventory of chemical substances. Once listed on the TSCA Inventory, the microorganism is no longer legally “new,” and ot her firms can produce it without notice to EPA. 8 By contrast, if a “new” microorganism is produced under a Tier I or Tier II exemption, no NOC is submitted and it is not listed on the TSCA Inventor y. Subsequent producers must follow new chemical reporting requirements. The 1997 rule designated 10 microbial organisms as eligible for Tier I and Tier II exemptions (40 CFR 725.420). Through September 2010, EPA received one Tier II submission, 114 Tier I submissions, and 33 MCANs. Of the Tier I notices, 87 represented an unusual cluster of similar notices. 9 Not counting this unusual cluster, there were 27 Tier I notices. In 1997 Novo Nordisk (now Novozymes) 10 applied to make Bacillus amyloliquefaciens eligible for Tier I/Tier exemptions under § 725.67 (N ovo Nordisk, 1997). Its request was based, in part, on B. amyloliquefaciens being very closely related to B. subtilis which was already eligible for the tiered exemptions (Novo Nordisk, 1997, cover letter). In 2005, Genencor (now part of Danisco) applied to make T. reesei eligible for the exemptions under § 725.67. The Biotechnology Industry Organization an d Enzyme Technical Association repeated the T. reesei request in 2009, providing supplementary information in a letter dated January 29, 2010. In its 2010 letter, the industry requested that all strains of T. reesei be listed, not just the commonly used derivatives of strain QM6a. (BIO and ETA, 2010) Th e current rulemaking covers both microorganisms, but for T. reesei, only the QM6a strain and its direct derivati ves are proposed for listing as candidates for tiered exemptions.

8 If the microorganism is the subject of a Significant New Use Rule (SNUR), subsequent producers must comply with the SNUR restrictions to avoid reporting.

9 To protect confidentiality of subm issions, details are not given here.

10 In 2000, Novo Nordisk was split into three companies, one of which was Novozymes (Novozymes, 2009).3 The proposed rule evaluated in this analysis would add T. reesei strain QM6a and its derivatives and B. amyloliquefaciens to the list of recipient microorganisms eligible for exemption at 40 CFR 725.420. (For convenience, the T. reesei strain QM6a original isolate togeth er with strains derived from QM6a through successive clonal modifications, are someti mes referred to in this report simply as “ T. reesei” or

as “ T. reesei QM6a.”)



### 1.3 

## Statement of Need This rule is intended to reduce industry and Agency costs associated with th e preparation, submission, and review of MCANs for new commercial production of T. reesei QM6a and B. amyloliquefaciens . The rule will relieve industry of unnecessary reporting and promote innovation. Affected companies would have increased flexibility to develop and test multiple strains of these microorganisms at once, potentially speeding the development of lower-cost ways to produce chemicals made through fermentation, including alternatives to petroleum-based fuels. The rule will also increase economic efficiency by removing unnecessary costs in the development of T. reesei and B. amyloliquefaciens . It is expected that the Agency review costs would also be reduced.



### 1.4 

## Organization of the Report The remainder of this report provides EPA’s economic analysis in support of the proposed rule. The regulatory requirements and companies affected are characterized in Chapter 2. Chapter 3 discusses the health, safety, and environmental risks of the rule. Chapter 4 discusses the benefits to industry, consumers, and the environment of the proposed rule, and Chapter 5 presents the estimates of Agency costs savings associated with the administration of the proposed rule. Chapter 6 summarizes the benefits of the rule and its net social costs and savings. Chapter 7 provides all additional analyses including:

 A small entity impact analysis, as required by the Regulatory Flexibility Act (RFA)

 A burden hour analysis, as required by the Paperwork Reduction Act (PRA)

 An unfunded mandates statement, as required by the Unfunded Mandates Reform Act (UMRA)

 A discussion of Federalism, as required by Executive Order 13132

 A children’s health statement, as required by Executive Order 13045

 A statement of the necessity of consultation and coordination with Indian tribal governments, discussion of Federalism, as required by Executive Order 13175

 An assessment of any impacts on energy supply, distribution, or use, as required by Executive Order 13175

 A discussion of any technological standards as required by the National Technology Transfer Advancement Act4 

# 2 :Regulatory Requirements, Affected Entities, and Substitutes for the Modified Microorganisms

2.1 Overview of Regulatory Requirements

Once Trichoderma reesei strain QM6a and its derivatives, and Bacillus amyloliquefaciens are listed at 40 CFR 725.420, manufacturers, importers, and processo rs may submit a Tier I or a Tier II submission. Table 2-1 presents a comparison of the regulato ry requirements of MCANs and Tier I/Tier II exemptions. MCANs require the most information and a 90-day advance notice to EPA. Tier I exemptions require minimal information and 10 days notice, while Tier II exemptions require more information than Tier I exemptions, and 45 days notice.5 Table 2

- 1 : Regulatory Requirements of MCANs and Tier I/Tier II Exemptions
MCAN Tier I Exemption Tier II Exemption Applies to: “New” non-exempt intergeneric microorganisms “New” intergeneric microorganisms listed at CFR 725.420

Affected entities: (a) Manufacturers and importers of new microorganisms (b) Manufacturers, importers, and processors of significant new uses of microorganisms Advance notice required: ≥ 90 days ≥ 10 days ≥ 45 days

Reporting requirements: Information on:

 Description of

microorganism

 Genetic construction of

microorganism

 Phenotypic/ecological

characteristics

 Byproducts

 Total production volume

 Use information

 Worker exposure/

environmental release

 Test data in submitter’s

possession Written certification that microorganism meets requirements of Tier I exemption. Plus information on:

 Waste disposal permit

 Name/address of manufacturer

or importer

 Recipient genus/species

 Production start date Written certification that microbe meets Tier II exemption requirements. Plus information on:

 Waste disposal permit

 Microorganism identity

 Total production volume

 Process/containment

information Existing information showing use will not present unreasonable risk.

Characteristic requirements: n/a DNA introduced into the microorganism must be wellcharacterized, limited in size, poorly mobilizable, and free of certain toxic sequences.

Containment requirements: n/a Microorganism must be used in a structure designed to contain with controlled access, established safety procedure, effective microbial inactivation procedures for waste disposal and otherreleases, and emergency cleanup procedures. Containment must be adequate. Specific requirements not stated, but Tier I containment criteria are to be used as guidance. EPA will review case by case.

Restrictions on activity: Activity cannot commence until review period expires Activity cannot commence until review period expires Activity cannot commence until EPA approves exemption

Follow-on submissions required: Notice of Commencement (NOC) within 30 days of commercial production n/a

Source : U.S. Code of Federal Regulations, Title 40, Secti on 725, Reporting Requirements and Review Processes for Microorganisms



## 2.2 Microorganisms and their Uses

2.2.1 Trichoderma reesei

QM6a and its Derivatives

T. reesei is a fungus used in industrial applications that has the capacity to produce a large amount of cellulase enzymes (BIO and ETA, 2010). Novozymes ca lled it “the world’s most prodigious producer” of6 cellulase enzymes (DOE/JGI, 2008). It has been called a platform technology for heterologous expression 11 , and has been the subject of many MC AN submissions (BIO and ETA, 2009). The research for this report did not identify any commercial use of T. reesei strains from isolates other than those derived from QM6a. Although industry requested that all of the T. reesei species be listed, its 2010 letter stated, “...th e current industrial strains of T. reesei appear to have descended from the QM6a isolate...” (BIO and ETA, 2010, p. 3). Thes e “clonal” derivatives of the QM6a strain would be exempt from MCAN reporting under the proposed rule. Because of its ability to produce large quantities of proteins, T. reesei is used extensively in enzyme production.

T. reesei cellulases and xylanases have been used in TSCA applications such as pulp and paper processing, detergent, textile, biopolymer, and biof uel applications (Genencor 2005, p.7; BIO and ETA, 2009, slide 10). It is said to be a dominant source of cellulases for the textile industry worldwide (DOE/JGI, 2008). Cellulase enzymes from T. reesei are often used in textile applications such as the finishing of cotton, denim, linen, and bast fibers, because of their low cost compared with enzymes from other microorganisms (Polaina and MacCabe, 2007, p. 53). Industry called it the “workhorse” in the production of biomass conversion industrial en zymes (BIO and ETA, 2010; BIO and ETA, 2009). Novozymes called it the organism of choice for producing enzymes to break down biomass to fermentable sugars (DOE/JGI, 2008). T. reesei as a host can produce enzymes to convert biomass to sugars such as glucose, which in turn can be fermented to produce ethanol, acids, and other metabolites, or used directly in organic synthesis (BIO and ET A, 2010, p.7). Alpha-amlyases and glucoamylases from T. reesei have applications in corn-based ethanol pro duction (Genencor, 2008 and Danisco Patent, 2009 ). More information on the use of T. reesei in ethanol production is found in Appendix B.

T. reese i has also been used in food, beverage, and an imal feed applications (Genencor, 2005, page 6), which are under the jurisdiction of the Food and Drug Administration.

Fourteen MCANs for which T. reesei was publically identified as the species were submitted to EPA from June 2003 through September 20, 2010 (see Table 4-8). These 14 MCANs were approximately 41 percent of all MCANs submitted during this time period. More T. reesei MCANs were submitted than for any other species during this time period (EPA, 2010a).

11 “Heterologous expression” refers to the use of T. reesei to express genes from other fungi that make enzymes that T. reesei doesn’t produce or is inefficient at producing7 Cellulosic Ethanol Production

T. reesei has a potentially significant role in the manufac turing of second generation biofuels such as cellulosic ethanol. Cellulosic ethanol is ethanol that is produced from cellulose biomass, which includes plant material such as woodchips, grasses, sugarcane residues, and other inedible plant fibers (NCEP, 2003; Verenium, 2010a). By contrast, ethanol from the starchy corn kernels is referred to as “corn ethanol.” Cellulosic ethanol and corn ethanol are chem ically the same. They differ only in the feedstock and the production process.

T. reesei can be used to produce enzymes that help break down the cellulose and hemicellulose of biomass plant fibers into fermentable sugars. These sugars can, in turn, be used to make ethanol and other bioproducts (BIO and ETA, 2010). Cellulosic ethanol is believed to have many environmental benefits when compared with its alternatives, but as of the writing of this report in late 2010, it was not commercially viable in part due to the high cost of enzymes and high capital costs. A 2008 article identified enzymes as the major cost component in cellulosic ethanol production (Smi th and Suh, 2008). Figure 1 presents where T. reesei enzymes might be used in one type of production process.

Figure 1 : Simplified cellulosic ethanol production process

2.2.2 Bacillus amyloliquefaciens B. amyloliquefaciens is widely used in the production of enzymes and specialty chemicals, according to the 1997 Petition requesting that it be listed as a candidate for tiered exemptions (Novo Nordisk, page 2). It has been used in the production of amylases, enzymes that break down starches, and proteases, enzymes that break down proteins (Novo Nordisk, 1997). Primarily it is used in microbial production of industrial alpha-amylases.

Amylases TSCA applications of amylases include textile de sizing, starch modification for paper sizing, and ethanol production (Novo Nordisk, 1997, p.2). The 1997 petition asserted that most commercial intermediate-temperature alpha-amylases were from B. amyloliquefaciens (Novo Nordisk, 1997, p.2). Since alpha-amylases from B. amyloliquefaciens are fairly heat-stable, it is often the main microbial producer of the enzyme for use in the textile industry (Aehle, 2007 and Uhlig, 1998). Alpha-amylases from B. amyloliquefaciens and B. licheniformis are the preferred amylases for laundry detergents, because Cellulase and hemicellulase

enzymes from T. reesei

1. Biomass handling 2. Chemical Pretreatment 3. Enzymatic hydrolysis 4. Fermentation (e.g. S. cerevisiae ) 5. Ethanol recovery8 of how they catalyze degradation of starch stains (Kirk-Othmer, 1994, p. 9-593). They are also used in automatic dishwashing detergents (Aehle 2007 p.186) . Non-TSCA applications of amylases include use in food, brewing, and pharmaceuticals (Haq et al., 2010). 12

Proteases B. amyloliquefaciens is also used for the industrial production of various proteases, which are primarily used in detergents and leather producti on (Novo Nordisk, 1997, p.2). Detergents are a major application for industrial enzymes (LSBU, 2004). No vozymes currently produces one detergent protease, a subtilisin, Savinase, which may be from B. amyloliquefaciens (LSBU, 2004) 13 The subtilisin enzyme produced by B. amyloliquefaciens appears to have less commercial use than a different subtilisin from B. licheniformis (Rao et al., 1998).

Non-TSCA uses

Proteases from B. amyloliquefaciens also have non-TSCA uses in food and feed applications. B. amyloliquefaciens has minor applications in the production of neutrases, which are used for protein modifications in food (Kirk-Othmer, 1994). Genencor uses B. amyloliquefaciens to produce its Protex 7L enzyme, used for casein, soy, wheat, and animal prot ein hydrolysis at biological pHs (Genencor, 2006). B. amyloliquefaciens is registered as a fungicide and plant growth regulator (EPA, 2000a) and continues to be researched for pesticidal uses. It was not determined for this report whether it might be used to manufacture enzymes or other fermentation products that would themselves be pesticides. (Microorganisms used as pesticides do not fall un der TSCA jurisdiction, but microorganisms used to manufacture chemicals that are then used as pesticides would fall under TSCA.)

Extent of use

The 1997 Petition to list B. amyloliquefaciens as a candidate for Tiered exemptions claims that there is broad industrial use for enzymes from B. amyloliquefaciens. However, the petition was submitted over a decade ago; evolving technology may have diminished the relative important of B. amyloliquefaciens in enzyme production for TSCA uses. Enzymes from B. amyloliquefaciens are used in TSCA applications, but the microorganism does not appear to be as common a source for TSCA industrial enzymes as bacterial species such as B. subtilis or B. licheniformis

. Nevertheless, B. amyloliquefaciens continues to be the subject of research and patents. For example Novozymes applied for a patent for a strain of B. amyloliquefaciens for biofilm prevention and deodorizing (Freepatentsonline, 2010).

12 Due to taxonomic changes, it is not always possible to know from published information whether a commercial enzyme is from B. amyloliquefaciens or from another Bacillus species

. The 1997 petition stated, “Most of the commercially- available intermediate temperature stability alpha amylases today are derived from B

. amyloliquefaciens strains that were once classified as B. subtilis .” (Novo Nordisk, 1997) The attribution of enzymes to B. amyloliquefaciens for this economic analysis does not necessarily reflect EPA scientific opinions on taxonomic questions related to B. amyloliquefaciens

. 13 Some sources list Savinase as being from B. amyloliquefaciens (see for example, LSBU, 2004) while many list it for B. lentus (see for example

, Uniprot 2010).9 Just one MCAN submitted to EPA since the 1997 biotechnology rule has publically identified B. amyloliquefaciens as the species (see Table 4-8). 14 It possible the industry has chosen to spend more resources in developing intergeneric strains of Bacillus species already eligible for Tier I and II exemptions, such as B. subtilis and B. licheniformis , rather than submitting a full MCAN for B. amyloliquefaciens. EPA has received non-confidential Tier I submissions for both B. subtilis and B. licheniformis

.



## 2.3 Overview of the Regulated Community The proposed rule may affect both current and potential producers of enzymes and other chemicals from microorganisms, as well as downstream customers. 15 Firms are affected only if the uses are subject to TSCA jurisdiction, which excludes medical uses, cosmetics, food and beverages, animal drugs, and feed additives (EPA, 1997, page II-3). There appear to be relatively few producers of enzymes from T. reesei and B. amyloliquefaciens for commercial uses subject to TSCA jurisdiction. Information was not found on firms that use T. reesei or B. amyloliquefaciens to directly produce other chemicals. Ethanol producers and other enzyme customers are discussed in section 2.4. Currently, based on EPA’s non-confidential information, there are only two companies, Novozymes and Genencor (now owned by Danisco), that have submitted MCANs for either T. reesei or B. amyloliquefaciens . Of the 14 MCANs submitted to EPA from 1998 through September, 2010 that identified T. reesei as the non-confidential species, Novozymes and Genencor accounted for all of the non-confidential submitters. (Two MCANs had confidential submitter names (See Table 4-8). However, the 2010 industry letter states, “multiple companies are using T. reesei, each of which views T. reesei as the preferred recipient microorganism for developing second generation biofuel processes.” (BIO and ETA 2010, page 8) Those other firms may also be affected, if they create new intergeneric T. reesei strains subject to reporting.

2.3.1 Enzyme Producers

Novozymes Novozymes is likely the world’s largest producer of industrial enzymes, with approximately 47 percent of the global market in 2009 (Novozymes, 2009). The company was founded in 2000 when Novo Nordisk was split into three separate companies, one of which was Novozymes A/S. In addition to producing enzymes, Novozymes manufactures microorganisms and biopharmaceutical ingredients (Novozymes, 2009). Novozymes supplies enzymes for a range of TSCA and non-TSCA applications. It currently supplies two enzyme product lines specifically for cellulosic ethanol, as well as enzymes for conventional ethanol production (Novozymes, 2010a). Through September 30. 2010, Novozymes (Novo Nordisk, prior to 2000) submitted three MCANs for T. reesei , or 30 percent of all non-confidential MCANs for T. reesei (EPA, 2010a). Two of these Novozymes submission s identified the non-confidential use as ethanol production (EPA, 2010a, links for J09-0002 and J09-0004).

14 EPA receives many submissions where the species and so metimes the genus are declared to be Confidential Business Information under TSCA (TSCA CBI), and are not made publically available. To protect confidentiality, such notices were not used in determining the numbers of past submissions for T. reesei and B. amyloliquefaciens

.10 Novozymes also submitted the sole MCAN since 1997 that publically listed B. amyloliquefaciens as the species, (EPA, 2010a), and submitted the 1997 request to list B. amyloliquefaciens as a candidate for tiered exemptions. The company produces a detergent protease, Savinase, identified by some sources as being from B. amyloliquefaciens (LSBU, 2004). 16

16 Savinase has also been desc ribed as being produced by B. lentus (Uniprot, 2010).11 Genencor (Danisco Division) Genencor, a subsidiary of Danisco, is the world’ s second-largest producer of industrial enzymes, accounting for approximately 21 percent of the worl d’s industrial enzymes global market in 2009 (Novozymes, 2009). Like Novozymes, Genencor suppli es enzymes for a range of TSCA and non-TSCA uses. It is another major manufacturer of T. reesei for use in the production of enzymes for cellulosic ethanol processing. Genencor/Danisco currently markets one enzyme pr oduct line for cellulosic ethanol production, as well as enzymes for conventional ethanol production (Danisco, 2010). Danisco has also entered a joint venture with DuPont to “develop and commerciali ze” proprietary technology for cellulosic ethanol production (Danisco, 2009). Through September 30, 2010, Genencor/Danisco submitted eight MCANs for T. reesei , or 70 percent of all MCANs for T. reesei where the submitter is known from nonconfidential information (EPA, 2010a). One of the su bmissions identified ethanol as the non-confidential application (EPA, 2010, link to J01-0002.)

Genencor also uses B. amyloliquefaciens . For example, a 1997 patent application assigned to Genencor covers a mannanase enzyme from B. amyloliquefaciens with use in bleaching pulp for paper production (Genencor patent, 1997). An engineered dete rgent protease marketed by Genencor, trade mark FNA, was produced in B. subtilis but originated from B. amyloliquefaciens (Maurer, 2004, p.330). Genencor uses B. amyloliquefaciens to produce enzymes used in the processing of soy, wheat, and animal proteins, a non-TSCA use (Danisco, 2010).

Other Enzyme Producers Novozymes and Danisco/Genencor are by far the indu stry leaders in the production of enzymes for biofuel production and other applications. Novozymes an d Danisco/Genencor currently make up about 70 percent of the industrial enzyme market (Novozymes, 2009; Danisco, 2010) and have demonstrated their interest in producing T. reesei and B. amyloliquefaciens under exemptions, through their petitions (Genencor, 2005; Novo Nordisk, 1997). For that reason, the most immediate economic impacts of the proposed rule could concentrate in these two firms. However, other companies also develop and produce enzymes and other microbial products, for TSCA uses. For example, Verenium Corporation and Iogen Corporation are engaged in the development or manufacture of enzymes for use in cellulosic et hanol production (Verenium, 2010a; Iogen, 2010). Archer Daniels Midland produces enzymes for captiv e ethanol production, among other uses (Freedonia, 2004, p.227). The Enzyme Technical Association we bsite lists additional companies that cultivate enzymes for biofuel and other applications (ETA, 2010). Some large companies appearing in earlier lists of enzyme manufacturers have sold part of all of their enzyme businesses and so may have little or no current role in enzyme applications subject to TSCA. Genencor bought Rhodia’s brewing and enyzme busine ss in 2003 (Genencor, 2003), Solvay’s industrial enzyme business in 1996 (Solvay, 1996), and portions of Gist Brocades detergent enzymes business in 1996 (Ee, 1997). Some suppliers may be primarily in areas not subject to TSCA, such as food, feed, and therapeutics. However, even those who mainly supp ly non-TSCA markets could make submissions for TSCA uses.

Other Producers Companies that in the future might use live T. reesei or live B. amyloliquefaciens in their commercial processes could be directly affected by the rule. For example, a biochemical producer might grow live organisms on-site to generate enzymes as part of its own operations to degrade biomass, as opposed to purchasing the enzymes from a supplier.12 

## 2.4 Overview of Indirectly Affected Entities

2.4.1 Enzyme Customers Fuel ethanol producers, textile firm s buying enzymes to treat fabric; detergent, paper, and leather manufacturers; and other industrial enzyme users may enjoy increased product performance and/or lower costs due to the proposed rule. Some of these benefits are likely to be passed down the chain to their own customers and to the household consumer.

2.4.2 Ethanol Producers and Consumers Corn ethanol producers may benefit from more cost-effective enzymes. As of November 2010, the Ethanol Producers Magazine listed over 200 ethanol plant sites, mostly with corn as the feedstock (Ethanol Producers Magazine, 2010). Cellulosic ethanol producers are also likely to be nefit from the rule. The biological approach to cellulosic ethanol production uses enzymatic hydrolysis to break down biomass to fermentable sugars. A source of such enzymes is likely to be genetically modified T. reesei, for hydrolysis of cellulose to glucose and potentially the hydrolysis of hemicellulose to xylose or other simple sugars. Thus, cellulosic ethanol companies are likely to be indirectly affected by the proposed listing for possible MCAN exemptions, even if they do not grow the live T. reesei themselves. For example, downstream ethanol producers are likely to experience some of the rule’s cost savings in the form of improved enzyme performance and lower prices passed down by the enzyme suppliers. Second-order cost savings to ethanol producers could then be passed down to ethanol consumers.



## 2.5 Substitutes for the Modified Microorganisms If Tier I/II exemptions were not available (the Ba se Case), the likely alternative would be to submit an MCAN instead. Industry could also continue to us e existing intergeneric strains that had already undergone MCAN review, even though they might not be as productive as the new strains. There are also other microbial and non-microbial substitutes for intergeneric T. reesei and B. amyloliquefaciens

.

2.5.1 Alternatives to Intergeneric T. reesei

T. reesei strains not modified in a way that makes them subject to reporting requirements under TSCA may be alternatives to new intergeneric T. reesei for the production of cellulase enzymes. In addition, other conventional or intergeneric microbial species can produce cellulases. For example, cellulases isolated from Aspergillus Niger
, Trichoderma viride
, Bacillus subtilis , and Humicola insolens can substitute in some commercial applications for cellulases from T. reesei , according to Genencor’s application (Genencor 2005, page 4)

Conventional T. reesei cannot provide the full range of enzymes needed to break down biomass (for example, while it secretes an exceptional quantity of cellulases, it lacks the ability to efficiently produce hemicelluloses degrading enzymes to degrade lignin), but it may be modified with genes from other microbial species to enhance its ability to degrade biomass (Maheshwari, 2008). An alternative to such genetic modification may be to provide mixtures of enzymes from various species (DOE/JGI, 2008). The 2010 industry letter asserts that T. reesei has significant benefits over other microorganisms “for processing and production of saccharides for biofuels and bioproducts” and that it has exceptional ability to secrete large quantities of enzymes and ot her products (BIO and ETA, 2010, page 8). In other application areas, some products that can be produced using enzymes can also be produced without using enzymes. For example, the stone-was hed denim look can be achieved with enzymes,13 pumice stones, or perlite (Doshi, 2006). Cellul osic ethanol can be produced using non-biological approaches, although it is difficult to predict which emerging processes will become cost-effective (see Appendix B:).

2.5.2 Alternatives to Intergeneric B. amyloliquefaciens B. amyloliquefaciens strains not modified in a way that makes them subject to reporting requirements under TSCA may be alternatives to new intergeneric B. amyloliquefaciens for the production of enzymes. In addition, other conventional or intergeneric microbial species can produce the types of enzymes that are produced using genetically modified B. amyloliquefaciens . Often these are other Bacillus species. For example, alpha-amylase produced commercially from B. licheniformis and B. subtilis may substitute for alpha-amylase produced using B. amyloliquefaciens . Currently both B. subtilis and B. licheniformis are eligible for Tier I and Tier II exemptions from MCAN reporting and Tier 1 submissions have been made for both microorganisms. However, because alpha-amylases from B. amyloliquefaciens are fairly heat-stable and efficient at the degradation of starch stains, enzymes from B. amyloliquefaciens may be preferred to substitutes for some uses (Aehle , 2007, Uhlig, 1998, and Kirk-Othmer, 1994).14 

# 3 :Health, Safety, Environmental Risks The main potential cost to society of the proposed rule would occur if the rule increased the probability that humans or the environment may be exposed to a harmful microorganism. The MCAN review process was designed to ensure that EPA can adequately identify and regulate risk associated with microbial products of biotechnology. Under the proposed rule, EPA will no longer conduct a full MCAN review for modified strains of T. reesei QM6a or Bacillus amyloliquefaciens , but rather a less extensive review for Tier II submissions and no review for Ti er I submissions. However, EPA expects the health and environmental risks associated with the containe d use of these microbes to be minimal. Submitters must comply with either Tier I or Tier II requirements, including controls on releases, containment, and the introduced genetic material. In addition T. reesei QM6a and Bacillus amyloliquefaciens are intrinsically low-risk, well characterized, and have a history of safe use. Therefore EPA expects the risk associated with the proposed rule, and costs associated with this risk, to be negligible. The proposed rule is expected to reduce overall compliance costs. The resulting cost-saving is estimated in Chapter 4 as a benefit of the proposed rule.



## 3.1 Health, Safety, and Environmenta l Risks Associated with T. reesei

3.1.1 Rule case: Only T. reesei , QM6a Strain and Derivatives Are Listed EPA is proposing that only the T. reesei QM6a strain and its direct descendent derivatives be listed as eligible for exemption under the proposed rule. The industry application requested that all T. reesei strains be eligible for tiered exemptions (BIO and ETA, 201 0). However, the proposed rule lists only the QM6a strain as eligible for the exemptions. The QM6a stra in is well defined; all QM6a derivatives came from the same ancestor, originally isolated in the Solomon islands in 1944, where it degraded U.S. army tent canvas. By contrast, in recent years many new isolates have been called T. reesei and equated with Hypocrea jecorina. However, T. reesei and its corresponding teleomorph Hypocrea jecorina are part of a current, incomplete, taxonomic revision of the genus Trichoderma , and thus there is potential taxonomic confusion

. Strains previously referred to as T. reesei , but which are not derived from strain QM6a, may be more properly described as Hypocrea jecorina

. T.reesei strains may be only a subset of Hypocrea jecorina and other strains previously considered as Hypocrea jecorina may be moved to additional new genera that do not contain T. reesei strains ( Druzhinina et. al. 2010 and Atnasova et al. 2010). Thus T. reesei sensu latto is not well defined. There has been sufficient experience with QM6a derivatives to demonstrate their safety. All T. reesei strains used industrially for commercial production a ppear to be QM6a derivatives (BIO and ETA, 2010). According to the risk analysis prepared for this rule making, QM6a derivatives have a long history of safe use in industry, with lack of pathogenicity, t oxicity, or when contained, ecological harm.

3.1.2 Rule option: All T. reesei Strains Are Eligible for Exemptions The January 29, 2010, industry letter requested that all T. reesei strains be eligible for Tier I/ Tier II exemption without limitation as to isolate. It cited lack of documented safety concerns in the published literature for T. reesei or for the closely related Hypocrea jecorina . (Page 3 of the industry letter described Comment [KW3]: Update when risk assessment report is received.15 T. reesei as the asexual form of Hypocrea jecorina. 17 ). It asserted that there is no risk basis for restricting the listing of T. reesei to QM6a derivatives only (BIO and ETA, 2010, page 3). However, the taxonomic status of strains previously regarded as T. reesei or H. jecorina and confusion over the taxonomic status of, especially, H. jecorina prevents EPA from listing all T. reesei species.



## 3.2 Impacts if Entire T. reesei Sp ecies is Eligible for Exemption

T. reesei strains in commercial use all appear to be derivatives of the QM6a strain

, so that extending the eligibility for exemption beyond the QM6a derivatives might have very little commercial effect in the near future. In the longer run, limiting tiered exem ptions to only the QM6a derivatives may limit future innovation with other strains of T. reesei . For example, it is possible that another T. reesei strain might turn out to be more economical in some situations as a production organism. If so, some longer term benefits might be lost by limiting the immediate ex emptions to QM6a derivativ es. However, industry can still submit MCANs for new intergeneric non-QM6a strains, which mitigates the loss of benefits. Resources were not available for this report to expl ore possible benefits of faster development of T. reesei strains other than QM6a derivatives. Listing all T. reesei strains as eligible for exemptions migh t lead to the exemption being applied by industry to strains that are not clearly in the T. reesei species (for example, some that might be classified

as Hypocrea jecorina or related new species currently in the pro cess of being described) and that have not been evaluated by EPA for risk. At present, tax onomic questions have not been settled within the scientific community as to which strains belong in T. reesei, and which belong in H. jecorina (or related new species) but not in T. reesei. It is possible that in several years, after taxonomic issues are resolved, all of H. jecorina would be listed as eligible for exemption after appropriate consideration of risks and benefits. At present, since the only T. reesei with industrial use is QM6a derivatives, society is likely to benefit more from early availability of exemptions limited to T. reesei QM6a derived strains, rather than waiting several years for a broader listing that may or may not encompass all of H. jecorina 18

.



## 3.3 Health, Safety, and Environmental Risks Associated with B. Amyloliquefaciens The application to place Bacillus amyloliquefaciens on the list of recipient microorganisms eligible for exemption from MCAN reporting asserts that B. amyloliquefaciens has a long history of safe use in enzyme and specialty chemical industries and that a literature search had found no literature citing B. amyloliquefaciens as infectious (Novo Nordisk, 1997). Accordi ng to the risk analysis for this rulemaking, the potential risk associated with using B. amyloliquefacients in fermentation facilities is low, and EPA therefore proposes to place the both subspecies of the microorganism on the list under 40 CFR 725.420.



# 4 Benefits of the Proposed Rule This chapter discusses the main benefits of the proposed rule. Section 4.1 discusses the cost savings to industry associated with completing a Tier I or Tier II notice as opposed to an MCAN. Section 4.2

17 A fungus in its asexually reproducing state (anamorph) may have a different name from when it is in its sexual state (teleomorph). The January 29, 2010, letter refers to H. jecorina as the teleomorph of T. reesei (page 3).

18 Based on comments by EPA microbiologist Mark Segal, April 9, 2010.16 discusses the direct and indirect health, environmenta l, consumer, and other benefits associated with the proposed rule.



## 4.1 Industry Cost Savings

4.1.1 Method for Estimating Compliance Cost and Burden This section analyzes the changes in industry compliance burden and cost associated with listing Trichoderma reesei QM6a derivatives and Bacillus amyloliquefaciens at 40 CFR 725.420 as eligible for Tier I and Tier II exemptions. EPA calculates the incremental burden and cost savings, of the proposed rule by comparing the burden and cost of the current regulatory requirements (Base Case) with the burden and cost of the new requirements (Rule Case).

 Base Case: This is the current regulatory situation, in which T. reesei and B. amyloliquefaciens do not qualify for the Tier I or Tier II exemptions. Firms may submit MCANs for new intergeneric strains, restrict use to contained 19 R&D, or avoid intergeneric modifications of those species for TSCA uses. The main analysis in this report assumes firms would submit MCANs in the absence of the proposed rule.

 Rule Case: In the proposed rule, T.reesei strain QM6a and B. amyloliqufaciens would be added to the list of microorganisms eligible for Tier I and Tier II exemptions, at 40 CFR 725.420. Some firms may submit a Tier I or Ti er II notice in lieu of an MCAN. Other firms may submit Tier I or Tier II notices in lieu of avoiding the TSCA market altogether. The main analysis in this report assumes that firms submit a Tier I or Tier II notice in lieu of an MCAN. The methodology for estimating the change in industry burden and cost can be summarized as follows:

 Unit labor costs . Estimate loaded labor costs per hour for managerial, technical, and clerical staff involved in regulatory compliance.

 Rule familiarization costs per firm. Estimate cost per firm for rule familiarization, based on managerial labor requirements and current wage rates. In the Base Case, industry staff considering MCAN submissions for T. reesei or B. amyloliquefaciens must familiarize themselves with the requirements of the 1997 biotechnology rule in general, but do not necessarily need detailed understanding of Tier I and Tier II exemptio ns requirements, since their microorganisms do not qualify for the exemptions. In the Rule Case, companies must also become familiar with the Tier I and Tier II requirements of the 1997 rule, as well as with the two new microbial listings. Companies new to reporting must become familiar with all requirements. This activity entails reading the rule, understanding the various reporting and administrative requirements, and determining the manner in which the reporting requirements will be met. This estimates the change in costs of becoming familiar with the 1997 biotechnology rule as supplemented by the listing of T. reesei and B. amyloliquefaciens as candidates for exemptions, since implications of the new listings cannot be understood

19 “Contained” refers to use inside a structure designed to c ontain the microorganism. The 1997 Rule defines structure as “a building or vessel that effectively surrounds and encloses the microorganism and includes features designed to restrict the microorganism from leaving” (EPA, 1997b, Sections 725.3 and 725. 422). Typically the microbe would be used in a fermentation vessel. There could be situations where the intended use is cont ained, but release of live microbes may not be sufficiently wel l controlled to qualify for exemptions conditioned on contained use.17 without some understanding of the overall rule.

 Submission costs. Estimate cost per firm to submit an MCAN, Tier I notice, or Tier II notice, based on labor requirements for managerial, technical, and clerical staff, current wage rates, and the MCAN submission fee. Once a company has determined what type of report it must submit, the required information must be collected and an MCAN, Tier I or Tier II submission must be completed, reviewed, and submitted to EPA. This task involves any research necessary to identify the correct information to report, the act of completing the MCAN, Tier I or Tier II submission (techni cal burden), managerial review, clerical preparation and any submission fee. Companies proceeding to commercial production or import after filing an MCAN must also submit a Notice of Commencement (NOC). Tier I and Tier II submissions are not followed by NOCs.

 Recordkeeping costs. Companies must keep records supporting their submissions or contained R&D activities.

 Delay Costs. Qualitatively describe costs that may result from the postponement of large scale testing (pilot or demonstration scale) or commercialization of a product due to the submission preparation and regulatory review period. Under the Base Case, the 90-day review period for an MCAN submission could crea te additional costs for submitters or affect research and development strategies. Under the Rule Case, the shorter review periods (45 days for the Tier II exemption and 10 days for the Tier I exemption) reduce delay costs.

 Numbers of submissions . Estimate the expected number of MCAN submissions under the current microbial reporting requirements and the number of Tier I and Tier II submissions under the proposed requirements.

 Aggregate costs . Multiply the burden and cost per submission and per company by the number of submissions and companies, respectiv ely, to determine the estimated total burden and cost of compliance for the current requirements and under the proposed requirements.

 Incremental costs compared to Base Case . Subtract the compliance burden and cost under the proposed rule from the burden and cost under the current requirements to calculate the incremental additional burden and cost or savings attributable to the proposed requirements. Table 4-1 and Table 4-2 below summarize the industry costs and cost savings for the first year and the first ten years, respectively, of the proposed requirements. The remaining sections show how these cost savings were derived, and provide estimates for the ten-year period follow ing rule promulgation.18 Table 4

- 1 : Ba se Case and Change in Industry Cost (Year 1 Summary)

Item Base Case Rule Case Change (a) (b) (c)=(b)-(a) Number of firms and submissions (T. reesei and B. amyloliquefaciens only) MCANs 4 0 (4)
Tier I notices 0 4 4
Tier II notices 0 0 0
Firms with rule familiarization costs 0 4 4 Cost type Rule familiarization cost $0 $5,459 $5,459 Submissions (reporting and recordkeeping) $134,305 $5,089 ($129,216) Total industry cost $134,305 $10,548 ($123,757) Notes: Delay costs were not quantified but are discu ssed in Section 4.2. All costs are in 2009 dollars. Source: Table 4-16

Table 4

- 2 : Base Case and Change in Industry Cost (10 Year Summary)

Item Base Case Rule Case Change (a) (b) (c)=(b)-(a) Number of firms and submissions (T. reesei and B. amyloliquefaciens only) MCANs 63 0 (63)
Tier I notices 0 60 60
Tier II notices 0 3 3
Firms with rule familiarization costs 0 6 6 Cost type Rule familiarization cost $0 $8,190 $8,190 Submissions (reporting and recordkeeping) $2,115,300 $125,850 ($1,989,450) Total industry cost $2,115,300 $134,040 ($1,981,270) Notes: Delay costs were not quantified (see 4.2.1 for qualitative discussion). All costs are in 2009 dollars and are before discounting

. Source: New submitters, Table 4-12; subm issions, Table 4-13; costs, Table 4-18

The next sections describe the remaining steps used to estimate the change in industry burden and cost. Sections 4.1.2, 4.1.3, and 4.1.4, present the industry unit burden and cost as described in Step 2. The number of expected submissions, Step 3, is presen ted in Section 4.1.5. Steps 4 and 5 are presented in Section 4.1.6.

4.1.2 Labor Costs per Hour Standard wage rates for managerial, technical, and clerical levels are developed from information published by the Bureau of Labor Statistics (BLS) and a method outlined in the document Wage Rates for Economic Analyses of the Toxics Release Inventory Program (EPA, 2002b). Average wage data for the three major occupational groups are published quarterly by the BLS in the Employer Costs for Employer Compensation (ECEC) reports. Managerial, technical, and clerical wage rates are taken from the19 “Management, Business, and Financial”, “Professional and Related”, and “Office and Administrative Support” occupational groups respectively 20 . Wage data for the three occupational categories was gathered for manufacturing industries is obtained from Employer Costs for Employee Compensation Supplementary Tables December 2009 (BLS, 2010a). The cost of fringe benefits, such as health insurance and vacation, are taken for each labor category from the same ECEC series and shown as a percent of wages for each category. An additional 17 percent of wages in each category accounts for overhead, based on assumptions in Wage Rates for Economic Analyses of the Toxics Release Inventory Program (EPA, 2002b) and the Revised Economic Analysis for the Amended Inventory Update Rule: Final Report (EPA, 2002a). 21 The wages for each of the three categories are then multiplied by benefits and overhead factors to estimate loaded hourly rates in year 2009 dollars. Table 4-3 contains the loaded wage rates for the managerial, technical, and clerical occupation categories.

Table 4

- 3 : Derivation of Loaded Wage Rates for the Private Manufacturing Sector in 2009$

Wage

1 Fringe Benefit

s 1 Fringes as % Wage Overhead % Wage 2 Fringe + Overhead

Factor Loaded Wages

(a) (b) (c) = (b)/(a) (d) (e)=(1)+(c)+(d) (f) = (a) x (e) Managerial $42.36 $18.68 44.10% 17% 1.61 $68.24 Technical $35.96 $17.42 48.44% 17% 1.65 $59.49

Clerical $17.2 1 $8.17 47.47% 17% 1.64 $28.31

Notes: 1 Employer Costs for Employee Compensation Supplementary Tables: December 2009, U.S. Bureau of Labor Statistics, March 10, 2010 (BLS, 2010a).
2 An overhead rate of 17% is used based on assumptions in Wage Rates for Economic Analyses of the Toxics Release Inventory Program (EPA, 2002b), and the Revised Economic Analysis for the Amended Inventory Update Rule: Final Report (EPA, 2002a).

4.1.3 Rule Familiarization Cost per Firm Rule familiarization costs for firms making submissions are incurred at the company level, when either the company is a first-time submitter under the biotechnology rule or a new staff member must become familiar with the rule requirement.

20 In Regulatory Impact Analysis of Regulations on Microbial Products of Biotechnology (EPA, 1997a), five different labor categories were used; clerical, research t echnician, junior professional, senior professional, and managerial. For the purposes of this analysis all burdens a ttributed to research technician, junior professional, and senior professional labor are considered to be performed by technical labor. This approach is consistent with the burden estimates presented in the New Chemicals ICR (EPA, 2007).

21 The hourly wages presented in Table 4-3 are significantly lower than the wage presented in Regulatory Impact Analysis of Regulations on Microbial Products of Biotechnology (EPA, 1997a), after adjusting for inflation. The reason for this is because EPA apparently used a signifi cantly higher overhead factor wh en calculating loaded wage rates in the 1997 Regulatory Impact Analysis (EPA, 1997a, page D-9), compared with the 17 percent overhead used in this analysis. An overhead rate of 17 percent was used in this analysis to be co nsistent with current OPPT methodology. The overhead rate was not stated in the 1997 report, but comparing loaded wage rates implies that it was much higher than 17 pecent. For ex ample, loaded clerical costs were $ 25/hour in the 1997 report, in 1995 dollars (EPA, 1997a, pp. D-9 and IV-4) compared with $28.31/hour in this report, in 2009 dollars. Inflation should have made the 14-year increase much larger. The wage rate increase is so small due to using a smaller overhead rate in this report.20 In the Base Case for this analysis, companies submitting an MCAN for T. reesei or B. amyloliquefaciens would have to familiarize themselves with the 1997 biotechnology rule if they had not previously submitted an MCAN. In the Rule Case, companies making a Tier I or Tier II submission for T. reesei or B. amyloliquefaciens would have to be generally familiar with the 1997 biotechnology rule, and understand in detail the Tier I/Tier II requirements. They would also need to become familiar with the implications of listing T. reesei and B. amyloliquefaciens as candidates for exemption under the proposed rule. Most submitters are likely to have had experience with the 1997 rule. However, there may be some companies new to TSCA biotechnology regulation who would not make submissions under the Base Case, because of the burden associated with an MCAN, but who would enter the TSCA regulated market under the Rule Case. These companies may have to review the entire biotec hnology rule as well as requirements specific to the Tier I or Tier II submissions under the proposed rule, increasing their rule familiarization costs attributable to the Proposed Rule. Conversely, some companies new to TSCA biotechnology regulation might have reduced familiarization costs under the Rule Case, as compared with the Base Case. This could happen if they file a Tier I or Tier II notice instead of an MCAN. Unde r the Base Case they would have to learn about the 1997 rule in general as well as details of the MCAN process. Under the Rule Case, they would have to learn about the 1997 rule in genera l, but would not have to delve into details of the MCAN process. Instead, they need only to understand the simpler Tier I/Tier II processes, which is likely to take less time. Even companies with some MCAN or Tier I experience may still need to review Tier II exemption requirements. This is because historically (as of September 30, 2010), only one submitter has had direct Tier II experience. The 1997 biotechnology rule liste d ten microorganisms at 40 CFR 725.420 as eligible for Tier I and Tier II exemptions. For these microorganisms as a group, EPA has received numerous Tier I certifications but only one Tier II request, indicati ng that most companies have never filed a Tier II exemption request (See Table 4-9). For simplicity, this analysis uses the same Proposed Rule familiarization costs for all submitters. The rule familiarization costs are those that are attributable to the proposed rule; they do not include any rule familiarization costs that might be born under both th e Base Case and Rule Case . This would reflect the likely situation in which all submitters over the next ten years had previous experience with the 1997 biotechnology rule. In the 1997 Regulatory Impact Analysis (RIA) of the biotechnology rule (EPA, 1997a, p.IV-26) the burden for rule familiarization was estimated to be be tween 20 and 40 hours of senior professional time per company. For the purposes of this analysis, the lower bound estimate of 20 hours of managerial time is used because EPA assumes that for the Rule Case, companies filing a Tier I or Tier II notice would need to review the Tier I and Tier II exemption requirements as they apply to T. reesei and B. amyloliquefacien s, but not the entire biotechnology rule.

Table 4-4 below shows the estimated additional burden and cost per company of rule familiarization in the Rule Case, as compared to the Base Case. EPA estimates an added per-company burden of 20 hours of managerial time and a cost of approximately $1,365.

Table 4

- 4 : Additional Cost per Company of Rule Familiarization ($2009)

Hours Burden Loaded Hourly Managerial Wage Rate Cost per Company

20 $68.24 $1,365 Source: Hours are from EPA, 1997a, p IV-26. Wage rates are from Table 4-3 in this report.21 4.1.4 Report Preparation, Submission and Recordkeeping Unit Cost

Report Preparation and Submission As shown in Table 4-7, filing a Tier I notice instead of an MCAN would dramatically reduce submission costs, from $33,576 for an MCAN to $1,272 for the Tier I notice. This includes only quantified submission costs and does not reflect additional benefits from the reduced delay costs associated with a Tier I notice (see Section 4.2.1). Report preparation and submission burdens for MCAN s, Tier I, and Tier II submissions are based on costs in the 1997 RIA for the final biotechnology rule (EPA, 1997a). Costs were updated for inflation and adjusted to reflect electronic submission savings, but were not otherwise revised. 22 The hours per submission in also come from the 1997 RIA with th e exception of clerical hours, which were reduced to reflect electronic reporting. The 1997 RIA estimated relatively low submission costs for MCAN microorganisms intended for release into the environment, since they would have been preceded by a TSCA Experimental Release Application (TERA), and higher costs for MCANs for microorganisms used in a containment structure, since they would not been preceded by any type of submission (EPA, 1997a. p. IV-20). 23 For the present rulemaking economic analysis, under the Base Case, MCAN submissions are for contained 24 T. reesei and B. amyloliquefaciens microorganisms, since only contained microorganisms are eligible for Tier I and Tier II exemptions. Theref ore, the high burden estimates from the 1997 RIA for closed system MCANs are used in this analysis (E PA, 2010a). High estimates of Tier I and Tier II burdens are also used to be consistent with the MCAN burden estimates.

Cost Reduction due to Electronic Reporting The contained microorganism burden hours estimates from the 1997 RIA have been adjusted to reflect burden hours reductions resulting from the 2009 final PMN Electronic Reporting (ePMN) Rulethat requires the electronic submission of MCANs, Tier I, and Tier II reports, as well as traditionalchemical PMNs. Only clerical hours were affected. Electronic submission of MCAN and Tier II submissions is expected to reduce the clerical burden associated with preparing these submissions by 14 hours, and create an additional 0.18 hours of burden associated with completing the email address and user fee payment identification number data element, 25 reducing the total clerical burden from 20 hours to 6.18 hours (EPA, 2009b). The reduction in clerical bur den does not affect Tier I submissions, because no clerical burden is assigned to TierI preparation and submission in the 1997 report (EPA, 1997a, p. IV22). In reality, it is likely there is some clerical time associated with Tier I submissions, however because Tier I notices are so simple, the clerical burden is negligible. The ePMN economic report (EPA, 2009b) was primarily concerned with the many hundreds of annual submissions for traditional chemicals, e.g. PMNs, and did not separately estimate the cost savings

22 Current costs for biotechnology notices may differ from th ose estimated over a decade ago, but resources were not available to re-estimate the costs. Even with a differen t set of costs, the rule would still be cost-saving.

23 Because TERAs require much of the same information as MCANs, the burden for submitting an MCAN is lower when it has been preceded by a TERA submission. MC ANs for microorganisms in physical containment in a structure would not have been preceded by a TERA submission.

24 I.e. the intended use is inside a structure designed to contain the microorganism (EPA, 1997b, §725.422).
25 The actual email/fee form cost may be less for Tier II submissions, since no fee is re quired for exemption notices (EPA, 1997b, § 700.45), but for simplicity this cost element is assumed to be the same for both MCAN and Tier II.22 for biotechnology submissions, which affect only a handful of notices each year. Instead, the biotechnology notice savings were based on the PMN notice savings. An analysis specific to biotech submissions might show that ePMN savings are different from those estimated in the ePMN economic analysis. Unlike PMN submissions, biotech submi ssions make little use of EPA forms, and MCAN submissions are often far longer than PMN submissions. In the absence of data specific to biotechnology submissions, the ePMN estimates for MCANs, Tier I, and Tier II submissions are used in this report.

Recordkeeping EPA assumes a recordkeeping burden of two hours pe r MCAN, Tier I, and Tier II submission before counting the savings from electronic submission (EPA, 2007). This burden is reduced by 50 percent, to reflect assumed savings due to electronic submission (EPA, 2009b). The resulting recordkeeping burden is 1 hour for each MCAN, Tier I, and Tier II notice.

Historic Source of Recordkeeping Estimates The 1997 biotechnology rule economic analysis estimated recordkeeping for contained R&D, but did not present separate recordkeeping costs for MCANs, Tier II, and Tier I notices. Lacking more specific data, earlier EPA reports — both the ePMN rule analysis and the 2007 New Chemicals Information Collection Request (EPA 2007, Sect.6, Table 2) — assumed that biotech notices would have the same recordkeeping costs as PMNs: one technical hour and one clerical hour per submission. The PMN recordkeeping hours themselves were taken from re cordkeeping burden estimates for polymer exemptions presented in the Regulatory Impact Analysis of Amendments to Regulation for TSCA Section 5 Premanufacture Notification (EPA, 1994). The polymer exemption burden may have been used as an estimate of PMN recordkeeping costs because normal PMN recordkeeping costs were not broken out in the 1994 RIA, but rather were included in the PMN su bmission costs (EPA, 1994, Ch.III, Sect.2b, Ch.IV, Sect. 3c, and Table III-3). By contrast, polymer ex emption recordkeeping hours were broken out, for both the pre-amendment Base Case (EPA, 1994, Table III-4, 1 to 4 hours) and the post-amendment case (EPA, 1994, Table IV-2, 2 to 5 hours). The post-PMN-amendment low case of 2 hours for polymer exemptions matched the one used in the 2007 new chemicals ICR (EPA, 2007), and the ePMN analysis (EPA, 2009b) “before” case. The ePMN report estimated recordke eping savings of 50 percent of burden hours for all types of submissions, resulting in 1 hour of recordkeeping after the ePMN rule.

Reporting and Recordkeeping Burden per Submission Table 4-5 and below present the burden hour estimates for recordkeeping and report preparation by submission type and activity. Table 4-5 contains the burden hour estimates by labor category while contains the total burden by activity and a description of the requirements under each submission type. The per-submission burden is estimated to be 19 ho urs for a Tier I submission, 276 hours for a Tier II submission, and approximately 520 hours for an MCAN submission. Table 4-7 contains the cost by submission type and activity. Costs are calculated by multiplying the burden estimates found in Table 4-5 with the corresponding wage rate found in Table 4-3 and summing the costs of all labor categories. Su bmissions costs are estimated to be approximately $1,272 for a Tier I submission, $16,504 for a Tier II submission and $33,576 for an MCAN submission. The MCAN cost includes the $2,500 EPA submission fee.23Table4-5: Hours Burden per Respondent by Submission Type and Labor CategoryActivityHours Burden by Submission TypeMCANTier IITier IClericalTechnicalManagerialTotalClericalTechnicalManagerialTotalClericalTechnicalManagerialTotalRecordkeeping1Recordkeeping 0.5 0.5 0.01.00.5 0.5 0.01.00.5 0.5 0.01.0Submission Preparation and Submission to EPA2Description ofmicroorganism, includingverification of taxonomy,0.0 189.6 6.4196.00.0 0.0 0.00.00.0 0.0 0.00.0Information about behaviorin the environment ofmicroorganism and parentalstrain0.0 0.0 0.00.00.0 0.0 0.00.00.0 0.0 0.00.0Manufacturing processinformation, includingworker exposure andvolume0.0 38.4 10.849.20.0 38.4 10.849.20.0 0.0 0.00.0Conditions of activity;human and environmentalexposure0.0 48.0 0.048.00.0 0.0 0.00.00.0 0.0 0.00.0Clerical preparation36.18 0.0 0.06.26.18 0.0 0.06.20.0 0.0 0.00.0Managerial review 0.0 0.0 20.020.00.0 0.0 20.020.00.0 0.0 18.018.0Submission write-up 0.0 200.0 0.0200.00.0 200.0 0.0200.00.0 0.0 0.00.0 Total 6.7 476.5 37.2 520.4 6.18 238.9 30.8 276. 4

0.5 0.5 18.0 19.0Sources:1Recordkeeping hours come from EPA, 2009b, p.13.2MCAN, Tier II, and Tier I estimates are based on EPA, 1997a. MCANestimates are from EPA, 1997a, Tables D-5 and D-6, pages D-16-19. Tier II estimates are from EPA, 1997a pagesIV-22-23. Tier I estimates are fromEPA, 1997a, page IV-22. Estimates are adjusted for ePMN burden reductions using methods described in EPA, 2009b.3 MCAN and Tier II clerical preparation required 20 hours per EPA, 1997a, Table D-6. Following the method in EPA, 2009b, 14 clerical hours for preparing MCANs and Tier II forms areremoved. An additional 0.18 clerical hours are added for MCAN and Tier II notices for completing the User Fee Payment Identification Number (MCAN only) and Email Address dataelements on the electronic forms (EPA, 2009b page 15).24Table4-6: Total Hours Burden per Respondent by Submission Type and Cost ComponentActivitySubmission TypeMCANTier IITier IRequirement DescriptionHoursBurdenRequirement DescriptionHoursBurdenRequirement DescriptionHoursBurdenRecordkeepingRecordkeepingClerical and technical time to keeprecords of the submission1.0Clerical and technical time to keeprecords of the submission1.0Clerical and technical time to keeprecords of the submission1.0Submission Preparation and Submission to EPADescription ofmicroorganism,including verificationof taxonomyDescription of morphological andphysiological traits of microorganism;verification of taxonomy; phenotypicand ecological characteristics ofparental strains and microorganisms196.0Microorganism identity informationincluding type of modification andfunction of introduced DNANegligibleCertification of Compliance withrequirements regarding recipientmicroorganism and introduced geneticmaterialNegligibleInformation aboutbehavior in theenvironment ofmicroorganism andparental strain,Description of traits selected for anddeveloped; modification process0.0Type of modification; function ofintroduced DNANegligible None-Manufacturingprocess information,including workerexposure and volumeInformation on equipment used tominimize dispersion; procedures fordisposal/inactivation; productionprocess; worker. human, andenvironmental exposure; intendedmanufacturing volume, transport49.2Information on equipment used tominimize dispersion; procedures fordisposal/inactivation; production process;worker, human, and environmentalexposure; intended manufacturingvolume, transport. Certification ofcompliance; site of waste disposal*49.2Certification of compliance; site of wastedisposalNegligible-Conditions ofactivity; human andenvironmental effectsDescription of intended use ofmicroorganism; summary of health andenvironmental effects data of parentalstrains and microorganism48 None - None-Clerical preparation Clerical time to prepare documents 6.18 Clerical time to prepare documents 6.18 Clerical time to prepare documents0.0Managerial reviewManagerial time to review documents- 20.0 Managerial time to review documents 20.0 Managerial time to review documents18.0Submission write -up Technical time to write the submission 200.0 Technical time to write the submission 200.0 Technical timeto write the submission0.0 Total - 520.38 - 276.38 - 19.0Source: Hours are from Table 4-5. Requirement descriptions are mostly from EPA, 1997a, Table IV-4. Tier I/Tier II compliance certifications and waste disposal items were added to theManufacturing Process element based on requirements at EPA, 1997b, § 725.424(b)2 and § 725.4255(e) and (f)25Table4-7: Total Costs per Respondent by Submission Type and Cost ComponentCostComponentSubmission TypeMCANTier IITier IRequirement DescriptionCost($2009)Requirement DescriptionCost($2009)Requirement DescriptionCost($2009)RecordkeepingRecordkeeping - $44 - $44 - $44Submission Preparation and Submission to EPADescription ofmicroorganismincluding verificationof taxonomyDescription of morphological andphysiological traits ofmicroorganism; verification oftaxonomy; phenotypic andecological characteristics ofparental strains andmicroorganisms$11,717Microorganism identityinformation including type ofmodification and function ofintroduced DNANegligibleCertification of Compliance withrequirements regarding recipientmicroorganism and introducedgenetic materialNegligibleInformation aboutbehavior in theenvironment ofmicroorganism andparental strainDescription of traits selected forand developed; modificationprocess$0.00Type of modification; function ofintroduced DNANegligible None -Manufacturing processinformation, includingworker exposure andvolumeInformation on equipment used tominimize dispersion; proceduresfor disposal/inactivation;production process; workerhuman, and environmentalexposure; intended manufacturingvolume, transport$3,021Information on equipment used tominimize dispersion; proceduresfor disposal/inactivation;production process; worker,human, and environmentalexposure; intended manufacturingvolume, transport. Certification ofcompliance; site of waste disposal$3,021Certification of compliance; site ofwaste disposalNegligibleConditions of activity;human andenvironmentalexposureDescription of intended use ofmicroorganism; summary ofhealth and environmental effectsdata of parental strains andmicroorganism$2,856 None - None -Clerical preparationClerical time to preparedocuments$175.02Clerical time to preparedocuments$175.02 Clerical time to prepare documents N/AManagerial reviewManagerial time to reviewdocuments$1,364.82Managerial time to reviewdocuments$1,364.82Managerial time to reviewdocuments$1,228.34Submission write-upTechnical time to write thesubmission$11,898.64Technical time to write thesubmission$11,898.64Technical time to write thesubmissionN/A Total labor costs - $31,076- $16,504 - $1,27226Table 4-7: Total Costs per Respondent by Submission Type and Cost Component(continued)CostComponentSubmission TypeMCANTier IITier IRequirement DescriptionCost($2009)Requirement DescriptionCost($2009)Requirement DescriptionCost($2009)Submission FeeSubmission fee - $2,500 - $0.00 - $0.00Total cost - $33,576 - $16,504 - $1,272% of MCAN cost - 100% - 49% - 4%Sources: Calculated by multiplying hours for each labor type in Table 4-5 and wage rates for that labor type in Table 4-3, andsumming for each cost component. Requirementdescriptions are from .27 4.1.5 Estimating the Number of Submissions and Submitting Companies This section estimates the annual number of MCAN, Tier I, and Tier II submissions relevant to the proposed rule, and the number of submitting companies.

 The number of companies making submissions affects rule familiarization costs, which are assumed in this economic analysis to be one-time costs per company. Two companies, Genencor (Danisco) and Novozymes respectively, submitted the requests to list T. reesei and B. amyloliquefaciens as candidates for tiered exemptions. These companies, at least, are likely to submit exemption notifications. However, the T. reesei January, 2010, industry letter im plied that “multiple companies” were interested. This economic analysis assumes that two more (unidentified) companies will make submissions in the first year after the Rule is promulgated, and that an other two (unidentified) companies will make submissions in later years for a total of six firms making submissions over ten years.

 The number of relevant submissions for T. reesei QM6a and B. amyloliquefaciens is assumed to be four in the first year, rising by roughly 10 percent per year to 9 submissions in Year 10. For the Base Case, the submissions would all be MCANs. For th e Rule Case, the submissions are split between Tier I and Tier II submissions, with more companie s submitting Tier I than Tier II submissions. The method for arriving at these assumptions is explained below.

History of Past Submissions

The assumed number of submissions for T. reesei and B. amyloliquefaciens in future years is based on the number of past MCAN submissions for T. reesei and B. amyloliquefaciens , past Tier I and Tier II submissions for all microorganisms, and the number of near term T. reesei submissions predicted by two trade associations in a presentation to EPA (BIO and ETA, 2009, slide 12). Table 4-8, below, shows the number of MCAN su bmissions and submitting companies for both T. reesei and B. amyloliquefaciens through September 30, 2010. Table 4-8 covers only submissions in which the species was not claimed as TSCA Confidential Business Information. MCANs for which the species was confidential are not considered in estimating fu ture Base Case submissions. Table 4-9 shows the number of all MCANs received, including MCANs for other species or for which the species was confidential, along with the numbers of all Tier I and Tier II exemptions. During the period of over eleven years, EPA received a total of fifteen MCAN submissions for T. reesei and B. amyloliquefaciens for which the species was non-confidential. Only one submission was made for B. amyloliquefaciens , by Novo Nordisk, now Novozymes (EPA, 2010a). Fourteen MCANs have been submitted for T. reesei . Based on the non-confidential data, no MCANs were submitted for T. reesei prior to October, 2002. Since then, r oughly half of all MCANs have been for T. reesei (EPA, 2010a). During that same period, EPA received 27 Tier I notices that might have otherwise been submitted as MCANs, had eligibility for exemptions not been in place. There were three Tier I notices in a typical year. EPA received only one Tier II notice in that entire period. (There were also unusual clusters of Tier I notices from November 2000 through April 2002, totaling 87 notices, that appeared on their face to have minimal or speculative TSCA uses and to not be re levant in estimating potential Tier I and Tier II submissions concerning T. reesei or B. amyloliquefaciens .) 26

26 To protect confidentiality of subm issions, details are not given here.28 Number of Submitters As shown in Table 4-8, of the 14 MCANs for which the non-confidential species was T. reesei or B. amyloliquefaciens , from two to four companies have su bmitted MCANs. For two submissions, the company name was claimed as CBI. The remaining 12 were submitted by Danisco (which bought Genencor in 2005), and Novozymes (formally Novo Nordisk). Depending on the identity of the submitters whose identities were confidential, as many as 4 companies might have submitted MCANs for T. reesei

. Two biotech industry trade associations projected that there might be four T. reesei MCAN submissions in 2010 and six per year in 2011 and 2012 (BIO and ETA, 2009, slide 12). For this analysis, EPA assumes that each of four companies will make a relevant biotech submission in the first year. To calculate the number of companies making submissions in future years, EPA uses an industry growth rate of four percent, as assumed in the 1997 RIA for closed system MCANs (EPA, 1997a, Table IV-8, p. IV-40). This growth rate is conservative for a developing industry (EPA, 1997a, p. IV-7).

Table 4

- 8 : MCAN Submissions for B. amyloliquefaciens and T. reesei October 1, 1998 through September 30, 2010

Coun
t MCAN Numbe

r Submissi on Date Full Microorganism Name 1 Submitter 2

Bacillus amyloliquefaciens 1) J98-0001 3/16/1998 Bacillus amyloliquefaciens strain MOL1350 Novo Nordisk

Trichoderma reesei 1) J03-0001 6/25/2003 Trichoderma reesei strain CBI CBI 2) J03-0002 6/25/2003 Trichoderma reesei strain CBI CBI 3) J04-0001 1/2/2003 Trichoderma reesei strain 34-6 Genencor 4) J04-0005 9/28/2004 Trichoderma reesei strain 23-1 Genencor 5) J05-0001 1/24/2005 Trichoderma reesei strain 3236 Genencor 6) J05-0002 9/12/2005 Trichoderma reesei strain 3243 Genencor 7) J06-0001 3/24/2006 Trichoderma reesei strain 3260 Genencor 8) J07-0001 12/1/2006 Trichoderma reesei strain CBI Novozymes 9) J07-0002 5/28/2007 Trichoderma reesei strain 3277 Danisco/Genencor 10) J09-0001 2/25/2009 Trichoderma reesei strain 3309 Danisco/Genencor 11) J09-0002 2/27/2009 Trichoderma reesei strain CBI Novozymes 12) J09-0004 9/3/2009 Trichoderma reesei strain CBI Novozymes 13) J10-0002 11/2/2009 Trichoderma reesei strain CBI Danisco/Genencor
14) J10- 0003 6/03/10 Trichoderma reesei strain 3408 Danisco/Genencor

Notes: 1 “Strain CBI” means the species was non-confidential but the strain was confidential. Only MCANs with non-confidential species were counted.

2 Danisco bought Genencor in 2005 ( www.genencor.com ). In 2000, Novo Nordisk was split into three companies, one of which was Novozymes (Novozymes, 2009). Source: EPA, 2010a, Office of Pollution Prevention and Toxi cs, "Notifications FY98 Throu gh the Present." Available at http://www.epa.gov/oppt/biotech/pubs/submiss.htm . Last Updated June 23, 2010. Only MCANs for which the species is not confidential are included.29 Table 4-9: All MCAN, Tier I, and Tier II Exemption Notices, FY1998 through Present Fiscal Year ending Sept. 30 1 MCANs Tier II notices All Tier I Notices “Ordinary” Tier I Notices

1998 3 - 1 1
1999 1 - 0 0
2000 0 1 5 5
2001 1 - 42 2 3 2

2002 1 - 48 2 0 2

2003 1 - 1 1
2004 5 - 3 3
2005 2 - 3 3
2006 1 - 3 3
2007 8 - 0 0
2008 3 - 3 3
2009 4 - 2 2
2010 3 - 3 3
Totals 33 1 114 27
Notes: 1 EPA numbers submissions by Federal fiscal year, which begins October 1 of the prior calendar year. For example, the first MCAN of FY2010 was received in calendar year 2009, but was numbered J10-01. 2 Tier I notices include clusters of 39 in FY2001 and 48 in FY 2002 that appear to cover minimal or speculative TSCA uses, and seem unlikely to be relevant in estimating Tier I submissions in lieu of MCANs for the current rule. Source: EPA internal list of MCANs submitted, and EPA’ s collection of Tier I and Tier II submission documents.
Table 4-10 shows species and submitter of Tier I notices in cases where the submission was not claimed as TSCA Confidential Business Informati on. The table excludes a cluster of 87 unusual submissions from November 2000 through April 2002 that seemed likely to cover TSCA uses that were minor or uncertain. 27 Table 4-11 shows the number of non-confide ntial Tier I/II submissions for each of the ten microbial species currently listed at 40 CFR 725.420 as candidates for exemption. Most microorganisms listed as candidates for tiered exemptions in the 1997 biotechnology rule had either no Tier I or Tier II notices at all, or only a few notices each. This suggests that listing a microbe as a candidate for exemption does not necessarily mean there will be surge of exemption notices. 28

The confidential and non-confidential Tier I submis sions history indicates that additional notices or notice amendments may be submitted if a firm decides to expand its manufacturing to more sites. Manufacturing may be by the submitter, a toll manufact urer, or a partner or customer firm. This may have implications for small business involvement, since a toll manufacturer or customer could be a small business even if the submitter is a large business. (See Regulatory Flexibility Act discussion in section 7.1 of this report.)

27 To protect confidentiality of subm issions, details are not given here.

28 To protect confidentiality of subm issions, details are not given here.30 Table 4

- 10 : All Tier I and Tier II Submissions from 1998 through 9/30/2010
Fiscal Year Submission
count Microorganism Name Submitter 2

Tier I Notices 1998 1 Bacillus licheniformis Novo Nordisk, Franklinton NC 1999 0

2000 5 Confidential (3 submissions) E. coli strain K-12 E. coli strain K-12 Confidential (3 submissions) Prolume Aureozyme

2001 3 3 Confidential (2 submissions) B. subtilis Confidential (2 submissions) Enzyme Biosystems 2002 0 3

- - 2003 1 E. coli strain K-12 Submitter: Dupont, Wilmington DE Manufacturer: A. E. Staley, Decatur IL

2004 3 (plus one amend.) E. coli strain K-12 Novozymes Biologicals, Salem VA (Amend. added 3 mfr sites in Salem VA) Bacillus licheniformis Genencor, Beloit WI Confidential Confidential 2005 1 E. coli strain K-12 Genencor, Rochester NY 2006 1 E. coli strain K-12 DuPont Tate & Lyle, Loudon TN 2007 0 - -

2008 3 Bacillus subtilis Novozymes North America, Franklinton NC Saccharomyces cerevisiae Avoca Bioprocessing Saccharomyces cerevisiae Avoca Bioprocessing

2009 2 Saccharomyces cerevisiae Avoca Bioprocessing Saccharomyces cerevisiae Avoca Bioprocessing

2010 3 Saccharomyces cerevisiae E. coli strain K-12 E. coli strain K-12 Avoca Bioprocessing Wacker Chemical Corporation Wacker Chemical Corporation Tier II Notices

2005 1 (plus 2 amends.) Confidential Confidential

Notes: 1 EPA receipt date.
2 Danisco bought Genencor in 2005 (www.genencor.com ). Novozymes demerged from Novo Nordisk in 2000, and the two companies are both held by Novo Group (www.novozymes.com ). Dupont Tate & Lyle Bio Products is a joint venture between Dupont and Tate & Lyle (www.duponttateandlyle.com ). 3 The Tier I notices do not include 39 in FY2001 and 48 in FY2002 that appear on their face to have minimal or speculative TSCA uses, and are judged unlikely to be relevant in estimating Tier I submissions in lieu of MCANs for the current rule. Sources: EPA, Office of Pollution Prevention and Toxics, files of Tier I and Tier II notices.31 Table 4-11: Nonconfidential Submissions for Mi crobes Listed at §725.420 through 9/30/2010 Host Microorganism Name Non-confidential Tier I Notices* Non-confidential Tier II Notices **

Acetobacter aceti none none Aspergillus niger

. none none Aspergillus oryzae

. none none Bacillus licheniformis 2 none B acillus subtilis 1 none Clostridium acetobutylicum

. none none E. coli strain K-12 8 none Penicillium roqueforti

. none none Saccharomyces cerevisiae 5 none Saccharomyces uvarum none none Source: The list of potentially exempt strains is from 40 CFR §725.420. The host species are from Tier I non-confidential submissions in EPA files, listed in Table 4-10 *There were 7 confidential Tier I submissions not shown in the table. The table also excludes an unusual cluster of 87 Tier I notices received from November 2000 through April 2002. **There was one confidential Tier II submission not shown in the table.
Table 4-12 shows the number of companies assumed to submit either a Tier I or Tier II submission over a ten-year period. In Year 1, four submitters ma ke their first submission under the Proposed Rule. In Years 5 and 10, two more companies make their first submission under the proposed rule. Each submitter must become familiar with the Proposed Rule the first year they make a submission.

Table 4

- 12 : Assumed Number of Companies Making Firs t-Time Tier 1/Tier 2 Submissions for B. amyloliquefaciens and T. reesei over a 10-Year Period

Year

1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Companies submitting their first notice under the Proposed Rule 4 0 0 0 1 0 0 0 0 1

Source: EPA assumption, based on past MCAN submissions fo und in Table 4-8. Assumes roughly 4% annual growth in companies, as in 1997 RIA (EPA, 1997a, Table IV-8, p. IV-40).

Future Submissions The number of future relevant submissions is very uncertain, but it is likely to be a small number. At a meeting with EPA on August 4, 2009, two biotech indu stry trade associations pr ojected that there might be four T. reesei MCAN submissions in 2010 and six per year in 2011 and 2012 (BIO and ETA, 2009, slide 12). There were no similar estimates for B. amyloliqufaciens submissions. Due to the very small numbers involved, this analysis does not break down the submission count between T. reesei and B. amyloliquefaciens. This analysis assumes a total of four MCAN submissions for T. reesei and B. amyloliquefaciens during the first year, under the Base Case. In addition, this analysis assumes that under the proposed rule, all baseline MCAN submissions will qualify for a Tier I or Tier II exemption and that all submitters will choose to submit either a Tier I or Tier II notice instead of an MCAN. Based on MCAN history, it seems likely that most will be T. reesei submissions. These estimates are very uncertain, since it is uncertain to what extent future T. reesei and B. amyloliquefaciens submissions will meet the requirements for either a Tier I or Tier II exemption. For example, a company may submit an MCAN for a microorganism if they believe the use will not meet the containment requirements for either exemption.32 In the absence of additional information, this anal ysis assumes that there will be many more Tier I submissions than Tier II submissions. The actual spli t between Tier I and Tier II is unknown, especially since some companies contemplating a Tier II submission may opt instead to submit the full MCAN. In the past, the sole Tier II submissi on over a 12-year period came in the third year after the 1997 rule promulgation. This analysis assumes, arbitrarily, that there will be a Tier II submission every three years after the current rule promulgation. The actual patt ern of submissions depends heavily on decisions of a few firms, and could be quite different from the assumed pattern, but numbers are expected to be small in any case. To calculate an assumed number of submissions in the future years, this report uses an annual growth rate of roughly 10 percent for total submi ssions, as estimated in the 1997 RIA for new closed system MCANs (EPA, 1997a, Table IV-8, p. IV-4 0). Table 4-13 presents the assumed number of MCAN, Tier I and Tier II submissions for T. reesei and B. amyloliquefaciens combined, over a ten-year period.

Table 4

- 13 : Estimated Numbers of MCAN, Tier I, and Tier II Submissions for B. amyloliquefaciens and T. reesei over a 10-Year Period

Submission Type Number of Submissions per Year Year

1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Base Case MCAN 4 4 5 5 6 6 7 8 9 9
Tier I & II 0 0 0 0 0 0 0 0 0 0

Rule Case MCAN 0 0 0 0 0 0 0 0 0 0
Tier I 4 4 4 5 6 5 7 8 8 9
Tier II 0 0 1 0 0 1 0 0 1 0 Source: MCAN numbers are based on past MC AN submissions in Table 4-8, an August 4, 2009, industry presentation (BIO andETA, 2009), and an assumed roughly 10% annual growth in submissions, as in the 1997 RIA (Table EPA, 1997a, IV-8, p. IV40). Counts only submissions that would qualify for Tier I or Ti er II under the proposed rule. The Tier I:Tier II ratio was ass umed based in part on Table 4-9 history.

4.1.6 Base Case and Change in Industry Burden and Cost due to the Proposed Rule for T. reesei and B. amyloliquefaciens This section estimates the total and change in burden and cost as a result of the proposed rule.

Aggregate Rule Familiariza tion Burden and Cost In the first year after rule promulgation, the total industry rule familiarization cost is expected to be approximately $5,459, if four companies make submissions in the first year. As stated in Section 4.1.5, rule familiarization costs are incurred at the company level and it is assumed that four companies will make a relevant bi otechnology submission in the first year under both the baseline and proposed rule (see Table 4-12). As discussed in Section 4.1.5, this analysis assumes all companies have made a previous biotechnology su bmission and therefore are familiar with the 1997 biotechnology rule. It assumes that under the Rule Case, each company will need to become familiar with the Tier I and II exemption requirements as they apply to T. reesei and B. amyloliquefaciens , and will incur a rule familiarization burden of 20 hours per company and a cost of approximately $1,365 per company (see Section 4.1.3). Table 4-14 contains th e total industry burden and cost estimates for rule familiarization in Year 1, after the final rule is promulgated. In the first year the total industry burden is expected to be approximately 80 hours in Year 1 and the cost is expected to be approximately $5,459. EPA assumes that one additional company will make a relevant submission in Year 5 and one in Year 10, and that in the Rule Case, each company will spend 20 hours more for rule familiarization than in the Base Case (see Table 4-16).33 Table 4

- 14 : Total Industry Burden for Rule Familiarization (Year 1)

Number of Companies with Rule Familiarizati

on Burden Rule Familiarizati

on Burden per Company

(hours) Total Industry Burden (hours) Rule Familiarizati on Cost per

Company

($2009) Total Industry

Cost ($2009)

Base Case 0 0 0 $0 $0 Rule Case 4 20 80 $1,365 $5,459 Change in Burden 4 20 80 $1,365 $5,459

Source: The number of submitting companies is taken from Table 4-12 and the per company rule familiarization burden is from Table 4-4.
Aggregate Submission and Recordkeeping Burden Hours (Year 1)Submission preparation, submission, and recordkeeping burden hours are incurred at the persubmission level and not the per-company level. Under the Base Case (if no rule were promulgated) EPA assumes a total of four MCANs (see Table 4-13) will be submitted in the first year after the rule takes effect. Using the burden of 520.38 hours per MCAN submission (see Table 4-7), the total baseline burden is calculated to be approximately 2,082 hours. Under the Rule Case, EPA expects four Tier I submissions and no Tier II submissions for T. reesei and B. amyloliquefaciens in the first year and estimates a burden of 19 hours per Tier I submission. (The burden per Tier II submission would have been 276 hours.) As shown in Table 4-15 below, EPA expects a total industry burden of 156 hours in the first year of the proposed rule, resulting from rule familiarization, submission preparation and record keeping. Industry will experience a savings of approximately 1,926 hours in the first year due to a reduction in submission preparation burden resulting from the proposed rule.34 Table 4

- 15 : Base Case and Change in Industry Burden Hours (Year 1)

Submissi on Type Base Case Number of Annual Submissi

ons Per Submissi on Burden

(hours) Base Case Total Industry Burden (hours) Rule Case Number of Annual Submissi

ons Rule Case Total Industry Burden (hours) Change in Industry Burden (hours)

Notice Preparation, Submission and Recordkeeping for T. reesei and B. amyloliquefaciens MCAN 4 520 2,082 0 0 -2,082 Tier II 0 276 0 0 0 0 Tier I 0 19 0 4 76 76 Total 4 - 2,082 4 76 -2,006 Rule Familiarization Burden Total - - 0 - 80 80 Total Industry Burden (Rule Familiarization Burden + Submission Burden) Tota l

- - 2,08 2

- 15 6

- 1,92 6 Source: Table 4-13 contains the number of MCAN, Tier I, a nd Tier II submissions. Table 4-6 contains the burden per MCAN, Tier I, and Tier II submission. Calculations are with the unr ounded numbers. Table 4-14 contains the total industry rule familiarization burden. Rule Case assumes 4 different submitters at 20 hours/organization.
Aggregate Submission and Recordkeeping Cost (Year 1) Table 4-16 presents the total industry costs of the proposed rule in the first year. As shown in Table 4-7 , the cost of submitting one MCAN is approximate ly $33,576, therefore with four submissions, the first year industry cost is approximately $134,305 in the Base Case. The cost of submitting one Tier II submission is approximately $16,504 and the cost of submitting a Tier I submission is approximately $1,272 (see Table 4-7). Under the proposed rule, EPA expects zero Tier II and four Tier I submissions, resulting in a total industry cost of approximately $10,548 resulting from rule familiarization, recordkeeping, and submission preparation. The proposed rule will generate a cost savings of approximately $123,757 to the industry in the first year as a result of the reduced submission preparation burden associated with Tier I and Tier II submissions.35 Table 4

- 16 : Base Case and Change in Industry Cost (Year 1)

Submission Type Base Case Number of

Annual Submissions Base Case Per Submission Cost ($2009) Base Case Total Industry

Cost ($2009) Rule Case Number of

Annual Submissions Rule Case Total Industry

Cost ($2009) Change in Industry Cost ($2009)

Notice Preparation, Submission and Recordkeeping for T. reesei and B. amyloliquefaciens
MCAN 4 $33,576 $134,305 0 $0 -$134,305 Tier II 0 $16,504 0 0 $0 $0 Tier I 0 $1,272 0 4 $5,089 $5,089 Total 4 - $134,305 4 $5,089 -$129,216 Rule Familiarization Cost Total - - $0 - $5,459 $5,459 Total Industry Cost (Rule Familiarization Cost + Submission Cost) Total - - $134,305 - $10,548 -$123,757 Source: Table 4-13 contains the number of MCAN, Tier I, and Tier II subm issions. Table 4-7 contains the cost per MCAN, Tier I, and Tier II submission. Table 4-14 contains the total industry rule familiarization cost. Rule Case assumes 4 different submitters at 20 hours/organization

.
Total Change in Industry Burden Hours (All Years) Table 4-17 presents the total industry burden hours under the Base Case and the Rule Case as well as the change in burden as the result of the proposed rule over a ten-year period. Industry burdens for Years 2 through 10 are calculated using the same method as was used to calculate the burden for Year 1; the per-submission burden found in is multiplied by the number of submissions for a given year found in Table 4-13, and the rule familiarization burden is added to the total. As shown in Table 4-12, one additional company is expected to make a submission in Years 5 and 10 under both the Base Case and the Rule Case. Like the Year One submitters, these companies will incur no additional rule familiarization burden in the Base Case and a 20 hour burden for rule familiarization in the Rule Case (see Table 4-4). EPA assumes that most companies will send Tier I submissions instead of Tier II submissions. This analysis assumes, arbitrarily, that there will be a Tier II submission every three years after the current rule promulgation. More detail on the derivation of the burden and cost estimates for Years 2 through 10 is presented in Appendix A. EPA estimates a total industry burden of 32,784 hours in the Base Case over the ten-year period, and a total burden of 2,089 hours under the proposed rule. Ov er the ten-year period the industry is expected to save a total of 30,695 hours and an average of 3,070 hours per year.36Table4-17: Base Case and Change in Industry Hours Burden (All Years)YearBase CaseRule CaseTotalChangeIndustry inBurdenMCANSubmissionsTier I & IISubmissionsRuleFamiliarizationBurdenSubmissionPreparation,Submission,andRecordkeepingBurdenTotalIndustryBurdenMCANSubmissionsTier I & IISubmissionsRuleFamiliarizationBurdenSubmissionPreparation,Submission,andRecordkeepingBurdenTotalIndustryBurden1 4 0 0 2,082 2,082 0 4 80 76 156-1,9262 4 0 0 2,082 2,082 0 4 0 76 76-2,0063* 5 0 0 2,602 2,602 0 5 0 352* 352-2,2504 5 0 0 2,602 2,602 0 5 0 95 95-2,5075 6 0 0 3,122 3,122 0 6 20 114 134-2,9886* 6 0 0 3,122 3,122 0 6 0 371* 371-2,7517 7 0 0 3,643 3,643 0 7 0 133 133-3,5108 8 0 0 4,163 4,163 0 8 0 152 152-4,0119* 9 0 0 4,683 4,683 0 9 0 428* 428-4,25510 9 0 0 4,683 4,683 0 9 20 171 191-4,492Total 63 0 0 32,784 32,784 0 63 120 1,969 2,089-30,695

Avera ge 6.3 0 0 3,278 3,278 0 6.3 12 197 209-3,070Notes: * Rule case hours are higher in years 3, 6 and 9, due to assumed Tier II submissions in those years but not in other years.Sources: The industry burden in Year 1 is derived in Table 4-15. Table A-8-1 through Table A-8-9 in Appendix A: derive the burdens for all other years.37 Total Change in Industry Cost (All Years) The total cost to the industry over the ten-year pe riod is presented in Table 4-18. The calculations for the industry cost are derived in A ppendix A: and Section 0 of this repor t. Total industry cost is estimated to be approximately $2.12 million over the ten-year period in the Base Case and approximately $134,040 over the ten-year period in the Rule Case. Total cost savings to the industry are approximately $1.98 million (before discounting) over the ten-year pe riod with annualized savings ranging from $193,340 under a three percent discount rate to $187,310 under a seven percent discount rate.38Table4-18: Base Case and Change in Industry Cost in Thousands of Dollars ($2009) (All Years)YearBase CaseRule CaseTotalChangeIndustryin CostMCANSubmissionsTier I & IISubmissionsRuleFamiliarizationCostSubmissionPreparation,Submission,andRecordkeepingCostTotalIndustryCostMCANSubmissionsTier I & IISubmissionsRuleFamiliarizationCostSubmissionPreparation,Submission,andRecordkeepingCostTotalIndustryCost14 0 $0.00$134.31$134.310 4$5.46$5.09$10.55-$123.7624 0 $0.00$134.31$134.310 4$0.00$5.09$5.09-$129.223*5 0 $0.00$167.88$167.880 5$0.00$21.59*$21.59-$146.2945 0 $0.00$167.88$167.880 5$0.00$6.36$6.36-$161.5256 0 $0.00$201.46$201.460 6$1.36$7.63$9.00-$192.466*6 0 $0.00$201.46$201.460 6$0.00$22.87*$22.87-$178.5977 0 $0.00$235.03$235.030 7$0.00$8.91$8.91-$226.1388 0 $0.00$268.61$268.610 8$0.00$10.18$10.18-$258.439*9 0 $0.00$302.19$302.190 9$0.00$26.68*$26.68-$275.50109 0 $0.00$302.19$302.190 9$1.36$11.45$12.81-$289.37Total63 0 $0.00$2,115.30$2,115.300 63$8.19$125.85$134.04-$1,981.27Average6.3 0 $0.00$211.53$211.530 6.3$0.82$12.58$13.40-$198.13Annualized3%*- - $0.00 $206.55 $206.55 - - $0.88 $12.32 $13.20-$193.34

Annualiz ed 7%* - - $0.00 $200.25 $200.2 5

- - $0.96 $11.98 $12.9 5-$187.31Notes:* Rule case costs are higher in years 3, 6 and 9, due to assumed Tier II submissions in those years but not in other years.Sources: The industry burden in Year 1 is derived in Table 4-16. Table A-8-10 through Table A-8-18 in Appendix A: derive the burden for all other years.Note: Yearly, total, and average costs are calculated before discounting.39 

## 4.2 Health, Environmental, Cons umer and Other Benefits The proposed rule is a cost savings rule that w ill decrease the burden to industry of developing new intergeneric strains of T. reesei and B. amyloliquefaciens. However, the main benefits of the proposed rule could well be the reduced delay in developing and bringing to market products from the modified T. reesei and B. amyloliquefaciens organisms (which may be the organisms themselves), and the environmental and consumer benefits that are generated by the use of these products. Some of these benefits will be captured by industry through revenues, some will be enjoyed by consumers in the form of reduced prices or enhanced product performance, and so me will accrue to the general public in the form of improved health or environmental quality, relative to situation in the absence of the proposed rule. It was not feasible to quantify these innovation and environmental benefits for this analysis, but they could very well be greater in magnitude than the quantified cost savings. Section 4.2.1 describes the potential benefits to industry and consumers of increases in innovation and reduced delays of bringing a product to market. The potential environmental, health , and consumer benefits of new intergeneric strains are described in Sections 4.2.2 and 4.2.3.

4.2.1 Benefits of Reduced Delays in Bringing Products to Market and Increased Market Entry The Proposed Rule is expected to reduce delays and costs resulting from the MCAN submission lead time and cost. The most dramatic differences are between the MCAN and the Tier I notice, due to differences in advance notification (90 days for the MCAN versus 10 days for the Tier I) and submission content (often just two or three simple pages for a Tier I notice, compared with possibly hundreds of pages for the MCAN, many of them containing scient ific and engineering information tailored to the microorganism and its specific use).

Reduced Delays in Marketing a Product Under the Base Case, if a company identifies a promising strain of an organism, it must prepare an MCAN, file it, and wait for the 90-day review period (and possibly longer) before it can commercialize the new strain or, in some cases, before it begins full pilot-scale testing in a bio-refinery 29 . The actual review period for an MCAN can take more than 90 days , if the submitter voluntarily suspends the review clock and/or if EPA extends the review period. EPA ma y extend the review period for up to 90 days for an MCAN and 45 days for a Tier II notice (EPA, 1997b, § 725.54 and § 725.56). Because of the shorter regulatory review period for a Tier I or Tier II notice, compared with an MCAN, industry may avoid costs in the form of lo st or delayed profits that would result from the postponement of product commercialization under the Base Case. If companies can plan well ahead, they may build the MCAN lead times into product development schedules, and their delay may be less than the review time (however, there may be costs to such planning, such as more internal coordination and more pre-notice consultations with EPA which may involve time and travel for submitter senior staff). Some markets for microbial products may be seasonal, so that a 90-day review period or an unexpected extension of the review period may delay production by several additional months if the submitter misses a seasonal market. Decreasing the delays in production and profit-making increases the company’s incentive to develop new intergeneric strains.

29 A bio-refinery produces fuels, power or chemicals from biomass.40 Industry trade associations called the current MCAN system “an obstacle to innovation and implementation” for bio-based products and biofuels (BIO and EPA, 2009, slide 8). The 2010 industry letter supporting the T. reesei application described the current process as cumbersome and emphasized that the proposed eligibility for exemption would allow companies to test multiple strains in parallel. It asserted that listing T. reesei as a candidate for exemption “will enhance the rate of innovation by allowing companies to create and test a number of strains in parallel rather than the current, cumbersome, step-by-step process in which a company assembles a promising candidate strain, prepares and then files an MCAN, waits for the 90 day notification period/’dro pped from review’ status, and then goes for fullscale, in biorefinery testing. The ability to test multiple candidates will allow the industry to reach full potential in shorter time...” (BIO and ETA, 2010, p. 7). Use of Tiered exemptions could expedite the pro cess of identifying the best strains. The industry letter stated that the tiered exemptions would reduce the time interval from innovation to implementation, and allow for smoother project planning and execution (BIO and ETA, 2010, p. 7).

Reduced Delays in Large Scale Testing As indicated in the 2010 industry letter (BIO and ETA, 2010), the MCAN review period may delay not only bringing a product to market, but also large scale testing before commercialization. Microorganisms often must be tested in larger ferm entation facilities, often called “pilot scale” or “demonstration scale” plants, to determine whether they will be cost-competitive at commercial scale. TSCA section 5(h)(3) provides an exemption from notification for R&D uses. However, such a use would have to meet the requirements in the 1997 biotechnology rule, section 725.234, to qualify for the R&D exemption. For example the use must be “solely for R&D” and must be contained within a structure. Microorganism modifications not meeting the requirements must go through the submission process for a commercial product even though, for the purpose of determining commercial viability, they are still in a testing stage. 30 In the absence of the proposed rule, a company could opt to file multiple MCANs simultaneously, thereby incurring the costs of multiple MCANs but mini mizing delays of production, since it will be clear within one review period whether one or more of the genetic modifications being submitted are commercially viable. Alternatively, the company could file only one MCAN at a time. This would reduce the potential costs of submission, since the company w ould be able to stop submitting MCANs as soon as a viable intergeneric product was found, but it coul d slow down innovation, since the company might not file the next MCAN until they know the results of large scale testing of the prior MCAN microorganism (BIO and ETA, 2010).

Effects of Submission Costs on Market Entry Some potential TSCA markets may be too small or un certain to justify the expense of an MCAN. In some cases, in the absence of Tier I/Tier II exemptions, biotechnology companies may choose to not develop an intergeneric product due to the burden associated with preparing an MCAN. For example, a company may choose to use a naturally-occurring microorganism or a company may modify how it develops and applies a microorganism (EPA, 1997a). In some cases, firms may focus intergeneric research on other host microbes that are already listed as candidates for tiered exemptions. For example, it is possible that companies have chosen to emphasize developing intergeneric strains of the B. amyloliquefaciens substitutes, B. licheniformis and B. subtilis
,

30 Submitters can consult with EPA if they are uncertain whether a us e qualifies for an R&D exemption.41 which are currently eligible for Tier I and Tier II exemptions, instead of B. amyloliquefaciens

. 31 This may have slowed industry development of intergeneric B. amyloliquefaciens below what it otherwise might have been. Tier I certifications have been submitted for both B. licheniformis, and B. subtilis in recent years. However, no MCAN 32 has been submitted for B. amyloliquefaciens since FY98

. Any benefits of new intergeneric T. reesei or B. amyloliquefaciens are likely to come sooner if the organism qualifies for an exemption, especially a Tier I exemption. In addition, it is possible that, due to the exemptions, some improved microorganisms would be developed that otherwise would not be developed at all.

Rule Case Benefits Under the Rule Case, the shorter review periods (45 days for the Tier II exemption 33 and 10 days for the Tier I exemption) could have reduced delay costs. This is especially true for Tier I notices which, unlike MCAN and Tier II notices, are not subject to suspensions or extensions of the review period. The proposed eligibility for Tier I/Tier II exemptions shortens the notice period for T. reesi QM6a and B. amyloliquefaciens . The Tier I notice requires only a 10-day advance notification and does not require EPA approval before commercial production. Using the Tier I exemption would potentially allow companies to test multiple strains at once, expediting the testing process and allowing for the product to enter the market more quickly. The Tier II notice also decreases the review period, to 45 days (extendable to 90 days), but requires EPA approval prior to commercial production. Thus, the Tier II exemption may be somewhat less important than the Ti er I option in encouraging innovation. Although the Tier II exemption has seldom been used hi storically (see Table 4-9), this exemption still has a role in encouraging innovation, if the microorganisms are likely to be used in containment that does not meet the Tier I conditions. Overall, due to shorter notice or review periods, and simpler submissions, the proposed rule is expected to increase the rate of innovation in the industry. Innovation delay costs are not quantified for this repo rt. The 1997 RIA stated that it was not feasible to quantify the impact of these co sts as part of aggregate industry costs (EPA, 1997a). The 2007 New Chemical ICR (EPA, 2007) presents a cost for delaye d receipt of prof its, but this cost was based on calculations for conventional chemicals originally ma de in 1983 (ICF, 1983), and may be quite different for microorganisms. 34

Benefits to Consumers Reduced delays in the marketing of products, and increased innovation will positively impact both downstream users and end consumers of the genetically modified microbes and products produced using these microbes. Reduced delays in bringing products to market sooner brings value to potential consumers. Consumers would be able to start using the improved products soon er, and potentially start sooner to reap the direct and indirect environmental an d health benefits of the rule discussed in Sections

31 B. subtilis and B. amyloliquefaciens are closely related and were considered to be the same species until 1987 (Novo Nordisk, 1997, p.2)

32 Here, as elsewhere in this report, only nonconfi dential submissions information was considered.

33 EPA may extend the review period for a Tier II notice up to 45 days (EPA, 1997b, §725.56).

34 A delay cost of $23,378 in 2006 dollars is presented in the New Chemicals ICR (EPA, 2007, p.23-24; Table 3). The ICR cost was based on EPA’s 1994 Regulatory Impact Analysis of Amendments to Regulations for TSCA Section 5 Premanufacture Notifications (EPA, 1994, pages II-6 and III-10) which in turn drew on a 1983 EPA report, Regulatory Impact Analysis for New Chemical Reporting Alternatives Under Section 5 of TSCA , May 10, 1983 (ICF, 1983).42 4.2.2 and 4.2.3. The lower costs and reduced lead times for Tier I/Tier II exemptions are expected to encourage the development of new intergeneric microbe strains. Successful innovation would lead to reduced cost and/or improved performance of enzy mes and other products made using the microbes, relative to the Base Case. Ultimately there would be relatively lower prices and/or improved performance for end products such as fuel ethanol, textiles, and detergents.

4.2.2 Health, Environmental and Other Benefits of Improved Microbe Strains

Benefits of Improved T. reesei Strains The proposed rule could lead to more cost-effective production of enzymes by T. reesei hosts, including production of enzymes native to other microbial genera. In cases where enzyme costs are reduced, the industry may realize some of the savings in the form of profits and some savings may be passed on to industrial customers, and to institutional, and household consumers. Reduced enzyme cost would tend to expand the use of enzymes and thus their environmental and other benefits. Depending on the application, enzymes may replace harsher chemicals, allow use of lower temperatures (less energy), allow recycling of waste biomass, and have other environmental benefits. For example, cellulases from T. reesei are used in the pretreatment and finishing of textiles. The use of enzymes in textile pretreatment may reduce the amount of wastewater generated, and the amount of energy and water used by textile plants that use traditional methods of treating garments (Blackburn, 2009). Cellulases may be used instead of sludge-pro ducing pumice stones in denim finishing to create astonewashed affect. The enzymes may also be used as substitutes for hydrogen peroxide in bleach cleanup, reducing the amount of wastewater produced, and/or the amount of energy and water used in fabric pretreatment (Blackburn, 2009). The 2010 industry letter supplementing the original T. reesei petition highlights the conversion of biomass to sugars as an area of innovation. “One can ferment these saccharides/oligosaccharides to ethanol, acids and other metabolites or use them direc tly in organic synthesis” (BIO and ETA, 2010, p.7). Faster development of new T. reesei strains due to the tiered exemptions—especially Tier I—could reduce the costs of enzymes used to degrade biomass, and thus promote use of biomass as a feedstock for the production of ethanol and other chemicals. The cost reductions would result from increases in enzyme yields and development of more effective enzyme complexes using genetically modified T. reesei strains (BIO and ETA, 2010, p.8). An important use for T. reesei enzymes is in ethanol production. Other things being equal, more costeffective enzymes from T. reesei may reduce the cost of producing corn-based and cellulosic ethanol. The benefits of cellulosic ethanol are discussed in the next section.

Benefits of Cellulosic Ethanol

T. reesei enzymes are used in the production of cellulosic ethanol. For example, Genencor’s Accelerase® 1500 enzyme complex hydrolyzes biomass into fermentable sugars (Genencor, 2009). Cellulosic ethanol is a second-generation biofuel that is made from cellulosic biomass that comes from feedstocks like corncobs, switch grass, wo odchips, and other inedible plant fibers. Tiered exemptions for T. reesei are expected to encourage the development of new T. reesei strains and thus indirectly reduce the costs of producing cellulosic ethanol and expand its production, compared with the current biotechnology regulations. Use of cellulosic ethanol in place of gasoline and corn-based ethanol is expected to lead to relatively lower greenhouse gas em issions. (As elsewhere in this analysis, the benefits of the Rule Case are relative to the Base Case in which T. reesei is not listed as a candidate for exemption. Other factors could swamp the effects of changed EPA biotechnology regulations on cellulosic ethanol production volume or price.)43 A U.S. Department of Energy life cycle assessment found that greenhouse gas emissions from the use of cellulosic ethanol are 87 percent lower than em issions from gasoline (DOE, 2007). In comparison, corn-based ethanol has emissions reduction between 18 and 28 percent when compared with gasoline (DOE, 2007). A 2010 US EPA report expects a 21 perc ent reduction greenhouse gas emissions if cornbased ethanol is used as opposed to gasoline (EPA, 2010b). The same report estimates a 72 to 110 percent reduction if switchgrass-based ethanol is used instea d of gasoline and a 92 to 129 percent reduction in greenhouse gas emissions if corn stover (stalks, l eaves etc.) is used (EPA, 2010b). Increased use of cellulosic ethanol is expected to result in bene fits, since greenhouse gas emissions are known to contribute to global climate change, which has many potential environmental and health risks. It was not feasible for this report to quantify the extent to which greenhouse gas emissions might be abated by the commercial use of cellulosic ethanol, and the associated risk reduction. However, some potential health and environmental benefits are discusse d qualitatively in the next section. Other benefits of substituting cellulosic ethanol for ot her fuels are mentioned in Chapter 6 .

Environmental and Health Impact s of Global Climate Change

If innovations in T. reesei strains used in cellulosic ethanol production lead indirectly to a reduction in greenhouse gas emissions, relative to the Base Case, this would tend to mitigate global climate change and thus reduce the environmental and health impacts associated with global climate change. A significant benefit of the Tier I/Ti er II exemptions to health and safety could occur if innovations in T. reesei strains used in ethanol production lead indir ectly to a reduction in greenhouse gas emissions. The relative reduction in greenhouse gas emission s would be due to increased replacement of conventional gasoline and corn-based ethanol by cellulosic ethanol. Many factors other than biotechnology regulation affect energy markets, and it is not possible to forecast the extent to which making T. reesei QM6a eligible for the exemptions might l ead to greater use of cellulosic ethanol, compared with the Base Case. However, the summary below indicates the potential importance of health and environmental benefits if cellul osic ethanol does become more competitive in part as a result of Tier I/Tier II exemptions. It is difficult to assess the human health and environmental risks associated with global warming because of the interdependency and complexity of the associated factors (EPA, 2009a). 35 However, the following text briefly summarizes information found on EPA’s climate change website concerning the environmental impacts of climate change. Global warming may negatively impact freshwater and saltwater quality, freshwater abundance, sea level, air quality, biodiversity, and ecosystem services. Increased sea level from melted glaciers and icecaps may result in erosion, increased flooding, inundated wetlands, and increased salinity in freshwater rivers (EPA, 2009a). Certain animal and plant species are expected to change territorial regions, migrati on patterns, and growing seasons (EPA, 2009a). For example, North American forests are likely shift in both location and composition (EPA, 2009a). The EPA website states that it is unlikely that most aquatic and terrestrial ecosystems will be able to adapt to a large change in climate, resulting in greatly reduced global biodiversity and ecosystem services (EPA, 2009a). Also, based on information on EPA’s climate change website, the Agency expects that an increased average temperature resulting from global climate ch ange will negatively affect vulnerable populations such as the young, the elderly, and people with asthma and heart disease (EPA, 2009a). In addition, an increase in average temperature may increase the spread of vector borne diseases, such as malaria, yellow

35 This is not intended to be a definitive summary of EPA information on this topic. See EPA’s climate change website for a more thorough and up-to-date di scussion (www.epa.gov/climatechange/effects/).44 fever, dengue fever, and encephalitis (EPA, 2009a). Increased rainfall is often associated with temperature increases, and this may lead to an increased number of ticks and increased incidence of Lyme’s disease (EPA, 2009a). Global warming is also expected to reduce air quality and increase the amount of particulate matter and ground level ozone in the air. Both particulate matter and ground level ozone are associated with significant health problems (EPA, 2009a). Finally, gl obal climate change is expected to increase the number of extreme weather events that are likely to negatively impact human health and wellbeing (EPA, 2009a).

Other Benefits of Cellulosic Ethanol Domestic cellulosic ethanol production may decrease U.S. dependency on foreign oil supplies. Unlike corn ethanol, the feedstocks used in cellulosic et hanol production (for example corncobs, or crops grown for specifically for ethanol production, such as gra sses or wood) are not human food crops (DOE, 2009b), so increased demand for cellulosic ethanol feedstock may put less upward pressure on food prices. These crops may be grown on land that is unsuitable for growing other crops and it generally takes less energy to produce cellulosic ethanol biomass than sugar and starch based biomass (DOE, 2009b). In addition, the proposed rule may contribute to U.S. progress towa rd meeting the goals of the Energy Independence & Security Act (EISA) of 2007 which include US consum ption of 6 million gallons of cellulosic ethanol in 2011 and 500,000 million gallons of cellulosic ethanol in 2012 (EPA, 2010c and EPA, 2010d).

4.2.3 Benefits of Improved B. Amyloliquefaciens Strains
As with T. reesei, the lower costs and reduced lead times for Tier I/Tier II exemptions are expected to encourage the development of new intergeneric B. amyloliquefaciens strains. The Rule could lead to more cost-effective production of enzymes by B. amyloliquefaciens hosts, including production of enzymes native to other microbial genera. Ultimately there could be relatively lower prices and/or improved performance for end products such as laundry detergents. There could also be indirect benefits to health and the environment. For example, B. amyloliquefaciens is used to produce amylases and proteases for commercial laundry detergents (LSBU, 2004; Aehle 2007 p.186). Novozymes asserts that the use of enzymes in laundry detergents as opposed to traditional chemicals (such as surfactants) has several environmental benefits including energy savings by enabling lower wash temperatures and the compaction of the product, reducing the amount of pack aging used (Novozymes, 2010b). It also asserts that enzymes are biodegradable, have no negative environmental impact on sewage treatment processes, and do not present a risk to aquatic life (Novozymes, 2010b).



## 4.3 Limitations of the Analysis Estimates of the number of potentially affected companies, the numbers of submissions, the cost savings per submission, rule familiarization costs, a nd the innovation impacts are very uncertain. In some cases, a more extensive analysis would not be able to remove much uncertainty. For example, impacts on the pace and type of innovation, and the health and environmental benefits of enhanced innovation, are extremely difficult to predict. In other cases, such as per-submission costs or numbers of submissions, a larger study might reduce uncertainty, but it is unlikely that the added information would change the rule decision. For example, an industry survey might show that per submission costs are higher or that there might be more submissions than estimated here. However, Tier I/Tier II per-submission costs would almost certainly continue to be lower than per submission costs for MCANs, and there would still be a cost-savings from the proposed rule. Any change in submission numbers might be large percentage-wise but would be small absolutely, as would the change in quantified rule cost savings.45 4.3.1 Uncertainties in the Number of Tier I and Tier II Submissions

Growth in submissions The analysis assumes that the number of submissions will be relatively small for the foreseeable future: several submissions per year for the two microorganisms combined, rather than dozens or hundreds. However, it is difficult to forecast future submissions for intergeneric T. reesei and B. amyloliquefaciens , especially beyond the first year or two. The year-to-year innovative activity leading to submissions depends on business decisions of a handful of firms, and can be affected by both internal technical success and external economic factors. Er rors in assumed submission numbers would tend to affect benefits and costs in the same direction, so that even with significant errors in assumed submission numbers, benefits would still very likely outweigh costs. This is because the rule is cost-saving, and the only costs identified in this report are minor costs for rule familiarization.

Rule Case versus Base Case total submissions This analysis assumes that total T. reesei and B. amyloliqufaciens submissions would not be affected by the rule, and that the rule would merely result in some MCANs being replaced by Tier I/Tier II submissions, for a savings in submission costs. However, this might not be true. Instead, the lower Tier I/II submission costs could increase the total number of submissions for T. reesei and B. amyloliquefaciens

. The number of Tier I submissions could be higher than estimated if companies are encouraged to submit a large number of low-cost Tier I notices, including companies who might not have submitted an MCAN in the Base Case. A review of past submitters of Tier I/Tier II notices reveals that while many Tier I/Tier II submissions are by past MCAN submitters, some have been submitted by companies that have never submitted an MCAN. It is not known whether any companies have been deterred from developing or using intergeneric T. reesei or B. amyloliquefaciens for TSCA applications because of the MCAN cost, but if so, they could enter some TSCA markets because of the proposed rule. For large markets, such as T. reesei enzymes for ethanol production, it is unlikely that the MCAN cost would deter entry. However, it is possible that the proposed rule would create a surge of Tier I submissions for small markets where it might not be profitable to submit MCANs. For example, a firm may develop a microorganism for non-TSCA uses, but th ere might also be potential TSCA uses. The firm might consider the profits from minor TSCA uses to be too low to justify an MCAN, but high enough to justify the simpler Tier I notice. Industry and agency costs for the extra submissions would be low on a per-submission basis. A surge of Tier I notices could increase submission costs, but would tend to increase the innovation benefits even more. The total number of notices could also be higher for the Rule Case than for the Base Case because companies must submit a new Tier I or Tier II notice (or amendment) for each new site using the same microorganism, while they submit only one MCAN per microorganism. These supplementary notices would be relatively inexpensive but would slightly increase Rule Case submission costs. For example, there may be potential T. reesei applications which are so different from historic uses of other microorganisms eligible for Tier I/Tier II exempt ions that EPA’s history of receiving only one Tier II submission is irrelevant. For example, a company mi ght wish to provide the eligible microorganisms to toll manufacturers (for example, firms that produce the enzymes under contract with the submitter) or to customer sites that may not meet the Tier I containment requirements, and use a Tier II exemption for each site. This could increase both the Tier II exemptions and total exemption notices beyond the number assumed in the analysis.46 Rule Case MCAN mix The analysis assumes that if the intergeneric microorganism qualifies for an exemption, producers will submit a Tier I or a Tier II notice, not an MCAN. However, it is possible that firms would make an MCAN submission even though the microorganism itse lf would qualify for an exemption. This could happen, for example, if the submitter believes that manufacturing conditions may not always meet the containment requirements for either exemption. For example, in one case, an MCAN submitter believed that the microorganism itself would qualify for a Tier I exemption, but did not know whether cu stomer sites receiving the live microbe would meet Tier I containment criteria. The submitter stated that it would be burdensome to make this determination on a site-by-site basis. They also thought that Tier I regulatory requirements might make the commercial use less attractive to customers. They did not want to impose containment requirements beyond the normal for customer facilities (MCAN, 2010, p.7). In addition, microorganisms associated with Tier I or Tier II exemptions are not added to the TSCA inventory, so they remain “new.” A company might decide to submit an MCAN once rather than repeatedly submit a Tier I or Tier II notification for each site where the organism is used. By contrast with exemption notices, if EPA does not take action on the MCAN within 90 days, once the company begins commercial production and submits a Notice of Comm encement (NOC), the specific microbial strain would be added to the TSCA inventory. At that point, the microorganism would be no longer “new” and would not require a submission if more sites prod uce the microorganism or the method of containment changes (unless the organism is subject to a Consent Order under TSCA Section 5(e) or to a Significant New Use Rule).

Tier II submissions The analysis assumes that firms not meeting Tier I containment requirements would prefer a Tier II submission to an MCAN. However, some firms may perceive the cost of a Tier II submission to be only slightly lower than the cost of an MCAN. Because th ere is more flexibility post-EPA review with MCAN submissions, a company may believe the cost savings from submitting a Tier II rather than an MCAN do not justify the future costs of repeated Tier II submissions. This would tend to reduce quantified cost savings from the Rule. The analysis assumes that there will be only three Tier II notices over a ten-year period. To avoid having to assume fractional notices each year, it assumes one notice every three years. However, the actual number and timing of Tier II notices could be quite different. As with the Tier I assumptions, the assumed number of Tier II submissions may be too high or too low. EPA has received only one Tier II submission (with amendments) since 1998. It is possible there could be no Tier II submissions for either microorganism for a period of several years. Alternatively, the Tier II submissions forecast could be an underestimate. If the total number of exemption notices stays the same, but more Tier I notices and fewer Tier II notices are submitted, the cost savings generated by the rule may be higher than estimated here, because Tier I submissions have much lower costs than Tier II submissions. Conversely, if more Tier II notices are submitted, the relatively small burden differenc e between MCANs and Tier II submissions would yield a smaller but still positive cost savings.

Firms incurring rule familiarization costs The analysis assumes that a few firms would incur rule familiarization costs over ten years, and that the numbers of submitting firms would be the same in the Base and Rule Cases. However, the advantages of Tier I and Tier II exemptions could induce firms to make T. reesei or B. amyloliquefaciens submissions47 under the Rule Case that would not have done so under the Base Case. For firms who would not have submitted MCANs under the Base Case, there will be rule familiarization costs associated with the Tier I or Tier II submission under the Rule Case. However, the expected profits should outweigh the costs associated with the additional Tier I and Tier II submissions—otherwise firms would not make the additional submissions.

4.3.2 Uncertainties in Cost Estimates The analysis assumes that the costs estimated for the 1997 biotechnology rule are a good basis for estimating costs of current submissions, after u pdating for inflation and the advent of electronic submissions. Resources were not available to update the 1997 MCAN submission costs, except to reflect inflation and electronic reporting. There is therefore uncertainty surrounding the cost estimates associated with MCAN, Tier I, and Tier II submissions. However, it is highly likely that at least some firms would find the cost savings sufficient to take advantage of the Tier I and possibly also the Tier II exemptions, resulting in a cost savings associated with the proposed rule.

Submission costs MCAN burden estimates may be underestimates if preparing a submission requires the development of more new information than was assumed in the original 1997 RIA, or if existing information was more difficult to compile than was originally estimated. In addition, these cost estimates may be understated if they do not adequately reflect pre-notice consultations with EPA, as well as phone calls w ith EPA and responding to EPA inquiries during submission review. EPA encourag es, but does not require, pre-noti ce consultations. An industry consultant has recommended such consultations well in advance of the expected commercial start date (Glass, 2010), and firms have often availed themselves of this opportunity. Some consultations involve travel by senior staff to EPA’s headquarters in Wash ington DC. In addition, industry staff may spend time compiling additional information to respond to inqu iries by EPA staff during the review period. If costs of planning and preparing MCANs are higher than those estimated, it is unclear how this would affect cost savings due to the Tier II exemption, since the Tier II costs might also be higher than estimated. Compared with the Tier I exemption, however, higher MCAN costs would likely increase the cost savings from the proposed rule. On the other hand, MCAN submission costs may be lower than those estimated, if firms make more than one submission for the same species. If the firm and EPA are familiar with the species, the firm may save time preparing the submission, have less need to consult with EPA, and spend less time answering EPA questions. This could reduce the advantages of a Tier II or Tier I exemption compared with an MCAN. In addition to the cost savings from electronic submissions to EPA, advances in information technology may have reduced the costs of some steps in preparing a submission. The analysis assumes that the cost of determining whether containment qualifies for the Tier I exemption is negligible. This may not be true for some firms, such as those supplying live microorganisms to customers. Higher Tier I costs would tend to somewhat reduce the net benefits of the rule. The analysis assumes that cost savings to industry and the Agency from electronic reporting are similar to savings estimated by EPA for conventiona l chemicals. However, biotechnology submissions are quite different from submissions for conventional chemicals, with less reliance on EPA forms and more pages in a typical submission. It is not clear whether the savings associated with electronic biotechnology submissions would be higher or lowe r than for conventional chemical submissions.48 Recordkeeping and rule familiarization The analysis assumes that MCAN recordkeeping costs are the same as Tier I and Tier II recordkeeping costs (1 hour). However, because MCANs are far larger and more complex than Tier I notices, and somewhat more complex than Tier II submissions, it is unlikely that the recordkeeping burden is truly the same for all types of notices. A more tailored estimate of MCAN, Tier I and Tier II recordkeeping costs may slightly increase the cost-savings from the proposed rule. The rule familiarization cost of 20 hours per firm may be an over- or underestimate. Such costs will be company-specific. For example, instead of a cost, there might be a cost savings (negative rule familiarization cost) for Tier I/II submitters who otherwise would have had to learn about the more complex MCANs. The rule familiarization cost may be an overestimate for Danisco/Genencor and Novozymes since they are likely to be familiar with th e proposed rule concepts as a result of their roles as submitters of the applications that triggered the current rulemaking. By contrast, if firms enter the TSCA biotechnology market with Tier I notices solely due to the potential T. reesei or B. amyloliquefaciens exemptions, their rule familiarization costs attributab le to the proposed rule could be higher, since they might have to learn about TSCA biotechnology regulat ion in general as well as about the proposed rule.In any case, even if rule familiarization costs are somewhat different than estimated, they are low, onetime costs and unlikely to be major costs for any submitter. The analysis assumes that only firms making submissions have rule familiarization costs. It is possible that some firms working with T. reesei or B. amyloliquefaciens for non-TSCA uses would consider making a submission as a result of the rule, learn about the rule, and then decide not to make a submission of any kind. If such firms exist, it wo uld increase rule familiarization costs without the subsequent benefits of a submission.

Industry overhead rates The industry cost estimates rely on loaded wage rates. The wages and fringe benefits are based on Bureau of Labor Statistics data and should be reasona bly accurate. However, the authors of this analysis are not aware of any similarly reliable data for industry overhead rates. This analysis assumes that the overhead for General and Administrative costs is 17 percent of wages, which is consistent with the overhead rate used in other economic reports supporting TSCA rules. The actual overhead rate may vary by industry, by company, by the process within the company, and by accounting methods; no single rate would be correct for all submitters. Other things being equal, submitters with a rate higher than 17 percent would see increased cost savings from the rule, and those with a lower rate would have less cost savings. Either way, there would still be a net cost savings.

4.3.3 Uncertainties regarding Innovation Benefits The analysis does not quantify innovation benefits, but does suggest that they would be significant. However, technological change is also advancing in competing biotechnology and non-biotechnology areas. It is possible that other technical progress would make genetically modified T. reesei and B. amyloliquefaciens commercially less important than is implied in this analysis. For example, advances in non-biological ways of converting biomass to fuel or in the use of algae to produce biofuels might make T. reesei use in ethanol production less important. On th e other hand, the two microorganisms might find uses in areas not explored for this analysis. In an uncertain world, the propos ed rule opens the door to faster development of new technologies but does not guarantee technical or commercial success.49 

# 5 :Agency Burden and Cost Savings

5.1 Methodology for Estimating Agency Costs This chapter analyzes the changes in Agency processing burden and cost associated with listing Trichoderma reesei QM6a derivatives and Bacillus amyloliquefaciens at 40 CFR 725.420 as eligible for Tier I and Tier II exemptions. EPA calculates the incr emental burden and cost, or savings, of the proposed eligibility for exemptions by comparing the burden and co st of processing a Tier I or Tier II submission with the burden and cost of processing an MCAN. The methodology for estimating the change in Agency cost is similar to estimating the change in cost to industry. Costs per submission were updated for inflation and to reflect electronic reporting, but otherwise are the same as those estimated in the Regulatory Impact Analysis of Regulations on Microbial Products of Biotechnology (EPA, 1997a). The following steps were used to estimate Agency costs:

 Identify the tasks performed by the Agency under both the current biotechnology requirements and the proposed rule requirements. The tasks are the same in the Base Case and the Rule Case, since the proposed rule does not change the nature of Agency review for the various types of submissions; it only changes the likely numbers of submissions of each type.

 Determine the unit cost and hours burden for all activ ities identified in Step 1. Wage rates and other unit costs are updated for inflation in Section 5.2 below. Costs per submission are calculated in Sections 5.2.2 and 5.2.3.

 Determine the estimated total cost and burden by multiplying the unit cost and burden by the frequency of the activity. Section 5.3 shows the costs for the first year and the first ten years after rule promulgation.

 Subtract the total Agency cost or burden after the proposed rule from the cost or burden under the current rule to calculate the incremental Agency cost or savings. Section 5.3 shows Agency cost savings for the first year and the first ten years. For MCAN, Tier I, and Tier II submissions, EPA is expected to perform the activities shown in Table 5-1 and hire contractors for extramural assistance.

Table 5

- 1 : Agency MCAN and Tier I/Tier II Regulatory Activities Activity Description 1. Review MCAN and Tier I/Tier II exemption submissions 2. Notify respondents of any submission deficiencies 3. Provide appropriate protection for confidential data 4. Provide industry and public assistance (e.g., guidance, technical support)

5. Conduct site and records inspections and perform related compliance monitoring functions



## 5.2 Agency Costs per Submission

5.2.1 Agency Wage RatesUnit wage rates for EPA staff are calculated based on annual federal salaries for the WashingtonBaltimore-Northern Virginia, DC-MD-VA-WV-PA locality pay area published by the Office of Personnel50 Management (OPM). The average salary for one full-time equivalent (FTE) staff member is estimated as the annual salary for a GS-14, Step 5 employee, which is $116,419 in 2009 without fringe benefits and overhead costs. 36 In order to derive the fully loaded salary, EPA multiplied the annual salary by an assumed loading factor of 1.6 to reflect federal fri nge benefits and overhead, which results in a fully loaded annual salary of $186,270. The hourly FTE wage rate is $89.25. The Agency loading factor of 60 percent was labeled as “the benefits multiplication factor” in an EPA guide (EPA, 1992, p.29), but has been used in many EPA OPPT ICRs to reflect both fringe benefits and overhead for federal staff. For example, it was used in a document supporting EPA ICR No. 1139.06 (EPA, 2000b), with the following explanation: “The annual costs per FTE are derived by multiply ing the annual pay rate by 1.6 (the benefits multiplication factor). The multiplication factor used is recommended in EPA’s Office of Policy, Planning, and Evaluation’s Instructions for Preparing Information Collection Requests (ICRs) (June 1, 1992). An EPA internal phone call between Carol Rawie (OPPT/EETD/RIB) and Carl Koch (OPPE/RMD/IMB) on May 3, 1994, indicated that the 1.6 factor included not only benefits but also overhead.” Fully loaded costs for Agency labor are presented in Table 5-2.

Table 5

- 2 : Derivation of Loaded Agency Wage Rates ($2009)

Labor Category Data Source for Wage Information Date Wage Fringe Benefit Fringes as % wage Overhead as % wage Fringe + overhead

factor Loaded Wages

(a) (b) (c) = (b) / (a) (d) (e) = (c) + (d) + 1 (f) = (a) *(e)

EPA staff

FTE Annual federal staff cost: OPM

WashingtonBaltimoreNorthernVirginia, DCMD-PA-VAWV area, GS14 Step 5 pay rates 1 Dec09 $116,419 (annual)

-- [Included in 60% overhead] 60% 2 1.60 $186,270 (annual)

$55.78 (hourly) $89.25 (hourly)

Notes: 1 The Agency salary is the unloaded federal GS-14, Step 5 salary ($116,419 for 2009), from the OPM salary table for the Washington-Baltimore

- Northern Virginia Locality Pay Area (OPM, 2009). Hourly rates also come from the OPM Salary table. The GS-14 average grade level is estimated based on the curren t composition of the EPA workgroup that reviews biotechnology submissions.
2 The 60% fringes-and-overhead rate is from an EPA guide , Instructions for Preparing Info rmation Collection Requests (ICRs) (EPA, 1992, p.29).

5.2.2 Federal Cost per MCAN Submission The estimated net cost to EPA of reviewing an MCAN submission is $64,327, as shown in Table 5-3. The cost to the Federal government is $61,827 after deducting the $2500 user fee from Federal costs. This estimate is based on the hour estimates from the 1997 Regulatory Impact Analysis (EPA, 1997a),

36 GS-14, Step 5 is based on the approximate average grad e levels of current reviewers, as estimated by an EPA economist based on the staff mix of the EPA biotechnology workgroup. This is higher than the level used for PMN reviews in the 2007 new chemicals ICR, GS-13, Step 5 (EPA, 2007, page 25).51 reduced for assumed savings from electronic reporting and increased to reflect inflation and higher staff grade levels. The calculations are described below. The previous RIA on Microbial Products of Bi otechnology (EPA, 1997a) and the recent New Chemicals ICR (EPA, 2007) give a low-end estimat e of 848 hours and a high-end estimate of 1,285 hours for Agency review of an MCAN submission. The high-end estimate applied to microorganisms which EPA reviewers had not seen before, because they were for contained 37 microorganisms which had not been preceeded by a TERA. The low-end estimate applied to MCANs for microorganisms that were more familiar to EPA because the MCAN was for a released use, and therefore would have been preceded by a TERA submission (EPA, 1997b, page V-8,V-9). Tier I and Tier II exemptions apply only to contai ned microorganisms, so that the MCAN alternative would also be for a contained microorganism. Nevertheless, this analysis uses the 848 hour low-end estimate from the RIA for an MCAN, 38 not the high-end estimate. This is because EPA has reviewed

numerous T.reesei submissions, and in the Base Case, further T. reesei reviews are likely to be easier than for less familiar microorganisms. 39 Agency review costs for B. amyloliquefaciens may be closer to a mid or high-end estimate, because of the fewness of B. amyloliquefaciens submissions. Only one MCAN with a non-confidential species has been for B. amyloliquefaciens . However, since most submissions are expected to be for T. reesei , the lower hours are used. The 2009 final ePMN rule is expected to reduce the Agency processing burden by 16.5 percent for all biotechnology submissions (EPA, 2009b). Accounting fo r this burden reduction, the Agency’s burden is approximately 708.1 hours for an MCAN. Multiplyi ng the approximate 708.1 hour burden for MCAN review and industry and public assistance by the hourly FTE wage rate of $89.25 yields a total labor cost of $63,195 for EPA to process a single MCAN submission. 40 Using the estimates from the 1997 RIA (EPA, 1997a, Table V-3) and inflating these to 2009 dollars and reducing the values by 16.5 percent to reflect the savings from the e-PMN rule, EPA estimates that the extramural (contracting) costs are approximately $1,642 for MCANs. Adding the EPA labor cost and the extramural costs and subtracting the $2,500 user fee paid to the U.S. Treasury, the net cost to the Government of an MCAN submission is $62,337, as shown in Table 5-3. 41

5.2.3 Agency Cost per Tier I and Tier II Submissions The Government cost for a Tier I submission is approximately $3,212, and the cost of a Tier II exemption submission is approximately $19,421, as shown in Table 5-3. This calculation uses the hours

37 I.e. the intended use is inside a structure designed to contain the microorganism (EPA, 1997b, §725.422).
38 The RIA (EPA, 1997a, Table V-3) estimates that one MCAN submission review requires between 848 and 1,285 hours, one Tier I exemption submission review requires be tween 42 hours and 64 hours, and one Tier II exemption submission review requires between 254 hours and 386 hours. As explained in the text, this analysis uses the lowcost estimates for Agency burden associated with submission review.

39 The high end per-submission cost was used for industry submissions in Section 4 . Industry submissions may come from different companies, whereas the same group of Agency staff tends to review all biotech submissions.

40 In estimating savings, the ePMN economic analysis di d not distinguish between biotechnology submissions and conventional chemical submissions. Savings from elec tronic submissions of biotechnology notices could be different from those estimated for conventional chemicals, but were not re-assessed for this report.

41 As was explained in the 1997 biotechnology rule RIA, p. V-3, the user fee is a cost to industry and a transfer payment from industry to the U.S. Treasury, but not a net social cost. Following the 1997 RIA method, in this report, the user fee is counted as a cost to MCAN su bmitters and deducted from the Federal government cost.52 estimates from the 1997 Regulatory Impact Analysis (EPA, 1997a), reduced for assumed savings from electronic reporting. The calculatio ns are described below. The 1997 RIA estimates assume that Tier I and II costs are 5% and 30% of MCAN costs, respectively (EPA, 1997a, Table V-3). The low-end burdens to the Agency to process a Tier I and Tier II submission are 42 hours and 254 hours, respectively. The 2009 final ePMN rule is expected to reduce the Agency processing burden by 16.5 percent for all biotechnology submissions (EPA , 2009b). Accounting for this burden reduction, the Agency’s burden is approximately 35.1 hours for a Tier I submission, and 212.1 hours for a Tier II submission. Using the estimates from the 1997 RIA (EPA, 1997a) and inflating these to 2009 dollars and reducing the values by 16.5 percent to reflect the savings from the e-PMN rule EPA estimates that the extramural costs are approximately $82.11 for Tier I submissi ons exemptions, and $493 for Tier II exemptions submissions (in 2009 dollars). Similarly, with approximate burdens of 35.1 and 212.1 hours for Tier I and Tier II submission review, respectively, the total labor costs for EPA to pro cess these submissions are $3,220 and $18,929. Adding an additional $82.11 in Tier I extram ural contractor costs, calculated above, the total cost to Government of a Tier I exemption submission is approximately $3 ,212. Similarly, adding $493 in Tier II extramural costs, the total cost to Government of a Tier II exemption submission is approximately $19,421, as shown in Table 5-3.

Table 5

- 3 : Agency Burden Hours and Cost per MCAN , Tier I, and Tier II Submission ($2009)

Type of Submissi

on Low Case Hours Electron ic Reportin g savings Agency Burden GS-14, Step 5

FTE Wage Rate Labor Costs

per Submissio

n Extramura l Costs

per Submissio

n User Fee Incom

e Total Cost per Submission

(a) (b) (c) = (a)*(b) (d) (e) = (c) *(d) (f) (g) (h) = (e)+(f)+(g) MCAN 848 16.5% 708.1 $89.25 $63,195 $1,642 -$2,500 $62,337 Tier II 254 16.5% 212.1 $89.25 $18,929 $493 - $19,421 Tier I 42 16.5% 35.1 $89.25 $3,130 $82 - $3,212 Source: Wage rates are from Table 5-2 and include fringes and ov erhead. Low-case hours are from the 1997 biotechnology RIA (EPA, 1997a, Table V-3). Electronic reporting savings are from EPA, 2009b. Tier I and II costs are 5% and 30% of MCAN costs, as assumed in EPA, 1997a, Table V-3.



## 5.3 Change in Agency Cost due to Exemptions for T. reesei and B. amyloliquefaciens The Agency expects to save $236,500 in the firs t year after rule promulgation, and $3.676 million during the first ten years, before discountin g, as shown in Table 5-5 and Table 5-7.

5.3.1 Agency First-Year Cost Savings As mentioned in Section 4.1.5, this analysis assumes that four MCANs will be submitted under the Base Case (no rule) for T. reesei and B. amyloliquefaciens in Year 1. Under the proposed rule this analysis assumes it will receive four Tier I submission s and zero Tier II submissions. Multiplying these estimates by the Agency burden associated with each type of submission yields a total Agency burden of 140 hours in the first year, generating a savings to the Agency of 2,692 hours as shown in Table 5-4.53 Table 5

- 4 : Base Case and Change in Agency Burden Hours (Year 1)

Submission Type Base Case Number of

Annual Submissions Base Case Per Submission

Burden (hours) Base Case Total Agency

Burden (hours) Rule Case Number of

Annual Submissions Rule Case Total Agency

Burden (hours) Change in Agency Burden (hours) Submission Review for T. reesei and B. amyloliquefaciens MCAN 4 708.1 2,832 0 0 -2,832 Tier II 0 212.1 0 0 0 0 Tier I 0 35.1 0 4 140 140 Total 4 - 2,832 4 140 -2,692 Source: The number of submissions is from Table 4- 13. Hours per submission are from Table 5-3.

Table 5-5 presents the Base Case and change in Agen cy cost in Year 1, as a result of the proposed rule. The per submission costs estimated in Table 5-3 are multiplied by the number of MCAN, Tier I, and Tier II submissions expected under the baseline and the proposed rule. The cost to the Agency is approximately $12,848 in the first year under the pr oposed rule; this generates a cost saving to the Agency of approximately $236,500 in the first year.

Table 5

- 5 : Change in Agency Cost (Year 1)

Submission Type Base Case Number of

Annual Submissions Base Case Per Submission Cost ($2009) Base Case Total Agency Cost ($2009) Rule Case Number of

Annual Submissions Rule Case Total Agency Cost ($2009) Change in Agency Cost ($2009)

T. reesei and B. amyloliquefaciens MCAN 4 $62,337 $249,348 0 $0 -$249,348 Tier II 0 $19,421 $0 0 $0 $0 Tier I 0 $3,212 $0 4 $12,848 $12.848 Total 4 - $249,348 4 $12,848 -$236.500 Source: The number of submissions is from Table 4-13. Cost per submission is from Table 5-3.
5.3.2 Agency Ten-Year Cost Savings Table 5-6 and Table 5-7 give the expected number of submissions, Agency burden, and Agency cost associated with both the baseline (no rule) and rule scenarios, projected over ten years. The total number of submissions in a given year is taken from Table 4-13 and reflects a 10 percent assumed annual increase in the combined total of MCAN, Tier I, and Tier II submissions (see Section 4.1.5). Over a the ten-year period the Agency is expected to save approximat ely 41,869 hours, with an annual savings of 4,187 hours. The total ten-year cost savings in Agency costs attributable to the rule are estimated to be $3.676 million, before discounting. Annualized savings rang e from $358,924 (with a three percent discount rate) to $347,955 (with a seven percent discount rate).

5.3.3 Uncertainties in Agency Cost Estimates
Uncertainties about the number and mix of future submissions were discussed in Section 4.3.1. Changes in estimated submissions could cause Agency cost-savings to be higher or lower than estimated here, but there would still be a cost-savings. Agency costs to review MCANs were not re-estimated after the 1997 rule, except to update them for inflation and electronic reporting. Agency practices may have changed and become more streamlined as54 EPA gained experience and with improved information technologies. Furthermore, the MCANs most likely to be replaced by exemption notices are for low-risk, relatively familiar organisms; these MCANs are likely to have below-average review costs. The Agency cost-savings could be lower than estimated, especially for MCANs as compared with Tier I notices. Agency costs could be incorrect if the 60 percent rate normally assumed for Agency overhead and benefits is too high or too low. This would affect the level of cost savings, but there would still be cost savings to the Agency due to the proposed rule.55Table5-6: Agency Burden Hours Reduction due to Rule (All Years)YearBase CaseRule CaseTotalChange inAgencyBurdenMCANSubmissionsTier ISubmissionsTier IISubmissionsMCANBurdenTier IBurdenTier IIBurdenTotalAgencyBurdenMCANSubmissionsTier ISubmissionsTier IISubmissionsMCANBurdenTier IBurdenTier IIBurdenTotalAgencyBurden1 4 0 0 2,832 0 0 2,832 0 4 0 0 140 0 140 -2,6922 4 0 0 2,832 0 0 2,832 0 4 0 0 140 0 140 -2,6923 5 0 0 3,540 0 0 3,540 0 4 1 0 140 212 352 -3,1884 5 0 0 3,540 0 0 3,540 0 5 0 0 175 0 175 -3,3655 6 0 0 4,248 0 0 4,248 0 6 0 0 210 0 210 -4,0386 6 0 0 4,248 0 0 4,248 0 5 1 0 175 212 387 -3,8617 7 0 0 4,957 0 0 4,957 0 7 0 0 245 0 245 -4,7118 8 0 0 5,665 0 0 5,665 0 8 0 0 281 0 281 -5,3849 9 0 0 6,373 0 0 6,373 0 8 1 0 281 212 493 -5,88010 9 0 0 6,373 0 0 6,373 0 9 0 0 316 0 316 -6,057Total 63 0 0 44,609 0.0 0 44,609 0 60 3 0 2104.2 636 2,740 -41,869Average 6 0 0 4,461 0.0 0 4,461 0 6 0 0 210.4 64 274 -4,187Source:Number of submissions, Table 4-13. Hours per submission, Table 5-4.Table5-7: Agency Cost Reduction due to Rule - Thousands of Dollars ($2009) (All Years)YearBase CaseRule CaseTotalChange inAgencyCostMCANSubmissionsTier ISubmissionsTier IISubmissionsMCANCostTierICostTierIICostTotalAgencyCostMCANSub-missionsTier ISub-missionsTier IISub-missionsMCANCostTier ICostTierIICostTotalAgencyCost1 4 0 0 $249.35 $0 $0 $249.35 0 4 0 $0 $12.85 $0.00 $12.85 -$236.502 4 0 0 $249.35 $0 $0 $249.35 0 4 0 $0 $12.85 $0.00 $12.85 -$236.503 5 0 0 $311.69 $0 $0 $311.69 0 4 1 $0 $12.85 $19.42 $32.27 -$279.424 5 0 0 $311.69 $0 $0 $311.69 0 5 0 $0 $16.06 $0.00 $16.06 -$295.625 6 0 0 $374.02 $0 $0 $374.02 0 6 0 $0 $19.27 $0.00 $19.27 -$354.756 6 0 0 $374.02 $0 $0 $374.02 0 5 1 $0 $16.06 $19.42 $35.48 -$338.547 7 0 0 $436.36 $0 $0 $436.36 0 7 0 $0 $22.48 $0.00 $22.48 -$413.878 8 0 0 $498.70 $0 $0 $498.70 0 8 0 $0 $25.70 $0.00 $25.70 -$473.009 9 0 0 $561.03 $0 $0 $561.03 0 8 1 $0 $25.70 $19.42 $45.12 -$515.9210 9 0 0 $561.03 $0 $0 $561.03 0 9 0 $0 $28.91 $0.00 $28.91 -$532.12Total 63 0 0 $3,927.23 $0 $0 $3,927.23 0 60 3 $0 $192.72 $58.26 $250.99 -$3,676.25Average 6 0 0 $392.72 $0 $0 $392.72 0 6 0 $0 $19.27 $5.83 $25.10 -$367.62Annualized3%- - -$383.47$0$0$383.47- - - $0$18.81$5.74$24.55-$358.92Annualized7%- - -$371.79$0$0$371.79- - - $0$18.23$5.60$23.83-$347.95Source:Number of submissions, Table 4-13. Dollars per submission, Table 5-3. Yearly, total and average costs are before discounting.Note: Yearly, total, and average costs are calculated before discounting56 

# 6 :Summary of Social Costs and Benefits

6.1 Social Cost Savings and Other Benefits This chapter summarizes the social costs and benefits generated by the proposed rule that would list Trichoderma reesei QM6a derivatives and Bacillus amyloliquefaciens at 40 CFR 725.420 as eligible for Tier I and Tier II exemptions. The proposed rule is expected to generate a cost savings for organizations that in the absence of the proposed rule would s ubmit Microbial Commercial Activity Notices for new intergeneric T. reesei or B. amyloliquefaciens strains. As shown in Table 4-17 and Table 4-18 in Chapter 4: , EPA expects the proposed rule to result in an industry burden reduction of 30,700 hours and $1.98 million (before discounting) over a ten-year period. In addition to the immediate cost savings from submitting a Tier I or Tier II notice as opposed to an MCAN, the reduced cost and review times may increase innovation in the biotechnology industry. Ways in which reporting costs and lead times may affect the industry R&D process and the potential benefits of enhanced innovation are discussed in Chapter 4: of this report. There may be environm ental and health benefits resulting from improved innovation affecting areas such as cellulosic ethanol pr oduction. As discussed in Section 2.4 of this report, costs savings generated by the proposed rule may be passed on to customers, reducing the cost of end products. The proposed rule is also expected to generate an Agency burden reduction of 41,900 hours and $3.646 million (before discounting) for the ten- year period, as calculated in Chapter 4.2.

6.1.1 Quantified Social Cost Savings This section summarizes the quantified costs savings to society. To estimate the burden reduction, the report adds the total industry burden hours to the to tal Agency burden and calculates burden savings from the rule. Table 6-1 below contains the annual burden hour estimates for the ten-year period. The baseline total burden for the ten-year period is calculated by adding the baseline burden to industry, 29,760 hours (see Table 4-17), and the baseline burden to the Agency, 44,609 hours (see Table 5-6), for a total of 74,409 hours. EPA estimates th at the total industry burden reduction under the proposed rule will be approximately 27,859 hours over the ten-year period (see Table 4-17) and the total Agency burden reduction will be 41,869 hours (see Tabl e 5-6). Therefore, as shown in Table 6-1, EPA estimates that the total decrease in burden as a result of the proposed rule over a ten-year period will be 72,500 hours, with an annual average savings of 7,250 hours.57 Table 6

- 1 : Change in Total Burden Hours to Society Due to Rule

Year Base Case Burden (hours) Rule Case Burden (hours) Change from Base Case (hours) Year 1 4,914 296 -4,618 Year 2 4,914 216 -4,698 Year 3* 6,142 705* -5,438 Year 4 6,142 270 -5,872 Year 5 7,371 344 -7,026 Year 6* 7,371 759* -6,612 Year 7 8,599 378 -8,221 Year 8 9,828 433 -9,395 Year 9* 11,056 921* -10,135 Year 10 11,056 507 -10,550

Total 77,393 4,830 -72,564 Averag e 7,739 483 -7,256
Notes: *Rule case hours are higher in years 3, 6 and 9, due to assumed Tier II submissions in those years but not in other years. Source: Table 4-17 and Table 5-6
The reduction of 72,500 burden hours over ten years is associated with a reduction in cost of $5.66 million to society over the ten-year period. The cost to industry is expected to decrease by $1.98 million over this period (see Table 4-18), and the Agency cost is expected to decrease by $3.68 million (see Table 5-7). The annualized cost savings to society, presente d in Table 6-2, are estimated to be approximately $552,300 and $535,300 per year at three percent and seven percent discount rates, respectively.

Table 6

- 2 : Change in Total Costs to Society Due to Rule

Year Base Case Burden (Thousands of 2009$) Rule Case Burden (Thousands of 2009$) Change from Base Case (Thousands of 2009$)

Year 1 $383.65 $23.40 -$360.26

Year 2 $383.65 $17.94 -$365.72
Year 3* $479.57 $53.86 -$425.70

Year 4 $479.57 $22.42 -$457.14

Year 5 $575.48 $28.27 -$547.21
Year 6* $575.48 $58.35 -$517.13

Year 7 $671.39 $31.39 -$640.00

Year 8 $767.31 $35.87 -$731.43
Year 9* $863.22 $71.80 -$791.42

Year 10 $863.22 $41.72 -$821.50

Total $6,042.54 $385.02 -$5,657.51 Average $604.25 $38.50 -$565.75

Annualized at 3% $590.02 $37.75 -$552.27
Annualized at 7% $572.04 $36.78 -$535.26

Notes: *Rule case costs are higher in years 3, 6 and 9, due to assu med Tier II submissions in those years but not in other years.58 Source: Table 4-18 and Table 5-7 Note: Annual, total and average costs are taken before discounting59 

## 6.2 Health, Safety, and Environmental Costs and Benefits

6.2.1 Benefits of New Intergeneric T. reesei and B. amyloliquefaciens Increased market entry and reduced delays in bringing products to market are expected to reduce the costs and/or improve the performance of enzymes made using intergeneric T. reesei and B. amyloliquefaciens , in areas such as ethanol production, the pret reatment and finishing of textiles, and in detergents. As stated in Sections 4.2.2, there are several environmental benefits to using enzymes in these applications as opposed to traditional chemicals. The use of cellulase T. reesei enzymes in textile pretreatment may reduce the amount of waste water generated, and the amount of energy and water used by textile plants that use traditional methods of tr eating garments (Blackburn, 2009). The use of enzymes from B. amyloliquefacien in laundry detergents as opposed to traditional chemicals (such as surfactants) has several environmental benefits including energy savings by enabling lower wash temperatures and the compaction of the product reducing the amount of packaging used (Novozymes, 2010b). In addition, enzymes are biodegradable, and are said by their suppl iers to have no negative environmental impact on sewage treatment processes and to present no risk to aquatic life (Novozymes, 2010b). To the extent that intergeneric T. reesei and B. amyloliquefaciens are more efficient at producing certain enzymes than other microorganisms, the cost of some enzymes will decrease. Decreased cost and/or enhanced enzyme performance make it more likely that companies will use enzymes as opposed to more environmentally harmful substitutes. T. reesei has particular promise in the area of cellulosic ethanol production, discussed below.

6.2.2 Benefits of Reducing the Cost of Cellulosic Ethanol Innovation resulting from the proposed rule is likely to decrease the cost of enzymes produced with T. reesei , and therefore reduce the cost of cellulosic ethanol, 42 compared with the Base Case. Because cellulosic ethanol has lower greenhouse gas emissions than gasoline and corn-based ethanol, more use of cellulosic ethanol may lead to a reduction in gr eenhouse gas emissions relative to the Base Case. 43 The potential negative environmental and health impacts of global warming are discussed in detail in Section 4.2.2. While it is well beyond the scope of this repo rt to quantify the potential benefits of greenhouse gas reductions as a result of the proposed rule, production and use of cellulosic ethanol appears to generate significantly less greenhouse gas emissions than producti on and use of gasoline and corn-based ethanol. Cellulosic ethanol is also thought to have additional benefits to society compared with both gasoline and corn-based ethanol, such as possibly decreased depe ndence on foreign oil, and less pressure on food prices versus corn ethanol.

6.2.3 Rule Costs and Risks There is not expected to be any increase in health and safety risk associated with the proposed rule, as discussed in Chapter 3: . EPA’s risk assessments show that both T. reesei strain QM6a and its derivatives and B. Amyloliquefaciens microorganisms are not pathogenic or toxigenic and that they pose little risk to human health or the environment. On the contrary, as discussed earlier in this chapter, there may be health and environmental benefits from faster development of these microorganisms to better produce enzymes and other chemicals.

42 Absolute cellulosic ethanol costs may rise or fall, depending on many other factors.

43 Cellulosic ethanol is the same chemical as corn et hanol, but feedstocks and production processes differ. Comment [ccr4]: PLACEHOLDER PENDING RISK ASSESSMENT60 There are no net quantified rule costs because the rule is expected to be cost-savings for both industry and the Environmental Protection Agency, as described earlier in this chapter.61 

# 7 :Additional Analyses

7.1 Regulatory Flexibility Act (RFA) The Regulatory Flexibility Act (RFA) of 1980, as amended by the Small Business Regulatory Enforcement Fairness Act (SBREFA) of 1996, requires re gulators to assess the effects of regulations on small entities. The RFA requires agencies to prepare an initial and final regulatory flexibility analysis for each rule unless the Agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. Small entitie s include small businesses, small organizations, and small governmental jurisdictions. For the purposes of evaluating the rule’s impact on small businesses, manuf acturers of non-medical microorganisms and enzymes are considered classified in NAICS 325199 (All Other Basic Organic Chemical Manufacturing). Ethanol production is classified in NAICS 325193 (Ethyl Alcohol Manufacturing) (U.S. Census, 2010) . The Small Business Administrati on (SBA) defines small businesses in this category as companies with less than 1,000 empl oyees. This analysis therefore considers as small those businesses whose employment totals, when comb ined with employment of a parent company, are less than 1,000 employees. With approximately 5,200 and 7,000 employees, respectively, neither Novozymes nor Danisco (the dominant suppliers of industrial enzymes and the companies submitting the applications to list T. reesei and B. amyloliquefaciens as candidates for exemptions) qualify as small businesses (Danisco, 2009; Novozymes, 2009). However, at least some other manufacturers of live microorganisms and their fermentation products are likel y to meet the requirements of the small business definition. 44 For example, enzyme manufacturer Verenium had 270 full time employees in 2009 (Verenium, 2010b). In determining whether a rule has a significant economic impact on a substantial number of small entities, the impact of concern is any significant adverse economic impact on small entities, since the primary purpose of the regulatory flexibility analyses is to identify and address regulatory alternatives “which minimize any significant economic impact of th e rule on small entities” (5 U.S.C. 603 and 604). Thus, an agency may certify that a rule would not have a significant economic impact on a substantial number of small entities if the rule relieves regulatory burden, or otherwise has a positive economic effect on all of the small entities subject to the rule. A review of firms submitting past Tier I and Tier II notices suggests that both large and small businesses submit such notices. In addition, some toll manufacturers producing under contract with a large business submitter may be small businesses. Overall, this action is likely to reduce the burden to small businesses by reducing submission costs, compared to an MCAN and by removing the barrier to entry into TSCA applications markets for T. reesei and B. amyloliquefaciens that may have been represented by the somewhat complex and costly MCAN process. Small firms may have fewer microorganisms over which to spread shared costs such as rule familiarization or maintaining specialized regulatory liaison staff. Being able to file a simple Tier I notice may help them even more than it would help a large business.

44 Since enzymes are produced from live microorganisms, which multiply during fermentation, enzyme manufacturers are also “manufacturers” of live microorganisms. The same would be true of other firms that use live T. reesei or B. amyloliquefaciens to manufacture chemicals such as ethanol or biopolymers[OK LEGALLY?]62 

## 7.2 Unfunded Mandates Reform Act (UMRA) Federal agencies are required to assess the effects of federal regulations on state, local, or tribal governments, and on the private sector under Title II of the Unfunded Mandates Reform Act of 1995 (UMRA). In particular, UMRA requires that agencies prepare a written statement to accompany any rulemaking that “includes any Federal mandate that may result in the expenditure by State, local, and tribal governments, in the aggregate, or to the priv ate sector, of $100 million or more (annually adjusted for inflation) in any one year” (Section 202(a)). This report estimates that the proposed rule will not cost the private or public sectors $100 million or more in any one year. As shown in Table 4-18, this report estimates that a total cost saving of $1.98 million (before discounting) will be generated by the proposed rule over a ten year period. Assuming a seven percent discount rate, the annualized cost sa vings for industry over the ten years is approximately $0.187 million per year. 45 Furthermore, a search of submissions received by EPA through September 30, 2010, demonstrated that state, local, or tribal governments have never submitted an MCAN, Tier I or Tier II notification. However, in the future such governments might make submissions or use live microorganisms covered by the proposed rule. An example could be use in cellulosic ethanol production. In such case, the rule would benefit the governments by improving the cost/effectiveness of the microorganisms.



## 7.3 Paperwork Reduction Act (PRA) According to the Paperwork Reduction Act (PRA), 44 USC 3501 et seq., an agency may not conduct or sponsor, and a person is not required to respond to , a collection of information that requires Office of Management and Budget approval under the PRA, unless it has been approved by OMB and displays a valid OMB control number. The information collection requirements related to the submission of Tier I and Tier II notices are already approved by OMB under the Paperwork Reduction Act, 44 U.S.C. 3501 et seq . Those Information Collection Request documents have been assigned OMB control numbers 2070- 0012 and 2070-0038, according to information on the EPA Biotech Form used for electronic submissions (EPA, 2009c). This rule would not impose any new requirements. Rather, it reduces the amount of required reporting by allowing firms to submit less information for qualifying microorganisms. The Paperwork Reduction Act mandates that federal agencies estimate the recordkeeping and submitting burden of a proposed rule. In this context, the term “burden” is interpreted as the total time, effort, or financial resources expended by people to generate, maintain, retain, disclose, or provide information to or for a federal agency. This includes the time needed by regulated entities to review instructions and to develop, acquire, install, and us e technology and systems to collect, validate, verify, and disclose information. Time taken to adjust existing ways to comply with any previously applicable instructions and requirements and to train personnel to respond to the information collection task is also included. In this section, burden hours for both industry respondents and the government are estimated.

7.3.1 Industry Burden In this report, total industry burden hours represent the sum of time spent on preparing submissions and on other administrative activities. Industry resp ondents will spend time on the following activities associated with the biotechnology rule: rule familiarization, preparation and submission of certifications, and recordkeeping.

45 Compliance costs are annualized using a 7 percent discou nt rate to reflect the opportunity cost of capital.63 As derived in Section 0 of this report, the proposed rule would result in a reduction of industry burden by 30,695 hours over ten years.

7.3.2 Government Burden The government will also spend time processing, re viewing, and analyzing the information that will be collected. As explained in Section 5.2.1, this work is assumed to be performed by a GS-14, Step 5, FTE employee, and by contractors. As derived in Section 4.2 of this report, the proposed rule would cause a total incremental Agency savings of 41,869 hours over ten years



## 7.4 Executive Order 13132 - Federalism Executive Order 13132, entitled Federalism (64 FR 43255, August 10, 1999), requires EPA to develop an accountable process to ensure “meaningful and timely input by State and local officials in the development of regulatory policies that have federa lism implications.” “Policies that have federalism implications” are defined in the Executive Order to include regulations that have “substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities am ong the various levels of government.” EPA has no information to indicate that any state or local government commercially manufactures or processes the microorganisms covered by this action. No MCANs, Tier I, or Tier II notifications have been submitted by state or local governments. 46 If a state or local government were to use live microorganisms covered by this rule, they would likely benefit from reduced submission cost and/or improved cost-effectiveness of the microorganisms.



## 7.5 Executive Order 13045 – Children’s Health Executive Order 13045, “Protection of Children from Environmental Health Risks and Safety Risks” (62 FR 19885, April 23, 1997), requires that federal agencies examine the impacts of each regulatory action on children for any economically significant regulation that the Agency has reason to believe may disproportionately affect children. The proposed rule is not “economically significant;” it does not establish an environmental standard intended to mitigate health or safety risks and will not have an annual effect on the economy of $100 million or more. It is not expected to have any direct environmental or health impacts, and any indirect effects are expected to be beneficial.



## 7.6 Executive Order 13175 – Consultation and Coordination with Indian Tribal Governments In the development of Federal policies that may ha ve tribal implications, Agencies must establish regular and meaningful consultation and collaboration with tribal officials to strengthen the United States government-to-government relationsh ips with Indian tribes, and to reduce the imposition of unfunded mandates upon Indian tribes.

46 Data is for submissions through September 30, 2010.64 A search of past submissions to EPA demonstrated that tribal governments have never submitted an MCAN, Tier I or Tier II notification. 47 Thus, EPA has no information to indicate that any tribal government commercially manufactures the microorganisms covered by this action. If in the future tribal organizations use intergeneric microorganisms covered by the proposed rule, or their enzyme products, to produce ethanol, the proposed rule is likely to provide benefits in the form of more cost-effective microorganisms or enzymes.



## 7.7 Executive Order 13211 – Energy Supply, Distribution, or Use
Executive Order 13211, entitled Actions Concerning Regulations that Significantly Affect Energy Supply, Distribution, or Use (66 FR 28355 [May 22, 2001]) requires Agencies to prepare a Statement of Energy Effects for any action that is likely to have a significant adverse effect on the supply, distribution, or use of energy. The Agency expects that if there is any effect of this rule on the Nation’s energy supply, distribution, and use, it would be modest and positive; the rule may encourage development of more cost-effective technologies for fuel ethanol production.



## 7.8 National Technology Transfer Advancement Act Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (NTTAA), Public Law No. 104-113, 12(d) (15 U.S.C. 272 note) directs EPA to use volunt ary consensus standards in its regulatory activities unless to do so would be inconsistent with applicable law or impractical. Voluntary consensus standards are technical standards (e.g., materials specifications, test methods, sampling procedures, and business practices) that are deve loped or adopted by voluntary consensus standards bodies. NTTAA directs EPA to provi de Congress, through OMB, explanations when the Agency decides not to use available and applicable voluntary consensus standards. This proposed action does not involve any technical standards that would require Agency consideration of voluntary consensus standards pursuant to the NTTAA. It does not add any new regulatory requirements. Rather, it lists additional microorganisms eligible for exemptions under an existing biotechnology rule promulgated in 1997.

47 Data is for submissions through September 30, 2010.65 

# 8 :References

40 CFR 725.420. Reporting Requirements a nd Review Processes for Microorganisms. Code of Federal Regulations, Part 420, Title 40. June 23, 2003. Aehle, 2007. Wolfgang Aehle. Enzymes in Industry: Production and Applications . Wiley-VHC. Germany. 2007.


### Atanasova et al. 2010. Atanasova , L., W. Jaklitsch, M. Komo ń -Zelazowska, C. Kubicek, and I. Druzhinina. “ Clonal s 

### pecies Trichoderma parareesei sp. nov. likely r 

### esembles the ancestor of the cellulase p 

### roducer Hypocrea jecorina / T. reesei” . Appl. Environ. Microbiol. 76 : 

### 7259–726 BIO and ETA, 2009. Biotechnology Industry Originat ion and Enzyme Technical Association. “Exempt Status for T. reesei : A Safe and Efficient Production Organism for Industrial Enzymes.” (Presentation for U.S. EPA and ETA/BIO Meeting, August 4, 2009). BIO and ETA, 2010. Biotechnology Industry Originatio n and Enzyme Technical Association. “Response to Request for Supplemental Information Regarding Application to List Trichoderma reesei as a Recipient Microorganism Eligible for Exemption under 40 C.F.R. Part 725, Subpart G.” January 29. Blackburn, 2009. R.S. Blackburn. Sustainable textil es: Life cycle and environmental impact. Woodhead Publishing. Cambridge, UK. October. BLS, 2010a. U.S. Bureau of La bor Statistics. Employer Costs for Employee Compensation: Supplementary Tables. December 2009. Availabl e at http://www.bls.gov/ncs/ect/sp/ecsuptc9.pdf

. Accessed March 10, 2010. BLS, 2010b. U.S. Bureau of Labo r Statistics. Producer Price Index for the Chemical Manufacturing Industry (NAICS 325). February 28. CEN, 2009. Chemical & Engineering News. “Cellu losic Scale-Up: DOE-backed ethanol producers encounter difficulties converting waste streams to commercially viable fuel.” Available at: http://pubs.acs.org/cen/coverstory/87/8717cover.html . Accessed March 2, 2010. Census, 2010. North American Industry Classification System (NAICS), http://www.census.gov/eos/www/naics/ . Accessed November 11, 2010, Danisco, 2009. Danisco. Annual Report 2009. Available at http://www .e-pages.dk/danisco/13/ . Accessed March 1, 2010. Danisco, 2010. Genencor Division of Danisco website. Available at http://www.genencor.com/wps/wcm/connect/genencor/genencor . Accessed March 1, 2010. Danisco Patent, 2009. Patent Application 20090305373. “ Trichoderma reesei glucoamylase and homologs thereof” Available at http://www.freepatentsonline.com/y2009/0305373.html

. DOE, 2007. U.S. Department of En ergy, Office of Energy Efficiency and Renewable Energy. “Ethanol the Complete Life Cycle Picture”. Available at http://www1.eere.energy.gov/vehiclesandfuels/pdfs/program/ethanol_brochure_color.pdf . March. DOE, 2009a. U.S. Department of Energy, Office of Energy Efficiency and Renewable Energy. “Cellulosic Ethanol: Cellulose Degradation and Conversion.” Available at http://genomicscience.energy.gov/benefits/cellulosicethanol.shtml . Updated October 19. DOE, 2009b. U.S. Department of Energy, Office of Energy Efficiency and Renewable Energy. “Cellulosic Ethanol Feedstocks.” Available at http://www.afdc.energy.gov/afdc/ethanol/feedstocks_cellulosic.html . Updated July 10.66 DOE, 2009c. U.S. Department of Energy, Alternat ive Fuels and Advanced Vehicles Data Center. “Cellulosic Ethanol Production.” Available at http://www.afdc.energy.gov/afdc/et hanol/production_cellulosic.html . Updated July 7. DOE/JGI, 2008. Department of Energy, Joint Ge nome Institute, “Lean and mean biomass-degrading fungus reveals capabilities for improved biofuel production.” [Press release] Available at http://www.eurekalert.org/pub_r eleases/2008-05/dgi-lm050208.php . Accessed Dec. 21, 2010. Doshi, 2006. Doshi, Gaury. “Stonewash finish for denim.” Available at http://ezinearticles.com/?Stonewash-Finish-for-Denim&id=388273

. Druzhinina, et al. 2010. Druzhinina I., M. Komo ń -Zelazowska, L. Atanasova , V. Seidl, C. Kubicek. Evolution and ecophysiology of the industrial producer Hypocrea jecorina (anamorph Trichoderma reesei ) and a new sympatric agamospecies related to it. Ee, 1997. Enzymes in detergency, by Jan H. van Ee, Onno Misset, Erik J. Baas. EPA, 1992. US EPA, Office of Policy, Planning, an d Evaluation. Instructions for Preparing Information Collection Requests (ICRs). Washington, DC, June 1. EPA, 1994. US EPA, Office of Pollution Prevention and Toxics. Regulatory Impact Analysis of Amendments to Regulations for TSCA Section 5 Premanufacture Notifications. Washington, DC, September 9. EPA, 1997a. U.S. EPA, Office of Pollution Prevention and Toxics. Regulatory Impact Analysis of Regulations on Microbial Products of Biotechnology. January 21. EPA, 1997b. U.S. EPA, Microbial Products of Bi otechnology: Final Regulation under the Toxic Substances Control Act; Final Rule. Federal Register, Vol. 62, No. 70, April 11, pages 17909+.

EPA 2000a. “ Bacillus subtilis var . amyloliquefaciens strain FZB24 (006480) Fact Sheet,” issued by U.S. Environmental Protection Agency, May 2000. Available at www.epa.gov

. EPA, 2000b. U.S. EPA, Office of Pollution Prev ention and Toxics, ICR No. 1139.06. [Information Collection Request for] TSCA Existing Chemical Test Rules, Consent Orders, Test Rule Exemptions, and Voluntary Test Data Submissions: Supporting Statement for Request for OMB Review under the Paperwork Reduction Act. Attachment 5, Wage Rates Estimation, August 29, 2000. EPA, 2002a. US EPA, Office of Pollution Prevention and Toxics, Economic and Policy Analysis Branch. Revised Economic Analysis for the Amended Inventory Update Rule: Final Report

. Washington, DC. August. EPA, 2002b. US EPA, Office of Pollution Prevention and Toxics, Economic and Policy Analysis Branch. Wage Rates for Economic Analysis of the Toxics Release Inventory Program. June 10. EPA, 2007. U.S. EPA, Office of Pollution Prevention and Toxics. ICR No. 0574.14: [Information Collection Request for] Pre-Manufacture Review Reporting and Exemption Requirements for New Chemical Substances and Significant New Use Re porting Requirements for Chemical Substances: Supporting Statement for a Request for OMB Review under the Paperwork Reduction Act. December 18, 2007. EPA, 2009a. U.S. EPA, “Climate Change: Health and Environmental Effects” Available at http://www.epa.gov/climatechange/effects/index.html. October 15. EPA, 2009b. U.S. EPA, Office of Pollution Prev ention and Toxics, Economic and Policy Analysis Branch

. Economic Analysis of the Premanufacture No tification Electronic Reporting Final Rule. (EPA-HQ-OPPT-2008-0296). July 13.67 EPA, 2009c. U.S. EPA, Office of Pollution Prev ention and Toxics, Economic and Policy Analysis Branch. ICR No. 2327.02 [Informa tion Collection Request for] New Information Collection Activities for Electronic Submissions under TCA Section 5: Supporting Statement for a Request for OMB Review under the Paperwork Re duction Act. December 15, 2008. EPA, 2009d. EPA Biotech Form. EPA Form Number 6300-17 (6-09). Available on www.epa.gov

. EPA, 2010a, U.S. EPA Office of Pollution Prevention and Toxics, “Notifications FY08 through the Present.” Available at http://www. epa.gov/oppt/biotech/pubs/submiss.htm . Last Updated June 23 2010 EPA, 2010b. U.S. EPA Office of Transportation and Air Quality, “Renewable Fuel Standards Program (RFS2) Regulatory Impact Analysis.” February, 2010. EPA, 2010c. U.S. EPA Office of Transportation and Air Quality. “2011 Renewable Fuel Standards Program (RFS2) Final Rule”. Available at http ://www.epa.gov/oms/fuels/ renewablefuels/rfs-2011- standards-rule-preamble-regs.pdf

. EPA, 2010d. U.S. EPA Office of Transportation a nd Air Quality. “EPA Proposes New Regulations for the National Renewable Fuel Standard Program for 2010 and Beyond”. Available at http://www.epa.gov/oms/renewablefuels/420f09023.html

. ETA, 2010. Enzyme Technical Associ ation. “Members”. Available at http://www.enzymetechnicalassoc.org/members.html

. Ethanol Producers Magazine, 2010. www .ethanolproducers.com/plant-list.jsp . Accessed November 15, 2010. Freedonia, 2004. The Freedonia Group, Inc. Industry Study 1833: Enzymes. Freepatentsonline, 2010. US Patent Application 20100028314 by Novozymes, February 4, 2010. Available at www.freepatentsonline.com/y2010/028314.html

. Genencor, 1997. “Purified Mannanase from Bacillus Amyloliquefaciens and Method of Proparation,” WIPO Patent Application WO/1997/011164. Accessed online November 7, 2010. Genencor, 2003. Genencor Strengthens Its Food, Feed and Specialty Enzyme Business with Purchase of Rhodia's Brewing and Enzyme Business, January 3, 2003. Available at http://www.genencor.com

. Accessed November 11, 2010. Genencor, 2005. "Letter of Application to List Trichoderma reesei as exempt under subpart G of 40 CFR Part 725- Reporting Requirements and Review Pr ocesses for Microorganisms,” Letter from Alice Caddow, Genencor International, to Rebecca Cool, EPA, March 17. Genencor, 2006. “Protein Processing”. Available at http://www.genencor.com/wps/wcm/connect/aa5f63804fb4e0ffa82cfa45de7f5ba1/Protein+Process+S ellSht+v5a+(final).pdf?MOD=AJPERES&amp ;CACHEID=aa5f63804fb4e0ffa82cfa45de7f5bal

. Genencor, 2008. "Development of Improved Enzymes for the Bio-refinery,” Available at http://docs.google.com/viewer?a=v&q=cache:Yl_FfR1vybkJ:www.ifr.ac.uk/esEGP5/talks/Michinson %25202.pdf+SPEZYME+corn+ethanol+Trichoderma+ reesei&hl=en&gl=us&pid=bl&srcid=ADGEE Sg7BLxmfLZ0AP4yjd

. Genencor, 2009. “Accelerase® 1500 Cellulase Enzyme Complex for Lignocellulosic Biomass Hydrolysis, Product Information, ” available at www.genencor.com . Accessed November 19, 2010. Glass, 2010. David Glass. “Use of Modified Microorganisms in Biofuel Production: Managing Compliance with the EPA TCA Biotech Regulations.” May 3, 2010. Available at http://dglassassociates.wordpress.com

.68 Haq et al., 2010. Haq, I., S. Ali, M.M. Javed, U. Hameed, A. Saleem, F. Adnan, M.A. Qadeer. “Production of alpha-amylase from a randomly induced mutant strain of Bacillus Amyloliquefaciens and its application as a desizer in textile industry.” Pak. J. Bot., 42(1): 473-484, 2010. ICF, 1983. Regulatory Impact Analysis for New Chemical Reporting Alternatives Under Section 5 of TSCA, prepared by ICF for US EPA, May 10, 1983. Iogen, 2010. Iogen Corporation company website. Available at http://www.iogen.ca/index.html . Accessed March 1, 2010. Kirk-Othmer, 1994.”Enzyme Applications: Industria l” Kirk-Othmer Encyclopedia of Chemical Technology. John Wiley & Sons. Hoboken, NJ. 1994. Knauf and Moniruzzaman, 2004. Michael Knauf and Mohomad Moniruzzama. “Lingocelluosic biomass processing: A perspective”. Intern ational Sugar Journal. 2004. Vol. 106, No. 1263. Available at: http://www.genencor.com/wps/wcm/connect/c985f00 04fb4e1e8ac20fe45de7f5ba1/International+Sug ar+Journal+(April+2004).pdf?MOD=AJPERES&a mp;amp;CACHEID=c985f0004fb4e1e8ac20fe45d e7f5ba1

. Kwiatkowski et al., 2005. Jason Kwiatkowski, An drew McAloon, Frank Taylor and David Johnston. “Modeling the Process and Cost of Fuel Ethano l Production by the Corn-Dry Grind Process.” Industrial Crops and Products, 23. pp. 288-296. LSBU, 2004. London South Bank University. “The use of enzymes in detergents.” Available at http://www.lsbu.ac.uk/biology/enztech/detergent.html . Accessed September 27, 2010. Maheshwari, 2008. “Genome Sequence of a Fungus fo r the Biofuel Industry.” Current Science, July 25, 2008, pp 161-162. Maurer, 2004. Maurer, Karl-Heinz. “D etergent proteases.” Current Op inion in Biotechnology, 15:330– 334. MCAN, 2010. Microbial Commercial Activity Notice submitted to EPA. (The submitter name is confidential business information.) Moller, 2006. Ralf Moller. “Cell Wa ll Saccharification”. Available at http://epobio.net/pdfs/0611CellWa llSaccharificationReport_c.pdf

. NCEP, 2003. National Center for Energy Policy , “Cellulosic Ethanol Fact Sheet.” July 13. Novo Nordisk, 1997. Novo Nordisk, “Letter of Applic ation with information on B. amyloliquefaciens requesting this organism be included in § 725.40 as a candidate recipient microorganism for tiered exemption.” November 7. Novozymes, 2009. Novozymes A/S. The Novozymes Report 2009. Available at http://report2009.novozymes.com. Accessed March 1, 2010. Novozymes, 2010a. Novozymes A/S. Company website

. Available at http://www.novozymes.com/en

. Accessed March 1, 2010. Novozymes, 2010b. Novozymes A/S. “Detergent enzymes”. Available at http://www.novozymes.com/en/MainStructure/AboutUs/Positions/Detergent+enzymes.htm . Accessed September 27, 2010. OPM, 2009. Office of Personnel Management, Sala ry Table 2009-DCB, Washington Baltimore-Northern Virginia, DC-MD-PA-VA-WV. Accessed from http://www.opm.gov/oca/09tables/pdf/DCB.pdf

. Peckous, 1999. Termamyl SC: A Novel alpha-amylase for liquefaction of whole grain, by Larry W. Peckous, Novozymes Biochem, Presented at the 10999 Starch Convention in Detmold, Germany. Comment [ccr5]: Can add MCAN # from sanitized version once it is added to docket.69 Polaina and McCabe, 2007. Polaina, Julio and Andrew P. McCabe. Industrial Enzymes: Structure, Function, and Application s . Springer Netherlands, 2007. Purdue, 2004. “Purdue Yeast make Ethanol from Agricu ltural Waste more Effective”. Purdue News, June 28, 2004. Available at www.purdue.edu

. Rao et al., 1998. Rao, Mala B., Aparnam M. Tanksale, Mohini S. Ghatage, Vasanti V. Deshpande. “Molecular and Biotechnological Aspects of Microbial Proteases.” Microbiology and Molecular Biology Reviews, 62(3): 597-635, 1998. Slade, 2010. Slade, Raphael. Cleantech Magazine. “Low cost enzymes could catalyze a revolution in ethanol production.” March/ April 2010. Available at http://www.cleantechinvestor.com/portal/biofuels/5164-enzymes.html . Accessed August 27, 2010. Smith and Suh, 2008. Smith, Timoth M., Sangwon Sun. “Environmental and Economic Assessment of Ethanol Production Systems in Minnesota: Final Repo rt to the Minnesota Pollution Control Agency.” March 19, 2007. University of Minnesota. Solvay, 1996. Solvay Group Sells Its Industrial Enzymes Business to Genencor, July 1, 1996. Available at http:www.solvaypress.com . Accessed November 11, 2010. Uhlig, 1998. Helmut Uhlig Industrial Enzymes and th eir Applications. John Wiley & Sons. New York, NY. 1998. Uniprot, 2010. UniprotKB pr otein knowledgebase, on line at http://www .uniprot.org/ . Accessed November 7, 2010. (The Uniprot consortium is s upported by the U.S. National Institutes of Health, the European Commission, and other Eu ropean and U.S. organizations.) Verenium, 2010a. Verenium Corporation. Company website. Available at http://www.verenium.com

. Accessed March 1, 2010. Verenium, 2010b. Verenium Corp Form 10-K (Annua l Report): Filed 03/16/10 for the Period Ending 12/31/09. Available at http://www.verenium.com . Accessed November 11, 2010.A-1 

# Appendix A : Industry Burden and Cost in Years Two through Ten

Industry Burden Hours This appendix contains tables that derive the industry burden for Years 2 through 10 of the rule. (The Year 1 burden was presented in Chapter 4 , Table 4-15.) Burden estimates are calculated following the method outlined for Year 1 in Section 4.1.6 of this report. EPA assumed that companies would send more Tier I submissions than Tier II submissions. This analysis assumed that there would be a Tier II submission every three years and that an additional fi rm will make a submission in Years 5 and 10. Table 4-17 presented the change in burden hours for all ten years. Table A-1 through Table A-9 present the change in burden hours for Years 2 through 10.

Table A- 1 : Base Case and Change in I ndustry Burden Hours (Year 2)

Submission Type Base Case Number of

Annual Submissions Base Case Per Submission Burden (hours) Base Case Total Industry Burden (hours) Rule Case Number of

Annual Submissions Rule Case Total Industry Burden (hours) Change in Industry Burden (hours)

Notice Preparation, Submission and Recordkeeping for T. reesei and B. amyloliquefaciens MCAN 4 520 2,082 0 0 -2,082
Tier II 0 276 0 0 0 0

Tier I 0 19 0 4 76 76 Total 4 - 2,082 4 76 -2,006 Rule Familiarization Burden

Total - - 0 - 0 0 Total Industry Burden (Rule Familiarization Burden + Submission Burden) Total - - 2,089 - 76 -2,006 Source: Number of submissions, Tabl e 4-13. Hours per submission, .A-2 Table A- 2 : Base Case and Change in I ndustry Burden Hours (Year 3)

Submission Type Base Case Number of

Annual Submissions Base Case Per Submission Burden (hours) Base Case Total Industry Burden (hours) Rule Case Number of

Annual Submissions Rule Case Total Industry Burden (hours) Change in Industry Burden (hours)

Notice Preparation, Submission and Recordkeeping for T. reesei and B. amyloliquefaciens MCAN 5 520 2,602 0 0 -2,602
Tier II 0 276 0 1 276 276

Tier I 0 19 0 4 76 76 Total 5 - 2,602 5 352 -2,250 Rule Familiarization Burden

Total - - 0 - 0 0 Total Industry Cost (Rule Familiarization Burden + Submission Burden) Total - - 2,602 - 352 -2,250 Source: Number of submissions, Table 4- 13. Hours per submission, Table 4-15.

Table A- 3 : Base Case and Change in I ndustry Burden Hours (Year 4)

Submission Type Base Case Number of

Annual Submissions Base Case Per Submission Burden (hours) Base Case Total Industry Burden (hours) Rule Case Number of

Annual Submissions Rule Case Total Industry Burden (hours) Change in Industry Burden (hours)

Notice Preparation, Submission and Recordkeeping for T. reesei and B. amyloliquefaciens MCAN 5 520 2,602 0 0 -2,602
Tier II 0 276 0 0 0 0

Tier I 0 19 0 5 95 95 Total 5 - 2,602 5 95 -2,507 Rule Familiarization Burden
Total - - 0 - 0 0 Total Industry Cost (Rule Familiarization Burden + Submission Burden) Total - - 2,602 - 95 -2,507 Source: Number of submissions, Table 4- 13. Hours per submission, Table 4-15.A-3 Table A-4: Base Case and Change in Industry Burden Hours (Year 5)

Submission Type Base Case Number of

Annual Submissions Base Case Per Submission Burden (hours) Base Case Total Industry Burden (hours) Rule Case Number of

Annual Submissions Rule Case Total Industry Burden (hours) Change in Industry Burden (hours)

Notice Preparation, Submission and Recordkeeping for T. reesei and B. amyloliquefaciens MCAN 6 520 3,122 0 0 -3,122
Tier II 0 276 0 0 0 0

Tier I 0 19 0 6 114 114 Total 6 - 3,122 6 114 -3,008 Rule Familiarization Burden

Total - - 0 - 20 20 Total Industry Cost (Rule Familiarization Burden + Submission Burden) Total - - 3,122 - 134 -2,988 Source: Number of submissions, Table 4- 13. Hours per submission, Table 4-15. Table A-5: Base Case and Change in Industry Burden Hours (Year 6)

Submission Type Base Case Number of

Annual Submissions Base Case Per Submission Burden (hours) Base Case Total Industry Burden (hours) Rule Case Number of

Annual Submissions Rule Case Total Industry Burden (hours) Change in Industry Burden (hours)

Notice Preparation, Submission and Recordkeeping for T. reesei and B. amyloliquefaciens MCAN 6 520 3,122 0 0 -3,122
Tier II 0 276 0 1 276 276

Tier I 0 19 0 5 95 95 Total 6 - 3,122 6 371 -2,751 Rule Familiarization Burden
Total - - 0 - 0 0 Total Industry Cost (Rule Familiarization Burden + Submission Burden) Total - - 3,122 - 371 -2,751 Source: Number of submissions, Table 4- 13. Hours per submission, Table 4-15.A-4 Table A- 6 : Base Case and Change in I ndustry Burden Hours (Year 7)

Submission Type Base Case Number of

Annual Submissions Base Case Per Submission Burden (hours) Base Case Total Industry Burden (hours) Rule Case Number of

Annual Submissions Rule Case Total Industry Burden (hours) Change in Industry Burden (hours)

Notice Preparation, Submission and Recordkeeping for T. reesei and B. amyloliquefaciens MCAN 7 520 3,643 0 0 -3,643
Tier II 0 276 0 0 0 0

Tier I 0 19 0 7 133 133 Total 7 - 3,643 7 133 -3,510 Rule Familiarization Burden

Total - - 0 - 0 0 Total Industry Cost (Rule Familiarization Burden + Submission Burden) Total - - 3,643 - 133 -3,510 Source: Number of submissions, Table 4- 13. Hours per submission, Table 4-15. Table A-7: Base Case and Change in Industry Burden Hours (Year 8)

Submission Type Base Case Number of

Annual Submissions Base Case Per Submission Burden (hours) Base Case Total Industry Burden (hours) Rule Case Number of

Annual Submissions Rule Case Total Industry Burden (hours) Change in Industry Burden (hours)

Notice Preparation, Submission and Recordkeeping for T. reesei and B. amyloliquefaciens MCAN 8 520 4,163 0 0 -4,163
Tier II 0 276 0 0 0 0

Tier I 0 19 0 8 152 152 Total 8 - 4,163 8 152 -4,011 Rule Familiarization Burden
Total - - 0 - 0 0 Total Industry Cost (Rule Familiarization Burden + Submission Burden) Total - - 4,163 - 152 -4,011 Source: Number of submissions, Table 4- 13. Hours per submission, Table 4-15.A-5 Table A-8: Base Case and Change in Industry Burden Hours (Year 9)

Submission Type Base Case Number of

Annual Submissions Base Case Per Submission Burden (hours) Base Case Total Industry Burden (hours) Rule Case Number of

Annual Submissions Rule Case Total Industry Burden (hours) Change in Industry Burden (hours)

Notice Preparation, Submission and Recordkeeping for T. reesei and B. amyloliquefaciens MCAN 9 520 4,683 0 0 -4,683
Tier II 0 276 0 1 276 276

Tier I 0 19 0 8 152 152 Total 9 - 4,683 9 428 -4,255 Rule Familiarization Burden

Total - - 0 - 0 0 Total Industry Cost (Rule Familiarization Burden + Submission Burden) Total - - 4,683 - 428 -4,255 Source: Number of submissions, Table 4- 13. Hours per submission, Table 4-15. Table A-9: Base Case and Change in Industry Burden Hours (Year 10)

Submission Type Base Case Number of

Annual Submissions Base Case Per Submission Burden (hours) Base Case Total Industry Burden (hours) Rule Case Number of

Annual Submissions Rule Case Total Industry Burden (hours) Change in Industry Burden (hours)

Notice Preparation, Submission and Recordkeeping for T. reesei and B. amyloliquefaciens MCAN 9 520 4,683 0 0 -4,683
Tier II 0 276 0 0 0 0

Tier I 0 19 0 9 171 171 Total 9 - 4,683 9 171 -4,512 Rule Familiarization Burden
Total - - 0 - 20 20 Total Industry Cost (Rule Familiarization Burden + Submission Burden) Total - - 4,683 - 191 -4,492 Source: Number of submissions, Table 4- 13. Hours per submission, Table 4-15.A-6 

## Industry Cost

This section contains tables that derive the indu stry cost for Years 2 through 10 of the rule. . (The Year 1 cost was presented in Chapter 4: , Table 4-16. ) Cost estimates are calculated following the method outlined for Year 1 in Section 4.1.6 of this report. This analysis assumed that there would be a Tier II submission every three years and that an additional fi rm will make a submission in Years 5 and 10. Table 4-18 presents the change in burden hours for all ten years. The tables located below, Table A-10 through Table A-18, present the change in bur den hours for Years 2 through 10.

Table A-10: Base Case and Change in Industry Cost (Year 2)

Submission Type Base Case Number of

Annual Submissions Base Case Per Submission Cost ($2009) Base Case Total Industry

Cost ($2009) Rule Case Number of

Annual Submissions Rule Case Total Industry

Cost ($2009) Change in Industry

Cost ($2009)

Notice Preparation, Submission and Recordkeeping for T. reesei and B. amyloliquefaciens MCAN 4 $33,576 $134,305 0 $0 -$134,305 Tier II 0 $16,504 $0 0 $0 $0 Tier I 0 $1,272 $0 4 $5,089 $5,089 Total 4 - $134,305 4 $5,089 -$129,216
Rule Familiarization Cost Total - - $0 - $0 $0 Total Industry Cost (Rule Familiarization Cost + Submission Cost)

Total - - $134,305 - $5,089 - $129,216 Source: Number of submissions, Table 4- 13. Cost per submission, Table 4-16.

Table A- 11 : Base Case and Change in Industry Cost (Year 3)

Submission Type Base Case Number of

Annual Submissions Base Case Per Submission Cost ($2009) Base Case Total Industry

Cost ($2009) Rule Case Number of

Annual Submissions Rule Case Total Industry

Cost ($2009) Change in Industry

Cost ($2009)

Notice Preparation, Submission and Recordkeeping for T. reesei and B. amyloliquefaciens MCAN 5 $33,576 $167,881 0 $0 -$167,881 Tier II 0 $16,504 $0 1 $16,504 $16,504 Tier I 0 $1,272 $0 4 $5,089 $5,089 Total 5 - $167,881 5 $21,593 -$146,288
Rule Familiarization Cost Total - - $0 - $0 $0 Total Industry Cost (Rule Familiarization Cost + Submission Cost)A-7 Total - - $167,881 - $21,593 - $146,288 Source: Number of submissions, Table 4- 13. Cost per submission, Table 4-16. Table A-12: Base Case and Change in Industry Cost (Year 4)

Submission Type Base Case Number of

Annual Submissions Base Case Per Submission Cost ($2009) Base Case Total Industry

Cost ($2009) Rule Case Number of

Annual Submissions Rule Case Total Industry

Cost ($2009) Change in Industry

Cost ($2009)

Notice Preparation, Submission and Recordkeeping for T. reesei and B. amyloliquefaciens MCAN 5 $33,576 $167,881 0 $0 -$167,881 Tier II 0 $16,504 $0 0 $0 $0 Tier I 0 $1,272 $0 5 $6,361 $6,361 Total 5 - $167,881 5 $6,361 -$161,520
Rule Familiarization Cost Total - - $0 - $0 $0 Total Industry Cost (Rule Familiarization Cost + Submission Cost)

Total - - $167,881 - $6,361 - $161,520 Source: Number of submissions, Table 4- 13. Cost per submission, Table 4-16.

Table A- 13 : Base Case and Change in Industry Cost (Year 5)

Submission Type Base Case Number of

Annual Submissions Base Case Per Submission Cost ($2009) Base Case Total Industry

Cost ($2009) Rule Case Number of

Annual Submissions Rule Case Total Industry

Cost ($2009) Change in Industry

Cost ($2009)

Notice Preparation, Submission and Recordkeeping for T. reesei and B. amyloliquefaciens MCAN 6 $33,576 $201,458 0 $0 -$201,458 Tier II 0 $16,504 $0 0 $0 $0 Tier I 0 $1,272 $0 6 $7,633 $7,633 Total 6 - $201,458 6 $7,633 -$193,824
Rule Familiarization Cost Total - - $0 - $1,365 $1,365 Total Industry Cost (Rule Familiarization Cost + Submission Cost)

Total - - $201,458 - $8,998 - $192,459 Source: Number of submissions, Table 4-13. Cost per submission, Table 4-16A-8 Table A- 14 : Base Case and Change in Industry Cost (Year 6)

Submission Type Base Case Number of

Annual Submissions Base Case Per Submission Cost ($2009) Base Case Total Industry

Cost ($2009) Rule Case Number of

Annual Submissions Rule Case Total Industry

Cost ($2009) Change in Industry

Cost ($2009)

Notice Preparation, Submission and Recordkeeping for T. reesei and B. amyloliquefaciens MCAN 6 $33,576 $201,458 0 $0 -$201,458 Tier II 0 $16,504 $0 1 $16,504 $16,504 Tier I 0 $1,272 $0 5 $6,361 $6,361 Total 6 - $201,458 6 $22,865 -$178,592
Rule Familiarization Cost Total - - $0 - $0 $0 Total Industry Cost (Rule Familiarization Cost + Submission Cost)

Total - - $201,458 - $22,865 - $178,592 Source: Number of submissions, Table 4- 13. Cost per submission, Table 4-16.

Table A- 15 : Base Case and Change in Industry Cost (Year 7)

Submission Type Base Case Number of

Annual Submissions Base Case Per Submission Cost ($2009) Base Case Total Industry

Cost ($2009) Rule Case Number of

Annual Submissions Rule Case Total Industry

Cost ($2009) Change in Industry

Cost ($2009)

Notice Preparation, Submission and Recordkeepin g for T. reesei and B. amyloliquefaciens MCAN 7 $33,576 $235,034 0 $0 -$235,034 Tier II 0 $16,504 $0 0 $0 $0 Tier I 0 $1,272 $0 7 $8,906 $8,906 Total 7 - $235,034 7 $8,906 -$226,128
Rule Familiarization Cost Total - - $0 - $0 $0 Total Industry Cost (Rule Familiarization Cost + Submission Cost)

Total - - $235,034 - $8,906 - $226,128 Source: Number of submissions, Table 4- 13. Cost per submission, Table 4-16.A-9 Table A- 16 : Base Case and Change in Industry Cost (Year 8)

Submission Type Base Case Number of

Annual Submissions Base Case Per Submission Cost ($2009) Base Case Total Industry

Cost ($2009) Rule Case Number of

Annual Submissions Rule Case Total Industry

Cost ($2009) Change in Industry

Cost ($2009)

Notice Preparation, Submission and Recordkeepin g for T. reesei and B. amyloliquefaciens MCAN 8 $33,576 $268,610 0 $0 -$268,610 Tier II 0 $16,504 $0 0 $0 $0 Tier I 0 $1,272 $0 8 $10,178 $10,178 Total 8 - $268,610 8 $10,178 -$258,432
Rule Familiarization Cost Total - - $0 - $0 $0 Total Industry Cost (Rule Familiarization Cost + Submission Cost)

Total - - $268,610 - $10,178 - $258,432 Source: Number of submissions, Table 4- 13. Cost per submission, Table 4-16. Table A-17: Base Case and Change in Industry Cost (Year 9)

Submission Type Base Case Number of

Annual Submissions Base Case Per Submission Cost ($2009) Base Case Total Industry

Cost ($2009) Rule Case Number of

Annual Submissions Rule Case Total Industry

Cost ($2009) Change in Industry

Cost ($2009)

Notice Preparation, Submission and Recordkeepin g for T. reesei and B. amyloliquefaciens MCAN 9 $33,576 $302,186 0 $0 -$302,186 Tier II 0 $16,504 $0 1 $16,504 $16,504 Tier I 0 $1,272 $0 8 $10,178 $10,178 Total 9 - $302,186 9 $26,682 -$275,504
Rule Familiarization Cost Total - - $0 - $0 $0 Total Industry Cost (Rule Familiarization Cost + Submission Cost)

Total - - $302,186 - $26,682 - $275,504 Source: Number of submissions, Table 4- 13. Cost per submission, Table 4-16.A-10 Table A- 18 : Base Case and Change in Industry Cost (Year 10)

Submission Type Base Case Number of

Annual Submissions Base Case Per Submission Cost ($2009) Base Case Total Industry

Cost ($2009) Rule Case Number of

Annual Submissions Rule Case Total Industry

Cost ($2009) Change in Industry

Cost ($2009)

Notice Preparation, Submission and Recordkeeping for T. reesei and B. amyloliquefaciens MCAN 9 $33,576 $302,186 0 $0 -$302,186 Tier II 0 $16,504 $0 0 $0 $0

Tier I 0 $1,272 $0 9 $11,450 $11,450 Total 9 - $302,186 9 $11,450 -$290,736
Rule Familiarization Cost Total - - $0 - $1,365 $1,365 Total Industry Cost (Rule Familiarization Cost + Submission Cost)

Total - - $302,186 - $12,815 - $289,371 Source: Number of submissions, Table 4- 13. Cost per submission, Table 4-16.B-1 

# Appendix B : Production and Substitute Information for Cellulosic and Corn-Based Ethanol

This appendix briefly discusses the production and use of T. Reesei in cellulosic and corn-based ethanol, as well as the commercial substitutes for ethanol from both corn and cellulosic biomass.



## Corn-Based Ethanol Production Corn-based ethanol is produced from the corn kernels, the starchy part of the corn plant. T. reesei is used in the commercial manufacturing of corn-based fuel ethanol. Fuel ethanol is mostly produced using a dry mill process. In the dry mill process the corn etha nol is first ground into “meal.” The meal is moved into a slurry tank where it is mixed with water an d other ingredients including the hydrolyzing enzyme, a thermostable alpha-amylase (Kwiat kowski et al., 2005). This enzyme has been commercially produced using Bacillus licheniformis (Peckous, 1999) and T. reesei (Genencor, 2008). The slurry is then liquefied using heat and the alpha-amylase enzyme, which breaks the corn starch into olosaccharides known as dextrins. The dextrins are then moved into the saccharification tank where the glucoamylase enzymes are added to further hydrolyze the dextrins into fermentable sugars (Kwiatkowski et al., 205). Glucoamylase enzymes used in corn-based ethanol production have been produced commercially using A. niger (Genencor, 2008). However, patents have been issued for the use of T. reesei in the production of the glucoamylase enzymes (Danisco Patent, 2009). As described by Kwiatkowski et al, the slurry with glucose is then moved into the fermentation tanks where it is fermented using yeast, and creates “beer.” This beer is moved into the beer column where the ethanol is recovered. In the final step, the recovered ethanol moved into a new tank where it is mixed with about 5 percent gasoline (denaturant) to creat e fuel ethanol (Kwiatkowski et al., 2005).

Figure 2 : Simplified corn-based ethanol dry mill production process

Glucoamylase enzymes from A. niger or other microbes Alpha-amylase enzymes from B. licheniformis T. reesei, or other microbes Yeast

1. Corn Grind 2. Liquefaction with Enzymes

and Heat 3. Saccharification 4. Fermentation 5. Ethanol recovery from “beer”B-2 

## Cellulosic Ethanol Production Steps Cellulosic ethanol is produced from the non-starchy portions of corn plants, such as cornstalks, and from other inedible biomass such as wood chips, sugarcane waste, and grass. In cellulosic ethanol production, the hard cell wall of the feedstock is fermented into ethanol. The cell wall consists of chain polymers known as microfibr ils. These microfibrils are composed of three main parts: (1) the hard cellulose, (2) the soft hemicellulose, and (3) irregular lignin. Both the five-carbon sugars (pentoses) from the hemicellulose and the six-carbon sugars from the cellulose are fermented into ethanol. The lignin is di scarded or used to generate steam for the ethanol process. The main steps in converting the cellulosic biomass into ethanol via biochemical production are discussed below. The process described below is a generic process that may not apply to every situation, and some practices may be replaced by newer technologies: Step 1: Biomass Handling - The biomass feedstock (wood, switchgrass, cornstalks, etc.) is reduced in size for more efficient processing (DOE, 2009c). Step 2: Biomass Pretreatment - The biomass is then pretreated to open up the lignocellulose, making hemicellulose and cellulose more accessible to being broken down later by enzymes (Knauf and Moniruzzaman, 2004). A common process known as the dilute acid process hydrolyzes much of the hemicellulose —but not the cellulose—into sugars (Knauf and Moniruzzaman, 2004). Step 3: Enzymatic hydrolysis - Cellulase enzymes, typically from T. reesei, catalyze the degradation of cellulose into glucose, a 6-carbon sugar. This enzymatic hydrolysis reaction is also known as cellulose saccharification (DOE, 2009c). Cellulose is made up of units of the simple sugar, glucose. A number of enzymes are needed to degrade cellulose to glucose, including endogluconases, exogluconases, cellobiohydrolases which release cellobiose (disaccharides of two glucoses) from crystalline cellulose, and beta-glucosidases (which cleave cellobiose to glucose) (Knauf and Moniruzzaman, 2004, p.148). Enzymes also break down the complex sugars of th e hemicellulose into simple sugars. Hemicellulose from agricultural wastes such as corn stover is predominately made up of the five-carbon sugar, xylose, but also includes arabinose [five-carbon], galactose [six carbon], and mannose [six carbon]. Xylanases and other hemicellulases break down hemi cellulose to xylose and other sugars. (Moller, 2006 p.11). Cellulase enzymes are grown in-house or purchased from a commercial enzyme company (DOE, 2009c) Step 4: Fermentation - After enzymatic hydrolysis, the six-carbon glucose is converted to ethanol and CO2 through fermentation. Commonly this uses a yeast, Saccharomyces cerevisiae. The five-carbon (pentose) sugars such as xylase that were released from hemicellulose can also be fermented to ethanol. The conventional fermentation organism, S. cerevisiae, can use only the sixcarbon sugar, glucose. However, gene tically modified bacteria such as Z. mobilis or E. coli or a genetically modified Saccharomyces (yeast) can ferment both five-carbon and six-carbon sugars (Knauf and Moniruzzaman, 2004; DOE, 2009a; Purdue, 2004). The hydrolysis of amorphous cellulose into glucose (saccharification) and fermentation to ethanol can be combined in one process (Knauf and Moniruzzaman, 2004 p.149). Step 5: Ethanol Recovery - The ethanol-CO 2 mixture from fermentation is sent to a distiller. Impurities such as lignin and residual ligninocellu losic biomass are removed from the ethanol brothB-3 and may be used to produce energy for the ethanol plant. Any bacterial organisms in the ethanol are heated and killed during this process. All water is also removed from the mixt ure, recovering only the ethanol (DOE, 2009c).



## Non-biological Alternatives for Producing Cellulosic Ethanol In addition to enzymatic hydrolysis, other met hods for producing cellulosic ethanol from biomass include acid hydrolysis and gasification. Acid hydrolysis uses an acid bath to break the hemicellulose and cellulose in biomass into simple xylose and glucose sugars, which are subsequently fermented into ethanol. Gasification uses wood chips as feedstock and uses pressure “to create a synthesis gas ... that is passed over a catalyst to make ethanol” (CEN, 2009). None of these technologies are currently considered cost-competitive with corn ethanol or gasoline (CEN, 2009). Those supporting the T. reesei application asserted the following: [T]here simply is no viable chemical alternative to enzymes for a commercially f easible process to obtain quality saccharides in sufficient yields. Mineral acids such as hydrochloric and sulfuric acids have been tried for years, but the quality and the yields of products is si mply far too low using this route to be commercially feasible. In addition, a “chemical” approach adds an environmental burden through the generation of chemical waste and the significant costs associated with disposal” (BIO and ETA, 2010, p.9)

. However, as with cellulosic ethanol, it is possib le that non-biological technologies could become competitive in the future. In 2007, the U.S. Department of Energy (DOE) awarded grants to six cellulosic ethanol producers to develop and test these ethanol production methods (CEN, 2009). Range Fuels, one of the grant recipients, is constructing a large-scale gasification plant for oper ation in 2010, and BlueFire Ethanol, another recipient, is negoti ating for a permit to build an acid hydrolysis plant in the near future (CEN, 2009).



## Substitutes for Fuel Ethanol Gasoline is the fuel alternative to ethanol. Gasoline has more energy per unit than ethanol, can be transported in current pipelines, and can be used in cu rrent engines. At present gasoline is less expensive per mile, although this can change with fluctuations in gas prices. Due to its chemical makeup, ethanol cannot be transported in current pipelines nor used in conventional auto engines beyond a certain percentage of the gasoline/ethanol mix. On the other hand, ethanol provides an octane boost to gasoline. In this function, it replaces Methyl tert-Butyl Ether (MTBE), which has raised concerns when found in drinking water supplies. From a societal viewpoint, cellulosic ethanol is t hought to have environmental advantages over corn ethanol and gasoline, especially lower greenhouse gas emissions. Compared with corn ethanol, depending on the feedstock, it is also likely to use less fertilizer (see Section 4.2.2). Domestic cellulosic ethanol production may decrease U.S. dependency on foreign oil supplies. Unlike corn ethanol, the feedstocks used in cellulosic ethanol production (corncobs, or crops grown for specifically for ethanol production, such as grasse s or wood) are not human food crops (DOE, 2009b), so increased demand for cellulosic ethanol feedstock may put less upward pressure on food prices. These crops may be grown on land that is unsuitable for growing other crops and it generally takes less energy to produce cellulosic ethanol biomass than sugar and starch based biomass (DOE, 2009b).