# Economic Impact Analysis for the Nitric Acid Manufacturing NSPS Final ReportEPA - 452/R- 12 - 004 May 2012

**Economic Impact Analysis for**  **the Nitric Acid Manufacturing NSPS**

By : Kathy Heller RTIInternational, Inc. Research Triangle Park, North Carolina

Prepared for: John L . Sorrels Health and Environmental Impacts Division

Contract No. EP - W - 11 - 029

U.S. Environmental Protection Agency Office of Air Quality

Planning and Standards Health and Environmental Impacts Division

Air Economics Group Research Triangle Park, NC

### May **201 2** 



# Economic Impacts of NSPS for Nitric Acid Final Report

Prepared for Larry Sorrels U.S. Environmental Protection Agency Office of Air Quality Planning and Standards (OAQPS) Air Economics Group (MD - C439 - 02) Research Triangle Park, NC 27711 Prepared by Katherine Heller Brooks Depro Stephanie Norris Tony Lentz RTI International 3040 Cornwallis Road Research Triangle Park, NC 27709 RTI Project Number 0209897. 00 4 . 0 94_________________________________ RTI International is a trade name of Research Triangle Institute .iii **CONTENTS Section**  **Page** 1 Background ................................ ................................ ................................ ................... 1 - 1 2 Industry

Profile ................................ ................................ ................................ ............. 2 - 1 2.1 Supply

of Nitric Acid ................................ ................................ ........................... 2 - 1 2.1.1 Nitric Acid Production Process ................................ ................................ 2 - 1 2.1.2 Product Ty

pes ................................ ................................ .......................... 2 - 2 2.1.3 Materials and Costs of Production ................................ ........................... 2 - 2 2.1.4 Nitric Acid and Materials Transportation ................................ ................ 2 - 3 2.2 Demand for Nitric Acid ................................ ................................ ....................... 2 - 5 2.2.1 Nitric Acid Applications ................................ ................................ .......... 2 - 5 2.2.2 In fluential Factors ................................ ................................ .................... 2 - 6 2.3 Market Characteristics ................................ ................................ ......................... 2 - 7 2.3. 1 Competition and Entry ................................ ................................ ............. 2 - 7 2.3.2 Concentration ................................ ................................ ........................... 2 - 9 2.3.3 Price - Responsiveness of Supply and Demand ................................ ....... 2 - 11 2.4 Market Trends ................................ ................................ ................................ .... 2 - 12 2.4.1 Derive d Demand for Nitric Acid ................................ ........................... 2 - 12 2.4.2 International Trade in the Sectors that Consume Nitric Acid ................ 2 - 12 2.4.3 Industry

Trends and Projections for Sectors Using Nitric Acid as an Input ................................ ................................ ................................ .. 2 - 13 2.4.4 Projected Production of Nitric Acid ................................ ...................... 2 - 14 2.5 Overview of Businesses Potenti ally Affected by

the Rule ................................ 2 - 15 2.5.1 Parent Companies ................................ ................................ .................. 2 - 15 2.5.2 Parent Company

Sales and Employ

ment ................................ ............... 2 - 19 2.6 References for Section 2 ................................ ................................ .................... 2 - 21iv

3 Engineering Cost anal ys is ................................ ................................ ............................. 3 - 1 3.1 Emission Limit of 0.5 lb NO X/ton ................... **Error! Bookmark not defined.** 3 - 2 3.2 References for Section 4 ................................ ................................ ...................... 4 - 8

4 Economic Impacts on New Sources in the Nitric Acid Industry ................................ .. 4 - 1 4.1 Modeling Approach to Estimating the Impacts on the Market for Nitric Acid ................................ ................................ ................................ ...................... 4 - 1 4.2 Possible Impacts on Market for Nitric Acid ................................ ........................ 4 - 4 4.3 Estimated Impacts on Markets for Products Using Nitric Acid as an Input ........ 4 - 5 4.5 Impacts on Small Entities of the NSPS Review of Nitric Acid for NO X on New Sources ................................ ................................ ................................ ........ 4 - 7 4.6 References for Section 4 ................................ ................................ ...................... 4 - 8 5 Conclusions ................................ ................................ ................................ ................... 5 - 1 Appendix A Industry

Data and Projections for NAICS 32521 ................................ ............... A - 1v **LIST OF FIGURES Number**  **Page** 4 - 1 2010 Market for Nitric Acid ................................ ................................ ......................... 4 - 2 4 - 2 Market Supply

of Nitric Acid, including New Source ................................ ................. 4 - 2 4 - 3 In creased Demand for Nitric Acid at Baseline ................................ ............................. 4 - 3 4 - 4 Market for Nitric Acid, With NSPS ................................ ................................ ............. 4 - 4vi **LIST OF TABLES Number**  **Page** 2 - 1 Cost Comparisons for Labor and Materials across Several NAICS Codes .................. 2 - 4 2 - 2 Concentration Ratios for Sector s Using Nitric Acid as an Input, 2002 ...................... 2 - 10 2 - 3 Market Price - Elasticities of Supply and Demand ................................ ....................... 2 - 11 2 - 4 Exports of Sectors that Consume Nitric Acid (FAS Value, 10 3 $2009) ..................... 2 - 12 2 - 5 Imports for Consumption of Sectors that Consume Nitric Acid (Customs Value, 10 3 $2009) ................................ ................................ ................................ ................... 2 - 13 2 - 6 Projected Nitric Acid Production ................................ ................................ ................ 2 - 15 2 - 7 Parent Companies with Facilities Potentially Covered Under the Rule ..................... 2 - 17 2 - 8 Annual Revenue and Employ ment Dat a for Each of the Parent Companies .............. 2 - 20 3 - 1 Normalized NO X Control Costs by Model Plant ................................ .......................... 3 - 1 3 - 2 NO X Control Costs for All New Production Trains in 2016 **Error! Bookmark not defined.** 3 - 2 3 - 3 NO X Control Efficiencies ................................ ......... **Error! Bookmark not defined.** 3 - 2 3 - 4 NO X Emission Reductions for All New Production Trains with SCR Control in 2016 ................................ ................................ ........... **Error! Bookmark not defined.**  3 - 3 3 - 5 In cremental Costs in the Fifth Year after Promulgation for All New Production Trains ................................ ................................ ........ **Error! Bookmark not defined.** 3 - 3 3 - 6 In cremental Cost Effectiveness in the Fifth Year after Promulgation for All New Production Trains ................................ ...................... **Error! Bookmark not defined.** 3 - 4 4 - 1 Market Impacts of the Rule: Market for Nitric Acid ................................ ................... 4 - 5 4 - 2 Estimated Impacts of Nitric Acid NSPS on Sectors Using Nitric Acid as an Input ................................ ................................ ................................ .............................. 4 - 6 4 - 3 Employ

m ent and Revenue of Existing Small Entities ................................ .................. 4 - 7 4 - 4 Cost - to - Sales Ratios for Model Small Firms Owning New 300 tpd and 1,000 tpd Plants ................................ ................................ ................................ ............................. 4 - 81 - 1 **SECTION 1 BACKGROUND**  New Source Performance Standards (NSPS), mandated under Section 111 of the Clean Air Act (CAA) , are directly enforceable federal regulations issued for categories of sources that cause, or contribute significantly to, air pollution that may reasonabl y be anticipated to endanger public health or welfare. Section 111 of the CAA require s that NSPS reflect the “degree of emissio ns limitation achievable through application of the best s ys tem of emission reduction which (taking into account the cost of achieving such reduction and any non - air quality health and environmental impact and energy requirements) the Administrator determines has been adequatel y demonstrated.” This level of control is commonly referred to as best demonstrated technology

(BDT). By

requiring BDT for new , modified, and reconstructed sources, the NSPS program seeks to attain and maintain ambient air quality as the industrial infrastructure is modernized. Since 1970, the NSPS have been successful in achieving long - term emissions reductions in numerous industries by en suring that cost - effective controls are installed on such sources. The Environmental Protection Agency ( EPA ) is required by S ection 111(b)(1)(B) of the CAA to review and, if appropriate, revise existing NSPS at least every 8 years. The purpose of an NSPS review is to determine if the standards reflect BDT. The nitric acid NSPS (part 60, subpart G) has been reviewed in the past , but the last review was more than 8 years ago. As a result of this, EPA received a citizen suit from Sierra Club and Environmental Integrity Project prompting a review of the standards. Section 111(b)(1)(B) of the CAA requires EPA to periodicall y review and revise the standards of performance, as necessary , to reflect improvements in methods for reducing emissions. EPA is currently reviewing the nitric acid manufacturing NSPS and has noted that improvements in technology allow emissions to be better controlled than the current NSPS requires. In light of this review, EPA is revising the cur rent NSPS. These revisions include tightening the current nitrogen oxides (NO x) limit set back in 1971 for plants that manufacture nitric acid . The revised NSPS will be promulgated on May 14, 2012 under a court - order. Following legislative and administrative requirements, EPA conducts economic anal yses of its regulatory

actions. EPA ’ s Air Economics Group is responsible for conducting such eco nomic analyses in support of residual risk and national emission standards for hazardous air1 - 2

pollutants (NESHAP), NSPS, and national ambient air quality standards (NAAQS) for criteria pollutants. This economic impact analysis ( EIA ) contains four other sec tions. S ection 2 is a profile of the nitric acid manufacturing industry . It provides the reader with a basic understanding of the structure of the nitric acid production process, and characterizes nitric acid suppliers and demanders. Section 3 describes th e estimated costs that the nitric acid industry would incur with the promulgation of the revised regulations for the industry . Section 4 analyzes the impacts of these costs on the industry, including potential impacts on small businesses owning nitric acid production facilities . Section 5 provides conclusions .2 - 1 **SECTION 2 INDUSTRY PROFILE**  EPA has developed this industry profile to provide the reader with a general understanding of the technical and economic aspects of the nitric acid industry . We begin b y examining the supply of nitric acid by discussing the nitric acid production process and the associated costs . We then examine the demand for nitric acid and the end products for which it serves as an intermediate. We then address the characteristics that define the nitric acid market and profile the companies owning nitric acid production facilities. **2.1 Supply of Nitric Acid**  Nitric acid is an inorganic chemical with a variety of productive applications , including nitrogen -based fertilizers, explosives, and many specialty chemicals including pol yurethane intermediates, dyes, and pharmaceuticals (Dow, 2008 ). Although there is a small direct market for nitric acid, many producers share the role of suppl ier and consumer b y using nitric acid internally as an input to final market goods. **2.1.1 Nitric Acid Production Process**  Nitric acid is produced through chemical reactions in two main phases: oxidation and absorption. Specificall y, it is produced through a series of chemical reactions stemming from the oxidation of ammonia with air over an alloy catal yst (EFMA, 2000 ). In the oxidation phase, ammonia (NH 3 ) is oxidized at a high temperature over the catal ys t, which is usually a platinum al loy gauze - like structure, into nitric oxide (NO) (EFMA, 2000). As the gases cool, the nitric oxide is oxidized into nitrogen dioxide (N2 O) (EFMA, 2000). Nitrous oxide, water, and nitrogen are also formed in secondary reactions during this phase (EFMA, 2000 ). In the absorption phase, the nitrogen dioxide (N2 O) reacts with water to form nitric acid (HNO 3 ) : 4NH 3 + 5O 2  4 NO + 6H 2 O 2NO + O 2  2NO 2 3NO 2 + H 2 O  2HNO 3 + NO In addition to the composition and efficiency of the platinum - alloy

catal ys t, the pressure and temperature in the oxidation environment can influence the yi eld of nitric oxide recovered from the cataly

tic reaction (EFMA, 2000). The first reaction of ammoni a into nitric oxide is more efficient at a high temperature and low pressure, whereas the reaction of nitric oxide to2 - 2

nitrogen dioxide and the oxidation to nitric acid are more conducive to low temperatures and high pressure (EFMA, 2000). Production plants may be designed as dual -pressure or single pressure plants. Dual -pressure plants separate the oxidation and absorption phases and use lower pressure for oxidation than absorption; single -pressure plants us e the same degree of pressure throughout production (EFMA, 2000). **2 .1.2**  **Product Types** Nitric acid is a water- soluble liquid that can range in color from clear to yel low and has a pungent acidic odor (Dow, 2008 ). Most of the chemical is used as weak, or industrial - grade, nitric acid and tends to range from a 50 % to 70 % concentration of nitric acid in water (Dow, 2008). Fuming or concentrated nitric acid ranges from 85 % to 100 % in concentration (Dow, 2008). **2 .1.3**  **Materials and Costs of Production** Ammonia is the chief raw material required for nitric acid production, and many nitric acid producers also manufacture their own ammonia supplies to vertically integrate production. Although some producers fuel ammonia production with coal, the majority of world ammonia production is based on natural gas (PotashCorp, 2010 ). As an example, one affected fertilizer company, CF Industries, notes that natural gas purchases represented over 50 % of total 2009 cost of sales in the nitrogen production segment (CF Industries, 2010 ). Securing an affordable fuel supply in a volatile natural gas market is pivotal for a company ’ s competitiveness and sustainability

in the indu stry

(PotashCorp, 2010 ). One affe cted entity, Coffey ville Resources, is the only nitrogen plant in the United States to use lower cost petroleum coke instead of natural gas (CVR, 2009 ). Because of the unpredictabl e nature of natural gas prices, some other smaller facilities are also looking into alternative fuel options (REMC, 2010 ). Since the shift toward deregulation in the natural gas market in the 1980s, natural gas prices have played an inc reasingl y significant role in ammonia production. In the period immediately

following deregulation (1985 to 1999), natural gas prices remained relativel y stable (Huang, 2007 a). There was little correlation between natural gas prices and ammonia prices until 2000, when natural gas prices began to fluctuate erraticall y. Between 2000 and 2006, the correlation between natural gas and ammonia prices was 0.8 (Huang, 2007a). Further anal ys is suggests that the long - run price elasticity of ammonia with respect to natural gas is 0.79 (Huang, 2007b ). Ammonia producers use a variety of purchasing options to manage the inherent volatility of natural gas prices. Since natural gas is traded as a commodity , comp anies can buy natural gas2 - 3

at real - time spot prices or under contract in the futures market (NGSA, 2004 ). In contrast to the immediate purchase of natural gas at its dail y spot price, buying into a future contract involves an agreement between buyer and seller on a physical transaction at a later date (NGSA, 2004). Natural gas is traded in the United States at market hubs around the country, the largest of which is Henry Hub in Louisiana (NGSA, 2004). Roughly 30 hubs are strategically located at major natural gas pipeline intersections (NGSA, 2004). 1 The natural gas futures prices that are used for futures trading on the New York Mercantile Exchange (NYMEX) are the Henry Hub contract prices and illustrate the price of the phys ical delivery of natural gas from this hub (NGSA, 2004). The “ location differential ” is the variation between prices at Henry Hub and another market hub, which arises from different supply and demand dynamics between the different hubs (NGSA, 2004). Heavy users of natural gas, including ammonia producers, benefit from building facilities close to these market hubs. Table 2 - 1 illustrates the cost comparisons for labor and materials across the North American Industry

Classification System (NAI CS ) codes in which the affected entities are classified. Both nitric acid production and the production activities of facilities and firms that use nitric acid as an input are classified within NAICS 325, Chemical Manufacturing. Most nitric acid is used in making ammonium nitrate (AN), the majority of which is used in nitrogenous fertilizer production, NAICS 325311. Other consumers of nitric acid fall within NAI CS 325211, 325510, and 325920. In all of these NAICS industries, the cost of materials, including nitric acid, represents approximately half of the value of shipments in a ty pical ye ar. The cost of materials is ty picall y several times higher than the payroll costs (or cost of labor) for these affected industries. An additional capital cost to consider in nitric acid production is that of the catal ys t used in ammonia oxidation, which is ty picall y made primarily with platinum and supplemented with other metals (EFMA, 2000 ). Catalyst costs could thereby be influenced b y variation in metal s supply and pricing. **2 .1.4**  **Nitric Acid and Materials Transportation** Since the majority

of nitric acid is consumed in the facility or complex in which it is produced, transporting the product is not of paramount concern. However, some companies do sell nitric acid to industrial customers or potentially need to transfer between facilities, so the

1 For a map of the major market hubs and pipeline distribution network, see http://www.eia.doe.gov/pub/oil_gas/natural_gas/analysis_publications/ngpipeline/MarketCenterHubsMap.html .2-4 **Table 2**  **- 1.**  **Cost Comparisons for Labor and Materials a**  **cross Several**  **NAICS Codes**

**Geographic Area Name**  **NAICS**  

** Based** **Code Meaning of NAICS**  ****

**Based C ode**  **Year Number of**  **Em ployees**  **Annual**

**Payroll ($1,000)**  **Production**

**Workers Average**  **per Year Total Cost** 

**of Materials**  **($1,000) Materials,** 

**Parts, Containers,**  **Packaging, etc. Used ($1,000)**  **Cost of**

**Purchased Fuels**  **($1,000) Cost of** 

**Purchased Electricity**  **($1,000) To**  **tal**

**Value of Shipments**  **($1,000)** United States 325 Chemical manufacturing 2008 780,127 50,766,204 448,790 396,684,686 322,593,772 17,055,845 9,898,041 751,029,562 United States 325 Chemical manufacturing 2007 803,904 50,643,442 465,557 362,244,062 297,388,193 14,368,287 8,908,756 724,080,627 United States 325211 Plastics material and resin manufacturing 2008 67,410 4,261,853 44,809 60,505,056 55,097,538 2,141,353 1,840,588 83,802,525 United States 325211 Plastics material and resin manufacturing 2007 70,514 4,360,808 47,312 57,459,312 52,197,817 2,000,583 1,637,878 85,069,731 United States 325311 Nitrogenous fertilizer manufacturing 2008 3,818 275,321 2,481 4,456,195 3,539,303 575,847 191,581 8,272,625 United States 325311 Nitrogenous fertilizer manufacturing 2007 3,997 269,249 2,709 3,465,718 2,724,769 455,402 193,225 6,157,614 United States 325510 Paint and coating manufacturing 2008 40,407 2,108,485 22,924 11,556,743 10,527,160 68,649 108,754 22,418,425 United States 325510 Paint and coating manufacturing 2007 42,021 2,193,104 23,876 12,177,643 11,090,399 70,723 110,149 23,636,807 United States 325920 Explosives manufacturing 2008 6,042 312,208 4,183 958,319 828,569 19,829 13,168 1,934,663 United States 325920 Explosives manufacturing 2007 6,532 321,152 4,348 857,000 728,615 16,530 12,316 1,745,029 Source: U.S . Census Bureau . 2010. American Fact Finder. Sector 31: Annual Survey of Manufactures: General Statistics: Statistics for Industry Groups and Industries: 2008 and 2007 . http://factfinder.census.gov . Ac cessed April 20, 2010.2 - 5

costs and dangers of moving the hazardous chemical can play a role in the supply

side of the market. Nitric acid can be shipped via tanker truck, rail, and , in fewer cases, barge. More important than nitric acid transportation may be the transportation costs as sociated with the final products. Ammonium nitrate, the primary end product of nitric acid, can be particularl y dangerous if not handled carefull y. Suppliers are responsible for taking all necessary precautions to avoid mishaps and for complying with federal regulations for shipping hazardous materials. **2.2 Demand**  **for Nitric Acid** Although some nitric acid is sold to outside customers, the majority of nitric acid is used by its producer s in the vertically integrated production of a wide range of chemical pro ducts. Roughl y 90 % of nitric acid is manufactured for on - site consumption within the facility , so the retail nitric acid market represents onl y 10 % of total nitric acid production (ICIS, 2008 a). Because it is an intermediate good, the demand for nitric acid is largely contingent on the demand for the end products for which it serves as an input. The total U.S. nitric acid demand in 2007 was 8.9 million tons , and this was projected to grow to 10.1 million tons in 2011 (ICI S, 2008 a). **2 .**  **2 .1**  **Nitric Acid Applications** Ammonium nitrate production represents the largest demand market for nitric acid, accounting for roughly

76 % of total U . S . demand in 2007 (ICI S 2008 a). About 9 % of nitric acid demand is for adipic acid, which is used for nylon 6,6 poly mers and resins, polyester polyols for poly urethane resins, and other related fibers and resins (ICI S, 2007 ). Toluene di - isocyanate (TDI) and nitrobenzene each account for 6 % of nitric acid demand, with the remaining 3 % going toward metal nitrate and other miscellaneous applications. Of ammonium nitrate produced from nitric acid , the majority (86 %) is used in the nitrogen -based fertilizer industry , either as a direct fertilizer or in the production of alloyfertilizer blend s like urea ammonium nitrate (UAN) (ICIS, 2008 a). The balance of the ammonium nitrate derived from nitric acid is used mainly for manufacturing explosives. Because the majority

of nitric acid is consumed b y ammonium nitrate producers, the demand for ammonium nitrate products, especially fertilizer, is the main driver of nitric acid demand. The dominance of ammonium nitrate demand is also reflected in the production and sales for the companies affected b y th e rule, so the market discussion in this profile is focused on the fertilizer industry

and, to a lesser extent, ammonium nitrate -based explosives.2 - 6

**2 .2.2**  **Influential Factors** Fertilizer As noted in the previous section, the nitric acid market is driven chiefl y b y the demands of the fertilizer industry . In the United States, the agricultural industry consumes 80 % of the country ’ s fertilizer demand (Richardson, 2010 a). Within the agricultural demand side, corn production is the largest nitrogenous fertilizer consumer, followed b y wheat, soy beans, and cotton (Richardson, 2010 ). Nurseries, golf courses, and landscaping projects are small - scale fertilizer consumers (Richardson, 2010 a). The U.S. farm economy and income within the sector is the main force behind fertilizer demand. Unpredictable weather conditions are probably the most important determinant in fertilizer needs. In poor weather seasons, fertilizer demand declines as farmers reduce or abandon crop fields and pastures (Richardson, 2010 a). Demand is also seasonal and increases during planting season. Global food demand also plays a role in determining the crop needs and thus contributes to fertilizer ne eds. Food security is a concern for policy makers as the global population increases, and the demand for fertilizer may increas e in the coming years (IFA, 2009 ). Explosives Because industrial explosives are mainl y used in the mining and mineral industries, the demand for coal and basic metals drive s the demand for these products (IBISWorld, 2009 ). Coal mining is the main use for industrial explosives in the United S tates , accounting for around two thirds of explosives consumption. Stone quarrying and construction are also industries that consume the blasting agents and oxidizers provided by the industry

(IBI SWorld, 2009 ). One key factor in maintaining the level of demand for explosive product s is the relative affordability of coal as a fuel source compared to its alternatives (IBISWorld, 2009 ). Chemicals and Resins Adipic acid and TDI are the other main chemical products in which nitric acid is used, both of which have a wide variety of applications and tend to follow gross domestic product ( GDP ) trends in terms of demand. Nylon 6,6 fibers and resins represent 84 % of adipic acid demand (ICIS, 2007 ). Although historicall y , nylon 6,6 has been used mainly in industrial carpeting, the demand for nylon 6,6 resins has been driven by automobile and truck parts as the industry has trended toward replacing metal parts with plastic. It is often used for exterior body pieces, internal components under the hood, and various mechanical parts (ICIS, 2007 ). The2 - 7

demand for automobiles and the growing acceptance of nyl on as a viable replacement for metal is likely to influence market conditions. TDI is used mainly

in the production of flexible urethane foams, which are used across several industries. Transportation, furniture, carpet underlay , bedding, packaging, and other miscellaneous applications of the flexible foams make up 88 % of total TDI consumption in the United States (ICI S, 2008b ). The remaining demand for TDI is used in the production of rigid urethane forms and pol yurethane products like adhesives, sealants, coatings, and elastomers (ICI S, 2008b ). Demand for these products is expected to grow in the future (ICI S, 2008b ). **2.3 Market Characteristics**  A review and description of market characteristics (i.e., geography, product differentiation, product transportation, entry barriers, and degree of concentration) can enhance our understanding of the mechanisms underl ying the market for nitric acid and its end products. These characteristics provide indicators of a firm ’ s ability to influence market prices by varying the quantity

of product it sells. For example, in markets with larg e numbers of sellers and identical products, firms are unlikel y to be able to influence market prices via their production decisions (i.e., they

are “price takers ” ). However, in markets with few firms, significant barriers to entry (e.g., licenses, legal restrictions, or high fixed costs), or products that are similar but can be differentiated, a firm may have some degree of market power (i.e., to set or significantly influence market prices). In addition, if a product is difficult to transport over long di stances (because of weight or its hazardous nature), then the market size may be more restricted than one might expect, ceteris paribus . Nitric acid producers are mainly involved in the supplying nitrogenous fertilizer, industrial explosives, and specialty chemicals and resins. Each of these markets has a set of distinct characteristics and is discussed individually below. **2 .3.1**  **Competition and**  **Entry** Fertilizer The environments in which the targeted companies participate are extremely competitive, driven m ainly

by the firms ’ ability

to control production costs rather than differentiate their products. This is especially true in the fertilizer industry where companies have individual fertilizer solution formulas, but the basic chemical properties are consistent. Firms with larger production facilities have the advantage of using economies of scale to become low - cost supplier s relative to their competitors (Richardson, 2010 a). Comprehensive vertical integration2 - 8

of the entire production process is another tool that larger firms, like Agrium, use to control costs (Richardson, 2010 a). Because fertilizer is generally treated as a commodity, prices are determined at a global level (Richardson, 2010 a). Agrium, Koch, and CF Industries are among the dominant domestic forces in the fertilizer market, but in 2006, more than 60 % of nitrogen -based fertilizer consumed in the United States was purchased internationall y (Richardson, 2010 a). Not only do U.S. companies face steep domestic competition, they also must compete with foreign companies that might face lower fuel prices and production costs. With many firms vying for a global consumer base and selling nearl y identical products, the nitrogenous fertilizer industry provides individual companies with very

little market power. In addition to the fierce market competition, other significant barriers to entry into the fertilizer industry exist . Initial capital expenses to purchase fertilizer manufacturing equipment can be very

high; building a nitrogenous fertilizer plant with a 1 million metric ton capacity can cost between $700 million and $1 billion and can take several ye ars to construct (Richardson, 2010 a). Maintaining ammonia and natural gas inputs is also costly and prevent s eas y entry

into the market. Because the industry is dominated by

a few global firms, nascent companies also must compete with established product identification and brand names (Richardson, 2010 a). Explosives As in the fertilizer industry , explosives products are essentiall y similar in their basic structure and content. Competition in this industry is based more on price than product dif ferentiation (IBI SWorld, 2009 ). However, recent years have seen an increase in the role of customer service and specializing explosives for customers as a means of competition (IBI SWorld, 2009 ). Firms are graduall y shifting away from providing basic commodity explosives and more toward becoming comprehensive demolition and blast solution providers (IBI SWorld, 2009 ). Entry into the market is difficult because the market in the United States is dominated by

two major companies with name recognition and ongoing customer relationships. The technical requirements, capital costs, and pricey raw materials essential to success in the industry also prohibit new companies from gaining market share (IBI SWorld, 2009 ). Chemicals and Resins Because of the wide range of chemical products derived from nitric acid , the network of markets in which they

are sold is extensive . Compared to fertilizer and explosives, there is also a greater degree of product differentiation between products like coatings and adhesives, so the market as a whole is likely to be less competitive than that of nitrogenous fertilizers.2 - 9

**2 .3.2**  **Concentration** Table 2 - 2 provides information about the concentration of sectors using nitric acid as an input. The most recent industry concentration data compiled by the Census Bureau (U.S. Censu s Bureau , 2006 ) are based on Economic Census data from 2002. Thus, the data reflect conditions in these sectors in 2002. As noted in the sector- specific sections below, many of these sectors have recentl y become increasingl y concentrated. Table 2 - 2 shows the total number of companies in each sector potentiall y affected b y the rule and the total value of shipments for all companies in the sector. Next, it shows the percentage of sector value of shipments for the largest 4, 8, 20, and 50 companies. Finall y, it provides the Herfindahl - Herschman Index (HHI) for the sectors. The HHI is a commonly accepted measure of market concentration. It is calculated by squaring the market share of each firm competing in the market and then summing the resulting numbers. The HHI takes into account the relative size and distribution of the firms in a market and approaches zero when a market consists of a large number of firms of relatively equal size. The HHI increases both as the number of firms in the market decreases and as the disparity in size between those firms increases. Markets in which the HHI is between 1,000 and 1,800 points are considered to be moderatel y concentrated, and those in which the HHI is in excess of 1,800 points are considered to be concentrated. Two of the sectors in Table 2 - 2, nitrogenous fertilizer manufacturing and explosives manufacturing, had HHI values b etween 900 and 1,000 (approaching moderate concentration values) in 2002. Fertilizer Although many entities operate in the fertilizer and ammonia products industries, the market is dominated b y the larger firms that can secure low - cost raw materials and gain market share b y pricing below their competitors. F our major firms have over 50 % of the entire global fertilizer market share (Richardson, 2010 a). Recently, there has been even more of a trend toward increased concentration. Agrium submitted a $5.43 billion takeover bid for CF Industries but let the offer expire in earl y 2010 after CF Industries refused to engage in discussions (Agrium, 2010 ; Katz, 2010 ). CF Industries in turn acquired competitor Terra Industries in March 2010 after a bitter yearlong battle (Katz, 2010 ). With this move, CF Industries became one of the world ’ s largest fertilizer producers and increased its customer diversity by acquiring Terra ’ s industrial customers (CF Industries, 2010 ).2-10 **Table 2 -**  **2. Concentration Ratios for Sectors Using Nitric Acid as an Input, 2002** 

**NAIC S**  **Code Industry Description**  **Total Companies**  **Total Value of**

**Shipments ($1000), 2002**  **Percentage,**

**4 Largest Companies**  **Percentage,**

**8 L argest**  **Companies Percentage,** 

**20 L argest**  **Companies Percentage,** 

**50 L argest**  **Companies HHI**  325 Chemical manufacturing 9,659 462,438,453 13.7 21.8 36.8 54.3 99.9 325211 Plastics material and resin manufacturing 445 46,846,851 32.4 45.8 67.9 87.8 442.5 325311 Nitrogenous fertilizer manufacturing 116 3,291,075 53.9 78.8 94.6 98.2 976.9 325510 Paint and coating manufacturing 1,149 19,917,828 37.3 54.5 69.9 78.6 505.0 325920 Explosives manufacturing 57 1,027,797 54.2 77.8 93.4 99.9 991.3 Source: http://www.census.gov/prod/ec02/ec0231sr1.pdf2 - 11

Explosives The explosives manufacturing industry is highl y concentrated around the two largest manufacturers in the United States : Orica and Dyno Nobel (IBISWorld, 2009 ). These two companies maintained 30 % and 40 % of the market share, respectivel y, through 2009 (IBI SWorld, 2009 ). In recent years, the industry has witnessed further concentration as companies have engaged in acquisitions to reinforce their market positions (IBI SWorld, 2009 ). Between 1998 and 2005, the number of active companies in the industry declined by

16 % (IBI SWorld, 2009 ). Chemicals and Resins Multiple markets sell nitric acid

– based products, each with its own dy namics. For example, the market for adipic acid in the United States seems to be concentrated around INVI STA (owned by

Koch) and Solutia (ICIS, 2007 ). Because of the diversity in adipic acid and TDI end products, there is less concentration of market power relative to the other two industries. **2.3.3 Price** **-**

**Responsiveness of Supply and Demand**  EPA used elasticities of demand and suppl y to characterize the responsiveness of supply and demand to changes in price, in each affected market. These elasticities are shown in Table 2 - 3. **Table 2 -** **3. Market Price**  **- Elasticities of Supply and Demand** 

**Sector NAICS**  **Supply Dem**  **and** Nitrogenous fertilizer 3253 0.7

− 1.0 Other chemicals (nitric aci d) 3259 0.6

− 1.0 Plastics 3252 0.7

− 1.0 Explosives 3259 0. 6

− 1.0 Sources: Ho, M. S, R. Morgenstern, and J. S. Shih. 2008. “Impact of Carbon Price Policies on US Industry.” RFF Discussion Paper 08 - 37 ) . Http://Www.Rff.Org/Publications/Pages/Publicationdetails.Aspx?. Publicationid=20680. Table 8.A.6. Broda, C., N. Limao, and D. Weinstein. 2008a. “Export Supply Elasticities.” http: //faculty.chicagobooth.edu/christian.broda/website/research/unrestricted/TradeElasticities/TradeElastic ities.html .2 - 12

**2.4 Market Trends**  This section provides an overview of conditions in the sectors that consume nitric acid as an input. The projected trends for these sectors will affect future demand for nitric acid. **2 .4.1**  **Derived Demand for Nitric Acid** Nitric acid is an intermediate good that is used in the production of fertilizers, explosives, plastics and resins, and paints and coatings, among other products. Because it is an intermediate good, nitric acid is valued because it is needed to produce those products; thus, the demand for nitric acid is driven b y the demand for the products it is used to produce. These, in turn, are generall y intermediate goods, whose demand depends on the demand for the final products they are used to produce. For example, demand for fertilizers depends on the demand for agricultural products, the supply

of other inputs to agriculture, and the ability to substitute fertili zer for other inputs. Similarly , nitrate - based explosives are used in mining (especially coal mining) and construction. The demand for explosives thus depends on the demand for coal and other minerals and the demand for new buildings and infrastructure. **2 .4.2**  **International Trade in the Sectors that Consume Nitric Acid** Table 2 - 4 presents historical data on exports for the four sectors that dominate demand for nitric acid. Export values were converted from current- ye ar dollars to 2009 dollars using the GDP deflator. Each of the sectors grew during the period 2005 through 2007. Beginning in 2008, several of the sectors ’ exports contracted, and all of them fell from 2008 to 2009, reflecting the contraction of the world economy. **Table 2**  **- 4**  **. E**  **xports of Sectors tha t Consume Nitric Acid (FAS Value, 10**  **3 $2009**  **)**

**Sector 2005**  **2006 2007**  **2008 2009**  **Percentage Change,**  **2008**
**– 2009**  325211 Plastics and Resins 20,719,115 23,153,733 26,189,230 27,796,054 21,891,848 −21.2 325311 Fertilizer Mfg 1,900,234 2,080,653 2,126,120 2,087,632 1,820,042 −12.8 325510 Paint and Coating 460,977 520,502 543,554 535,996 487,616 −9.0 325920 Explosives Mfg 3,214,101 3,140,175 3,482,423 693,429 444,080 −36.0 Total 26,294,427 28,895,064 32,341,327 31,113,109 24,643,585 −20.8 Source: http://dataweb.usitc.gov/ . Ta ble 2 - 5 pres ents historical data on these sectors ’ imports for consumption into the United States. In each sector, imports generally display an upward trend through 2007; imports2 - 13

of fertilizers, the major user of nitric acid, increased through 2008. In 2008, and even more in 2009, the imports of these commodities declined, reflecting the contraction of the U.S. economy. **Table 2**  **- 5**  **. Imports for Consumption of Sectors that Consume Nit**  **ric Acid (Customs**

**Value, 10 3**  **$2009 )** 

**Sector 2005**  **2006 2007**  **2008 2009**  **Percentage Change,**  **2008**
**– 2009**  325211 Plastics and Resins 10,964,777 11,452,755 10,735,086 11,040,286 7,281,554 −34.0 325311 Fertilizer Mfg 4,829,611 4,348,070 5,739,289 8,120,624 3,264,581 −59.8 325510 Paint and Coating 796,634 898,904 923,868 850,706 589,295 −30.7 325920 Explosives Mfg 303,669 366,150 378,236 355,657 306,703 −13.8 Total 16,894,691 17,065,878 17,776,479 20,367,273 11,442,132 −43.8 Source: http://dataweb.usitc.gov/ . **2 .4.3**  **Industry Trends and Projections for Sectors Using Nitric Acid as an Input** Appendix A presents industry data and projections for four of the sectors that demand nitric acid as an input: 32521, Plastics and Resins Manufacturing; 32531, Fertilizer Manufacturing; 32551, Paint Manufacturing ; and 32592, Explosives Manufacturing, compi led b y industry analysts IBISWorld (IBI SWorld, 2009, 2010a and 2010b, and Richardson, 2010b ). NAICS 32521, Plastics and Resins Manufacturing, is closely tied to the automobile manufacturing and housing industries. During the period 2005 to 2010, these industries experienced volatility

that was reflected in their demand for plastics (and thus, nitri c acid). Nevertheless, IBI SWorld (2010b ) projects growth in revenue of approximately 3% per year for the period 2010 to 2015. NAICS 32531, Fertilizer Manufacturing, depends largel y on crop production decisions and fertilizer prices . In the short run, IBISWorld (2010a) notes that demand levels are influenced by grain prices, weather patterns, world economic conditions, and international trade variables. In the longer term, population growth, living standards, and food consumption patterns also influence demand. IBISWorld notes that inputs, specificall y nitrogen and potash, are sourced internationally

(60% of nitrogen and 88% of potash for fertilizer production are supplied by imports), so the strength of the U .S. dollar affects costs. In addition, approximately 30% of domestic demand for fertilizer is met by imports. Although domestic and international economic2 - 14

conditions resulted in a reduction in output and revenue in 2009, both are expected to increase from 2010 through 2015. Demand for the coatings and paints covered under NAICS 32551, Paint Manufacturing, is contingent on the demand for downstream products in the housing and automobile industries. Domestic demand dropped in 2008 and 2009 because of the downturn in the housing market and declines in automobile sales but is expected to increase in 2010 and continue to grow through 2015 (Richardson, 2010b ). NAICS 32592, Explosives Manufacturing, is projected to experience moderate growth. Demand for blasting agents (99% of explosives) is driven by demand levels for energy and minerals. Coal mining accounted for 66% of product consumption in 2007. Overall, IBISWorld (2009 ) projects continued moderate growth (about 3% per year) over the 2010 to 2015 period. **2.4.4 Projected Production of Nitric Acid**  To estimate the number of new sources that mi ght be affected b y the rule, EPA projected production of nitric acid through 2016. Nitric acid production was estimated for 2006 (TSD for Greenhouse Gas Reporting Rule), using the production growth of 6.5% from 2006 to 2007 (ICI S). For the period 2007 through 2016, EPA used a predicted production growth rate of 3% for 2007 through 2016 (ICI S). These estimates are shown in Tabl e 2 - 6 . In the period from 201 0 to 2016, the growth was approximately 1.6 million tons of nitric acid.2 - 15

**Table 2 -**  **6 .**  **Projected Nitric Acid Production**

**Year Nitric Acid Produced**  **Increase (tons)**

**M etric tons**  **T ons**  2006 6,446,767 7,107,560 461,991 2007 6,865,806 7,569,552 227,087 2008 7,071,781 7,796,638 233,899 2009 7,283,934 8,030,537 240,916 2010 7,502,452 8,271,453 248,144 2011 7,727,526 8,519,597 255,588 2012 7,959,351 8,775,185 263,256 2013 8,198,132 9,038,441 271,153 2014 8,444,076 9,309,594 279,288 2015 8,697,398 9,588,882 287,666 2016 8,958,320 9,876,548

— 201 0

–2016 1,605,095 **2.5 Overview of Businesses**  **Potentially Affected by the Rule**  The regulation may affect up to 40 nitric acid facilities owned by 18 different parent companies. Table 2 - 7 lists the parent companies with facilities potentially covered under the rule and summarizes the nitric acid products that may be affected b y the rule . In addition to producing nitric acid, the affected facilities and firms produce a v ariety of products using nitric acid. To give the reader a better understanding of the specific characteristics that define each of the potentially affected entities, the following section gives a brief overview of each parent company. **2. 5**  **.1 Parent Compan**  **ies** Agrium (3 facilities) Agrium produces and markets a range of potash - , phosphate - , and nitrogen -based fertilizer products. In addition to the seven major nitrogen facilities worldwide, Agrium also operates five facilities in North America that upgrade ammonia to fertilizer products , including2 - 16

urea, nitric acid, and ammonium nitrate. Agrium ’ s output serves a customer base that is roughl y 75 % agricultural and 25 % industrial. Air Products and Chemicals (1 facility) Air Products and Chemicals produce s an extensive range of chemical products , including gases, equipment, and performance materials for a variety of industries. At its Pasadena, Texas , facility, Air Products and Chemicals uses nitric acid to produce dinitrotoluene (DNT), which is converted to toluene diamine and sold to industrial customers as an intermediate for poly urethane products. Apache Nitrogen (1 facility) Apache Nitrogen is a small firm producing nitric acid and ammonium nitrate

– based products for agricultural, mining, and industrial customers . CF Industries (4 facilities) After the acquisition of Terra Industries in 2010, CF Industries became one of the largest fertilizer companies in the world. CF produces nitrogen fertilizers, phosphate products, and custom fertilizer solutions. The company manufactures 900,000 tons of nitric acid annually, mainly for internal ammonium nitrate production.2-17 **Table 2**  **- 7**  **. Parent Companies with Facilities**  **Po tentially**  **Covered Under the Rule**

**Parent Com pany**  **Numb er of**  **Affected Facilities**  **Sm all** 

**Business Sells Nitric** 

**Acid as an End Product**  **Nitrogenous**

**Fertilizer (Uses Nitric**  **Acid as Intermediate)**  **Ammonia**

**(Industrial Grade, for**  **Market, for Internal Use** **) Explosives** 

**(Uses Nitric Acid as**  **Intermediate) Polyurethane** 

**Intermediates, Polym** **ers, Nylon Fibers,**  **Coatings, Resins, and**  **Other** Agrium 3 No x Air Products and Chemicals, Inc. 1 No x Apache Nitrogen 1 Yes x x x x CF Industries 4 No x x x Incitec Pivot Ltd . 1 No x x x x CVR Energy 1 No x x DuPont 1 No x LSB Industries 2 No x J.R. Simplot 1 No x x Koch Industries 3 No x x x Potash Corp . 2 No x Rentech, Inc . 1 Yes x x x Solutia Inc . 1 No x TradeMark Nitrogen 1 Yes x Total 232 - 18

CVR Energy (1 facility : Coffeyville Resources) CVR Energy produces nitrogen -based fertilizers at its Coffey ville Resources facility . Instead of natural gas, the facility uses petroleum coke from its adjacent petroleum refining plant to produce ammonia products. DuPont ( 1 facility ) DuPont is another well - known ch emical conglomerate with operations worldwide. At its U.S. facilities affected b y the rule, DuPont manufactures a variety of pol ym er, aniline, and specialty chemical products. It also produces agricultural seed at its Victoria location. Incitec Pivot

, Ltd. ( 1 facility ) In citec Pivot Ltd. acquired Dy no Nobel in June 2008. Dy no Nobel offers a range of explosives products and blasting solutions and is the largest explosives company in the United States . Incitec Pivot is an Australian -based fertilizer company. J.R. Simplot (1 facility

) J.R. Simplot is one of the largest privatel y held companies in the United States. In addition to sell varying grades of nitric acid, the company also manufactures fertilizers, turf, and a variety of other products. Koch Industries (

3 facilities) As one of the largest private companies in the world, Koch Industries offers a range of services , including commodity trading, ranching, refining, poly mers, and fertilizers. In2004, Koch acquired INVISTA, which is a leading producer in nyl on fibers and adipic acid. Through Koch Fertilizers, LLC, the company operates a number of nitrogenous fertilizer facilities throughout the central United States. LSB Industries (

2 facilities: El Dorado Nitrogen/El Dorado Chemical) LSB Industries is an Oklahoma City

– based company

providing customers with agricultural products, industrial chemicals, and explosives. Through its El Dorado Nitrogen subsidiary , LSB is the largest domestic merchant supplier of nitric acid. PotashCorp (

2 facilities) PotashCorp is a major player in all areas of agricultural fertilizer production. At its nitrogenous fertilizer plants, the company produces ammonia, nitric acid, urea , and other agricultural solutions.2 - 19

Rentech, Inc. (1 facility : Rentech Energy Midwest Corporation) Rentech produces nitrogen products , including anhydrous ammonia, ammonium nitrate, urea solutions, and nitric acid. It currentl y uses natural gas as a feedstock but is considering the transition to coal gasification. Rentech sells the majority of its produ cts to customers within 150 miles of the facility . Solutia (1 facility) Solutia ’ s primary

business is specialty

chemicals and it conducts business across the globe. Solutia produces window coatings and films at its Martinsville plant. Trademark Nitrogen (1 facility) Trademark Nitrogen is a small Florida company that manufactures nitrogen -based fertilizer products. **2 .**  **5 .2**  **Parent Company Sales and Employment** To supplement the qualitative company profiles in the previous section, Table 2 - 8 displays annual revenue and employ ment data for each of the parent companies. This data is the most recent we are able to obtain for each parent company . The data reflect annual revenue and employ ment for either 2009 or 2010. Firms producing plastics and resins (NAICS 325211) are classified as small b y the Small Business Administration (SBA, 2008 ) if they have fewer than 750 employees. Firms producing nitrogenous fertilizers (NAICS 325311) are considered small if they have fewer than 1,000 employees. Firms pro ducing paints and coatings (NAICS 325510) are considered small if they have fewer than 500 employees. Based on these criteria and the data presented in Table 2 - 8 , three firms producing nitric acid are classified as small businesses.2-20 **Table 2**  **- 8**  **. Annual Revenue and Employment Data for Each of the Parent Companies**  **Facility Nam e**  **State Parent Com** **pany Headquarters**  **Parent Com pany**  **Sales (millions $) Employees**  Agrium US WA Agrium Canada 9,129.00 10,000 Agrium US OH Agrium Canada 9,129.00 10,000 Agrium US CA Agrium Canada 9,129.00 10,000 Air Products TX Air Products and Chemicals, Inc. United States 8,256.20 18,900 Apache Nitrogen Products AZ Apache Nitrogen United States 31.70 82 CF Industries LA CF Industries United States 2,608.40 1,500 CF Industries OK CF Industries United States 2,608.40 1,500 CF Industries MS CF Industries United States 2,608.40 1,500 CF Industries IA CF Industries United States 2,608.40 1,500 Coffeyville Resources KS CVR Energy United States 3,136.30 667 Dyno Nobel WY Incitec Pivot Ltd Australia 3,418.90 4,500 El Dorado Nitrogen TX LSB Industries United States 531.84 1,179 El Dorado Nitrogen AR LSB Industries United States 531.84 1,179 First Chemical MS DuPont United States 26,109.00 60,000 Geneva Nitrogen UT Geneva Nitrogen United States 5,400,000 32 INVISTA TX Koch Industries United States 100,000.00 80,000 INVISTA TX Koch Industries United States 100,000.00 80,000 JR Simplot CA J.R. Simplot United States 4,500.00 10,000 Koch Nitrogen IA Koch Industries United States 100,000.00 80,000 PCS Nitrogen GA Potash Corp Canada 3,976.70 5,136 PCS Nitrogen LA Potash Corp Canada 3,976.70 5,136 Rentech Energy Midwest Corporation IL Rentech, Inc United States 183.00 250 Solutia FL Solutia Inc United States 1,667.00 3,400 TradeMark Nitrogen FL TradeMark Nitrogen United States NA NA NA = no information available .2 - 21

**2.6 References**  **for Section 2** Agrium, Inc. 2010. 2009 Annual Report. http://www.agrium.com/investors/2009_annual_report.jsp . CF Industries. 2010. Profile: History . CF Industries . http://www.cfindustries.com/profile_history .html . CVR . 2009. CVR Energy Nitrogen Fertilizer Operations. CVR Energy Website. 2009. http://www.cvrenergy .com/NitrogenFertilizerOpe rations/index.html . Dai, R. June 2010. IBI SWorld Industry Report 32521. Plastic, Resin, & Rubber Manufacturing in the US. http://www.ibisworld.com . Dow Chemical Company . 2008 . Product Safety Assessment: Nitric Acid. A ccessed April 21, 2010. http://www.dow.com/PublishedLiterature/dh_0131/0901b80380131028.pdf?filepath=pro ductsafety/

pdfs/noreg/233 - 00312.pdf&fromPage=GetDoc . European Fertil izer Manufacturers’ Association ( EFMA). 2000. “ European Fertilizer Manufacturers ’ Association. ” Best Available Techniques for Pollution Prevention and Control in the European Fertilizer Industry: Production of Nitric Acid, Booklet No. 2 of 8 . Accessed April 26, 2010. http://www.efma.org/PRODUCT%20STEWARDSHIP%20PROGRAM%2008/images/E FMABATNIT.pdf

. Huang, W - Y. 2007a. Impact of Rising Natural Gas Prices on U.S. Ammonia Supply/W RS - 0702 . U.S. Department of Agriculture, Economic Research Service. http://www.ers.usda.gov/publications/WR S0702/wrs0702.pdf . Huang, W - Y. 2007b. “ In fluence of Natural Gas Price on the Ammonia price, 2000 to 2006. ” Paper presented at annual meetings of the Southern Agricultural Economics Association, Mobil e , AL . February

3 - 6. http://ageconsearch.umn.edu/bitstream/34929/1/sp07hu05.pdf . IB ISWorld. 2009. “Explosives Manufacturing in the U.S.: 32592.” http://www.ibisworld.com.www.lib.ncsu.edu:2048/industry us/default.aspx?indid=502 . IB ISWorld. 20 10a . “Fertilizer Manufacturing in the U.S.: 32531.” http://www.ibi sworld.com.www.lib.ncsu.edu:2048/industry us/default.aspx?indid=502 . IB ISWorld. 2010b . “Plastic, Resin, and Rubber Manufacturing in the U.S.: 32521.” http://www.ibisworld.com.www.lib.ncsu.edu:2048/industry us/default.aspx?indid=502 . IC IS . 2007. “ Adipic Acid. ” IC IS Chemical Business Online. http://www.icis.com/Articles/2007/07/06/4503569/Adipic - acid.html . IC IS . 2008a. “ Chemical Profile: Nitric Acid. ” IC IE Chemical Business Online. http://www.icis.c om/Articles/2008/05/19/9124327/chemical -profile - nitric - acid.html .2 - 22

IC IS . 2008b. “ Chemical Profile: Toluene Di - isocyanate. ” IC IS Chemical Business Online. http://www.icis.com/Articles/2008/04/07/9113516/Chemical -profile - Toluene - di isocyanate.html . International Fertilizer Assoc i ation ( IFA ). December 2009. Short
- Term Fertilizer Outlook 2009
- 2010 . Prepared b y Patrick Heffer and Michel Prud ’ homme. http://www.fertilizer.org/ifa/Home - Page/FERTILIZERS - THE - INDUSTRY/Market outlooks.html . Katz . J. April 15, 2010. “IW 50 Best: CF Industries and Terra Together At Last.” Indu stry week.com . http://www.industry

week.com/articles/iw_50_best_cf_industries_and_terra_together_at_l ast_21609. aspx . Natural Gas Suppl y Association (NGSA). 2004. “Marketing.” NaturalGas.org. Accessed June 29, 2010. http://www.naturalgas.org/naturalgas/marketing.asp . PotashCorp . 2010. 2009 Financial Review Annual Report. http://www.potashcorp.com/media/POT_2009_AR_Financial_Review.pdf . REMC . 2010. Rentech Energy Midwest Corporation . http://www.rentechinc.com/remc.php . Richardson, A. September 2009. IBI SWorld Industry Report 32592. Explosives Manufacturing in the US. http://www.ibisworld.com . Richardson, A. 2010 a . IBISWorld Industry Report 32531: Fertilizer Manufacturing in the U.S . http://www.ibisworld.com.www.lib.ncsu.edu:2048/industry us/default.aspx?indid=480 . Richardson, A. 201 0b. IBISWorld Industry Report 32551: Paint Manufacturing in the U.S. http://www.ibisworld.com.www.lib.ncsu.edu:2048/industry us/default.aspx?indid=492 . U.S. Census Bureau. May 2006. Concentration Ratios: 2002. http://www.census.gov/prod/ec02/ec0231sr1.pdf . U.S . Census Bureau . 2010. American Fact Finder. Sector 31: Annual Survey of Manufactures: General Statistics: Statistics for Industry Groups and Industries: 2008 and 2007 . A ccessed April 20, 2010. U.S. International Trade Commission. 2010. http://dataweb.usitc.gov/ . U.S. Small Business Administration. November 5, 2010 . Table of Small Business Size Standards Matched to North American Industry Classification Co des. http://www.sba.gov/idc/groups/public/documents/sba_homepage/serv_sstd_tablepdf.pdf .3 - 1 **SECTION 3 ENGINEERING COST**  **AND EMISSIONS ANALYSIS**  This section presents EPA ’ s estimated cost impacts for new , modified, and reconstructed sources to compl y with a final standard of 0. 5 lb NO X/ton nitric acid. To gather data for the cost estimation, EPA issued an Information Collecti on Request (ICR) under Section 114 authority to obtain NO X emissions data using EPA Methods 7, 7A, 7B, 7C, 7D, 7E (modified version), or 320. The ICR also collected cost data for NO X abatement technologies, including nonselective catal ytic reduction (NSCR) , selective cataly tic reduction (SCR), and hydrogen peroxide (H 2 O 2 ) injection . Cost data w ere received from 9 facilities with a total of 12 nitric acid production trains. This information was summarized in Summary of Cost Data Received from Section 114 IC R (NO X Summary) dated November 22, 2010 . The capital recovery factor was based on 7% interest and a 15 - ye ar useful life. In addition, EPA has also revised the cost anal ys is done for proposal in response to public comments. There are now testing costs included that were not included in the proposal, and there is now one modified plant impacted along with five new plants, instead of six new plants as projected in the proposal. The modified facility will incur control equipment costs. The NO X Summary

memo contained production data ranging from 40 tons per day (tpd) to 1,600 tpd of nitric acid. The data support the use of two model plants to represent the nitric acid production industry . The first model plant is 300 tpd , and the second model pl ant is 1,000 tpd. Inthe NO X Summary memo, the cost data were normalized based on the production rate at the facility

(cost per ton of nitric acid produced). Table 3 - 1 shows the results of the cost data anal ys is for NO X control. **Table 3**  **- 1.**  **N ormalized**  **NO X**  **C ontrol**  **Costs by Model Plant**

**Control 300 tpd ($/ton)**  **1,000 tpd ($/ton)** NSCR $ 20.02 $ 7.80 SCR $ 3.93 $ 1.10 H 2 O 2 $ 2.06 $ 1.36 Table 3 - 2 shows the control device cost for an SCR installed at Agrium North Bend as part of a modification to the nitric acid plant. The plant produces 288 tons acid per day . SCR costs associated with a modification of a 1,000 tpd plant were not supplied.3 - 2

**Table 3**  **- 2**  **. Normalized SCR Costs**  **by Model Plant for Modified or Reconstructed**  **Sources Control**  **288 tpd** 

**($/ton) 1,000 tpd ($/ton)**  SCR $ 3.52 ----- Nitric acid production was estimated beginning with 2006 production data (TSD for Greenhouse Gas Reporting Rule), using the production growth of 6.5% from 2006 to 2007 (ICI S), the predicted production growth rate of 3% for 2007 through 201 7 (ICI S), and the exclusion of plants that were not operating in 2010. These estimates are shown in Table 3 - 3. In the period from 201 2 through 201 7 , the growth is expected to be approximately 1.4 8 million tons of nitric acid. Assuming 365 days per year, this equals approximately 4 , 0 00 tpd of nitric acid production. Using the model plants, the estimate equals 3 production trains that produce 300 tpd, and 3 production trains that produce 1,000 tpd over the five ye ar period after promulgation. For purposes of the cost assessment, the growth will consist of five newly constructed production trains and one modification of an existing production train. These six production trains will become subject to the Subpart Ga limit of 0.50 lb NO X/ton acid between 201 2 and 201 7 . **Table 3**  **- 3**  **. Nitric Acid Production Growth** 
**Year Nitric acid** 

**produced (metric tons)**  **Nitric acid produced**

**(tons) Increase (tons)**  2010 6,729,836 7,419,644 ----------- 2011 6,931,731 7,642,233 222,589 2012 7,139,683 7,871,500 229,267 2013 7,353,873 8,107,645 236,145 2014 7,574,489 8,350,874 243,229 2015 7,801,724 8,601,401 250,526 2016 8,035,776 8,859,443 258,042 2017 8,276,849 9,125,226 265,783 For the five new production trains predicted from 201 2 to 201 7 , the annualized costs of controlling NO X emissions for the 3 types of control equipment outlined in the NO X Summary were calculated using the costs in Table 3 - 1. The control costs are shown in Table 3 - 4. These are the costs for each of the control devices in the 5 th year after promulgation of these standards.3 - 3

**Table 3**  **- 4**  **. Annualized**  **Control Costs for New Produc** **tion Trains in 201 7**  **Model Plant (tpd) Number of** 

**Plants Nitric Acid (** **tons )**  **NSCR SCR**  **H 2**  **O 2**  300 2 2 2 0,000 $4, 400 ,000 $8 60,00 0 $4 50 , 0 00 1,000 3 1, 1 0,000 $8, 500 ,000 $1, 200 ,000 $1, 500 ,000 For the 1 production train that will undergo modification or reconstruction from 2011 to 2016, the annualized costs of controlling NO X emissions for SCR were calculated using the costs in Table 3 - 2. The control costs are shown in Table 3 - 5. These are the costs for each of the control devices in the 5 th year after promulgation of these standards. **Table 3**  **- 5**  **. Annualized**  **Control Costs for Reconstructed or Modified**  **Trains in 2016 Model Plant (tpd)**  **Number of Plants Nitric Acid (** **tons )**  **SCR**

3 00 1 10 5 , 0 00 $ 370, 000 The production trains could use any of the three control ty

pes to control NO X emissions, , but we assumed that SCR would be universally applied as this is BSER . While hydrogen peroxide injection has the lowest potential costs, this control may not be feasible for all new production trains. Also, some H 2 O 2 and NSCR installations may not be able to achieve emissions less than or equal to 0.50 lb NO X/ton acid . Using the control efficiency for SCR, the potential NO X emission reductions were calculated in Table 3 - 6 . The baseline emissions were calculated as 3.0 lb NO X/ton acid (the level of the existing NSPS). The controlled emissions were calculated as 0.50 lb NO X/ton acid. **Table 3**  **- 6**  **. NO X**  **Em ission Reductions**  **for All New, Modified, or Reconstructed Production Trains**  **with SCR Control in**  **201 7** 

**Plant Type**  **Model**

**Plant (tpd)**  **Days**

**per year**  **Number of Plants**  **Nitric**

**Acid (t**  **ons )**  **Baseline**

**NO X**  **@3.0 lb/ton**  **(tons NO**  **X )**  **Controlled**

**NO X**  **@0.50 lb/ton**  **(tons NO X** **) NO**  **X**

**Emission reductions**  **(t ons**  **)** New 300 3 6 5 2 2 20 ,000 355 55 300 New 1,000 3 6 5 3 1, 100 ,000 1, 779 274 1, 506 Modified 288 365 1 10 5 , 0 00 31 5 1 7 299

TOTAL S 1,423,500 2, 449 3 45 2,104 The last step in calculating impacts for sources to meet the revised standard of 0.50 lb NO X/ton acid is to calculate the costs and reductions per year over the 5 year period after3 - 4

promulgation. In addition to control equipment, each modified or reconstructed production train will be required to install the following: a stack gas flow monitor and a dual range NO X concentration monitor. The capital costs are $3 9 ,000 and $23,000, respectively . The annualized costs are $15,000 and $9,000, respectivel y. These costs include installation. In addition to control equipment, each new or modified production train will be required to perform an annual stack test according to Appendix F . These testing costs were inadvertentl y excluded from the proposed rule. These tests are estimated at $12,000 per test. These costs are based o n comments received from The Fertilizer Institute (TFI). The requirement of a NO X CEMS was included in the existing NSPS so its cost is not included in this anal ys is. SCR is already

being used to control NO X emissions to the current NSPS level of 3.0 lb NO X/ton acid. As shown in Statistical Evaluation of CEMS Data to Determine the NO X Emission Standard (Updated Memo for Final Standard) , dated May 14 , 201 2, there are at least 3 production trains using SCR that already meet the revised NSPS level of 0.50 lb N O X/ton acid. The control device costs are based on current usage where sources are onl y required to meet 3.0 lb NO X/ton. Sources are not likely to spend additional money to meet a limit of 0.50 lb NO X/ton acid when they

were only

required to meet a limit o f 3.0 lb NO X/ton . Therefore, we believe that the lower limit is achievable without additional cost impacts. Accordingl y, there is no incremental control cost to control NO X emissions from the current NSPS limit of 3.0 lb NO X/ton acid to the proposed revised NSPS limit of 0.50 lb NO X/ton acid. The costs of monitors and operation and maintenance costs in the 5 th ye ar after promulgation are shown in Table 3 - 7 and Table 3 - 8 . **Table 3**  **- 7**  **. Incremental**  **Costs in 5 th**  **Year after Promulgation for All New Production**  **Trains**

**Model Plant**  **(tpd) Number** 

**of Plants**  **SCR Cost** 

**( $2010**  **- 2**  **nd quarter)**  **Stack flow**

**monitor cost ($2010**  **- 2**  **nd quarter)**  **Dual range**

**NO X**  **monitor cost**  **Annual**

**stack testing**  **cost Total** 

**Annualized Costs**  **($2010 -**  **2 nd**  **quarter)** 300 2 $0 $30,000 $1 8 , 0 00 $24,000 $72,000 1,000 3 $0 $45,000 $2 7 , 0 00 $36,000 $108,0003 - 5

**Table 3**  **- 8**  **. Incremental Costs in 5 th**  **Year after Promulgation for All Modified or**  **Reconstructed Production Trains** 

**Model Plant**  **(tpd) Number** 

**of Plants**  **SCR**

**Cost (**  **$2010 -**  **2 nd**  **quarter) Stack flow** 

**monitor cost ($2010**  **- 2**  **nd quarter)**  **Dual range**

**NO X**  **monitor cost**  **Annual**

**stack testing**  **cost Total** 

**Annualized Costs**  **($2010 -**  **2 nd**  **quarter)** 288 1 $ 370,00 0 $ 15 ,0 00 $ 8,9 00 $12,000 $406,000 Using the total monitoring costs, the cost effectiveness was also calculated. These numbers are shown in Table 3 - 9 . **Table 3**  **- 9**  **. Total**  **Incremental Cost Effectiveness in 5 th**  **Year after Promulgation for All New, Reconstructed, and Modified**  **Production Trains Model Plant**  **(tpd) Type**  **Number**

**of Plants Total Annualized** 

**Costs ($2010**  **- 2**  **nd quarter)**  **NO X**  **Em ission** 

**reductions (tpy) Cost** 

**effectiveness ($/ton NO**  **X )**  300 New 2 $72,000 300 $ 2 4 0 1,000 New 3 $108,000 1, 500 $ 7 0 300 Mod 1 $406,000 300 $ 1,36 0 All ---- 6 $58 5 ,000 2,100 $ 28 0 For the new 300 tpd model plant s , total annualized costs in the 5 th ye ar after promulgation are $ 72,000 . The amount of NO X reductions expected in the 5 th ye ar after promulgation is approximately 300 tpy . This results in a cost effectiveness of approximately $ 240 . For the new 1,0 00 tpd model plant s , total annualized costs in the 5 th ye ar after promulgation are $ 108,000 . The amount of NO X reductions expected in the 5 th ye ar after promulgation is approximately 1, 500 tpy . This results in a cost effectiveness of approximately $ 70 . For the modi fied 288 tpd model plant, total annualized costs in the 5 th year after promulgation are $ 406,000 . The amount of NO X reductions expected in the 5 th ye ar after promulgation is approximately 140 tpy . This results in a cost effectiveness of approximately $ 1,36 0.3 - 6

Overall, total annualized costs in the 5 th ye ar after promulgation are $58 5 ,000. The amount of NO X reductions expected in the 5 th year after promulgation is approximately 2,100 tpy . This results in a cost effectiveness of approximately $ 280 . **References** CEMS Cost Model. Updated March 2007. Accessed November 17, 2010. Memorandum from W. C. Herz, Vice President of Scientific Affairs, The Fertilizer Institute. TFI Comments on New Source Performance Standards Review for Nitric Acid Plants, Docket No. EPA -HQ- OAR - 2010- 0750. Document number EPA - HQ - OAR- 2010 - 0750 - 0098. November 28, 2011. Memorandum from M. Icenhour, RTI International, to B. Neuffer, EPA. Summary of Cost Data Received from Section 114 ICR . November 22 , 2010. Memorandum from M. Icenhour, RTI International, to B. Neuffer, EPA. Summary of Test Data Received from Section 114 ICR . August 2 5 , 2010. U. S. EPA. Technical Support Document for the Nitric Acid Production Sector: Proposed Rule for Mandatory

Reporting of Greenhouse Gases, January 22, 2009. http://www.epa.gov/climatechange/emissions/archived/downloads/tsd/TSD%20Nitric%20Acid% 20_EPA%201 - 22 - 09.pdf .4 - 1 **SECTION 4 ECONOMIC IMPACTS**  **ON NEW SOURCES**  **IN THE NITRIC ACID I NDUSTRY**  The rule will increase the cost of investing in new nitric acid production capacity , which in turn will increase the cost of producing nitric acid. As noted above, onl y a smal l share of nitric acid is sold (approximately 10 % ); the rest is consumed on site to produce other chemical products, including fertilizer, plastics and resins, and explosives. Thus, the nitric acid NSPS may result in market impacts in the market for nitric acid or in the markets for the other products that nitric acid is used to produce. **4.1 Modeling Approach to Estimating the Impacts on the Market for Nitric Acid**  EPA ’ s anal ys is of impacts on the market for nitric acid employs a model that recognizes that the decision facing a firm considering investing in new nitric acid production capacity is an investment decision. Investment decisions differ from operating decisions in that they involve whether the firm should put in place new plant and equipment. The investment decision is thus a long - run decision, since the time frame is sufficiently long that all inputs, including capital, can be varied. A firm will invest in new capital onl y if the current and future expected market price is sufficient to cover both the cost of operating the new capital and the annualized cost of purchasing and installing it. To anal yz e the possible impacts of the NSPS on the market for nitric acid, EPA assumes that existing nitric acid production lines are operating more or less at ca pacity, and the market for nitric acid begins the period of anal ys is (2012 through 2017 ) in long - run equilibrium. Figure 4 - 1 shows th e market for nitric acid in 2012 ; demand is shown by D 1 , and is downward sloping. Equilibrium quantity

is shown by

Q 1 and e quilibrium market price is shown by P 1 . However, as demand for nitric acid grows over time, the market price increases. Existing producers would like to produce more nitric acid to meet this demand but are unable to do so, given their plant capacity. Thus, new product lines must be installed to meet the increased demand. Producers will be willing to invest in new nitric acid production capacity as long as the price of nitric acid is sufficient to cover the per- ton cost of operating the product lines plus the per- ton annualized cost of purchasing and installing the equipment. Figure 4 - 2 shows a long - run supply curve for nitric acid. Existing suppliers produce Q e ; new suppliers face a per - ton cost (average total cost) that includes both the average variable cost of producing the nitric acid (a) and the average fixed cost of purchasing and installing the new capital equipment (f), for an average total cost of t , and produce Qn .4 - 2

**Figure 4 -**  **1. 2012**  **Market for Nitric Acid**

**Figure 4 -**  **2. Market Supply of Nitric Acid, including New Source**  Figure 4 - 3 show s the baseline market conditions in 201 7 . In 201 7 , demand for nitric acid has increased to D2. In the new market equilibrium, Q1 would be produced by existing suppliers, and Q2

− Q1 would be produced by newl y installed nitric acid product lines. $ /ton

Tons nitric acid D 1

Q 1 P 1 S 14 - 3

**Figure 4 -** **3 .**  **Increased Demand for Nitric Acid at Baseline (2017)**  The revised nitric acid NSPS standard will increase the cost of producing nitric acid, resulting in an upward shift in the supply curve for new facilities in the amount of the per- ton costs of compliance . S 3 in Figure 4 - 4 shows the with - regulation supply . Note that in this figure, D1 has been omitted for simplicity . As a result of the new higher costs, the equilibrium quantity of nitric acid is projected to decline slightl y from Q2 to Q3 .4 - 4

**Figure 4 -**  **4. Market**  **for Nitric Acid, With NSPS**  **4.2 Possible Impacts on Market for Nitric Acid**  To implement the modeling approach described above, EPA gathered information on the estimated market quantity and market price for nitric acid. Over the period 201 2 through 201 7 , EPA projects that nitric acid production will increase by 1. 48 million tons . Historically, approximately

10% of nitric acid production has been marketed, with the remaining 90% used in house to produce other commodities. For simplicity , EPA modeled the impacts in the market for nitric acid under the assumption that one of the 300 tpd (105,000 t py) product lines is a new commercial facility . This is a simplification, because not all marketed nitric acid is produced in exclusively

commercial facilities. We thus assign ed the per- facility cost ($ 72 ,000 ) to this new facility and compute d the per- ton increase in their cost of approximately $0. 72 per ton. The social cost of the rule was computed as the costs borne b y producers of nitric acid and the costs bor ne b y consumers of nitric acid. These are shown by areas labeled A, B, and C in Figure 4 - 4. The costs borne b y producers include the compliance costs paid on the (remaining) quantity produced b y new sources (Area A), and the production cost savings due to the reduction in output ( - area B

—a cost savings). The costs facing consumers include the loss in consumption (areas B plus C) due to the reduction in equilibrium market quantity . Summing these areas , the social cost of the rule = A

– B + B + C, or A + C.4 - 5

Table 4 - 1 shows the market impacts and estimated social costs for this scenario. The baseline quantity

of nitric acid sold is approximately 932,000 tons, including 105,000 tons produced b y a new product line. With the rule, the market price increases b y approximately $0. 72 per ton or about 0. 36 % , and the market quantity declines. After the market has adjusted to these increased costs, the equilibrium output falls by approximately 1 , 1 00 tons or 1.1 % ; thus, the new facility

produces not 105,000 tons but 10 3 , 9 00 tons. **Table 4 -**  **1. Market Impacts of the Rule: Market for Nitric Acid**  **Baseline With**  ****

**Regulation Percent**  **age**

**Change** Quantity (tons) 932,145 931, 068

− 0. 13 % Existing producers 827,145 827,145 0.00% New /modified producers 105,000 10 3 , 922

− 0.58% **Price ($/ton)** $220.00 $220. 72 0. 36 % Social cost Change in producers ’ surplus $ 584,794 Change in consumers ’ surplus

− $ 654,573 Total social cost

− $ 69,779 The engineering cost of the rule (assuming one new commercial production train is affected) is $ 72 ,000 ; taking into account market adjustments, the social cost of the rule is estimated to be $ 69 , 8 00 , about 0.3% less than the engineering cost . **4.3 Estimated Impacts on Markets for Products**  **Using Nitric Acid as an Input**  Next, EPA estimated the economic impacts on three markets that use nitric acid as a production input: nitrogenous fertilizer, explosives, and plastics and resins. If producers in these sectors invest in new nitric acid product lines or purchase nitric aci d from commercial suppliers that invest in new nitric acid product lines , the cost s of complying with the NSPS would increase the cost of producing the final products that use nitric acid as an input. In each of these markets, EPA estimated the economic impacts using industry- level data for value of shipm ents at baseline. EPA used this dollar value to represent baseline market quantity and assigned a normalized price of $1. The impacts are thus measured against the baseline of domestic value of shipments in each market with no change in international trade in the final goods. This is a4 - 6

simplification, but because the costs and thus the estimated impacts are very small, it is not unrealistic. To assess the maximum potential impact in each market, EPA assigned all the compliance costs from Section 3 of this RIA to each of the markets (reflecting the possibility that all the new sources may

be supplying nitric acid to that industry). Using the demand and suppl y elasticities for these markets shown previously in Table 2 - 3, EPA then estimated the percentage change in market output in each market and computed the associated change in market quantity. Table 4 - 2 shows the market impacts and estimated social costs in the markets for each of these nitric acid

– using products in 2017 . Even assuming that all the affected sources are within a given sector and thus all the costs are incurred b y that sector, market quantity is estimated to change b y a small fraction of a percentage. Thus, if the costs of compl ying with the NSPS are incurred b y affected nitric acid product lines in the sectors that use nitric acid as an input, there will be extremely

small impacts on the markets for their products , even if all the costs are assumed to be incurred by a single sector . **Table 4 -**  **2. Estimated Impacts**  **in 2017 of**  **the Nitric Acid NSPS on Sectors Using Nitric** 

**Acid as an**  **Input a**  **Nitrogenous Fertilizer Production**  **( 325311**  **) Explosives**  **( 325920**  **) Plastics and**  **Resins (** **325211 )**  Market impact analysis Baseline value of shipments ($10 3 ) $8,437,377 $1, 973,192 $85,471,475 Annual c ost of compliance $ 5 8 5 ,000 $ 5 8 5 ,000 $ 5 8 5 ,000 Percentage change in value of shipments − 0.00 2 92 1 % 0.0 1 10 % 0.000 2 6 6 % Social cost Change in consumers’ surplus ($10 3 ) − $ 2 49 . 683

− $ 218 . 595

− $ 2 47 . 291 Change in producers’ surplus ($10 3 )

− $ 3 3 5 . 320

− $ 3 6 6 . 411

− $ 3 3 7 . 714 Change in total surplus ($10 3 )

− $ 5 8 5 . 003

− $ 5 8 5 . 006

− $ 5 8 5 . 005

a Impacts on each sector are estimated assuming that all the new or modified sources are within that sector and thus all com pliance costs are incurred by that sector.4 - 7

**4.5 Impacts on Small Entities of the**  **NSPS Review of Nitric Acid for NO X**  Under the RFA as amended by SBREFA, EPA must evaluate potential impacts to small entities resulting from its actions. Small entities may be defined as (1) a small business, as defined b y SBA ’ s regulations at 13 CFR Part 121.201 (SBA, 2008 ); (2) a small governmental jurisdiction that is a government of a city, county, town, school district, or special district with a population of less than 50,000; or (3) a small organization that is any not - for-profit enterprise that is independently

owned and operated and is not dominant in its field. EPA assessed the possible impacts of the NSPS on small entities . To analyze the economic impacts on small entities with new or modified sources, EPA first gathered data on f acilities producing nitric acid and then identified those facilities that could be affected b y the regulation. In total, EPA identified 40 nitric acid facilities owned b y 1 8 different parent companies . Of the 18 owner firms, four qualif y as small entities based on guidance from the SBA and EPA ’ s 2006 Final SBREFA Guidance (EPA, 2006 ) and sales/revenue data collected. Three of the entities, Apache Nitrogen , TradeMark Nitrogen , and Rentech Energy Midwest Corporation , are manufacturers of nitrogen -based fertilizers (NAICS 32531) , and the fourth entity, Geneva Nitrogen, engage s in manufacturing explosives (NAICS 32592) . According to the SBA’s small business size standards, a small entity in each of these industries is a parent company with 1,000 employees or less. To measure the size of the potential impacts on small entities of complying with the NSPS, EPA developed cost - to - sales ratios (CSR s) for a 300 tpd and 1 ,000 tpd new source model plant. EPA assumes that the model plants ’ operating costs and revenues are similar to the four existing small entities described above. Using the estimated total annualized compliance cost for a new source model plant and the mo st recent available revenue data for the existing small entities (Table 4 - 3 ) , EPA generated mean and median CSR s. **Table 4**  **- 3**  **. Employment and Revenue of Existing Small Entities** 

**Parent Com pany**  **Employm ent**  **Revenue ($2010)** Apache Nitrogen 82 $ 63,580,000 Geneva Nitrogen 32 $ 5,400,000 TradeMark Nitrogen 32 $ 35,000,000 Rentech 252 $ 130,600,0004 - 8

Based on the model small firm CSR s, expected impacts to small entities are characterized in Table 4 - 4 . The C SR s for model small firms withnew plants are similar , because total annualized compliance costs are close to each , and do not exceed 0. 2 %. The CSR for model small firms with the modified and reconsidered plant is higher since the total annualized compliance costs are higher, and this CSR does not exceed 0.65 %. Based on these low expected impacts to small entities , EPA does not expect the NSPS to have a significant impact on a substantial number of small entities (SI SNOSE) owning new , modified, or reconstructed sources that produce nitric acid . **Table 4**  **- 4**  **. Cos**  **t -**  **to -**  **Sales Ratios for Model Small Firms Owning New**  **, Modified**  **, or**

**Reconstructed 288 tpd,**  **300 tpd and 1 ,**  **000 tpd Plants**

**Summary Statistic Employm** **ent Revenue ($2010)**  **Cost -**  **to -**  **Sales Ratio 288**  **tpd Plant 3**  **00 tpd Plant 1**  **, 000 tpd**  **Plant** Mean small entity data 100 $ 58,645,000 0. 65% 0. 12% 0.17% Median small entity data 57 $ 49,290,000 0. 55% 0. 10% 0.15% **4.6 References for Section 4**  U.S. Environmental Protection Agency (EPA). 2006. “ Final Guidance for EPA Rulewriters: Regulatory

Flexibility

Act as amended b y the Small Business Regulatory Enforcement Fairness Act. ” http://www.epa.gov/sbrefa/documents/rfaguidance11 - 00 - 06.pdf U.S. Small Business Administration. November 5, 2010 . “ Table of Small Business Size Standards Matched to North American Industry Classification System Codes. ” http://www.sba.gov/idc/groups/public/documents/sba_homepage/serv_sstd_tablepdf.pdf5 - 1 **SECTION 5 CONCLUSIONS**  This document has anal yzed the economic impacts of the New Source Performance Standards for Nitric Acid Producers. The rule imposes more stringent limits on NO X emissions from new , modified, or reconstructed sources in the nitric acid indu stry . EPA estimates that there will be six new nitric acid production trains during the ye ars following promulgation (2012 through 2017 ), three with production capacity of 300 tpd and three with production capacity of 1 , 000 t

pd. To comply

with the NSPS, EPA estimates that new sources would not incur incremental control costs (a modified source may incur control costs, those costs have been accounted for) , but new sources would be required to undertake enhanced monitoring, recordkeeping, and reporting at a cost of $15,019 p er new product line. (National total annualized cost of compliance for the six new sources is estimated to be $ 5 86 ,000 in 2010 - 2 nd quarter dollars . ) EPA examined the p otential impacts of the NSPS on a new or modified source in the commercial nitric acid sector and on new or modified sources owned b y facilities that produce nitrogenous fertilizers, explosives, or plastics and use nitric acid as an input in their production processes. Overall, EPA estimates that market impacts in all of the affected markets will be extremely small. EPA also examined the potential for significant impacts on small businesses that invest in new or modified nitric acid product lines. EPA used the characteristics (firm employ ment and firm sal es revenues) for the four small entities that currentl y produce nitric acid to create model small firms in the affected industry . Using the mean and median sales revenues for the existing small firms as ty

pical company

sales for small entities that produce nitric acid, EPA estimates that the CSR s would be less than 0. 2 %. Thus, EPA does not expect the NSPS to impose a significant impact on a substantial number of small entities (or SI SNOSE) .**APPENDIX A: INDUSTRY DATA AND PR** **OJECTIONS FO R NAICS 32521** A-1 **Table A -**  **1. Industry Data and Projections for NAICS 32521, Plastic, Resin, and Rubber Manufacturing ($2010)** 

**Year Revenue** 

**($m )**  **Industry**

**Value Added ($m** **) Establish**  ****

**me nts**  **Enterprises Employm** **ent Exports ($M)**  **Imports ($m )**  **Wages($ m)**  **Dom estic**  **Dem and ($m** **) Production** 

**($m )**  2001 62,790 20,902 783 494 68,363 17,367 8,294 4,889 53,717 39,200 2002 62,599 22,778 965 630 76,817 17,542 8,210 5,264 53,267 41,600 2003 66,034 23,941 954 664 72,032 18,659 9,147 4,973 56,522 41,000 2004 74,768 29,040 944 653 65,408 22,108 10,409 4,703 63,068 43,500 2005 92,193 34,367 976 686 67,539 25,090 13,089 4,954 80,192 41,300 2006 91,756 34,756 944 669 62,612 27,887 13,427 4,624 77,296 41,500 2007 90,750 34,000 949 660 62,000 31,417 12,643 4,582 71,976 41,200 2008 87,500 33,000 915 645 60,300 33,139 13,374 4,486 67,736 38,750 2009 80,530 31,000 875 630 55,000 25,450 10,180 4,174 65,260 35,500 2010 83,052 31,750 865 625 56,000 27,000 10,750 4,100 66,802 N/A 2011 85,070 32,300 867 627 56,750 29,500 12,000 4,150 67,570 N/A 2012 88,565 33,200 868 629 56,250 31,000 12,950 4,125 70,515 N/A 2013 92,510 34,500 865 628 55,000 32,550 13,750 4,085 73,710 N/A 2014 94,250 34,750 863 627 54,500 34,000 14,500 4,075 74,750 N/A 2015 96,520 35,450 860 625 54,000 35,300 15,250 4,050 76,470 N/A Source: Dai, R. June 2010. IBISWorld Industry Report 32521. Plastic, Resin, & Rubber Manufa cturing in the US. http://www.ibisworld.com .A-2 **Table A -**  **2. Industry Data and Projections for NAICS 32531, Fertilizer Manufacturing**  **($2010)**

**Year Revenue ($m** **) Industry** 

**Value Added ($m** **) Establish**  ****

**me nts**  **Enterprises Employm** **ent Exports**  **($M) Imports**  **($m )**  **Wage ($m** **) Dom** **estic Dem**  **and ($m** **) Production** 

**($m )**  2001 12,281 2,491 704 492 21,405 2,850 3,412 1,180 12,843 19,000 2002 12,287 4,077 727 511 20,718 2,809 2,778 1,127 12,256 18,000 2003 13,207 4,338 679 478 19,688 3,100 4,097 1,076 14,204 N/A 2004 14,704 5,345 674 474 17,843 3,360 4,907 1,009 16,251 N/A 2005 14,084 5,137 659 474 17,076 3,665 6,656 979 17,074 N/A 2006 14,430 5,517 664 482 16,054 3,517 6,063 926 16,976 N/A 2007 16,805 5,894 665 503 17,777 4,012 7,814 1,031 20,607 N/A 2008 21,075 7,000 670 489 17,350 8,268 12,919 1,000 25,726 N/A 2009 18,000 6,300 660 486 16,500 4,500 6,500 950 20,000 N/A 2010 19,200 6,625 656 485 16,550 4,800 8,150 955 22,550 N/A 2011 19,700 6,755 653 483 16,250 5,085 8,800 940 23,415 N/A 2012 20,150 7,000 652 483 15,850 5,300 9,250 920 24,100 N/A 2013 20,700 7,200 651 481 15,300 5,600 9,900 895 25,000 N/A 2014 21,200 7,400 650 480 14,750 5,900 10,500 870 25,800 N/A 2015 21,750 7,600 650 480 14,500 6,225 11,100 855 26,625 N/A Source: Richardson, A. March 2010 a . IBISWorld Industry Report 32531. Fertilizer Manufacturing in the U . S. http://www.ibisworld.com .A-3 **Table A -** **3. Industry Data and Projections for**  **NAICS 32551, Paint Manufacturing ($2010)**

**Year Revenue ($m** **) Industry** 

**Value Added ($m** **) Establish**  ****

**me nts**  **Enterprises Employm** **ent Exports ($m** **) Imports ($m** **) Wages($m** **) Dom** **estic Dem**  **and ($m )**  **Production**

**(gallons)** 2001 24 , 447.8 12 , 043.8 1 , 463 1 , 192 51 , 084 1 , 851.4 902 2 , 677.2 23 , 498.4 N/A 2002 24 , 219 11 , 592.3 1 , 363 1 , 107 46 , 347 1 , 813.3 719.8 2 , 495 23 , 125.5 N/A 2003 23 , 954.2 12 , 217.1 1 , 371 1 , 114 44 , 852 1 , 835.1 742.5 2 , 244.7 22 , 861.6 N/A 2004 25 , 595.8 13 , 516.7 1 , 374 1 , 115 41 , 547 1 , 857.9 773.1 2 , 352.5 24 , 511 N/A 2005 25 , 847.2 13 , 360.3 1 , 365 1 , 105 40 , 073 1 , 939 812.9 2 , 296.4 24 , 721.1 N/A 2006 25 , 338.1 13 , 039.7 1 , 344 1 , 095 39 , 006 2 , 155.9 917.3 2 , 207.6 24 , 099.5 N/A 2007 24 , 861.5 12 , 130.6 1 , 369 1 , 131 41 , 893 2 , 203 942.7 2 , 308.5 23 , 601.2 N/A 2008 23 , 750 11 , 500 1 , 325 1 , 090 40 , 000 2 , 170.7 868.1 2 , 225 22 , 447.4 N/A 2009 22 , 000 10 , 800 1 , 290 1 , 060 37 , 500 1 , 892 599.9 2 , 125 20 , 707.9 N/A 2010 22 , 550 11 , 000 1 , 280 1 , 055 36 , 250 2 , 000 675 2 , 050 21 , 225 N/A 2011 23 , 200 11 , 350 1 , 283 1 , 060 36 , 350 2 , 175 825 2 , 055 21 , 850 N/A 2012 23 , 900 11 , 750 1 , 278 1 , 057 36 , 200 2 , 325 910 2 , 050 22 , 485 N/A 2013 24 , 650 12 , 100 1 , 270 1 , 053 36 , 000 2 , 450 990 2 , 040 23 , 190 N/A 2014 25 , 400 12 , 450 1 , 265 1 , 050 35 , 850 2 , 550 1 , 035 2 , 035 23 , 885 N/A 2015 26 , 150 12 , 775 1 , 260 1 , 045 35 , 700 2 , 650 1 , 080 2 , 030 24 , 580 N/A Source: Richardson, A. 2010b. IBISWorld Industry Report 32551: Paint Manufacturing in the U.S. http://www.ibisworld.com.www.lib.ncsu.edu:2048/industryus/default.aspx?indid=492 .A-4 **Table A -**  **4. Industry Data and Projections for NAICS 32592, Explosives Manufactu**  **ring ($2010)**

**Year Revenue ($m** **) Industry** 

**Value Added ($m** **) Establish**  ****

**me nts**  **Enterprises Employm** **ent Exports ($M)**  **Imports ($m )**  **Wages($m )**  **Dom estic**  **Dem and ($m** **) Production** 

**($m )**  2001 1,322 737 100 63 6,473 256 195 312 1,261 2,376 2002 1,230 718 92 61 5,721 300 200 277 1,129 2,510 2003 1,193 712 89 57 5,534 413 233 263 1,013 2,287 2004 1,212 659 84 53 5,234 480 288 266 1,019 2,523 2005 1,330 571 82 54 5,617 463 305 285 1,171 3,200 2006 1,506 710 82 53 6,018 536 368 302 1,338 3,160 2007 1,807 939 83 56 6,000 581 381 324 1,607 3,120 2008 1,950 1,035 81 55 5,970 573 358 320 1,734 3,115 2009 1,850 950 79 53 5,950 500 275 300 1,625 3,100 2010 1,875 970 78 N/A 5,930 N/A N/A N/A N/A N/A 2011 1,950 1,015 78 N/A 5,900 N/A N/A N/A N/A N/A 2012 2,050 1,075 79 N/A 5,925 N/A N/A N/A N/A N/A 2013 2,100 1,100 79 N/A 5,920 N/A N/A N/A N/A N/A 2014 2,150 1,130 78 N/A 5,920 N/A N/A N/A N/A N/A 2015 2,200 1,155 78 N/A 5,915 N/A N/A N/A N/A N/A Source: Richardson, A. September 2009. IBISWorld Industry Report 32592. Explosives Manufacturing in the US. http://www.ibisworld.comA-5 United States

Environmental Protection Agency Office of Air Quality Planning and Standards Health and Environmental Impacts Division Research Triangle Park, NC Publication No. EPA - 452/R- 12 - 004 May 2012