## Mercury Cell Chlor

‐ alkali Industry Position Paper

Position

The chlor-alkali industry supports the strong regulation of mercury. Our industry has worked proactively with government and other stakeholders to minimize the use and release of mercury. Since 1996, the industry has reduced mercury use by over 93%. In fact, chlorine production is a relatively small source of mercury emissions to the environment today, contributing less than 0.1 percent of total global emissions of mercury from all natural and man-made sources.

We do not believe that HR 2190’s mandatory phase-out of mercury cell technology is warranted. We also continue to believe that this legislation discriminates against the chlor-alkali sector when compared to other, more significant, mercury sources and penalizes our industry for working in good faith last year to enact the Mercury Export Ban Act of 2008.

Nevertheless, if Congress proceeds with HR 2190, then it is imperative that members ofCongress provide a realistic timeframe for the industry to implement the transition to nonmercury technologies. Determination of a realistic timeframe must take into account:

• Physical, technical and practical realities of changing the technology process at a chloralkali facility;

• Availability of financing and resources;

• Current economic cycle;

• International competition and US employment; and

• The impact on key downstream uses and public health.

Based on an evaluation of these factors, a realistic date for the change to non-mercury technology is no sooner than December 31, 2018. The industry believes a responsible and realistic transition to changing the way society regulates mercury cell technology would allow the industry to complete long standing endeavors to transition to mercury free facilities in a manner that protects jobs and ensures the economic viability of these companies.

Rationale

A transition date of December 31, 2018 will provide a realistic time frame for the remaining mercury cell facilities to transition to alternative technologies based on the following factors:

• Physical, Technical and Practical Realities of Transition – The transition to a different technology requires the wholesale replacement of mercury cell chlor-alkali plants. This is an extended process that invo lves critical issues related to planning, decommissioning, mercury removal, design, engineering, permitting, procurement, contracting, construction and start-up. Assuming the economics justify the investment for transition to another technology, the transition time will also depend on various site specific factors, such as plant size, customer base, contract obligations, operating costs, etc. In many cases, a company will al so need to operate parallel production processes so that it can meet ongoing customer obligations and fulfill long-term contracts, while it manages the transition.• Availability of Financing and Financial Resources – I t is important to note that chloralkali plants are extremely capital intensive and costly to build. The cost for such a conversion at an individual site is likely in excess of $100 million and may be significantly greater for a large site. Since 1996, ten mercury cell plants have opted to discontinue the mercury cell process. Of these ten, six have permanently closed and only four facilities were able to justify the investment to transition to non-mercury cell technology.

The cost of the plant replacement necessary for transition far exceeds the current asset value of the plants themselves, and therefore major capital investments can only be economically justified if the industry can make a return on such investments over time. The reality is that the chlor-alkali sector is a commodity business that has very low margins and limited growth.

Aside from a corporate decision about what w ould economically justify such large capital

investments, normal credit markets to finance expensive plant conversions, especially in today’s financial climate, are, practically speaking, non-existent at reasonable long term rates. This will further delay the ability of facilities to even initiate a transition.

• Current Economic Cycle – Presently the global economy is in the depths of the worst global recession since the Great Depression, and chlorine and caustic markets are at their worst levels in years. At the current price of these commodities, it is simply unfeasible to economically justify investm ents that often will exceed $100 million per plant.

Typical chlorine and caustic economic cycl es average six years between the peak and bottom of the economic cycle. The industry is currently at or near the bottom of such a cycle, and expects that it could remain so for a number of years. Publicly available data indicate that the chlor-alkali industry is operating at only 63% of capacity. Historical operating averages are typically well over 90%. Furthermore, prices for chlorine, caustic and calcium hypochlorite have dropped precipitously (over 40% from a year ago). So it is quite feasible that some of the plants will be unable to transition without sufficient time

and resources.

• Implications for US Manufacturing, Employment and Competition – If the industry is faced with the choice between mandated plant replacement or plant shutdown, without being afforded enough time to plan for such capital expenditures and to execute the investments when the chlorine and caustic markets yield a reasonable return, plant closure may be inevitable.

Responsibility dictates that if the government determines that a new regulatory regime is in the public’s interest, it should do so in a way that achieves the maximum public benefit. Mandating that companies spend hundreds of millions of dollars on forced technology mandates can translate into plant closings and consequent job losses, if

economic realities are not considered. Unrealistic timeframes also run the real risk of placing local companies at a competitive disadvantage. As noted, margins on these commodity chemicals are ex tremely small. Thus, significant, mandated capital expenditures will place domestic companies at a competitive disadvantage relative to imports from other countries. For example, the market is already currently awash in surplus caustic from domestic and international markets.

2HR 2190 will result in a government mandat ed technology change and thus government mandated capital expenditures. This will provide those companies supplying products and services required to accomplish the conversion with significant pricing leverage. This will not only increase the cost of conversion, but will also extend the timeline for transition.

• Impact on Key Downstream Products and Public Health – The chlor-alkali industry provides critical benefits to society and is essential to the US economy. For nearly a century, chlorine has been the predominant chemical used to disinfect drinking water and wastewater. Chlorine is a key building block used in thousands of products including over 90% of pharmaceuticals, agric ultural chemicals, plastics, computer and vehicular components, fiber-optic cable, ener gy efficient building materials, renewable energy resources like solar panels, as well as fire-resistant materials for law enforcement, emergency response, and military applications. The chlor-alkali industry directly contributes over $7 billion to the North American economy each year, and the economic value of products made using chlori ne chemistry is many times greater. An unrealistic mandate for transitions could have a serious adverse impact on the supply of these critical materials for society.

Timeline for Transition

2010-2013: Economic and Business Recovery

• Time needs to be allowed for economic and business recovery. It will be impossible to develop a realistic business case that can be utilized for internal decision-making or external financing review until the economy stabilizes.

• In addition, the chlor-alkali industry is a cyclical business and appears to be entering a significant down cycle. With industry operating rates currently hovering at historical lows, it would be unlikely that an economic case for conversion could be developed. This effectively means that enacting a technology ban within the next 2-3 years likely leaves only one option – closure of facilities and the loss of good manufacturing jobs at

the absolute worst time.

2013-2015: Secure Approval and Funding/Financing

• Once the economy allows, it takes several months to a year to prepare a project package at sufficient detail to gain internal approval and external financing. This would also include a site study and selection of technology.

• Permits are then required before implementation can begin. The permitting process can take as much as one year.

2015-2018: Project Implementation

• The transition implementation will require multiple steps:

– Developing detailed design and engineering plans;

– Procurement and negotiating contracts with technology providers;

– Construction, including parallel operations to minimize impact of transition on

business and customers;

– Tie-in/testing;

– Plant start-up and commissioning, including process safety; and

– Decommissioning and removal.

3The actual execution of a project of this magnitude once all other hurdles are cleared is expected to take at least 2-3 years. Hi storically, implementation has even been longer, especially where such plants are integrated into other production processes, or where the change in product characteristics using the new te chnology may also require additional process changes in other company or customer processes.

Proposed Language/Amendments

 Amend Section 6A (b) to read:

‘‘(b) PROHIBITION.— Pending the availability of sufficient financing and permitting, it shall be unlawful to manufacture chlorine or caustic soda using mercury cells at any facility in the United States after December 31, 2018.”

 Delete Section 6A (c) and (d) to recognize and conform to the Mercury Export Ban Act of 2008 enacted just last October.

 Correct the findings outlined in Section 2 as follows:

– In (6), change “30” to “32” to correctly reflect the number of plants in the United States that produce chlorine;

– In (6), change “7” to “5” to correctly reflect the number of “mercury cell” chloralkali facilities in the United States; and

– Delete (8) and (9) in their entirety as these are inaccurate statements.

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## Mercury Cell Chlor

‐ alkali Industry Profile

The United States mercury cell chlor

‐ alkali industry consists of five facilities operated by four companies

(ASHTA Chemicals; ERCO Worldwide, Inc.; Olin Corporation; and PPG Industries, Inc.). All five facilities

would be adversely affected by at least some sections of HR 2190.

ERCO, which operates a facility in Wisconsin, is in the process of converting to a non

‐ mercury technology. It is the intention of the remaining four facilities to operate until the end of their economic

life. Each of these facilities is operated in accord with all applicable federal, state and local regulations.

The industry believes it can continue to operate each facility until the end of its economic life consistent

with the need to protect human health and the environment.

The four remaining mercury cell plants produce approximately 5% of the chlorine production in the

United States and 50% of the potassium hydroxide production.

All these facilities are a part of the industry wide commitment made to the USEPA thru the Chlorine

Institute in 1996 to reduce mercury use by 50% in ten years. As reported in the Eleventh Annual Report

to the USEPA (September 2008), the mercury cell chlor

‐ alkali industry reduced its mercury use by over

97% from the base period. In addition, the industry reduced mercury releases to the environment by

79%.