### Report Title Here 

# The Economic Impact of Proposed PVC MACT Rule on Resin Producers

, Processors and the U.S. Economy

Prepared For:

The Vinyl Institute

December 201 1

# A B O U T I H S G L O B A L I N S IG H T

IHS Global Insight is widely recognized as the most consistently accurate economic forecasting firm in the world. With over 600 economists, statisticians, and industry specialists in 25 offices worldwide, IHS Global Insight has a well

- established track record for providing rigorous, objective forecast analysis and data to governments and businesses around the world.

Among our areas of expertise are the economic impact, tax implicati ons, and job

- creation dynamics within multiple sectors core to national, state and local economies. In this capacity, we help governments and companies at all levels interpret the impact of proposed investments, policies, programs, and projects.

IHS Global Insight was formed by the merger of DRI and WEFA. Still active in an advisory capacity to the firm is the original founder of WEFA, Lawrence R. Klein, the 1980 winner of the Nobel Prize in Economics.

IHS (NYSE: IHS) is a leading source of information and insight in pivotal areas that shape today’s business landscape: energy, economics, geopolitical risk, sustainability and supply chain management.



# F O R M O R E I N F O R M A T I O N

Shane Norton ( 781 ) 301

- 9 071 shane.norton @ihsglobalinsight.com



### Brendan O’Neil

(202) 481

- 9239 brendan.oneil@ihsglobalinsight.com

IHS Global Insight 1150 Connecticut Avenue NW Suite 200 Washington, DC 20036The Economic Impact of Proposed PVC MACT Rule on Resin Producers, Processors, and the U.S. Economy

December 2011

labell label Page 4 

# Table of Contents

Executive Summary

................................ ................................ ................................ .......... 7

Introduction

................................ ................................ ................................ ..................... 12

Impact to U.S. Economy of PVC MACT Driven Cost Increases

................................ ..... 15

Economic Impact of the Resulting Closu re of Dispersion Resin Production Plants

........ 19

Economic Benefits from Increased PVC Producer Spending

................................ ......... 21

Impact of Constrained PVC Capacity on Global Marketplace and U.S. Economy

......... 24

Appendix A: Compliance Cost Review

................................ ................................ ........... 27

Appendix B: The IMPLAN Model

................................ ................................ .................... 28The Economic Impact of Proposed PVC MACT Rule on Resin Producers, Processors, and the U.S. Economy

December 2011

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# Definitions for IHS Global Insight Report

The Economic Impact of Proposed PVC MACT Rule on Resin Producers, Processors and the U.S. Economy

PVC Resin P roducer

– a company that polymerizes vinyl chloride monomer into PVC resin

PVC Dispersion Resin Producer

– makes dispersion, blending, copolymer, and other specialty suspension types of resin using specialized equipment for each process. There are 6 plants in the U.S. practicing this technology.

PVC Suspenstion Resin Producer

– makes various suspension grade resins using specialized equipment for this process. There are 12 plants in the U.S. practicing this technology.

PVC Bulk Resin Producer

– makes resin using bulk polymerization process and equipment. There is 1 plant in the U.S. practicing this technology.

PVC Processor

– a company that uses PVC resins to make compounds or one that processes compounds using a process such as extrusion, mo lding, calendaring, or other heat process to make a part or a product.

Upstream Provider

– a supplier of raw materials such as vinyl chloride to PVC resin producers.
The Chlor

- alkali chain typically starts with chlorine production from salt, conversion o f chlorine to ethylene dichloride, and further processing to vinyl chloride monomer.

Supply Chain

– those companies that supply goods and services other than raw materials to the PVC industry, for example, ingredient and additive suppliers, utilities, cont ract services, etc.

PVC Products

– intermediate components or finished parts or products made all or in part with PVC resins and compounds.

Economic Value Added

– economic contribution to the economy, analogous to GDP. The four
sub

- components for value ad ded are Employee Compensation; Proprietary Income; Other Property Type Income; and Indirect Business Taxes

Economic Output

– Revenue or sales generated by affected industries

Direct Effects

– Employment and economic activity generated by those industries directly impacted by the industry change

.

Indirect Effects

– Employment and economic activity genera ted by the supply chain of the industries directly impacted by the industry change

.The Economic Impact of Proposed PVC MACT Rule on Resin Producers, Processors, and the U.S. Economy

December 2011

labell label Page 6 Induced Effects

– Employment and economic activity generated by the sp ending of the direct and indirect employees impacted by the industry change.The Economic Impact of Proposed PVC MACT Rule on Resin Producers, Processors, and the U.S. Economy

December 2011

labell label Page 7 

# Executive Summary

Implementation of the PVC MACT as proposed May 20

, 2011 would have the following effects on the U.S. PVC industry and the broader U.S.
economy :

• $1 34 million in capital costs to retrofit PVC resin plants

• $ 39 million annual operating costs increase on PVC resin prod ucers

• Hundreds of millions of dollars in write

- down costs for shuttered dispersion resin operations

• H undreds of jobs lost initially to closed facilities and thousands more over the next several years as the impact of the MACT ripples through the economy

• $300 million lost revenue in areas affected by plant clos ings

• Replacement of U.S. resin by imports from foreign suppliers that do not conform to U.S. emissions standards

• $ 4 3 million to $ 1 18 million initial recertification costs and $ 9 2 million annual ly for reformulated PVC products

• $ 6 8 0 million cost impact on U.S. GDP in first 7 years of rule from rising costs

• L ost revenue opportunity of $4 billion in 2020 and cumulatively over $16 billion from 2015 to 2020 as regulations restrict capacity and prevent construction of new plants

In May 2011, the U.S. Environmental Protection Agency (EPA) proposed new m aximum

a chievable c ontrol t echnology (MACT) standards for p olyvinyl c hloride (PVC) and copolymer produc tion facilities commonly known as the PVC MACT

. Affected production units would be required to comply with the proposed emission limitations , operating requireme nts and work practice standards no later than three years after publication of the final rule.

In response to the proposed MACT, the PVC MACT Working Group of the Vinyl Institute (Working Group) , a trade association that represents companies involved in P VC production,
undert ook an analysis of the cost of compliance. T he Working Group determined that the initialThe Economic Impact of Proposed PVC MACT Rule on Resin Producers, Processors, and the U.S. Economy

December 2011

labell label Page 8 estimates from the EPA of the cost of compliance are neither adequate nor comprehensive. In
addition to the technical concerns submitted to EPA, 1 the Working Group concluded that 2 :

PVC suspension resin producers will be required to invest over $ 134 million in capital costs to retrofit existing facilities PVC processors will be required to expend $43 million in order to begin working with

the resulting resins , and a potential additional $75 million if FDA medical device recertification is required
PVC suspension resin produce rs will be required to incur $39 million in new total annual operating costs, including amortized capital investments, to comply with the proposed MACT PVC processors will incur an additional $92 million in annual operating costs to utilize

the new resins PVC dispersion resin producers w ill be forced to cease operations as a result of an inability to meet the new standards, resulting in the closure of four facilities , loss of 500 employees and corresponding write down of hundreds of $millions of assets Domestic resin production will be ca pped at existing levels, excluding the loss of dispersion resin production, while global demand will continue to grow

T he Working Group commissioned IHS Global Insight to analyze these costs and identify the economic impacts to the industry and the U.S. e conomy as a whole

. This report examines impacts to the PVC industry areas as follows :

Impact of higher cost s t o make PVC resin

, higher ingredient costs for PVC compounds, and how the U.S. economy will be impacted if th ese added cost s make their way into finished products Economic impact of closing four dispersion plants on the U.S. economy Economic impact of PVC resin producers’ increased capital costs on the supplier
industries over the three year implementation period of the proposed MACT , as well
as t he economic impact of the increase d ongoing annual costs Analysis of the economic opportunity that may be put at risk if the proposed PVC
MACT constrains U.S. resin production capacity at 2011 levels while the global
demand continues to increase

Combined, the estimated increased operating expenses to PVC suspension resin producers and added ingredient costs borne by PVC processors developed by the PVC MACT Working Group

1 See Comments of the Vinyl Institute, Inc. PVC MACT Working Grou p, Docket Document no. EPA

- HQ

- OAR

- 2002

- 0037

- 0146.

2 Vinyl Institute Estimate of Direct Economic Impact on PVC Industry from EPA’s Proposed PVC MACT

, Letter to EPA

dated October 27, 2011.The Economic Impact of Proposed PVC MACT Rule on Resin Producers, Processors, and the U.S. Economy

December 2011

labell label Page 9 would b e expected to raise the effective price of PVC products by nearly 2 .5 percent on a resin
cost basis

. This basis is used for simplifying the analysis and allocates all added costs to a basis of per pound of PVC resin produced. T he projected increase was then simulated within the IHS Global Insight U.S. M acroeconomic Forecasting M ode l. While the overall size of the U.S.

economy will allow it to absorb these price increase s over the long term

, the following negative economic impacts will occur during the first seven years after implementation of the new
standards :

As a result of the added costs to PVC products , the U.S. economy will see a decline
of 4,825 jobs during the first seven years

Overall economic activity will decline by over $ 680 million during this time period

In the context of the broader U.S. economy, increases in the costs of PVC products should not cause a dramatic disruption and should be absorbed by the economy over time. I mpact s at the
local level

, h owever, are likely to be felt more strongly

. The proposed rule will affect each of the over 100 types of resins and t he ir respective downstream products differently. Some resins may be impacted more than others and those users of resins more highly impacted will suffer more
economic harm.

Increased costs due to the proposed MACT, exclusive of any impact on resin prop erties and performance, will adversely affect the ability of individual resin manufacturers to compete in a global market

. IHS Chemicals estimates that over 45 percent of U.S. PVC suspension resin production currently is exported , a rate that is forecast t o remain stable over the next five years

. As international competitors will not be subjected to similar regulatory constraints and related cost increases, the domestic market will be adversely affected.

D ispersion resin facilities will be forced to cease operations as they would not be able to meet the proposed residual vinyl chloride limits according to the PVC MACT Working Group’s analyses

. 3
The four impacted plants employ 500 workers 4 and provide significant economic a ctivity to the ir respective communities and states. Hundreds of millions of dollars of assets will need to be written down, burdening the facilities owners with unnecessary costs. Following a ce ssation of dispersion operations , however, the adverse econom ic impacts will not be limited to these 500 employees and their related economic activity, but rather will encompass all the companies that depend on these facilities for part or all of their business. Many but not all d ownstream PVC dispersion and blendin g resin processors will be able to import their resins from the overseas market and reformulate

. However, such reformulation can result in additional cost because each

3 Comments of the Vinyl Institute, Inc. PVC MACT Working Group, Docket Document no. EPA

- HQ

- OAR

- 2002

- 0037

- 0146

, at p.3, 24

- 25 (8/2/2011).

4 Facility Submissions to EPA in Response to Clean Air Act (CAA) Section 114 Request, Docket Document No. EPA

- HQ

OAR

- 2002

- 0037

- 107, at Tab A2 (4/28/2011).The Economic Impact of Proposed PVC MACT Rule on Resin Producers, Processors, and the U.S. Economy

December 2011

labell label Page 10 resin has unique characteristics that govern the ingredient formulations . Every formulation must be evaluated to ensure it meets the performance requirement of the end application and has the proper amounts of ingredients for successful processing in the existing equipment utilized to make the end products. Once this is done, many pro ducts must be listed by certifying agencies that assure the product will perform in its intended application. This process can take 6 months to 2 years to complete and could disrupt their operations until recertification is completed. Those
that now use a unique dispersion or blending resin will be forced to find an alternative or failing that, eliminate the product made with that unique resin.

In addition to the many challenges that processors face in attempting to find and work with
alternative resins an d supplier s, those companies that make up the supply chain for these
shuttered plants face equally daunting circumstances

. The indirect economic activity generated from this supply chain is nearly as large as the impact from the plants themselves . Unlike s ome of
the resin processors, equipment manufacturers, suppliers of maintenance materials, engineering consultants and an array of other providers will not have ready access to international markets to make up their lost revenue once these plants close down

. In addition to the 500 plant employees, the nearly 700 jobs supported by the indirect supply

- chain of these plants provide further
economic benefits to their state economies through their expenditures. This induced economic impact results in an additiona l 843 employees who are dependent on the spending of the employees along the PVC manufacturing value chain. The summary of these economic impacts is provided below.

Figure	1: Combined	Economic	Impact	of	the	4 Idled	Dispersion	Resin Plants

Impact	Type Reduced Employment Lost Labor

Income Lost Economic
Value	Added Output

Direct	Effect 500 79,267,907 128,478,700 555,171,072

Indirect	Effect 698 60,531,107 108,763,360 319,001,688

Induced	Effect 843 39,520,364 72,186,730 123,100,044

Total	Effect 2,041 179,319,380 309,428,810 997,272,816

The Vinyl Institute has estimated the cost of compl ying with the proposed PVC MACT from both an initial capital investment and the higher on

- going annual operating costs. These added expenditures and costs will create some corresponding positive economic impac ts on the U.S. economy, partially offsetting some of the previously discussed negative impacts.

The initial total capital costs of $1 34 million would primarily stem from the need for additional equipment necessary to meet the proposed standards. While a negative impact to resin producers, c ontractors and equipment manufacturers will see a benefit when resin producers are
forced to retrofit their facilities. The implementation of these capital costs will occur over a three

year period and result in the following economic impacts to the overall U.S. economy.

Figure	2: Positive Economic	Impact Resulting	from	Capital	Investments	Over	the	3

- Year	Time	Period
Impact	Type Employment Labor	Income Value	Added Output

Direct	Effect 639 $45,614,712 $54,121,830 $134,602,928

Indirect	Effect 540 $35,986,736 $57,044,290 $121,825,200The Economic Impact of Proposed PVC MACT Rule on Resin Producers, Processors, and the U.S. Economy

December 2011

labell label Page 11 Induced	Effect 856 $42,042,012 $74,448,120 $139,914,480

Total	Effect 2,035 $123,643,456 $185,614,200 $396,342,592

In addition to the initial total capital investment (TCI), the facilities will also be forced to incur
additional on

- going annual operating costs as a result of changes to the production processes. These operating costs will result in additional spending in utilities, maintenance materials, consumables, equipment purchases, and testing costs without any corresponding increase in productivity or output

. While an annual burden to resin prod ucers, a s i n the case with the TCI, a different set of contractors, test labs, and peripheral suppliers will see an ongoing economic benefit due to the plants having to incur these additional costs. Excluding the amortized cost of the TCI, the facilities w ill incur increased annual operating costs of nearly $26 million. The economic impact of these on

- going annual operating cost increases are summarized below.

Figure	3: Positive	Economic	Impact Resulting	from	Additional Annual Operating	Costs
Impact	Type Employment Labor	Income Value	Added Output

Direct	Effect 107 $10,750,667 $17,076,820 $25,823,880

Indirect	Effect 71 $4,702,590 $7,003,941 $13,988,354

Induced	Effect 162 $7,929,599 $14,042,080 $26,381,518

Total	Effect 339 $23,382,856 $38,122,840 $66,193,752

The capital costs and the changes to the operational aspects of each plant are not the only costs to be incurred by the plants due to the proposed MACT. Additional labor will in most cases be required to handle the new operating and monitorin g requirements of the proposed MACT. The PVC MACT Working Group has determined that, without any increase in facility output, the plants impacted will be forced to hire an additional 20 workers in total to deal with the changes needed to meet the new requi rements. In total, the TCI will result in a temporary employment increase of
2

, 035 jobs, while the on

- going operating cost increases and plant hiring will result in an additional
359 jobs supported each year.

The final impact of the proposed MACT analyzed in this report is the overall economic opportunity put at risk if dispersion resin production is shuttered and other resin capacity is capped at existing
levels. The most recent IHS forecast shows global PVC resin demand increasing at a compound annual gr owth rate (CAGR) of 3.4% from 2011 through 2020. Supporting that 1/3 increase in demand is an expectation that production within the United States will increase at an even faster rate, with a 4.3% CAGR in the forecast. The result is that production by 2020 will increase by over 45% from current levels based on the current forecast of unimpeded operations.

The PVC MACT Working Group comments indicated that no existing facility can comply with the proposed new source standards and no technology is available to do so. 5 This means that no

5 Comments of the Vinyl Ins titute, Inc. PVC MACT Working Group, Document no. EPA

- HQ

- OAR

- 2002

- 0037

- 0146, at

p. 100 (8/2/2011).The Economic Impact of Proposed PVC MACT Rule on Resin Producers, Processors, and the U.S. Economy

December 2011

labell label Page 12 new facilities will be constructed, and existing facilities will not be able to modify production capacity significantly. This effectively caps domestic production capacity at 2011 levels for suspension resins. D ispersion resin production will cease

. M arket share of U.S. produced PVC will drop to 13% by 2020, down from the forecast expectation of 19.4%. The impact of this lost economic opportunity is $4.4 billion by 2020.



# Introduction

The U.S. Environmental Prote ction Agency (EPA) issued a proposed rule for polyvinyl chloride (PVC) and copolymer production sources under Section 112 of the Clean Air Act. The following introduction will briefly review the EPA proposal and the PVC MACT Working Group comments

.
EPA Pos ition

The proposed PVC MACT rule 6 would establish new emission standards for hazardous air pollutants from polyvinyl chloride and copolymers production located at major and area sources. The proposed rule includes requirements to demonstrate initial and continuous compliance with
the proposed emission standards. EPA is proposing standards that would apply at a ll times, including during periods of startup, shutdown, and malfunctions. The proposed standards also
include continuous monitoring provisions and re cordkeeping and reporting requirements.

The proposed emission limitations and work practice standards have introduced new requirements for various procedures and equipments involved in the PVC production process

, including Storage Vessels and Handlin g Operations, Leak Detection and Repair, Heat Exchange Systems , Process Vents, Resin Stripping, Wastewater Treatment, etc. According to the proposed
rule , existing affected production units would be required to comply with the proposed standard
no later th an 3 years after publication of the final rule.

PVC MACT Working Group Overview and Position

Founded in 1 982, t he Vinyl I nstitute (VI) is a U.S. trade association representing the leading
manufacturers of vinyl resin

, vinyl chloride monomer, vinyl additives and modifiers, and vinyl packaging materials. In addition to VI members Formosa Plastics Corporation, U.S.A., Occidental Chemical Corporation/Oxy Vinyls, LP, PolyOne Corporation, Shintech Inc., and Westlake Chemical Corporation, the PVC MACT Work ing Group includes non

- VI members Dow Chemical Company and Georgia Gulf Corporation. As such, the Working Group’s members will be directly impacted by the proposed PVC MACT. There are 19 facilities in the U.S. that can produce PVC resin or copolymers. Six of these facilities specialize in dispersion, blending, copolymer, and other specialty resins which comprise about 5% of all resins produced

. Twelve of these facilities specialize in suspension resins, which comprise about 95% of all resins produced.

6 National Emission Standards for Hazardous Air Pollutants for Polyvinyl Chloride and Copolymers Production;

PROPOSED RULE , Docket Document No. EPA

- HQ

- OAR

- 2002

- 0037

- 0035The Economic Impact of Proposed PVC MACT Rule on Resin Producers, Processors, and the U.S. Economy

December 2011

labell label Page 13 Ove r one hundred grades and types of PVC resin are produced for a myriad of building, medical, consumer, industrial, and transportation applications. PVC is widely used in the building and construction industry for pipe, windows, doors, siding, electrical wi ring, receptacles and switches, flooring, wallcoverings and upholstery. PVC is also a critical component for medical applications such as blood bags and IV tubing sets. In all, there are thousands of PVC applications which begin with the many specialized resins produced by the industry. Any change in resin quality will require reformulation and recertification by downstream users, that will entail relisting their products to conform to product performance standards.

The Working Group is focused on ensuring that the PVC MACT rule is c onsistent with the Clean Air Act and related legal precedents ; that it a llows the PVC and copolymer industry to continue to produce the mix of products upon which its customers depend; and that it a llows f or U.S. manufacturers to grow their business and compete in a global market.

In its comments on the proposed rule , the PVC MACT Working Group points out that some

measures result in far more aggressive changes than EPA has intended. The Working Group
conclude s that these standards, such as the multiple limits for dioxin/furans, the appli cation of the Part 61 NESHAP on top of the PVC MACT, are hardly attainable technically

. In addition, Working Group comments indicate that these standards, even if achie vable, will not only impose stringent limits on the development of the P V C manufacturing sector, but also lead to considerable spill

over impacts on its upstream and down stream industries. 7 Not ing that the narrow focus EPA
based its cost analyse s on may no t be the most appropriate

, the VI compile d field d ata from PVC resin producers and processors and recalculate d the costs entailed by these standards that are most c lose to real case scenarios

. In a letter dated October 27, 201 1 8

, the PVC MACT Working Group supplemented its original comments to EPA with additional information on the economic impact of the proposed rule, and in particular, EPA’s proposal to restrict HAP concentrations in stripped resin. The October 27 submission focused solely on a preli minary assessment of direct cost impacts from the proposed
rule. T he Vinyl Institute commissioned I H S Global Insight to analyze the economic impacts of the proposed rule

. In order to systematically quantify the economic impact s in the context of price

sensitive downstream industries and competitive global PVC manufacturing market, th is study examines the proposed standards from the following stand points :

The impact s of MACT

- driven resin cost increases on the financial stability of U.S.
PVC manufac turers and on the U.S. economy as these cost increases are absorbed
and propagate through downstream industries

. Th e October 27 supplemental comments to EPA indicate that the proposed rule will cause a n increase in PVC

7 Comments of the Vinyl Institute, Inc. PVC MACT Working Group, Document no. EPA

- HQ

- OAR

- 2002

- 0037

- 0146, at

p. 11

, and Attachment 1 (8/2/2011) and Vinyl Institute Estimate of Direct Economic Impact on PVC Industry from EPA’s Proposed PVC MACT Letter to EPA dated October, 27, 2011

8 Vinyl Institute Estimate of Direct Economic Impact on PVC Industry from EPA’s Proposed PVC MACT Letter to EPA
dated October, 27, 2011.The Economic Impact of Proposed PVC MACT Rule on Resin Producers, Processors, and the U.S. Economy

December 2011

labell label Page 14 manufacturing costs . These increases either will cut into the already thin margins of
U.S. PVC resin manufacturers

, or will be passed on to a wide range of downstream commodity manufacturing industries, such as plastic production and chemical manufacturing. In t his section of the study

, we ex amine the extent to which resin and downstream commodity price increases will reverberate throughout the economy,
and to what extent such impacts will trigger r eadjustment s of the economy to cushion
the shocks

.

T he PVC MACT Working Group conten ds that the stripped resin limits proposed by EPA effectively would end the manufacture of dispersion resin products in the United
States if the rule is promulgated as proposed. F our facilities employ ing nearly 500 people would be forced to close because the re is no know n technology that can achieve EPA’s proposed limits . The report examines the impact to the local economy if these plants are closed and their upstream demand is no longer required.

A significant component of the cost increases to PVC resin m anufacturers will come from the need to purchase additional equipment, consumables for that equipment

, and overall higher operatin g expenses due to required workflow changes. While the
increased manufacturing cost s could dri ve up the prices of resin

, and o ther
downstream products , it can also provide opportunities for some suppliers of equipment and utilities to the PVC manufacturers

. T his study also addresses any stimulus effects to the supply chain from the additional cost s in PVC manufacturing

.

Having examined the impacts on the upstream and downstream components of the
PVC manufacturing sector, th is study then examines the effects on the competitiveness of the domestic PVC industry in the global P VC market. As the global demand for PVC continues to ris e, a significant opportunity will be put at risk if production capacity of suspension resins is capped at current levels, and dispersion resin production ceases.The Economic Impact of Proposed PVC MACT Rule on Resin Producers, Processors, and the U.S. Economy

December 2011

labell label Page 15 

# Impact to U.S. Economy of PVC MACT Driven Cost
Increases

If promulgated as proposed , the PVC MACT will affect the U.S. economy by imposing changes along the plastic and other commodity chains. In general, w e could expect t he price of PVC resin
and products to increase in reaction to the MACT

- driven changes in resin manufacturing costs

. T hese increases, in turn, will trigger a series of shocks to plastic manufacturing and other downstream industries, upstream commodity prices, and therefore the whole U.S. economy. To evaluate this kind of impact, the study first examines the increased resi n manufacturing costs

en tailed by the proposed PVC MACT.

The EPA has proposed increased regulatory requirements on various components of the PVC
resin manufacturing process , including storage, handing operations, equipment leak detection, heat exchange, process vents, resin stripping, wastewater treatment, etc. Building off of the cost analysis provided by the PVC MACT Working Group in its comments to EPA 9

, this study focuse s

on four affected areas that contribute to cost increases

--- those involved in the stages of us ing converted process vent , resin stripping, waste water treatment, and monitoring and testing

. Also,
t o comply with the proposed rule, the PVC resin producers need to increase their non

- labor manufacturing input

--- materials and services that they will have to purchase from other industries

-

-- while bringing in additional employees into their own manufacturing units . But when looking at the impact s on resin price, we only take into consideration the non

- labor costs, assuming that all
the increased labor cost can be completely absorbed by the PVC resin producers based on the plant level employment additions as estimated for this study by the PVC MACT Working Group

. There are two types of non

- labor spending included in e ach of the above

- mentioned four affected

areas

. The first type is the one

- time capital investments on equipment purchasing and c onversion.
The other type of spending relates to the costs associated with new capital equipment , such as
increased utilities, maintenance, supplies, etc that are needed for operating the new equipment to
meet proposed PVC emission limits

. T he sum of the amortized capital investment and the annual recurring cost is the total annual cost. Figure 4 shows the increase in t o tal annual c osts for the industry at the selected four affected areas

.

9 Comments of the Vinyl Institute, Inc. PVC MACT Working Group, Document no. EPA

- HQ

- OAR

- 2002

- 0037

- 0146, at

p. 20

, and Attachment 6 (8/2/2011)

.The Economic Impact of Proposed PVC MACT Rule on Resin Producers, Processors, and the U.S. Economy

December 2011

labell label Page 16 Figure	4: Total	Annual	Operating	Cost	Increases by	Component *

Wastewater

Treatment Monitoring and	Testing Resin Stripping Process
Vents Total
Additional
Annual	Costs $			4,002,737 $		1,744,088 $		32,669,277 $				4,525,405 $			42,941,506

* Costs for d ispersion plants are excluded from the impact assessments as these plants will not be able to meet the standards of the PVC MACT as proposed and will have to cease operations. Source: Docket ID No. EPA

- HQ

- OAR

- 2002

- 0037

- 0146, Attachment 6

I f these costs cannot be absorbed by the manufacturers, we estimate that resin prices c ould rise by an aggregated industry average of 0.7%

. This is based on the 2011 average spot export price of 45.15 cents/pound 10 , and the 2011 production volume of just over 6.6 million metric to ns 11

. The following analysis assumes that the average impact of a 0.7% increase in resin price will be passed on to the processors.

Additionally, the Working Group’s analysis concludes that PVC processors face a $92 million

in crease in their own operating costs stemming from increased use of existing or new ingredients
to offset a decrease in resin quality

, as well as annual costs to import replacements for
discontinued resins. Increased processor costs

, in combination with the earlier price increase

, will
result in an effective increase of 2.35% on a resin price basis.

This could be driven up even further if medical grade PVC resins are affected. The PVC MACT working group estimates some $75 million additional cost to recertify medical devices made with
PVC

. It could be additive to the range of the previously stated $43 million one

- time cost required by PVC processors to reformulate and recertify their compounds. For purposes of this analysis, it is not considered in the economic impact not knowing whet her the changes in resins will already fall into variation limits determined acceptable to the FDA.

PVC resins are obviously used by a wide variety of compounders, processors and finished goods manufacturers. Therefore, quantifying the impact of rising ma terial costs into these markets can
be difficult. For purpose of our analysis, we used the 2.35% price increase in our macroeconomic
model of the U.S. economy. Given the size and diversity of the U.S. economy, we would expect steady price changes to be abs orbed, and any effects to dissipate, over time. In the short term,
h owever, there will be noticeable impacts to the economy as illustrated in the following two charts.

10 Based on IHS Chemicals data on U.S. average contract prices and spot export prices

11 IHS Chemicals PVC Supply/Demand forecastThe Economic Impact of Proposed PVC MACT Rule on Resin Producers, Processors, and the U.S. Economy

December 2011

labell label Page 17 Figure	5: U.S. Real GDP	Impact	by	Price	Increase	($M)

Figure	6: U.S. Employment	Impact	by	Price	Increase	(Jobs)

Source: IHS

As the charts above show, the impact of the resin and products price increase, which will occur at the level described for the ten year period chosen for amortizing the TCI, will only have a negative economic impact for the first seven years after implementation, which for the model simulation
was chosen to occur in 201 5 . Throughout the seven

- year window, U.S. real GDP will be reduced by $ 6 8 0 million dollars. On the employment side, the se price increase s will result in 4,835 jobs being lost from the economy during the first seven years after implementation. While thes e results will not change the overall employment picture in the nation, which currently has around 14 (180) (160) (140) (120) (100)

(80) (60) (40) (20)

-

(1,400) (1,200) (1,000)

(800) (600) (400) (200) -The Economic Impact of Proposed PVC MACT Rule on Resin Producers, Processors, and the U.S. Economy

December 2011

labell label Page 18 million people unemployed and more who have left the work force all together, it does highlight that even minor cost increases that get passed on to consu mers have a negative impact on jobs and the economy overall.The Economic Impact of Proposed PVC MACT Rule on Resin Producers, Processors, and the U.S. Economy

December 2011

labell label Page 19 

# E conomic I mpact of the R esulting C losure of D ispersion R esin P roduction P lants

The Working Group comments state that a PVC MACT promulgated as proposed would result in the closure of all plants making dispersion, blending and specialty resins due to the inability of known technology to meet the proposed stripped resin limits 12 . There are currently four plants that will be impacted by the proposed MACT and forced to cease operations. These plants are located in four separate states, and directly employ a combined 500 employees in operational,
administrative and contract maintenance and services 13

. The owners of these facilities will be
forced to take hundreds of millions of dollars in asset write

- downs, and bear the costs associated with shuttering manufacturing facilities.

As discussed earlier, many but not all of the customer base for these facil ities may be able to source their displaced resins from foreign producers, but t he same cannot be said for those companies that make up the supply chain for these plants. The indirect economic activity generated from this supply chain is nearly as large as the impact from the plants themselves, as equipment manufacturers, suppliers of maintenance materials, professional services firms such as lawyers, accountants and consultants and an array of other providers will not have those same international options for their business once these plants close down. The 500 employees directly employed by these plants, and the additional employees supported by their supply chain activities, live and spend and create economic activity within the local economy. This induce d economic impact is also a critical component of the overall economic activity tied to these production plants.

To measure the relation between the loss of employment in PVC production and the resulting
economic impact in the local economy , this study app lies IMPLAN

--- a widely used software package for economic impact evaluation

--- to quantify the stimuli within each state where the plant
is located in terms of the following components:

Employment: the number of jobs supported directly by the plants themsel ves, and the indirect and induced employment supported by plant activity

. Labor Income: The employee compensation generated by the plant operation and the upstream impacts

. Value Added: The economic contribution to the Gross National Product that the pla nt operations generate

.

12 Comments of the Vinyl Institute, Inc. PVC MACT Working Group, Document no. EPA

- HQ

- OAR

- 2002

- 0037

- 0146, at

p. 3, 24

- 25, (8/2/2011)

.

13 Vinyl Institute Estimate of Direct Economic Impact on PVC Industry from EPA’s Proposed PVC MACT Letter to EPA

dated October, 27, 2011.The Economic Impact of Proposed PVC MACT Rule on Resin Producers, Processors, and the U.S. Economy

December 2011

labell label Page 20 Industry Output: The industry sales by the plants, their supply chain supported activities, and the induced impact of their operation

.

E stimated level s of employment impacted by dispersion plant closure s are based on employee data supplied by the PVC industry in response to EPA’s Section 114 Request 14

. This data was used in the appropriate state IMPLAN model , and the aggregated results are shown below

.

Figure	7: Sum	of	all	4	Impacted	Plants

Impact	Type Employment Labor	Income Value	Added Output

Direct	Effect 500 79,267,907 128,478,700 555,171,072

Indirect	Effect 698 60,531,107 108,763,360 319,001,688

Induced	Effect 843 39,520,364 72,186,730 123,100,044

Total	Effect 2,041 179,319,380 309,428,810 997,272,816

In summary, the dispersion plant closures will result in the loss of between 429 and 638 employees in each affected state (TX, DE, NJ, & IL) , with a combined job loss of over 2,000. The
total combined state

- level economic contribution lost by these plant closures will be over $300 million, based on an estimated total industry output of just under $1 billion. Included within that lost supply

- chain activity will be the sales of vinyl chloride monomer and polymerization chemicals used in the PVC reactors, which will impact not only chlorine producers, but also EDC/VCM producers and other polymerization chemical suppliers. The four plants themselves generate an estimated direct output, or industry sales, of over $550 million 15 and create a combined economic contribution of nearly $130 million annually. All of this economic activity would be lost if these four plants are required to shut down due to an inability to comply with the proposed PVC MACT.

14 Facility Submissions to EPA in Response to Clean Air Act (CAA) Section 114 Request, Docket Document No. EPA

HQ

- OAR

- 2002

- 0037

- 107, at Tab A2 (4/28/2011).

15 Industry output figure is derived from the state level IMPLAN models and represents typic al output associated with the direct employment levels affected in each state.The Economic Impact of Proposed PVC MACT Rule on Resin Producers, Processors, and the U.S. Economy

December 2011

labell label Page 21 

# E conomic Benefits from Increased PVC Producer Spending

As is discussed in the previous section, if t he PVC MACT is promulgated as proposed , it will likely impose increased cost s on the industries downstream of the PVC production sector from rising resin prices and the need for additional measures to deal with the new resins

. Conversely

, equipment, services and ingr edient suppliers are expected to experience increased economic activity as PVC industry producers and processors make investments and adjustments for compliance with the proposed MACT. As the PVC resin producers source new equipment, utilities, testing services, etc from its supplying industri es, the increased activity driven by the proposed
MACT can create higher market demand for some of these supplying industries

. Consequently

, these industries should enjoy boosted production , revenue, employment, and labor income

. In addition, to comply with the proposed rule, PV C resin producers will have to increase their labor input by bringing in additional employees. This section tries to g aug e how much the whole economy can benefit from this kind of stimulus . The impacts channeled through the upstream industries and through the increased employment within the PVC industry are evaluated, respectively. It should be noted that no capital improvements nor additional operating costs or employees are co nsidered for dispersion resin plants since those facilities cannot meet their proposed limits and are assumed shut down.

To measure the relation ship between increase d PVC production cost s and the stimulative effects
on the economy of u p stream sectors

, we used the IMPLAN model to quantify the following:

Employment: the number of jobs supported by the capital investment or the increase
total annual costs. Labor Income: The employee compensation generated by the increased expenditures.
Value Added: The economic contribution to the U.S. Gross Domestic Product that
will be generated by the increased cost needed to implement the standar ds. Industry Output: The industry sales created as the TCI and TAC work their way through the supply chain and into the economy.

Each of the preceding stimulative effects was examined for its Direct, Indirect, and Induced Impacts on the economy. T aking employment as an example , the D irect Employment I mpacts represent the increased employment with in the industrie s that the PVC resin producers and

processors source materials and services from, such as the manufacturers of environmental control devices, utility suppliers, construction companies, etc

. T he I ndirect Employment I mpact represents the increased employment within the upstream industries of these suppliers, such as the steel and concrete manufacturers, oil and gas providers, etc

. T he I nduced Employment
I mpact is created by the spending of the direct and indirect employees

, which bring s benefits to a

w ide range of sectors , such as increased employment in the food, housing, medical service, and
education sectors

. Appendix B introduces the methodology and functions of the IMPLAN model

.The Economic Impact of Proposed PVC MACT Rule on Resin Producers, Processors, and the U.S. Economy

December 2011

labell label Page 22 Since there are two components of the increased cost s t hat will be cha nneled to the supply chain
sectors

- -- the one

- time upfront capital investment and the annual recurring cost

--- the ir stimulative
effects on the economy are assessed separately

. Based on cost data submitted to EPA by the PVC MACT Working Group

, t he following table has tabulated all the annual recurring cost s by the PVC producer s and by the type of cost

. This table excludes the amortization of the capital investment, as that is analyzed on its own, and also excludes the costs of additional labor that will be needed at each facility

. The additional labor costs are later in the report, highlighting the expected increased employment needed by the PVC producers to ensure compliance with the proposed MACT. The amortized capital investments costs and th e internal labor costs represent the delta between the $43 million in TAC shown previously and the $2 8 million in costs shown
below.

Figure 8 : Total	Annual	Costs	Excluding	Amortization

Evaporative

Cooler

Water Gasket, Packing, and	Sealing

Devices Insurance Facility
Cost Electricity Pump	and Pumping Equipment Activated
Carbon Other
Costs

Total
Annual Recurring

Cost $20,650,778 $3,227,078 $1,433,544 $1,411,511 $519,399 $416,095 $225,950 $377,777

Matching the cost s listed in the above table with t heir corresponding upstream supply industrie s
, and applying IMPLAN model of the U.S. economy
, the study quantified the economic impacts of the increase in annual recurring production cost. The results are summarized in the table below,
which include the Direct, Indirect, Induced, and the Total Impact s on the economy ’ s employment, labor, value added , and total output

. Since these impacts are caused by the annual recurring
costs , the y are expected to take place every year if the proposed MACT is promul gated. 2012
dollar is used here as the currency unit

.

Figure 9 : Positive	Economic	Impact	Resulting	from	Additional	Annual	Operating	Costs

Impact	Type Employment Labor	Income Value	Added Output

Direct	Effect 107 $10,750,667 $17,076,820 $25,823,880

Indirect	Effect 71 $4,702,590 $7,003,941 $13,988,354

Induced	Effect 162 $7,929,599 $14,042,080 $26,381,518

Total	Effect 339 $23,382,856 $38,122,840 $66,193,752

The other part of the inc reased costs that will flow in to the upstream economies is the upfront capital investment. The Working Group estimated MACT

- driven total capital investment

--- as opposed to its amorti zed value

. T he costs are organized according to the four major affected

areas this study focuses on: Wastewater Treatment, Monitoring and Testing, Resin Stripping, and
Process Vents.The Economic Impact of Proposed PVC MACT Rule on Resin Producers, Processors, and the U.S. Economy

December 2011

labell label Page 23 Figure 10 : Total	Capital	Investment
Resin Stripping Wastewater

Treatment Monitoring and	Testing Process
Vents Total

Total	Costs $102,605 ,535 $13,958,483 $356,000 $ 17,291,645 $134,211,663

E stima ted impacts from capital investment al so were developed by matching costs with by supply
chain spending and applying the IMPLAN model

. T he Direct , Indirect, Induced, and Total I mpacts are summarized in the table below. It is worth noting that since the capital investment used for
estimation is the upfront one

- time cost, the impacts here are ‘ one

- time ’ impacts. A ccording to the proposed MACT, all the existing PVC production units are expected to finish t he transforming process within three years, so these impacts are considered to take place within a three

- year timeframe

.

Figure 11 : Positive	Economic	Impact	Resulting	from	Capital	Investments	Over	the	3

- Year
Time	Period

Impact	Type Employment Labor	Income Value	Added Output

Direct	Effect 639 $45,614,712 $54,121,830 $134,602,928

Indirect	Effect 540 $35,986,736 $57,044,290 $121,825,200

Induced	Effect 856 $42,042,012 $74,448,120 $139,914,480

Total	Effect 2,035 $123,643,456 $185,614,200 $396,342,592

In addition to its stimulative effect on upstream industries, the proposed PVC MACT will also lead to increased employment within the PVC manufacturing sector. To meet the proposed standards,

many PVC producers will need to bring in additional workers. The PVC MACT Working Group
estimated that a total of 20 additional employees w ould be needed for the PVC producers to comply with the proposed rule. The affected states where these new employees will be needed include Texas, Louisiana, Mississippi, and New Jersey. In summary, due to the need for PVC industry to invest in capital equipment, as well as increased annual operating costs, PVC resin producers will need to hire an additional 20 employees. The capital investment will result in the support of over 2,000 employees during the three

- year implementation phase of the MACT standards, and the increase d annual operating expenses will result in over 3 5 0 jobs in the supply
chain supported annually.The Economic Impact of Proposed PVC MACT Rule on Resin Producers, Processors, and the U.S. Economy

December 2011

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# Impact of Constrained PVC Capacity on Global Marketplace and U.S. Economy

T he U. S. PVC resin producing sector has a resilien t strong presence in the global market. I ts future trajectory in the market is expected to be re

- shaped by the proposed MACT regulations.
IHS Chemicals data show that f rom 2007 to 2010, the U. S. PVC resin production represents
between 17.3% to 19.1% of global PVC supply, with a volume th at is 108.0% to 167.9% of U. S. domestic demand. Climbing on the back of its sizeable output volume and the competitive quality of its products, the U. S. PVC resin producing sector has established its role as a major player in
the world market and one of th e very few net exporting sectors of U. S. industry . T he baseline analysis of the IHS PVC demand and production model shows that the U.S. domestic industry is forecast to produce 9.4 million tons of homo/copolymer PVC and 0.3 million tons of emulsion PVC in 2020, up from its corresponding values of 6.5 and 0.1 million tons in 2011. This is a compound annual growth rate of 4.3%. Accordingly, by 2020 U. S. resi n producers will account for 19.4% of global PVC resin production, and the country will see a net PVC annual export volume
of 4.9 million tons.

Alternatively, if the PVC MACT is implemented as proposed , the Working Group feels that expansion of homo/copol ymer PVC productivity will be con s t r ained at its 2011 level, while the emulsion PVC manufacturing will stop. Driven by this decline in U

. S

. PVC output and the expected growth of global demand, by 2020 the market share of U

. S

. - produced PVC resin will drop t o 13%

.

As shown in figure 12 , IHS Chemicals expects 2011 net exports to be just over 2.8 million metric tons, with this figure forecast to grow to 4.9 million metric tons by 2020. Within this capacity constrained scenario, if domestic demand remains local ly sourced, the net export figure will
shrink to a level of 1.7 million tons , a reduction of 65.2%. T h e following graph shows the two scenarios of PVC net export from 2011 through 2020 , with the expectation that implementation of
the rule occurs in 2015.The Economic Impact of Proposed PVC MACT Rule on Resin Producers, Processors, and the U.S. Economy

December 2011

labell label Page 25 Figure 12 : U.S.	Net	Export	Changes	(000	Metric	Tons)

Based on the IHS Chemicals forecast PVC netback price in 2020 of 62.54 cents per pound, this lost production of nearly 3.2 million tons will equal $ 4.4 billion in lost economic output in 2020.
From 2 015 to 2020, the total economic output that would be lost if capacity is constrained will be $16.3 billion.

The repercussions of the proposed MACT implementation are expected to unfold on multiple levels. The most direct impact, as has been discussed in t he previous sections of our analysis, is the downsizing of the U. S. PVC resin producing sector. From a value

- chain perspective, while transforming the industry to match the proposed MACT will to some extent stimulate the supply
chain industries of equipment manufacturers and utilities, to the downstream sectors of the PVC industry

--- including a wide range of PVC plastic processors

--- the reduced volume and categories
of domestic PVC resin supply will either add restrictions to their dev elopment

, encourage them to
source PVC resin from overseas , use other types of plastic resins in place of PVC, or discontinue the product altogether . Correspondingly, the share of PVC resin supply will partly be shifted from
U

. S

. to foreign producers , inc luding Mexico, EU, etc. In addition, an influx of lower cost finished PVC goods could be expected to replace either more costly or poorer performing products. It takes years to reformulate and recertify PVC products and foreign product manufacturers likel y will gain a foothold with product distributors and resellers who want to satisfy market demand for these products.

On top of the above

- mentioned impacts, the proposed PVC MACT will also shape the country ’ s Balance Of Payments (BOP). In other words, t he decline in PVC net export will contribute to an 0 1,000 2,000 3,000 4,000 5,000 6,000

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2020	PVC	Net	Export	at
base

- line	scenario

2020	PVC	Net Export	if the proposed
MACT	is PVC Net	Export	at
current	base

- line

scenarioThe Economic Impact of Proposed PVC MACT Rule on Resin Producers, Processors, and the U.S. Economy

December 2011

labell label Page 26 increase in the U.S. trade deficit. According to our forecast, a $ 4.4 billion dollar cut in net PVC export s resulting from the implementation of the PVC MACT as currently proposed , will drive up
the defici t of U. S. net goods export by 1.1% in 2020.The Economic Impact of Proposed PVC MACT Rule on Resin Producers, Processors, and the U.S. Economy

December 2011

labell label Page 27 

# Appendix A: Compliance Cost Review

1. Data for this analysis has been derived from a number of sources. In as much as was possible, public data sources have been utilized. The major source of information has been from the PVC MACT Working Group in the several documents submitted to EPA and each specifically referenced throughout this report. M ost of the submissions of the PVC MACT Working Group were made by The Vinyl Institute on behalf of the Working Group a nd are available at EPA’s docket portal: http://www.regulations.gov/#!docketDetail;dct=FR+PR+N+O+SR+PS;rpp=10;so=DE SC;s b=postedDate;po=0;D=EPA

- HQ

- OAR

- 2002

- 0037

2. URS Engineering was retained by the PVC MACT Working Group to prepare some portions of the plant cost information specifically related to capital improvements at each resin producing facility . URS also develo ped the corresponding increased operating costs at each facility that are necessary to meet the proposed PVC MACT limits. A summary of URS’ calculations can be found at: Comments of the Vinyl Institute, Inc. PVC MACT Working Group, Document no. EPA

- HQ

- O AR

- 2002

- 0037

- 0146, at Attachment 6 (8/2/2011) located on EPA’s regulations.gov portal address above.

3. IHS used facility specific data it has on file in order to determine certain economic impacts. IHS Global Insights is the parent company for SRI, and CMAI, both of which study the PVC industry on a global basis with respect to industry capacit y, cost analysis, and periodic analysis and forecasting of resins supply and demand on a regional basis.The Economic Impact of Proposed PVC MACT Rule on Resin Producers, Processors, and the U.S. Economy

December 2011

labell label Page 28 

# Appendix B : The I MPLAN Model

I MPLAN, short for “ Im pact Analysis for Plan ning,” is a widely used commercially available model for input/output analysis. Minnesota IMPLAN Group, Inc., is responsible for the production of the IMPLAN data, model, and software. Using classic input/output analysis in combination with region

- specific social accounting matrices and multiplier models, IMPLAN provides a highly

acc urate and adaptable model for its users. The IMPLAN database contains country, state, zip code, and federal economic statistics, which are specialized by region. IMPLAN accounts closely follow the accounting conventions used in the “Input

- Output Study of t he U.S. Economy” by the BEA and the rectangular format recommended by the United Nations. The IMPLAN system was designed to serve three functions:

1) Data retrieval, 2) Data reduction, model development, and 3) Impact analysis

Comprehensive and detailed data covera ge of the entire United States by geography, and the ability to incorporate user

- supplied data at each stage of the model

- building process, provides a high degree of flexibility both in terms of geographic coverage and model formulation. There are two comp onents to the IMPLAN system, the software and databases. The databases provide all information to create regional IMPLAN models. The software performs the calculations and provides an interface for the user to make final

- demand changes. The IMPLAN system c onsists of two major parts:

1) A national

- level technology matrix and 2) Estimates of sectoral activity for final demand, final payments, industry output, and employment for each detailed geography in the United States along with the aggregate region.

Input

- output accounting describes commodity flows from producers to intermediate and final consumers. The total industry purchases of commodities, services, employment compensation, value added, and imports are equal to the value of the commodities produce d.

Purchases for final use (final demand) drive the model. Industries produce goods and services for final demand and purchase goods and services from other producers. These other producers, in turn, purchase goods and services. This buying of goods and se rvices (indirect purchases) continues until leakages from the region (imports and value added) stop the cycle.

These indirect and induced effects (the effects of household spending) can be mathematically
derived. The derivation is called the Leontief inver se. The resulting sets of multipliers describe the change of output for each and every regional industry caused by a one dollar change in final demand for any given industry.The Economic Impact of Proposed PVC MACT Rule on Resin Producers, Processors, and the U.S. Economy

December 2011

labell label Page 29 Creating regional input

- output models requires a tremendous amount of data. The c osts of surveying industries within each region to derive a list of commodity purchases production functions) are prohibitive. IMPLAN was developed as a cost

- effective means to develop regional input

- output models.

IMPLAN easily allows the user to do the f ollowing:

Develop his/her own multiplier tables; Develop a complete set of SAM (Social Accounting Matrix) accounts; Change any component of the system, production functions, trade flows, or database; Generate type I, II, or any true SAM multiplier inter nalizing household, government, and/or investment activities Create custom impact analysis by entering final

- demand changes; Obtain any report in the system to examine the model’s assumptions and
calculations.

There are two components to the IMPLAN syste m, the software and databases. The databases provide all information to create regional IMPLAN models. The software performs the calculations and provides an interface for the user to make final

- demand changes.



# IMPLAN SOFTWARE

Minnesota IMPLAN Group devel oped the current version of IMPLAN P rofessional® version 3 .0 in
2009 . It is a Windows

- based software package that performs the calculations necessary to create
the predictive model. The software reads the database, creates the complete set of social

accoun ting matrices (SAM), the I/O accounts, and integrates all user

- defined inputs to produce an
alternative scenario.

The IMPLAN Input/Output System derives the predictive multipliers. The software also enables
the user to make changes to the data, the trade f lows, or technology. It also enables the user to
make final

- demand changes, which results in the impact assessment.

Features of IMPLAN Professional® include:

1) Windows file and printer management; 2) Economic database editor; 3) Complete Social Accounting Matrix s tructure; 4) A choice of trade

- flow assumptions: Supply

- Demand Pooling; Regional Purchase Coefficients; Location 5) quotients; 6) Production function editor, i.e., the tools and opportunity necessary to modify the “absorption” 7) and “byproducts” matrices;The Economic Impact of Proposed PVC MACT Rule on Resin Producers, Processors, and the U.S. Economy

December 2011

labell label Page 30 8) Libraries for production functions and impact analysis expenditures; 9) Flexible model aggregation tools; 10) Report generator; many preset reports for all stages of model building and analysis; 11) Export feature to many of the major PC file formats; 12) Flexible assumptions for induced effects; 13) Type SAM

– true SAM multipliers which allow internalizing any number of institutions;

a. Type II

- Based on PCE and SAM based local income relationship;
b. Type II

- Based on user

- specified disposable income rate;

c. Type III (CPMM)

- Traditional F orest Service employment based multipliers; 14) Menu structure for easy impact analysis; 15) Event

- based impact databases; 16) Built

- in and editable transaction margins; 17) Built

- in and editable deflators; 18) Technical support by MIG, Inc.; 19) Data in Access Database format.



# D ATABASE

Each database has information for these components for all 440 industrial sectors in the IMPLAN
model. This 440

- sector scheme was revised in 2007 and was originally the basis for the Bureau
of Economic Analysis’s Benchmark Input

- Output Study. This scheme is nearly 6 digit NAICS for manufacturing, and more aggregate for service sectors. By necessity IMPLAN’s sectoring is very
similar. However, in some cases, 6 digit NAICS code data has been aggregated for certain
IMPLAN sectors. A full NAICS to IMPLAN mapping document can be downloaded from www.implan.com

.

Employment is total wage and salary and self

- employed jobs in a region. In the 1985 database, employment was measured as full

- time equivalent jobs. Thi s meant that total employment in a region would generally be below most published estimates because these are generally full

- time and parttime. In the 1990 and subsequent databases, employment includes both full

- time and part

- time workers. Employment in th e 1990 and subsequent databases are measured in total jobs.

There are four sub

- components for value added:

1) Employee Compensation; 2) Proprietary Income; 3) Other Property Type Income; 4) Indirect Business Taxes;

Employee compensation is wage and salary payments as well as benefits, including health and life insurance, retirement payments, and any other non

- cash compensation. This provides a
measure of income to wo rkers who are paid by employers.The Economic Impact of Proposed PVC MACT Rule on Resin Producers, Processors, and the U.S. Economy

December 2011

labell label Page 31 Proprietary income consists of payments received by self

- em ployed individuals as income. This
would be recorded on Federal Tax Form 1040C. This includes income received by private business owners, doctors, lawyers, and so forth. Any income a person receives for payment of
self

- employed work is counted here.

Other property

- type income consists of payments from rents royalties and dividends. This
includes payments to individuals in the form of rents received on property, royalties from contract,
and dividends paid by corporations. This also includes corporate profit s earned by corporations.

Indirect business taxes consist primarily of excise and sales taxes paid by individuals to
businesses. These taxes are collected during the normal operation of these businesses but do
not include taxes on profit or income. Goods a nd services purchased for their ultimate use by an
end user are called final demands. For a region, this would include exports as that is a final use for that product. In an input

- output framework, final demands are allocated to producing industries
with m argins allocated to the service sectors (transportation, wholesale and retail trade, insurance) associated with providing that good to the final user.

Thus, final demands are in producer prices. There are 13 subcomponents for final demands:

1) Personal Consumption Expenditures (PCE)

— nine income levels; 2) Federal Government Military Purchases; 3) Federal Government Nonmilitary Purchases; 4) Federal Government Capital Formation Purchases; 5) State and Local Government Non

- Education Purchases; 6) State and Local Gov ernment Education Purchases; 7) State and Local Government Capital Formation Purchases; 8) Inventory Purchases; 9) Capital Formation; 10) Foreign Exports; 11) State and Local Government Sales; 12) Federal Government Sales; 13) Inventory Sales.

All final demands in the original data are on a commodity basis. The distinction between
industries and commodities is as follows from the 1972 I

- O Definitions and Conventions Manual:

An input

- output industry is a grouping of establishments, as classified by Standard
Industrial C lassification (SIC) 16 ;

16 The IMPLAN sector scheme is now currently based on NAICS definitions and is revised as necessary after each 5

- year Economic Census is released

.The Economic Impact of Proposed PVC MACT Rule on Resin Producers, Processors, and the U.S. Economy

December 2011

labell label Page 32 An input

- output commodity consists of the characteristic products of the corresponding
I

- O industry wherever made. There are several industries that have no commodities.
This is a result of departures from the strict SIC of industries . Also, some commodities have no associated industry. An example of this is noncomparable imports.

PCE consists of payments by individuals/households to industries for goods and services used
for personal consumption. Individuals tend to buy little direct ly from industries other than retail
trade. In an input

- output table, though, purchases made by individuals for final consumption are shown as payments made directly to the industry producing the good. PCE is the largest component of final demand.

Federal government purchases are divided between military and nonmilitary uses and capital
formation. Federal military purchases are those made to support the national defense. Goods range from food for troops to missile launchers. Nonmilitary purchases are made t o supply all other government functions. Payments made to other governmental units are transfers and are
not included in federal government purchases.

State and local government purchases are divided between public education and non

- education
and capital f ormation. Public education purchases are for elementary, high school, and higher
education. Non

- education purchases are for all other government activities. These include state government operations, operations including police protection and sanitation. P rivate

- sector education purchases are not counted here. Private education purchases show up in IMPLAN
sectors 495 and 496.

Inventory purchases are made when industries do not sell all output created in one year. This is generally the case. Each year, a por tion of output goes to inventory. Inventory sales occur when
industries sell more than they produce and need to deplete inventory. Inventory purchases and
sales generally involve goods

- producing industries (e.g., agriculture, mining, and manufacturing).

Capital formation is private expenditures made to obtain capital equipment. The dollar values in
the IMPLAN database are expenditures made to an industrial sector producing the capital equipment. The values are not expenditures by the industrial sector.

Fo reign exports are demands made to industries for goods for export beyond national borders.
These represent goods and services demanded by foreign parties. Domestic exports are calculated during the IMPLAN model creation and are not part of the database.

Th e national transactions matrix is based on the most current BEA National Benchmark Input

Output Model. It is re

- sectored to IMPLAN industrial sectoring. We use our IMPLAN data for the current year to update the most recent National Benchmark study.The Economic Impact of Proposed PVC MACT Rule on Resin Producers, Processors, and the U.S. Economy

December 2011

labell label Page 33 

# IMPLAN MULTIPLIERS

The notion of a multiplier rests upon the difference between the initial effect of a change in final
demand and the total effects of that change. Total effects can be calculated either as direct and
indirect effects, or as direct, indirect, an d induced effects. Direct effects are production changes
associated with the immediate effects or final

- demand changes. Indirect effects are production changes in backward

- linked industries caused by the changing input needs of directly affected
industrie s (for example, additional purchases to produce additional output). Induced effects are the changes in regional household spending patterns caused by changes in household income generated from the direct and indirect effects.

Five different sets of multipl iers are estimated by IMPLAN corresponding to five measures of regional economic activity: total industry output, personal income, total income, value added, and employment. For each set of multipliers, four types of multipliers are generated, Type I, Type II, Type SAM, and Type III

. 

## Type I Multiplier

A Type I multiplier is the direct effect, produced by a change in final demand, plus the indirect
effect divided by the direct effect. Increased demands are assumed to lead to increased employment and populati on with the average income level remaining constant. The Leontief inverse (Type I multipliers matrix) is derived by inverting the direct coefficients matrix. The result is a matrix of total requirement coefficients, the amount each industry must produce fo r the purchasing industry to deliver one dollar’s worth of output to final demand.



## Type II Multipliers

Type II multipliers incorporate “induced” effects resulting from the household expenditures from

new labor income. The linear relationship between labor income and household expenditure can
be customized in the IMPLAN Professional® software: 1. The default relationship is PCE and total household expenditures. Each dollar of workplace

- based income is spent based on the SAM relationship generated by IMPLAN. 2. The second possibility is a RIMS II style of Type II multiplier, where PCE is adjusted to represent only the spending of the disposable income portion
of labor income. In this way, there is a direct one

- to

- one relationship to labor income and PCE. Then, a ratio which the user can specify is applied to convert total income to disposable income
before the rounds of induced effects are calculated.



## Type SAM

Type SAM multipliers are the direct, indirect, and induced effects where the induced effect is
b ased on information in the social account matrix. This relationship accounts for social security
and income tax leakage, institution savings, and commuting. It also accounts for inter

- institutional
transfers. This multiplier is flexible in that you can inc lude any institutions you want. In otherThe Economic Impact of Proposed PVC MACT Rule on Resin Producers, Processors, and the U.S. Economy

December 2011

labell label Page 34 words, if you want to create a model closed to households and state and local government, you can. If you select this option, an additional dialog box with be displayed allowing you to select the institutions you wa nt to include.



## Output Multipliers

This report shows the total industry output multipliers and per

- capita personal consumption expenditures. Output multipliers can be used to gauge the interdependence of sectors; the larger the output multiplier, the greate r the interdependence of the sector on the rest of the regional economy. A Type I entry represents the value of production (from direct and indirect effects) required from all sectors by a particular sector to deliver one dollar’s worth of output. Type II, SAM, and III adds in the induced requirements.

Example: If a Type I multiplier for the dairy farm industry is 1.0943, for each dollar of output produced by the dairy farm sector, 0.0943 dollars’ worth of indirect output is generated in other
local industr ies. If the Type SAM Dairy Farm multiplier is 1.3140, 0.3140 dollars of indirect and induced output is generated in other local industries. The induced output would be 1.3140 minus
1.0943 or 0.2197 dollars for each dollar of output produced by the dairy fa rm sector.



## Labor Income Multipliers

The labor income multiplier report shows the direct, indirect, and induced employee compensation plus proprietor income effects generated per dollar of output. The Type I personal income multiplier is the direct and indi rect employee compensation plus proprietor income divided by the direct income. The Type II, Type SAM, and Type III multiplier adds the induced effects component.

Example: If the Type I multiplier for the dairy farm sector is 1.4761 and the Type SAM multiplier is 2.7067, then for each dollar of direct income generated by this industry, 0.4761 dollars of indirect
and 1.2306 dollars of induced income are generated.



## Employee Compensation Multipliers

Employee compensation represents all payroll costs of w age and salary workers. The Type I, Type SAM, Type II, or Type III total income multipliers are listed in this report along with the direct, indirect, and induced total income effects generated from the production of one dollar’s output.



## Proprietor Income Multiplier

Proprietor income is the income earned by the owners of a private

— non

- incorporated business

— i.e., the self

- employed. The Type I, Type SAM, Type II, or Type III total income multipliers areThe Economic Impact of Proposed PVC MACT Rule on Resin Producers, Processors, and the U.S. Economy

December 2011

labell label Page 35 listed in this report along with the direct, indirect, a nd induced total income effects generated from the production of one dollar’s output.



## Other Property

- Type Income

Other property

- type income represents corporate income, rental income, and interest. The Type I
and Type II/Type SAM/Type III total income multipliers are listed in this report along with the direct, indirect, and induced total income effects generated from the production of one dollar’s output.



## Value

- Added Multipliers

Type I and Type II/Type SAM/Type III value

- added multipliers are listed i n this report along with the direct, indirect, and induced value

- added effects generated from the production of one dollar of output. Value

- added includes employee compensation, proprietary income, other property

- type income, and indirect business taxes.



## E

mployment Multipliers

Type I and Type II/Type SAM/Type III employment multipliers are listed in this report along with the direct, indirect, and induced employment effects from the production of one million dollars of output. Employment is in terms of full

- time and part

- time jobs.

Example: if a dairy farm Type I employment multiplier is 1.1158, for each job created directly by
the dairy farm industry, 0.1158 jobs are created indirectly.