OAR Box 1706 

Prepped by Ollie Stewart 

Document Number: 

3) lll-B-3 

Docket Number: 

A-98-13 

Printed 10/8/2008 10:25:07 AM Sheet 3 of 142 

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RESEARCH TRIANGLE INSTITUTE /SB 

Economic Analysis of Air Pollution 

Regulations: Proposed NESHAP 

for Organic Liquids Distribution 

Final Report 

Prepared for 

John L. Sorrels 

U.S. Environmental Protection Agency 

Office of Air Quality Planning and Standards 

Innovative Strategies and Economics Group (ISEG) 

(MD-15) 

Research Triangle Park, NC 27711 

Prepared by 

Katherine Heller 

Brooks ML Depro 

Research Triangle Institute 

Health, Social, and Economics Research 

Research Triangle Park, NC 27709 

EPA Contract Number 68-D-99-024 

RTI Project Number 7647-002-134 

September 2001 

3040 Cornwallis Road Post Office Box 12194 • Research Triangle Park, North Carolina 27709-2194 USA 
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EPA Contract Number 

68-D-99-024 

RTI Project Number 

7647-002-134 

Economic Analysis of Air Pollution 

Regulations: Proposed NESHAP 

for Organic Liquids Distribution 

l^e/ise^ 

Final Report 

September 2001 

Prepared for 

John L. Sorrels 

U.S. Environmental Protection Agency 

Office of Air Quality Planning and Standards 

Innovative Strategies and Economics Group (ISEG) 

(MD-15) 

Research Triangle Park, NC 27711 

Prepared by 

Katherine Heller 

Brooks M. Depro 

Research Triangle Institute 

Health, Social, and Economics Research 

Research Triangle Park, NC 27709 

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CONTENTS 

Section Page 

1 Introduction and Executive Summary 1-1 

1.1 Profile ofthe Affected Industries 1-1 

1.2 The Costs ofthe OLD NESHAP 1-3 

1.3 Estimated Economic Impacts of the OLD NESHAP 1-4 

1.3.1 Market Responses to the NESHAP 1-4 

1.3.1.1 Market- and Industry-Level Impacts 1-5 

1.3.1.2 Facility-Level Impact Results 1-6 

1.3.1.3 Company-Level Impacts Results 1-6 

1.3.1.4 Social Costs 1-7 

2 Industry Profile 2-1 

2.1 Brief Description of Source Category 2-1 

2.1.1 Current Economic Conditions and Trends 2-3 

2.1.1.1 Chemical Production 2-3 

2.1.1.2 Petroleum Refineries 2-3 

2.1.1.3 Liquid and Petroleum Terminals 2-3 

2.1.1.4 Crude Oil Pipeline Pumping and 

Breakout Stations 2-4 

2.1.2 Environmental Concerns 2-4 

2.2 Distribution of Organic Chemical Liquids 2-5 

2.2.1 Overview of Distribution Service 2-7 

2.2.1.1 Elasticity of Supply .... : 2-8 

2.2.2 Industry Organization 2-9 

2.2.2.1 Facilities 2-11 

2.2.2.2 Firm Characteristics 2-13 

2.2.3 Uses and Consumers 2-18 

2.2.3.1 Characterization of Demand—Derived Demand 

Elasticity 2-19 

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2.2.4 Markets 2-20 

2.2.4.1 Market Volumes 2-20 

2.2.4.2 Market Prices 2-21 

2.2.4.3 Future Projections 2-21 

2.3 Distribution of Petroleum Liquids 2-21 

2.3.1 Affected Markets 2-21 

2.3.2 Production/Service Overview 2-22 

2.3.2.1 Elasticity of Supply 2-24 

2.3.3 Industry Organization 2-24 

2.3.3.1 Facilities 2-27 

2.3.3.2 Firm Characteristics 2-27 

2.3.4 Uses and Consumers 2-34 

2.3.4.1 Characterization of Demand—Derived Demand 

Elasticity 2-34 

2.3.5 Markets 2-36 

2.3.5.1 Market Volumes 2-37 

2.3.5.2 Market Prices 2-38 

2.3.5.3 Future Projections 2-38 

Engineering Cost Analysis 3-1 

3.1 Control Cost Estimates 3-1 

Economic Impact Analysis: Methods and Results 4-1 

4.1 Overview of Economic Modeling Approaches 4-1 

4.2 Conceptual Approach 4-2 

4.2.1 Operational Model 4-4 

4.2.1.1 Market Supply 4-4 

4.2.1.2 Market Demand 4-4 

4.2.1.3 Control Cost Inputs and With-Regulation 

Equilibrium 4-4 

4.2.2 Results 4-5 

4.2.3.1 Market- and Industry-Level Impacts 4-5 

4.2.3.2 Facility-Level Impact Results 4-7 

4.2.3.3 Company-Level Impacts Results 4-8 

4.2.3.4 Social Costs 4-9 

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5 Small Business Impact Analysis 5-1 

5.1 Identifying Small Businesses 5-1 

5.2 Screening-Level Analysis 5-1 

5.3 Economic Analysis 5-2 

5.4 Assessment 5-2 

References R-1 

Appendices 

A Organic Liquids Distribution (OLD) Methodology A-l 

B Economic Computations B-l 

C OLD Economic Impact Analysis: Sensitivity Analysis for 

Different Scenarios C-1 

D Model Parameter Sensitivity Analysis D-1 
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LIST OF FIGURES 

Number Page 

2-1 Distribution of Organic Chemical Liquids Facilities that Responded 

to the ICR Survey 2-14 

2-2 The Distribution of Organic Chemical Liquids Facilities that 

Responded to the ICR Survey by Employment 2-15 

2-3 The Sire Distribution of Companies that own OLD Facilities that 

Responded to the ICR Survey and are Involved in Chemical 

Distribution, by 1998 Sales (in $1997) 2-16 

2-4 Size Distribution of Companies that own OLD Facilities that 

Responded to the ICR Survey and are Involved in Chemical Distribution .. . 2-17 

2-5 Distribution of Companies Owning Organic Chemical Liquids Facilities 

that Responded to the ICR Survey, by Profit Margin 2-19 

2-6 Location of Petroleum Liquids Distributors that Responded to the 

ICR Survey 2-28 

2-7 The Distribution of Petroleum Liquids Facilities that 

Responded to the ICR Survey by Employment 2-29 

2-8 The Size Distribution of Companies that own OLD Facilities that 

Responded to the ICR Survey and are Involved in the Distribution of 

Nongasoline Petroleum Liquids, by 1998 Sales (in $1997) 2-32 

2-9 Size Distribution of Companies that own OLD Facilities that Responded 

to the ICR Survey and are Involved in the Distribution of Nongasoline 

Petroleum Liquids 2-33 

2-10 Distribution of Companies Owning Petroleum Liquid Facilities that 

Responded to the ICR Survey, by Profit Margin 2-35 

4-1 Market Responses to the OLD NESHAP 4-3 

5-1 Distribution of Compliance CSRs by Industry: Control and 

MRR Costs (1997) 5-4 

5-2 Distribution of Compliance CSRs by Industry: MRR 

Only Costs (1997) 5-5 

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UST OF TABLES 

Number Page 

1-1 Number of Facilities Affected by OLD NESHAP, by NAICS Code 1-2 

1-2 Per-Facility and Nationwide Control Costs by Model 

Plant (1997$/yr) ". 1-3 

1-3 Market-Level Industry Impacts of the Proposed OLD 

NESHAP (1997$) 1-5 

2-1 Nationwide HAP Totals from OLD Activities (tons/yr) 2-5 

2-2 Summary of Facility Categories, Liquids, Modes of Transportation, 

and Emissions Sources Covered by the OLD Source Category 2-6 

2-3 Principal OLD Facility Categories 2-8 

2-4 Concentration Ratios by SIC Code 2-11 

2-5 Number of Total OLD Facilities and Affected Facilities, 1997 2-12 

2-6 Profit Margins of Firms that Responded to the ICR Survey and 

that own Organic Chemical Liquids Distribution Facilities 2-18 

2-7 Organic Chemical Market Volumes, 1997 (IO6 Mt) 2-20 

2-8 Petroleum Products Produced at U.S. Refineries, 1997 2-22 

2-9 Principal OLD Facility Categories 2-23 

2-10 Concentration Ratios by SIC Code 2-26 

2-11 Number of Total OLD Firms and Affected Firms, 1996 2-30 

2-12 Small Business Size Standards for OLD Industries 2-31 

2-13 Profit Margins of Firms that own Organic Chemical Liquids Distribution 

Facilities that Responded to the ICR Survey 2-35 

2-14 Estimates of Price Elasticity of Demand for Petroleum Products 2-36 

2-15 Petroleum Product Market Volumes, 1997 (IO6 Mt) 2-37 

2-16 Petroleum Consumption and Net Imports in 1997 and 2020 

(IO6 barrels/day) 2-39 

3-1 Facility and Nationwide Control Costs for the Proposed OLD MACT 3-3 

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4-1 Market-Level Industry Impacts of the Proposed Organic Liquid 

Distribution (OLD) NESHAP: 1997 4-6 

4-2 National-Level Industiy Impacts of the Proposed Organic Liquid 

Distribution (OLD) NESHAP: 1997 4-7 

4-3 Estimated Company-Level Impacts of the OLD NESHAP: 1997 4-9 

4-4 Distribution of Social Costs Associated with Organic Liquids Distribution 

(OLD) NESHAP: 1997 4-10 

5-1 Compliance CSRs for Companies by Industry and Company Size: Control 

andMRRCosts(1997) 5-3 

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SECTION 1 

INTRODUCTION AND EXECUTIVE SUMMARY 

Under Title II of the Clean Air Act (CAA) Amendments of 1990, the Office of Air Quality 

Planning and Standards (OAQPS) is developing a national emission standard for hazardous air 

pollutants (NESHAP) to limit air emissions from organic liquid distribution activities. Industries that 

will be affected by this NESHAP include chemical manufacturers, liquid terminals, petroleum 

refiners, and pipeline owners and operators. The proposed NESHAP requires distributors of 

nongasoline organic liquids to meet emission standards for the release of hazardous air pollutants 

(HAPs) into the environment. To meet these standards, some firms will have to modify their 

equipment and institute leak detection and repair procedures. These changes result in higher costs 

of production for the affected producers. They may also have broader societal implications 

because these effects are transmitted through market relationships to their customers. This report 

profiles the affected industries and analyzes the economic impacts expected to be incurred as a 

result of the NESHAP. 

1.1 Profile ofthe Affected Industries 

The organic liquids distribution (OLD) source category consists of all the source category 

operations that receive, store, and distribute organic liquids (other than gasoline) throughout the 

economy. To provide data on the affected industry, EPA collected survey information from OLD 

facilities. In this report, these survey data are scaled up to reflect the entire affected universe of 

facilities. EPA estimates that 649 facilities will be affected by the NESHAP. Table 1-1 shows a 

frequency distribution of facilities by North American Industry Classification System (NAICS) 

code. Facilities affected may either produce, consume, store, and distribute regulated organic 

liquids, or only store and distribute them. The four major industries affected by the NESHAP are 

chemical manufacturing, petroleum refining, crude oil and natural gas pipeline transportation1, and 

liquid terminalling and warehousing. The liquids being distributed fall into two broad categories: 

'Natural gas pipeline distribution is not affected by this proposed rule. 

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Table 1-1. Number of Facilities Affected by OLD NESHAP, by NAICS Code 

NAICS Code 

325 

32411 

493 

48611 

422,454 

Total 

Description 

Industrial Organic Chemical Production 

Petroleum Refineries 

Liquid Terminals 

Crude Petroleum Pipelines 

Petroleum and Chemical Terminals 

Number of Affected 

Facilities 

370 

110 

94 

35 

40 

649 

• organic chemicals, including synthetic chemicals and petrochemicals, and 

• petroleum liquids, including crude oil, natural gas liquids, and nongasoline refined 

products. 

In NAICS 324 and 325, the majority of facilities employ more than 500 people. Within the 

other NAICS codes, however, many facilities employ 25 or fewer people. Thirty percent of 

affected organic chemical producers (NAICS 325) and 31 percent of facilities in the other industry 

groups are located in Texas. Other states with substantia numbers of facilities include Louisiana, 

Alaska, Ohio, Illinois, and Califomia. Firms owning OLD facilities range from small single-facility 

specialized distributors to large integrated companies that own numerous production and 

distribution facilities. Of an estimated 208 (scaled) affected companies owning OLD facilities, only 

28 are considered small according to Small Business Administration (SBA) criteria. Of OLD firms 

in NAICS 325, most have baseline company sales exceeding $1 billion, and baseline employment 

exceeding 10,000 employees. Among firms owning petroleum OLD facilities, however, baseline 

sales vary more widely. Approximately 20 percent have sales less than $50 million, while more 

than 65 percent have sales exceeding $1 billion. Many firms in the affected industries are highly 

integrated, both vertically and horizontally. This means they may own numerous affected facilities, 

and that their distribution facilities are an integral part of their overall organic liquid operations. For 

this reason, we have paid special attention in our analysis to the impacts on the companies owning 

the OLD facilities. In these integrated firms, EPA expects that many of the distribution-only 

facilities in NAICS 422,454,486, and 493 are not profit centers for the firms that own them, but 

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instead provide a service to other facilities owned by the firm, and operate as a cost center for the 

firm. Thus, the impacts of the regulation will be evaluated in terms of its overall impact on the firm's 

profitability, in addition to examining the impact on the profitability of individual facilities. For 

merchant firms, however, that own only distribution facilities, EPA expects that the impact of the 

regulation will be evaluated in terms of its effect on facility profitability. 

1.2 The Costs of the OLD NESHAP 

The OLD rulemaking will increase the costs of distributing organic liquids. Specifically, the 

costs of several general types of businesses are expected to increase. These businesses include 

facilities that manufacture and distribute organic chemicals and/or nongasoline petroleum products 

and facilities that specialize in the distribution of these products. Of the latter facilities, some are 

owned by companies that also manufacture the products, while others are independent businesses 

that only distribute the products. Table 1-2 shows the estimated costs for model plants. The costs 

are shown in greater detail in Section 3, and their allocation to actual plants is discussed in 

Appendix B. 

Table 1-2. Per-Facility and Nationwide Control Costs by Model Plant (1997$/yr) 

Model 

Plant 

28-1 

28-2 

28-3 

29-1 

29-2 

29-3 

42-1 

42-2 

42-3 

46-1 

46-2 

51-1 

51-2 

Number of 

Facilities 

195 

105 

70 

54 

30 

27 

25 

31 

38 

26 

35 

24 

17 

Total Annual Cost per 

Facility (range) 

16,300-120,112 

15,700-116,818 

15,700-156,599 

47,500-58,268 

15,700-78,378 

15,700-93,094 

16,400-147,331 

16,400-185,425 

16,400-379,224 

13,300-164,200 

13,300-149,700 

16,400-142,668 

16,400-136,414 

Total Capital Cost for 

all Facilities 

11,671,136 

13,425,086 

23,433,641 

1,584,390 

1,799,840 

2,445,528 

3,068,008 

6,650,062 

22,147,029 

3,791,900 

1,470,561 

1,686,556 

1,247,732 

Total Annual Cost for 

all Facilities 

9,510,196 

4,969,124 

6,013,919 

1,951,671 . 

1,283,044 

1,302,902 

1,789,052 

2,738,045 

7,093,774 

1,507,335 

601,458 

1,568,183 

1,047,192 

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1.3 Estimated Economic Impacts of the OLD NESHAP 

Section 4 presents the economic impact analysis methods and results. EPA developed a 

multi-market partial equilibrium simulation model in which buyers and sellers exert no individual 

influence on market prices of two aggregated commodities potentially affected by the 

rule—petroleum and chemical products—and the market for distribution services. Prices in these 

markets are set by the collective actions of producers and consumers, who take the market price 

as a given in making their production and consumption choices. Figure 4-1 illustrates this market in 

which prices and quantities are determined by the intersection of market supply and demand 

curves. The baseline consists of a market price and quantity (P, Q) that is determined by the 

downward-sloping market demand curve (Dj) and the upward-sloping market supply curve (S,). 

With the regulation, the costs of production increase for organic liquid suppliers because 

they incur additional costs associated with the proposed rule. Incorporating these regulatory 

control costs is represented by an upward shift (from S, to S2) ofthe aggregate supply curve by the 

per-unit compliance cost. 

At the new equilibrium with the regulation, the market price increases from P, to P2 and 

market output (as determined from the market demand curve, D) declines from q, to q2. This 

illustrates the theory underlying estimation of the economic impacts of the rule. Note that EPA is 

modeling the impacts ofthe rule on facilities and companies that both produce and distribute 

organic liquids by examining the changes in market prices and quantities for the liquids being 

distributed. For integrated organic liquid producers, distribution operations are a cost center, not a 

profit center. The distribution operations are an essential part of the process of providing the 

delivered liquids to customers, but are not required to be profitable if they are to continue. Instead, 

the companies examine the impact of the proposed rule on the overall profitability of their chemical 

or petroleum product operations. In the merchant distribution sector, however, distribution facilities 

are assumed to operate as profit centers; that is, they continue to operate only if they are profitable. 

1.3.1 Market Responses to the NESHAP 

The theory presented above suggests that producers attempt to mitigate the impacts of 

higher-cost production by shifting the burden on to other economic agents to the extent the market 

conditions allow. We would expect the model to project upward pressure on prices as producers 

reduce output rates in response to higher costs. Higher prices reduce quantity demanded and 

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output for each product, leading to changes in economic surplus to consumers and profitability of 

firms. These market adjustments determine the social costs of the regulation and its distribution 

across stakeholders (producers and consumers). 

1.3.1.1 Market- and Industry-Level Impacts 

The increased cost of production due to the regulation is expected to slightly increase the 

price of petroleum and chemical products and reduce their production/consumption from baseline 

levels. As shown in Table 1-3, the regulatory altemative is projected to increase prices by less than 

0.1 percent. Domestic production of petroleum products declines by 0.06 million metric tons and 

domestic chemical production declines by 0.04 million metric tons. Supply from foreign producers 

(imports) increases by 0.02 million metric tons in the petroleum market and 0.002 million metric 

tons in the chemical market, resulting in a net decline of 0.04 and 0.05 million metric tons 

respectively (less than 0.02 percent). Supply from merchant distributors declines by approximately 

0.02 million metric tons, less than 0.01 percent. 

Table 1-3. Market-Level Industry Impacts of the Proposed OLD NESHAP (1997$) 

Petroleum Products 

Price ($/Mt) 

Quantity (10s Mt/yr) 

Domestic 

Foreign 

Organic Chemical Products 

Price ($/Mt) 

Quantity (106Mt/yr) 

Domestic 

Foreign 

Merchant Distributors 

Price ($/Mt) 

Quantity (106Mt/yr) 

Absolute Change 

0.01 

-0.04 

-O.06 

0.02 

0.05 

-0.03 

-0.04 

0.01 

0.04 

-O.02 

Percent Change 

0.002% 

-O.001% 

-O.002% 

0.002% 

0.030% 

-0.045% 

-0.053% 

0.045% 

0.36% 

-0.00% 

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Revenue, costs, and profitability ofthe directly affected industry also change as prices and 

production levels adjust to increased costs associated with compliance. For domestic petroleum 

producers, operating profits are projected to decline by $8.7 million (see Table 4-2). For domestic 

chemical producers, operating profits are projected to decline by $11.4 million. Operating profits 

earned by merchant distributors are projected to increase by $0.3 million. 

1.3.1.2 Facility-Level Impact Results 

EPA estimated quantity adjustments by affected OLD facilities, in response to the costs of 

compliance with the proposed rule. EPA defined closure of an OLD operation when an OLD 

facility is projected to reduce their quantity distributed by the entire amount of their baseline 

distribution. No facilities are projected to close their OLD operations in response to the proposed 

rule. 

1.3.1.3 Company-Level Impacts Results 

For the company level analysis, EPA computed the change in profits associated with the 

regulation to baseline company profits. A company may become unprofitable if the predicted 

change in OLD facility profits eliminates total baseline profits of the firm (i.e., ratio = 100 

percent). For companies incurring both control and monitoring, recordkeeping and recording 

(MRR) costs, profit changes range from +0.1 percent to -32.5 percent. For the median company, 

profits decrease by approximately less than 1.0 percent. No firms are projected to become 

unprofitable as a result of the regulation. For companies incurring MRR costs only, profit changes 

range from +0.2 to -7.3 percent. For the median company, profits decrease by less than 0.3 

percent. None of these firms are projected to become unprofitable as a result of the regulation. 

The analysis also shows that impacts for companies within model plant 42, owners of bulk liquid 

terminals, are relatively higher compared to other industry groups. 

EPA also peiformed a screening analysis to assess the impacts of the OLD NESHAP on 

small businesses. The results of this screening analysis are shown in Section 5. EPA examined the 

ratio of compliance costs to baseline company revenues, without incorporating market adjustments 

to the proposed rule. Seven of the companies owning facilities responding to the OLD 

questionnaire are small businesses. Scaling these up statistically to correspond to the universe of 

companies owning OLD facilities, EPA estimated that a total of 28 small companies own OLD 

facilities. Of the estimated 28 small firms, only two are projected to incur costs exceeding one 

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percent of their baseline revenues, and none are projected to incur costs exceeding three percent of 

baseline revenues. Given the relatively low costs and the small number of small companies incurring 

them, EPA finds that significant economic impacts will not be incurred by a substantial number of 

small businesses. 

1.3.1.4 Social Costs 

The value of a regulatory action is traditionally measured by the change in economic welfare 

that it generates. The regulation's welfare impacts, or the social costs required to achieve 

environmental improvements, will extend to consumers (customers) and producers alike. 

Consumers experience welfare impacts due to changes in market prices and consumption levels 

associated with the rule. Producers experience welfare impacts resulting from changes in profits 

corresponding with the changes in production levels and market prices. However, it is important to 

emphasize that this measure does not include benefits that occur outside the market, that is, the 

value of reduced levels of air pollution with the regulation. 

The economic analysis accounts for behavioral responses by producers and consumers to 

the regulation (i.e., shifting costs to other economic agents). This approach provides insights on 

how the regulatory burden is distributed across stakeholders. As shown in Table 4-4, the 

economic model estimates total social cost of the rule of $40.7 million (1997$). As a result of 

higher prices and lower consumption levels, consumers (domestic and foreign) are projected to lose 

$23.8 million, with petroleum consumers accounting for more than 50 percent of the total. 

Domestic producers lose $16.9 million in profits, with chemical producers accounting for 58 

percent of the total. Foreign producers unambiguously gain as a result of the regulation, with profits 

increasing by 3.0 million. Foreign producers benefit from higher prices while not incurring control 

costs associated with the proposed rule. 

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SECTION 2 

INDUSTRY PROFILE 

The OLD NESHAP potentially affects companies and facilities that distribute 

petrochemicals and petroleum liquids. Industries that will be affected by this NESHAP include 

chemical manufacturers, petroleum refiners, liquid terminals, and pipeline owners and operators 

(organic liquids other than gasoline). Information on the affected facilities, companies, and 

industries is necessary in determining the effects of a regulation. This profile describes the supply 

and demand of petrochemicals and petroleum liquids, the facilities and companies that operate 

within affected industries, and the market conditions in those industries. 

Section 2.1 provides a brief description of the entire OLD source category. Sections 2.2 

and 2.3 focus on the two primary facility categories—chemical liquids and petroleum liquids, which 

are briefly described in Section 2.1. Sections 2.2 and 2.3 are both organized as follows: 

background, production overview, industry organization, characterization of uses and consumers, 

and market information. Facilities that may distribute either chemicals or petroleum products are 

discussed in Section 2.3 only, for convenience. 

2.1 Brief Description of Source Category 

The OLD source category consists of all of the source category operations that receive, 

store, and distribute organic liquids throughout the economy. For the purposes of this maximum 

achievable control technology (MACT) standard, only those organic liquids with appreciable HAP 

content (beyond trace quantities) are considered to be "organic liquids." These liquids may consist 

of pure HAP chemicals (single HAP) or chemical blends, refined petroleum products, natural gas 

liquids, or crude oil. They also may consist of "appreciable" organic HAPs blended with inorganic, 

non-HAP liquids (such as water). 

OLD operations are carried out by a large number of industries. "Plant sites performing 

OLD activities include those that produce, consume, or merely store and distribute organic liquids. 

The four principal industries with the greatest volumes of OLD operations are chemical 

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manufacturing, petroleum refining, crude oil and natural gas liquids pipeline transportation, and liquid 

terminalling and warehousing" (Abt, 1998). 

Distributed organic liquids of concern in this profile fall under two broad categories: 

• chemicals, including synthetic chemicals and petrochemicals (i.e., chemicals 

manufactured from crude petroleum); and 

• petroleum liquids, including crude oil, natural gas liquids, and nongasoline refined 

products. 

Gasoline, which is subject to the gasoline distribution NESHAP, is not covered by the OLD source 

category. Sections 2.2 and 2.3 2 provide a more detailed description of the liquids covered by this 

regulation. 

For the purposes of this regulation, distribution includes the bulk transfer of an organic 

liquid across a plant site boundary, either into or out of the plant site (Abt, 1998). Also covered 

under this definition are the storage of OLD liquids after receipt and before distribution. Not 

included in the OLD source category are the following activities: the movement of packaged liquids 

(e.g., drummed or canned liquids); any production, compounding, blending, or packaging activities 

at OLD facilities; and the transportation of OLD liquids for activities other than loading and 

unloading. 

The OLD activities described above take place at sites that serve as distribution points from 

which organic liquids can be obtained for further use and processing. Distribution activities are 

either collocated with liquid production operations, or they are carried out at stand-alone storage 

and distribution terminals. Although the MACT standards developed under this regulation will 

apply to any facility that receives, stores, and/or distributes nongasoline liquids with HAP content, 

this profile focuses on five categories of OLD facilities for which model plants were developed: 

• chemical production, 

• petroleum refineries, 

• liquid terminals 

• crude oil pipeline pumping/breakout stations, and 

• petroleum terminals. 

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These categories were identified from EPA's April 1998 source category survey as accounting for 

the majority of OLD HAP emissions (Gale Research, Inc., 1999a,b,c). 

2.1.1 Current Economic Conditions and Trends 

OLD distribution points will incur the costs ofthis regulation; therefore, this profile examines 

the current condition of the OLD source category as it relates to distribution activities. This section 

briefly describes recent trends in each of the five principal, OLD facility categories.1 

2.1.1.1 Chemical Production 

Recent trends in the chemical manufacturing industry include increased capital spending and 

declining employment. In an effort to save money and increase efficiency, many of the activities 

associated with repackaging, blending, reformulating, bar-coding, testing, and quality assurance 

have been outsourced. That is, contracted out to third-pMy operators. This trend has been 

growing in the chemical manufacturing business. With more of this work being outsourced, 

manufacturers' costs are decreasing {Distribution, 1996). 

2.1.1.2 Petroleum Refineries 

Over the past two decades, oil companies have been closing refineries that are no longer 

profitable. To avoid expensive environmental cleanup costs, companies have started to convert the 

refineries' storage tanks and to operate them as storage and distribution centers. However, in 

recent years, a stable supply market for crude oil has led to a reduction in oil inventories, creating 

excess storage space at refineries. Refineries have responded to this situation by leasing out this 

excess space to third parties. With continued merger and cost-cutting activities in the source 

category, it is conceivable that more excess space will be created in the future and more refineries 

will continue to lease increasing amounts of storage space at their installations. 

2.1.1.3 Liquid and Petroleum Terminals 

The bulk liquid terminalling industry is undergoing changes as the major manufacturers of 

organic liquids and chemicals are restructuring their industries to meet present and future demands. 

Terminals face a dual challenge in the future. One challenge is increasing regulatory demands that 

'This discussion is largely based on the July 24,1998, EPA memorandum entitled "Production Projections for 

the OLD Source Category." 

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are raising the cost of operation for refineries, chemical plants, and terminals. In addition, excess 

storage capacity at petroleum refineries and newly created storage capacity at smaller chemical 

distributors have started to directly compete with the larger bulk terminals. Major consolidations 

within the chemical industry have also affected the bulk terminalling industry. Major chemical 

companies have begun to consolidate their storage requirements by contracting out storage to 

outside firms that operate single-party terminals, rather than spreading their operations across many 

terminals. 

2.1.1.4 Crude Oil Pipeline Pumping and Breakout Stations 

The Federal Energy Regulatory Commission (FERC) regulates interstate pipeline 

companies. Similar to some of the other categories, these pipeline companies are experiencing 

difficult times as well. In 1997 earnings from operations were down, following a 2-year trend. The 

effects of warmer-than-normal weather during 1997 in North America also caused oil deliveries to 

decrease. This decrease affected both operating revenues and net income for pipeline companies 

(Oil & Gas Journal, 1998). 

2.1.2 Environmental Concerns 

EPA has identified four emission sources that account for the majority of HAP emissions 

from OLD activities:2 

• storage tanks, 

• liquid transfer activities involving tank trucks and railcars Goading racks), and 

• leaks from equipment components (e.g., pumps, valves). 

Table 2-1 shows the nationwide HAP totals for each industry resulting from the different emission 

sources. Storage tanks emit 63,315 tons/yr of HAPs, accounting for approximately 70 percent of 

2Originally, wastewater and semi-aqueous waste were also believed to be sources of HAP emissions for the OLD 

source category. However, responses to the OLD survey indicated that insufficient information is available 

to determine nonzero MACT floors for wastewater. In addition, the survey indicated that semi-aqueous 

waste generated from OLD operations is generally kept in closed containers once it is collected. The 

handling of these wastes, at both chemical facilities and refineries, is already covered under the Resource 

Conservation and Recovery Act (RCRA) ("MACT Floor Development for the OLD Source Category," 

Memo, May 5,1999). Consequently, emission sources associated with wastewater and semi-aqueous waste 

are excluded from this analysis. 

2-4 

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Table 2-1. Nationwide HAP Totals from OLD Activities (tons/yr)a 

Industry 

Segment 

Chemical 

production 

Petroleum 

refinery 

Liquid terminals 

Crude oil 

pipelines 

Petroleum 

terminals 

Total 

No. of Major 

Source 

Facilities 

Nationwideb 

370 

lll c 

94 

35 

41c 

651c 

Storage 

Tanks 

38,785 

4,365 

17,990 

440 

1,735 

63,315 

Loading 

Racks 

4,660 

2,100 

2,890 

a 

260 

9,910 

Container 

Filling 

48 

1 

1 

a 

1 

51 

Equipment 

Leaks 

10,030 

1,460 

5,015 

45 

965 

17,515 

Totals 

53,520 

7,930 

25,900 

490 

2,960 

90,800 

° There are no transfer rack or container filling emissions at pipeline facilities. 

b

 Estimated number of facilities based on industry data and previous NESHAP reports, as described in the 

technical support document. Only 239 facilities returned surveys on their OLD activities. Emissions data for 

the nonresponding facilities were estimated to develop the estimate of nationwide impacts. 

c

 EPA has recently determined that two facilities, one petroleum refinery and one petroleum terminal, are exempt 

due to their very small throughput. Thus there are a total of 649 affected facilities, including 110 petroleum 

refineries and 40 petroleum terminals. 

Source: U.S. Environmental Protection Agency (EPA). 2000. Technical Support Document for the Organic 

Liquids Distribution (Non-gasoline) Industry. Washington, DC: U.S. Environmental Protection 

Agency, Office of Air Quality Planning and Standards. 

the total OLD source category. Equipment leaks are the next greatest source of HAP emissions, 

representing almost 19 percent of the source category total. 

Table 2-2 lists all of the facility categories as well as the modes of transportation employed 

and the emission sources covered by the OLD source category. 

2.2 Distribution of Organic Chemical Liquids 

Organic chemical liquids include synthetic chemicals and petrochemicals (chemicals 

manufactured from crude petroleum). Synthetic organic chemicals cover a wide range of 

2-5 

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Table 2-2. Summary of Facility Categories, Liquids, Modes of Transportation, and 

Emissions Sources Covered by the OLD Source Category 

Facility Category 

Chemical 

production 

Petroleum 

refineries 

Liquid terminals 

Crude oil pipelines 

Petroleum 

terminals 

Liquids Handled 

Synthetic chemicals 

Petrochemicals 

Crude oil 

Natural gas liquids, (NGLs) 

Nongasoline refined products 

Synthetic chemicals 

Petrochemicals 

Crude oil 

Nongasoline refined products 

Crude oil 

Crude oil 

NGLs 

Nongasoline refined products 

Mode of Liquid 

Transportation 

Tank truck 

Tank car (railroad) 

Sometimes pipelines 

Pipeline 

Tanker ships 

Barges 

Tank car 

Tank truck 

Tank car 

Tank trucks 

Pipeline 

Tanker ships 

Barges 

Tank car 

Tank truck 

Tanker ship 

Barge 

Pipeline 

Tank car 

Tank truck 

Emission 

Sources 

Storage Umks 

Liquid transfer 

Container filling 

Equipment leaks 

Storage tanks 

Liquid transfer 

Container filling 

Equipment leaks 

Storage tanks 

Liquid transfer 

Container filling 

Equipment leaks 

Storage tanks 

Equipment leaks 

Storage tanks 

Liquid transfer 

Container filling 

Equipment leaks 

Sources: Various background documents. 

Gale Research Inc. 1999b. "Pipelines, Crude Petroleum." Ward's Business Directory of U.S. Private 

and Public Companies: 1999. Detroit, Ml: Gales Research, Inc. 

American Petroleum Institute. August 1998. Heating Oil in the United States. 

intermediate products, including inputs to the manufacture of synthetic resins, plastics materials, and 

nonvulcanized elastomers, as well as cyclic organic intermediates and dyes/pigments, and aliphatic 

and acrylic chemicals and solvents. 

2-6 

ir 
Petrochemicals are intermediate products resulting from the refinery process. 

Petrochemical feedstocks include naphtha, a liquid obtained from refining crude oil, as well as 

products recovered from natural gas and refinery gases (ethane, propane, and butane). Other 

feedstocks include ethylene; propylene; normal- and iso-butylenes; butadiene; and aromatics such 

as benzene, toluene, and xylene. The volume of petroleum liquids available to the petrochemical 

industry depends primarily on the following three factors: crude petroleum input to refineries, 

refinery process configuration and operating conditions, and the demands and prices for naptha and 

gas oil in their primary fuel markets (DOE, EIA, 1999e). 

Synthetic chemicals are associated with the OLD source category when they are distributed 

from synthetic organic chemical manufacturing industry (SOCMI) facilities to liquid terminals. 

These chemicals are typically transported by means of tank truck or tank car. 

Petrochemical feedstocks travel by various modes throughout their product life. The 

distribution components associated with the OLD source category are the shipments of feedstocks 

from refineries to liquid terminals and SOCMI facilities. Most often, petrochemicals travel by 

means of tank truck or tank car; however, some SOCMI facilities have pipelines by which their 

products are distributed. 

Synthetic organic chemical and petrochemical distribution facilities are most likely to be 

classified under the three SIC codes listed in Table 2-3. The table includes the NAICS codes that 

correspond to the affected SIC-coded industries. 

2.2.1 Overview of Distribution Service 

OLD distribution is a service that is part of the production process for organic liquids. 

After a refining process, petrochemicals might be distributed to chemical production plants for 

processing into synthetic chemicals, or they might be transported to an independent liquid terminal 

for storage before further processing. In addition, independent liquid terminals may also receive 

processed synthetic chemicals for storage. Liquids stored at independent liquid terminals might be 

transported to chemical production plants or refineries for further processing, they might be sent to 

a blending/packaging/distribution facility, or they might be distributed to end users (Abt, 1998). 

2-7 

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Table 2-3. Principal OLD Facility Categories 

SIC 

Code SIC Description 

NAICS 

Codes NAICS Description 

Chemical Production (118 survey responses) 

2821 Plastics Materials, Synthetic and 

Resins, and Nonvulcanizable 

Elastomers 

2865 Cyclic Organic Crudes and 

Intermediates, and Organic Dyes 

and Pigments 

325211 

325192 

32511 

325132 

2869 Industrial Organic Chemicals, NEC 325188 

32511 

325193 

32512 

325199 

Plastics Material and Resin 

Manufacturing 

Cyclic Crude and Pigment 

Manufacturing 

Petrochemical Manufacturing8 

Synthetic Organic Dye and 

Pigment Manufacturing 

All Other Basic Inorganic 

Chemical Manufacturing" 

Petrochemical Manufacturing8 

Ethyl Alcohol Manufacturing 

Industrial Gas Manufacturing 

All Other Basic Organic Chemical 

Manufacturing8 

* Only part of the NAICS industry is made up of facilities from the corresponding SIC-coded industry. 

Source: U.S. Census Bureau. March 2000a. "1987 SIC Matched to 1997 NAICS." 

<http://www.census.gov/epcd /naics/NSIC3B JrTML>. As obtained on March 13,2000. 

2.2.1.1 Elasticity of Supply 

The supply elasticity for synthetic organic chemicals and petrochemicals depends on the 

ability and willingness of firms to scale up production in the face of higher demand. Supply elasticity 

refers to the ratio of a given percentage change in price to a resulting percentage change in quantity 

supplied. At a given point in time, firms can be expected to supply an approximately profitmaximizing quantity, given their available technology. For a given increase in the price of chemicals, 

the increase in quantity supplied will be greater when the producers of that chemical have excess 

capacity and when new production lines for the chemical are easy and inexpensive to establish. In 

2-8 

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this analysis, EPA aggregates all organic chemical liquids into a single market, and incorporates 

supply elasticities estimated for other analyses. The elasticity of supply for the organic chemicals 

market is assumed to be 1.5 (organic chemicals producers will distribute 1.5 percent more organic 

liquids for each 1 percent increase in price). 

2.2.2 Industry Organization 

This subsection describes the organization of the segments of the chemical industry most 

likely to be affected by the NESHAP regulation and provides specific information on affected OLD 

facilities and firms when such information is available. The section begins with a discussion of 

market structure, followed by information on facilities that distribute organic chemicals and the firms 

that own them. 

The structure of the affected market(s) is an important factor in estimating the potential 

impacts from a regulation. For example, in a competitive market where each producer has little 

market power, it would be difficult for an affected firm to pass on compliance costs to its 

consumers. On the other hand, in an industry with very few producers or where the products are 

highly differentiated, it may be possible for affected firms to recover part or all of the compliance 

costs through price increases. The most important factors determining the competitive structure of 

an industry are the number of producers, the degree of product differentiation, and the presence of 

barriers to entry. The remainder of this subsection provides a brief explanation of these factors and 

discusses the competitive structure of the OLD markets in terms of each factor (CMA, 1995a,b). 

Thirty-one companies produce and distribute organic chemical liquids. These companies 

include many large integrated chemical companies. Only one OLD company that distributes 

organic chemicals is classified as a small company. Product differentiation is a form of nonprice 

competition used by firms to establish market power in a specific product market. Product 

differentiation may result from unique product characteristics or from brand recognition. In general, 

a company that sells a product with valued characteristics that no or few other products possess 

will have more market power than a company that sells a product that has no distinguishable 

characteristics from other products in the same market. Similarly, market power is created if 

customers place a higher value on a product produced by a specific company, or brand, even 

though the product characteristics are identical to the products produced by other companies. The 

products of concem to the OLD source category are characterized by a high degree of 

2-9 

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homogeneity. Thus, brand loyalty is not expected to be an important factor in the organic chemicals 

market (CMA, 1995a,b; Arnold, 1989; Gale Group, 1999; DOE, EIA, 1999e). 

The number of producers and the market shares of the largest firms are important 

determinants of the degree of market power individual firms may have. The term "concentration" 

refers to the combined percentage of total output accounted for by the largest producers in the 

industry. For example, the four-firm concentration ratio (CR4) refers to the market share of the 

four largest firms. The higher the concentration ratio, the more concentrated the industry. A 

market is generally considered highly concentrated if the CR4 is greater than 50 percent. The 

Herfindahl-Hirschmann index (HHI) is an alternative measure of concentration. It is equal to the 

sum of the squares of the market shares for the largest 50 firms in the industry. The higher the 

index, the fewer the number of firms supplying the industry and the more concentrated the industry 

is at the top. The Justice Department uses the HHI for antitrust enforcement purposes. The 

benchmark used by the Justice Department is 1,000, where any industry with an HHI less than 

1,000 is considered to be unconcentrated. The advantage of the HHI over the concentration ratio 

is that the former gives information about the dispersion of market share among all tiie firms in the 

industry, not just the largest firms (Arnold, 1989). 

In general, an industry with a large number of firms and a small concentration will be 

relatively more competitive than an industry with few firms and a high concentration. Firms that 

operate in a more competitive market will be relatively more affected by new regulations because 

they are less likely to be able to pass on compliance costs. 

Table 2-4 shows concentration ratios by SIC code for the affected OLD industries from 

the 1992 Economic Census. Industry concentration information is not yet available for the 1997 

Economic Census. Ratios are included for the census years 1987 and 1992 (where possible). For 

some SIC codes, data are available for only 1992. The numbers in Table 2-5 show that, by and 

large, the OLD industries are characterized by a large number of firms and generally 

unconcentrated markets, indicating a high degree of competitiveness in their respective product 

markets. 

The chemical industry is undergoing a trend of mergers, acquisitions, and general industry 

consolidation. According to an analysis by Speed (1999), "the market will [comprise] fewer but 

larger companies, global in scope, and more focused in their business pursuits." 

2-10 

2b 
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Table 2-4. Concentration Ratios by SIC Code8 

SIC 

Code 

Total 

Number of 

Year Firms 4 Firm 

Chemical Production 

2821: 

2865: 

2869: 

Concentration Ratio 

8 Firm 20 Firm 50 Firm 

Plastics Materials, Synthetic Resins, and Nonvulcanizable Elastomers 

1987 288 20% 

1992 240 24% 

33% 

39% 

61% 

63% 

Cyclic Organic Crudes and Intermediates, Organic Dyes and 

1987 131 34% 

1992 150 31% 

Industrial Organic Chemicals, NEC 

1987 491 31% 

1992 489 29% 

50% 

45% 

48% 

43% 

77% 

72% 

68% 

67% 

89% 

90% 

Pigments 

96% 

94% 

86% 

86% 

HerfindahlHirschmann 

Index 

248 

284 

542 

428 

376 

336 

° Industry concentration information is not yet available for the 1997 Economic Census. 

Source: U.S. Department of Commerce, Bureau ofthe Census. 1992. Economic Census. Washington, DC: 

Government Printing Office, <http://www.census.gov/epcd/www/92result.html>. 

Barriers to entry are the mechanisms through which the total number of firms in an industry 

can be kept small and a high degree of market concentration can exist. Where barriers to entry are 

present, new firms find it impossible or unprofitable to enter the market. Barriers to entry therefore 

create market power for the firms that already operate in the market. Typically, barriers to entry 

exist when industries are capital intensive, are characterized by significant economies of scale, 

require specialized knowledge (e.g., patents), or are subject to government regulation (Speed, 

1999). While relatively capital-intensive, chemical production in general is not extremely 

specialized. Thus, the Agency believes the barriers to entry are moderate. 

2.2.2.1 Facilities 

Table 2-5 presents an overview of the total number of facilities for each OLD NAICS 

code, the total number of firms potentially affected by the OLD source category, and the 

percentage ofthe source category potentially affected. 

2-11 

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Table 2-5. Number of Total OLD Facilities and Affected Facilities, 1997 

NAICS 

Code NAICS Description 

Total Number 

of Facilities8 

Total Number 

of Affected 

Facilitiesb 

% of Source 

Category that 

is Affected 

Chemical Production 

325110 Petrochemical Mfg 

325132 Synthetic Organic Dyes and 

Pigments 

325192 Cyclic Organic Crudes and 

Intermediates 

325193 Ethyl Alcohol Mfg 

325199 All Other Basic Organic 

Chemical Mfg 

325211 Plastics Materials, Synthetic 

and Resins, and 

Nonvulcanizable Elastomers 

54 

112 

50 

38 

676 

532 

370 25.3% 

8

 U.S. Census Bureau. August 1999c. "Cyclic Crude and Intermediate Manufacturing." 7997 Economic 

Census, Manufacturing—Industry Series, E97M-3251I, Washington, DC: Govemment Printing Office. 

b

 U.S. Environmental Protection Agency (EPA). 2000. Technical Support Document for the Organic Liquids 

Distribution (Non-gasoline) Industry. Washington, DC: U.S. Environmental Protection Agency, Office of Air 

Quality Planning and Standards. 

Sources: U.S. Census Bureau. August 1999a. "All Other Basic Inorganic Chemical Manufacturing." 7997 

Economic Census, Manufacturing—Industry Series, E97M-3251I, Washington, DC: Government 

Printing Office. 

U.S. Census Bureau. August 1999b. "All Other Basic Organic Chemical Manufacturing." 7997 

Economic Census, Manufacturing—Industry Series, E97M-3251I, Washington, DC: Government 

Printing Office. 

U.S. Census Bureau. August 1999d. "Ethyl Alcohol Manufacturing." 1997 Economic Census, 

Manufacturing—Industry Series, E97M-325II, Washington, DC: Government Printing Office. 

U.S. Census Bureau. August 1999e. "Industrial Gas Manufacturing." 7997 Economic Census, 

Manufacturing—Industry Series, E97M-325II, Washington, DC: Government Printing Office. 

U.S. Census Bureau. August 1999f. "Petrochemical Manufacturing." 1997 Economic Census, 

Manufacturing—Industry Series, E97M-325II, Washington, DC: Govemment Printing Office. 

U.S. Census Bureau. August 1999h. "Plastics Material and Resin Manufacturing." 7997 Economic 

Census, Manufacturing—Industry Series, E97M-3251I, Washington, DC: Govemment Printing 

Office. 

U.S. Census Bureau. August 1999i. "Synthetic Organic Dye and Pigment Manufacturing." 7997 

Economic Census, Manufacturing—Industry Series, E97M-3251I, Washington, DC: Government 

Printing Office. 

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Although EPA received surveys from only about 32 percent (117 out of 370)3 of the 

universe of organic liquids distributors in the chemical industry, an examination of the data provided 

in the surveys does illustrate general characteristics of those facilities. The figures and tables in this 

section include facilities classified in NAICS codes 325211, in addition to the 117 facilities 

classified as part of the chemical industry. Facilities in NAICS code 325211 use synthetic organic 

chemicals and petrochemicals as an input into their production of various plastic parts and products. 

The data presented here are for the 105 facilities (out of 121) who did not request that their surveys 

be considered classified information. 

Figure 2-1 shows the distribution of 105 organic chemical liquids distribution facilities 

across 26 states. Twenty-nine percent of organic chemical liquids distribution facilities are located 

in Texas, 9 percent are located in Louisiana, and 8 percent are located in Ohio. 

Capacity utilization at organic chemical facilities is about 80 percent. The OLD NESHAP 

is specifically concemed with the distribution of chemicals, rather than their production. However, 

a facility's ability to store and transfer chemicals is considered in the calculation of plant capacity, so 

the data below provide some indication of storage and transfer capacity. 

Figure 2-2 shows almost all organic chemical liquids distribution facilities employ more than 

50 people and that more than 35 percent of those facilities employ at least 500 employees each. 

2.2.2.2 Firm Characteristics 

Although facilities are the physical unit regulated by the OLD source category, this 

regulation may also affect the firms that own the facilities. Firms are legal business entities that have 

the capacity to conduct business transactions and make business decisions that affect the facility. In 

this analysis, the terms firm and company are used synonymously. The chemical industry is heavily 

dominated by corporations, with few proprietorships or partnerships. 

3

 Some portions of the Technical Support Document (TSD) report that 118 facilities in SIC code 28 returned 

surveys. However, the report shows assigned model plant numbers for only 117 facilities in this SIC code., 

(One facility, numbered 30-Q, was listed in the TSD but is nonexistent in the database compiled from ICR 

survey responses.) The TSD failed to report a model number for plant 32-E, which was in the database. 

Facility 30-Q was excluded from analysis and 32-E was included. 

2-13 

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P.30 

Figure 2-1. Distribution of Organic Chemical Liquids Facilities that Responded to the 

ICR Survey 

2-14 

-2,0 
P.31 

O 

0) 

O) 

n 

c 

CD o 

Im. 

u 

Q. 

45% 

40% 

35% -

30% -

25% -

20% 

15% 

10% -| 

5% 

0% 

less than 25 25 to 50 50 to 100 100 to 250 250 to 500 

Employment Range 

over 500 

Figure 2-2. The Distribution of Organic Chemical Liquids Facilities that Responded to the 

ICR Survey by Employment 

Source: Nonclassified responses to the 1998 Industry Specific Infonnation Collection Request for the 

Development of an Organic Liquids Distribution Maximum Achievable Control Technology. 

Firm size is important when analyzing the distribution of the regulation's financial impacts. 

Analysis of likely impacts on small entities is required under the Small Business Regulatory 

Flexibility Enforcement Act (SBREFA) and requires the categorization of firms as either small or 

large. The Small Business Administration (SBA) now publishes general size standard definitions for 

small entities by NAICS code.4 The size standards are defined either by employment or by annual 

firm revenue, depending on the NAICS code. 

The SBA size definitions for all chemical industries is defined in terms of number of 

employees. The size standard for these NAICS categories ranges from 750 to 1,000 employees. 

As previously stated, only 117 facilities (or 32 percent) of an estimated 370 that handle organic 

chemical liquids responded to the ICR survey. Those facilities are owned by 31 different firms. 

Only one of those 31 firms is small according to the SBA small business standards. That one small 

firm owns two facilities that distribute organic liquids. If the 121 facilities are an accurate sample of 

4As of October 1,2000, small business determinations are defined based on NAICS codes rather than SIC codes. 

2-15 

31 
P.32 

the actual facilities, we can conclude that only a very small share of all affected facilities are owned 

by small businesses. Figures 2-3 and 2-4 show the distribution of surveyed firms by firm size as 

measured by revenue and employment; respectively. In 1998, the majority of affected firms took in 

more than $1 billion in revenues (approximately 87 percent) and employed more than 10,000 

people (approximately 81 percent). 

70% 

w 60% 

| 50% 

o 40% -

a 30% 

8 20% 

CD 

10% 

0% 

Less than $5Mto$50 $50Mto 

$5M $500M 

$500Mto $1Bto 

$1B $10B 

Company Sales 

$10Bto over$100B 

$100B 

Figure 2-3. The Size Distribution of Companies that own OLD Facilities that Responded 

to the ICR Survey and are Involved in Chemical Distribution, by 1998 Sales (in $1997) 

Sources: Dun & Bradstreet. 1999. Company Capsules. As available on EBSCO. 

Gale Group. 1999. General Business File International (formerly Business ASAP). Gale Group 

Collections. As obtained from InfoTrac Web. <web6.infotrac.galegroup.com/itw>. 

Hoover's Incorporated. 1999. Hoover's Company Profiles. Austin, TX: Hoover's Incorporated. 

<http:/Avww.hoovers.com/>. 

Company websites. 

Company 10k reports. 

U.S. Environmental Protection Agency (EPA). 2000. Technical Support Document for the Organic 

Liquids Distribution (Non-gasoline) Industry. Washington, DC: U.S. Environmental Protection 

Agency, Office of Air Quality Planning and Standards. 

2-16 

<l^ 
P.33 

70% 

60% 

I 50% 

_L 

o 40% 

CD 

ra 30% -I 

c 

CD 

U 

.w 

CD 

°- 10% 

0% 

* 20% _•_ 

less than 

500 

500 to 1,000 1,000 to 

5,000 

5,000 to 

10,000 

10,000 to over 100,000 

100,000 

Number of Employees 

Figure 2-4. Size Distribution of Companies that own OLD Facilities that Responded to the 

ICR Survey and are Involved in Chemical Distribution 

Sources: Dun & Bradstreet 1999. Company Capsules. As available on EBSCO. 

Gale Group. 1999. General Business File International (formerly Business ASAP). Gale Group 

Collections. As obtained from InfoTrac Web. <web6.infotrac.galegroup.com/itw>. 

Hoover's Incorporated. 1999. Hoover's Company Profiles. Austin, TX: Hoover's Incorporated. 

<http://www.hoovers.com/>. 

Company websites. 

Company 10k reports. 

U.S. Environmental Protection Agency (EPA). 2000. Technical Support Document for the Organic 

Liquids Distribution (Non-gasoline) Industry. Washington, DC: U.S. Environmental Protection 

Agency, Office of Air Quality Planning and Standards. 

Vertical and horizontal integration are important determinants in analyzing a firm's potential 

for impacts. Both measures are concerned with the types of industries in which a firm operates. 

Vertical integration refers to the degree to which a firm operates facilities that are part of the same 

supply chain. For example, if the same firm owns facilities in the petroleum production, refining, 

and transportation industries, it would be considered vertically integrated. Vertical integration is 

potentially important in analyzing firm-level impacts because a regulation could affect a vertically 

integrated firm at more than one level. Horizontal integration refers to the scale of production in a 

single-product firm or its scope in a multiproduct one. A single-product firm is considered 

horizontally integrated if it owns more than one facility producing the same product, which may be 

an advantage to the firm's ability to absorb costs if not all of the facilities are subject to the 

2-17 

33 
P.34 

regulation and if the firm can shift parts of the production to the unregulated facilities. A 

multiproduct firm is considered horizontally integrated if it owns facilities in several unrelated 

industries. Here, horizontal integration may improve a firm's ability to absorb compliance costs if 

only one or a few of the industries in which the firm operates are directly affected by the regulation. 

Firms producing and distributing organic chemical liquids are generally integrated both horizontally 

and vertically, while firms only distributing organic chemicals are not highly integrated. 

The 31 firms that are known to own chemical facilities that will be affected by the OLD 

NESHAP have an median (average) profit margin of 5.4 (5.3) percent. Table 2-6 shows the 

average, median, minimum, and maximum profit margins of these 31 firms. Figure 2-5 shows the 

distribution of profit margins among the firms. 

Table 2-6. Profit Margins of Firms that Responded to the ICR Survey and that own 

Organic Chemical Liquids Distribution Facilities 

Median 5.41% 

Average 5.28% 

Maximum -4.09% 

Minimum 11.83% 

Source: Nonclassified responses to the 1998 Industry Specific Information Collection Request for the 

Development of an Organic Liquids Distribution Maximum Achievable Control Technology. 

2.2.3 Uses and Consumers 

As with petroleum liquids, the demand for organic chemicals depends primarily on their end 

use. Organic chemicals, particularly petrochemicals, play an important role in society. 

Petrochemicals are usually an intermediate product that is converted into a variety of consumer and 

industrial products. Some ofthe end products include plastics, antifreeze, synthetic fibers, rubber, 

solvents, and detergents. Higher demand for these products translates into higher demand for their 

inputs (EPA, 1995). This section lists the major consumers of organic chemicals, the purposes of 

chemical consumption, and the factors affecting the elasticity of demand for chemicals. 

Nearly everyone is a consumer of chemicals in some way. Chemicals are used as inputs 

into the majority of manufacturing industries both domestically and internationally. As with 

2-18 

3^i 
P.35 

45% 

40% -i 

| 35% 

E 30% 

o 25% -

CD 

g> 20% -

§ 15% 

£ 10% 

5% -| 

0% <0% 0%-3% 3%-5% 

Profit Margin 

5%-10% >10% 

Figure 2-5. Distribution of Companies Owning Organic Chemical Liquid Facilities that 

Responded to the ICR Survey, by Profit Margin 

Sources: Dun & Bradstreet. 1999. Company Capsules. As available on EBSCO. 

Gale Group. 1999. General Business File International (formerly Business AS AP). Gale Group 

Collections. As obtained from InfoTrac Web. <web6.infotrac.galegroup.com/itw>. 

Hoover's Incorporated. 1999. Hoover's Company Profiles. Austin, TX: Hoover's Incorporated. 

<http://www.hoovers.com/>. 

Company websites. 

Company 10k reports. 

U.S. Environmental Protection Agency (EPA). 2000. Technical Support Document for the Organic 

Liquids Distribution (Non-gasoline) Industry. Washington, DC: U.S. Environmental Protection 

Agency, Office of Air Quality Planning and Standards. 

Dun & Bradstreet. 1997. Industry Norms & Key Business Ratios. Desk-Top Edition 1996-1997. 

petroleum products, the markets for end-use products drive the demand for individual chemicals. 

The major industrial consumers of chemicals in the United States are housing, motor vehicles, 

agriculture, tires, paper products, plastic products, textile mill products, apparel, and furniture and 

fixtures (Oil & Gas Journal, 1999). 

2.2.3.1 Characterization of Demand—Derived Demand Elasticity 

As with petroleum products, the price elasticity of demand for chemicals depends on the 

availability of substitutes, either substitute products for the same use or alternative production 

processes that do not need this chemical. There are 65 HAPs covered; since the availability of 

substitutes varies among these chemicals, so will their demand elasticities. For this analysis, 

2-19 

3£~ 
P.36 

however, the Agency is employing an aggregated market model, using a demand elasticity 

estimated for another analysis ofthe chemical industry. This demand elasticity is -1.5, meaning that 

a one percent increase in the price of organic chemical liquids would decrease the quantity 

demanded by 1.5 percent. 

2.2.4 Markets 

A recent study conducted by the Chemical Manufacturers Association (CMA) showed that 

U.S. shipments of chemicals and allied products for 1998 had increased by only 0.6 percent 

compared to the previous year. Domestic demand was the main driver of this increase as exports 

declined 2.0 percent, the result of the Asia crisis and the high U.S. dollar. Shipments of industrial 

chemicals, however, fell by 6.9 percent. Imports rose 8.5 percent, which led to a reduction in the 

trade surplus from $19.1 billion (1997) to $13.4 billion (1998). Deficits occurred in organic 

chemicals, pharmaceuticals, and inorganic chemicals. 

The CMA projected the overall condition of the U.S. economy to remain favorable through 

the first half of 2000. The financial crisis in Asia has come to an end, and exports rebounded 

through June 2000. With continued expansion of the U.S. economy, overall growth in chemical 

and allied products production volume is expected to be 1.3 percent during 1999 (CMA, 1999; 

CMA, 2000). 

2.2.4.1 Market Volumes 

Market volumes for EPA's analysis were compiled from published reports of production, 

imports, and exports of all the chemicals produced or distributed by OLD facilities (ChemExpo, 

2000). Table 2-7 presents production, imports and exports in the aggregated organic chemical 

market, for chemicals affected by the OLD NESHAP. 

Table 2-7. Organic Chemical Market Volumes, 1997 (IO6 Mt) 

Domestic Supply 

191 

Imports 

11 

Total 

202 

Sources: EPA OLD Industry Questionnaire Database; ChemExpo. <http://www.chemexpo.com>. Reports for 

all chemicals distributed by OLD facilities. Accessed June 2000. 

2-20 

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2.2.4.2 Market Prices 

The baseline market price used for the organic chemicals market, $498.62 per metric ton, 

was estimated as a quantity-weighted average ofthe individual chemical prices obtained from 

ChemExpo (ChemExpo, 2000). 

2.2.4.3 Future Projections 

Constant-dollar shipments of organic chemicals are forecasted to increase at less than 5 

percent annually through 2002. This low growth rate is expected to result from slowing U.S. 

domestic markets and competition from foreign producers. Competition in the chemical industry is 

not only increasing in foreign markets, but in domestic markets as well. While imports have grown 

consistently since 1989 (and now account for 17 percent of demand), export prospects have been 

less positive. The United States is expected to remain a net exporter but the country's trade 

surplus is expected to continue to decline (U.S. Department of Commerce, 1998,2000). 

2.3 Distribution of Petroleum Liquids 

Petroleum liquids are made up of a number of different liquids: crude oil, natural gas 

liquids, and nongasoline petroleum products. Table 2-8 shows the distribution of petroleum 

products in 1997. Since gasoline is already covered by the gasoline distribution NESHAP, this 

profile discusses the two major categories of nongasoline refined products—fuels and liquified 

petroleum gases (LPGs). The main fuel products included in the OLD source category are distillate 

fuel oil, kerosene-type jet fuel, and residual fuel oil. Distillate fuel oil includes diesel oil, heating oils, 

and industrial oils. It is used to power diesel engines in buses, trucks, trains, automobiles, and other 

machinery. In addition, it is used to heat residential and commercial buildings and to fire industrial 

and electric utility boilers. Kerosene-type jet fuel is primarily used in commercial airlines. 

Sometimes it is blended into heating oil and diesel fuel during periods of extreme cold weather. 

Residual fuel is used by electric utilities to generate electricity. It is also used as fuel for ships, 

industrial boiler fuel, and heating fuel in some commercial buildings (DOE, EIA, 1999b). 

2.3.1 Affected Markets 

Three types of petroleum liquids are covered by the OLD source category—crude oil, 

NGLs, and refined petroleum products. Table 2-9 shows the SIC codes and NAICS codes 

associated with their production. Since crude oil and NGLs are the primary inputs into the 

2-21 

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P.38 

Table 2-8. Petroleum Products Produced at U.S. Refineries, 1997 

Petroleum Product Percent Produced 

Motor gasoline 45.7% 

Distillate fuel oil 22.5% 

Jet fuel . 10.3% 

Residual fuel oil 4.7% 

Still gas 4.4% 

Petroleum coke 4.6% 

Liquefied petroleum gases 4.6% 

Asphalt and road Oil 3.2% 

Petrochemical feedstocks 2.9% 

Lubricants 1.2% 

Other 1.4% 'o 

Source: U.S. Department of Energy, Energy Information Administration. July 1999b. Petroleum: An Energy 

Profile 1999. DOE/EIA-0545(99). 

production of refined petroleum products, the discussion in this section focuses on the consumers 

of, demand for, and price elasticities of the refined petroleum products (DOE, EIA, 1999e). 

Petroleum liquids are inputs to virtually every industry in the United States. Crude oil 

becomes gasoline, diesel fuel, and jet fuel, which affects the transportation industry and facilitates 

the distribution of manufactured goods and the transportation industry. Refineries separate crude 

oil into petrochemical feedstocks that are used as inputs in the chemical industry and eventually 

become plastic or synthetic rubber products, automobile lubricants or antifreeze, cleaning 

compounds, or cosmetics. LPGs also become inputs into chemical compounds or fuel for 

household or farm use. 

2.3.2 Production/Service Overview 

OLD distribution is a service that is part of the production process for petroleum liquids. 

Organic liquids first enter the path of the OLD source category at the point of custody transfer, 

shortly before the refinery stage. Pipelines carry crude oil and/or NGLs from production fields into 

2-22 

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Table 2-9. Principal OLD Facility Categories 

SIC 

Code SIC Description NAICS Code 

Petroleum Refinery (56 survey responses) 

2911 Petroleum Refining 

Liquid Terminal (32 survey responses) 

4226 Special Warehousing and 

Storage, NEC 

32411 

49311 

49319 

Crude Oil Pipeline Pumping/Breakout Station (24 survey 

4612 Crude Petroleum Pipelines 

Petroleum Terminal (10 survey responses) 

5169 

5171 

Chemicals and Allied 

Products, NEC 

Petroleum Bulk Stations and 

Terminals 

48611 

42269 

42271 

454311 

454312 

NAICS Description 

Petroleum Refineries 

General Warehousing and Storage 

Other Warehousing and Storage 

responses) 

Pipeline Transportation of Crude 

Oil 

Other Chemical and Allied 

Products Wholesalers 

Petroleum Bulk Stations and 

Terminals 

Heating Oil Dealers* 

LP Gas Sold Via Retail Method" 

* Only part of this NAICS-coded industry consists of facilities that would also be classified in the 

corresponding SIC code. 

Source: U.S. Census Bureau. March 2000a. "1987 SIC Matched to 1997 NAICS." 

<http://www.census.gov/epcd/naics/NSIC3B.HTML>. As obtained on March 13,2000. 

the refineries. Along the way, the liquids are channeled through crude oil pipeline stations, which 

are used for surge capacity, sorting, measuring, rerouting, and temporary storage of the transported 

liquid. Crude oil pipeline stations are the first point of OLD regulation for petroleum liquids. 

From the crude oil pipeline station, crude oil and NGLs are transported to a petroleum 

refinery; crude oil can also be transported to an independent liquid terminal (either a liquid terminal 

or a petroleum terminal). Petroleum refineries process crude oil and/or NGLs into refined 

petroleum products (including gasoline, distillate fuel oil, residual fuel oil, liquified petroleum gases, 

and petrochemicals). 

2-23 

31 
P.40 

After the refining process, the refined petroleum products might be distributed to one of 

three destinations—refined petroleum products might be distributed to end users belonging to 

different industries or they might be transported to an independent liquid terminal for storage before 

further processing. Liquids stored at independent liquid terminals might be transported to chemical 

production plants or refineries for further processing, they might be sent to a 

blending/packaging/distribution facility, or they might be distributed to end users. 

2.3.2.1 Elasticity of Supply 

The price elasticity of supply, or own-price elasticity of supply, is a measure of the 

responsiveness of producers to changes in the price of a product. The price elasticity of supply 

indicates the percentage change in the quantity supplied of a product resulting from each 1 percent 

change in the price of the product. 

The EIA for the petroleum refinery NESHAP (EPA, 1995) econometrically estimated the 

price elasticity of supply for five petroleum products (motor gasoline, jet fuel, residual fuel oil, 

distillate fuel oil, and LPGs). The price elasticity of supply for the five petroleum products was 

estimated to be 1.24. Foreign supply is assumed to have the same price elasticity of supply as 

domestic supply. A supply elasticity of 1.24 is considered elastic, because in response to a one 

percent increase in the market price, the quantity of petroleum products would increase by more 

than 1 percent. 

2.3.3 Industry Organization 

This section describes the organization of industries that distribute petroleum liquids, 

including market structure, the characteristics of distribution facilities, and the firms that own them. 

Overall, the petroleum liquids distributors face a large degree of competition from fellow 

distributors. This section describes the producers, product differentiation, market concentration, 

and barriers to entry. 

Suppliers in the petroleum industry can be divided into two principal types of firms: 

• "Majors" are large companies that are typically fully vertically integrated and operate 

facilities in all ofthe different petroleum sectors (i.e., exploration, production, 

transportation, refining, and marketing). 

2-24 

(AO 
P.41 

• "Independents" are smaller, nonintegrated companies that generally specialize in one 

aspect, such as crude oil exploration and production or product marketing (DOE, EIA, 

1999e). 

Historically, majors have dominated the petroleum industry. However, the majors recently began a 

trend of selective refining/marketing divestiture that reduced their share of U.S. refining capacity 

from 72 percent in 1990 to 54 percent in 1998. Over the same period, the share of the 

independents rose from 8 percent to 23 percent. 

Petroleum products are produced according to quality grade specifications and therefore 

do not vary much from one another. Brand loyalty is not expected to be an important factor in the 

petroleum products market (DOE, EIA, 1999e). 

Table 2-10 shows concentration ratios by SIC code for the affected OLD industries 

involved in petroleum product distribution, based on data from the 1992 Economic Census. 

(Concentration information by NAICS code from the 1997 Economic Census is not yet available.) 

Industry concentration information is not yet available for the 1997 Economic Census. Ratios are 

included for the census years 1987 and 1992 (where possible), although only 1992 data are 

available for some SIC codes. The numbers in Table 3-7 show that, by and large, the petroleum 

liquids distribution industries are characterized by a large number of firms and generally 

unconcentrated markets, indicating a high degree of competitiveness in their respective product 

markets. The exception is crude oil pipeline stations, which has relatively few firms (52) and high 

concentration ratios (a CR4 of 60.3 percent and a CR8 of 79.7 percent), indicating a high degree 

of concentration. These numbers are not surprising given that the pipeline industry is highly capital 

intensive (see discussion on barriers to entry, above. In addition, FERC legislates and monitors the 

liquids pipeline industries. FERC ensures fair access to pipeline transportation at reasonable rates. 

Interestingly, the vast majority of crude oil pipeline companies with corporate offices in the United 

States are operated as subsidiaries of other corporate entities, mostly major oil companies. Only a 

few ofthe pipeline companies are independently listed on any stock exchange (Gale Research, Inc., 

1999b). 

Recently, two trends in the petroleum market have affected the number and market shares 

of firms—mergers/joint ventures and divestitures. Over the past few years, a number of mergers 

and joint ventures have been undertaken in an effort to cut costs and increase profitability. This 

merger activity has occurred among the largest firms (as best illustrated by the recently approved 

2-25 

* / / 
P.42 

Table 2-10. Concentration Ratios by SIC Code3 

Total 

SIC Number of 

Code Year Firms 

Petroleum Refinery 

2911: Petroleum Refining 

1987 200 

1992 132 

4 Firm 

32% 

30% 

Concentration Ratio 

8 Firm 

52% 

49% 

20 Firm 

78% 

78% 

50 Firm 

. 95% 

97% 

HerfindahlHirschmann 

Index 

435 

414 

Liquid Terminal 

4226: Special Warehousing and Storage, NEC 

1992 1,212 27% 36% 50% 64% NA 

Crude Oil Pipeline Station 

4612: Crude Petroleum Pipelines 

1992 52 60% 80% 97% 10% NA 

Petroleum Terminal 

5169: Chemicals and Allied Products, NEC 

1992 7,446 27% 35% 50% 65% NA 

5171: Petroleum Bulk Stations and Terminals 

1992 8,266 21% 34% 53% 64% NA 

" Concentration information by NAICS code from the 1997 Economic Census is not yet available. 

Source: U.S. Department of Commerce, Bureau of the Census. 1992. Economic Census. Washington, DC: 

Govemment Printing Office, <http://www.census.gov/epcd/www/92result.html>. 

acquisition of U.S.-based Amoco Corporation by the UK-based British Petroleum and the 

announced mega-merger of Exxon and Mobil Corporation) as well as among independent refiners 

and marketers (e.g., the independent refiner/marketer Ultramar Diamond Shamrock [UDS] 

acquired Total Petroleum North America in 1997 and announced a joint venture with Phillips 

Petroleum in October 1998, which was later abandoned) (DOE, EIA, 1999d). 

2-26 

V(l 
P.43 

As explained above, barriers to entry are an important component of the market structure. 

As indicated above, common carrier pipelines in the United States are government regulated due to 

the industry's structure, which can be characterized as a natural monopoly. The crude oil pipeline 

industry is capital intensive. Start-up costs are high, and entry into the industry is restricted, as is 

indicated by the small number of firms operating with headquarters in the United States. However, 

since the day-to-day maintenance of capital-intensive industries tends to be relatively moderate, 

successful companies within the pipeline industries have been able to take advantage of economies 

of scale. 

2.3.3.1Facilities 

Although EPA has received surveys from only about 45 percent (126 out of 281) of the 

universe of OLD in the petroleum industry, an examination of the data provided in the surveys 

illustrates general characteristics of those facilities. The data presented here are for the 118 facilities 

(out of 126) who did not request that their surveys be considered classified information. 

Figure 2-6 shows that ofthe 118 nonclassified facilities, 31 percent of petroleum liquids 

distributors are located in Texas, 12 percent are in Louisiana, and 10 percent are located in Alaska. 

Facilities in NAICS code 32411 were operating at 91 percent capacity in 1998 and 1997 

according to the U.S. Census Bureau (U.S. Census Bureau, 1999f). Figure 2-7 shows that almost 

40 percent of facilities involved in the distribution of petroleum liquids employ fewer than 25 people 

on-site, while another 40 percent of facilities employ more than 250 employees each. 

2.3.3.2 Firm Characteristics 

Table 2-11 presents an overview of the total number of firms for each petroleum OLD SIC 

code, the total number of firms potentially affected by the OLD source category, and the 

percentage ofthe source category potentially affected. 

The OLD source category is heavily dominated by firms organized as corporations. For 

example, in 1987,177 of 200 petroleum refineries (or 88.5 percent) were classified as 

corporations. In 1992,914 of 1,212 liquid terminals (or 75.4 percent), and 49 of 52 crude oil 

pipeline stations (or 94.2 percent) were classified as corporations (DOE, EIA, 1999e; Speed, 

1999). 

2-27 

H3 
P.44 

Figure 2-6. Location of Petroleum Liquids Distributors that Responded to the ICR Survey 

2-28 

IH 
P.45 

less than 25 25 to 50 50 to 100 100 to 250 250 to 500 

Employment Range 

over 500 

Figure 2-7. The Distribution of Petroleum Liquids Facilities that Responded to the ICR 

Survey by Employment 

Source: Nonclassified responses to uie 1998 Industry Specific Infonnation Collection Request for the 

Development of an Organic Liquids Distribution Maximum Achievable Control Technology. 

Table 2-12 presents the SBA small business standards for the OLD source category and 

also shows the number of small firms in the industry. The SBA size definitions for most OLD 

industries is defined in terms of employees. The size standard for these NAICS categories ranges 

from 100 employees in the petroleum terminal industry to 1,500 employees for petroleum 

refineries5 and crude oil pipeline stations. 

EPA's survey of OLD facilities provides data on firms owning facilities affected by the 

OLD NESHAP. The 126 surveyed facilities are owned by 45 companies. According to SBA 

standards, 9 percent (4 out of 45) of those companies are small businesses. 

5

In addition to the maximum number of employees, small petroleum refining firms may not have more than a total 

input capacity of 75,000 barrels per day of petroleum-based inputs, such as crude oil. 

2-29 

^ ^ ~ 
P.46 

Table 2Figur<&ti*nlHirdbf-Ta^ Mfert^dHifni^sll9^ftrm size as measured by 

rpypniip, ,nnd nmplnymFnt Trip mnjnrity nf nffprtP.H-firmr firmr.. tnn tnnVk i ir n mm»i- thnn $1 hillinn in ravennps in 

NAICS 

Code NAICS Description 

Total 

Number of 

Total Number of Affected 

Establishments8 Facilities 

% of Source 

Category that 

is Affected 

Petroleum Refinery 

32411 Petroleum Refineries 

Liquid Terminal 

49311 General Warehousing and 

Storage 

49319 Other Warehousing and 

Storage 

244 

3911 

1213 

111 

94 

45.5% 

1.8% 

Crude Oil Pipeline Station 

48611 Pipeline Transportation of 

Crude Oil 

482 35 7.3% 

Petroleum Terminal 

42269 Other Chemical and Allied 

Products Wholesalers 

42271 Petroleum Bulk Stations and 

Terminals 

454311 Heating Oil Dealers 

454312 LP Gas Dealers 

8,892 

6,729 

5657 

6623 

41" 0.1% 

U.S. Census Bureau. February 1998. "Statistics for Industry Groups and Industries." 1997 Economic 

Census, Manufacturing—Industry Series, E97M-325II. Washington, DC: Government Printing Office. 

U.S. Census Bureau. September 1999g. "Petroleum Refinery." 1997 Economic Census/ 

Manufacturing—Industry Series. E97M-3251I, Washington, DC: Government Printing Office. 

U.S. Census Bureau. January 2000c. "Transportation and Warehousing." 7997 Economic Census, 

Manufacturing—Industry Series. E97M-3251I, Washington, DC: Government Printing Office. 

U.S. Census Bureau. January 2000d. "Wholesale Trade." 1997 Economic Census, Manufacturing—Industry 

Series. E97M-3251I, Washington, DC: Government Printing Office. 

U.S. Census Bureau. March 2000b. "Retail Trade." 1997 Economic Census, Manufacturing—Industry 

Series, E97M-325II. Washington, DC: Govemment Printing Office. 

This is the combined estimated number of affected facilities in this industry. 

2-30 

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P.47 

Table 2-12. Small Business Size Standards for OLD Industries 

NAICS 

Code NAICS Description SBA Small Business Standard 

Petroleum Refinery 

32411 Petroleum Refineries 

Liquid Terminal 

49311 General Warehousing and Storage 

49319 Other Warehousing and Storage 

1,500 employees and 75,000 

barrels per day capacity of 

petroleum-based inputs8 

$18.5millionb 

Crude Oil Pipeline Station 

4612 Crude Petroleum Pipelines 1,500 employees 

Petroleum Terminal 

42269 Chemicals and Allied Products, NEC 

42271 Petroleum Bulk Stations and Terminals 

454311 Heating Oil Dealers 

454311 LP Gas Dealers 

100 employees 

100 employees 

$9.0 million 

$5.0 million 

" Petroleum-based inputs include crude oil or bona fide feedstocks. 

b

 The SBA small business standard for NAICS code 493 represents annual firm revenue. Firm sire by revenue 

is not available in Statistics of U.S. Businesses 1996. 

Sources: Small Business Administration. "Small Business Size Standards Matched to North American 

Industry Classification System Codes Effective October 1,2000." 

Speed, Phillip J. "The Changing Competitive Landscape of the Chemical Industry." Chemicalbond. 

<http://www.socma.org/bond/featurel.html>. As obtained on September 2,1999. 

U.S. Department of Energy, Energy Information Administration. July 1999b. Petroleum: An Energy 

Profile 1999. DOE/EIA-0545(99). Washington, DC. 

1998 and employ more than 5,000 people. The industry exhibits a high degree of vertical 

integration with many firms operating in more than one sector (DOE, EIA, 1999e). For example, 

the crude petroleum pipeline industry is dominated by giant oil companies with assets in many of the 

downstream sectors of the industry (Gale Research, Inc., 1999b). Of the two types of petroleum 

firms, majors are generally fully integrated and operate facilities in all the different sectors. 

Independents, on the other hand, are nonintegrated and generally specialize in one aspect, such as 

2-31 

My 
P.48 

0) 

O) 

CO 

c 

CD 

o 

w 

V 

a 

70% 

60% -

50% -

40% 

30% 

20% 

10% -\ 

0% 

• • 

Less than $5Mto$50 $50Mto $500M to 

$5M $500M $1B 

$1B to $1 OB to over $100B 

$10B $100B 

Company Sales 

Figure 2-8. The Size Distribution of Companies that own OLD Facilities that Responded 

to the ICR Survey and are Involved in the Distribution of Nongasoline Petroleum Liquids, 

by 1998 Sales (in $1997) 

Note: Sales data are from 1998 but were converted into 1997 dollars to facilitate comparison with other figures 

reported in this profile and allow easy comparison with estimated compliance costs, which are 

calculated in 1997 dollars. 

Sources: Dun & Bradstreet. 1999. Company Capsules. As available on EBSCO. 

Gale Group. 1999. General Business File International (formerly Business ASAP). Gale Group 

Collections. .As obtained from InfoTrac Web. <web6.infotrac.galegroup.com/itw>. 

Hoover's Incorporated. 1999. Hoover's Company Profiles. Austin, TX: Hoover's Incorporated. 

<http://www.hoovers.com/>. 

Company websites. 

Company 10k reports. 

U.S. Environmental Protection Agency (EPA). 2000. Technical Support Document for the Organic 

Liquids Distribution (Non-gasoline) Industry. Washington, DC: U.S. Environmental Protection 

Agency, Office of Air Quality Planning and Standards. 

crude oil exploration and production or product marketing (DOE, EIA, 1999e). Similarly, major 

petroleum companies are horizontally integrated, but the smaller independent firms typically operate 

only one refinery each and are therefore not horizontally integrated (EPA, 1995). 

Throughout the 1990s, the U.S. refining and marketing industry was characterized by 

unusually low product margins, low profitability, selective retrenchment, and substantial 

restructuring. During 1997, the profitability of U.S. refining and marketing was the highest since 

2-32 

M 
P.49 

0) 

D) 

CS 

4 * * 

c 

o 

o 

0) 

Q. 

70% 

60% 

50% 

40% 

30% 

20% -

10% -

0% 

less than 500 500 to 1,000 1,000 to 

5,000 

5,000 to 

10,000 

10,000 to over 100,000 

100,000 

Number of Employees 

Figure 2-9. Size Distribution of Companies that own OLD Facilities that Responded to the 

ICR Survey and are Involved in the Distribution of Nongasoline Petroleum Liquids 

Sources: Dun & Bradstreet. 1999. Company Capsules. As available on EBSCO. 

Gale Group. 1999. General Business File International (formerly Business ASAP). Gale Group 

Collections. As obtained from InfoTrac Web. <web6.infotrac.galegroup.com/itw>. 

Hoover's Incorporated. 1999. Hoover's Company Profiles. Austin, TX: Hoover's Incorporated. 

<http://www .hoovers.com/>. 

Company websites. 

Company 10k reports. 

U.S. Environmental Protection Agency (EPA). 2000. Technical Support Document for the Organic 

Liquids Distribution (Non-gasoline) Industry. Washington, DC: U.S. Environmental Protection 

Agency, Office of Air Quality Planning and Standards. 

1989, which was in part achieved by low energy costs as well as cost-cutting measures, including a 

number of mergers and joint ventures in the downstream sector (DOE, EIA, 1999d). The crude 

petroleum pipeline industry has experienced modest but steady growth since 1993. As a result, 

company profits have also increased. This trend has been a result of lower operating costs and 

moderate expanses in deliveries (Gale Research Inc., 1999b; DOE, EIA, 1999a). During 1999, 

Major U.S. energy companies experienced "50 percent increases in cash flows from oil and gas 

production," but profits were uneven, reflecting volatility in petroleum prices (U.S. DOE, EIA, 

2000, 2001). During 2000, petroleum producers almost uniformly experienced tremendous 

increases in profits; for some, record levels of net income were reported. For a sample of 11 major 

2-33 

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P.50 

oil companies, profits increased by amounts ranging from 58 percent to 2,387 percent.6 The 

average increase in profits over the period 1999 to 2000 for these oil companies was 366 percent. 

Table 2-13 shows that, for the firms that own the 126 facilities that responded to the EPA 

survey,7 the average (median) profit margin was (4.7) 4.3 percent. Figure 2-10 shows the 

distribution of profit margins among firms that own petroleum liquids distributors. 

2.3.4 Uses and Consumers 

Five major economic sectors consume petroleum products (DOE, EIA, 1999e): the 

residential sector, the commercial sector, the industrial sector, the transportation sector, and the 

electric utility sector. 

The demand for petroleum products is influenced by several factors, including crude oil 

prices, economic growth trends, and weather conditions. Low oil prices tend to stimulate demand. 

Demand also increases during periods of economic expansion, particularly in the industrial and 

transportation sectors. Economic expansions lead to an increase in the production of goods, which 

contributes in turn to an increase in the demand for transportation of raw materials and the 

deliveries of finished products. Petroleum demand is also influenced by weather conditions. 

Extreme weather tends to either increase or decrease the use of heating oil and electricity, which 

contributes to the demand for petroleum products. Weather can also contribute to the seasonal 

variations in demand for transportation fuels (such as gasoline). 

2.3.4.1 Characterization of Demand—Derived Demand Elasticity 

The demand for petroleum is also influenced by the price of petroleum itself and the price of 

available substitutes. The degree to which the price of petroleum influences the quantity of 

petroleum products demanded is called the price elasticity of demand. Generally speaking, the 

price elasticity of demand represents the percentage change in the quantity demanded resulting from 

a 1 percent change in the price of the product. Table 2-14 lists the price elasticities of demand for 

6

See U.S. SEC 10-K reports for Amerada Hess, Anadarko, Atlantic Richfield, Chevron, CITGO, Conoco, Exxon 

Mobil, Occidental Petroleum, Phillips Petroleum, Sunoco, and Texaco, <http://www.sec.gov/cgi-bin/srchedgarx 

'Forty-five firms own surveyed facilities distributing petroleum products or performing merchant distribution. 

Profit, employment, and sales data were identified for only 43 of those facilities. 

2-34 

50 
P.51 

Table 2-13. Profit Margins of Firms that own Organic Chemical Liquids Distribution 

Facilities that responded to the ICR Survey 

Median 

Average 

Maximum 

Minimum 

4.34% 

4.73% 

34.74% 

-6.94% 

Source: Nonclassified responses to the 1998 Industry Specific Information Collection Request for the 

Development of an Organic Liquids Distribution Maximum Achievable Control Technology. 

45% 

40% 

| 35% -

E 30% -

o 25% -

% 20% -

g 15% 

| 10% -I 

5% -

0% LM • 

<o% 0%-3% 3%-5% 

Profit Margin 

5%-10% >10% 

Figure 2-10. Distribution of Companies Owning Petroleum Liquid Facilities that 

Responded to the ICR Survey, by Profit Margin 

Sources: Dun & Bradstreet. 1999. Company Capsules. As available on EBSCO. 

Gale Group. 1999. General Business File International (formerly Business ASAP). Gale Group 

Collections. As obtained from InfoTrac Web. <web6.infotrac.galegroup.com/itw>. 

Hoover's Incorporated. 1999. Hoover's Company Profiles. Austin, TX: Hoover's Incorporated. 

<http://www.hoovers.com/>. 

Company websites. 

Company 10k reports. 

U.S. Environmental Protection Agency (EPA). 2000. Technical Support Document for the Organic 

Liquids Distribution (Non-gasoline) Industry. Washington, DC: U.S. Environmental Protection 

Agency, Office of Air Quality Planning and Standards. 

Dun & Bradstreet. 1997. Industry Norms & Key Business Ratios. Desk-Top Edition 1996-1997. 

2-35 

Si 
P.52 

Table 2-14. Estimates of Price Elasticity of Demand for Petroleum Products 

Jet fuel

 : -0.15 

Residual fuel oil -0.61 to -0.74 

Distillate fuel oil -0.50 to -0.99 

Liquified petroleum gases -0.60 to -1.0 

Source: U.S. Environmental Protection Agency (EPA). July 1995. Economic Impact Analysis for the Petroleum 

Refinery NESHAP, Revised Draft for Promulgation. 

several of the major petroleum products. In modeling the demand for the composite petroleum 

product, EPA has assumed a demand elasticity of-0.6. 

The elasticity estimates indicate that each of these products has inelastic demand. 

Regulatory control costs are more likely to be paid by consumers of products with inelastic demand 

as compared to products with elastic demand, all other factors held constant. Price increases for 

products with inelastic demand lead to revenue increases for the producers. Thus, one can predict 

that price increases resulting from implementation of regulatory control costs will lead to higher 

gross revenues for the producers (EPA, 1995). 

Demand becomes more elastic with the availability of substitutes and the passage of time. 

In the short run, there may not be substitutes readily available for consumption. However, over 

time, consumers have the opportunity to adjust to the price increase and will seek alternatives. In 

the case of the petroleum industry, as the prices of crude oil and petroleum products increase, 

consumers may not be able to respond immediately. The short-run demand elasticity is inelastic 

because petroleum plays a critical role in today's lifestyles (Oil & Gas Journal, 1999). As time 

passes, consumers can adjust to price changes, and consumer behavior may change, and the price 

elasticity of demand will be higher. 

2.3.5 Markets 

The petroleum industry is a major sector in the U.S. economy. A significant portion of the 

petroleum consumed domestically is imported. The industry experienced relatively high prices in 

1996 and 1997; however, petroleum prices declined substantially in 1998 (Gale Research, Inc., 

1999b). 

2-36 

£?. 
2.3.5.1 Market Volumes 

Petroleum refining is one ofthe leading manufacturing industries in the United States. The 

value of shipments by the petroleum refining industry accounts for about 4 percent ofthe value of 

shipments by the entire manufacturing sector of the U.S. economy. In 1996, the value of shipments 

by the petroleum refining industry was an estimated $158 billion (DOE, EIA, 1999b). 

Table 2-15 shows domestic production and consumption, imports, and exports of the 

aggregated petroleum product in 1997. 

Table 2-15. Petroleum Product Market Volumes, 1997 (IO6 Mt) 

Domestic Supply Imports Total 

L924 441 2,365 

Source: EPA OLD industry Questionnaire Database; ChemExpo. <http://www.chemexpo.com>. Reports for all 

chemicals distributed by OLD facilities. Accessed June 2000. 

Foreign trade plays a critical role in the U.S. crude oil market, and imports of crude oil in 

the United States far outweigh exports of crude oil. With a decline in domestic production and an 

increase in consumption, crude oil imports provide the missing link as U.S. oil demand continues to 

increase. U.S. imports of crude oil have increased 49 percent in the last decade alone. Imports of 

refined petroleum products, on the other hand, have declined since the mid-1980s, accounting for 

slightly more than one-third of total petroleum imports in 1985, but less than one-fifth by 1997 

(DOE, EIA, 1999a). 

Although the United States is a net importer of petroleum, some exports of crude oil and 

petroleum products do occur. The United States exported a combined 1 million barrels per day of 

crude oil and petroleum products in 1997, matching the record level set in 1993. The five leading 

countries that receive U.S. exports of petroleum are Mexico, Canada, Japan, Republic of Korea, 

and Spain. Crude oil exports averaged 110,000 barrels per day in 1998. This average is down 

from its peak in 1980 of 287,000 barrels per day. Product exports have averaged more than 

600,000 barrels per day since 1986 and reached 896,000 barrels per day in 1997, when they 

accounted for more than 89 percent of petroleum exports. This number dropped in 1998 to 

835,000 barrels per day, representing 88 percent of total petroleum exports. The th.ree leading 

2-37 

S3 
P.54 

petroleum product exports, in order of volume exported, are petroleum coke, distillate fuel oil, and 

motor gasoline (DOE, EIA, 1999b,c). 

2.3.5.2 Market Prices 

Crude oil prices are set in international market and have been on a general decline since 

1981. The Organization of Petroleum Exporting Countries (OPEC) has the ability to influence oil 

prices worldwide because its members possess such a large portion of the world's oil supply. If 

OPEC restricts supply, prices increase. If OPEC floods the market with crude oil, prices 

decrease. The sharp price decline in 1998 was attributable to plentiful crude oil supplies (partly 

due to Iraq's increased production). There has also been a general trend of price decline in 

petroleum products. Part of this decline is due to a reduction in demand from suffering Asian 

economies and a decrease in U.S. demand for heating oil because of unseasonably warm weather 

(API, 1999). In modeling the market for the aggregate petroleum product, EPA estimated the 

price of the composite commodity as the quantity-weighted average ofthe petroleum products 

distributed by OLD facilities. The market price used in the model is $191.84 per metric ton. 

2.3.5.3 Future Projections 

The current status of the potentially affected industries is important to establish a baseline 

for the economic impact analysis. However, since compliance costs will not be incurred until some 

time in the future, it is also important to consider projections of future economic trends when 

estimating likely impacts of a regulation. 

The Energy Information Administration (EIA) publishes the Annual Energy Outlook, which 

presents midterm forecasts on energy supply, demand, and prices. The analysis performed focuses 

on a reference case and four other cases that assume higher and lower economic growth and higher 

and lower world oil prices than in the reference case. The projections are based on results from 

EIA's National Energy Modeling System (NEMS). Information on petroleum found in this section 

is based on the 1999 Annual Energy Outlook. 

Domestic crude oil production is expected to continue to decline throughout the next 20 

years. It is expected to decrease by 1.1 percent a year, from 6.5 million barrels per day in 1997 to 

5.0 million barrels per day in 2020. This decline in domestic production will lead to a decline in 

domestic petroleum supply. Domestic supply in 1997 was 9.4 million barrels per day. In NEMS's 

2-38 

& \ 
low price projection, supply drops to 7.6 million barrels per day in 2020; in its high price 

projection, supply drops to 9.3 million barrels. 

Domestic consumption of petroleum is expected to increase over the next 20 years. U.S. 

petroleum consumption is projected to increase by 6.0 million barrels per day between 1997 and 

2020 in the reference case, 3.9 million barrels per day in the low growth case, and 8.2 million in the 

high growth case. The transportation sector is expected to account for most of the increase in 

petroleum consumption. However, a change in the consumption pattem of the transportation sector 

is expected to occur. Gasoline accounted for 65 percent of the petroleum consumed for 

transportation. However, this share is expected to decrease to 61 percent in 2020 as alternative 

fuels are introduced to the transportation market. The share of jet fuel is expected to increase from 

13 percent to 17 percent as air travel continues to expand. 

As domestic production continues to decline and domestic consumption continues to grow, 

oil imports will continue to increase. The projections for net petroleum imports in 2020 range from 

a high of 18.3 million barrels per day in the low oil price case to a low of 14.3 million barrels per 

day in the low growth case. This is more than double the 1997 level of 9.2 million barrels per day. 

Table 2-16 shows consumption and net imports of crude oil and petroleum products for 1997 and 

projections for 2020. 

Table 2-16. Petroleum Consumption and Net Imports in 1997 and 2020 (IO6 barrels/day) 

Year and 

Projection 

1997 

2020 Projections 

Reference 

Low oil price 

High oil price 

Low growth 

High growth 

Consumption 

18.6 

24.7 

26.0 

24.0 

22.5 

26.8 

Net Imports 

9.2 

16.0 

18.3 

14.6 

14.3 

17.7 

Net Crude Imports 

8.1 

12.0 

13.1 

11.5 

11.4 

12.6 

Net Product 

Imports 

1.0 

4.0 

5.2 

3.1 

2.9 

5.1 

Source: U.S. Department of Energy, Energy Information Administration. 1999a. Annual Energy Outlook, 1999. 

2-39 

vSS" 
P.56 

As discussed earlier, crude oil imports currently account for the majority of foreign imports 

of petroleum. Crude oil is expected to continue as the major component of petroleum imports. 

However, the import share of refined products is expected to increase in the future. More imports 

of petroleum products will be needed as growth in demand for refined products exceeds the 

expansion of domestic refining capacity. 

Future exports of petroleum from the United States will depend on economic conditions 

worldwide and the restrictions placed on trade both in the United States and abroad. The 

industrialized countries will continue to be the major oil consumers over the next 20 years. 

However, petroleum use will increase at the fastest rate in developing countries. The United States 

will continue to export petroleum products (especially the heavy products, which are in less demand 

in this country) (DOE, EIA, 1999c). 

Oil prices have fluctuated greatly in the past, which makes future price projections 

uncertain. However, future oil prices are expected to be higher than current prices. The latest year 

for which comprehensive data is available is 1998, a year which saw uncharacteristically low prices 

for petroleum-based products. The world price for crude oil is most heavily influenced by OPEC's 

limits on production. As of the publication of this document, prices for crude oil and petroleumbased products are much higher than during the years presented in the tables in this report. 

Increased world demand has not been met with production increases, resulting in higher prices. 

The reference case for Oil projects prices to rise by about 0.9 percent a year, reaching 

$22.73 in constant 1997 dollars in 2020. In nominal dollars, the reference case price exceeds $43 

in 2020. The low price case projects prices rising to $14.57 by 2005 and remaining at about that 

level until 2020. The high price case has a price rise of about 2.5 percent per year until 2015 and 

then remains at $29.35 until 2020. The leveling off at about $29.35 in the high price case is due to 

the market penetration of alternative energy supplies that could become economically viable at that 

price (DOE, EIA, 1999a). 

2-40 

tO* 
SECTION 3 

ENGINEERING COST ANALYSIS 

HAP emissions occur at several common points during the storage and distribution of 

organic liquids other than gasoline. To control these emissions, EPA has developed MACT floor 

levels of control under the authority of Section 112 of the CAA. This section summarizes EPA's 

control costs estimates for the proposed rule. The Technical Support Document (TSD) contains a 

detailed discussion of the methodologies used to develop these cost estimates. 

3.1 Control Cost Estimates 

The engineering analysis identified 649 major sources that are potentially affected by the 

rule. To estimate nationwide costs, EPA developed 13 model plants with control costs for the 

following emission points: 

• storage tanks, 

• cargo tank transfers, and 

• equipment leaks. 

The costs include capital costs associated with tank, rack, and leak detection and repair devices 

(appropriately annualized using the equipment lifetime and discount rate) and variable costs 

associated with operating and maintaining pollution control devices and other costs associated with 

monitoring, recordkeeping, and reporting (MRR). The Agency identified 429 facilities, or 66 

percent ofthe total that will incur control and MRR costs, with the remaining 220 facilities incurring 

MRR costs only. 

3-1 

^7 
P.58 

The nationwide compliance cost estimates for the proposed rule are $41.38 million for the 

required controls (see Table 3-1).1 These costs are distributed by industry as follows: 

Model Plant 28 Chemical Production—$20.49 million (49.5 percent) 

Model Plant 29 Petroleum Refineries—$4.54 million (11.0 percent) 

Model Plant 42 Liquid Terminals—$11.62 million (28.1 percent) 

Model Plant 46 Crude Oil Pipelines—$2.11 million (5.1 percent) and 

Model Plant 51 Petroleum Terminals—$2.62 million (6.3 percent) 

EPA expressed these control costs on a per-unit basis for input in the market model described in 

Appendix A. EPA also assigned representative costs to individual facilities within each industry, as 

described in Appendix B. In addition, the Agency assigned model plant costs to each of the 248 

survey facilities2 to compute cost-to-sales ratios (CSRs) for facilities and their ultimate parent 

companies (see Appendix B). 

'Although most of EPA's analysis employs NAICS codes, model plants were developed based on the SIC codes 

listed in the facilities' survey response. 

2The Agency collected survey data for 248 of 649 potentially affected facilities (40 percent) and these are 

referred to as the "known" facilities in the analysis. 

3-2 

C# 
Table 3-1. Facility and Nationwide Control Costs for the Proposed OLD MACT 

Tank Tank Rack Rack LDAR LDAR Trttal Annual Total Total 

Number Capital Annual Capital Annual Capital Annual Capital Control Capital Annual 

of Cost per Cost per Co.stper Cost per Cost per Cost per Co.stper Cost per MRR Annual Total Ann. Cost for Cost for 

Model Facilities Facility Facility Facility Facility Facility Facility Facility Facility Cost/Facil. Cost/Facil. All Facilities All Facilities 

Plant Affected (1997$) (S/yr) (1997$) ($/yr) (1997$) ($/yr) (1997$) ($/yr) ($/yr) ($/yr) (1997$) ($/yr) 

28-1 67 0 0 0 0 0 0 2.500 0 16.300 16.300 167,500 1.092,100 

85 . 0 0 0 0 7,350 22,785 9.850 22,785 18,500 41,285 837,250 3,509.225 

40 200,252 -6,488 40.800 69,915 7,350 22.785 250.902 86,212 33.900 120.112 10.036,080 4.804,480 

3 200.252 -6.488 0 0 7,350 22,785 210,102 16,297 18,500 34,797 630,306 104,391 

Totals 195 11,671,136 9,510,196 

28-2 36 0 0 0 0 0 0 2,500 0 15.700 15.700 90,000 565.200 

OJ 46 0 0 0 0 7,350 22.785 9.850 22,785 18.500 41,285 453.100 1.899.110 

i 

21 505,132 -15.467 49.400 75,500 7,350 22,785 564,382 82,818 34,000 116,818 11.852,022 2.453.178 

2 505.132 -15,467 0 0 7.350 22,785 514,982 7,318 18,500 25,818 1.029.964 51.636 

totals ""105 ' '" " 13,425,086 4,969,124 

28-3 "23 0 0 ~0 '"'" 0 0 0 2.500 0 15.700 15.700 57.500 361.100 

32 0 0 0 0 11.798 87.752 14,298 87,752 18.500 106.252 457.536 3.400.064 

14 1.458.729 -45.883 58.800 80.730 11.798 87,752 1,531,827 122,599 34,000 156,599 21.445,578 2.192,386 

I 1.458.729 -45,883 0 0 11.798 87.752 1,473,027 41,869 18,500 60.369 1.473.027 60,369 

Totals 70 23,433,641 6,013,919 

fotihTM 370" 48,529,863 20,493,239 

for 

SIC 28 __ _ 

(continued) 
Table 3-1. Facility and Nationwide Control Costs for the Proposed OLD MACT (continued) 

Tank Tank Rack Rack LDAR LDAR Total Annual Total Total 

Capital Annual Capital Annual Capital Annual Capital Control Capital Annual 

Number of Cost per Cost per Cost per Cost per Cost per Cost per Cost per Cost per MRR Annual Total Ann. Cost for Cost for 

Model FaciUUes FacUity FacUity FacUity FacUity FacUity FacUity FacUity FacUity Cost/FacU. Cost/FacU. All Faculties AUFacUities 

Plant Affected (1997$) ($/yr) (1997$) (S/yr) (1997$) (S/yr) (1997$) ($/yr) ($/yr) ($/yr) (1997$) ($/yr) 

29-1 19 0 0 0 0 0 0 2,500 0 

23 0 0 0 0 7,350 22,785 9,850 22,785 

12 99,345 16,783 0 0 7,350 22,785 109,195 39,568 

15.700 15,700 

18,700 41,485 

18,700 58,268 

47.500 

226,550 

1,310,340 

298,300 

954,155 

699,216 

Totals 54 1,584,390 1,951,671 

29-2 10 0 0 0 0 0 0 2.500 0 

12 0 0 0 0 7,350 22,785 9,850 22,785 

8 197,230 36,793 0 0 7,350 22,785 207.080 59,578 

_j^ Totals 

15,700 15,700 

18.800 41.585 

18,800 78,378 

25.000 

118,200 

1,656,640 

157,000 

499,020 

627,024 

30 1,799,840 1,283,044 

29-3 

42-1 

9 

10 

0 0 0 0 0 0 2,500 0 

0 0 0 0 7,350 22,785 9,850 22,785 

15,700 15,700 22,500 141,300 

18,900 41,685 98,500 416,850 

Totals 

Totals 

for 

SIC 29 

8 

27 

111 

280,716 51,409 0 0 7,350 22,785 290,566 74,194 18,900 93,094 2,324,528 

2,445,528 

5,829,758 

744,752 

1,302,902 

4437,617 

9 

4 

4 

8 

0 

0 

213,459 

213.459 

0 

0 

31.331 

31,331 

0 

0 

0 

40,800 

0 

0 

0 

69,915 

0 

7,350 

7.350 

7,350 

0 

22.785 

22.785 

22,785 

2,500 

9.850 

223,309 

264,109 

0 

22,785 

54,116 

124,031 

16,400 

19.400 

19,400 

23,300 

16.400 

42,185 

73,516 

147.331 

22,500 

39,400 

893,236 

2,112,872 

147,600 

168,740 

294,064 

1,178,648 

Totals 25 3,068,008 1,789,052 
Table 3-1. Facility and Nationwide Control Costs for the Proposed OLD MACT (continued) 

UO 

I 

Model 

Plant 

42-2 

Totals 

42-3 

Totals 

Totals 

for 

SIC 42 

46-1 

Totals 

46-2 

Totals 

Totals 

for 

SIC 46 

Number 

of 

FaciUties 

Affected 

10 

7 

10 

4 

31 

13 

8 

12 

5 

38 

94 

9 

11 

6 

26 

3 

3 

3 

9 

35 

Tank 

Capital 

Cost per 

Facility 

(1997 $) 

0 

0 

423,158 

423,158 

0 

0 

1,238.326 

1,238.326 

0 

0 

600.325 

0 

0 

467,987 

Tank 

Annual 

Cost per 

FacUity 

($/yr) 

0 

0 

63,940 

63,940 

0 

0 

187,642 

187,642 

0 

0 

127,615 

0 

0 

112,216 

Rack 

Capital 

Cost per 

Facility 

(1997 $) 

0 

0 

49,400 

0 

0 

0 

58,800 

0 

0 

0 

0 

0 

0 

0 

Rack 

Annual 

Cost per 

FacUity 

($/yr) 

0 

0 

75,500 

0 

0 

0 

80,730 

0 

0 

0 

0 

0 

0 

0 

LDAR 

Capitel 

Cost per 

FacUity 

(1997 $) 

0 

7,350 

7,350 

7,350 

0 

11.798 

11.798 

11.798 

0 

7,350 

7,350 

0 

7,350 

7350 

LDAR 

Annual 

Cost per 

FacUity 

($/yr) 

0 

22,785 

22,785 

22,785 

0 

87,752 

87.752 

87,752 

0 

22,785 

22,785 

0 

22,785 

22.785 

Totel 

Capital 

Cost per 

FacUity 

(1997 $) 

2,500 

9,850 

482,408 

433,008 

2,500 

14,298 

1,311,424 

1,252,624 

2,500 

9,850 

610,175 

2,500 

9,850 

477,837 

Annual 

Control 

Cost per 

FacUity < 

($/yr) 

0 

22,785 

162,225 

86,725 

0 

87.752 

356.124 

275,394 

0 

22,785 

150,400 

0 

22,785 

135,001 

MRR 

Annual 

Cost/FacU. 

($/yr) 

16,400 

19,400 

23,200 

19,400 

16.400 

19,300 

23,100 

19,300 

13.300 

13,800 

13,800 

13,300 

14.700 

14,700 

Total Ann. 

Cost/FacU. . 

($/yr) 

16,400 

42,185 

185,425 

106,125 

16,400 

107,052 

379,224 

294,694 

13,300 

36.585 

164,200 

13,300 

37,485 

149,701 

Totel 

Capital 

Cost for 

\U Faculties 

(1997 $) 

25,000 

68.950 

4,824,080 

1,732,032 

6,650,062 

32,500 

114,384 

15,737,088 

6,263,120 

22,147,092 

31,865,162 

22,500 

108,350 

3,661,050 

3,791,900 

7,500 

29,550 

1,433,511 

1,470,561 

5,262,461 

Totel 

Annual 

Cost for 

AU Faculties 

($/yr) 

164,000 

295,295 

1,854,250 

424,500 

2,738,045 

213,200 

856,416 

4,550,688 

1,473,470 

7,093,774 

11,620,871 

119,700 

402,435 

985,200 

1^07335 

39,900 

112,455 

449,103 

601,458 

2,108,793 
Table 3-1. Facility and Nationwide Control Costs for the Proposed OLD MACT (continued) 

Tank Tank Rack Rack LDAR LDAR Totel Annual Total Total 

Number Capital Annual Capital Annual Capitel Annual Capital Control Capital Annual 

of Cost per Cost per Cost per Cost per Cost per Cost per Cost per Cost per MRR Annual Total Ann. Cost for Cost for 

Model Faculties FacUity FacUity FaciUty Facility FaciUty FacUity FacUity FacUity Cost/FacU. Cost/FacU. All Faculties AU Faculties 

Plant Affected (1997$) (Vyr) (1997$) ($/yr) (1997$) ($/yr) (1997$) ($/yr) ($/yr) (tfyr) (1997$) ($/yr) 

51-1 0 

7,350 22,785 

2,500 

9,850 

114,256 26,668 7,350 22,785 124,106 

22,785 

49.453 

114,256 26,668 40,800 69,915 7,350 22,785 164,906 119,368 

16,400 

19,400 

19,400 

23,300 

16,400 

42,185 

68,853 

142,668 

17,500 

59,100 

620,530 

989,436 

114,800 

253,110 

344,265 

856,008 

Totels 24 1,686,566 1,568,183 

OJ 51-2 

ON 

4 0 0 0 

4 119,229 20,314 0 

0 0 0 2,500 0 

0 7,350 22,785 9,850 22,785 

0 7350 22,785 129,079 43,099 

119,229 20,314 40,800 69,915 7,350 22,785 169,879 113,014 

16,400 

19,500 

19,500 

23,400 

16,400 

42,285 

62,599 

136,414 

12,500 

39,400 

516,316 

679,516 

82,000 

169,140 

250,396 

545,656 

Totals 

Totels 

for 

SIC 51 

Grand 

Totals 

17 

41 

651 

1,247,732 

2,934,298 

94,421,542 

1,047,192 

2,615375 

41375,895 

Note: Two facilities, one in Model Plant 29-ND and one in Model Plant 51-1, have been found to be exempt due to their very small throughput. The actual grand total 

number of affected facilities is 649. 
SECTION 4 

ECONOMIC IMPACT ANALYSIS: METHODS AND RESULTS 

The proposed NESHAP requires distributors of nongasoline organic liquids to meet 

emission standards for the release of HAPs into the environment. To meet these standards, 

firms will have to modify their plant and equipment and institute leak detection and repair 

procedures. These changes result in higher costs of production for the affected producers. 

They may also have broader societal implications because these effects are transmitted 

through m.arket relationships to their customers. 

The OLD rulemaking will increase the costs of distributing organic liquids. 

Specifically, the costs of several general types of businesses are expected to increase. These 

businesses include facilities that manufacture and distribute organic chemicals and/or 

nongasoline petroleum products and facilities that specialize in the distribution of these 

products. Of the latter facilities, some are owned by companies that also manufacture the 

products, while others are independent businesses that only distribute the products. 

4.1 Overview of Economic Modeling Approaches 

Several types of economic impact modeling approaches have been developed to 

support regulatory development. Models incorporating different levels of economic 

decisionmaking can generally be categorized as with behavior responses (behavioral 

approach) and without behavior responses (nonbehavioral/accounting approach). 

The behavioral approach is grounded in economic theory related to producer and 

consumer behavior in response to changes in market conditions. In essence, this approach 

models the expected reallocation of society's resources in response to a regulation. The 

behavioral approach explicitly models the changes in market prices and production. 

Resulting changes in price and quantity are key inputs into the determination of a number of 

important phenomena in an EIA, such as changes in producer surplus, changes in consumer 

surplus, and net social welfare effects. For example, a large price increase may imply that 

consumers bear a large share of the regulatory burden, thereby mitigating the impact on 

4-1 

^3 
P.64 

producers' profits and plant closures. The following describes the methods and results of this 

approach. 

In contrast the nonbehavioral/accounting approach essentially holds fixed all 

interaction between facility production and market forces. In this approach, a simplifying 

assumption is made that the firm absorbs all control costs, and the analysis assesses the 

burden of the control costs under this assumption. Typically, engineering control costs are 

then compared to facility, company, or industry sales to evaluate the regulation's economic 

impact. The Agency employed a nonbehavioral approach to conduct an initial screening 

analysis of impacts on small businesses (described in Section 5). 

4.2 Conceptual Approach 

EPA developed a simple competitive market model in which buyers and sellers are 

price takers in three commodity markets potentially affected by the rule: petroleum and 

chemical products and merchant organic liquid distribution services. Prices in these markets 

are set by the collective actions of producers and consumers, who take the market price as a 

given in making their production and consumption choices. EPA's model compares baseline 

conditions in the two product markets and the merchant distribution service market to withregulation conditions in those markets. Because the suppliers of organic chemicals and 

petroleum liquids are also the demanders of merchant services, EPA paid particular attention 

to the interactions between the markets. 

With the regulation, the costs of production increase for organic liquid suppliers and 

distributors because they incur additional costs associated with the proposed rule. 

Incorporating these regulatory control costs is represented by an upward shift of the aggregate 

supply curve in each of the three markets. In addition, the increased costs incurred by organic 

liquid and petroleum product facilities reduces their demand for merchant distribution 

services. 

At the new equilibrium with the regulation, the market prices of organic chemicals 

and petroleum products increase and output in those markets (as determined from the market 

demand curve, DM) declines. In the market for merchant distribution services, market 

quantity declines. However, depending on the interaction of the decrease in demand and the 

decrease in supply in that market, the market price may either increase or decrease. 

Figure 4-1 illustrates the theory underlying estimation of the economic impacts of the rule. 

4-2 

(s,(A 
P.65 

a) Quantity of organic liquid distributed by SICs 28 and 29 

P,-T7> 

q/t 

b) Quantity of organic liquids distributed by merchant distributors 

Figure 4-1. Market Responses to the OLD NESHAP 

4-3 

&£-
P.66 

4.2.1 Operational Model 

To develop quantitative estimates of economic impacts, the Agency developed an 

operational model using spreadsheet software. As described below and in detail in Appendix 

A, this model characterizes baseline supply and demand and the behavioral responses to 

changes in costs and/or market prices. 

4.2.1.1 Market Supply 

For each organic liquid market, EPA defines market supply as the sum of domestic 

and foreign supply. Domestic supply is the sum of baseline quantities supplied by facilities 

within the market. EPA obtained questionnaire data on baseline quantities of liquids 

distributed by a sample of facilities, and estimated the quantities distributed by the rest ofthe 

estimated universe of OLD facilities as described in Appendix B. Each supply function's 

parameters were calibrated using baseline production, price data, and the responsiveness of 

supply to changes in price (supply elasticity). 

4.2.1.2 Market Demand 

Similar to supply, the Agency modeled two aggregate consumers (domestic and 

foreign) in each product market, and domestic demand for distribution, with downwardsloping demand curves that are consistent with the theory of demand. This characterization 

simply indicates that consumption of commodities is high at low prices and low at high 

prices. The Agency constructed demand functions for each consumer using baseline 

quantity, price data, and assumptions about the responsiveness to changes in price (demand 

elasticity). EPA obtained estimated demand elasticities for the liquid markets from previous 

EPA economic impact analyses. The elasticity of demand for distribution services, like the 

demand itself, is derived from the demand for the liquids being distributed. 

4.2.1.3 Control Cost Inputs and With-Regulation Equilibrium 

The proposed OLD NESHAP will increase the cost of distributing organic liquids, 

which will increase the costs of facilities producing organic liquids both directly (because 

they also distribute organic liquids) and indirectly (because they purchase merchant 

distribution services, whose costs will also increase due to the proposed regulation). The 

increased cost and reduced quantity of organic liquids distributed by producing facilities also 

reduces the demand for merchant distribution services. EPA's analysis estimates the 

4-4 

(*(* 
P.67 

adjustment in equilibrium quantity at each distribution facility and in each market, using the 

model described in Appendix A. 

Many of the facilities potentially affected by the proposed regulation are located in 

l-hour ozone nonattainment areas. These facilities probably have many of the controls and 

processes on which the estimated costs of compliance are based in place at baseline. The 

costs of compliance for these facilities would likely be much lower than the costs estimated 

by EPA. They would therefore incur lower impacts as a result of the regulation, and the 

market adjustments would be somewhat smaller. To account for these differences, EPA 

conducted two sensitivity analyses. Sensitivity Analysis A decreases estimated compliance 

costs for facilities located in l-hour ozone nonattainment areas by the amount of leak 

detection and repair (LDAR) costs and MRR costs. Sensitivity Analysis B reduces their costs 

by the amount of MRR costs only. The results of these two sensitivity analyses are shown in 

Appendix C. 

4.2.2 Results 

The theory presented above suggests that producers attempt to mitigate the impacts of 

higher-cost production by shifting the burden on to other economic agents to the extent the 

market conditions allow. We would expect the model to project upward pressure on prices 

for merchant distribution services as producers reduce output rates in response to higher 

costs. Increased price of merchant services, plus direct costs of compliance for organic liquid 

producers that also distribute, results in increased prices for organic liquids as producers 

reduce output rates to respond to higher costs. Higher prices reduce quantity demanded and 

output for organic liquids, leading to changes in economic surplus to consumers and 

profitability of firms. Reduced production of organic liquids reduces the demand for 

merchant distribution services. These interacting market adjustments determine the social 

costs of the regulation and its distribution across stakeholders (producers and consumers). 

4.2.3.1 Market- and Industry-Level Impacts 

The increased cost of production due to the regulation is expected to slightly increase 

the price of petroleum and chemical products and reduce their production/consumption from 

baseline levels. As shown in Table 4-1, the regulatory altemative is projected to increase 

prices by less than 0.02 percent in the markets for petroleum products and organic chemicals. 

Domestic production of petroleum products declines by 0.055 million Mt and domestic 

chemical production declines by 0.035 million Mt. Supply from foreign producers (imports) 

4-5 

Cr-? 
P.68 

Table 4-1. Market-Level Industry Impacts of the Proposed Organic Liquid 

Distribution (OLD) NESHAP: 1997 

Petroleum Products 

Price ($/metric ton) 

Quantity (IO6 metric tons/yr) 

Domestic 

Foreign 

Chemical Products 

Price ($/metric ton) 

Quantity (IO6 metric tons/yr) 

Domestic 

Foreign 

Distribution Services 

Price ($/metric ton) 

Quantity (IO6 metric tons/yr) 

Baseline 

$191.84 

2,365 

1,924 

441 

$498.65 

202 

191 

11 

$12.32 

368 

With 

Regulation 

$191.85 

2,365 

1,924 

441 

$498.70 

202 

191 

11 

$12.36 

368 

Chang< 

Absolute 

$0,005 

-0.04 

-O.05 

0.01 

$0,054 

-0.03 

-0.03 

0.00 

$0.04 

-0.02 

Relative 

0.003% 

-0.002% 

-0.003% 

0.003% 

0.011% 

-0.016% 

-0.018% 

0.016% 

0.356% 

-O.004% 

increases by 0.015 million Mt in the petroleum market and 0.002 million Mt in the chemical 

market, resulting in a net decline of 0.04 million Mt and 0.033 million Mt respectively (less 

than 0.02 percent). In the market for merchant distribution services, equilibrium quantity is 

projected to decline by 0.016 million Mt, less than 0.01 percent, and market price is projected 

to increase by $0.04, less than 0.5 percent. 

Revenue, costs, and profitability of the directly affected industry also change as prices 

and production levels adjust to increased costs .associated with compliance. For domestic 

petroleum producers, operating profits are projected to decline by $8.7 million (see Table 

4-2). Operating profit losses are the net result of three effects: decreased revenue, reductions 

in production costs as output declines, and increased control costs. For domestic chemical 

producers, operating profits are projected to decline by $11.4 million. 

4-6 

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Table 4-2. National-Level Industry Impacts of the Proposed Organic Liquid 

Distribution (OLD) NESHAP: 1997 

Absolute Change 

Petroleum 

Revenue -$0.13 

Costs $8.61 

Operating Profit -$8.74 

Facilities 0 

Chemicals 

Revenue -$6.94 

Costs $4-51 

Operating Profit -$ 11.45 

Facilities 0 

Distribution Services 

Revenue $15.94 

Costs $15.61 

Operating Profit $0.33 

Facilities 0 

Total 

Revenue $8.87 

Costs $28.73 

Operating Profit -$19.86 

Facilities 0 

4.2.3.2 Facility-Level Impact Results 

Using the quantity adjustment equation shown in Appendix A, EPA estimated each 

facility's adjustment to the proposed regulation. First, EPA estimates the change in the 

facility's quantity distributed. EPA then combines the estimated decrease in quantity, 

coupled with the change in the market price for the commodity distributed, to estimate the 

facility's change in revenue. 

Detailed information about facility-level profitability was unavailable from ICR 

survey responses. However, Agency estimated the change in each facility's profit, using the 

following formula: 

4-7 

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P.70 

ATI = (Ap - c.)-q., + 0.5(Ap - C;)-Aq. (4.1) 

This formula estimates the facility's change in producer surplus based on the change in the 

market price and the facility's quantity and compliance costs. Facility costs are estimated by 

subtracting estimated with-regulation facility profits from with-regulation facility revenues. 

EPA then aggregated the changes in facility revenues, costs, and profits across facihties in 

each market to estimate national-level industry impacts shown in Table 4-2. 

In the petroleum markets, revenues fell slightly, and costs increased, so that overall, 

profits decreased by approximately $8.7 million. In the chemicals market, revenues fell by 

$6.9 million, and costs increased by $4.5 million, so that overall profits fell $11.4 million. 

For the merchant distributors, revenues increased by $15.9 million and costs increased by 

$15.6 million, so profits increased slightly, by $0.3 million. Nationwide, profits fell by 

nearly $20 million across all three affected sectors. 

4.2.3.3 Company-Level Impacts Results 

To analyze the impacts of the proposed rule on the companies owning affected 

facilities, EPA estimated the change in profits they would experience as a result ofthe 

regulation. These results are shown in Table 4-3. Generally, the proposed regulation is 

projected to result in slight reductions in the profits of companies owning OLD facilities. No 

company that was profitable at baseline is projected to become unprofitable due to the 

regulation. Ofthe 41 companies owning facilities analyzed in the market model, two are 

projected to experience increased profits as a result ofthe regulation. Only one company is 

projected to experience a reduction in profits of more than $0.5 million. Eighteen are 

projected to experience reductions in profits less than $0.1 million, and another 13 are 

projected to experience reductions in profits between $0.1 million and $0.3 million. The 

remaining seven companies are projected to experience reductions in profits of between $0.3 

million and $0.5 million. 

In addition to the companies owning facilities included in the market model, the 

companies owning the Trans-Alaska Pipeline (TAP) will also be impacted. (The TAP was 

omitted from the market impacts model because the volume of petroleum transferred via the 

pipeline is so large, and because it is not really competing with other pipeline facilities 

4-8 

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Table 4-3. Estimated Company-Level Impacts of the OLD NESHAP: 1997 

Change in Profits ($106 million) Number of Companies 

Positive 2 

Between -0.1 and 0 18 

Between-0.3 and-0.1 13 

Between-0.5 and-0.3 7 

Greater than -0.5 1 

Total 41 

affected.) EPA analyzed the impacts of the proposed rule on the company owning the TAP 

by comparing the costs of compliance with company sales. Affected TAP facilities include 

11 pipeline pump stations and the Valdez Marine Terminal. The TAP is owned by the 

Alyeska Pipeline Company, the major partner in which is BP-Amoco. To be conservative, 

EPA compared the TAP's costs with the revenues of BP-Amoco, ignoring revenues of other 

partners. The TAP is estimated to incur $2.7 million to comply with the regulation, which is 

0.004 percent of Amoco's annual sales. If revenues of other pipeline owners were included, 

the estimated costs of the proposed rule would represent an even smaller share. EPA thus 

believes that the proposed rule will not impose significant impacts on the owners of the TAP. 

In addition to analyzing impacts on companies in general, EPA also examined the 

impacts of the regulation on small businesses. This analysis is presented in Section 5. 

4.2.3.4 Social Costs 

The value of a regulatory action is traditionally measured by the change in economic 

welfare that it generates. The regulation's welfare impacts, or the social costs required to 

achieve environmental improvements, will extend to consumers and producers alike. 

Consumers experience welfare impacts due to changes in market prices and consumption 

levels associated with the rule. Producers experience welfare impacts resulting from changes 

in profits corresponding with the changes in production levels and market prices. However, 

it is important to emphasize that this measure does not include benefits that occur outside the 

market, that is, the value of reduced levels of air pollution with the regulation. 

The economic analysis accounts for behavioral responses by producers and consumers 

to the regulation (i.e., shifting costs to other economic agents). This approach provides 

4-9 

7/ 

£?3 
P.72 

insights on how the regulatory burden is distributed across stakeholders. As shown in 

Table 4-4, the economic model estimates the total social cost of the rule of $41.4 million. As 

a result of higher prices and lower consumption levels, consumers (domestic and foreign) are 

projected to lose $21.8 million, with chemical consumers accounting for 80 percent ofthe 

total. Domestic producers lose $22.3 million in profits, with chemical producers accounting 

for 85 percent of the total. Foreign producers unambiguously gain as a result of the 

regulation with profits increasing by $2.7 million. These producers benefit from higher 

prices with additional control costs associated with production. 

Table 4-4. Distribution of Social Costs Associated with Organic Liquids Distribution 

(OLD) NESHAP: 1997 

Value ($10Vyr) 

Change in Consumer Surplus 

Petroleum 

Chemical 

Change in Producer Surplus 

Domestic Producers 

Petroleum 

Chemical 

Distribution Services 

Foreign Producers 

Petroleum 

Chemical 

Total Social Cost 

-$23.77 

-$12.80 

-$10.97 

-$16*9 

-$19.86 

-$8.74 

-$11.45 

$0.33 

$2.97 

$2.39 

$0.58 

-$40.70 

4-10 

?2 
SECTIONS 

SMALL BUSINESS IMPACT ANALYSIS 

Although environmental regulations can affect all businesses, small businesses may have 

special problems complying with such regulations. The Regulatory Flexibility Act (RFA) of 1980 

requires that special consideration be given to small entities affected by federal regulations. The 

RFA was amended in 1996 by the Small Business Regulatory Enforcement Fairness Act 

(SBREFA) to strengthen its analytical and procedural requirements. Under SBREFA, the Agency 

must perform a regulatory flexibility analysis for rules that will have a significant impact on a 

substantial number of small entities. This section focuses on the compliance burden for the small 

businesses to determine whether this proposed rule is likely to impose a significant impact on a 

substantial number ofthe affected small entities (SISNOSE) within this industry. 

5.1 Identifying Small Businesses 

The Small Business Administration (SBA) defines a small business in terms of the sales or 

employment of the owning entity. These thresholds vary by industry and are evaluated based on 

the industry classification (NAICS code) of the affected facility. EPA identified 26 different fourdigit SIC codes, and an even larger number of NAICS codes, for the affected companies. The size 

standards for these industries range from a maximum of 100 to 1,500 employees or from a 

maximum of $5 million to $18.5 million in revenues. Based on the reported company employment 

or revenue and SIC size standards, EPA classified seven of the 65 known companies in the survey 

as small, or 10.6 percent of the total. Using the scaling methods described in Appendix B, the 

Agency estimated that 28 small firms are potentially affected by the rule: 19 small firms incur 

control and MRR costs, and 9 small firms incur only MRR costs. 

5.2 Screening-Level Analysis 

For the purposes of assessing the potential impact of this rule on these small businesses, the 

Agency calculated the share of the annual compliance cost relative to baseline sales for each 

company. When a company owns more than one affected facility, the costs for each facility it owns 

are summed to develop the numerator Ofthe test ratio. For this screening-level analysis, annual 

compliance costs were defined as the engineering control costs imposed on these companies; thus 

5-1 

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they do not reflect the changes in production expected to occur in response to imposing these costs 

and the resulting market adjustments. As shown in Table 5-1, the Agency estimated 17 of the 19 

small firms incurring control and MRR costs have CSRs between 0 and 0.5 percent. The remaining 

two small firms incur costs that are between 1 and 3 percent of sales. Both of these firms are 

classified in model plant group 42 (NAICS 493). In addition, all of the nine small firms incurring 

only MRR costs (not displayed in Table 5-1) have CSRs between 0 and 0.5 percent. Therefore, a 

total of 26 of the 28 small firms are affected less than 0.5 percent of sales. The distribution of 

CSRs (both control and MRR costs and MRR only costs) presented in Figures 5-1 and 5-2 also 

shows that small firms are not disproportionately affected compared to large firms. 

5.3 Economic Analysis 

The Agency also examined the economic impacts on small businesses under with-regulation 

conditions expected to result from the rule. Unlike the screening analysis described above, this 

approach examines small business impacts in light of the expected behavioral responses of 

producers and consumers as described in Section 4. For small companies facing control and MRR 

costs, profits decline from <0.01 to 32.5 percent. The median small company's profits decline by 

approximately 3 percent. For small companies facing MRR costs only, profit changes range from 

+0.1 to -7.3 percent. The median small company's profits decline by less than 0.5 percent. No 

facilities owned by small businesses are projected to close. In addition, no small firms become 

unprofitable as a result of incurring the compliance costs of this regulation. 

5.4 Assessment 

The RFA generally requires an agency to prepare a regulatory flexibility analysis of any rule 

subject to notice and comment rulemaking requirements under the Administrative Procedure Act or 

any other statute unless the agency certifies that the rule will not have a significant economic impact 

on a substantial number of small entities. Small entities include small businesses, small organizations, 

and small governmental jurisdictions. 

For purposes of assessing the impacts of today's proposed rule on small entities, small 

entity is defined as 

5-2 

7*7 
Table 5-1. Compliance CSRs for Companies by Industry and Company Size: Control and MRR Costs (1997)" 

Ln 

i 

Mean 

Median 

Maximum 

Minimum 

Total 

Compliance costs are 

<1% of sales 

Compliance costs are 

il to 3% of sales 

Compliance costs are 

i.3% of sales 

Model Plant 

Group 28 

Small Large 

0.13% 0.01% 

0.13% <0.0l% 

0.13% 0.02% 

0.13% <0.01% 

Model Plant 

Group 28 

Small Large 

2 53 

2 53 

0 0 

0 0 

Model Plant 

Group 29 

Small Large 

0.09% <0.01% 

0.09% <0.01% 

0.18% 0.02% 

<0.01% <0.01% 

Model Plant 

Group 29 

Small Large 

3 16 

3 16 

0 0 

0 0 

Summary Statistics 

Model Plant 

Group 42 

Small Large 

1.14% 0.20% 

1.14% 0.04% 

2.11% 1.21% 

0.17% <0.01% 

Model Plant 

Group 46 

Small Large 

NA 

NA 

NA 

NA 

Number of Companies 

Mode! Plant 

Group 42 

Small 

4 

2 

2 

0 

Large 

29 

27 

2 

0 

Model Plant 

Group 46 

Small Large 

0 3 

0 3 

0 0 

0 0 

0.01% 

<0.01% 

0.01% 

<0.01% 

5 

Model Plant 

Group 51 

imall Large 

NA 0.01% 

NA 0.01% 

NA 0.02% 

NA <0.01% 

Model Plant 

Group 51 

Small Large 

10 19 

0 19 

10 0 

0 0 

All Affected 

Industries 

Small Large 

19 120 

17 118 

2 2 

0 0 

NA = Not available 

Facilities were assigned to model plants 28,29,42,46, and 51 depending on the OLD activity taking place at the facility. These two-digit 

SIC model plants do not always correspond to the SIC or NAICS code for the parent company owning the plant. The determination of small 

business status is based on the parent company's NAICS code. 

0\ 
P.76 

100% 

80% 

£ 60% 

o 

3 

2 40% 

u. 

20% 

0% 

100% 

80% 

|T 60% 

3 

£ 40% 

u. 

20% 

0% 

I 

0% >0-0.5% >0.5- >1.0- >3.0- >5.0- >10.0- >20.0% 

1.0% 3.0% 5.0% 10.0% 20.0% 

CSR Range 

a) Small Companies 

II 

1 = 

1 = 

a ® 

0% >0-0.5% >0.5- >1.0- >3.0-

1.0% 3.0% 5.0% 

>5.0- >10.0- >20.0% 

10.0% 20.0% 

• SIC 28 

• SIC 29 

0 SIC 42 

m SIC 46 

• SIC 51 

• SIC 28 

• SIC 29 

S SIC 42 

§ SIC 46 

• SIC 51 

CSR Range 

b) Large Companies 

Figure 5-1. Distribution of Compliance CSRs by Industry: Control and MRR Costs 

(1997) 

Note: SICs 28,29,42,46, and 51 reflect the model plants to which facilities are assigned. 

5-4 

"Tr / O 
100% 

80% +— 

|T 60% •{— 

3 

« 40% -Iu. 

20% 

0% 

0% >0-0.5% >0.5-

1.0% 

>1.0- >3.0- >5.0- >10.0- >20.0% 

3.0% 5.0% 10.0% 20.0% 

CSR Range 

a) Small Companies 

• SIC 28 

D SIC 29 

0 SIC 42 

S SIC 46 

• SIC 51 

100% 

80% 

« 60% 

0) 

3 

£ 40% 

u. 

20% 

0% 

• SIC 28 

D SIC 29 

S SIC 42 

B SIC 46 

• SIC 51 

0% >0-0.5% >0.5- >1.0- >3.0-

1.0% 3.0% 5.0% 

>5.0- >10.0- >20.0% 

10.0% 20.0% 

CSR Range 

b) Large Companies 

Figure 5-2. Distribution of Compliance CSRs by Industry: MRR Only Costs (1997) 

5-5 

-?- > 
P.78 

• a small business whose parent company has fewer than 100 or 1,500 employees, 

depending on size definition for the affected SIC or NAICS code, or a maximum of $5 

million to $18.5 million in revenues; 

• a small governmental jurisdiction that is a govemment of a city, county, town, school 

district or special district with a population of less than 50,000; and 

• a small organization that is any not-for-profit enterprise independently owned and 

operated and is not dominant in its field. 

It should be noted that companies in 26 four-digit SIC codes and 42 NAICS codes are affected by 

this proposed rule, and the small business definition applied to each industry by SIC code or 

NAICS code is that listed in the SBA size standards (13 CFR 121). For more information on size 

standards for particular industries, please refer to the economic impact analysis in the docket. 

After considering the economic impacts of the proposed rule on small entities, EPA certifies 

that this action will not have a significant economic impact on a substantial number of small entities. 

We have determined that only 28 small firms in the industries affected by this rule may be affected. 

Out of the 28 affected small firms, only two firms are estimated to have compliance costs that 

exceed 1 percent of their revenues. The reported impacts on the small firms are therefore not 

considered to be significant. In addition, the rule is likely to also increase profits at the many small 

firms not affected by the rule due to the very slight increase in market prices. Finally, while there is 

a difference between the median compliance cost-to-sales estimates for the affected small and large 

firms (0.26 percent compared to 0.01 percent for the large firms), no small or large firms are 

expected to close in response to incurring the compliance costs associated with this rule. 

Therefore, the affected small firms are not disproportionately affected by this rule as compared to 

the affected large firms. 

It also should be noted that the results of this small business analysis are the same regardless 

of which industrial classification (SIC or NAICS) is used. 

Although this proposed rule will not have a significant economic impact on a substantial 

number of small entities, EPA nonetheless has tried to reduce the impact of this rule on small 

entities. In addition, in this rule the Agency is applying the minimum level of control to affected 

sources allowed by the CAA. We continue to be interested in the potential impacts of the 

proposed rule on small entities and welcome comments on issues related to such impacts. 

5-6 

•?£ • 
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R-5 

SB 
APPENDIX A 

ORGANIC LIQUIDS DISTRIBUTION (OLD) METHODOLOGY 

The primary purpose for the EIA for the proposed OLD rule is to "describe and 

quantify" the reallocation of society's resources in response to the regulatory action. To 

develop these estimates, we used a basic framework that is consistent with other EIAs 

performed by ISEG. This approach employs standard microeconomic concepts to model 

behavioral responses expected to occur with regulation. 

EPA compared baseline conditions in two organic liquid product markets (chemicals 

and petroleum products) and a service market (distribution) in 1997 with with-regulation 

conditions in the same markets. By including the service market, we placed particular 

emphasis on the interactions between the market for organic liquid products and the market 

for distribution services. 

The proposed regulation "will increase the costs of performing distribution services. 

This will increase the costs of facilities producing organic liquids, either directly or 

indirectly. For example, costs will increase for chemical and petroleum manufacturing 

companies performing on-site distribution services. We assumed that all producers of 

organic liquids perform on-site distribution, either while bringing their organic liquid inputs 

into the facility, while sending their organic liquid products out of the facility, or both. Costs 

will also increase for stand-alone distribution service providers, both independent merchant 

distribution facilities and captive distribution facilities owned by the same companies 

producing the organic liquids. The increase in the price of merchant distribution services will 

indirectly increase the costs of chemical and petroleum producers purchasing distribution 

services. Figure 4-1, in Section 4, illustrates the interacting market responses. 

This methodology plan describes the proposed model in detail and discusses how the 

Agency 

• characterized the supply and demand of the affected commodities and services at 

the market level, 

A-l 

ss~ 
P.85 

• linked three standard partial equilibrium models by specifying the interactions 

between supply functions and then solving for prices and quantities across all 

markets simultaneously, 

• introduced a policy "shock" in the model with control costs inducing shifts in the 

affected supply functions, and 

• used a solution algorithm to determine a new with-regulation equilibrium, 

A.1 Baseline Data Set 

ISEG collected the following market information to characterize the baseline: 

• Market quantities—Using responses from the EPA industry survey, the Agency 

identified known facilities producing petroleum and chemical products potentially 

affected by the proposed rule. Quantities for unknown facilities were developed 

using the procedure described in Appendix B. Import and export quantities for 

these commodities were collected from ChemExpo. Domestic and import 

quantities were aggregated to develop baseline market quantities for the petroleum 

and chemical markets (see Table A-l). The market quantity of distribution 

services was computed by multiplying the estimated share (a) of the organic 

liquid product distributed by merchant service providers and the total baseline 

quantities of the known and unknown facilities. Using data contained in the 

facility database, the Agency estimated a = 17.4%. 

• Market prices—Petroleum and chemical prices were collected from the Chemical 

Market Reporter. A weighted average price for each aggregate market was 

computed based on the petroleum and chemical quantities. Absent data on the 

market price for distribution services, we assumed that the market price is set by 

the highest unit cost service supplier. Using an engineering cost function1 and 

quantities for service providers, the baseline market price for services was 

estimated to be $12.32 per metric ton. 

• Supply and demand elasticities—For the chemical and petroleum industries, we 

utilized industry (SIC) elasticities gathered from previous EPA economic impacts 

analyses (EPA, 1995; Shapiro, 1987). Forthe distribution service industry, we 

assumed a supply elasticity of one. The model does not specify an exogenous 

demand function for services because this demand is derived from the supply 

decisions of the chemical and petroleum producers. Table A-2 shows the 

elasticities used. 

'The engineering cost function used for this analysis is as follows: TC = 598(q/29)08. 

A-2 
Table A-l. Baseline Data Set, 1997 

Market 

Average Price 

($/metric ton) 

Domestic 

Production 

(IO6 metric tons) 

Imports 

(10* metric tons) 

Exports 

(10* metric tons) 

Petroleum $191.84 

Chemical $498.65 

Distribution Services $12.32 

1,924 

191 

368 

441 

11 

NA 

25 

8 

NA 

Table A-2. Supply and Demand Elasticities Used in the Market Model 

Market 

Petroleum 

Chemical 

Distribution Services 

Supply 

1.2 

1.5 

1 

Demand 

-0.6 

-1.5 

derived demand 

A.2 Market for Organic Liquid Products 

A.2.1 Market Supply 

Market supply for the organic liquid product market i can be expressed as: 

Q

Si

 = E q,

 + «F 

j=l 

where 

Si 

qj = product (i) supply from plant (j), and 

Si 

qF = product (i) supply from foreign sources (imports). 

(A.1) 

A-3 

S7 
P.87 

A.2.1.1 Domestic Facility-Level Supply 

Domestic facilities will be affected by the change in costs of distribution on-site and 

by changes in the price for distribution services. Foreign producers do not face additional 

costs of production with regulation. However, their output decisions are affected by price 

changes expected to result from the regulation. The facility survey did provide sufficient 

information on baseline revenues, costs, or profits. Therefore, estimates of the change in 

supply were generated as follows: 

Si Si 

% = °j0 1 + £' Si AprCj-aAps 

PiO 1 j 

(A.2) 

where 

Si qj! is the with regulation supply for facility j , 

Si qj 0 is the baseline supply for facility j , 

e

51

 is the domestic supply elasticity, 

APj is change in price for market i, 

c

j is the per-unit control costs for facility j , 

a is the share of output distributed through merchant terminals, 

Apsvc is the change in the price of merchant services, and 

Pi 0 is the baseline price for market i. 

A-4 

8V* 
A.2.1.2 Foreign Supply (imports) 

Foreign producers do not face additional costs of production with regulation. 

However, their output decisions are affected by price changes expected to result from the 

regulation. Therefore, changes imports were modeled as follows: 

„Si_ s/ 

MFI~ QFO 1 + e Si 1 + 

P

i0) . 

(A.3) 

where 

Si 

qF, is the with regulation imports for market i, 

Si 

qro is the baseline imports for market i, 

e is the foreign supply elasticity, 

Ap; is the change in price for market i, and 

Pio is the baseline price for market i. 

A.2.2 Market Demand 

Market demand for market i can be expressed as the sum of domestic and foreign 

demand, that is, 

Q

K

 = q2L* q? (A.4) 

where qd0'm is the domestic demand and qF' is the foreign demand (or exports). 

A.2.2.1 Domestic Demand 

Changes in domestic demand for each market was computed as follows: 

A-5 

# & 
P.89 

Di _ Di 

^doml" QdomO ' 1 + r]D

'' * 

( _ M 

_.» < 

{ p»)\ 

(A.5) 

where 

Di 

qdom, is the with regulation demand for market i, 

Di 

qdom0 is the baseline domestic consumption for market i, 

rj is the domestic demand elasticity, 

Apj is the change in price for market i, and 

Pio is the baseline price for market i. 

A.2.2.2 Foreign Demand (Exports) 

Changes in domestic demand for each market was computed as follows: 

Di Di 

QF = °FO 1 + n, 

Di 1 + 

Ap, 

>i0)\ 

(A.6) 

where 

Di 

qF1 is the with regulation exports for market i, 

Di 

qro is the baseline exports for market i, 

•rj is the foreign demand elasticity, 

Ap.; is the change in price for market i, and 

A-6 

^O 
P.90 

PJO is the baseline price for market i. 

A.3 Market for Old Distribution Services 

A.3.1 Market Supply 

Market supply for OLD distribution services can be expressed as 

j=l 

where 

(A.7) 

q.

 B,c

 = supply from plant (j) providing distribution services. 

A.3.1.1 Domestic Facility-Level Supply 

Si Si 

qji

 = aj0 1 + es/

 • 

/ \ 

PiO J . 

(A.8) 

where 

Si qj, is the with regulation supply for facility j , 

Si 

qj0 is the b.aseline supply for facility j , 

e

Sl

 is the domestic supply elasticity, 

Apsvc is the change in price for the service market, 

Cj is the per-unit control costs for facility j , and 

Psvc0 is the baseline price for the service market. 

A-7 

11 
P.91 

A.3.2 Market Demand 

Q

D

~ = E qjDsvc (A.9) 

j=l 

As noted above, demand for services is derived form the supply decisions of chemical 

and petroleum producers. Therefore, individual facility demand, q. "vc, is computed as 

follows: 

Dsvc Si , . , _. 

qj = a-qj (A.10) 

<\ZA-8 
APPENDIX B 

ECONOMIC COMPUTATIONS 

To prepare the baseline for the economic impact analysis of the OLD NESHAP, EPA 

used data from a variety of sources, including publicly available data on the chemical and 

petroleum industry, publicly available data on distribution firms .and the independent liquid 

terminals, and data provided by respondents to the Agency's Organic Liquid Distribution 

Questionnaire. To establish the baseline for each affected facility and sector, EPA needed to 

estimate 

• baseline quantity of product (chemical or petroleum liquid) at each facility and for 

the sector as a whole; 

• baseline quantity distributed through captive distribution system, for each facility 

and sector-wide; 

• baseline quantity distributed through merchant distributors, for each facility and 

sector-wide; and 

• baseline price of chemicals, petroleum liquids, and merchant distribution services. 

B.l Baseline Quantities of Chemicals and Petroleum Liquids Distributed by Each 

Facility 

All organic liquids produced and marketed in the United States must be distributed. 

Thus, EPA expects that all organic liquids (except gasoline) sold in the United States will be 

affected by the proposed OLD NESHAP. EPA has data on organic liquids distribution 

facilities responding to the OLD questionnaire, and the quantities of organic liquids they 

distribute. The questionnaire data provide information on a subset of organic liquids, 

distributed by a subset of organic liquid distributors. To construct the model's baseline, EPA 

first examined the database information, then developed a method for estimating the volume 

of organic liquids distributed by the "unknown" organic liquids distribution facilities. This 

section describes these methods. 

B-l 

?3 
P.93 

B.l.l Quantities of Organic Liquids Distributed Onsite and Off-site by Known OLD 

Facilities 

To compute the baseline quantity of product distributed at each facility, EPA began 

with the OLD questionnaire database information on quantities of each organic liquid 

transferred at each facility. EPA first designated each product distributed by these "known" 

facilities as either organic chemical or petroleum liquid, then aggregated across products to 

estimate the quantity of chemicals and/or petroleum products distributed at each known 

facility. 

Facilities in model plant groups 28 and 29 are assumed to both produce and distribute 

organic liquids. The increased costs associated with the proposed regulation are assumed to 

directly increase their costs of supplying delivered organic liquids to the organic liquid 

markets they serve. Facilities in model plant groups 42,46, and 51 offer off-site distribution 

services to the producers and consumers of organic liquids. EPA does not have sufficient 

data to be able to determine which of the off-site suppliers of OLD services offer their 

distribution services to each organic liquid producer. Thus, EPA has assumed that all of the 

off-site distribution facilities are merchant suppliers of distribution services, who supply 

these services to the distribution market. Similarly, EPA is not able to determine which of 

the organic liquid producers purchase off-site distribution services and which ones supply 

their organic liquids directly to customers. EPA has computed the share of organic liquid 

distribution that takes place at off-site facilities (17.4 percent) and assumes that all organic 

liquid producers distribute 17.4 percent of their output through off-site distributors. This is 

clearly a simplification that reduces the variability of secondary impacts of the NESHAP on 

organic liquid producers. In the absence of more detailed information, however, it is a 

reasonable simplifying assumption. 

For the market model, EPA assumes that companies owning more than one OLD 

facility regard their individual facilities as part of a single integrated production and 

distribution operation. Thus, we model supply at the company level, rather than at the facility 

level, by summing the quantities distributed at all facilities owned by a company within each 

model plant group. This is probably a simplification in that companies would consider the 

profitability of individual facilities incurring unusually high compliance costs in addition to 

considering the profitability of the overall operation. 

B-2 

% , 
B.l.2 Estimating Quantities of Organic Liquids Distributed by Unknown OLD Facilities 

To complete the baseline characterization of quantities of organic liquids distributed 

by OLD facilities, EPA created pseudo-facilities and assigned quantities of organic liquids to 

them. EPA has an estimate of the number of OLD facilities represented by each model plant. 

Subtracting known OLD facilities from the database that are assigned to each model plant 

from the total number represented by each model plant yields an estimated number of 

unknown plants in a model plant group. The unknown facilities are divided between those 

incurring only monitoring, recordkeeping, and reporting costs (MRR-only facilities) and 

those incurring costs of compliance control and MRR costs. Table B-l presents the number 

of known and unknown facilities by model plant group. 

Table B-l. Number of Known and Unknown Facilities by Model Plant Group 

Model Plant 

Group 

28 

29 

42 

46 

51 

Total 

Total 

Facilities 

370 

110 

94 

35 

40 

649 

Known 

Facilities 

53 

33 

18 

7 

5 

116 

Unknown Facilities Incurring 

Control and MRR Costs 

191 

38 

44 

16 

22 

311 

MRR-Only 

Facilities 

126 

38 

32 

12 

12 

220 

EPA used a two-step process to estimate the quantity of organic liquids distributed by 

the unknown facilities. First, for model plant groups 28 and 29, EPA assigned quantities 

randomly over the interval between the minimum and maximum quantities distributed by 

facilities in each model plant group. Then, EPA estimated the total quantity of merchant 

distribution services demanded by these unknown facilities in model plant groups 28 and 29 

by multiplying their total distribution times 0.174. EPA allocated employment to the 

unknown facilities within each model plant group randomly over the range of actual 

employment for known facilities in each model plant group and allocated the merchant 

distribution quantity to these facilities proportional to their estimated employment. 

In the absence of information about company ownership of the unknown facilities, 

EPA makes the conservative assumption that the facilities are owned by single-facility 

B-3 
P.95 

companies. This means that the companies owning the unknown facilities are modeled as 

being smaller than the companies owning the known facilities, on average. 

It should be noted that EPA analyzed the Trans-Alaska Pipeline (TAP) differently 

from other merchant distributors. According to the OLD database, the TAP distributes 

715,851,794 Mt per year, 55 times the total for all other model plant group 46 firms. This 

volume of crude oil also represents more than half of the total market quantity of petroleum 

products distributed in the U.S. in a year. Clearly, the TAP is completely different from the 

other "merchant" distributors in our database. For this reason, EPA has chosen to model the 

impacts of the NESHAP on the TAP separately from the market model. The impact of the 

proposed rule on the owners of the TAP will be approximated by examining the costs of the 

rule for the TAP as a share of the baseline company revenues of the largest shareholder in the 

consortium that owns and operates the TAP (BP/Amoco). 

B.2 Market Prices of Organic Liquids and Distribution Services 

EPA obtained data on product-specific prices for organic liquids mentioned in the 

OLD database. EPA estimates the market price for organic chemicals as the quantityweighted average of the prices for organic liquids designated as organic chemicals. 

Similarly, EPA estimates the market price for petroleum liquids as the quantity-weighted 

average of the prices for organic liquids designated as petroleum liquids. 

The market price of organic liquid distribution services was found by first estimating 

the cost of OLD services, then setting the price equal to the maximum average cost. The 

costs of distribution services were estimated based on loading, unloading, and tank storage 

costs, scaled to the volume of liquid distributed. Baseline costs of merchant distribution 

services range from $1.68/Mt to $12.32/Mt. The baseline market price of distribution 

services is thus set at $12.32/Mt. 

B.3 Compliance Costs per Facility 

EPA estimated costs of complying with the proposed rule based on 13 model plants, 

and assigned each known facility to a model plant. Within each model plant, a range of 

compliance costs are possible depending on the baseline equipment and processes in place at 

a facility. EPA has estimated costs for facilities that will only have to implement MRR. All 

of the MRR-only facilities fall within the unknown facility group. For facilities needing to 

implement control and MRR, EPA has estimated costs that reflect this range of compliance 

experiences, but is unable to determine which specific costs within a model plant apply to a 

B-4 

^7&_ 
particular known facility. To implement the economic impact analysis, EPA has therefore 

assigned the median control and MRR compliance cost for each model plant to all known 

facilities assigned to that model plan. EPA then allocated the residual costs across the 

unknown facilities simulated for each model plant group code, based on the total number of 

facilities within each model plant incurring the high, low, or medium costs for that model 

plant, shown in Table 3-1. Because the costs are randomly assigned to individual simulated 

facilities, EPA may be over- or under-estimating the costs of compliance that would be 

experienced by plants such as those simulated for this analysis. 

Because some ofthe OLD facilities are located in ozone nonattainment areas, and 

would therefore be likely to have LDAR and MRR operations in effect at baseline, EPA also 

prepared sensitivity analyses that reduce the costs of compliance for each facility located 

within a nonattainment area by the amount of MRR costs and by the sum of MRR and LDAR 

costs. 

B.3.1 Scaling Nonbehavioral Impacts to Provide Industry-Wide Estimates 

Of the 651 facilities potentially affected by the rule, 431 are estimated to incur costs 

for control and MRR. For the nonbehavioral analysis, of company impacts used in the 

SBREFA screening analysis, EPA did not create simulated facilities. Instead, EPA computed 

scaling factors relating the number of known facilities to the total number of facilities within 

each model plant group (see Table B-2): 

N, 

n

i 

(B.l) 

where 

Nj = number of facilities estimated to incur compliance costs for control and MRR 

for model plant group i, and 

ns = number of known facilities in model plant group i. 

Using these scaling factors, we estimate the impacts incurred by the all 431 facilities 

that have costs for control and MRR. Note that, because the number of known facilities in 

model plant group 46 exceeds the number in the engineering cost analysis, we scale impacts 

down for this model plant group. This method also assumes that the 183 facilities estimated 

to incur costs for control and MRR that are unknown are similar to the known facilities in the 

same model plant group. 

B-5 

<?7 
P.97 

Table B-2. Facility Counts and Scaling Factor for each Model Plant Group 

Model plant group 

Number of Facilities in 

Model Plant Group, Number of Facilities in 

According to Cost Model Plant Group in 

Analysis Database Scaling Factor 

28 

29 

42 

46 

51 

244 

73 

62 

23 

29 

120 

59 

32 

27 

10 

2.033 

1.237 

1.937 

0.851 

2.900 

In addition to the 183 facilities accounted for using the scaling factors above, there are 

220 facilities projected to incur only MRR costs. To estimate the costs for these, we use a 

different scaling factor (see Table B-3). First, we estimate test ratios for known facilities by 

model plant group, using only the MRR costs. Then we scale those results using the ratio 

ML 

n

i 

(B.2) 

where 

M; = number of facilities estimated to incur only MRR costs in model plant group i, 

and 

nj = number of known facilities in model plant group i. 

Using this method, we estimate impacts that would be incurred by all facilities in each model 

plant group code incurring only MRR costs. This method assumes that the facilities incurring 

only MRR costs are similar to the known facilities in the same model plant group code. 

B-6 

<\<h 
Table B-3. Scaling Factors for Facilities Incurring Only MRR Costs 

Model Plant Group 

Code 

Number of Facilities in Number of Facilities in 

Model Plant Group Model Plant Group in 

With Only MRR Costs Database Scaling Factor 

28 

29 

42 

46 

51 

126 

38 

32 

12 

12 

120 

59 

32 

27 

10 

1.050 

0.644 

1.000 

0.444 

1.200 

B.4 Company-Level Factors: Cost-to-Sales Ratios (CSRs) and Scaling Factors 

To assess the potential economic impact of the rule on companies, the Agency 

calculated a cost-to-sales ratio as follows: 

CSR (%) = 

Ecfl 

i=l 

Sales 

100 (B.3) 

where SCfl is the sum ofthe annual control cost for all facilities owned by company p and 

sales is the total revenue for company p. 

Baseline company profit margins were collected from secondary source data (see 

Section 2). If these margins were not available, an industry profit margin (D&B retum-onsales) was used for the company. With-regulation profit margins were computed by 

subtracting the CSR from the baseline profit margin. 

B.4.1 Scaling Company Impacts to Provide Industry-Wide Estimates 

To estimate company impacts on an industry-wide basis, the Agency used a scaling 

process similar to the approach used for facilities. First, we assign a company model plant 

group based on the model plant group for the largest number of facilities owned by the 

company. Next, we compute the average number of facilities per company by model plant 

group, based on the facilities and companies in the database as follows: 

B-7 

f<? 
P.99 

(B.4) 

where 

F = number of firms, 

n = number of facilities, and 

k = known facilities in database. 

We then create a company scaling factor for each model plant group by dividing the total 

number of facilities (with control and MRR costs or MRR costs only) by the average number 

of facilities per company. This method provides an estimate of the total number of 

companies in that model plant group. 

Ft = 

n. 

(B.5) 

where 

F = number of firms, 

n = number of facilities, 

k = known in database, and 

t = total number affected. 

Next, we compute the scaling factor for the model plant group as the ratio of the estimated 

total number of companies divided by the companies in the database. 

B-8 

/oo 
p.1 

S = (B.6) 

Finally, we tabulate the cost-to-sales and profit margin results by model plant group and scale 

it up using the scaling factor. 

B-9 

/Ol 
P.2 

APPENDIX C 

OLD ECONOMIC IMPACT ANALYSIS: SENSITIVITY ANALYSIS FOR 

DIFFERENT SCENARIOS 

To provide an alternative set of results that incorporate differing assumptions about baseline 

controls at affected plants, EPA conducted sensitivity analysis, varying the costs assigned to 

facilities depending on whether they are located in NAAQS ozone nonattainment areas. EPA 

expects that facilities located in l-hour NAAQS ozone nonattainment areas will have MRR and 

perhaps also LDAR operations in effect at baseline. Such facilities would not incur the full 

estimated compliance costs, but rather they would incur the estimated total annual cost minus either 

monitoring recordkeeping and reporting and leak detection and repair costs (Sensitivity Scenario 

A) or total annual costs minus monitoring, recordkeeping and reporting (Sensitivity Scenario B). 

This appendix presents results of these sensitivity analyses. Tables C-1 through C-3 present the 

results of Sensitivity Scenario A, and Tables C-4 through C-6 present the results of Sensitivity 

Scenario B. 

Overall, if facilities in NAAQS ozone nonattainment areas have monitoring, recordkeeping, 

and reporting operations in place at baseline (Sensitivity Scenario B), the social cost of the 

proposed rule will be $39.7 million instead of $40.7 million. Operating profits will fall by $19.4 

million nationwide as opposed to $19.9 million. Price and output changes will also be somewhat 

diminished. If in fact affected facilities located in NAAQS ozone nonattainment areas have both 

leak detection and repair and monitoring, recordkeeping, and reporting operations in effect at 

baseline, estimated impacts ofthe proposed rule will be even smaller. Social cost will be $38.2 

million rather than $40.7 million, and profits will fall by $18.7 million rather than $19.9 million. 

C-1 

/t>2> 
P.3 

Table C-1. Market-Level Industry Impacts of the Proposed Organic Liquid Distribution 

(OLD) NESHAP: 1997 

Sensitivity A: No LDAR or MRR for Nonattainment Area Facilities 

With Change 

Jaseline 

$191.84 

2,365 

1,924 

441 

$498.65 

202 

191 

11 

$12.32 

368 

Regulation 

$191.84 

2,365 

1,924 

441 

$498.70 

202 

191 

11 

$12.36 

368 

Absolute 

$0,005 

-O.04 

-0.05 

0.01 

$0,052 

-0.03 

-0.03 

0.00 

$0.04 

-0.01 

Relative 

0.003% 

-0.002% 

-0.003% 

0.003% 

0.010% 

-0.016% 

-0.017% 

0.016% 

0.329% 

-0.004% 

Petroleum Products 

Price ($/metric ton) 

Quantity (IO6 metric tons/yr) 

Domestic 

Foreign 

Chemical Products 

Price ($/metric ton) 

Quantity (IO6 metric tons/yr) 

Domestic 

Foreign 

Distribution Services 

Price ($/metric ton) 

Quantity (IO6 metric tons/yr) 

C-2 

/CQ 
P.4 

Table C-2. National-Level Industry Impacts of the Proposed Organic Liquid Distribution 

(OLD) NESHAP: 1997 

Sensitivity A: No LDAR or MRR for Nonattainment Area Facilities 

Absolute Change 

Petroleum 

Revenue -$0.12 

Costs $7.92 

Operating Profit -$8.04 

Facilities 0 

Chemicals 

Revenue -$6.60 

Costs $4.33 

Operating Profit -$10.94 

Facilities 0 

Distribution Services 

Revenue $14.75 

Costs $14.51 

Operating Profit $0.24 

Facilities 0 

Total 

Revenue $8.03 

Costs $26.77 

Operating Profit -$18.74 

Facilities 0 

C-3 

/ # & 
P.5 

Table C-3. Distribution of Social Costs Associated with Organic Liquids Distribution 

(OLD) NESHAP: 1997 

Sensitivity A: No LDAR or MRR for Nonattainment Area Facilities 

Value ($107yr) 

Change in Consumer Surplus -$22.18 

Petroleum -$11.74 

Chemical -$10.45 

Change in Producer Surplus -$16.00 

Domestic Producers -$18.74 

Petroleum -$8.04 

Chemical -$10.94 

Distribution Services $0.24 

Foreign Producers $2.74 

Petroleum $2.19 

Chemical $0.55 

Total Social Cost -$38.20 

C-4 

/°G 
P.6 

Table C-4. Market-Level Industry Impacts of the Proposed Organic Liquid Distribution 

(OLD) NESHAP: 1997 

Sensitivity B: No MRR for Nonattainment Area Facilities 

Change 

Jaseline 

$191.84 

2,365 

1,924 

441 

$498.65 

202 

191 

11 

$12.32 

368 

Regulation 

$191.85 

2,365 

1,924 

441 

$498.70 

202 

191 

11 

$12.36 

368 

Absolute 

$0,005 

-0.04 

-O.05 

0.01 

$0,053 

-O.03 

-0.03 

0.00 

$0.04 

-0.02 

Relative 

0.003% 

-0.002% 

-0.003% 

0.003% 

0.011% 

-0.016% 

-0.018% 

0.016% 

0.347% 

-0.004% 

Petroleum Products 

Price ($/metric ton) 

Quantity (IO6 metric tons/yr) 

Domestic' 

Foreign 

Chemical Products 

Price ($/metric ton) 

Quantity (IO6 metric tons/yr) 

Domestic 

Foreign 

Distribution Services 

Price ($/metric ton) 

Quantity (IO6 metric tons/yr) 

C-5 

/ © 7 
P.7 

Table C-5. National-Level Industry Impacts of the Proposed Organic Liquid Distribution 

(OLD) NESHAP: 1997 

Sensitivity B: No MRR for Nonattainment Area Facilities 

Absolute Change 

Petroleum 

Revenue -$0.13 

Costs $8.37 

Operating Profit -$8.50 

Facilities 0 

Chemicals 

Revenue -$6.79 

Costs $4.45 

Operating Profit -$ 11.24 

Facilities 0 

Distribution Services 

Revenue $15.56 

Costs $15.27 

Operating Profit $0.29 

Facilities 0 

Total 

Revenue $8.64 

Costs $28.08 

Operating Profit -$19.44 

Facilities 0 

C-6 

ID3 
P.8 

Table C-6. Distribution of Social Costs Associated with Organic Liquids Distribution 

(OLD) NESHAP: 1997 

Sensitivity B: No MRR for Nonattainment Area Facilities 

Value ($106/yr) ~ 

Change in Consumer Surplus -$23.16 

Petroleum r-$12.41 

Chemical -$10.74 

Change in Producer Surplus -$16.56 

Domestic Producers -$19.44 

Petroleum -$8.50 

Chemical -$11.24 

Distribution Services $0.29 

Foreign Producers $2.88 

Petroleum $2.31 

Chemical $0.57 

Total Social Cost -$39.70 

C-7 

/<pq 
P.9 

APPENDIX D 

MODEL PARAMETER SENSITIVITY ANALYSIS 

As noted in Appendix A, supply and demand elasticity estimates for the petroleum 

and chemical markets were obtained from previous EPA economic impacts analyses (EPA, 

1995; Shapiro, 1987). Although these elasticity estimates seem reasonably, EPA conducted a 

sensitivity analysis of these parameters to capture a broader range of relevant values. In 

addition, given the uncertainty regarding the value of the baseline market prices, we also 

tested the model's sensitivity to changes in these values. The key results results are discussed 

below: 

• The social cost estimate remains essentially unchanged under all scenarios—As 

shown in Tables D-1 and D-2, the social costs vary by 0.1 percent or less in each 

sensitivity run. 

• The distribution of costs across producers and consumers depends on the relative 

supply and demand elasticities—The stakeholder with the less elastic response (in 

absolute value) to marginal changes in price will bear more of the regulatory 

burden. This can be demonstrated by examining the following results derived 

from a simple mathematical model of tax incidence:1 

(D.la) d p D

. 

dc 

dps 

dc 

e

s 

e

Si-nD 

_ n D 

£

Si-TlD 

(D.lb) 

'Derivation ofthis result can be found in intermediate microeconomic textbooks such as Nicholson (1998). 

D-1 

/ / / 
(* 

Table D-1. Sensitivity Analysis of Chemical Market Parameters 

O 

i 

Supply Elasticity 

Demand Elasticity 

Chemical Price 

Closures 

Chemical 

Change in Consumer Surplus 

Petroleum 

Chemical 

Change in Producer Surplus 

Domestic Producers 

Petroleum 

Chemical 

Distribution Services 

Foreign Producers 

Petroleum 

Chemical 

Total Social Cost 

Base Case 

1.5 

-1.5 

$499 

0 

-$23.77 

-$12.80 

-$10.97 

-$16.89 

-$19.86 

-$8.74 

-$11.45 

$0.33 

$2.97 

$2.39 

$0.58 

-$40.7 

Casel 

1.5 

-1.5 

$374 

(-25%) 

-1 

Percent 

DifferValue ence 

-$23.75 -0.1% 

-$12.78 -0.1% 

-$10.97 0.0% 

-$16.88 -0.1% 

-$19.84 -0.1% 

-$8.73 -0.1% 

-$11.42 -0.3% 

$0.31 -7.5% 

$2.96 -0.1% 

$2.38 -0.1% 

$0.58 0.0% 

-$40.6 -0.1% 

Case 2 

1.5 

-1.5 

$623 

(+25%) 

0 

Percent 

DifferValue ence 

-$23.78 0.0% 

-$12.81 0.1% 

-$10.98 0.0% 

-$16.90 0.1% 

-$19.87 0.1% 

-$8.75 0.1% 

-$11.47 0.2% 

$0.35 4.5% 

$2.97 0.1% 

$2.39 0.1% 

$0.58 0.0% 

-$40.7 0.1% 

Case 3 

0.8 

-0.8 

$49S 

0 

Value 

-$23.80 

-$12.82 

-$10.98 

-$16.92 

-$19.89 

-$8.76 

-$11.50 

$0.37 

$2.97 

$2.39 

$0.58 

-$40.7 

Percent 

Difference 

0.1% 

0.2% 

0.0% 

0.2% 

0.2% 

0.2% 

0.4% 

10.5% 

0.1% 

0.2% 

0.0% 

0.1% 

Case 4 

0.8 

-1.5 

$499 

0 

Percent 

DifferValue ence 

-$20.45 

-$12.81 

-$7.64 

-$20.27 

-$23.06 

-$8.75 

-$14.66 

$0.35 

$2.79 

$2.39 

$0.40 

-$40.7 

-14.0% 

0.1% 

-30.4% 

20.0% 

16.1% 

0.1% 

28.1% 

7.2% 

-5.9% 

0.1% 

-30.4% 

0.1% 

Case 5 

0.8 

-2.2 

$499. 

0 

Percent 

Value Differ-ence 

-$18.66 

-$12.81 

-$5.85 

-$22.05 

-$24.75 

-$8.75 

-$16.35 

$0.35 

$2.70 

$2.39 

$0.31 

-$40.7 

-21.5% 

0.1% 

-46.7% 

30.5% 

24.6% 

0.1% 

42.8% 

5.4% 

-9.0% 

0.1% 

-46.7% 

0.1% 

(continued) 
Table D-1. Sensitivity Analysis of Chemical Market Parameters (continued) 

I 

Supply Elasticity 

Demand Elasticity 

Chemical Price 

Closures 

Chemical 

Change in Consumer Surplus 

Petroleum 

Chemical 

Change in Producer Surplus 

Domestic Producers 

Petroleum 

Chemical 

Distribution Services 

Foreign Producers 

Petroleum 

Chemical 

Total Social Cost 

Case 6 

1.5 

-0.8 

$499 

0 

Percent 

Value 

-$27.13 

-$12.81 

-$14.32 

-$13.54 

-$16.68 

-$8.75 

-$8.29 

$0.35 

$3.14 

$2.39 

$0.76 

-$40.7 

Difference 

14.1% 

0.1% 

30.4% 

-19.9% 

-16.0% 

0.1% 

-27.6% 

6.1% 

6.0% 

0.1% 

30.4% 

0.0% 

Case 7 

1.5 

-2.2 

$499 

0 

Percent 

] 

Value 

-$21.69 

-$12.79 

-$8.90 

-$18.98 

-$21.83 

-$8.74 

-$13.41 

$0.32 

$2.85 

$2.39 

$0.47 

-$40.7 

Difference 

-8.8% 

-0.1% 

-18.9% 

12.3% 

9.9% 

-0.1% 

17.2% 

-3.8% 

-3.7% 

-0.1% 

-18.9% 

0.0% 

Case 8 

2.2 

-0.8 

$499 

- 2 

Percent 

DifferValue ence 

-$28.89 21.5% 

-$12.81 0.1% 

-$16.09 46.6% 

-$11.73 -30.6% 

-$14.97 -24.6% 

-$8.75 0.1% 

-$6.56 -42.7% 

$0.34 3,4% 

$3.24 9.1% 

$2.39 0.1% 

$0.85 46.6% 

-$40.6 -0.1% 

Case 9 

2.2 

-1.5 

$499 

- 2 

Percent 

Value 

-$25.83 

-$12.79 

-$13.04 

-$14.79 

-$17.86 

-$8.73 

-$9.45 

$0.31 

$3.07 

$2.38 

$0.69 

-$40.6 

Difference 

8.7% 

-0.1% 

18.8% 

-12.4% 

-10.0% 

-0.1% 

-17.5% 

-4.8% 

3.6% 

-0.1% 

18.9% 

-0.1% 

Case 10 

2.2 

-2.2 

$499 

-2 

Percent 

Value Differ-ence 

-$23.74 

-$12.78 

-$10.97 

-$16.88 

-$19.84 

-$8.73 

-$11.41 

$0.30 

$2.96 

$2.38 

$0.58 

-$40.6 

-0.1% 

-0.2% 

-0.1% 

-0.1% 

-0.1% 

-0.2% 

-0.3% 

-10.4% 

-0.1% 

-0.2% 

-0.1% 

-0.1% 

w 
Table D-2. Sensitivity Analysis of Petroleum Market Parameters 

Supply Elasticity 

Demand Elasticity 

Chemical Price 

Closures 

Petroleum 

Change in Consumer Surplus 

Petroleum 

Chemical 

Change in Producer Surplus 

Domestic Producers 

Petroleum 

Chemical 

Distribution Services 

Foreign Producers 

Petroleum 

Chemical 

Total Social Cost 

Base Case 

1.2 

-0.6 

$192 

0 

-$23.77 

-$12.80 

-$10.97 

-$16.89 

-$19.86 

-$8.74 

-$11.45 

$0.33 

$2.97 

$2.39 

$0.58 

-$40.7 

Casel 

1.2 

-0.6 

$144 

(-25%) 

-1 

Percent 

DifferValue ence 

-$23.74 -0.1% 

-$12.77 -0.2% 

-$10.97 0.0% 

-$16.91 0.1% 

-$19.87 0.1% 

-$8.72 -0.3% 

-$11.45 0.0% 

$0.29 -11.8% 

$2.96 -0.2% 

$2.38 -0.2% 

$0.58 0.0% 

-$40.7 0.0% 

Case 2 

1.2 

-0.6 

$240 

(+25%) 

0 

Percent 

DifferValue ence 

-$23.79 0.1% 

-$12.81 0.1% 

-$10.98 0.0% 

-$16.89 0.0% 

-$19.86 0.0% 

-$8.76 0.2% 

-$11.45 0.0% 

$0.35 7.1% 

$2.97 0.1% 

$2.39 0.1% 

$0.58 0.0% 

-$40.7 0.0% 

Case 3 

0.7 

-0.2 

$192 

0 

Value 

-$25.95 

-$14.97 

-$10.98 

-$14.74 

-$18.11 

-$7.05 

-$11.45 

$0.39 

$3.37 

$2.79 

$0.58 

-$40.7 

Percent 

Difference 

9.2% 

17.0% 

0.0% 

-12.8% 

-8.8% 

-19.3% 

0.0% 

18.9% 

13.7% 

17.0% 

0.0% 

0.0% 

Case 4 

0.7 

-0.6 

$192 

0 

Percent 

DifferValue ence 

-$21.33 

-$10.35 

-$10.98 

-$19.36 

-$21.87 

-$10.78 

-$11.45 

$0.36 

$2.51 

$1.93 

$0.58 

-$40.7 

-10.3% 

-19.1% 

0.0% 

14.6% 

10.1% 

23.3% 

0.0% 

10.1% 

-15.4% 

-19.1% 

0.0% 

0.0% 

Case 5 

0.7 

-1 

$192 

0 

Percent 

Value Differ-ence 

-$18.89 

-$7.91 

-$10.98 

-$21.80 

-$23.85 

-$12.75 

-$11.45 

$0.35 

$2.05 

$1.48 

$0.58 

-$40.7 

-20.6% 

-38.2% 

0.0% 

29.0% 

20.1% 

45.9% 

0.0% 

5.4% 

-30.7%. 

-38.2% 

0.0% 

0.0% 

(continued) 
Table D-2. Sensitivity Analysis of Petroleum Market Parameters (continued) 

O 

I 

Supply Elasticity 

Demand Elasticity 

Chemical Price 

Closures 

Petroleum 

Change in Consumer Surplus 

Petroleum 

Chemical 

Change in Producer Surplus 

Domestic Producers 

Petroleum 

Chemical 

Distribution Services 

Foreign Producers 

Petroleum 

Chemical 

Total Social Cost 

Case 6 

1.2 

-0.2 

$192 

0 

Percent 

Value 

-$27.46 

-$16.49 

-$10.98 

-$13.20 

-$16.86 

-$5.78 

-$11.45 

$0.37 

$3.65 

$3.07 

$0.58 

-$40.7 

Difference 

15.5% 

28.8% 

0.0% 

-21.8% 

-15.1% 

-33.9% 

0.0% 

12.0% 

23.2% 

28.8% 

0.0% 

0.0% 

Case 7 

1.2 

-1 

$192 

0 

Value 

-$21.43 

-$10.46 

-$10.97 

-$19.23 

-$21.76 

-$10.62 

-$11.45 

$0.31 

$2.53 

$1.95 

$0.58 

-$40.7 

Percent 

Difference 

-9.8% 

-18.3% 

0.0% 

13.9% 

9.6% 

21.5% 

0.0% 

-7.6% 

-14.7% 

-18.3% 

0.0% 

0.0% 

Case 8 

1.8 

-0.2 

$192 

-2 

Value 

-$28.26 

-$17.28 

-$10.98 

-$12.39 

-$16.20 

-$5.09 

-$11.45 

$0.35 

$3.80 

$3.22 

$0.58 

-$40.7 

Percent 

Difference 

18.9% 

35.0% 

0.0% 

-26.6% 

-18.4% 

-41.7% 

0.0% 

4.4% 

28.2% 

35.0% 

0.0% 

0.0% 

Case 9 

1.8 

-0.6 

$192 

-2 

Percent 

DifferValue 

-$25.34 

-$14.37 

-$10.97 

-$15.31 

-$18.57 

-$7.42 

-$11.45 

$0.30 

$3.26 

$2.68 

$0.58 

-$40.7 

ence 

6.6% 

12.3% 

0.0% 

-9.4% 

-6.5% 

-15.1% 

0.0% 

-9.8% 

9.9% 

12.3% 

0.0% 

0.0% 

Case 10 

1.8 

-1 

$192 

-2 

Percent 

Value Differ-ence 

-$20.51 

-$9.54 

-$10.97 

-$20.14 

-$22.50 

-$11.27 

-$11.44 

$0.22 

$2.36 

$1.78 

$0.58 

-$40.7 

-13.7% 

-25.4% 

0.0% 

19.2% 

13.3% 

29.0% 

0.0% 

-33.2% 

-20.5% 

-25.4% 

0.0% 

0.0% 

1 
2 

P.14 

dps 

dc 

dP

D 

dc 

_ n D 

e

s (D.lc) 

where 

dpAD = price paid by consumers 

dpAS =price received by suppliers 

dc = per-unit control costs 

e

A

s =elasticity of supply 

n

A

d =elasticity of demand 

For example, in the base case for the chemical market, both supply and demand 

elasticity are equal (1.5, -1.5). Using Eq. (D.1), we find that the per-unit control costs is split 

between consumers and producers equally. In case 6, we assume consumers are less 

responsive to changes in price (i.e., the demand elasticity to -0.8). Using Eq. (D.1), we 

conclude that consumers would bear roughly two-thirds of the control costs under this 

assumption, and the loss in consumer surplus increases by 30 percent. 

• Closure projections slightly increase—one closure may occur in each market if 

we reduce the baseline price by 25 percent. Two closures may occur when the 

supply parameters is more elastic relative to the base case. 

D-6 

/ ifc