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Page 1 of 8 Major Rule Preamble

Interim Final Rule Has EPA considered issuing an interim final rule to address issues for which they received comment on but haven’t yet analyzed or considered those comments? Note that in an interim final rule, all aspects of t he rule would be effectively final, but it would allow for comment and possible am endment of the final rule.

For instance, has EPA considered issuing an interim final rule with a solicitation for comments on acute exposure, cumulative e ffects, and data necessary to calculate a facility-by-facility HBEL? If not?

HBEL In the 2004 rule [55244] EPA stated, “To identif y HAP with potential to cause multimedia and/or environmental effects, the EPA has ident ified HAP with signif icant potential to exist in the environment and to bio-accumulate. This list does not include HCl or manganese, which are the only HAP with health based compliance alternatives in the final rule.” EPA went on to state, “Additiona lly, a screening level analysis conducted by the EPA indicates that acute im pacts of these HAP from indus trial boiler facilities are highly unlikely. For these reasons, we do not believe that emissions of HCl or manganese from industrial boiler facilities will pose a significant risk to the environment and facilities attempting to comply with the health based alternatives for these HAP are not required to perform an ecological assessmen t.” EPA states in the draft final rule that its concerns about environm ental impacts and the cumulati ve impacts of acid gases “were not assuaged by the comments rece ived.” Could EPA please describe in the preamble what has changed since 2004 that l ed to its reevaluatio n of environmental impacts and impacts of acute exposure to acid gases? Could EPA also explain in more detail why the information provided in the comments falls short?

Does section 112(d) specify t hat emissions levels must be set or emissions standards? Are standards equivalent to levels? Can a standard consist of a methodology that applies equally to all facilities that resu lts in exposure less than a given health threshold?

Also, according to the statistical data provid ed, there is a wide variation in exposures that would result from simila r emissions levels of different facilities because of different physical configurations. It therefore seems possible that an HBEL set on a nationwide basis would only be useful to a small samp le of facilities with the most advantageous physical configuration. Section 112(d)(3) is very specific about the methodology to be used to set emissions limits generally. What is the methodology (including statistical methodology) specified in 112(d)(4) for est ablishing an HBEL on a nationwide basis?

In its proposal, EPA indicated interest in receiving data to develop a “model plant” for each of the subcategories, to enable disp ersion modeling. Wouldn’t this approach

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Page 2 of 8 ultimately require site-specific testing and an eligibility determi nation based on actual emissions data from a given plant?

Has EPA consider an HBEL for manganese, or the use of a Total Select Metals approach for manganese? If not, why?

Cost Estimates The adjustment of subcategor ies and the new emissions limits based on data received has lowered EPA’s projected total capital cost s by $4.4 billion, a reduction of almost 50 percent. Regarding industry’s claim that t he capital costs of t he proposed rule would have been closer to $20 billion, to what exte nt has EPA modified its cost estimates to reflect industry’s comments?

We also note that there is no estimate of t he cost savings that would result from the HBEL alternative in the Regulatory Impact Anal ysis. Absent this information, a facilityby-facility HBEL, as proposed by industry, may still result in significant cost savings. Consistent with Executive Order 13563, coul d EPA quantify the anticipated costs of the draft final boiler MACT with and without an HBEL alternative? Regardless of the marginal impact (both costs and benefits) of the HBEL relative to t he draft final rule’s chosen alternative, this supplemental analysis may provide useful information during the reconsideration phase of this fi nal rule EPA has committed to.

Emissions Limits Is EPA sure that the CO and NOx limits can be met simult aneously given that NOx increases when CO decreases and vice versa? If so, please describe in more detail the reasoning behind this conclusion.

Energy Audits Will federal agencies have an opportunity to comment on the energy audit provisions again when the Notice or Rec onsideration is published? There is concern that requiring Federal facilities to comply with the energy audi t provision of the rule is duplicative and unnecessary since Federal facilities are already subject to energy reductions goals under E.O. 13514 and "Comprehensive Energy and Water Evaluations" under the Energy Independence and Security Act for wh ich DoE has developed detailed guidance and criteria. Similarly, has EPA considered clarifying that the energy audits required by EISA and E.O. 13514 would be sufficient for compliance with this provision?

Tune-Ups Several reviewers suggested that the doc uments provided to the interagency group do not provide support for EPA’s assertion that a 1% efficiency results from a tune-up – can EPA provide more information to support the 1% efficiency assumption included in the benefits estimates:

The first document asserts a 1 to 5% efficiency gain in t he executive summary, but does not provide a basis for the statement. The de tailed tables present a confusing picture,

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Page 3 of 8 since the time since last tune-up would have a significant impact on the projected fuel savings and costs. Nor is every boiler re commended for tune-up. The cost savings for annual tune-ups aren’ t presented here.

The second document was produced by “The Su stainable Energy Au thority of Ireland,” but it isn’t sourced either. The graph is presented without additional information to support it. Also problematic is that the document is specific ally about home boilers (i.e., very small and not subject to this rule) and is limited to home heating fuel sources (i.e., not coal or biofuels).

RIA

Challenges in Monetization of t he Benefits of Reductions in HAPs We applaud EPA for including detailed modeling of the Major Source Boilers MACT rule’s estimated reductions in mercury dispos itions, which is a great initial step towards quantifying benefits for mercury reductions. We also applaud EPA’s more detailed modeling, at the boiler-sector-le vel, of the Major Source Bo ilers MACT rule’s estimated benefits. However, the preamble and RIA would benefit from a fuller discussion regarding the difficulties prev enting monetization of reductions in HAPs, discussion of the qualitative benefits of reducing HAPs, and why quantified benefits are reductions in PM and ozone. At a minimum, we think EPA’s discussion on this topic can be improved by addressing the tone of the preamble and RIA language.

For example, we suggest that this issue be acknowledged explicitly in the introduction, the executive summary, etc. A footnote to Table 1-1 isn’t suffi cient. The fact that this RIA fails to monetize the objective of the regulation is not noted explicitly until the bottom of page 7-1.

Presentation of Direct Benefits Suggest putting the HAP benefits discussion that begins on page 7-36 up front more prominently, since this is the reason the Clean Air Act requires regulations of these sources, and this should t herefore not be omitted.

Interaction between this rule and others Can EPA include a discussion of the interact ion between this rule and others that regulate PM? If PM is abated from boilers , does that mean more PM can be emitted

from other sources? If PM has already been abated from other sources, and as a cobenefit from other rules, does that mean the EPA’s standard va luation of PM reductions is becoming overstated? Has EPA made any adjustments to this analysis to account for potential double-counting of impacts (bot h costs and benefits); for example, by considering whether some boilers in PM-nona ttainment areas may already be obliged to control PM or precursors?

Discussion of EPA’s Analysis on the Em ployment Impacts of the Rules

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Page 4 of 8 The RIA would benefit greatly from clarified exposition of the methodology used for employment impacts.

In particular, EPA should be clear that they are not using the multimarket, partial equilibrium model to estimate employment effects. They ar e only using parameters from Table III of the Morgenstern et al paper (for now. On the call they mentioned potentially quantifying the impacts for the two other employment effect s they listed, but are not addressed by Morgenstern et al). I’ve m ade some suggestions in the redline text.

The employment effects, for the Major Source rule, should match in the preamble and the RIA. Currently, they differ.

Employment impacts are repor ted as ranges, and are estima ted using parameters from an academic paper in the literature (Morgens tern, Pizer, and Shih (2002)). The paper, examining data from four industries, c oncludes that increased pollution abatement expenditures generally do not cause a significant change in employment, and is so described in both the preamble and RIA. It is helpful that EPA includes a detailed discussion of the potential issues associat ed with using the paper and its limitations, while also describing its appropriat eness for use in this context. The paper divides labor effects into three parts: a demand effect, a cost effect, and a factor-shift effect (changes in labor-intensity) . The demand effect is negative, cost effect is positive, but the factor-shift effect coul d be either negative or positive, depending upon the relative labor-intensity of post-r egulation production technologies. For transparency and methodological clarity, it woul d be helpful to describe the calculations for all three effects, in the RIA. Currently only the demand effect has a description. In addition, because the final rule includes requirements for work practice standards (“tune-ups”) that were not in the proposal, it would be helpful to include discussion of how this change has impacted the employment estimates (if work practice standards are labor-intensive, presumably through the fact or-shift effect), separately by the Area Source Boilers MACT rule (where all source s are subject to work practice standards) versus the Major Source Boilers MACT rule (where some sources face work practice standards).

It appears that EPA assumes employment changes are proportional to output changes; if this is not the case, EPA should clarify that in the text. If it is the case, then the text describing the multi-market m odel in Appendix 2 is incons istent with the employment effect assumption. Specifically, the following statements are problematic:

 Model time horizon (“short-run”)

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Page 5 of 8 – fixed production resources (e.g., c apital) leads to an upward-sloping industry supply function

– firms cannot alter input mixes; there is no substitution among production inputs (capital, labor, energy inte rmediates, and other intermediates)

– price of labor (i.e., wage) is fixed

Ignoring intermediate inputs (which you c an because the intermediate technology is assumed Leontief), if capital and wages are fixed, output can change only by changing labor hours of employment. However, any given percent change in employment with capital fixed will lead to a smaller percent change in output (depending on the capital/labor ratio of the industry), which is inconsistent with the assumption that employment changes are proportional to output.

We do not recommend changing the above te xt, since (except for the Leontief intermediate assumption) it describes standa rd assumptions for partial equilibrium models. One option is to redraft the text describing the “medium run” employment assumptions more carefully . Or, you could provide “short-run” and “medium-run” employment change estimates. The next paragraph describes how you could calculate “short run” employment effe cts consistent with the mult i-market model assumptions (essentially, assuming capital and wages are fixed). The “medium-run” employment changes you’ve already calculated are an approx imation of the employment effect after the capital stock has had a few years to adjust.

Given the employment data and some com pensation data from BLS, it should be possible to estimate the imp lied wage bill for each of the 100 sectors. Using the share of the wage bill in total output, and assumi ng fixed wages (and ignoring intermediate inputs), it would therefore be possible to calculate the percent change in employment required for a given percent change in output.

The change in jobs range for the major bo iler rule ranges between -3000 to 6000; the estimated change in jobs range for the area boiler rule ranges between -1000 to 2000. Would EPA articulate the job changes asso ciated with compliance costs? Would EPA articulate the job changes associated with production decrease?

Also, are the job effects analyzed outside t he multimarket analysis? The multimarket analysis lists the following assumptions: (1) fi rms cannot alter input mixes (4-2), and (2) price of labor is fixed (4-2). Please explain whether the job effects results are consistent with the multimarket analysis results, and why.

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Page 6 of 8 Chapter 4 states that the “analysis’ time horizon is the in termediate run” (4-1). But the analysis goes on to state that “multimarket models focus on ‘short run’ time horizons.”

Please discuss how the multimarket models we re adjusted to analyze intermediate time

horizon effects.

Cost Estimate Methodology Please provide undiscounted stream of costs estimated to o ccur with the rules. Over how many years are the capital costs spread over?

Energy Audit Benefits The assessments are presented as a top-line cost in RIA sec 3, but it’s not clear in the RIA of the reasoning for adopting it in addition to the tune-up.

Impacts of Rules on Small Entities One reviewer stated that it does not appear that EPA has demonstrated compliance with the RFA, raising serious concerns about the rules as a whole.

For the major source rule, EPA provides a brief statement referencing the Initial Regulatory Flexibility Analysis (IRFA) from the proposed rule and a conclusory statement about the impacts on small entities. (See V III.F of the preamble.) • The requirements for a Final Regulatory Fl exibility Analysis (FRFA) differ from those for an IRFA, so a simple cross-reference is not sufficient. o EPA must respond to public comments on the IRFA, and specifically respond to comments from Chief C ounsel for Advocacy. o Analysis prepared for the IRFA and the ju stifications for alternatives selected were based on the regulatory alternativ es prepared for the proposed rule. New alternatives under consideration requi re a new discussion for the FRFA. • EPA has not provided an estimate of the nu mber of small entities affected by this rule or explained why such an estimate is not available. • According to RIA Table 5-2, more small entities reach the 3% threshold under the final rule than the proposed rule, which cont radicts the statement in the preamble. • EPA should direct the reader to its de scription of steps the agency has taken to minimize the significant econom ic impact on small entities.

For the area source rule, EPA says in the pream ble that it is certifying but the RIA says EPA cannot certify. It s eems that EPA does not have a sufficient factual basis upon which to certify. EPA should prepare a FR FA that addresses the statutory points, including response to comments. The st atutory points are summarized as follows: • EPA needs to provide an explanation of its assumptions about compliance costs and revenues. • EPA needs to estimate the number of small entities affected. • Average revenues are highly misleading, and that any significant variation in revenue or compliance cost would lead to significant economic effects.

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Page 7 of 8 • Even small changes in revenue for non- profits and public institutions have significantly greater impact that they might for private institutions.

Memo titled “Revised Methodology for Es timating Cost and Emissions Impacts for Industrial, Commercial, Institutional Boilers and Process Heaters National Emission Standards for Hazardous Air Pollutants – Major Source

Work Practice Costs We suggest EPA provide a source for its tune- up costs. The wide range of boiler sizes and fuels makes a single number hard to ju stify without more explicit support.

On page 7, we suggest EPA should restate their annualization assumptions here as they do in the next bullet.

If the cost of tune-up is rela ted to the amount of time si nce the last tune-up (as would seem to be the case with the very lar ge one-time cost), using the annual cost once every two years in lieu of the bi ennial cost understates the cost of the requirement. It is not clear from the write-up what was done; we suggest EPA clarify this.

This document says energy audit s are an annual requirement. This seems to contradict the rule.

EPA should provide sources for its estimate s of energy audit costs. (Footnote 2 is a self-reference; Is it supposed to be a reference to something else?)

Fuel Savings Impacts (page 10) EPA cites DOE estimate of 10 to 15 perc ent efficiency gains (please include references), but it isn’t clear to what ex tent these gains are incorporated into the analysis. This leaves the impression that benefits are being left on the table when, in fact, each process improvement must pass a C/B test and the costs of the energy audit are sunk. If EPA does not use the results of the energy audit to make assumptions about these calculations, they should be disc ussed elsewhere. If EPA does make use of the energy audits to make assumptions about cost savings, then the costs of the improvements needs to be incorporat ed into the cost estimates.

The Sustainable Energy Authorit y of Ireland’s chart has no source, but, if reliable, the information presented should be applied only to home boilers using residential fuels, which are outside the scope of this rule. The statement about 1 to 5 percent effici ency is also unsupported. The document provided separate by EPA that makes this claim does not provide support for its assertion. I also note that this supporting document is fo cused on natural gas, oil, and propane boilers. It does not appear that the authors were addr essing biofuels or coalfueled boilers.

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Page 8 of 8 Secondary impacts analysis (page 18) The second paragraph of this section also cites the assumption of a 1% energy efficiency gain. Section 5.5 again cites the 10 to 15 percent gains. EPA should avoid mention of these gains in this context because they are not including the cost of implementing the energy audit recommendation in their cost calculations.