Document ID: EPA-HQ-OAR-2009-0734-0312
Agency: epa
Document Type: Supporting & Related Material
Title: 
Posted Date: 2014-02-03T05:00Z

Reg Flex Analysis 

 EPA should consider additional regulatory alternatives as required in the RFA to minimize the rule's economic impact on small entities
         oo Based on the analysis of the economic impacts of this rule on small entities illustrated in Table 6-7 of the RIA, EPA was not able to certify this rule under the RFA.  EPA also found that this rule is expected to have some sizeable impacts to very small entities, that individual industries had with compliance costs encompassing over 10% of industry revenues, and, in some cases, compliance costs to be over 100% of entity revenues. Given these substantial impacts, EPA should consider additional reasonable alternatives to reduce the economic impact on small entities. While EPA has considered an alternative to the proposed approach to this rule, this alternative as shown in Table 6-8 of the RIA is actually expected to increase the already large economic impact on small entities. Therefore, EPA should consider alternatives such as those suggested in section 603(c) of the RFA namely:
               * Exemption for certain or all small entities from coverage of the rule in whole, or in part;
               * Establishment of different compliance or reporting requirements for small entities or timetables that take into account the resources available to small entities; and
               * Clarification, consolidation, or implication of compliance and reporting requirements for small entities.

 EPA should provide greater detail on why it chose to reject the SBAR panel, SBA, and OMB's recommendation to not move forward on issuing emissions limitations for the mason heater industry
         oo Advocacy staff interprets the recommendation that EPA focus on the most polluting sources first differently than does EPA in its summary and response to the panel recommendation.  The EPA proposal includes sources that are already quite clean and provide significantly fewer emissions benefits than other sources in the proposal.  Advocacy staff again encourages EPA to refocus its efforts on only the sources that provided the greatest cost effectiveness of regulation and consider other means of addressing other sources, such as continuing the successful volunteer programs or allowing states to regulate based on local and regional variation and needs.
         oo On page 152 of the preamble EPA explains that it is issuing emissions limitations on masonry heaters against the recommendations of the SBAR panel, SBA, and OMB because industry requested a standard.  Please identify the individuals representing "industry" in this case, provide as much specifics as possible about the request, and how EPA's proposed standard responds to this request.   Please also explain how the industry request is relevant to the agency's obligations under section 111 and its decision to regulate.
         oo Why does EPA believe that masonry heaters are a source that causes or significantly contributes to air pollution?  SBA and OMB suggested excluding sources that fell below a threshold emission level; why is that not equivalent to saying a source does not significantly contribute?
         oo EPA further justifies regulating all residential wood heaters as soon as possible based on some State's desire for another tool to help them with their efforts to reduce wood smoke emissions.  Please explain how the State request creates a need for Federal regulation under sec. 111(b), and how existing state Clean Air Act programs or existing voluntary programs are insufficient for these low volume sources. 

 How did EPA address the panel's recommendation that:
         oo  the EPA Administrator should consider, where beneficial, adopting behavioral approaches including but not limited to disclosure and labeling, as well as increasing the public's awareness of voluntary programs?
         oo the EPA Administrator should consider exempting small production lines where the firm may be unable to recover the R&D and related expenses in a reasonable amount of time?

 Use of "conservative" estimates: EPA should provide information to help create a best estimate and not most conservative estimate of economic impacts on small entities.   EPA should either use their best estimate or present a high and low range and request comment on whether the high and low are reasonable.
         oo EPA uses the term "conservative" in its RIA repeated, presumably to deflect criticism that their estimates are not supported by available information.  Labeling these estimates 'conservative' doesn't make the end result the high-end of the cost estimates, particularly where EPA does not contrast their 'conservative' estimate with a 'best' estimate.  
         oo Throughout Section 6 of the RIA, EPA explains that the analyses of the impacts of this rule on small entities should be put into context of these "conservative" (i.e., intentionally overstated) estimates.  We believe EPA's presentation is therefore rendering some estimates less relevant because they are so large. EPA should be describing its economic analyses to help the public get the most accurate estimate of the rule's impacts as possible. 

 EPA needs to reconsider the SBAR panel's recommendation to collect more data on the manufacturing costs associated with this rule to ensure that its cost estimates are comprehensive
         oo While EPA has put effort into gathering more information on the potential costs associated with this rule, the data behind the EPA's cost estimates as part of the RIA and cost memos may not be comprehensive. These estimates depend on a very small number of data points from only a couple of manufacturers potentially leading to a selection bias in EPA cost estimates. It is possible that the data EPA collected may understate the costs of small manufacturers who may not be able to easily spread out administrative and overhead costs over many units and potential models. Similarly, manufacturers that produce very few units may face significantly greater testing costs than estimated since they will not see any efficiency games from being able to test representative units. As a result, some cost estimates may be understated for particular groups of manufacturers depending on whether they could utilize economies of scale.

 EPA's time period for evaluating the cost-effectiveness of the proposed standard should be much shorter, particularly given required periodic reviews of the NSPS.
         oo According to Table 11 of the preamble which details the cost effectiveness of the proposed standard, EPA is evaluating cost effectiveness for a BSER determination using a period of analysis of 44 years (i.e., 2013 to 2057). Since EPA is required to review NSPS at least every 8 years it is likely that this 44 year period of analysis will encompass future rulemakings. Given that EPA expects manufacturers to comply with these rules by redesigning fireboxes and the need to continuously update the NSPS, it may not be reasonable to model purchases of 2019 models out an additional 20 years. As a result, EPA should consider making this period of analysis consistent with time periods used in the RIA. EPA could shorten this period to either the life of a wood heater from when the NSPS becomes effective or to the length of this rulemaking cycle. 

 Use of industry standards: Does EPA intend to incorporate by reference standards not yet finalized? If so, how will EPA ensure the future availability of a draft standard if/when the standard is finalized?  If not, will EPA delay the rulemaking until those standards are finalized?

 Time frame for cost expenditures:  The cost expenditures for this rule appear to be almost entirely R&D during the phase-in period.  Amortizing costs over a longer period of time serves to reduce the presented annual costs of the rule in a way that is unreasonable for small businesses that have limited access to capital and must finance their R&D out of current revenues.  We strongly recommend presenting R&D costs annualized only for the phase-in period.  
         oo Please confirm the annualization periods for Tables 6-4, 6-5.

 R&D cost difference between proposal and alternative: How does EPA characterize the difference between the intensity of R&D necessary to meet step 2 (proposal) from step 1 vs. the lesser intensity that would be required to meet step 2 (alternative) followed by step 3 (alternative)? Without allowing for some difference in intensity and more time across which to pay for the R&D, the alternative seems designed to be rejected.

RIA Comments

Analytic timeline:  EPA should clarify that the agency is assuming that the heaters will be commercially available for purchase for 20 years with 20 years of useful life.  Different languages around the analytic timelines are confusing.  Also, please explain what EPA is only presenting results up to 2022?

Stranded capital:  can the manufacturers sell heaters that were manufactured before the publication date (p. 2-16)?  If no, what is the magnitude of the potential stranded capital?  Are there other areas of potential stranded capital problem?

Shipment information:  please include the shipment projection (tables would be great).

Benefit estimates between the primary and the alternative:  why are there such differences between the alternative and the proposed options if the only change is timing of when provisions kick in?  Why are VOC and CO emissions so high for the alternative option?

Usage:  what are the assumed usage rates for different heaters?  

Provision by provision analysis:  it looks like some heater categories deliver the bulk of the benefits.  Has EPA conducted a provision-by-provision analysis?

2-4: why require manufacturers to offer unconditional warranties?
2-6: why require hang-tags and permanent labels if manufacturers have to meet the emission standards?
2-12: is PFI a virtual monopoly?