Document ID: EPA-HQ-OAR-2010-0295-0016
Agency: epa
Document Type: Supporting & Related Material
Title: 
Posted Date: 2010-06-08T04:00Z

Economic Impact and Small Business Analysis for the Proposed
Compression-Ignition (CI) New Source Performance Standards (NSPS)

	EPA is proposing to amend the CI NSPS for stationary engines that were
published on June 11, 2006.  Based on a settlement agreement resulting
from a legal challenge to the original rule, EPA must propose amendments
to the CI NSPS by May 22, 2010.  The impacts discussed in this
memorandum are based on proposing to implement more stringent standards
for stationary CI engines with a displacement greater than or equal to
10 liters/cylinder (l/cyl) and less than 30 l/cyl, consistent with
recent revisions to standards for similar mobile source marine engines. 
Specifically, EPA is proposing to amend the CI NSPS to require
stationary CI engines greater than or equal to 10 l/cyl and less than 30
l/cyl to meet the emission standards for the same size and displacement
engines as currently required under 40 CFR part 1042, Control of
Emissions from New and In-Use Marine Compression-Ignition Engines and
Vessels.  These standards will be phased-in between 2013 and 2017 model
year engines depending on the size and displacement.

BASIS OF ESTIMATED EMISSION REDUCTIONS

The 40 CFR part 1042 emission standards include recently finalized more
stringent standards, i.e., Tier 3 and Tier 4 emission standards, and are
the standards that EPA is proposing to adopt for stationary CI engines
greater than or equal to 10 l/cyl and less than 30 l/cyl.  Tier 3
standards are based on in-engine controls and ultra low sulfur diesel
fuel use.  The Tier 4 standards are based on diesel particulate filters
(DPF) and selective catalytic reduction (SCR). Consistent with how EPA
has treated stationary emergency CI engines in the past, EPA is not
requiring standards that force aftertreatment for stationary emergency
CI engines.  Only stationary non-emergency CI engines greater than or
equal to 10 l/cyl and less than 30 l/cyl will be subject to emission
standards based on aftertreatment under the proposed amendments

In order to estimate the number of new stationary CI engines in the
displacement range that would be subject to Tier 3 and Tier 4 emission
standards under the proposed amendments to the CI NSPS, EPA obtained
information from the Engine Manufacturers Association (EMA).  According
to EMA, it is estimated that 8 new engines between 10 l/cyl and 30 l/cyl
would be produced yearly and would become subject to the rule.  Of these
8 engines, 3 are expected to be non-emergency engines and 5 are expected
to be emergency engines, according to EMA.  All engines are expected to
be used for power generation.

In order to estimate the pollutant reductions for stationary CI engines
between 10 l/cyl and 30 l/cyl that would be subject to 40 CFR part 1042
emission standards, EPA compared Tier 4 emission standards from 40 CFR
part 1042 to the previous standards that applied to these engines under
the CI NSPS, which were consistent with the emission standards in 40 CFR
part 94.  EPA used emission standards from Tables 3-16 and 3-41 of the
2008 Regulatory Impact Analysis (RIA) for locomotive and marine CI
engines.  The cumulative emissions reductions associated with the
proposed amendments in the year 2018 are 8 tpy of PM, 295 tpy of NOx,
and 4 tpy of HC.  The year 2018 is the first year these emission
standards would be fully implemented for stationary CI engines between
10 and 30 liters l/cyl.  In the year 2030, the cumulative emissions
reductions are estimated at 38 tpy of PM, 1,100 tpy of NOx, and 18 tpy
of  HC.  

BASIS OF ESTIMATED COSTS TO AFFECTED SOURCES

	In order to estimate the costs associated with requiring Tier 4
emission standards for new non-emergency stationary CI engines, EPA
consulted with the Office of Transportation and Air Quality (OTAQ).  EPA
used the costs presented in the 2008 RIA for locomotive and marine
engines2 in order to estimate the cost associated with meeting Tier 4
emission standards based on aftertreatment controls.  Specifically,
after consulting with OTAQ, it was found most appropriate to use the
hardware (or variable) costs in Tables 7A-5 and 7A-6 and the auxiliary
engine costs from Tables 7B-20 and 7B-21 of the 2008 RIA for locomotive
and marine engines.2   The hardware and auxiliary costs were multiplied
by the number of new stationary non-emergency CI engines between 10
l/cyl and 30 l/cyl to determine the total capital costs.  No capital
costs were attributed to new stationary emergency CI engines between 10
l/cyl and 30 l/cyl because these engines will not be subject to emission
standards that force aftertreatment.  The capital cost associated with
the proposed amendments to the CI NSPS is $236,000 ($2009) in 2018.

The annual costs associated with the proposed requirements for new
non-emergency CI engines between 10 l/cyl and 30 l/cyl include the
operating costs for the urea usage for the SCR control system, DPF
maintenance, and the increased fuel consumption associated with DPF. 
These annual cost elements were estimated based on communication with
OTAQ, and information from Nonroad Engine Modeling documents. The
cumulative annual cost is estimated to be $142,000 ($2009) in 2018 and
$711,000 ($2009) in 2030.  

ECONOMIC IMPACTS 

	In this economic analysis, we estimate impacts for the year 2018.   We
allocate the annual costs to the electric power generation industry
(NAICS 2211), the industry we expect the 3 new non-emergency CI engines
affected by 2018 will be located and the industry in which two-thirds of
the existing CI engines are currently classified.  We use the annual
average revenue for the electric power generation industry, which is
estimated using U.S. Census Bureau data at $41.2 million (2009 dollars).
 Assuming that a single affected non-emergency engine will be owned by
one firm, we thus assume three firms affected by this NSPS.   Thus, the
annual cost per affected firm is $47,333 (or $142,000/3).  We estimate
economic impacts using the cost-to-receipt (i.e., sales) ratio, or the
“sales test.”  The “sales test” is the impact methodology EPA
employs in analyzing small entity impacts as opposed to a “profits
test,” in which annualized compliance costs are calculated as a share
of profits.

This is because revenues or sales data are commonly available data for
entities normally impacted by EPA regulations and profits data normally
made available are often not the true profit earned by firms because of
accounting and tax considerations.  Revenues as typically published are
usually correct figures and are more reliably reported when compared to
profit data.  The use of a “sales test” for estimating small
business impacts for a rulemaking such as this one is consistent with
guidance offered by EPA on compliance with SBREFA7 and is consistent
with guidance published by the U.S. SBA’s Office of Advocacy that
suggests that cost as a percentage of total revenues is a metric for
evaluating cost increases on small entities in relation to increases on
large entities.8

By using an annualized cost to revenue metric, we estimate the economic
impact to be $47,333/$183 million, or 0.03 percent of revenues.9,  
Assuming one of these firms is a small entity, the impact on the small
entity is also 0.03 percent.  Thus, based on this impact and there being
only one small entity affected by this proposal, we certify that there
is no significant economic impact on a substantial impact on small
entities (SISNOSE) associated with this rule. In addition, since the
annualized cost as a percent of sales or revenues estimate is an
approximation of the maximum price increase required for a product for a
firm to recover all costs of compliance, the maximum price increase
associated with this NSPS will be no greater than 0.03 percent.  The
change in affected product output should also be no higher than this.  

 Email from Joe Suchecki, EMA to Tanya Parise, EC/R, Inc.  April 7,
2010.

 Regulatory Impact Analysis: Control of Emissions of Air Pollution from
Locomotive Engines and Marine Compression Ignition Engines Less than 30
Liters Per Cylinder, EPA/420-R-08-001a May 2008.

 Email from Todd Sherwood, OTAQ to Tanya Parise, EC/R, Inc.  October 6,
2009.

 Email from Todd Sherwood, OTAQ to Tanya Parise, EC/R, Inc.  April 21,
2010.

 Exhaust and Crankcase Emission Factors for Nonroad Engine Modeling --
Compression Ignition EPA420--P-04-009 April 2004 NR-009c.

 Regulatory Impact Analysis for the Compression-Ignition (CI) RICE
NESHAP.  February 2010.  

7The SBREFA compliance guidance to EPA rulewriters regarding the types
of small business analysis that should be considered can be found at 
HYPERLINK "http://www.epa.gov/sbrefa/documents/rfafinalguidance06.pdf"
http://www.epa.gov/sbrefa/documents/rfafinalguidance06.pdf , pp. 24-25.

8U.S. SBA, Office of Advocacy. A Guide for Government Agencies, How to
Comply with the Regulatory Flexibility Act, Implementing the
President’s Small Business Agenda and Executive Order 13272, May 2003 
XE "U.S. SBA, Office of Advocacy, May 2003"  .

9 U.S. Census Bureau .2008. “Firm Size Data from the Statistics of
U.S. Businesses: U.S. All Industries Tabulated by Receipt Size: 2002.”
<http://www.census.gov/csd/susb/susb02.htm>. Key Enterprise Statistics
for Electric Power Generation, Transmission, and Distribution (NAICS
2211): 2002.    XE "U.S. Census Bureau .2008. \“Firm Size Data from
the Statistics of U.S. Businesses\: U.S. All Industries Tabulated by
Receipt Size\: 2002.\” <http\://www.census.gov/csd/susb/susb02.htm>." 

 PAGE   

 PAGE   1