Document ID: EPA-HQ-OAR-2012-0360-0100
Agency: epa
Document Type: Supporting & Related Material
Title: 
Posted Date: 2015-03-18T04:00Z

Memorandum
                                       
Subject:	Economic Impact Analysis for Risk and Technology Review: Off-site Waste and 			Recovery Operations Source Category

Date:		February 10, 2015

From:		Amanda Curry Brown
		Economist
		Air Economics Group (C504-04)

To:		Paula Hirtz
		Environmental Engineer
		RCG (E143-01)

This document addresses the economic impacts of the Risk and Technology Review for the Off-site Waste and Recovery Operations (OSWRO) source category. The total capital and total annualized costs for the amendments are estimated to be $4.1 million and $1.1 million per year, respectively. Detailed information on these cost estimates can be found in the docket.

The OSWRO source category includes facilities that operate waste management and recovery processes for materials received from off-site. These facilities are not categorized as a single industry and, as a result, cannot be classified under a single NAICS code category. During the development of these amendments, EPA identified 49 facilities with emissions data. These 49 facilities represent 29 firms in 21 industries. These industries are shown in Table 1. 

Table 1. Industries Represented in OSWRO Source Category
                                     NAICS
                                  Description
211111
Crude Petroleum and Natural Gas Extraction
221310
Water Supply and Irrigation Systems
237310
Highway, Street, and Bridge Construction
324110
Petroleum Refineries
325180
Other Basic Inorganic Chemical Manufacturing
325194
Cyclic Crude, Intermediate, and Gum and Wood 
Chemical Manufacturing
325199
All Other Basic Organic Chemical Manufacturing
325211
Plastics Material and Resin Manufacturing
327310
Cement Manufacturing
331313
Alumina Refining and Primary Aluminum Production
325320
Pesticide and Other Agricultural Chemical Manufacturing
333316
Photographic and Photocopying Equipment Manufacturing
336411
Aircraft Manufacturing
424690
Other Chemical and Allied Products Merchant Wholesalers
Table 2. Industries Represented in OSWRO Source Category, continued
561110
Office Administrative Services
562111
Solid Waste Collection
562211
Hazardous Waste Treatment and Disposal
562213
Solid Waste Combustion and Incinerators
562219
Other Nonhazardous Waste Treatment and Disposal
562920
Materials Recovery Facilities
928110
National Security[a]
      [a] One facility is operated by the U.S. Department of Defense.

Small Business Impacts Analysis

The Regulatory Flexibility Act, as amended by the Small Business Regulatory Enforcement Fairness Act (SBREFA), 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 governmental jurisdictions, and small not-for-profit enterprises. The Small Business Administration (SBA) established size standards classified by NAICS category to use in identifying small businesses. The SBA size standards apply to an establishment's "ultimate parent company" and were based on either total receipts or total employment for the industries included in this analysis.

For this analysis, we identified the ultimate parent company (firm) for each facility and obtained firm-level employment and revenues using various sources, including the American Business Directory, Hoovers, corporate websites, and publically available financial reports. Based on this information, we identified four firms that are small businesses based on the SBA size-standards. Table 3 shows the average revenue and employment for small and large firms.

Table 3. Average Revenue and Employment by Firm Size

                                   All Firms
                                  Small Firms
                                  Large Firms
Number of Firms
                                                                             29
                                                                              4
                                                                             25
Average Revenue
                                                                    $25 billion
                                                                   $110 million
                                                                    $29 billion
Average Employment
                                                                         25,000
                                                                            390
                                                                         29,000
*All figures rounded to 2 significant digits.

For this analysis, we assume that each firm will incur an annual cost per unit of approximately $23,000 in order to meet the requirements at each of the facilities it operates. Table 4 presents descriptive statistics for the number of facilities and total annual cost per firm.

Table 4. Number of Facilities and Annual Cost by Firm Size

                                   All Firms
                                  Small Firms
                                  Large Firms
                             Number of Facilities
                                    Average
                                                                            1.7
                                                                            1.3
                                                                            1.8
                                       
                                      Min
                                                                              1
                                                                              1
                                                                              1
                                       
                                      Max
                                                                             10
                                                                              2
                                                                             10
                                       
                                    Median
                                                                              1
                                                                              1
                                                                              1
                            Total Annual Firm Cost
                                    Average
                                                                        $40,000
                                                                        $29,000
                                                                        $41,000

                                      Min
                                                                        $23,000
                                                                        $23,000
                                                                        $23,000

                                      Max
                                                                       $230,000
                                                                        $46,000
                                                                       $230,000

                                    Median
                                                                        $23,000
                                                                        $23,000
                                                                        $23,000

The cost-to-revenue ratio, or the "sales test," is the impact methodology EPA employs in analyzing small entity impacts. The sales test is often used because revenues or sales data are commonly available for entities impacted by EPA regulations. Revenues are typically more reliably reported than profit data, which may be impacted by accounting or tax considerations. The use of a "sales test" for estimating small business impacts is consistent with EPA guidance on compliance with SBREFA and is consistent with guidance published by SBA's Office of Advocacy. As shown in Table 5, the cost-to-sales ratio for all small firms in this analysis is significantly less than 1 percent.

Table 5. Summary of Small Entity Impacts
                                     Firm
                                     NAICS
                                    Revenue
                                Total Firm Cost
                              Cost-to-Sales Ratio
EQ Holdings
                                    562219
                                                                    $26,500,000
                                                                        $46,000
                                                                          0.17%
FutureFuel Corporation
                                    325199
                                                                   $351,830,000
                                                                        $23,000
                                                                          0.01%
Ross Incineration Services, Inc.
                                    562213
                                                                    $31,100,000
                                                                        $23,000
                                                                          0.07%
WRR Environmental Services
                                    562920
                                                                    $13,800,000
                                                                        $23,000
                                                                          0.17%

Industry Impact Analysis

Both the magnitude of control costs needed to comply with a regulation and the distribution of these costs among affected facilities can have a role in determining how the market will change in response to that regulation.  Total annualized costs for the amendments are estimated to be about $1.1 million. The average annual cost per facility is estimated to be about $23,000. 

Without detailed industry data, it is not possible to conduct a complete quantitative analysis of economic impacts. However, prior analysis suggests the impacts of these amendments will be minimal. The Economic Impact Analysis for the Final Off-Site Waste and Recovery Operations NESHAP found that demand for off-site waste services was highly inelastic. This means that suppliers are predominantly able to pass along cost increases to consumers through higher prices with little, if any, decrease in the quantity of service demanded. While we do not have specific information on prices charged or the quantity of service provided, company revenues are a function of both these factors. The cost-to-sales ratio is less than .20 percent for all of the 29 firms included in this analysis, suggesting any increase in price would be minimal. 

Conclusions

Our screening analysis shows that four of the 29 firms that own facilities in the OSWRO source category can be classified as small firms using the SBA size standards for their respective industries. Based on the sales test screening methodology, all affected facilities will experience minimal impact, or a cost-to-sales ratio of significantly less than 1 percent. We conclude that these amendments will not have a significant economic impact on a substantial number of small entities.

Although there is not sufficient data to complete a full quantitative analysis of economic impacts, we do not anticipate the amendments to result in firm closures or substantial profit loss because these facilities are likely to be able to pass cost increases through to their customers. While we do not have data on current prices charged or quantities provided, the relatively low cost compared to firm revenues suggests any price increase would be minimal.