Memorandum
To:
Suzie
Kocchi,
U.
S.
EPA
From:
Nimmi
Damodaran,
Betsy
David,
and
Joanna
Pratt,
Stratus
Consulting
Inc.;
Robert
Russell,
RJR
Consulting;
Mike
Cartmell,
Independent
Consultant
Date:
June
14,
2004
Subject:
Economic
impacts
on
small
businesses
in
the
spray
foam
industry
due
to
a
use
ban
on
HCFC­
141b
The
Regulatory
Flexibility
Act
as
amended
by
the
Small
Business
Regulatory
Enforcement
Fairness
Act
(
RFA/
SBREFA)
requires
EPA
to
carefully
consider
the
economic
impacts
of
its
rules
on
small
entities.
The
RFA/
SBREFA
requires
the
agency
to
determine,
to
the
extent
feasible,
the
rule's
economic
impact
on
small
entities,
explore
regulatory
options
for
reducing
any
significant
economic
impact
on
a
substantial
number
of
such
entities,
and
explain
its
ultimate
choice
of
regulatory
approach.
It
does
not
require
agencies
to
minimize
a
rule's
impact
on
small
entities
if
there
are
legal,
policy,
factual,
or
other
reasons
for
not
doing
so.
Since
its
enactment
in
1980,
the
RFA/
SBREFA
has
required
every
federal
agency
to
prepare
a
regulatory
flexibility
analysis
for
any
rule
for
which
the
agency
is
required
to
issue
a
notice
of
proposed
rulemaking
under
the
Administrative
Procedure
Act
or
any
other
statute.
This
requirement
is
not
necessary
if
the
agency
certifies
that
the
rule
"
will
not,
if
promulgated,
have
a
significant
economic
impact
on
a
substantial
number
of
small
entities."
A
small
entity
is
defined
as
(
1)
a
small
business
that
has
fewer
than
500
employees;
(
2)
a
small
governmental
jurisdiction
that
is
a
government
of
a
city,
county,
town,
school
district
or
special
district
with
a
population
of
less
than
50,000;
or
(
3)
a
small
organization
that
is
any
not­
for­
profit
enterprise
which
is
independently
owned
and
operated
and
is
not
dominant
in
its
field.

This
memorandum
examines
whether
there
is
a
significant
economic
impact
on
a
substantial
number
of
small
entities
in
the
spray
polyurethane
foam
industry
due
to
a
ban
on
the
use
of
HCFC­
141b
according
to
the
type
of
business.
Two
types
of
businesses
may
be
affected
by
an
HCFC­
141b
use
ban
in
the
spray
foam
sector:


businesses
that
manufacture
polyurethane/
polyisocyanurate
foam
systems
(
NAICS
326150),
hereafter
referred
to
as
"
systems
houses"


businesses
that
use
polyurethane/
polyisocyanurate
systems
to
apply
insulation
to
buildings,
roofs,
pipes,
etc.
(
NAICS
326150),
hereafter
referred
to
as
"
spray
foam
contractors."

Systems
Houses
The
majority
of
spray
foam
systems
houses
are
currently
making
significant
technical
progress
toward
conversions
in
essentially
all
applications
(
see
memorandum
dated
February
23,
2004
on
Stratus
Consulting
Memorandum
(
6/
14/
2004)

Page
2
SC10457
the
status
of
HCFC­
141b
requirements
based
on
2004
petitions,
available
stockpile,
and
conversion
to
alternatives,
found
in
EPA
docket
OAR­
2003­
0228­
009).
The
primary
zero
ozone
depletion
potential
(
ODP)
blowing
agents
are
HFC­
245fa,
HFC­
134a,
water,
and
hydrocarbonbased
systems.
Of
these
three,
HFC­
134a
is
not
readily
suited
to
use
in
spray
foam
due
to
its
very
low
boiling
point.
There
are
fewer
than
20
spray
foam
systems
houses
in
the
United
States.
Nine
of
these
systems
houses
petitioned
for
an
exemption
allowance
for
the
production
of
HCFC­
141b
to
meet
their
stated
needs
for
2004.
At
least
three
of
these
petitioners
have
already
developed
systems
with
alternative
blowing
agents.

With
respect
to
the
RFA/
SBREFA,
there
is
no
significant
economic
impact
on
a
substantial
number
of
small
businesses
in
this
type
of
business.
The
section
of
the
EPA's
guidelines
relevant
to
impacts
on
systems
houses
indicates
that
if
fewer
than
100
businesses
experience
an
economic
impact,
then
the
rule
is
presumed
not
to
have
a
significant
economic
impact
on
a
substantial
number
of
small
entities
(
details
are
found
in
Chapter
2
of
Revised
Interim
Guidance
for
EPA
Rulewriters:
Regulatory
Flexibility
Act
as
amended
by
the
Small
Business
Regulatory
Enforcement
Fairness
Act,
March
29,
1999,
http://
www.
epa.
gov/
sbrefa/
documents/
iguid99.
pdf).
Since
there
are
fewer
than
20
spray
foam
systems
houses
in
total
and
a
smaller
number
that
may
not
have
developed
systems
with
alternative
blowing
agents,
we
can
reasonably
assume
that
there
is
no
significant
economic
impact
on
a
substantial
number
of
small
entities.

Spray
Foam
Contractors
According
to
information
provided
by
the
Spray
Polyurethane
Foam
Alliance
(
SPFA),
the
U.
S.
spray
foam
industry
comprises
more
than
3,000
suppliers,
distributors,
and
contractors.
A
majority
of
these
are
small
businesses
employing
fewer
than
50
people.
Over
the
past
12
years,
the
spray
polyurethane
industry
has
faced
two
major
disruptions
relating
to
changes
in
the
blowing
agent
used
in
the
systems.
The
first
occurred
at
the
end
of
1993
after
the
EPA
banned
the
use
of
CFC­
11.
Although
supplies
of
the
new
replacement
blowing
agent,
HCFC­
141b,
were
available
before
the
forced
switch,
the
development
and
testing
of
proven
non­
CFC
systems
did
not
proceed
in
a
totally
smooth
fashion.
Some
field­
related
problems
surfaced
after
the
spray
foam
insulation
with
HCFC­
141b
had
been
applied.
The
second
disruption
is
the
transition
away
from
HCFC­
141b
to
new
zero
ODP
blowing
agents.
The
spray
foam
industry
has
sought
to
avoid
a
similar
experience
with
this
second
transition
and
has
committed
to
following
a
structured
approach
to
ensure
products
are
fully
tested
before
their
introduction.

To
gauge
the
potential
impacts
of
an
HCFC­
141b
use
ban
on
small
businesses,
we
conducted
telephone
interviews
with
seven
distributors
and
contractors
between
May
14
and
May
24,
2004.
To
obtain
a
geographical
representation,
we
selected
companies
located
in
all
the
main
regions
of
the
country.
Following
is
a
brief
summary
of
the
issues
identified
by
each
respondent:


Montana
Urethane
Systems
Supply
(
MUSS),
located
in
Bozeman,
Montana,
is
a
distributor
of
spray
polyurethane
systems
and
equipment
and
has
three
employees.
It
Stratus
Consulting
Memorandum
(
6/
14/
2004)

Page
3
SC10457
serves
the
roofing
and
wall
sectors
of
residential,
light
commercial,
and
agricultural
construction.
The
products
it
supplies
compete
with
other
insulation
materials,
including
fiberglass,
cellulose,
and
polyiso
and
polystyrene
boardstock.

MUSS
has
first­
hand
experience
with
each
of
the
three
replacement
blowing
agents
under
development
for
use
in
spray
foam
[
i.
e.,
hydrocarbon,
water
(
CO2),
and
HFC­
245fa].
However,
it
is
concerned
about
safety
issues
associated
with
hydrocarbons
and
does
not
feel
that
the
water
blown
systems
will
provide
adequate
properties
for
the
Rocky
Mountain
region.
Therefore,
contractors
in
Montana
are
focusing
on
HFC­
245fa
as
the
preferred
alternative
to
HCFC­
141b.
To
date,
MUSS
estimates
that
approximately
25%
of
the
systems
being
sold
today
are
based
on
HFC­
245fa,
with
the
rest
using
HCFC­
141b.
Costs
for
newer
systems
were
said
to
be
20%
to
22%
higher,
although
some
of
these
increases
are
the
result
of
higher
steel
costs
for
the
thicker
gauge
drums
required
with
HFC­
245fa
systems.
MUSS
believes,
however,
that
some
of
the
chemical
cost
increases
will
decline
over
time.
Products
from
several
systems
houses
have
been
evaluated
in
the
field
and
all
seem
to
have
more
cold
weather
problems
than
the
HCFC­
141b
based
systems.
The
most
common
complaint
is
that
the
current
HFC­
245fa
systems
cannot
be
applied
at
temperatures
below
40
°
F,
which
will
affect
the
length
of
the
spraying
season.

Another
issue
is
that
because
the
new
systems
are
higher
in
viscosity,
many
of
the
older
spray
foam
machines
are
not
totally
suitable
and
should
be
refurbished.
The
cost
of
a
new
machine
is
approximately
$
15,000­$
20,000;
alternatively,
new
heaters
can
be
installed
for
$
2,500­$
3,000.
Finally,
because
of
the
lower
boiling
point
of
HFC­
245fa,
the
newer
systems
have
a
higher
vapor
pressure
and
drums
arrive
in
Bozeman,
Montana,
severely
bulged
because
of
the
region's
high
elevation.

According
to
MUSS,
the
installed
price
of
foam
from
HCFC­
141b
systems
today
is
about
300%
higher
than
the
price
for
competing
insulation
materials.
This
gives
some
idea
of
the
additional
features
and
benefits
provided
by
spray
polyurethane
foam.
However,
MUSS
is
not
sure
how
much
of
an
additional
premium
the
market
in
Montana
can
bear.
MUSS
believes
that
up
to
20%
of
the
contractors
that
apply
other
insulation
materials
in
addition
to
spray
foam
may
drop
out
of
the
spray
market
primarily
because
of
the
expected
shorter
spraying
season.


Central
Coatings
Inc.
is
a
spray
foam
roofing
contractor
located
in
Madera,
California
with
between
30
and
35
employees.
The
company
has
been
in
business
since
1967.
It
has
tested
each
of
the
alternative
technologies
and
has
concluded
that
HFC­
245fa
offers
the
best
combination
of
properties,
safety,
and
performance.
One
of
its
systems
house
suppliers
has
switched
entirely
to
HFC­
245fa
blown
products
and
another
is
in
the
process
of
completing
all
the
testing.
Stratus
Consulting
Memorandum
(
6/
14/
2004)

Page
4
SC10457
Although
some
problems
still
exist
due
to
the
higher
vapor
pressure
and
lower
boiling
point
of
HFC­
245fa,
Central
Coatings
is
being
advised
by
systems
houses
that
these
will
become
less
of
an
issue
over
time
and
the
operating
window
with
the
new
blowing
agent
will
eventually
be
wider
than
with
HCFC­
141b.
Central
Coatings'
current
costs
for
systems
based
on
HFC­
245fa
are
approximately
5%
higher
than
those
based
on
HCFC­
141b.
Overall,
Central
Coatings
thinks
the
transition
out
of
HCFC­
141b
will
go
fairly
smoothly
and
the
company
does
not
anticipate
any
competitive
issues
with
other
insulation
materials.


RPC
Industries,
in
business
for
over
20
years,
has
operations
in
Hampton
and
Charlottesville,
Virginia
and
employs
approximately
30
people.
The
company
is
involved
in
wall
and
roofing
applications
with
spray
foam
and
other
single
ply
products
and
has
gained
some
experience
with
new
systems
based
on
HFC­
245fa.
Generally
these
experiences
have
been
positive,
although
there
has
been
a
need
to
pay
more
attention
to
heat
settings
and
to
protect
the
drums
from
high
temperatures.
RPC
Industries
indicated
that
it
is
too
early
to
tell
whether
water
(
CO2)
blowing
will
provide
the
ease
of
use
provided
with
HFC­
245fa
and
is
very
concerned
about
the
flammability
issues
associated
with
the
hydrocarbons.

As
long
as
HCFC­
141b
based
systems
are
still
available,
RPC
does
not
expect
the
new
HFC­
245fa
based
products
to
be
widely
introduced
since
they
are
currently
about
15%
more
expensive.
After
the
transition
has
been
completed,
RPC
thinks
there
will
be
some
disruption
but
does
not
believe
that
this
level
of
cost
increase
will
be
a
catastrophe
for
the
industry
because
spray
foam
provides
many
additional
features
for
the
price.


West
Roofing
Systems
Inc.
is
based
in
LaGrange,
Ohio
and
has
been
in
business
since
1979.
The
company
focuses
on
the
roofing
sector.
Initially,
West
Roofing
Systems
was
concerned
about
the
transition
to
the
new
blowing
agents.
However,
after
working
with
three
different
systems
house
suppliers,
it
is
now
very
comfortable
with
the
new
HFC­
245fa
based
products,
which
it
says
are
better
and
more
controlled
than
systems
based
on
HCFC­
141b.
Since
their
current
overall
cost
increase
with
HFC­
245fa
is
approximately
5%,
West
Roofing
does
not
expect
any
negative
impacts
from
the
transition,
especially
given
that
the
cost
of
asphalt
based
roofing
materials
is
rising
quickly.


The
Phoenix,
Arizona
based
division
of
D.
C.
Taylor
Co
employs
25­
30
people
and
is
the
only
division
in
the
entire
company
that
participates
in
the
spray
foam
sector.
The
company
is
a
full­
spectrum
roofing
contractor
and
works
with
a
variety
of
alternative
insulation
types,
including
those
used
with
single
ply
and
ethylene­
propylene
diene
monomer
(
EPDM)
membranes.
D.
C.
Taylor
has
reviewed
each
of
the
new
blowing
agent
technologies
and
concluded
that
despite
some
difficulties
associated
with
handling
HFC­
245fa
in
the
desert
Southwest,
it
offers
the
best
combination
of
cost,
ease
of
use,
and
Stratus
Consulting
Memorandum
(
6/
14/
2004)

Page
5
SC10457
performance.
The
cost
increase
of
going
to
HFC­
245fa
is
expected
to
be
in
the
range
of
5
to
10%
and
once
everyone
has
switched
out
of
HCFC­
141b,
the
company
does
not
expect
to
see
any
major
impacts
or
competitive
disadvantages.


Another
Arizona
based
contractor,
Spray
Foam
Southwest,
Inc.
(
SFS)
of
Tempe,
stated
that
none
of
the
alternatives
are
adequately
developed
at
this
point
and
believes
strongly
that
the
industry
needs
more
time
to
resolve
all
the
existing
problems.
These
problems
include
foam
dimensional
stability,
issues
related
to
the
low
boiling
point
and
high
cost
of
HFC­
245fa,
and
the
flammability
of
hydrocarbons.
In
addition,
none
of
the
alternatives
has
worked
sufficiently
well
for
SFS
in
a
wall
application.
Another
major
concern
is
how
well
the
new
systems
will
perform
in
the
very
high
ambient
temperatures
of
summer,
since
all
of
the
company's
experience
to
date
has
been
gathered
in
the
winter
and
spring.

In
an
effort
to
narrow
the
choices
and
determine
the
preferred
type
of
system
under
summer
conditions,
Spray
Foam
Southwest
has
ordered
a
multifunctional
spray
foam
machine
that
will
be
able
to
spray
off­
ratio
water­
blown
systems
and
flammable
hydrocarbons,
and
even
meter
HFC­
245fa
as
a
third
stream.
Such
a
piece
of
equipment
will
cost
more
than
$
30,000,
but
the
company
feels
such
an
investment
is
critical
to
making
the
right
decision.

With
between
50­
60
employees
and
having
been
established
in
1971,
Spray
Foam
Southwest
is
one
of
the
larger,
more
experienced
contractors
in
the
desert
Southwest.
The
company
is
optimistic
that
the
basic
characteristics
of
spray
polyurethane
foam
(
such
as
the
absence
of
thermal
bridging
and
the
ability
to
prevent
air
infiltration
and
leaks
by
virtue
of
the
seamless,
homogeneous
foam
structure)
will
ensure
a
continued
strong
market
position
in
extreme
climatic
regions.
It
feels
that
despite
its
current
increased
costs
of
approximately
20%,
HFC­
245fa
will
be
the
eventual
first
choice
among
the
new
blowing
agents.


Specified
Urethane
Systems
Co,
Inc.
(
SUSCO)
is
based
in
Dallas,
Texas
and
employs
between
75
and
85
people.
Their
business
is
entirely
spray
polyurethane
foam,
split
70%
roofing
and
30%
walls.
The
company
is
focusing
on
water
(
CO2)
blowing
for
wall
systems
but
is
encountering
problems
with
low
foam
densities
resulting
in
open
cells.
If
possible,
the
density
should
be
over
1.5
pcf
installed
with
closed
cells
to
provide
better
thermal
insulation
performance.
SUSCO
prefers
HFC­
245fa
for
roofing.

The
main
issue
the
company
sees
currently
is
that
full
testing
and
code
approvals
have
not
been
finalized
and
therefore
it
feels
that
more
time
should
be
allowed
to
consume
the
entire
stockpile
HCFC­
141b
and
complete
all
the
necessary
testing.
Water­
blown
systems
are
expected
to
be
equal
in
cost
to
current
HCFC­
141b
systems,
although
some
investment
in
new
pumps
and
heaters
will
be
required
to
handle
the
off
ratios
and
higher
Stratus
Consulting
Memorandum
(
6/
14/
2004)

Page
6
SC10457
viscosity
of
water
blown
formulations.
They
believe
the
cost
is
likely
to
be
15%
to
25%
higher
for
HFC­
245fa
products.

The
contractors
interviewed
for
this
memorandum
generally
view
HFC­
245fa
as
the
preferred
new
blowing
agent,
especially
for
roofing.
Despite
some
handling
issues,
most
of
these
contractors
do
not
expect
the
conversion
from
HCFC­
141b
to
create
any
major
concerns
in
California
or
east
of
the
Mississippi.
The
two
areas
where
contractors
believe
they
may
encounter
problems
are
the
Rocky
Mountain
states,
because
of
the
high
elevation
and
the
colder
temperatures,
and
the
desert
Southwest,
where
extreme
summer
conditions
may
cause
problems
not
yet
foreseen.
It
is
our
understanding
that
Honeywell,
the
supplier
of
HFC­
245fa,
is
working
with
spray
foam
systems
houses
to
address
problems
as
they
surface.

Initial
cost
increases
for
HFC­
245fa
systems
are
expected
to
be
about
5%
to
25%
higher
than
the
costs
for
current
HCFC­
141b
based
products.
The
range
reflects
the
price
differences
among
the
different
systems
houses.
However,
alternative
water­
blown
formulations
may
offer
some
protection
against
higher
cost
if
density
and
other
application
issues
can
be
overcome.
There
was
general
agreement
that
the
benefits
and
features
of
spray
polyurethane
foam
will
protect
the
product
against
a
major
market
downturn
and
the
consequent
direct
impact
on
the
livelihoods
of
contractors.
Those
contractors
whose
current
suppliers
do
not
have
approved
systems
based
on
non­
ODP
blowing
agents
will
need
to
identify
other
suppliers
with
approved
systems
if
they
want
to
use
this
material.
It
also
seems
likely
that
increased
costs
incurred
by
the
spray
foam
contractors
will
be
passed
on
to
the
customers.
Additionally,
since
all
contractors
will
face
the
same
increased
input
costs,
there
will
be
no
competitive
disadvantages
due
to
such
increases.
Based
on
information
obtained
in
these
telephone
interviews,
one
would
not
expect
a
significant
economic
impact
on
a
significant
number
of
small
entities.
