ECONOMIC
IMPACT
ANALYSIS
FOR
METHYL
BROMIDE
ALLOCATION
IN
THE
UNITED
STATES
Revised
Draft
Report
December
2,
2003
Prepared
for
Hodayah
Finman
Global
Programs
Division
U.
S.
Environmental
Protection
Agency
1200
Pennsylvania
Avenue,
NW
(
6205J)
Washington,
DC
20460
Prepared
by
ICF
Consulting
1725
Eye
Street
NW,
Suite
1000
Washington,
DC
20006
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­
i
­
Table
of
Contents
Executive
Summary
ES­
1
1.
Introduction
1
1.1
History
of
Methyl
Bromide
Use
and
Phaseout
1
1.2
EPA's
Statutory
Authority
1
1.2.1
Critical
Use
Exemption
Application
Process
2
1.2.2
Nominations
Process
3
1.3
Purpose
and
Structure
of
the
Report
4
2.
Regulated
Community
5
2.1
Producers
and
Importers
5
2.2
Fruit
and
Vegetable
Growers
5
2.2.1
Bell
Pepper
6
2.2.2
Cucurbits
7
2.2.3
Eggplant
10
2.2.4
Strawberries
11
2.2.5
Strawberry
Nurseries
13
2.2.6
Sweet
Potato
15
2.2.7
Tomato
17
2.3
Orchards,
Nurseries
and
Other
Growers
19
2.3.1
Forest
Seedlings
19
2.3.2
Ginger
21
2.3.3
Tobacco
Nursery
Transplant
Trays
23
2.3.4
Orchard
Nurseries
24
2.3.5
Orchard
Replant
26
2.3.6
Turfgrass/
Sod
29
2.4
Post­
Harvest
Commodity
Fumigation
and
Structural
Fumigation
30
2.4.1
Commodity
Storage
30
2.4.2
Food
Processing
32
2.5
Quarantine
and
Preshipment
33
3.
Baseline
for
the
Allocation
Rule
Economic
Impact
Analysis
35
3.1
Background
of
Phaseout
RIA
35
3.1.1
Phaseout
RIA:
Approaches
to
Calculating
Cost
36
3.1.2
Phaseout
RIA:
Approach
to
Calculating
Benefits
36
3.1.3
Original
Costs
and
Benefits
Determined
in
the
Phaseout
RIA
37
3.2
Methodology
and
Inputs
Used
to
Update
the
Phaseout
Model
39
3.2.1
Fruit
and
vegetable
growers
39
3.2.2
Perennial
Crops
40
3.2.3
Post­
harvest
and
Structural
40
3.2.4
Nurseries
40
3.3
Benefits
40
3.4
Updated
Phaseout
Rule
40
3.5
Results
43
4.
Economic
Options
Discussion
44
4.1
Overview
of
Phaseout
Assumptions
and
Allocation
Options
44
4.2
Definition
of
Terms
46
4.3
Option
1:
Producer/
Importer
Cap
and
Trade
Allowance
System
with
Market
Distribution
of
Methyl
Bromide
47
4.3.1
Overview
of
QPS
System
47
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­
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­
4.3.2
Description
of
Model
Components
48
4.4
Option
2:
Producer/
Importer
Cap
and
Trade
Allowance
System
with
End
User
Permit
Trading
50
4.4.1
Overview
of
the
Canadian
System
50
4.4.2
Description
of
Model
Components
50
4.5
Option
3:
Producer/
Importer
Cap
and
Trade
Allowance
System
with
End
User
Permit
Auction
and
Trading
53
4.5.1
Overview
of
Auction
Systems
in
Practice
54
4.5.2
Description
of
Model
Components
54
4.6
Potential
Cost
Savings
to
Industry
through
Permit
Trading
56
5.
Incremental
Costs
Associated
with
Allocation
Options
60
5.1
Comparison
of
Updated
Baseline
Phaseout
and
Allocation
Rule
Phaseout
60
5.1.1
Framework
for
Modeling
Cost
61
5.1.2
Results
of
the
Cost
Analysis
for
Allocation
of
Methyl
Bromide
CUE
65
5.1.3
Assumptions
and
Caveats
67
5.2
Economic
Efficiency
Across
the
Regulatory
Options
68
5.2.1
Introduction
69
5.2.2
The
Method
of
Allocation:
Three
Broad
Options
70
5.2.3
Factors
Affecting
Consumption
by
End
Users
Under
the
Three
Broad
Options
72
5.2.4
Limits
on
Purchases
or
Trading:
Universal
vs.
Sector­
Specific
Allocation
and
Trading
80
5.2.5
Comparison
of
EIA
and
Other
Compliance
Cost
Savings
Estimates
82
5.2.6
Summary:
Efficiency,
Costs,
and
Limitations
of
the
Analysis
84
5.3
Economic
Impacts
and
Equity
Issues
Across
the
Regulatory
Options
86
5.3.1
Economic
Impacts:
Non­
Social
Cost
Transfers
86
5.3.2
Economic
Impacts
Across
Sectors
90
5.3.3
Equity
Effects:
Small
Farmers
in
Affected
Sectors
93
6.
Private
Administrative
and
Transaction
Costs
95
6.1
Private
Administrative
Activities
 
Option
1
95
6.1.1
Rule
Familiarization
96
6.1.2
General
Inventories
98
6.1.3
Annual
and
Quarterly
Reporting
98
6.1.4
Allowance
Trading
98
6.1.5
Self­
Certification
99
6.1.6
Total
Private
Administrative
Costs:
Option
1
100
6.2
Private
Administrative
Activities
 
Option
2
100
6.2.1
Submission
of
Baseline
Information
102
6.2.2
Annual
and
Quarterly
Permit
Tracking
102
6.2.3
Tracking
System
Verification
Reports
103
6.2.4
Trade
Tracking
System
Familiarization
103
6.2.5
Allowance
Trading
103
6.2.6
Total
Private
Administrative
Costs:
Option
2
104
6.2.7
Comparison
of
Total
Private
Administrative
Costs:
Options
1
and
2
104
6.3
Participation
in
Permit
Trading
System
(
Option
2)
105
6.3.1
Market
Evaluation
Costs
106
6.3.2
Transaction
Costs
106
7.
Public
Administrative
Costs
109
7.1
Public
Administrative
Activities
 
Option
1
110
7.1.1
Write/
Revise
Reporting
Forms
and
Guidance
110
7.1.2
Annual
and
Quarterly
Report
Processing
112
7.1.3
Determination
of
Historic
Production
113
7.1.4
Distribution
of
Allowances
113
7.1.5
Reporting
to
Parties
to
the
Montreal
Protocol
113
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­
iii
­
7.1.6
Total
Cost
of
Public
Administrative
Activities:
Option
1
114
7.2
Public
Administrative
Activities
 
Option
2
114
7.2.1
Write
Information
Requests
for
Additional
CUE
116
7.2.2
Allocate
Permits
116
7.2.3
Develop
and
Maintain
a
Permit
Tracking
System
117
7.2.4
Process
Annual
Verification
Reports
for
Tracking
System
117
7.2.5
Total
Costs
of
Public
Administrative
Activities:
Option
2
118
7.2.6
Comparison
of
Total
Costs
of
Public
Administrative
Activities:
Options
1
and
2
118
8.
Benefits
Analysis
120
9.
Cost
Comparison:
Options
and
Method
of
Allocation
121
9.1
Incremental
Costs
of
Allocation
Options
121
9.2
Administrative
Costs
122
9.3
Total
Costs
123
9.4
Cost
Comparison
124
9.5
Efficiency
and
Equity
125
9.6
Industry
Total
Cost
Savings:
Summary
126
10.
References
128
Appendix
A:
Summary
of
Cost
Information
in
CUE
Applications
139
1.
Fruit
and
Vegetable
Growers
140
2.
Tree
Nurseries
and
Other
Growers
147
3.
Post
Harvest
Commodity
Fumigation
and
Structural
Fumigation
151
Appendix
B:
Inputs
and
Methodology
for
the
Cost
Analysis
152
1.
General
Methodology
152
1.1
Step
1.
Develop
crop
input
data
152
1.2
Step
2.
Determine
cost
and
yield
differences
for
substitutes
158
1.3
Step
3.
Determine
market
shares
for
each
region,
crop,
substitute,
and
year
161
1.4
Step
4.
Calculate
cost
change,
by
crop
and
region,
for
Approach
1
167
1.5
Step
5.
Calculate
Approach
2
cost
change
for
each
crop
168
2.
Nurseries
171
3.
Post­
Harvest
172
Appendix
C:
Marketable
Permit
Designs
for
the
Methyl
Bromide
Critical
Use
Exemption
Request
in
the
United
States
175
Appendix
D:
Number
of
Entities
that
Applied
for
CUE
194
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­
ES­
1
­
ECONOMIC
IMPACT
ANALYSIS
FOR
METHYL
BROMIDE
ALLOCATION
IN
THE
UNITED
STATES
Executive
Summary
This
Economic
Impact
Analysis
(
EIA)
provides
an
analysis
of
the
costs
of
regulating
the
distribution
of
critical
use
exemption
(
CUE)
methyl
bromide
allocated
to
the
United
States
by
the
Parties
to
the
Montreal
Protocol.
This
analysis
presents
the
impacts
associated
with
the
proposed
continued
use
of
methyl
bromide
through
the
implementation
of
the
CUE
process
under
two
allocation
options
(
each
with
two
allocation
methods)
and
briefly
analyzes
a
third
auction
option,
and
compares
these
results
to
the
current
schedule
(
i.
e.,
a
complete
phaseout
in
2005).
The
sections
that
follow
provide
a
brief
overview
on
the
background
of
the
methyl
bromide
phaseout
and
the
regulated
community,
a
description
of
the
baseline
phaseout
analysis
and
a
comparison
to
the
allocation
analysis
used
for
this
report,
an
overview
of
the
allocation
options,
and
a
description
of
the
costs
and
overall
cost
savings
to
industry
participants
for
the
two
options.

Background
Under
the
Montreal
Protocol
on
Substances
that
Deplete
the
Ozone
Layer,
the
United
States
is
required
to
reduce
all
pre­
plant
and
post­
harvest
baseline
methyl
bromide
produced
and
consumed
in
2003
by
70
percent
of
1991
consumption
levels
and
phaseout
use
completely
by
2005,
apart
from
allowable
exemptions.
The
Montreal
Protocol
allows
for:
unlimited
Quarantine
and
Pre­
Shipment
(
QPS)

uses
of
methyl
bromide;
small
amounts
of
methyl
bromide
for
emergency
use
provisions
after
2005;
and
limited
critical
use
exemptions
(
CUE)
after
2005
in
order
to
prevent
significant
market
disruptions.
Under
Decision
IX/
6,
the
Montreal
Protocol
provision
for
critical
use
exemptions
permits
countries
to
request
exemptions
for
methyl
bromide
end
uses
where
no
"
technically
and
economically
feasible"
alternatives
have
been
demonstrated
and
where
the
absence
of
methyl
bromide
would
create
a
significant
market
disruption
(
EPA
2003a).

In
the
United
States,
legal
authority
for
the
methyl
bromide
phaseout
is
provided
under
Title
VI
of
the
Clean
Air
Act
(
CAA)
Amendments.
Thus,
the
United
States
must
implement
the
critical
use
exemption
based
on
CAA
regulations
as
well
as
international
decisions
that
determine
the
amount
of
additional
methyl
bromide
allowed
for
critical
uses.
EPA
began
formulating
the
CUE
application
process
beginning
in
early
2001,
and
received
56
applications
from
consortia
and
individual
growers
in
September
2002
requesting
methyl
bromide
for
critical
use
exemption
in
both
pre­
plant
and
post­
harvest
end
uses.

Following
a
thorough
analysis
of
52
of
the
applications,
1
in
February
2003
the
U.
S.
Government
submitted
the
2003
Nomination
for
a
Critical
Use
Exemption
for
Methyl
Bromide
from
the
United
States
to
the
Parties
to
the
Montreal
Protocol.
This
nomination
package
described
the
criteria
used
to
determine
the
1
The
remaining
four
applications
were
not
processed
due
to
insufficient
or
incomplete
information.
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­
ES­
2
­
need
for
critical
use
exemption
and
the
amount
of
methyl
bromide
requested
for
each
of
sixteen
sectors
nominated.

The
United
States
requested
a
total
of
9,920,965
kilograms
of
methyl
bromide
for
2005
and
9,445,360
kilograms
of
methyl
bromide
for
2006
to
meet
critical
use
exemption
needs
for
sixteen
sectors.

Cucurbits,
peppers,
strawberries,
and
tomatoes
accounted
for
nearly
77
percent
of
the
nominated
total
in
2005.
The
Parties
are
in
the
process
of
reviewing
CUE
nominations
from
all
countries,
and
the
amount
awarded
to
each
country
will
be
authorized
based
on
technical
and
economic
merit.
Following
a
decision
by
the
Parties
regarding
the
amount
of
CUE
methyl
bromide
granted
to
the
United
States,
EPA
will
be
responsible
for
creating
an
exemption
to
the
phaseout
for
critical
uses.
The
amount
that
the
United
States
will
receive
is
uncertain
at
this
time,
but
it
will
be
critical
to
have
an
Allocation
Rule
in
place
when
the
amount
is
finalized.
Thus,
this
analysis
evaluating
the
costs
of
different
allocation
systems
has
been
carried
out
under
the
assumption
that
the
U.
S.
would
receive
the
full
amount
nominated,
among
other
assumptions
described
in
greater
detail
in
the
full
EIA.

Regulated
Community
A
number
of
industry
sectors
are
affected
by
the
methyl
bromide
phaseout
and
are
evaluated
in
this
analysis.
These
include
methyl
bromide
producers
and
importers,
pre­
plant
users,
and
post­
harvest
users.
Because
the
U.
S.
is
one
of
the
largest
worldwide
producers
of
methyl
bromide,
U.
S.
production,

led
by
Great
Lakes
Chemical
Corporation
and
Ethyl
Corporation,
is
impacted
by
the
phaseout.
The
two
major
methyl
bromide
importers
in
the
U.
S.
are
Ameribrom,
a
subsidiary
of
the
Dead
Sea
Bromine
Group,

and
TriCal,
a
certified
applicator
in
California.
Pre­
harvest
or
pre­
plant
users
of
methyl
bromide
represent
growers
of
fruits
and
vegetables,
which
are
some
of
the
largest
industry
sectors
impacted
by
the
methyl
bromide
phaseout.
The
U.
S.
Nomination
included
seven
types
of
fruit
and
vegetable
growers:
bell
pepper,
cucurbit,
eggplant,
strawberry,
strawberry
nursery,
sweet
potato,
and
tomato,
as
well
as
orchards,

nurseries,
and
other
growers
(
i.
e.,
forest
seedlings,
ginger,
tobacco
nursery
transplant
trays,
orchard
nurseries,
orchard
replant,
and
turfgrass/
sod).
Post­
harvest
uses
of
methyl
bromide
include
structural
fumigation
of
commodity
storage
and
food
processing
applications.
The
QPS
applications
of
methyl
bromide
are
exempted
from
the
phaseout
under
the
Montreal
Protocol,
and
there
are
already
regulations
in
place
governing
distribution
of
methyl
bromide
for
QPS.
Thus,
QPS
applicators
are
not
considered
in
this
analysis.

Overall
production
and
harvested
production
in
2001
for
the
pre­
plant
and
post­
harvest
commodities
within
this
regulated
community
are
provided
in
Exhibit
ES.
1.
A
summary
of
the
area
fumigated
with
methyl
bromide,
the
number
of
farms/
orchards/
nurseries,
and
average
farm/
orchard/
nursery
size
represented
by
the
CUE
applicants
by
sector,
where
provided,
is
presented
in
Exhibit
ES.
2
for
pre­
plant
uses
and
in
Exhibit
ES.
3
for
post­
harvest
uses.
***
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­
ES­
3
­
CUE
applicants,
the
U.
S.
Department
of
Agriculture
(
USDA),
and
university
researchers
have
invested
a
significant
amount
of
time
and
resources
into
research
on
methyl
bromide
alternatives.
For
many
crops,
regulations
or
climatic
conditions
may
limit
the
ability
of
growers
to
use
alternatives
to
methyl
bromide.
After
a
thorough
review
of
the
applications
and
research
results
and
an
analysis
of
the
technical
and
economic
feasibility
of
alternatives
by
crop,
the
U.
S.
determined
that
the
commodities
and
the
corresponding
states
(
listed
in
the
Exhibits
ES.
2
and
ES.
3)
have
a
critical
need
for
methyl
bromide.

Exhibit
ES.
1.
Production
by
Commodities
within
MeBr
Regulated
Community
in
2001
Commodity
Production
(
metric
tons)
Harvested
Hectares
Top
Producing
States
Bell
Pepper
728,572
22,671
CA,
FL,
GA,
NJ,
NC
Cucurbit
487,892
22,016
FL,
GA,
MI,
CA,
NC
Eggplant
61,417
2,146
FL,
CA,
GA,
NJ
Strawberry
749,467
18,609
CA,
FL,
OR,
NC,
PA
Sweet
Potato
663,934
38,204
NC,
LA,
MS,
CA,
AL
Tomato
1,611,469
50,284
FL,
CA,
FA,
SC,
GA
Forest
Seedlings
­­
a
NAV
OR,
CA,
MI,
PA,
OH
Ginger
b
6,532
130
HI
Tobacco
447,069
174,956
NC,
KY,
TN,
SC,
GA
Orchard
Crops
3,025,628
428,700
CA
Stone
Fruit
1,731,082
100,083
CA
Table
Grapes
632,304
36,828
CA
Almonds
385,552
212,468
CA
Walnuts
276,690
79,321
CA
a
production
of
approximately
200
to
300
million
bareroot
seedlings.
b
2001/
2002
growing
season
year.
Notes:
This
table
does
not
include
production
or
harvested
hectares
from
strawberry
nurseries,
forest
seedlings,
and
turfgrass/
sod.
NAV
=
Not
available.
Source:
Bell
Pepper,
Cucurbit,
Strawberry,
Tobacco
from
NASS
2003d.
Eggplant,
Sweet
Potato,
Tomato,
Orchard
Crops
from
2003a.
Ginger
from
NASS
2003b.
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
ES­
4
­
Exhibit
ES.
2.
Summary
of
Critical
Use
Exemption
Applications
for
Pre­
Plant
Methyl
Bromide
Uses
Commodity
States
Represented
in
Applications
Total
Area
Fumigated
with
Methyl
Bromide
(
hectares)
Average
Farm/
Nursery/
Orchard
Size
(
hectares)
Estimated
Number
of
Farms/
Nurseries/
Orchards
Represented
Bell
Pepper
FL,
GA,
CA,
AL,
AR,
NC,
SC,
TN,
VA
12,754
111
160
Cucurbit
AL,
AR,
NC,
SC,
TN,
VA,
GA,
MI
8,306
89
454
Eggplant
FL,
GA
9,067
121
>
79
Strawberry
CA,
FL,
AL,
AR,
GA,
NC,
SC,
TN,
VA
21,257
38.5
1,494
Strawberry
Nurseries
CA,
NC,
TN
1,423
69
19
Sweet
Potato
CA
1,214
40
78
Tomato
FL,
AL,
AR,
NC,
SC,
TN,
VA,
GA,
MI,
CA
34,180
NAV
>
349
Forest
Seedlings
South:
AL,
AR,
GA,
FL,
LA,
MS,
NC,
OK,
SC,
TN,
TX,
VA;
West:
CA,
ID,
KS,
NE,
OR,
UT,
WA;
North:
IL,
IN,
KY,
MD,
MI,
MO,
NJ,
OH,
PA,
WV,
WI
1,239
NAV
120
Ginger
HI
21
2
7
Tobacco
NC
7
30
NAV
Orchard
Nurseries
CA,
WA
895
24
16
Orchard
Replant
CA
4,925
53
143
Turfgrass/
Sod
all
states
1,598
174
16
Notes:
NAV
=
Not
available.
Number
of
farms/
nurseries/
orchards
is
not
additive
because
double­
cropped
farms
in
Georgia
(
79)
are
counted
under
peppers,
cucurbits,
eggplant,
and
tomatoes.

Exhibit
ES.
3.
Summary
of
Critical
Use
Exemption
Applications
for
Post­
Harvest
Methyl
Bromide
Uses
Applicant
States
Represented
in
Applications
Total
Area
Fumigated
with
Methyl
Bromide
(
cubic
feet)
Average
Facility
Size
(
cubic
feet)
Estimated
Number
of
Facilities
Represented
Commodity
Storage:
Beans,
Dried
Fruit,
Pistachios,
Walnuts,
Ham
CA,
VA
NAV
550,000
121
Food
Processing
all
states
322,600,000
4,300,000
124
Note:
NAV
=
Not
available.

Baseline
for
the
Allocation
Rule
Economic
Impact
Analysis
In
October
2000,
an
analysis
of
the
economic
impacts
of
the
2005
methyl
bromide
phaseout
was
conducted.
This
Revised
Draft
Regulatory
Impact
Analysis
for
a
Methyl
Bromide
Phaseout
in
the
United
States
(
ICF
2000b),
hereafter
referred
to
as
the
Phaseout
RIA,
estimated
the
costs
and
benefits
of
a
complete
phaseout
in
2001
and
2005
based
on
the
schedule
set
for
non­
Article
5
countries
by
the
Parties
to
the
Montreal
Protocol
2
and
outlined
in
the
Phaseout
Rule
(
Federal
Register
2000).
The
Phaseout
RIA
2
This
methyl
bromide
phaseout
structure,
based
on
a
1991
baseline,
consisted
of
a
25
percent
reduction
in
1999,
a
50
percent
reduction
in
2001,
a
70
percent
reduction
in
2003,
and
a
complete
phaseout
as
of
January
1,
2005
(
except
for
quarantine,
critical
and
emergency
use
exemptions)
(
EPA
1999b).
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
ES­
5
­
modeled
the
cost
impacts
based
on
a
complete
characterization
of
the
methyl
bromide
market
in
the
U.
S.;

published
literature
and
expert
opinion
regarding
methyl
bromide
alternatives;
substitute
market
share
percentage
allocations
by
sector
for
each
year
of
the
phaseout;
and
benefits
impacts
based
on
EPA's
ozone­
depleting
substance
substitute
benefits
model
called
the
Atmospheric
Health
Effects
Framework
(
AHEF).
The
cost
model
developed
for
the
Phaseout
RIA
was
updated
for
this
analysis,
hereafter
referred
to
as
the
Allocation
EIA,
to
recalculate
the
costs
and
benefits
based
on
continued
availability
of
methyl
bromide
through
the
CUE
process.

The
Phaseout
RIA
cost
analysis
performed
in
2000
applied
existing
data
on
methyl
bromide
uses
and
substitutes
to
the
key
methyl
bromide
markets
to
bound
the
possible
cost
impacts
on
producers
and
consumers
of
crops
and
commodities.
The
costs
of
meeting
methyl
bromide
phaseout
reduction
targets
were
computed
using
two
different
approaches:
impact
on
producers
only
(
Approach
1),
and
impact
on
producers
and
consumers
(
Approach
2).
Approach
1
assumes
that
sufficient
additional
commodity
quantities
would
be
supplied
to
prevent
the
prices
of
the
various
commodities
from
increasing
in
order
to
provide
a
lower
bound
for
the
social
cost
of
the
phaseout.
Approach
2
provides
an
upper
bound
estimate
of
the
total
social
welfare
cost
of
the
phaseout,
using
demand
flexibility
to
derive
an
estimate
of
the
change
in
price.

For
each
sector
(
crop
or
other
end
use
and
geographical
area),
the
cost
model
calculates
the
compliance
or
control
cost
of
the
phaseout
based
on
changes
in
consumer
and
producer
surpluses.
In
turn,
these
surplus
changes
result
from
end
users
switching
to
substitutes
for
methyl
bromide,
which
can
be
more
costly
and
may
be
associated
with
yield
changes,
and
from
higher
prices
that
may
occur
in
the
output
(
i.
e.,
end
use)
markets.
The
analysis
captured
both
low
and
high
scenarios
disaggregated
by
crop,

region,
and
interim
reduction
year,
based
on
the
range
of
substitute
costs
relative
to
methyl
bromide.
Low
and
high
cost
scenarios
were
provided
based
on
a
range
of
low
to
high
methyl
bromide
substitute
costs.

The
benefits
of
the
phaseout
were
estimated
based
on
health
effects
resulting
from
past
and
future
changes
in
stratospheric
ozone
concentrations
associated
with
methyl
bromide
emissions.

Comparison
of
Updated
Baseline
Phaseout
and
Allocation
Rule
Phaseout
The
methodological
framework
of
the
model
used
for
the
analysis
of
the
Phaseout
Rule
was
kept
intact
to
calculate
costs
for
the
Allocation
EIA,
but
certain
updates
were
made
to
conduct
a
direct
comparison
between
the
economic
impacts
of
the
Phaseout
Rule,
used
as
the
baseline
for
this
analysis,

and
the
Allocation
Rule
(
presented
in
this
analysis).
The
changes
include
the
following:

 
added
sectors
not
included
in
the
previous
analysis
(
i.
e.,
ginger,
sweet
potatoes,
and
forest
seedlings);
 
updated
methyl
bromide
substitute
yield
data
where
improvements
were
reported;
 
improved
cost
estimates
by
calculating
cumulative
perennial
acreage
treated
with
substitutes
on
an
annual
basis;
 
considered
costs
to
the
post­
harvest
and
structural
impacts
sectors
in
the
same
analysis
as
costs
to
pre­
harvest
methyl
bromide
users;
and
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
ES­
6
­
 
assumed
a
decrease
in
methyl
bromide
consumption
in
nurseries
prior
to
2005
because
perennials
may
no
longer
need
methyl
bromide.

The
cost
analysis
for
the
Allocation
Rule
uses
existing
data
on
methyl
bromide
uses
and
substitutes
for
the
key
markets
to
bound
the
possible
cost
impacts
on
producers
and
consumers.
Alternatives
to
methyl
bromide
were
identified
through
a
review
of
existing
documentation.
From
the
identified
alternatives,

substitute
costs
and
yield
impacts
were
derived.
The
target
market
shares
for
each
substitute
were
calculated
by
taking
the
substitute
with
the
overall
least
cost
(
taking
into
account
both
price
and
effectiveness)
up
to
its
maximum
market
applicability,
followed
by
the
next
least
cost
option,
until
all
required
methyl
bromide
reductions
had
been
accomplished
for
each
year.

For
each
sector,
incremental
costs
were
modeled
to
develop
estimated
changes
in
producer
and
consumer
surplus
resulting
from
the
stepwise
implementation
of
replacement
options.
Each
cost
scenario
was
broken
down
by
crop,
and
each
crop
was
disaggregated
by
region
except
for
nursery,
forest
seedlings,
and
post
harvest
sectors,
which
were
presented
on
a
national
basis.
Finally,
the
cost
of
the
Allocation
Rule
was
calculated
as
the
difference
between
the
cost
estimates
(
relative
to
continued
use
of
methyl
bromide)
of
the
baseline
methyl
bromide
phaseout
in
2005
and
the
Allocation
Rule
schedule.

Exhibit
ES.
4
displays
annualized
and
net
present
value
costs
for
Approach
1
and
Approach
2
of
the
Allocation
Rule
schedule
relative
to
the
2005
phaseout
baseline,
based
on
the
summation
of
reduced
or
increased
producer
surplus
changes
over
region,
crop,
year,
and
scenario.
Exhibit
ES.
5
presents
cost
savings
based
on
Approach
1,
high
scenario
by
crop.

Exhibit
ES.
4.
Estimated
Compliance
Cost
Savings
for
the
Allocation
Rule
Schedule
(
1999
 
2150)
(
1997$)
Cost
(
1997$)
Low
High
Approach
1
Discount
Rate:
3
percent
NPV
415
million
617
million
Annualized
13
million
19
million
Discount
Rate:
7
percent
NPV
249
million
383
million
Annualized
17
million
27
million
Approach
2
Discount
Rate:
3
percent
NPV
416
million
618
million
Annualized
13
million
19
million
Discount
Rate:
7
percent
NPV
250
million
384
million
Annualized
17
million
27
million
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
ES­
7
­
Exhibit
ES.
5.
CUE
Compliance
Cost
Savings
Based
on
Approach
1,
High
Scenario
(
1997$)
3
Percent
Discount
7
Percent
Discount
Annualized
NPV
Annualized
NPV
Eggplant
98,430
3,120,068
144,303
2,059,398
Forest
Seedlings
(
17,534)
(
555,813)
(
25,728)
(
367,173)
Ginger
48,533
1,538,423
71,205
1,016,191
Lettuce
0
0
0
0
Nursery
1,432,451
45,406,507
2,101,821
29,995,786
Pepper
380,278
12,054,217
552,216
7,880,858
Strawberry
7,570,791
239,982,490
11,067,925
157,954,059
Sweet
Potato
203,376
6,446,696
292,064
4,168,148
Tomato
5,581,986
176,940,408
8,145,142
116,242,041
Cucurbits
222,801
7,062,436
317,649
4,533,271
Orchards
3,228,038
102,323,863
3,120,442
44,532,875
Post
Harvest
702,005
22,252,492
1,030,045
14,700,118
Total
19,451,154
616,571,788
26,817,084
382,715,573
Note:
Positive
numbers
indicate
cost
savings
from
the
2005
phaseout.
Negative
numbers
(
in
parentheses)
indicate
increased
costs
associated
with
continued
methyl
bromide
use.
Increased
costs
result
when
methyl
bromide
substitutes
are
less
expensive
than
methyl
bromide
use
and
thus,
continued
methyl
bromide
use
leads
to
higher
costs.

Allocation
Options
Based
on
the
criteria
indicated
by
the
Montreal
Protocol,
the
United
States
requested
39
percent
of
1991
U.
S.

baseline
consumption
for
2005
and
37
percent
for
2006
for
CUE
purposes
from
the
Parties
to
the
Montreal
Protocol.
This
EIA
assumes
that
methyl
bromide
quantities
consumed
in
the
United
States
in
2005
and
2006
will
be
equal
to
the
quantities
requested
in
the
U.
S.
nomination,
and
that
beyond
2006,

consumption
of
methyl
bromide
for
critical
use
will
continue
at
37
percent
of
baseline
through
2010.
Use
then
drops
by
5
percent
annually
for
7
years
through
2017,
with
a
final
drop
of
2
percent
and
subsequent
consumption
of
0
percent
in
2018
and
beyond.
These
assumptions
are
used
strictly
for
analytical
purposes
and
do
not
represent
an
attempt
by
EPA
to
predict
the
actual
course
of
a
methyl
bromide
phaseout.

Exhibit
ES.
6
summarizes
this
phaseout
schedule.

Three
primary
options
for
methyl
bromide
allocation
were
considered
for
the
Allocation
Rule:

 
Option
1:
Producer/
Importer
Cap
and
Trade
Allowance
with
Market
Distribution
of
Methyl
Bromide;
 
Option
2:
Producer/
Importer
Cap
and
Trade
Allowance
with
End
User
Permit
Trading;
and
 
Option
3:
Producer/
Importer
Cap
and
Trade
Allowance
with
End
User
Permit
Auction
and
Trading
[
initially
considered
as
an
option
but
not
analyzed
in­
depth
in
this
document].
Exhibit
ES.
6.
Assumed
Phaseout
Schedule
for
U.
S.
Methyl
Bromide
Critical
Use
Exemption
Year
Percent
consumption
of
1991
baseline
2005
39
2006
37
2007
37
2008
37
2009
37
2010
37
2011
32
2012
27
2013
22
2014
17
2015
12
2016
7
2017
2
2018
0
***
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2006)
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OR
ATTRIBUTE***

­
ES­
8
­
Under
all
options,
methyl
bromide
would
be
capped
and
allowances
would
be
allocated
to
producers
and
importers
based
on
their
historic
levels
of
production
or
import.
Trading
of
allowances
between
producers
and
importers
would
be
allowed.
Under
Options
2
and
3
additional
regulations
would
be
required
to
distribute
rights
of
critical
use
methyl
bromide
to
approved
users.
Under
Option
2,
EPA
would
provide
permits
to
end
users
using
a
reconstructed
baseline
of
historic
methyl
bromide
consumption.
These
permits
could
then
be
traded,
either
within
or
across
sectors.

The
most
readily
identifiable
difference
in
the
economic
efficiency
of
the
regulatory
options
is
whether
trading
is
universal
or
sector­
specific.
Between
the
universal
and
sector­
specific
trading
and
allocations,
the
universal
option
is
clearly
lower
cost
from
the
perspective
of
economic
efficiency,
because
the
universal
option
allows
more
entities
to
trade,
and
thus
is
more
likely
to
capture
the
potential
gains
from
trade
among
agricultural
entities
with
varying
methyl
bromide
substitution
costs.
Because
participation
in
the
regulatory
system
is
essentially
voluntary
(
end
users
can
opt
to
use
substitutes
and
not
obtain
methyl
bromide),
the
efficiency
of
the
regulatory
options
will
depend
on
which
end
users
choose
to
participate
and
how
consumption
of
methyl
bromide
is
distributed
among
these
end
users.
A
number
of
the
factors
affecting
the
efficiency
of
market
outcomes
under
the
regulatory
options
will
depend
on
the
design
of
the
option 
whether
it
facilitates
trades,
how
great
information
requirements
are,

program
predictability,
transaction
costs
and
size,
and
other
features
affecting
participation,
distribution,

and
ease
of
trading.

Costs
Associated
with
Allocation
Options
Under
the
Allocation
Rule,
the
increased
use
of
methyl
bromide
in
excess
of
the
original
phaseout
schedule
results
in
cost
savings
(
negative
costs)
for
the
industry
as
a
whole.
Total
costs
include
incremental
costs
of
the
allocation
options
and
public
and
private
administrative
costs
and
are
estimated
for
the
time
period
2005
to
2018
(
costs
are
presented
at
discount
rates
of
3
and
7
percent)
in
1997
dollars.
Additionally,
transaction
costs
and
factors
could
cause
variations
in
economic
efficiency
and
equity
between
the
two
options.
It
is
important
to
note
that
this
analysis
only
addresses
costs
of
the
Allocation
Rule
to
industry.
Overall
costs
to
society
are
not
evaluated.

Incremental
Costs
Assuming
that
methyl
bromide
is
allocated
to
its
most
valuable
uses,
costs
will
be
identical
for
the
two
options
considered
under
the
Allocation
Rule.
Costs
will
differ,
however,
depending
on
whether
allocation
of
methyl
bromide
is
accomplished
on
a
sector­
specific
or
universal
basis,
and
on
other
factors
that
could
affect
how
the
markets
operate
to
distribute
transferable
permits
and
methyl
bromide,
in
ways
not
captured
by
the
cost
model.
Exhibit
ES.
7
presents
total
annualized
and
net
present
value
costs
compared
to
the
Phaseout
Rule
for
universal
and
sector­
specific
allocation
scenarios
for
the
Approach
1
high
scenario,
which
measures
cost
based
on
producer
surplus
alone
and
uses
the
higher
range
of
substitute
costs.
Approach
1
was
used
since
it
is
a
conservatively
high
estimate
of
the
cost
of
using
substitutes
for
methyl
bromide.
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
ES­
9
­
Exhibit
ES.
7.
Annualized
and
Net
Present
Value
Private
Compliance
Costs
of
the
Allocation
Rule
for
Approach
1,
High
Scenario
(
1997$)
Annualized
Costs
Net
Present
Value
Costs
Discount
Rate
Sector­
Specific
Allocation
Illustrative
Universal
Allocation
Sector­
Specific
Allocation
Illustrative
Universal
Allocation
3%
­
19.5
million
­
21.9
million
­
616.6
million
­
695.6
million
7%
­
26.8
million
­
31.3
million
­
382.7
million
­
446.8
million
Note:
This
table
does
not
include
administrative
costs.

Administrative
Costs
Both
the
private
and
public
sectors
will
also
incur
administrative
(
positive)
costs
associated
with
meeting
requirements
under
the
Allocation
Rule.
In
addition
to
incremental
costs
related
to
yield
impacts
and
higher
substitution
costs
identified
above
for
end
users
that
do
switch
to
methyl
bromide
substitutes
under
the
Allocation
Rule,
the
Allocation
Rule
will
lead
to
administrative
costs
for
private
entities
such
as
rule
familiarization,
reporting,
and
entering
information
into
a
tracking
database.
Furthermore,
EPA
will
face
public
administrative
costs
of
running
the
allocation
program.
Total
administrative
costs
to
the
public
and
private
sector
under
Options
1
and
2
are
summarized
in
Exhibit
ES.
8.
It
is
assumed
that
administrative
costs
are
the
same
for
universal
versus
sector­
specific
allocation.

Exhibit
ES.
8.
Net
Present
Value
of
Administrative
Costs
of
the
Allocation
Rule
for
Both
Sector­
Specific
and
Universal
Allocations
(
1997$)
Option
1
Option
2
Discount
Rate
Private
Administrative
Costs
Public
Administrative
Costs
Total
Administrative
Costs
Private
Administrative
Costs
Public
Administrative
Costs
Total
Administrative
Costs
3%
30.6
million
0.4
million
31.0
million
89.8
million
29.9
million
119.7
million
7%
22.4
million
0.3
million
22.7
million
66.1
million
22.0
million
88.1
million
The
net
present
value
of
the
total
costs
of
the
Allocation
Rule,
including
incremental
costs
of
the
allocation
options
and
public
and
private
administrative
costs,
is
summarized
in
Exhibits
ES.
9
and
ES.
10.

Total
costs
are
calculated
by
adding
total
administrative
costs
and
private
compliance
costs.
In
all
cases,

private
compliance
costs
savings
outweigh
the
administrative
costs
associated
with
the
Allocation
Rule,

resulting
in
negative
total
costs.

Exhibit
ES.
9.
Net
Present
Value
of
Total
Costs
for
Sector­
Specific
Allocation
(
1997$)
Option
1
Option
2
Discount
Rate
Total
Administrative
Costs
Private
Compliance
Costs
Total
Costs
Total
Administrative
Costs
Private
Compliance
Costs
Total
Costs
3%
31.0
million
­
616.6
million
­
585.6
million
119.7
million
­
616.6
million
­
496.9
million
7%
22.7
million
­
382.7
million
­
360.0
million
88.1
million
­
382.7
million
­
294.6
million
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
ES­
10
­
Exhibit
ES.
10.
Net
Present
Value
of
Total
Costs
for
Universal
Allocation
(
1997$)
Option
1
Option
2
Discount
Rate
Total
Administrative
Costs
Private
Compliance
Costs
Total
Costs
Total
Administrative
Costs
Private
Compliance
Costs
Total
Costs
3%
31.0
million
­
695.6
million
­
664.6
million
119.7
million
­
695.6
million
­
575.9
million
7%
22.7
million
­
446.8
million
­
424.1
million
88.1
million
­
446.8
million
­
358.7
million
Kim
et
al.
Cost
Analysis
Kim
et
al.
(
2003)
conducted
an
analysis
comparing
potential
cost
savings
under
sector­
specific
versus
universal
allocation
schemes,
and
on
cost
savings
of
methyl
bromide
allocation
through
trading
versus
command­
and­
control­
type
systems.
The
analysis
supports
the
phaseout
model's
projection
that
sector­
specific
allocations
are
more
costly
to
the
overall
regulated
community
than
the
universal
allocation.
The
full
analysis
is
provided
in
Appendix
C
of
the
Allocation
EIA.

Kim
et
al.'
s
analysis
found
that,
as
predicted
by
economic
theory,
universal
trading
under
Option
2
would
offer
more
cost
savings
than
sector­
specific
trading.
Kim
et
al.
estimated
that
cost
savings
of
the
Allocation
Rule
under
a
sector­
specific
trading
system
could
be
as
high
as
$
121.5
million,
when
compared
to
a
high­
cost
non­
trading
command
and
control
scenario
(
all
permits
initially
allocated
to
applicants
with
lower
costs
of
methyl
bromide
substitution).
These
cost
savings
are
calculated
as
the
differences
between
compliance
costs
under
the
high­
cost
non­
trading
scenario
(
estimated
to
be
$
177.2
million),
and
compliance
costs
under
a
sector­
specific
trading
system
(
estimated
to
be
$
55.7
million).

Depending
on
the
allocation
method
used
under
the
command
and
control
scenario,
cost
savings
of
trading
could
be
lower.
Cost
savings
for
the
universal
trading
system
compared
to
a
high­
cost
nontrading
scenario
were
estimated
to
be
as
high
as
$
143.6
million
($
177.2
million
in
incremental
costs
for
the
high­
cost
scenario
and
$
35.5
million
in
incremental
costs
for
universal
trading).
Incremental
costs
in
Kim
et
al.'
s
analysis
include
profit
loss
from
reduced
methyl
bromide
consumption
under
the
Allocation
Rule
(
e.
g.,
reduced
yields,
forced
switches
to
other
crops
or
commodities,
or
business
closure)
and
increased
production
costs.

The
values
of
the
cost
model
for
the
Allocation
EIA
and
Kim
et
al.
differ
because
the
analyses
compare
different
baseline
situations
and
have
similar
but
different
data
sets.
The
Allocation
EIA
compares
industry
costs
for
sector­
specific
and
universal
allocation
under
the
Allocation
Rule,
which
allows
continued
use
of
methyl
bromide
beyond
2005
for
CUE,
to
a
complete
phaseout
of
methyl
bromide
in
2005
under
the
Phaseout
Rule.
Kim
et
al.'
s
analysis
compares
industry
costs
for
universal
and
sectorspecific
allocation
under
a
market
trading
system
to
a
system
that
does
not
allow
trading
(
command­

andcontrol
Further
description
of
the
potential
cost
savings
of
trading
compared
to
command­
and­
control
allocation
is
provided
in
the
full
EIA.
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
ES­
11
­
Costs
and
Benefits
Comparison
of
Options
Costs
to
end
users
under
the
Allocation
Rule
will
be
less
than
under
the
Phaseout
Rule
because
end
users
will
receive
more
methyl
bromide
than
would
have
been
the
case
under
the
Phaseout
Rule.

Under
the
Allocation
Rule,
industry
will
be
able
to
continue
using
methyl
bromide
for
CUE
purposes
until
2018.
Although
both
Options
1
and
2
will
lead
to
cost
savings
for
industry
as
a
whole,
affected
entities
(
producers,
importers,
distributors,
applicators,
and
end
users)
will
experience
various
impacts.
Exhibit
ES.
11
presents
a
comparison
of
the
net
present
value
costs
of
the
Allocation
Rule
for
each
option.
Total
costs
include
incremental
costs
of
the
allocation
options
and
public
and
private
administrative
costs.

Exhibit
ES.
11.
Costs
of
the
Allocation
Rule,
Approach
1,
High
Scenario,
Options
1
and
2
(
1997$)
Allocation
Type
Discount
Rate
Option
1
Costs
Option
2
Costs
3%
­
585.6
million
­
496.6
million
7%
­
360.0
million
­
294.6
million
3%
­
585.6
million
­
496.9
million
7%
­
360.0
million
­
294.6
million
Sector­
Specific
Allocation
7%
­
360.0
million
­
294.6
million
3%
­
664.6
million
­
575.9
million
7%
­
424.1
million
­
358.7
million
3%
­
664.6
million
­
575.9
million
7%
­
424.1
million
­
358.7.
million
Illustrative
Universal
Allocation
7%
­
424.1
million
­
358.7
million
The
relative
costs
of
each
option
are
presented
in
Exhibit
ES.
12.
Option
2
is
roughly
between
10
percent
and
13
percent
more
costly
than
Option
1,
depending
on
the
allocation
method
and
discount
rate
employed.

Exhibit
ES.
12.
Costs
of
Option
1
and
Option
2,
Approach
1,
High
Scenario
(
1997$)
Allocation
Type
Discount
Rate
Option
1
Costs
Option
2
Costs
Relative
Costs
3%
­
585.6
million
­
496.9
million
1.18
Sector­
Specific
Allocation
7%
­
360.0
million
­
294.6
million
1.22
3%
­
664.6
million
­
575.9
million
1.15
Illustrative
Universal
Allocation
7%
­
424.1
million
­
358.7
million
1.18
Because
more
methyl
bromide
will
be
used
under
the
Allocation
Rule
than
under
the
Phaseout
Rule,
health
benefits
will
be
negative.
More
methyl
bromide
will
be
released
to
the
atmosphere,
resulting
***
DRAFT
(
1/
30/
2006)
DO
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CITE,
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OR
ATTRIBUTE***

­
ES­
12
­
in
higher
incidence
and
mortality
from
skin
cancers
and
increased
incidence
of
cataracts
than
under
the
Phaseout
Rule.

Efficiency
and
Equity
Although
the
quantitative
cost
comparisons
provide
initial
estimates
of
the
allocation
options
that
may
lead
to
the
highest
net
benefits
to
society,
the
options
also
result
in
differing
levels
of
efficiency
and
equity
for
industry.
Universal
allocation
under
Options
1
or
2
would
result
in
the
most
efficient
allocation
because
with
fewer
limits
on
trading,
end
users
would
have
more
chances
of
identifying
trading
partners
with
large
control
cost
differentials
(
thus
resulting
in
higher
cost
saving
potential).
Universal
allocation
would
also
allow
for
a
higher
trading
volume,
thereby
increasing
the
potential
for
lower
aggregate
control
costs
and
higher
efficiency.
Under
a
sector­
specific
system,
each
critical
end
use
type
would
be
guaranteed
at
least
some
methyl
bromide.
Within
each
crop
type
or
consortium,
methyl
bromide
would
be
allocated
to
the
most
efficient
use.
This
system
would
help
ensure
the
continued
domestic
production
of
each
of
these
products
in
an
economically
feasible
manner.

Industry
Total
Cost
Savings
Net
cost
savings
to
industry
participants
will
vary
by
allocation
option.
Option
1
is
very
similar
to
the
existing
QPS
self­
certification
system,
where
producers
and
importers
already
submit
annual
forms
and
distributors
submit
quarterly
forms
delineating
methyl
bromide
distribution
and
implied
consumption.

For
methyl
bromide
allocation
under
Option
1,
similar
self­
certification
procedures
will
be
in
place
and
hence,
will
pose
few
new
costs
to
producers,
importers,
distributors,
applicators,
or
end
users.

Additionally,
reporting
requirements
for
distributors
again
would
be
similar
to
requirements
under
the
QPS
system,
but
would
entail
reduced
frequency
of
reporting
amounts
of
methyl
bromide
bought
and
sold.

Option
2
would
present
more
costs
to
industry
than
Option
1
because
it
involves
end
user
participation
in
a
permit
trading
system.
Many
end
users
do
not
have
experience
with
this
type
of
system,

or
trading
in
general.
Reporting
trades
in
a
tracking
database
operated
by
EPA
also
may
pose
incremental
cost
burdens.
In
particular,
many
of
these
costs
would
be
borne
by
small
users.
However,

trading
can
also
lead
to
significant
cost
savings,
as
described
in
further
detail
in
the
full
EIA.

These
additional
costs
to
industry
over
the
current
methyl
bromide
purchasing
system,
however,

will
be
greatly
outweighed
by
the
advantage
afforded
by
continued
methyl
bromide
use
under
the
CUE
system
beyond
2005.
Under
a
2005
phaseout,
affected
entities,
especially
small
farms,
would
be
required
to
switch
more
quickly
to
substitutes.
Furthermore,
many
small
farms
may
not
have
as
many
resources
as
larger
entities
for
conducting
trades,
and
may
lack
sufficient
information
to
settle
on
prices.

With
continued
methyl
bromide
use,
small
farmers
will
have
a
longer
"
buffer
time"
to
identify
methyl
bromide
substitutes
and
prepare
for
the
phaseout
in
other
ways.
It
is
critical
to
note
that
both
options
are
deregulatory
in
nature,
and
would
substantially
lower
the
cost
of
compliance
to
all
users,
including
small
users.
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
1
­
1.
Introduction
1.1
History
of
Methyl
Bromide
Use
and
Phaseout
Methyl
bromide
is
a
toxic
pesticide
used
globally
to
control
pests,
weeds,
and
soil­
borne
diseases.
It
is
primarily
applied
to
pre­
plant
uses,
to
treat
agricultural
crops
such
as
tomatoes,

strawberries,
and
orchards,
but
is
also
used
for
post­
harvest
applications,
to
treat
stored
commodities,

quarantine
and
preshipment
(
QPS)
products,
and
structures.
Production
of
methyl
bromide
is
being
phased
out
under
the
Montreal
Protocol
on
Substances
that
Deplete
the
Ozone
Layer
because
its
emissions
contribute
to
stratospheric
ozone
depletion.

The
United
States
is
required
to
reduce
all
pre­
plant
and
post­
harvest
baseline
methyl
bromide
produced
and
consumed
in
2003
by
70
percent
of
1991
consumption
levels
(
consumption
defined
as
production
plus
imports
minus
exports,
not
use).
As
the
1991
consumption
baseline
for
methyl
bromide
is
25,528
metric
tons
3
,
a
70
percent
reduction
in
use
sets
a
cap
at
7,658
metric
tons
for
2003
and
2004.
By
2005,
methyl
bromide
consumption
for
pre­
plant
applications
must
be
reduced
to
0
percent
(
i.
e.,
100
percent
reduction
against
the
1991
baseline)
apart
from
allowable
exemptions.
However,
the
Montreal
Protocol
allows
for:
unlimited
Quarantine
and
Pre­
Shipment
(
QPS)
uses
of
methyl
bromide;
small
amounts
of
methyl
bromide
for
emergency
use
provisions
after
2005;
and
limited
critical
use
exemptions
(
CUE)
after
2005
in
order
to
prevent
significant
market
disruptions.
Under
Decision
IX/
6,
the
Montreal
Protocol
provision
for
critical
use
exemptions
permits
countries
to
request
exemptions
for
methyl
bromide
end
uses
where
no
"
technically
and
economically
feasible"
alternatives
have
been
demonstrated
and
where
the
absence
of
methyl
bromide
would
create
a
significant
market
disruption
(
EPA
2003a).

1.2
EPA's
Statutory
Authority
In
the
United
States,
legal
authority
for
the
methyl
bromide
phaseout
is
provided
under
Title
VI
of
the
Clean
Air
Act
(
CAA)
Amendments.
Thus,
the
United
States
must
implement
the
critical
use
exemption
based
on
CAA
regulations
as
well
as
international
decisions
that
determine
the
amount
of
additional
methyl
bromide
allowed
for
critical
uses.
The
U.
S.
EPA
(
henceforth
described
as
EPA)
began
formulating
the
Critical
Use
Exemption
application
process
beginning
in
early
2001,
and
after
receiving
applications
from
consortia
and
individual
growers
in
September
2002
to
determine
the
amount
of
methyl
bromide
requested
by
end
users,
submitted
a
U.
S.
nomination
to
the
Parties
to
the
Montreal
Protocol
in
February
2003.

3
This
baseline
represents
non­
exempt
uses
(
i.
e.,
non­
QPS
uses
that
are
exempt
from
the
phaseout
schedule).
Preharvest
uses
of
methyl
bromide
consumed
approximately
85%
of
the
baseline;
post­
harvest
and
structural
fumigation
claimed
the
rest.
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
2
­
1.2.1
Critical
Use
Exemption
Application
Process
EPA
began
the
CUE
process
by
holding
several
open
informational
stakeholder
meetings
in
early
2000.
These
meetings
were
designed
to
notify
interested
parties
about
Montreal
Protocol
requirements;

answer
questions
about
the
CUE
process;
and
provide
a
forum
for
stakeholders
to
inform
EPA
about
issues
involved
in
researching
methyl
bromide
alternatives.
Following
this
initial
set
of
meetings,
EPA
embarked
on
a
three­
pronged
approach
to
the
CUE
nomination
process
including:
(
1)
development
of
a
national
application
form
to
address
all
questions
and
instructions
posed
by
the
Montreal
Protocol;
(
2)

commencement
of
a
set
of
sector­
specific
meetings
to
further
educate
growers
about
Montreal
Protocol
requirements
and
to
ensure
that
all
sectors
would
be
represented
in
the
national
application;
and
(
3)

assembly
of
an
expert
technical
review
team
and
creation
of
a
timeframe
for
CUE
application
review.

Finally,
the
applications
were
reviewed
by
PhD
experts
in
biology
and
economics
and
a
draft
nomination
package
for
submission
to
the
Parties
was
assembled
(
EPA
2003b).

The
data
in
the
CUE
applications
from
methyl
bromide
users
was
the
basis
for
the
U.
S.

nomination
package.
Each
application
consisted
of
five
primary
worksheets,
the
contents
of
which
are
briefly
described
below:

1.
Contact
information
for
each
applicant.
2.
Crop
pests,
methyl
bromide
use,
yields,
and
operating
costs.


Subsection
1:
Crops
and
Pests
o
Major
target
pests,
pest
problems,
and
the
pest
economic
threshold;
o
Methyl
bromide
application
types
and
rates;
o
Fumigation
cycle
of
the
crop
and
percentage
of
total
growing
area
infested;
o
Crop
yields
and
revenue;
and
o
Operating
costs.


Subsection
2:
Methyl
bromide
historical
use
information
from
1997
through
2002
o
Total
active
ingredient
of
methyl
bromide
applied
per
year;
o
Total
actual
acres
treated
per
year;
o
Average
pounds
of
active
ingredient
applied
per
area
per
year;
and
o
Frequency
of
methyl
bromide
application.


Subsection
3:
Revenue
and
crop
yields
o
Yield
per
acre,
price,
and
gross
revenue
per
acre.


Subsection
4:
Operating
costs
o
Land
preparation,
fumigation,
irrigation,
and
harvest
operations.
3.
Feasibility
of
methyl
bromide
substitutes
o
Percent
yield
change
and
pest
control
compared
to
methyl
bromide;
o
Regulatory
restrictions
on
substitutes;
and
o
Operating
costs
for
implementation
of
substitutes.
4.
Planned
future
research
on
methyl
bromide
alternatives.
5.
Amount
of
active
ingredient
and
acreage
for
fumigation
requested
in
2005,
2006,
and
2007.

A
total
of
56
applications
were
sent
to
EPA
requesting
methyl
bromide
for
critical
use
exemption;

52
of
them
were
analyzed
in
the
nominations
process.
4
These
applications
represented
entities
and
4
The
remaining
four
applications
were
not
processed
due
to
insufficient
or
incomplete
information.
***
DRAFT
(
1/
30/
2006)
DO
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CITE,
QUOTE
OR
ATTRIBUTE***

­
3
­
groups
of
entities
that
use
methyl
bromide
for
both
pre­
plant
and
post­
harvest
end
uses.
Applicants
ranged
from
individual
farms
or
commodity
producers
(
e.
g.,
one
dried
ham
company)
to
consortia
of
many
farms
or
commodity
producers
with
similar
products
(
e.
g.,
the
Florida
Fruit
and
Vegetable
Association
application
on
behalf
of
all
tomato
growers
in
Florida).
Applicants
included
pre­
plant
users
of
methyl
bromide
for
such
products
as
vegetables,
fruits,
trees,
and
turfgrass
that
are
grown
in
fields
and
nurseries.
Other
applicants
were
post­
harvest
end
users
of
methyl
bromide,
such
as
producers
of
dry
cured
meats,
dried
fruits,
and
nuts
and
grains
from
mills.

1.2.2
Nominations
Process
Following
receipt
of
all
CUE
applications,
two
review
teams
(
primary
and
secondary)
were
set
up
to
assess
the
applications.
Experts
from
EPA's
Office
of
Pesticide
Programs,
from
USDA,
and
expert
university
researchers
participated
in
the
review.
The
two
teams,
each
consisting
of
one
biologist
and
one
economist,
reviewed
each
crop
and
application.
The
full
application
was
then
reviewed
by
the
entire
45­
person
review
team.
Each
application
was
then
placed
in
a
sector
category.
For
example,
the
"
Food
Processing"
sector
nominated
a
portion
of
methyl
bromide
for
use
in
rice
milling,
bakeries,
dog
and
cat
food,
and
flour
milling.
The
reviewers
assessed
the
information
provided
in
the
applications,
as
well
as
additional
research
presented
by
applicants,
and
provided
expert
opinion
on
whether
there
was
a
critical
need
for
methyl
bromide
for
some
portion
of
the
application
based
on
pest
pressure,
regulatory
constraints
on
substitutes,
historic
methyl
bromide
use,
and
technical
and
economic
feasibility
of
substitutes,
among
other
factors.
EPA
experts
in
consultation
with
USDA
and
industry
experts
then
assessed
the
number
of
acres
or
cubic
feet
that
would
need
a
CUE.

An
overall
nomination
for
methyl
bromide
critical
use
exemption
in
the
United
States
was
generated
from
analysis
of
all
applications.
The
United
States
requested
methyl
bromide
for
critical
use
exemption
for
sixteen
sectors,
and
the
final
2003
Nomination
for
a
Critical
Use
Exemption
for
Methyl
Bromide
from
the
United
States
described
the
criteria
used
to
determine
the
need
for
critical
use
exemptions.
The
nomination
packages
provided
an
overview
of
U.
S.
agriculture
and
its
unique
aspects
on
an
international
scale;
a
summary
of
production
in
each
sector
nominated,
and
reasons
for
that
sector's
need
for
continued
methyl
bromide
use;
as
well
as
a
description
of
the
amount
of
methyl
bromide
requested
by
each
sector,
the
nominated
amount
of
methyl
bromide,
and
general
reasons
for
differences
between
the
amount
requested
in
applications
and
the
amount
nominated.
The
nominations
also
described
efforts
that
the
United
States
has
made
in
the
past,
and
will
continue
to
pursue
in
the
future,
to
reduce
use
of
methyl
bromide,
such
as
substitutes
research
and
prioritization
of
substitutes
registration.

The
U.
S.
nomination
requested
a
total
of
9,920,965
kilograms
of
methyl
bromide
for
2005
and
9,445,360
kilograms
of
methyl
bromide
in
2006
for
critical
use
exemptions.
Cucurbits,
peppers,

strawberries,
and
tomatoes
were
the
sectors
with
the
largest
nominated
amounts
of
methyl
bromide
(
accounting
for
nearly
77
percent
of
the
nominated
total
in
2005);
the
U.
S.
Government
requested
over
2
***
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(
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30/
2006)
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OR
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­
4
­
million
kilograms
of
methyl
bromide
for
strawberries
and
tomatoes
and
over
1
million
kilograms
of
methyl
bromide
for
peppers
and
cucurbits
in
2005.
The
Parties
have
reviewed
CUE
nominations
from
all
countries,
and
the
amount
awarded
to
each
country
was
to
be
authorized
at
the
meeting
of
the
Parties
in
Nairobi
in
November
2003.
Because
delegates
were
unable
to
reach
agreement
on
the
CUE
amounts
to
be
awarded,
an
extraordinary
meeting
of
the
Parties
is
to
be
held
in
March
2004.
Following
a
decision
by
the
Parties
regarding
the
amount
of
CUE
methyl
bromide
granted
to
the
United
States,
the
EPA
will
be
responsible
for
creating
an
exemption
to
the
phaseout
for
critical
uses
and
allocating
methyl
bromide
for
critical
use.
Because
the
extent
of
the
constraints
that
the
Parties
will
impose
on
the
amount
of
the
CUE
exemption
and
the
means
of
distribution
(
by
sector
or
as
a
lump
sum)
is
uncertain
at
this
time,
this
analysis
is
based
on
several
assumptions
detailed
in
Chapter
IV.

1.3
Purpose
and
Structure
of
the
Report
The
purpose
of
this
Economic
Impact
Analysis
(
EIA)
is
twofold.
The
EIA
aims
to
analyze
the
economic
impacts
of
regulating
the
distribution
of
CUE
methyl
bromide.
In
addition,
the
analysis
models
the
costs
associated
with
the
proposed
continued
use
of
methyl
bromide
with
the
implementation
of
the
critical
use
exemption,
and
compares
these
results
to
a
complete
phaseout
in
2005,
which
is
the
current
law.
To
develop
the
analysis,
three
primary
options
for
methyl
bromide
allocation
were
considered:
(
1)
an
allowance
system
with
cap
and
trade
permits
for
producers
and
importers
only;
(
2)
a
cap
and
trade
allowance
system
for
producers
and
importers
with
tradable
permits
for
end
users;
(
3)
a
cap
and
trade
allowance
system
for
producers
and
importers
with
an
auction
permit
system
for
end
users,
allowing
trading
among
end
users.
In
addition,
Options
2
and
3
contain
sub­
options
where
potential
effects
of
trading
within
and
across
end­
use
sectors
for
end
user
permits
were
considered.
The
remainder
of
this
report
contains
the
following
sections:

 
Chapter
2
describes
the
regulated
producer
and
end
user
communities;
 
Chapter
3
reviews
the
original
results
of
the
methyl
bromide
Phaseout
RIA,
(
prepared
in
2000),
and
provides
a
baseline
for
this
report,
the
Allocation
EIA;
 
Chapter
4
discusses
the
primary
regulatory
options
analyzed
for
methyl
bromide
allocation;
 
Chapter
5
explores
the
incremental
costs
to
industry
under
each
of
the
allocation
options;
 
Chapter
6
explores
the
administrative
and
transaction
costs
to
industry
under
each
of
the
options;
 
Chapter
7
surveys
the
administrative
costs
to
EPA
under
each
of
the
options;
 
Chapter
8
investigates
the
benefits
of
each
allocation
option;
and
 
Chapter
9
summarizes
the
total
costs
and
benefits
of
the
proposed
options.
***
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2006)
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OR
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­
5
­
2.
Regulated
Community
This
section
presents
a
brief
summary
of
the
industry
sectors
affected
by
the
methyl
bromide
phaseout.
The
discussion
addresses
producers
and
importers
of
methyl
bromide;
pre­
harvest
users,

growers
of
vegetables
and
fruit;
and
post­
harvest
uses
such
as
commodity
storage
and
structural
fumigation.

2.1
Producers
and
Importers
The
United
States
is
one
of
the
largest
producers
of
methyl
bromide
worldwide,
along
with
Israel,

Japan,
France,
and
China.
In
2000,
the
U.
S.
accounted
for
approximately
43
percent
of
the
total
world
production
and
consumed
57
percent
of
world
production.
Approximately
26
percent
of
total
U.
S.

production
of
methyl
bromide
was
exported
in
2000.
There
are
only
two
producers
of
methyl
bromide
in
the
U.
S.:
Great
Lakes
Chemical
Corporation
located
in
West
Lafayette,
Indiana,
and
Ethyl
Corporation,

based
in
Richmond,
Virginia.
Similarly,
there
are
only
two
major
importers
of
methyl
bromide
to
the
United
States:
Ameribrom,
a
subsidiary
of
the
Dead
Sea
Bromine
Group
(
DSBG)
based
in
Israel,
and
TriCal,
a
certified
applicator
in
California.
Great
Lakes
Chemical
Corporation
employs
4,600
people
worldwide
and
had
net
sales
in
2002
of
$
1,401.5
million
(
Great
Lakes
2003).
Ethyl
Corporation
has
1,100
employees
and
its
consolidated
net
sales
equaled
$
656
million
($
216
million
in
the
United
States)
in
2002
(
Ethyl
Corporation
2002).
Dead
Sea
Bromine
Group
is
the
world's
largest
producer
of
elemental
bromine
(
DSBG
2003).
TriCal
is
the
largest
applicator
of
methyl
bromide
on
the
west
coast;
however,
sales
data
are
not
publicly
available.

2.2
Fruit
and
Vegetable
Growers
Fruit
and
vegetable
growers
are
some
of
the
largest
industry
sectors
impacted
by
the
methyl
bromide
phaseout.
The
U.
S.
Nomination
included
seven
types
of
fruit
and
vegetable
growers:
bell
pepper,
cucurbits,
eggplant,
strawberries,
strawberry
nurseries,
sweet
potatoes,
and
tomatoes.
These
sectors
are
described
briefly
below.
These
sectors
contain
a
wide
variety
of
farms,
ranging
from
small
individually­
held
plots
to
large,
organized
farms
belonging
to
consortia
or
representative
associations.

These
crops
are
grown
in
all
regions
of
the
United
States,
with
concentrations
in
the
Southeast
and
West
in
variable
soil,
temperature,
and
regulatory
conditions.

For
many
crops,
regulations
limit
the
ability
of
growers
to
use
alternatives
to
methyl
bromide.

Growers
face
particular
constraints
in
using
one
of
the
more
effective
alternatives,
1,3­
dichloropropene
(
1,3­
D),
because
of
restrictions
aimed
at
reducing
exposure
to
this
hazardous
substance.
Set
back
restrictions
or
buffers
between
the
fumigated
field
and
buildings
limit
the
area
of
land
that
can
be
fumigated.
This
buffer
zone
requirement,
however,
has
been
reduced
from
300
to
100
feet.
Applicators
of
1,3­
D
are
required
to
wear
personal
protective
equipment
(
PPE),
which
has
contributed
to
heat
stress
in
workers
when
combined
with
high
temperatures.
PPE
requirements
have
been
lessened,
reducing
these
***
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­
6
­
complications.
The
amount
of
1,3­
D
that
can
be
used
in
California
is
limited
by
township
caps,
which
can
deplete
the
supply
available
for
crops
grown
later
in
the
season.
In
Florida,
certain
areas
are
prohibited
from
using
1,3­
D
because
of
groundwater
contamination
concerns
associated
with
karst
topography
(
underground
caves
and
springs).
Restrictions
and
conditions
affecting
particular
crops
are
discussed
in
the
sections
that
follow.

The
sector
discussions
focus
on
the
production
volume
of
each
crop,
the
highest
producing
regions
or
states,
the
size
and
number
of
farms
represented
by
the
critical
use
exemption
applications,

and
the
status
of
existing
or
potential
alternatives
to
methyl
bromide.
Further
information
on
the
estimation
of
the
number
of
farms
represented
by
the
applications
is
described
in
Appendix
D.
Data
for
production
costs
and
relative
costs
of
methyl
bromide
provided
by
the
CUE
applicants
are
presented
in
Appendix
A.

2.2.1
Bell
Pepper
Bell
peppers
are
grown
throughout
the
United
States,
in
all
but
three
states.
The
industry
is
valued
at
approximately
$
459
million
(
NASS
2003d).
In
2001,
728,572
metric
tons
of
peppers
were
produced
on
22,671
harvested
hectares.
In
1997,
there
were
a
total
of
6,269
farms
producing
peppers,

covering
24,907
hectares
of
U.
S.
cropland
(
U.
S.
Census
of
Agriculture
1997).
The
industry
is
concentrated
in
California
and
Florida,
which
are
responsible
for
more
than
75
percent
of
the
total
U.
S.

pepper
yield.
New
Jersey
and
North
Carolina
are
the
next
largest
pepper
growing
states.
Exhibit
2.2.1.1
summarizes
the
quantity
of
bell
peppers
produced
and
hectares
harvested
by
state
for
the
year
2001.

Exhibit
2.2.1.1.
Bell
Pepper
Production
in
2001
From
Top
Producing
States
State
Production
(
metric
tons)
Percent
of
U.
S.
Total
Production
Harvested
Hectares
California
324,324
45%
8,903
Florida
245,670
34%
6,358
Georgia
19,051
3%
850
New
Jersey
53,706
7%
1,497
North
Carolina
35,744
5%
2,550
Other
50,077
7%
2,517
Total
728,572
100%
22,671
Source:
NASS
2003d.

EPA
received
four
CUE
applications
for
peppers.
The
applicants
represent
growers
in
California,

Florida,
Georgia,
and
six
other
southeastern
states
(
Alabama,
Arkansas,
North
Carolina,
South
Carolina,

Tennessee,
and
Virginia).
Exhibit
2.2.1.2
summarizes
the
hectares
fumigated
with
methyl
bromide,
the
***
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­
7
­
average
farm
size,
the
number
of
farms,
and
employment
statistics
where
available
for
the
pepper
growers
represented
by
each
CUE
applicant.
Based
on
information
provided
by
the
CUE
applicants,
the
average
pepper
farm
was
calculated
as
111
hectares.

Exhibit
2.2.1.2.
Summary
of
Critical
Use
Exemption
Applications
for
Pepper
Applicant
Total
Hectares
Fumigated
with
Methyl
Bromide
Average
Farm
Size
(
hectares)
Estimated
Number
of
Farms
Represented
Employment
02­
0017,
California
1,012
81
13
NAV
02­
0041,
Southeast
749
40
14
NAV
02­
0049,
Georgia
2,252
162
79
NAV
02­
0054,
Florida
8,742
162
54
nearly
9,000
full
time
Total
12,754
111
160
NAV
NAV
=
Not
available.

In
2001,
California
bell
pepper
growers
applied
64
metric
tons
of
methyl
bromide
on
447
hectares 
equivalent
to
5
percent
of
the
total
harvested
area
(
CADPR
2002).
The
California
applicant
requested
181
metric
tons
of
methyl
bromide
for
1,012
hectares.
In
2001,
Florida
consumed
1,031
metric
tons
of
methyl
bromide
on
91
percent
of
pepper
crops
in
the
state
(
NASS
2003d).

The
critical
need
for
methyl
bromide
for
bell
peppers,
as
described
in
the
nomination,
is
primarily
due
to
the
lack
of
reliable
and
registered
alternatives
to
control
nutsedge
species
in
Florida,
Georgia,
and
the
Southeast
(
U.
S.
CUE
Nomination
for
Bell
Peppers
2003).
For
states
in
the
Southeast,
including
Georgia
and
Florida,
methyl
bromide
use
is
critically
needed
for
areas
of
moderate
to
high
nutsedge
infestation.
In
California,
methyl
bromide
use
is
critically
needed
for
areas
infested
with
Phytophthora
and
Verticillium
pathogens,
representing
10
percent
of
California's
pepper
production
(
U.
S.
CUE
Nomination
for
Bell
Peppers
2003).
Extensive
research
has
been
conducted
to
evaluate
methyl
bromide
chemical
and
non­
chemical
alternatives
for
bell
peppers.
Relatively
few
herbicides
are
appropriate
for
use
in
pepper
production,
particularly
because
of
phytotoxicity
concerns.
Despite
the
limited
selection
of
herbicide
alternatives,
U.
S.
studies
on
treatments
of
Telone
®
have
shown
promising
nematode
and
disease
control
compared
to
methyl
bromide
(
Eger
2000).
However,
concerns
remain
that
Telone
®

applied
in
combination
with
herbicides
may
not
provide
an
appropriate
level
of
residual
pest
control
for
double
cropping,
a
commonly
practiced
farming
method
for
peppers
and
other
crops,
such
as
tomato
and
cucumber
(
Gilreath
et
al.
2000).

2.2.2
Cucurbits
In
2002,
the
cucurbit
industry
produced
4.3
million
metric
tons
of
cucumber,
melons,
pumpkin,

and
squash
valued
at
nearly
$
1.5
billion
(
NASS
2003e).
In
1997,
cantaloupe,
cucumber,
pumpkin,

squash,
and
watermelon
crops
were
grown
on
a
total
of
39,660
U.
S.
farms
(
U.
S.
Census
of
Agriculture
***
DRAFT
(
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30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
8
­
1997).
More
than
200,000
hectares
of
cucurbits
are
planted
annually
(
U.
S.
CUE
Nomination
for
Cucurbits
2003).
Using
cucumbers
as
a
representation
for
cucurbit
production,
Florida
and
Georgia
produce
approximately
25
and
24
percent
respectively
of
all
U.
S.
fresh
cucumbers
in
2001.
Other
major
cucumber
producing
states
include
Michigan
(
11
percent),
California
(
10
percent),
and
North
Carolina
(
8
percent)
(
NASS
2003a).
In
1997,
42
percent
of
the
152
cucumber
growers
in
Florida
produced
cucumbers
on
less
than
5
acres,
and
24
percent
of
producers
produced
cucumbers
on
more
than
100
acres
(
NASS
1999).
Exhibit
2.2.2.1
summarizes
the
quantity
of
cucumbers
produced
and
hectares
harvested
by
state
for
the
year
2001.

Exhibit
2.2.2.1.
Cucumber
Production
in
2001
From
Top
Producing
States
State
Production
(
metric
tons)
Percent
of
U.
S.
Total
Production
Harvested
Hectares
Florida
120,884
25%
2,954
Georgia
115,124
24%
5,868
Michigan
54,886
11%
2,226
California
51,166
10%
1,902
North
Carolina
37,558
8%
2,792
Other
108,274
22%
6,273
Total
487,892
100%
22,016
Source:
NASS
2003d.

EPA
received
CUE
applications
for
cucurbits
from
Georgia
(
specifically
for
squash,
cucumber,

and
melon),
Michigan,
and
states
in
the
Southeast.
The
states
covered
in
the
U.
S.
nomination
represent
approximately
one­
third
of
total
U.
S.
cucurbits
production
(
U.
S.
CUE
Nomination
for
Cucurbits
2003).

Exhibit
2.2.2.2
summarizes
the
hectares
fumigated
with
methyl
bromide,
the
number
of
farms,
and
the
average
farm
size
for
the
cucurbit
growers
represented
by
each
CUE
applicant
and
cucurbit
crop.
Based
on
information
provided
by
the
CUE
applicants,
the
average
cucurbit
farm
was
calculated
as
89
hectares.
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
9
­
Exhibit
2.2.2.2.
Summary
of
Critical
Use
Exemption
Applications
for
Cucurbits
Applicant
Cucurbit
Crop
Total
Hectares
Fumigated
with
Methyl
Bromide
Average
Farm
Size
(
hectares)
Estimated
Number
of
Farms
Represented
02­
005,
Michigan
Watermelon,
Muskmelon,
Cucumber,
Summer
Squash,
Winter
Squash
585
51
30
02­
0042,
Southeast
Melons,
Cucumber,
Squash
5,018
71a
345
02­
0048,
Georgia
Squash
618
81
79
02­
0051,
Georgia
Cucumbers
448
81
79
02­
0052,
Georgia
Melons
1,637
162
79
Total
8,306
89
454b
a
While
the
majority
of
cucurbit
growers
represented
by
the
Southeast
Cucurbit
Consortium
produce
20
to
120
hectares
of
cucurbits
for
wholesale
markets,
it
should
be
noted
that
25
percent
of
cucurbit
growers
produce
1
to
20
hectares
of
cucurbits
for
local
and
regional
markets.
b
The
Georgia
Fruit
and
Vegetable
Growers
Association
submitted
the
three
CUEs
on
behalf
of
Georgia
cucurbit
farmers.
Since
the
same
number
of
farms
was
given
in
each
cucurbit
CUE
for
Georgia,
the
total
estimated
number
of
farms
requesting
cucurbit
CUEs
was
estimated
by
counting
Georgia's
cucurbit
farms
only
once.

The
critical
need
for
methyl
bromide
for
cucurbits,
as
described
in
the
nomination,
is
primarily
to
target
Phytophthora
capsici
and
Fusarium
oxysporum
pathogens
that
cause
rotting
and
decreased
yield
and
quality
of
cucurbit
harvests
in
California
and
Michigan;
methyl
bromide
is
also
critically
needed
to
control
yellow
and
purple
nutsedge
infestation
in
the
southern
and
southeastern
regions
of
the
United
States
(
U.
S.
CUE
Nomination
for
Cucurbits
2003).
While
double
cropping
is
a
common
planting
method
for
many
types
of
cucurbits,
such
as
squash
and
cucumber
crops,
5
the
majority
of
research
into
alternatives
for
methyl
bromide
has
focused
on
the
effects
of
alternatives
on
the
first
crop,
such
as
tomato.
In
general,
less
is
known
about
the
effect
of
methyl
bromide
alternatives
on
the
double­
crop,
such
as
cucumber
(
Gilreath
et
al.
1999).

Treatment
of
a
mixture
of
1,3­
dichloropropene
and
chloropicrin
combined
with
Tillam
®
on
doublecropped
tomato
and
cucumber
indicated
that
this
alternative
was
as
effective
as
methyl
bromide
in
controlling
root
knot
nematode
populations
in
spring
cucumber
crops
(
Gilreath
et
al.
1999).
However,

since
this
work
was
conducted,
the
sole
manufacturer
of
Tillam
®
has
closed
operations,
and
this
product
is
no
longer
available
on
the
market.

The
effects
of
soil
solarization
on
a
pepper­
cucumber
crop
rotation
in
Florida
were
also
studied.

Alone,
soil
solarization
did
not
control
root
knot
nematodes
in
cucurbits,
but
when
combined
with
1,3­

dichloropropene,
nematode
control
improved.
Marketable
yield
for
this
double­
crop
of
cucumber
were
2.7
tons
per
acre
higher
with
methyl
bromide
and
root
knot
nematode
density
and
incidences
of
root
galling
increased
with
solarization
compared
to
methyl
bromide
(
Chellemi
et
al.
1997).

5
For
example,
Florida
cucumber
growers
usually
double
crop
with
tomato,
eggplant,
or
bell
pepper
(
Mossler
and
Nesheim
2000).
***
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OR
ATTRIBUTE***

­
10
­
In
south
Florida,
metam
sodium
and
chloropicrin
are
available
alternatives
for
cucumber
growers;

however,
chloropicrin
alone
has
not
been
shown
to
provide
adequate
pest
control.
Metam
sodium
has
shown
more
promise
in
providing
cucumber
growers
with
some
degree
of
pest
control
as
a
fumigant
(
McMillan
and
Bryan
2000).

In
Georgia,
an
effective
control
against
nutsedge
for
the
pepper­
squash
crop
rotation
has
not
been
found
to
replace
methyl
bromide
due
to
the
lack
of
an
effective
herbicide.
In
a
field
study
evaluating
methyl
bromide
alternatives
on
a
bell
pepper­
squash
crop
rotation,
both
methyl
iodide
and
1,3­

dichloropropene
combined
with
chloropicrin
were
most
effective
at
controlling
nutsedge
early
in
the
growing
season.
However,
by
the
end
of
the
growing
season,
methyl
bromide
treatment
exhibited
the
best
control
over
nutsedge
(
Webster
et
al.
2001).

In
Michigan,
results
of
treating
muskmelon
with
Telone
®
C­
35
and
Telone
®
C­
17,
in
an
area
known
to
have
disease
problems
during
a
previous
harvest
of
melons,
resulted
in
20
to
29
percent
of
plants
being
infected
with
Fusarium
wilt
compared
to
a
zero­
percent
infection
rate
when
treated
with
methyl
bromide
(
Hausbeck
et
al.
1998).

Ongoing
research
to
find
technically
feasible
alternatives
will
be
critical
for
the
cucurbit
industry,

which
consumed
an
estimated
210.28
metric
tons
of
methyl
bromide
on
cucumber
crops
in
2000
alone
(
NASS
2003a).

2.2.3
Eggplant
In
2001,
more
than
61,417
metric
tons
of
eggplant
was
produced
in
the
United
States,
valued
at
more
than
$
36.6
million
(
NASS
2003a,
2003e).
In
1997,
eggplant
production
occupied
a
total
of
3,198
hectares
on
2,246
farms
(
U.
S.
Census
of
Agriculture
1997).
The
eggplant
industry
is
most
concentrated
in
California,
Georgia,
Florida,
and
New
Jersey.
Exhibit
2.2.3.1
summarizes
the
quantity
of
eggplant
produced
(
in
metric
tons)
and
the
number
of
hectares
harvested
by
state
for
the
year
2001.

Exhibit
2.2.3.1.
Eggplant
Production
in
2001
from
Top
Producing
States
State
Production
(
metric
tons)
Percent
of
U.
S.
Total
Production
Harvested
Hectares
California
14,923
24%
567
Florida
18,144
30%
648
Georgia
12,746
21%
182
New
Jersey
7,258
12%
324
Other
8,346
14%
425
Total
61,417
100%
2,146
Source:
NASS
2003a.
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
11
­
EPA
received
two
CUE
applications
for
eggplant.
The
applicants
represent
growers
in
two
of
the
three
top
producing
states:
Florida
and
Georgia.
According
to
the
CUE
applications,
the
average
farm
size
is
81
hectares
in
Florida.
According
to
the
1997
U.
S.
Census
of
Agriculture,
there
were
a
total
of
937
hectares
of
eggplant
farms
in
Florida;
the
applicant
requested
methyl
bromide
for
728
hectares,
or
approximately
80
percent
of
the
state
total.
In
Georgia,
the
average
farm
size
is
162
hectares,
and
methyl
bromide
is
applied
to
only
half
the
area
of
the
average
farm.
The
Georgia
applicant
requested
the
use
of
methyl
bromide
on
325
hectares,
which
likely
represents
all
eggplant
farms
in
the
state,
given
that
there
were
a
total
of
285
hectares
of
eggplant
farms
in
1997
(
U.
S.
Census
of
Agriculture
1997).
Exhibit
2.2.3.2
summarizes
the
hectares
fumigated
with
methyl
bromide,
the
average
farm
size,
and
number
of
farms
for
the
eggplant
growers
represented
by
each
CUE
applicant.
Based
on
information
provided
by
the
CUE
applicants,
the
average
eggplant
farm
was
calculated
as
121
hectares.

Exhibit
2.2.3.2.
Summary
of
Critical
Use
Exemption
Applications
for
Eggplant
Applicant
Total
Hectares
Fumigated
with
Methyl
Bromide
Average
Farm
Size
(
hectares)
Estimated
Number
of
Farms
Represented
02­
0050,
Georgia
325
162
79
02­
0054,
Florida
8,742
81
NAV
Total
9,067
121
­­
NAV
=
Not
available.
This
information
was
not
provided
by
the
applicant.

According
to
the
applicants,
methyl
bromide
is
critically
needed
for
eggplants
because
it
is
the
only
known
treatment
currently
available
to
provide
consistent
control
of
nutsedge
and
major
eggplant
pests
(
U.
S.
CUE
Nomination
for
Eggplants
2003).
Research
on
technically
feasible
alternatives
to
methyl
bromide
for
use
in
eggplant
production
is
ongoing.
As
with
other
vegetables,
Telone
®
with
Chloropicrin
and
an
herbicide
has
shown
some
positive
results
in
pest
suppression,
but
this
alternative
is
only
labeled
for
use
with
tomato
(
Gilreath
et
al.
2000).
To
date,
Napropamide
is
the
only
available
herbicide
for
eggplants
(
Gilreath
et
al.
2000,
Carpenter
et
al.
2000).
In
addition
to
the
challenge
of
finding
a
proper
herbicide
to
effectively
work
with
Telone
®
,
Florida
townships
limit
the
use
of
Telone
®
,
with
Miami­
Dade
County 
where
approximately
17
percent
of
Florida's
eggplants
are
produced 
banning
its
use
entirely
(
USDA
2000,
U.
S.
Census
of
Agriculture
1997,
Dade
Vegetable
Newsletter
2001).

2.2.4
Strawberries
Strawberry
production
in
the
U.
S.
has
an
annual
value
of
over
$
900
million
(
Carpenter
et
al.

2000).
As
such,
it
is
the
fourth
most
valuable
fruit
produced
in
the
United
States.
The
largest
strawberryproducing
state
is
California,
followed
by
Florida
and
other
southeastern
states.
California
and
Florida
both
grow
strawberries
as
an
annual
crop
using
a
raised
bed
system,
with
two
or
four
rows
of
plants
per
***
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(
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2006)
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OR
ATTRIBUTE***

­
12
­
raised
bed.
Exhibit
2.2.4.1
summarizes
the
quantity
of
strawberries
produced
and
hectares
harvested
by
state
for
the
year
2001.

Exhibit
2.2.4.1.
Strawberry
Production
in
2001
From
Top
Producing
States
State
Production
(
metric
tons)
Percent
of
U.
S.
Total
Production
Harvested
Hectares
California
622,688
83%
10,684
Florida
76,657
10%
2,631
Oregon
18,234
2%
1,255
North
Carolina
8,890
1%
688
Washington
7,257
1%
648
Pennsylvania
3,901
1%
526
Other
11,839
2%
2,185
Total
749,467
100%
18,616
Source:
NASS
2003d.

EPA
received
three
CUE
applications
for
strawberries.
The
applicants
represent
growers
in
California,
Florida,
and
members
of
the
Southeastern
Strawberries
Consortium.
According
to
the
CUE
applications,
the
average
farm
size
is
53
acres
in
Florida,
40
acres
in
California,
and
3.5
acres
in
states
represented
by
the
Southeastern
Strawberries
Consortium.
The
applicants
requested
methyl
bromide
use
for
13,640
acres,
which
is
an
estimated
38
percent
of
the
total
strawberry
farm
area
(
U.
S.
Census
of
Agriculture
1997).
Exhibit
2.2.4.2
summarizes
the
hectares
fumigated
with
methyl
bromide,
the
number
of
farms,
the
average
farm
size,
and
employment
statistics
where
available
for
the
strawberry
growers
represented
by
each
CUE
applicant.

Exhibit
2.2.4.2.
Summary
of
Critical
Use
Exemption
Applications
for
Strawberry
Applicant
Total
Hectares
Fumigated
with
Methyl
Bromide
Average
Farm
Size
(
hectares)
Estimated
Number
of
Farms
Represented
Employment
02­
0024,
California
4,095
16
625
65,000
(
total)

02­
0053,
Florida
2,873
21
134
NAV
02­
0037,
Southeast
1,635
1.5
735
NAV
Total
21,257
38.5
1,494
NAV
NAV
=
Not
available.

Methyl
bromide
is
critically
needed
in
the
strawberry
sector
in
the
United
States,
as
described
in
the
nomination,
because
it
is
the
only
currently
available
treatment
that
consistently
controls
nutsedge
and
the
disease
complex
affecting
strawberry
production
(
U.
S.
CUE
Nomination
for
Strawberries
2003).

In
addition,
the
economic
feasibility
of
strawberry
production
without
methyl
bromide
is
a
factor
for
a
***
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13
­
critical
use
exemption.
It
is
used
for
weed
control,
as
most
herbicides
are
phytotoxic
to
strawberries
(
Lange
et
al.
1961),
and
for
nematode
and
disease
control.
Other
chemicals
that
have
shown
some
efficacy
(
e.
g.,
chloropicrin
and
Vapam
®
)
,
although
in
California
they
were
shown
to
result
in
yield
losses
of
approximately
4
percent
in
the
first
year
(
Carpenter
et
al.
2000).
These
herbicides
can
also
require
additional
hand
weeding,
which
is
labor
and
cost
intensive
(
on
the
order
of
about
$
500
per
acre
in
southern
California).
The
combination
of
applying
chloropicrin
and
Vapam
®
and
hand
weeding
will
increase
costs
by
approximately
$
597.50
per
acre
over
traditional
methyl
bromide
use
in
southern
California
(
Carpenter
et
al.
2000).
Plastic
mulches
could
potentially
provide
an
alternative
to
hand
weeding,
but
clear
plastic
mulches
used
in
southern
California
strawberry
production
have
not
been
proven
to
kill
or
prevent
weed
growth
(
Carpenter
et
al.
2000).
Opaque
black
plastic
mulches
are
more
effective
at
weed
control,
but
tend
to
slow
fruit
production
and
can
cause
fruit
burn
(
Carpenter
et
al.

2000).
Therefore,
plastic
mulches
may
not
be
feasible
for
weed
control
in
all
types
of
growing
conditions
(
ICF
2003).

Other
pests
controlled
by
methyl
bromide
and
chloropicrin
formulations
include
Verticillium
wilt,

phytophthora
root
and
crown
rot,
anthracnose,
black
root
rot
and
charcoal
rot.
Main
methyl
bromide
alternatives
to
control
these
pests
include
1,3­
dichloropropene
(
1,3­
D),
1,3­
D/
chloropicrin,
1,3­

D/
chloropicrin/
metam­
sodium,
metam­
sodium/
chloropicrin,
and
methyl
iodide.
However,
none
of
these
alternatives
were
found
to
be
technically
and
economically
feasible
chemicals
as
a
methyl
bromide
replacement.
Nevertheless,
some
research
results
indicate
that
the
best
alternatives
to
methyl
bromide/
chloropicrin
would
be
high
rates
of
chloropicrin
or
a
treatment
with
combinations
of
1,3­

D/
chloropicrin.
However,
due
to
public
concerns
over
the
odor
caused
by
using
high
rates
of
chloropicrin
it
is
unlikely
that
either
of
these
treatments
would
be
available
for
use
by
all
strawberry
growers
(
Carpenter
et
al.
2000).

2.2.5
Strawberry
Nurseries
California
is
the
largest
producer
of
strawberry
nursery
plants
in
the
world
(
Carpenter
et
al.
2000,

CUE
02­
0034).
It
is
estimated
that
close
to
one
billion
plants
are
produced
by
the
state's
strawberry
nursery
system
each
year
(
CUE
02­
0034).
The
United
States
relies
on
California
for
approximately
80
percent
of
strawberry
transplants;
in
1996,
California's
production
of
strawberry
nursery
plants
was
valued
at
more
than
$
17
million
dollars
(
Carpenter
et
al.
2000).

Critical
Use
Exemption
(
CUE)
applications
for
methyl
bromide
represented
strawberry
nursery
growers
in
North
Carolina,
Tennessee,
and
California.
The
typical
size
of
a
strawberry
nursery
ranges
from
80
to
160
hectares
in
California
and
anywhere
from
1
to
32
hectares
for
Southeastern
nurseries
(
CUE
02­
0034,
CUE
02­
0038).
According
to
the
California
Strawberry
Nursery
Association,
the
strawberry
nursery
system
is
labor
intensive,
hiring
thousands
of
employees
seasonally
and
maintaining
a
large,
permanent
staff
(
CUE
02­
0034).
Exhibit
2.2.5.1
summarizes
the
hectares
fumigated
with
methyl
***
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­
14
­
bromide,
the
average
farm
size,
and
the
number
of
farms
for
the
strawberry
nurseries
represented
by
each
CUE
applicant.
Based
on
information
provided
by
the
CUE
applicants,
the
average
strawberry
nursery
was
calculated
as
69
hectares.

Exhibit
2.2.5.1.
Summary
of
Critical
Use
Exemption
Applications
for
Strawberry
Nurseries
Applicant
Total
Hectares
Fumigated
with
Methyl
Bromide
Average
Farm
Size
(
hectares)
Estimated
Number
of
Farms
Represented
02­
0034,
California
1,360
121
12
02­
0038,
North
Carolina
and
Tennessee
63
17
7
Total
1,423
69
19
The
primary
purpose
of
the
U.
S.
strawberry
nursery
industry
is
to
provide
mass
quantities
of
strawberry
plants
free
of
pathogens
to
strawberry
growers
(
USDA
1998b,
U.
S.
CUE
Nomination
for
Strawberry
Nursery
Production
2003).
Methyl
bromide
has
provided
the
guaranteed
protection
of
pathogens
and
nematodes
from
strawberry
nursery
stocks
in
order
to
avoid
the
introduction
of
pests
into
domestic
and
international
strawberry
fruit
production
areas.
The
critical
need
for
methyl
bromide
for
strawberry
nurseries
in
the
United
States,
as
described
in
the
nomination,
is
to
provide
pest­
free
root
stock
to
the
strawberry
industry
based
on
this
standard,
to
avoid
the
introduction
of
pest
species
into
new
areas,
and
to
control
pests
that
impact
the
quantity
and
quality
of
rootstock,
such
as
Rhizoctonia,
Pythium
spp.
and
Phytophthora
cactorum
(
U.
S.
CUE
Nomination
for
Strawberry
Nursery
Production
2003).

Research
into
alternative
fumigants
for
strawberry
nurseries
includes
Telone
®
,
Telone
®
with
chloropicrin,
chloropicrin
alone,
and
metam
sodium
(
Duniway
2002).
In
a
study
to
determine
the
incidence
of
Verticillium
wilt
in
a
high
elevation
nursery,
the
effectiveness
of
chloropicrin
and
a
combination
of
65
to
35
percent
chloropicrin
and
Telone
®
were
compared
against
a
combination
of
methyl
bromide
and
chloropicrin.
The
three
fumigation
treatments
appeared
equally
effective
in
reducing
V.

dahliae;
however,
other
experiments
showed
that
the
treatment
of
methyl
bromide
and
chloropicrin
combination
was
more
effective
when
the
treatments
were
applied
in
the
spring
(
Gordon
et
al.
1999).

Containerized
transplants
are
also
being
investigated
where
transplants
are
hand
planted
into
trays;
trials
to
date
indicate
that
these
plants
perform
very
well
in
nonfumigated
soil
(
Carpenter
et
al.
2002).
However,

further
research
is
required
to
ensure
that
chemical
alternatives
provide
the
level
of
effectiveness
required
for
the
strawberry
nursery
industry
to
meet
regulatory
and
industry
requirements
(
Duniway
2002).

The
world's
largest
commercial
strawberry
nursery,
Lassen
Canyon
Nursery
in
Redding,

California
has
been
looking
into
possible
alternatives
to
methyl
bromide
since
1991
(
USDA
1998b).

Although
Telone
®
combined
with
chloropicrin
has
shown
promising
results,
Telone
®
use
is
restricted
in
California.
Strawberry
nursery
managers
are
mainly
concerned
that
in
the
absence
of
efficacious
***
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­
15
­
alternatives,
nurseries
may
face
increased
costs
and
potential
liability
issues
for
not
complying
with
state
certification
programs
and
associated
regulations
on
cleanliness
standards
(
CDFA
2001,
U.
S.
CUE
Nomination
for
Strawberry
Nursery
Production
2003).
California's
Department
of
Food
and
Agriculture
regulates
the
standard
of
cleanliness
that
strawberry
nursery
growers
must
comply
with
in
order
for
their
nursery
stock
to
be
considered
"
California
certified
strawberry
plants."
According
to
the
Nursery
Inspection
Procedures
Manual
(
NIPM)
pest
cleanliness
standards
(
Section
3060.2)
require
that
nursery
stock
be
free
of
pests,
weed
seeds,
and
virus
infections.
If
the
plants
do
not
comply
with
the
pest
cleanliness
standards,
nursery
stock
certificates
are
subject
to
refusal,
suspension,
and
revocation
(
CDFA
2001).

Strawberry
nursery
owners
fear
that
the
use
of
any
alternative
fumigant
would
greatly
increase
the
costs
of
producing
strawberry
transplants
free
of
pests,
which
already
can
cost
approximately
$
80,000
dollars
annually
using
methyl
bromide
(
USDA
1998b).
Moreover,
the
income
of
strawberry
growers
is
largely
dependant
on
the
livelihood
of
strawberry
nurseries
and
their
ability
to
provide
plants
that
are
not
contaminated
with
disease,
nematodes,
and
weeds,
as
financial
burdens
experienced
by
nurseries
will
be
transferred
to
growers.

2.2.6
Sweet
Potato
U.
S.
sweet
potato
production
was
valued
at
more
than
$
224
million
in
2001
and
approximately
$
213
million
dollars
in
2002
(
NASS
2003e).
As
shown
in
Exhibit
2.2.6.1.,
the
U.
S.
produced
an
estimated
663,934
metric
tons
of
sweet
potatoes
from
a
total
of
38,204
hectares
in
2001
(
NASS
2003a).
The
sweet
potato
industry
is
most
heavily
concentrated
in
California,
Louisiana,
and
North
Carolina.
California
production
in
2001
was
an
estimated
16
percent
of
the
nation's
total
sweet
potato
production
(
Exhibit
2.2.6.1.).
Production
in
California
covered
2,837
hectares
on
100
farms
(
U.
S.
Census
of
Agriculture
1997).
In
2001,
North
Carolina
produced
38
percent
of
the
nation's
total
(
Exhibit
2.2.6.1.)
on
512
farms
covering
11,760
hectares
(
U.
S.
Census
of
Agriculture
1997).
Alabama,
Louisiana,
Virginia,
and
South
Carolina
are
also
major
producing
states.
Nationwide,
there
are
approximately
1,701
sweet
potato
farms,

with
an
average
size
of
40
hectares
(
U.
S.
Census
of
Agriculture
1997,
U.
S.
CUE
Nomination
for
Sweet
Potatoes
2003).
Exhibit
2.2.6.1
summarizes
the
quantity
of
sweet
potato
produced
(
in
metric
tons)
and
the
number
of
hectares
harvested
by
state
for
the
year
2001.
***
DRAFT
(
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30/
2006)
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CITE,
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OR
ATTRIBUTE***

­
16
­
Exhibit
2.2.6.1.
Sweet
Potato
Production
in
2001
From
Top
Producing
States
State
Production
(
metric
tons)
Percent
of
U.
S.
Total
Production
Harvested
Hectares
Alabama
22,362
3%
1,174
California
104,328
16%
4,047
Louisiana
139,709
21%
8,903
Mississippi
108,864
16%
6,475
North
Carolina
253,109
38%
14,569
Other
35,562
5%
3,035
Total
663,934
100%
38,204
Source:
NASS
2003a.

EPA
received
one
CUE
application
for
sweet
potatoes.
The
applicant,
Sweet
Potato
Council
of
California,
represents
80
California
farms
and
requested
methyl
bromide
use
for
approximately
30
percent
of
the
total
sweet
potato
production
area
(
CUE
02­
0016).
Exhibit
2.2.6.2.
summarizes
the
number
of
farms
and
hectares
fumigated
with
methyl
bromide,
and
average
farm
size
for
sweet
potatoes
represented
by
the
CUE
applicant.

Exhibit
2.2.6.2.
Summary
of
Critical
Use
Exemption
Applications
for
Sweet
Potatoes
Applicant
Total
Hectares
Fumigated
with
Methyl
Bromide
Average
Farm
Size
(
hectares)
Estimated
Number
of
Farms
Represented
02­
0016,
California
1,214
40.47
78
The
United
States
is
treating
the
nomination
for
California
sweet
potato
production
as
a
"
contingent
nomination"
to
be
exercised
only
when
other
uses
of
1,3­
dichloropropene
result
in
township
caps
being
reached
in
the
sweet
potato
growing
areas
(
U.
S.
CUE
Nomination
for
Sweet
Potatoes
2003).

In
fact,
in
2001
and
2002,
California
sweet
potato
growers
did
not
apply
methyl
bromide
to
their
crops
and
used
only
a
very
limited
amount
for
fumigating
transplants
(
U.
S.
CUE
Nomination
for
Sweet
Potatoes
2003).

In
California,
sweet
potatoes
account
for
a
very
minimal
percent
of
the
total
quantity
of
methyl
bromide
that
is
used
annually
for
soil
fumigation.
In
2001,
the
estimated
quantity
of
methyl
bromide
applied
to
sweet
potato
crops
totaled
only
68.38
kilograms
(
CADPR
2002).
Research
into
alternatives
for
sweet
potato
has
produced
positive
results.
Specifically,
1,3­
dichloropropene,
also
known
as
Telone
®
,
is
considered
satisfactory
in
areas
where
pest
pressures
are
less
severe.
Consequently,
California
has
transitioned
away
from
using
methyl
bromide
to
fumigate
open
fields
and
has
also
limited
its
use
in
the
fumigation
of
transplants
(
U.
S.
CUE
Nomination
for
Sweet
Potatoes
2003).
However,
Telone
®
use
is
limited
by
California
township
caps
to
81.65
metric
tons.
Use
of
Telone
®
by
sweet
potato
growers
within
***
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­
17
­
the
townships
is
further
limited
by
the
fact
that
growers
of
other
crops
within
the
area
also
require
fumigation
with
Telone
®
(
U.
S.
CUE
Nomination
for
Sweet
Potatoes
2003).
Therefore,
other
open
field
pesticide
options
must
be
available
to
sweet
potato
growers
when
the
Telone
®
caps
are
exceeded.

Research
is
ongoing
in
assessing
the
viability
of
using
cover
crops
(
e.
g.,
radish,
vetch,
barley)
both
alone
and
in
combination
with
chemicals
such
as
Vapam
®
,
Telone
II
®
,
and
Mocap
®
.

2.2.7
Tomato
Tomatoes
are
one
of
the
most
valuable
vegetable
commodities
in
the
United
States.
In
2001,
the
United
States
produced
more
than
1.6
million
metric
tons
(
MT)
of
fresh
tomatoes,
valued
at
$
1.08
billion
(
NASS
2003a).
These
tomatoes
were
harvested
over
50,284
hectares
(
NASS
2003a).
Florida
produces
about
42
percent
of
all
U.
S.
fresh
market
tomatoes.
Other
major
tomato
producing
states
include
California,
Ohio,
Virginia,
South
Carolina,
and
Georgia,
although
mostly
for
the
processed
or
canned
markets
(
NASS
2003a).
In
1997,
there
were
over
14,000
farms
(
on
168,000
hectares)
that
grew
tomatoes
in
the
United
States
(
U.
S.
Census
of
Agriculture
1997).
Exhibit
2.2.7.1
presents
state­
specific
information
on
the
quantities
of
tomatoes
produced,
total
area
harvested,
and
value
of
production
in
2001,

and
additional
data
on
the
number
and
area
of
tomato
farms
in
1997.
It
should
be
noted
that
Florida
claims
the
largest
share
of
tomato
production
but
has
a
disproportionately
small
area
of
land
under
production
(
relative
to
California).
This
could
be
attributed
to
the
fact
that
Florida
growers
plant
tomatoes
in
fields
twice
each
year.

Exhibit
2.2.7.1.
Tomato
Production
and
Farm
Information
by
Statea
State
Production
(
metric
tons)
Percent
of
U.
S.
Total
Production
Harvested
Hectares
Value
of
Production
(
1000
Dollars)
1997
Number
of
Farms
Growing
Tomatoes
1997
Area
in
Farms
(
hectares)

Florida
676,212
42%
18,009
483,019
192
16,148
California
465,383
29%
15,379
255,474
1,747
124,552
Virginia
65,453
4%
1,578
31,746
374
1,547
South
Carolina
49,351
3%
1,295
23,501
204
1,102
Georgia
43,046
3%
1,052
23,725
189
1,126
North
Carolina
37,739
2%
1,052
23,296
477
755
Tennessee
22,453
1%
1,214
9,900
425
1,505
Michigan
17,146
1%
728
13,230
615
3,148
Arkansas
13,562
1%
526
10,465
213
428
Alabama
9,616
1%
364
4,622
259
778
Other
211,508
13%
9,086
201,188
9,671
16,710
Total
1,611,469
100%
50,284
1,080,166
14,366
167,799
a
States
listed
are
those
that
were
included
in
an
application
for
methyl
bromide
CUE.
Sources:
Tomato
production,
area
harvested,
and
value
of
production
for
2001
from
NASS
2003a;
Tomato
farm
information
for
1997
from
U.
S.
Census
of
Agriculture
1997.

EPA
received
six
CUE
applications
for
tomatoes.
The
applicants
represented
tomato
producers
in
Florida,
California,
Virginia,
Georgia,
Michigan,
and
collectively
in
the
Southeastern
states
of
Alabama,
***
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OR
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­
18
­
Arkansas,
North
Carolina,
South
Carolina,
and
Tennessee.
All
but
California
tomatoes
were
included
in
the
CUE
nomination
for
tomatoes.
Exhibit
2.2.7.2
summarizes
the
area
fumigated
with
methyl
bromide,

the
average
farm
size,
and
the
estimated
number
of
farms
for
the
tomato
growers
represented
by
each
CUE
applicant.

Exhibit
2.2.7.2.
Summary
of
Critical
Use
Exemption
Applications
for
Tomato
Applicant
Total
Hectares
Fumigated
with
Methyl
Bromide
Average
Farm
Size
(
hectares)
Estimated
Number
of
Farms
Represented
02­
0004,
Michigan
1,087
NAV
30
02­
0006,
California
1,012
364
NAV
02­
0012,
Virginia
2,428
2,833
4
02­
0040,
Southeast
6,010
71
a
130
02­
0046,
Florida
21,231
156
b
106
02­
0047,
Georgia
2,412
162
79
Total
34,180
­­
>
349
Note:
NAV
=
Not
available.
a
In
the
Southeast,
71
hectares
(
176
acres)
represent
a
weighted
average
of
small
and
large
farms.
Small
growers
represent
less
than
16
hectares
(
40
acres),
while
large
growers
greater
than
81
hectares
(
200
acres).
b
Indicates
the
area
of
tomatoes
produced
by
a
typical
grower
in
Florida.

Tomato
growers 
particularly
those
in
Florida 
depend
heavily
on
methyl
bromide
fumigation.
In
2000,
approximately
3,942
MT
of
methyl
bromide
were
applied
to
tomato
soils
in
the
United
States
(
NASS
2003e).
Methyl
bromide
is
critically
needed
in
the
U.
S.
tomato
sector,
as
described
in
the
nomination,
to
prevent
the
development
of
Phytophthora,
a
potentially
devastating
fungal
pathogen
in
tomatoes,
and
to
control
weeds
and
nematodes
(
U.
S.
CUE
Nomination
for
Tomatoes
2003).
Telone
®
with
different
combinations
of
chloropicrin
(
e.
g.,
1,3­
dichloropropene­
17
or
35
percent
chloropicrin)
has
shown
to
be
the
most
promising
alternative
to
methyl
bromide
in
this
sector,
providing
similar
pest
control
and
even
higher
yields
in
some
cases.
Basamid
®
(
alone
or
with
solarization)
and
metam
sodium
(
alone
or
with
crop
rotation)
are
other
technically
feasible
alternatives
in
cases
where
nutsedge,
nematode,
or
fungal
disease
pressure
is
not
excessively
high
(
U.
S.
CUE
Nomination
for
Tomatoes
2003).
In
the
Southeast,
such
conditions
occur
in
approximately
half
of
the
farming
region
(
U.
S.
CUE
Nomination
for
Tomatoes
2003).

The
effectiveness
of
the
alternatives
on
tomatoes
also
is
limited
by
climate
conditions
and
state
regulations.
Applying
Telone
®
under
high
temperatures
(
as
in
Florida)
combined
with
the
requirement
to
wear
personal
protective
equipment
(
PPE),
has
led
to
heat
stress
in
workers.
However,
the
PPE
requirements
have
been
eased.
Growers
in
Florida
also
face
buffer
zone
constraints
of
100
feet
between
fumigated
fields
and
buildings.
But
again,
this
regulation
has
also
been
reduced;
previously
a
300
feet
distance
was
required.
In
Florida,
certain
tomato
growing
areas
are
prohibited
from
using
Telone
®

because
of
groundwater
contamination
concerns
associated
with
karst
topography
(
underground
caves
***
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QUOTE
OR
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­
19
­
and
springs)
in
such
areas
as
Dade
County.
In
California,
growers
must
deal
with
limited
access
to
Telone
®
as
a
result
of
township
caps.

2.3
Orchards,
Nurseries
and
Other
Growers
Besides
the
fruit
and
vegetable
growers,
other
pre­
plant
sectors
have
been
reliant
on
methyl
bromide.
The
U.
S.
Nomination
included
six
growers:
forest
seedlings,
ginger,
nursery
transplant
trays
(
tobacco
seedlings),
orchard
nurseries,
orchard
replants,
and
turfgrass
and
sod
producers
that
are
described
briefly
below.
The
nursery
industry
is
a
high­
value
sector
that
grows
forest
trees,
tobacco,
or
fruit
and
nut
tree
seedlings
for
transplantation.
Although
the
majority
of
nurseries
are
small
in
size,
put
together
they
occupy
a
significant
amount
of
acreage
in
every
region
of
the
U.
S.
Other
growers
discussed
below
include
ginger,
a
sensitive
and
localized
(
to
the
state
of
Hawaii)
industry,
and
the
turfgrass/
sod
sector,
which
supports
the
U.
S.
golf
industry
among
others.
The
sector
discussions
focus
on
the
production
volume
of
each
crop,
the
highest
producing
regions
or
states,
the
size
and
number
of
farms
represented
by
the
critical
use
exemption
applications,
and
the
status
of
existing
or
potential
alternatives
to
methyl
bromide.
Data
for
production
costs
and
relative
costs
of
methyl
bromide
provided
by
the
CUE
applicants
are
presented
in
Appendix
A.

2.3.1
Forest
Seedlings
Forest
tree
nurseries
produce
conifer
and
hardwood
seedlings
used
for
reforestation,
forest
establishment,
fiber
production,
and
wildlife
enhancement
and
conservation
purposes.
Annual
U.
S.

production
consists
of
approximately
200
to
300
million
bareroot
seedlings
(
U.
S.
CUE
Nomination
for
Forest
Seedlings
2003).
Seedling
nurseries
are
located
in
12
states
in
the
Southeast,
seven
states
in
the
West,
and
11
states
in
the
North.
In
2000,
U.
S.
conifer
sales
were
estimated
at
$
403
million,
with
Oregon
accounting
for
the
highest
state
sales
(
21
percent),
followed
by
California
and
Michigan,
with
15
and
9
percent,
respectively
(
NASS
2001).
In
2001,
a
total
of
438
metric
tons
(
MT)
of
methyl
bromide
were
used
to
fumigate
the
1,308
hectares
of
forest
seedling
nurseries
included
in
the
U.
S.
methyl
bromide
CUE
nomination.
Of
this
total
quantity,
69
percent
was
consumed
in
the
Southeast,
while
the
West
and
North
accounted
for
21
and
10
percent,
respectively
(
calculated
using
the
methyl
bromide
use
data
reported
in
CUEs
02­
0003,
02­
0007,
02­
0021,
02­
0008,
02­
0009,
02­
0022,
02­
0011,
02­
0032,
and
02­
0039).

EPA
received
nine
CUE
applications
for
forest
seedlings.
The
applicants
were
State
and
Federal
governments,
large
commercial
companies,
and
small
private
entities,
representing
nurseries
in
30
states.

In
2000,
there
were
over
6,500
nursery
operations
(
including
all
nursery
crops)
with
an
average
of
13.6
part­
time
workers
and
15.5
full­
time
workers
(
NASS
2001).
The
average
size
of
a
forest
seedling
nursery
ranges
from
40
to
80
hectares.
The
majority
of
the
producers
grow
conifers.
Indeed,
in
2001,
1,301
producers
grew
conifers,
representing
20
percent
of
all
forest
seedling
producers
(
NASS
2001).
Exhibit
***
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(
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OR
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­
20
­
2.3.1.1
presents
the
number
of
coniferous
evergreen
plants
sold
and
their
associated
sales
by
state
in
2000.
Seedling
prices
vary
by
type
and
region.

Exhibit
2.3.1.1.
Number
of
Coniferous
Evergreen
Plants
Sold
and
Total
Sales
in
2000
from
Top
Producing
States
State
Trees
and
Plants
Sold
Gross
Sales
Alabama
2,532,000
$
10,090,000
California
6,326,000
$
61,642,000
Connecticut
2,699,000
$
23,414,000
Florida
4,215,000
$
24,603,000
Georgia
2,182,000
$
10,042,000
Michigan
2,898,000
$
35,353,000
New
Jersey
1,667,000
$
24,130,000
North
Carolina
1,702,000
$
20,009,000
Ohio
1,418,000
$
26,229,000
Oregon
9,182,000
$
82,903,000
Pennsylvania
1,079,000
$
28,115,000
Other
4,243,000
$
56,263,000
Total
40,143,000
$
402,793,000
Source:
NASS
2001
Exhibit
2.3.1.2
summarizes
the
number
of
farms
and
hectares
fumigated
with
methyl
bromide,

and
the
average
farm
size
for
the
forest
seedling
growers
represented
by
each
CUE
applicant.
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
21
­
Exhibit
2.3.1.2.
Summary
of
Critical
Use
Exemption
Applications
for
Forest
Seedlings
Applicant
Total
Hectares
Fumigated
with
Methyl
Bromide
Average
Nursery
(
amount
of
production
or
hectares)
Estimated
Number
of
Nurseries
Represented
Southwest
68
02­
0003,
Auburn
University
Southern
Forest
Nursery
Management
Cooperative
656
produces
25
million
seedlings
55
02­
0007,
International
Paper
109
57
hectares
a
9
02­
0021,
Weyerhaeuser­
South
67
produces
62.5
million
seedlings
4
West
18
02­
0008,
Western
Forest
and
Conservation
Public
Nursery
Association
61
produces
about
50
million
seedlings
10
02­
0009,
Nursery
Technology
Cooperative
202
produces
12.5
million
seedlings
4
02­
0022,
Weyerhaeuser­
West
94
66
hectares
4
North
34
02­
0011,
Illinois
Department
of
Natural
Resources
Nursery
Program
16
121
hectares
2
02­
0032,
Northeastern
Forest
and
Conservation
Nursery
Association
NAV
NAV
15
02­
0039,
Michigan
Seedling
Association
34
NAV
17
Total
1,239
­­
120
NAV
=
Not
available.
a
Only
28
hectares
used
for
growing
seedlings
per
year.

Methyl
bromide
is
critically
needed
in
the
forest
tree
seedlings
sector
in
the
United
States,
as
described
in
the
nomination,
because
of
a
lack
of
reliable
alternatives
to
control
nutsedge
and
fungal
pathogens
(
U.
S.
CUE
Nomination
for
Forest
Seedlings
2003).
Numerous
studies
have
been
conducted
on
alternative
pest
control
treatments
for
forest
seedlings
with
positive
results.
Dazomet
(
Basamid
®
)
with
tarp
and
metam
sodium
(
Vapam
®
,
Busan)
have
shown
to
be
technically
feasible
(
U.
S.
CUE
Nomination
for
Forest
Seedlings
2003).
Many
studies
using
Basamid
®
have
resulted
in
forest
seedling
yields
that
were
comparable
or
higher
to
those
with
methyl
bromide
(
e.
g.,
68
percent
higher
than
with
methyl
bromide)
(
Rose
et
al.
1999).
Metam
sodium
and
chloropicrin
studies
have
also
demonstrated
effectiveness
for
forest
seedlings
with
yields
well
over
100
percent
as
compared
to
methyl
bromide
(
e.
g.,

Carey
2000,
Carey
et
al.
1997).

2.3.2
Ginger
The
United
States
commercial
ginger
industry
resides
exclusively
in
the
state
of
Hawaii,
which
produced
6,532
metric
tons
of
ginger
root
in
the
2001
to
2002
growing
season
(
HASS
2001,
NASS
2003b).
In
2002,
a
yield
of
approximately
50
metric
tons
of
ginger
per
hectare
was
produced
on
130
harvested
hectares
in
the
state
(
HASS
2001).
The
Hawaiian
Department
of
Agriculture
anticipates
production
to
increase
to
7,031
metric
tons
for
the
2002/
2003
growing
season
using
only
105
hectares
for
***
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OR
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­
22
­
harvest
(
HASS
2001).
Exhibit
2.3.2.1
summarizes
the
quantity
of
ginger
produced
(
in
metric
tons)
and
the
number
of
hectares
harvested
by
the
state
of
Hawaii
for
the
past
two
growing
seasons.

Exhibit
2.3.2.1.
Ginger
Production
in
Hawaii
Growing
Season
Year
Production
(
metric
tons)
Harvested
Hectares
2000/
2001
8,165
146
2001/
2002
6,532
130
Source:
NASS
2003b.

The
Hawaiian
ginger
industry
is
vulnerable
to
a
market
that
easily
fluctuates
due
to
unfavorable
weather
(
such
as
the
heavy
rains
experienced
in
the
2001/
2002
growing
season)
and
foreign
competition.

The
average
farm
price
for
ginger,
estimated
at
$
1.00
per
kilogram
in
2001,
decreased
to
66
cents
per
kilogram
in
2002
(
HASS
2001).
Farm
revenues
also
decreased
from
2001
to
2002,
from
$
8.1
million
to
$
4.3
million 
a
total
decrease
of
47
percent.

EPA
received
one
CUE
application
for
ginger,
submitted
by
the
Hawaii
Farm
Bureau
Federation.

The
nation's
ginger
industry
is
comprised
of
only
154
farms
in
Hawaii.
A
typical
ginger
farm
is
very
small 
approximately
2
hectares 
and
a
typical
farmer
grows
ginger
on
rented
land
that
is
family
owned
and
operated
(
U.
S.
Census
of
Agriculture
1997,
U.
S.
CUE
Nomination
for
Ginger
2003).
Exhibit
2.3.2.2.
summarizes
the
number
of
farms
and
hectares
fumigated
with
methyl
bromide,
and
average
farm
size
for
ginger
represented
by
the
CUE
applicant.

Exhibit
2.3.2.2.
Summary
of
Critical
Use
Exemption
Applications
for
Ginger
Applicant
Total
Hectares
Fumigated
with
Methyl
Bromide
Average
Farm
Size
(
hectares)
Estimated
Number
of
Farms
Represented
02­
0045,
Hawaii
21
2
7
As
described
in
the
nomination,
a
critical
need
for
methyl
bromide
for
ginger
grown
in
Hawaii
was
determined
based
on
the
primary
pest,
Pseudomonas
solanacearum,
which
causes
ginger
bacterial
wilt
as
well
as
the
combination
of
many
pests
including
Meloidogyne
incognita
(
root
knot
nematode).
The
pests
challenge
the
quality
and
yield
of
ginger
crops.
Research
on
alternatives
to
methyl
bromide
that
can
control
root­
knot
nematode
and
ginger
bacterial
wilt
is
only
in
the
preliminary
stages.
Available
literature
on
ginger
production
is
limited
(
U.
S.
CUE
Nomination
for
Ginger
2003).
At
least
one
study
has
investigated
the
rotation
of
planting
the
legume
Tropic
Sun
sunn
hemp
(
Crotalaria
juncea),
which
is
resistant
to
root
knot
nematodes
when
planted
with
ginger
(
Sato
et
al.
2000).
However,
further
research
is
required
to
identify
viable
methyl
bromide
alternatives
for
this
sensitive
and
localized
crop.
***
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­
23
­
2.3.3
Tobacco
Nursery
Transplant
Trays
In
2001,
U.
S.
tobacco
production
was
valued
at
more
than
$
1.95
billion
(
CRS
2003).
In
1997,
the
United
States
produced
more
than
792,000
metric
tons
of
tobacco
from
approximately
340,000
hectares
(
NASS
2003d).
The
tobacco
industry
is
concentrated
in
North
Carolina
(
representing
about
40
percent
of
U.
S.
production)
and
Kentucky
(
representing
29
percent
of
production).
Other
producing
states
include
South
Carolina
and
Virginia
(
responsible
for
7
and
6
percent
of
production,
respectively).
The
farm
price
for
tobacco
has
hovered
around
$
1.92
per
pound
for
the
last
4
years.
There
are
approximately
89,706
tobacco
farms
in
the
United
States,
the
distribution
of
which
is
shown
below.
Exhibit
2.3.3.1
summarizes
the
quantity
of
tobacco
produced
and
hectares
harvested
by
state
for
the
year
2001.
There
were
a
total
of
89,706
tobacco
farms
in
the
United
States
in
1997
(
U.
S.
Census
of
Agriculture
1997).

Exhibit
2.3.3.1.
Tobacco
Production
in
2001
From
Top
Producing
States
State
Production
(
metric
tons)
Percent
of
U.
S.
Total
Production
Harvested
Hectares
North
Carolina
175,503
39%
65,440
Kentucky
115,508
26%
46,824
Tennessee
39,414
9%
16,023
South
Carolina
35,561
8%
12,950
Georgia
29,123
6%
10,563
Virginia
28,764
6%
11,939
Other
225,735
6%
11,178
Total
449,609
100%
174,956
Source:
NASS
2003d.

EPA
received
one
CUE
application
for
nursery
transplants
from
the
Tobacco
Growers
Association
of
North
Carolina
(
CUE
02­
0025).
North
Carolina
produces
about
two­
thirds
of
the
flue­
cured
tobacco
grown
in
the
country.
In
2002,
growers
in
the
state
produced
about
348
million
pounds
of
flue­
cured
and
9.5
million
pounds
of
burley
tobacco.
Tobacco
accounts
for
about
12
percent
of
the
total
value
of
agricultural
production
in
North
Carolina
(
North
Carolina
Department
of
Agriculture
and
Consumer
Services
2003).
North
Carolina
has
approximately
12,000
tobacco
farms
representing
over
130,000
hectares
(
NASS
2003c).
Exhibit
2.3.3.2
summarizes
the
hectares
fumigated
with
methyl
bromide
and
the
average
farm
size
for
the
strawberry
growers
represented
by
the
CUE
applicant.
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
24
­
Exhibit
2.3.3.2.
Summary
of
Critical
Use
Exemption
Applications
for
Tobacco
Applicant
Total
Area
Fumigated
with
Methyl
Bromide
(
square
feet)
Average
Farm
Size
(
field
acres)
Estimated
Number
of
Farms
Represented
02­
0025,
North
Carolina
700,000
75
­­
a
a
The
farm
numbers
provided
in
the
application
were
unreasonably
high
for
the
amount
of
methyl
bromide
requested.

Tobacco
has
been
traditionally
grown
in
outdoor
soilplant
beds,
but
the
industry
is
moving
almost
completely
to
greenhouse
production
of
plants
in
trays
with
a
soil­
less
substrate
(
transplant
trays).
While
this
eliminates
the
need
for
methyl
bromide
soil
fumigation,
there
is
still
a
critical
need
for
some
methyl
bromide
is
still
needed
to
disinfect
the
transplant
trays,
as
described
in
the
U.
S.
CUE
Nomination
for
Tobacco
2003.
Still,
according
to
the
CUE
applicant,
the
need
for
methyl
bromide
use
has
decreased
from
approximately
2.5­
3.5
kg
per
acre,
to
0.03
kg
per
acre.

2.3.4
Orchard
Nurseries
The
orchard
nursery
sector
includes
fruit
and
nut
tree
nurseries
(
apples,
almonds,
apricots,

avocados,
chestnuts,
cherries,
citrus,
nectarines,
peaches,
pecans,
pears,
pistachios,
plums,
prunes,
and
walnuts),
ornamental
fruit
trees
(
cherries,
peaches,
pears,
and
plums),
and
raspberry
nurseries.
The
value
of
orchard
nursery
seedlings
is
high
for
the
area
of
land
under
production.
In
2000,
total
fruit
and
nut
tree
gross
sales
were
estimated
at
$
299
million,
and
deciduous
flowering
tree
sales
accounted
for
$
233
million
(
NASS
2001).
The
fruit
and
nut
tree
and
deciduous
flowering
tree
industries
are
most
concentrated
in
California,
which
claimed
73
and
20
percent
of
national
sales,
respectively
(
NASS
2001).

Washington
and
Oregon
are
responsible
for
the
next
highest
state
sales
of
fruit
and
nut
trees.
Other
deciduous
shrubs
and
ornamentals
had
gross
sales
of
$
722
million
(
NASS
2001).
In
1997,
there
were
106,069
operational
orchard
farms
in
the
United
States,
covering
about
2.09
million
hectares
(
NASS
1999).

Over
6,500
nursery
operations
were
in
operation
in
2000,
with
394
producers
of
fruit
and
nut
plants,
6
1,145
producers
of
deciduous
flowering
trees,
7
and
1,420
producers
of
deciduous
shrubs
and
other
ornamentals
(
NASS
2001).
Exhibit
2.3.4.1
presents
the
number
of
nursery
operations
by
state,
and
their
total
and
average
production
areas.
As
shown,
the
average
U.
S.
nursery
operation
comprised
23
hectares
in
2000.

6
Includes
citrus
and
subtropical
fruit
trees,
deciduous
fruit
and
nut
trees,
grapevines,
and
other
small
fruit
plants
and
nut
trees.

7
Includes
ornamental
pear,
amelanchier,
crabapple,
crapemyrtle,
dogwood,
redbud,
and
other
deciduous
flowering
trees.
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
25
­
Exhibit
2.3.4.1.
Nursery
Operations
and
Production
Area
in
2000
by
Top
Producing
States
State
Number
of
Nursery
Operations
Hectares
in
Production
Average
Hectares
of
Production
California
567
7,825
14
Florida
991
10,744
11
Georgia
200
2,075
10
Michigan
517
22,664
44
New
York
388
7,921
20
Oregon
867
24,439
28
Washington
256
5,560
22
Other
2,749
68,154
25
Total
6,535
149,381
23
Source:
NASS
2001.

EPA
received
three
Critical
Use
Exemption
Applications
(
CUE)
for
the
nursery
industry
including
California
citrus
and
avocado
nursery
trees,
deciduous
fruit
and
nut
nursery
trees
in
California,
and
raspberry
nursery
stock
in
California
and
Washington
(
U.
S.
CUE
Nomination
for
Orchard
Nurseries
2003).

Orchard
nurseries
in
these
states
are
most
dependent
on
methyl
bromide,
due
primarily
to
soil
conditions
and
state
regulations
(
discussed
in
more
detail
below).
Exhibit
2.3.4.2
summarizes
the
number
of
farms
and
hectares
fumigated
with
methyl
bromide,
and
the
average
farm
size
for
the
orchard
nursery
industry
represented
by
each
CUE
applicant.
Based
on
information
provided
by
the
CUE
applicants,
the
average
orchard
nursery
was
calculated
as
24
hectares.

Exhibit
2.3.4.2.
Summary
of
Critical
Use
Exemption
Applications
for
Orchard
Nurseries
Applicant
Total
Hectares
Fumigated
with
Methyl
Bromide
Average
Farm
Size
(
hectares)
Estimated
Number
of
Farms/
Nurseries
Represented
02­
0035,
California
Association
of
Nurserymen
 
Deciduous
Fruit
and
Nut
Tree
Growers
668
NAV
6
02­
0036,
California
Association
of
Nurserymen
 
Citrus
and
Avocado
Growers
42
12
3
02­
0010,
Western
Raspberry
Nursery
184
36
7a
Total
895
24
16
a
Indicates
farm
locations.

Nursery
sizes
vary
depending
on
the
type
of
crop,
although
the
majority
of
U.
S.
nurseries
are
small.
The
size
of
an
average
deciduous
tree
nursery
in
California
is
80
­
120
hectares,
while
the
average
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
26
­
size
for
field­
grown
nursery
stock
in
California
is
about
12
hectares
(
U.
S.
CUE
Nomination
for
Orchard
Nurseries
2003,
CUE
02­
0036).
In
2000,
the
average
U.
S.
nursery
employed
roughly
14
part­
time
workers
and
16
full­
time
workers
(
NASS
2001).

In
2001,
about
502
MT
of
raspberry
stock
were
produced
in
areas
treated
with
methyl
bromide
that
applied
for
CUE
(
CUE
02­
0010).
A
total
of
approximately
23.3
million
deciduous
fruit
and
nut
trees
and
1.85
million
citrus
trees
were
produced
in
areas
treated
with
methyl
bromide
that
applied
for
CUE
(
CUE
02­
0035,
CUE
02­
0036).

Nurseries
in
California
must
meet
the
California
Department
of
Food
and
Agriculture's
requirements
that
nursery
stock
be
"
found
free
of
especially
injurious
pests
and
disease
symptoms"
in
order
to
qualify
for
a
CDFA
Nursery
Stock
Certificate
for
Interstate
and
Intrastate
Shipments.
To
obtain
this
certification,
nursery
stock
must
be
fumigated
with
methyl
bromide.
Fumigation
with
1,3­
D
is
allowed
in
some
cases,
but
the
nursery
stock
is
subject
to
soil
sampling.
If
nematodes
are
found,
the
entire
nursery
stock
will
be
destroyed,
which
can
result
in
major
revenue
losses.
Extensive
research
has
addressed
the
use
of
methyl
bromide
alternatives
to
specifically
address
nematode
problems
in
orchards.

1,3­
Dichloropropene
(
Telone
®
)
in
combination
with
chloropicrin,
metam
sodium,
or
both
chloropicrin
and
metam
sodium
have
been
found
to
be
effective
alternatives
for
growing
pest­
free
and
high
quality
trees
and
nursery
stock
in
the
initial
research
results.
However,
the
completion
of
an
actual
trial
takes
many
years
for
perennial
crops
in
order
to
determine
the
lifetime
impact
unlike
annual
crops
where
result
are
gathered
at
the
end
of
a
growing
season.
In
addition,
because
the
use
of
1,3­
D
is
constrained
by
soil
conditions
8
and
township
cap
regulations
in
California,
nursery
growers
can
be
left
without
the
ability
to
use
the
one
feasible
alternative.
Yield
losses
associated
with
the
various
alternatives
depend
on
factors
such
as
region,
climate,
altitude,
crop,
pests,
and
pest
prevalence.
As
described
in
the
U.
S.
CUE
Nomination
for
Orchard
Nurseries
2003,
methyl
bromide
is
critically
needed
because
the
legal
limit
for
1,3­
D
is
often
reached
early
in
the
season
due
to
intense
agricultural
production,
or
because
heavy,
clay
soil
conditions
cause
1,3­
D
to
be
ineffective
when
used
in
conjunction
with
other
chemicals.

2.3.5
Orchard
Replant
The
orchard
replant
sector
includes
a
number
of
crops
of
significant
value
to
growers
and
consumers
of
fruits
and
nuts
in
the
United
States.
These
orchard­
grown
crops
include
stone
fruit
(
peaches,
nectarines,
sweet
cherries,
plums,
and
prunes),
table
and
raisin
grapes,
almonds,
and
walnuts.

In
1997,
orchard
and
vineyard
crops
in
the
United
States
covered
nearly
2.09
million
hectares
of
land
(
106,069
farms)
(
NASS
1999).
California 
the
only
producer
of
almonds
and
walnuts
and
the
state
with
the
greatest
production
of
peaches,
nectarines,
plums,
prunes,
and
table
grapes 
accounted
for
about
half
of
that
total
area
(
approximately
1.04
million
hectares)
(
NASS
1999).
Total
production,
area
8
Light,
sandy
soils
with
low
moisture
are
needed
for
1,3­
D
to
be
effective.
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
27
­
harvested,
and
value
of
production
in
2001
for
each
of
these
crops
in
California
are
presented
in
Exhibit
2.3.5.1.

California
produces
about
97
percent
of
plums,
prunes,
and
table
grapes
in
the
United
States,
70
percent
of
peaches,
and
19
percent
of
the
sweet
cherries.
(
Washington,
Oregon,
and
Michigan
are
other
leading
producers
of
sweet
cherries
in
the
United
States
(
NASS
2002a).
Among
the
orchard
replant
crops
grown
in
California,
almonds,
followed
by
table
grapes,
have
the
highest
value
of
production.

California's
fruit
and
nut
crops
have
a
production
value
of
$
5
billion
per
year
(
Carpenter
et
al.
2000).

Exhibit
2.3.5.1.
California
Orchard
Crop
Production,
Area
Harvested,
and
Value
of
Production
in
2001
Crop
Production
(
metric
tons)
Harvested
Hectares
Value
of
Production
(
Thousand
2001
$)
Stone
Fruit
1,731,082
100,083
662,279
Peaches
Nectarines
782,443
249,475
27,439
14,772
246,315
127,642
Sweet
Cherries
50,167
8,094
79,814
Plums
190,508
14,974
66,443
Prunes
458,489
34,804
142,065
Table
Grapes
632,304
36,828
445,828
Almonds
385,552
212,468
685,440
Walnuts
276,690
79,321
296,360
Source:
NASS
2002a.

According
to
the
NASS
(
2002),
among
the
orchard
fruit
and
nut
crops,
almonds,
sweet
cherries,

and
walnuts
are
the
most
costly
commodities
to
growers,
with
fruit
and
nut
prices
in
2001
of
approximately
$
1,850,
$
1,400,
and
$
1,370
per
metric
ton
(
MT),
respectively.
Prunes
are
the
next
costly
at
$
838
per
MT,
followed
by
nectarines,
grapes,
peaches,
and
plums,
with
prices
between
$
300
and
$
500
per
MT
(
NASS
2002a).

Exhibit
2.3.5.2
summarizes
the
number
of
orchards
and
hectares
fumigated
with
methyl
bromide,

and
the
average
farm
size
for
the
orchard
replant
industry
represented
by
each
CUE
applicant.
Stone
fruit
crops
are
typically
grown
on
a
portion
of
a
land
plot
of
32
to
40
hectares
(
CUE
02­
0013).
Vineyard
sizes
range
from
approximately
50
to
120
hectares,
and
roughly
half
of
that
land
is
planted
into
grapes
(
CUE
02­
0014).
A
typical
walnut
grower
uses
16
hectares
(
CUE
02­
0029),
while
a
typical
almond
grower
farms
on
40
hectares
(
CUE
02­
0043).
Based
on
information
provided
by
the
four
CUE
applicants,
the
average
orchard
size
was
calculated
as
53
hectares.
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
28
­
Exhibit
2.3.5.2.
Summary
of
Critical
Use
Exemption
Applications
for
Orchard
Replant
Applicant
Total
Hectares
Fumigated
with
Methyl
Bromide
Average
Orchard
Size
(
hectares)
Estimated
Number
of
Orchards
Represented
02­
0013,
California
Grape
and
Tree
Fruit
League
(
Stone
Fruit)
3,278
36
90
a
02­
0014,
California
Grape
and
Tree
Fruit
League
(
Table
and
Raisin
Grapes))
433
49
to
121
5
02­
0029,
California
Walnut
Commission
809
16
38
02­
0043,
Almond
Hullers
and
Processors
Association
405
40
10
Total
4,925
53
143
a
Calculated
using
information
on
acres
requested
and
typical
user
as
provided
by
the
applicant.

Before
replanting
fruit
and
nut
trees,
orchard
and
vineyard
replant
growers
fumigate
the
soil
with
methyl
bromide
to
control
pests
and
prevent
resulting
complications.
Both
known
and
unidentified
pests
in
the
soil
can
lead
to
what
is
called
"
replant
disorder"
or
the
"
replant
problem."
Replant
disorder
can
cause
delayed
tree
growth
and
uniformity,
nutritional
deficiencies,
and
poor
root
systems
(
Trout
et
al.

2002,
Carpenter
et
al.
2000).
Because
the
exact
causes
of
replant
disorder
are
unknown
and
an
orchard
is
only
fumigated
once
(
i.
e.,
before
replanting),
methyl
bromide 
with
its
broad
pest
control
abilities 
has
been
the
most
effective
fumigant
to
eliminate
pests
that
cause
replant
disorder.
Methyl
bromide
use
for
replanting
trees,
orchards,
or
vineyards,
occurs
once
over
the
crop's
20
to
25­
year
lifespan
(
CUE
02­

0013,
CUE
02­
0014).
Among
the
orchard
replant
crops,
walnut
orchards
demand
the
highest
volumes
of
methyl
bromide.
In
California,
533
MT
of
methyl
bromide
were
applied
on
walnuts,
328
MT
on
prunes,

and
123
MT
on
peaches
in
1999,
and
155
MT
of
methyl
bromide
were
applied
on
grapes
in
1995
(
NASS
2003d).
The
applicants
for
methyl
bromide
CUE
indicated
that,
in
2001,
156
MT
of
methyl
bromide
were
applied
to
348
hectares
for
walnuts
(
0.45
MT
per
hectare),
53
MT
were
applied
to
1,723
hectares
for
stone
fruit
(
0.03
MT
per
hectare),
71
MT
were
applied
to
273
hectares
for
grapes
(
0.26
MT
per
hectare),

and
75
MT
were
applied
to
over
3,600
hectares
for
almonds
(
0.02
MT
per
hectare)
(
CUE
02­
0029,
CUE
02­
0013,
CUE
02­
0014,
CUE
02­
0043).

Methyl
bromide
is
critically
needed
in
the
orchard
replant
sector
in
the
United
States,
as
described
in
the
nomination,
because
it
effectively
kills
and
reduces
pests
and
permits
seedlings
and/
or
new
vines
to
grow
without
competing
organisms
(
nematodes,
pathogens,
or
weeds)
(
U.
S.
CUE
Nomination
for
Orchard
Replant
2003).
None
of
the
methyl
bromide
substitutes
effectively
control
replant
disorder.
However,
among
the
alternatives
recommended
by
MBTOC,
1,3­
Dichloropropene
(
Telone
®
)

alone,
in
combination
with
chloropicrin,
or
in
combination
with
metam
sodium
provides
the
next
best
effectiveness
to
methyl
bromide
for
stone
fruit,
almond,
and
walnut
orchard
replant
fumigation
when
used
on
light
soils.
Use
of
1,3­
D
alone
or
in
combination
result
in
average
yield
losses
ranging
from
1
to
8
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
29
­
percent,
relative
to
methyl
bromide
use
(
U.
S.
CUE
Nomination
for
Orchard
Replant
2003).
The
effectiveness
of
1,3­
D
is
limited
by
soil
conditions
in
California
orchard
land 
two
thirds
of
which
consist
of
medium
and
heavy
clay
soils
(
U.
S.
CUE
Nomination
for
Orchard
Replant
2003).
Also,
township
caps,

in
areas
where
many
California
orchards
are
located,
restrict
the
use
of
1,3­
D.
Currently,
there
are
no
technically
feasible
alternatives
available
for
use
on
table
and
raisin
grapes.

2.3.6
Turfgrass/
Sod
The
turfgrass
sector
includes
farms
that
grow
sod
and
turfgrass
for
golf
courses,
athletic
fields
and
lawns.
The
wholesale
value
of
sod
is
$
670
million.
In
the
U.
S.,
sod
is
grown
on
132,000
hectares
of
land.
Over
76,990
hectares
were
harvested
in
1998
(
USDA
Census
of
Horticulture
1998).
In
2001,

approximately
25
MT
of
methyl
bromide
were
applied
to
2,542
acres
of
turfgrass
(
CUE
02­
0055).

Although
different
types
of
turfgrass
and
sod
are
grown
all
over
the
United
States,
the
major
turfgrass
producing
states
are
California,
Florida,
Georgia,
Alabama,
and
Texas
(
CUE
02­
0044).
There
are
at
least
1,200
turfgrass
and
sod
producers
in
the
United
States
(
USDA
Census
of
Horticulture
1998).
On
average,
sod
farms
employ
about
30
full­
time
workers
and
are
approximately
350
acres
in
size 
235
acres
of
which
are
typically
in
production
(
CUE
02­
0044).
Exhibit
2.3.6.1
summarizes
hectares
fumigated
with
methyl
bromide,
the
number
of
farms,
and
the
average
farm
size
for
the
turfgrass
and
sod
industry
represented
by
each
CUE
applicant.
Based
on
information
provided
by
the
CUE
applicants,
the
average
turfgrass/
sod
farm
was
calculated
as
174
hectares.

Exhibit
2.3.6.1.
Summary
of
Critical
Use
Exemption
Applications
for
Turfgrass/
Sod
Applicant
Total
Hectares
Fumigated
with
Methyl
Bromide
Average
Farm
Size
(
hectares)
Estimated
Number
of
Farms
Represented
02­
0044,
Sod
Producers
of
Florida,
California,
Georgia,
Alabama,
and
Texas.
1,416
142
12
02­
0055,
Golf
Courses
of
the
US
182
31
 
33
4
Total
1,598
173
 
175
16
NAV
=
Not
available.
Information
not
provided
by
applicant.

EPA
received
two
CUE
applications
for
turfgrass
and
sod.
One
turfgrass
applicant,
Turfgrass
Producers
International
(
TPI),
represents
nearly
1,200
turf
and
sod
producers
across
the
nation.
The
other
turfgrass
applicant,
Golf
Course
Superintendents
Association
of
America
(
GCSAA),
represents
the
16,000
golf
courses
in
the
United
States,
which
cover
about
728,000
hectares
of
land.
The
two
turfgrass
uses
of
methyl
bromide
included
in
the
nomination
are
for
sod
farms 
especially
those
where
warm
season
turfgrasses
are
grown 
and
for
soil
disinfectant
for
the
installation
and
renovation
of
golf
courses.
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
30
­
Methyl
bromide
was
requested
to
treat
one
percent
of
the
total
sod
area
grown
in
any
single
year,

representing
approximately
1,416
hectares.
Growers
harvest
up
to
9,200
square
meters/
hectare
(
40,000
square
feet/
acre)
per
cutting.
Normal
yields
are
generally
between
6,400
and
8,700
square
meters/
hectare
(
28,000
and
38,000
square
feet/
acre)
(
CUE
02­
0055).

The
need
for
methyl
bromide
to
control
the
pests
in
the
sod
production
and
golf
courses
is
critical
because
methyl
bromide
has
shown
to
be
the
only
fumigant
that
can
control
the
many
pathogens
on
a
variety
of
turfgrass
species
that
can
potentially
destroy
turf
surfaces,
according
to
the
U.
S.
CUE
Nomination
for
Turfgrass
2003.
Some
research
has
been
conducted
on
alternatives
to
methyl
bromide
for
fumigation
of
turfgrass
and
sod.
Dazomet
and
composting
were
found
to
have
some
success
in
controlling
pests
although
further
research
is
needed
to
improve
consistency
of
control
(
EPA
1998).

AGRI­
50
is
a
biodegradable
alternative
to
treating
turfgrass
against
pests
and
diseases
(
Steckler
1999).

Yield
loss
estimates
are
not
an
appropriate
measure
for
sod
production,
however,
consistency
of
grasses
is
critical
where
no
secondary
market
exists
for
lower
quality
sod
(
U.
S.
CUE
Nomination
for
Turfgrass
2003).

2.4
Post­
Harvest
Commodity
Fumigation
and
Structural
Fumigation
Post­
harvest
uses
of
methyl
bromide
include
fumigation
of
commodities,
structural
fumigation
of
commodity
storage
and
food
processing
facilities.
The
U.
S.
CUE
Nomination
included
requests
specifically
for
five
CUE
applications
for
commodity
storage,
representing
over
120
facilities
or
processors,
and
four
food
processing
applications
representing
255
facilities.
These
are
described
briefly
below.
The
sector
discussions
focus
on
the
value
of
each
industry,
the
historical
consumption
of
methyl
bromide
as
it
relates
to
the
areas
requiring
fumigation,
and
a
brief
overview
of
existing
or
potential
alternatives
to
methyl
bromide.
Data
for
costs
provided
by
the
CUE
applicants
are
presented
in
Appendix
A.

2.4.1
Commodity
Storage
The
post­
harvest
commodity
storage
industry
manufactures
and
exports
high
value
products,

totaling
roughly
$
130
billion
(
U.
S.
CUE
Nomination
for
Commodity
Storage
2003).
The
U.
S.
nomination
for
methyl
bromide
critical
use
exemption
(
CUE)
in
this
sector
includes
dried
fruits
(
i.
e.,
raisins,
prunes,

and
figs),
nuts
(
i.
e.,
walnuts
and
pistachios),
beans
(
i.
e.,
black­
eye
and
garbanzo),
and
ham
warehouses.

California
produces
the
vast
majority
of
dried
fruits,
black­
eye
and
garbanzo
beans,
and
99
percent
of
walnuts
and
pistachios
in
the
United
States.
In
2001,
California
produced
all
of
the
dried
prunes
(
134,263
MT)
and
fresh
figs
(
37,467
MT)
in
the
United
States,
and
91
percent
(
5,379,577
MT)
of
fresh
grapes
produced
in
the
United
States
(
NASS
2002b).
California's
tree
nut
production
in
2001
included
277,379
MT
of
walnuts
and
72,883
MT
of
pistachios
(
NASS
2002b).
In
2001,
a
total
of
45.7
MT
of
methyl
bromide
were
applied
in
commodity
fumigation
in
California
(
CADPR
2002).
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
31
­
EPA
received
five
CUE
applications
for
commodity
storage,
representing
over
120
facilities
or
processors.
The
applicants
were
the
California
Dry
Prune
Board,
California
Pistachio
Processors,

California
Walnut
Commission,
California
Bean
Shippers
Associations
in
Storage,
and
Gwaltney
of
Smithfield
(
processor
of
dry
cured
hams).
The
majority
of
the
facilities
represented
by
the
CUEs
were
for
dried
fruits
(
60
facilities)
and
walnuts
(
51
handlers),
while
the
other
applications
represented
3
pistachio
facilities,
5
bean
facilities,
and
several
facilities
for
dry
cured
meats.
The
California
Walnut
Commission
indicated
that
approximately
113,400
MT
of
walnuts
are
received
and
processed
by
the
cooperative
each
year
(
CUE
02­
0030).
The
curing
and
ham
storage
operation
represented
in
the
U.
S.
nomination
for
CUE
processes
10,308
MT
of
salted
hams,
jowls,
shoulders,
and
bacon
bellies
per
year
(
CUE
02­
0033).

The
representative
commodity
storage
facility
sizes
for
dried
fruits,
walnuts,
pistachios,
and
beans
are
0.5
million,
0.3
million,
1.1
million,
and
0.3
million
cubic
feet,
respectively
(
CUE
02­
0015).

There
are
roughly
1.68
million
employees
in
the
food
processing
industry
and
22,000
in
the
preserved
fruit
and
vegetable
market
(
U.
S.
CUE
Nomination
for
Commodity
Storage
2003).
Exhibit
2.4.1.1
summarizes
the
area
fumigated
with
methyl
bromide,
the
average
facility
size,
and
the
number
of
facilities
for
the
commodity
storage
industry
represented
by
each
CUE
applicant.

Exhibit
2.4.1.1.
Summary
of
Critical
Use
Exemption
Applications
for
Commodity
Storage
Applicant
Total
Area
Fumigated
with
Methyl
Bromide
(
cubic
feet,
unless
noted)
Average
Facility
Size
(
cubic
feet)
Estimated
Number
of
Facilities/
Handlers/
Processors
Represented
02­
0002,
California
Bean
Shippers
Associations
in
Storage
9,013,122
300,000
6
02­
0015,
California
Dry
Prune
Board
30,000,000
500,000
60
02­
0019,
California
Pistachio
Processors
2,000,000
1,100,000
3
02­
0030,
California
Walnut
Commission
390,813
metric
tons
walnuts
300,000
51
02­
0033,
Gwaltney
of
Smithfield
(
Ham)
50,000
sq.
feet
NAV
1
Total
­­
550,000
121
NAV
=
Not
available.

Methyl
bromide
is
critically
needed
in
the
commodity
storage
sector
in
the
United
States
because
it
is
the
only
treatment
used
for
rapid
fumigation
in
stored
commodities
that
consistently
provides
a
high
degree
of
insect
and
mite
control,
according
to
the
U.
S.
CUE
Nomination
for
Commodity
Storage
2003.
In
the
CUE
sector,
a
total
of
20.4
MT
of
methyl
bromide
were
used
to
fumigate
dried
fruits
within
30
million
cubic
feet
of
storage
in
California
in
2001.
Of
this
total,
14.2
MT
of
methyl
bromide
was
used
on
prunes
and
figs
and
6.2
MT
of
methyl
bromide
was
used
on
raisins
(
CUE
02­
0015).
Based
on
the
applicant's
claims
of
representing
85
percent
of
the
industry,
it
is
estimated
that
the
dried
fruit
sector
as
a
whole
used
roughly
24.0
MT
of
methyl
bromide
(
16.7
MT
for
prunes
and
figs,
and
7.3
MT
for
raisins).
In
2001
in
the
CUE
sector,
65.0
MT
of
methyl
bromide
were
used
to
fumigate
276,690
MT
of
walnuts
in
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
32
­
California
(
CUE
02­
0030).
In
2000,
3.9
MT
of
methyl
bromide
were
used
to
fumigate
109,587
MT
of
pistachios
(
over
an
area
of
2
million
cubic
feet)
in
California
(
CUE
02­
0019).
In
2000,
10.6
MT
of
methyl
bromide
were
used
to
fumigate
7,674,688
cubic
feet
of
beans
in
California
(
CUE
02­
0002).
In
2001
in
the
CUE
sector,
0.7
MT
of
methyl
bromide
were
used
to
fumigate
200,000
square
feet
of
10,331
MT
of
dry
cured
hams,
pork
bellies,
pork
shoulders,
and
jowls
(
CUE
02­
0033).

Several
alternatives
have
been
identified
as
replacements
for
methyl
bromide
fumigation.

Phosphine,
both
alone
and
in
combination
with
carbon
dioxide
and
heat,
has
shown
to
be
technically
feasible
for
dried
fruits,
nuts,
and
bean
post­
harvest
treatments.
However,
phosphine
treatments
are
feasible
only
when
production
and
market
timing
allow.
Phosphine
requires
longer
application
times
than
methyl
bromide;
three
to
five
days
instead
of
24
hours
(
U.
S.
CUE
Nomination
for
Commodity
Storage
2003).
In
addition,
use
of
phosphine
is
constrained
by
several
other
factors,
such
as
resistance
by
some
pests,
its
corrosive
nature
(
which
is
damaging
to
metal
equipment),
and
regulatory
limitations.
Extensive
research
has
also
been
conducted
on
other
alternatives,
including
propylene
oxide,
sulfuryl
fluoride,

irradiation,
cold
and
heat
treatments,
high
pressure
carbon
dioxide,
Integrated
Pest
Management
(
IPM),

biological
agents,
pesticides,
pest
resistant
packaging,
controlled
and
modified
atmospheres,
and
physical
removal/
cleaning/
sanitation.
All
identified
alternative
approaches,
except
sulfuryl
fluoride,
have
been
shown
to
be
technically
infeasible.
Sulfuryl
fluoride
is
an
effective
treatment
against
insects,
but
is
not
sufficiently
toxic
against
eggs
and
is
not
registered
for
use
in
the
United
States.
Irradiation
prevents
further
reproduction
of
insects,
but
does
not
readily
kill
exposed
pests.
The
long
exposure
periods
required
for
the
controlled
atmosphere
applications
to
be
effective,
limit
the
feasibility
of
this
treatment
as
a
methyl
bromide
alternative.

2.4.2
Food
Processing
Food
processing
involves
the
processing
and
packaging
of
meat,
fish,
fruits,
vegetables,
and
specialty
food
and
beverage
products
using
various
technologies
including
canning,
dehydration,

freezing,
and
refrigeration.
The
United
States
makes
up
26
percent
of
the
global
food
processing
industry
valued
at
about
$
130
billion.
There
are
approximately
17,000
food
processing
facilities
in
the
United
States,
which
include
rice
and
flour
mills,
food
packaging
facilities,
and
pet
food
producers.
Methyl
bromide
is
used
to
fumigate
these
plants
and
warehouses,
in
order
to
maintain
a
pest­
free,
sanitary
environment.
Because
these
facilities
are
distributed
throughout
the
country,
they
are
subjected
to
very
different
weather
conditions
and
pest
pressures.
Currently,
facilities
fumigate
between
2
times
per
year
to
once
every
3
years
(
U.
S.
Nomination
for
Post­
Harvest/
Food
Processing
Plants
2003).

EPA
received
four
CUE
applications
for
food
processing
facilities
including,
rice
milling,
flour
milling,
pet
food
manufacturing,
and
bakeries.
The
applicants
represent
255
facilities
ranging
in
size
from
one
million
to
over
10
million
cubic
feet.
Exhibit
2.4.2.1
summarizes
the
area
fumigated
with
methyl
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
33
­
bromide,
the
average
facility
size
and
the
number
of
facilities
represented
by
the
CUE
applicants
for
food
processing.

Exhibit
2.4.2.1.
Summary
of
Critical
Use
Exemption
Applications
for
Food
Processing
Applicant
Total
Area
Fumigated
with
Methyl
Bromide
(
cubic
feet)
Average
Facility
Size
(
cubic
feet)
Estimated
Number
of
Facilities/
Handlers/
Processors
Represented
02­
0023,
Rice
Millers'
Association
218,000,000
10,000,000
35
02­
0026,
Kraft
Foods
26,000,000
5,000,000
6
02­
0027,
Pet
Food
Institute
78,000,000
1,000,000
78
02­
0031,
Flour
Millers'
Association
600,000
1,200,000
5
Total
322,600,000
4,300,000
124
NAV
=
Not
available.

The
main
alternatives
to
methyl
bromide
capable
of
disinfecting
plants
are
phosphine
and
heat
treatments.
In
the
United
States,
phosphine
is
the
only
fumigant
other
than
methyl
bromide
registered
for
food
manufacturing
plants.
A
few
insect
pests,
such
as
lesser
grain
borers,
flour
beetles,
flat
grain
beetles
and
sawtoothed
grain
beetles,
have
been
found
to
be
resistant
to
phosphine
and
it
does
require
more
time
to
apply
than
methyl
bromide.
Phosphine
is
also
very
corrosive
to
metals 
especially
copper
and
its
alloys,
bronze
and
brass 
although
there
is
some
indication
that
reduced
concentrations
of
phosphine
in
combination
with
carbon
dioxide
and
heat
may
reduce
the
corrosive
effect
of
phosphine.

Phosphine
treatment
alone
is
more
expensive
than
heat
treatment
due
to
capital
expenditures
for
accelerated
replacement
of
plant
and
equipment
as
a
result
of
phosphine's
corrosive
nature.
Heat
treatment 
heating
the
facility
to
approximately
65
degrees
Celsius
(
150
degrees
Fahrenheit)
for
12
hours 
has
been
shown
to
be
effective
in
eliminating
all
stages
of
insects.
However,
heat
treatment
may
require
the
retrofit
of
buildings
and
careful
monitoring,
as
to
prevent
building
damage
and
to
build
boilers
in
order
to
generate
heat.
In
addition,
the
application
of
this
alternative
requires
several
days
more
than
the
application
of
methyl
bromide
(
U.
S.
CUE
Nomination
for
Post­
Harvest/
Food
Processing
Plants
2003).

2.5
Quarantine
and
Preshipment
The
quarantine
and
preshipment
(
QPS)
applications
of
methyl
bromide
are
exempted
from
the
phaseout
under
the
Montreal
Protocol.
Quarantine
applications
are
treatments
to
prevent
the
introduction,
establishment
and/
or
spread
of
quarantine
pests
(
including
diseases).
The
official
control
of
quarantine
pests
or
diseases
must
be
performed
by,
or
authorized
by,
a
national
plant,
animal,
or
environmental
protection
or
health
authority
(
Federal
Register
2003).
Methyl
bromide
use
is
only
considered
for
quarantine
exemption
if
it
is
identified
within
quarantine
regulations
as
one
of
or
a
unique
treatment
option
for
specific
quarantine
pests,
or
if
it
is
required
for
an
emergency
quarantine
application.
***
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OR
ATTRIBUTE***

­
34
­
Preshipment
applications
are
applied
no
more
than
21
days
preceding
export
to
meet
the
phytosanitary
or
sanitary
requirements
of
the
importing
or
exporting
country.
As
stated
above,
methyl
bromide
production
for
QPS
purposes
is
unlimited.
In
order
to
regulate
the
use
of
methyl
bromide
for
QPS
applications
only,

applicators
wishing
to
purchase
a
specific
amount
must
submit
a
certification
to
distributors
that
guarantees
that
the
methyl
bromide
will
only
be
used
for
QPS
applications.
Applicators
also
must
justify
use
by
proving
that
methyl
bromide
application
is
required
by
law
for
the
specific
commodity
9
.
Distributors
maintain
records
of
the
certification
forms
for
EPA
to
determine
the
amount
of
methyl
bromide
sold
for
QPS
uses
(
Federal
Register
2003).
Because
of
its
exemption
from
the
phaseout,
QPS
applicators
are
not
considered
in
the
following
analyses.
However,
the
QPS
method
of
distributing
methyl
bromide
to
applicators
is
discussed
in
more
detail
in
Chapter
4.

9
Applicators
are
not
currently
limited
to
methyl
bromide
obtained
through
certification.
***
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2006)
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OR
ATTRIBUTE***

­
35
­
3.
Baseline
for
the
Allocation
Rule
Economic
Impact
Analysis
This
section
presents
estimated
costs
and
benefits
of
reduced
methyl
bromide
consumption
in
the
United
States
resulting
from
the
Phaseout
Rule
promulgated
by
U.
S.
regulations
in
2000.
The
phaseout
schedule,
and
its
associated
costs
and
benefits,
represents
the
baseline
against
which
the
costs
of
the
critical
use
exemption
examined
in
this
Economic
Impact
Analysis
are
compared
and
calculated.

Because
of
the
importance
of
the
original
schedule
and
cost
estimates
to
the
current
analysis,
this
chapter
addresses
several
aspects
of
the
original
analysis,
and
describes
modifications
that
have
been
made
to
the
model
for
the
current
analysis.

Section
3.1
presents
the
costs
and
benefits
as
calculated
in
the
Revised
Draft
Regulatory
Impact
Analysis
for
a
Methyl
Bromide
Phaseout
in
the
United
States
(
ICF
2000b).
This
section
discusses
the
approaches
and
assumptions
used
to
determine
costs
and
presents
the
results
of
the
original
Phaseout
RIA
model.
Section
3.2
describes
how,
in
order
to
analyze
the
costs
of
the
U.
S.
nomination
to
the
Parties
to
the
Montreal
Protocol
for
a
critical
use
exemption,
the
model
(
described
in
Section
3.1)
has
been
updated
to
reflect,
in
some
cases,
newer
information,
and
also
to
more
closely
align
with
the
sectors
and
areas
defined
by
the
U.
S.
nominations.
The
recalculated
cost
results
for
the
original
Phaseout
schedule
are
reported
in
Sections
3.3
and
3.4,
and
compared
with
the
original
estimates
in
Section
3.5.

3.1
Background
of
Phaseout
RIA
The
October
27,
2000
Revised
Draft
Regulatory
Impact
Analysis
for
a
Methyl
Bromide
Phaseout
in
the
United
States
(
ICF
2000b),
hereafter
referred
to
as
the
Phaseout
RIA,
estimated
the
costs
of
a
methyl
bromide
phaseout
based
on
a
schedule
for
non­
Article
5
countries
set
by
the
Parties
to
the
Montreal
Protocol
and
outlined
in
the
Phaseout
Rule
(
Federal
Register
2000).
This
methyl
bromide
phaseout
structure,
based
on
a
1991
baseline,
consisted
of
a
25
percent
reduction
in
1999,
a
50
percent
reduction
in
2001,
a
70
percent
reduction
in
2003,
and
a
complete
phaseout
as
of
January
1,
2005
(
except
for
quarantine,
critical
and
emergency
use
exemptions)
10
(
EPA
1999b).

The
Phaseout
RIA
modeled
costs
and
benefits
of
the
phaseout
based
primarily
on
a
thorough
characterization
of
the
uses
and
consumption
of
methyl
bromide
in
the
U.
S.;
published
literature
and
expert
opinion
regarding
methyl
bromide
alternatives;
substitute
market
share
percentage
allocations
by
sector
for
each
year
of
the
phaseout;
and
EPA's
ozone­
depleting
substance
(
ODS)
substitute
benefits
model
called
the
Atmospheric
Health
Effects
Framework
(
AHEF).
This
section
provides
a
brief
overview
of
the
assumptions
and
methodologies
used
to
create
and
run
the
methyl
bromide
phaseout
cost
model;

generally
describes
the
phaseout
benefits
assessment;
and
reports
the
results
of
the
cost­
benefit
comparison
presented
in
the
Phaseout
RIA.
Although
the
original
analysis
of
the
Phaseout
Rule
10
The
economic
analysis
assumed
zero
consumption
in
2005
for
pre­
plant
and
post­
harvest
applications.
***
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OR
ATTRIBUTE***

­
36
­
simulated
scenarios
for
a
2001
phaseout
as
well
as
a
2005
phaseout,
this
section
describes
modeled
results
for
the
2005
phaseout
scenario
only.

3.1.1
Phaseout
RIA:
Approaches
to
Calculating
Cost
The
Phaseout
RIA
cost
analysis
performed
in
2000
applied
existing
data
on
methyl
bromide
uses
and
substitutes
to
the
key
methyl
bromide
markets
to
bound
the
possible
cost
impacts
on
producers
and
consumers
of
crops
and
commodities.
The
costs
of
meeting
methyl
bromide
phaseout
reduction
targets
were
computed
using
two
different
approaches:
impact
on
producers
only,
and
impact
on
producers
and
consumers.
The
first
approach
assumes
that
sufficient
additional
commodity
quantities
would
be
supplied
to
prevent
the
prices
of
the
various
commodities
from
increasing
in
order
to
provide
a
lower
bound
for
the
social
cost
of
the
phaseout.
Offsets
are
assumed
to
be
supplied
by
other
domestic
or
foreign
suppliers
of
relevant
commodities.
The
second
approach
provides
an
upper
bound
on
the
social
costs
of
the
phaseout
by
assuming
that
no
additional
supplies
will
be
provided
regardless
of
the
price
increase
and
quantity
reductions
for
the
various
commodities.
In
this
case,
society
bears
not
only
the
substitution
costs
of
methyl
bromide
users,
but
also
incurs
losses
associated
with
reduced
consumption
of
affected
commodities.

For
each
crop,
the
cost
model
used
for
the
Phaseout
Rule
calculated
revenues
based
on
continued
use
of
methyl
bromide
and
compared
those
to
revenues
resulting
from
the
stepwise
implementation
of
replacement
options.
The
analysis
captured
both
low
and
high
scenarios,
based
on
the
range
of
substitute
costs
relative
to
methyl
bromide.
Each
scenario
was
disaggregated
by
crop,

region,
and
interim
reduction
year,
and
substitute
market
shares
were
applied
for
each
crop,
region,
and
year.
The
final
aggregate
cost
figure
was
then
subtracted
from
the
methyl
bromide
baseline
value
to
determine
the
ultimate
revenue
change
for
each
crop
region.
Calculations
were
also
performed
to
provide
an
upper
bound
estimate
of
the
total
social
welfare
cost
(
i.
e.,
producer
plus
consumer
surplus
loss)
of
the
methyl
bromide
phaseout
for
each
crop,
where
demand
flexibility
was
used
to
derive
consumer
surplus
losses.
A
similar
but
adjusted
methodology
was
used
for
crops
that
have
a
lifetime
greater
than
one
year
(
i.
e.,
perennials
such
as
orchard
crops).
Appendix
B
provides
further
details
of
the
methodology
used
to
construct
the
cost
model
used
for
analysis
of
the
Phaseout
Rule
and
Allocation
Rule.

3.1.2
Phaseout
RIA:
Approach
to
Calculating
Benefits
The
benefits
of
the
phaseout
were
calculated
using
EPA's
AHEF,
a
model
that
estimates
changes
in
the
incidence
of,
and
mortality
from,
selected
health
effects
resulting
from
past
and
future
changes
in
stratospheric
ozone
concentrations.
These
changes
in
health
effects
(
i.
e.,
melanoma
and
non­
melanoma
incidence
and
mortality
and
cataract
incidence)
are
typically
expressed
relative
to
health
effects
that
would
have
occurred
if
ozone
concentrations
that
existed
in
the
1979
to
1980
time
period
had
been
***
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OR
ATTRIBUTE***

­
37
­
maintained
through
the
period
of
interest
(
ICF
2000a).
Thus,
the
AHEF
calculations
performed
for
the
Phaseout
RIA
resulted
in
benefits
derived
from
a
scenario
in
which
interim
reductions
in
methyl
bromide
production
and
consumption
occurred
until
the
complete
phaseout
in
2005.

A
decrease
in
benefits
as
a
result
of
this
proposed
action
is
expected,
as
compared
to
the
analysis
of
the
Phaseout
Rule.
This
is
because
exemptions
from
the
full
phaseout
would
allow
for
more
methyl
bromide
use
than
was
modeled
in
the
Phaseout
RIA.
Although
some
benefits
in
the
form
of
melanoma
and
cataract
incidence
and
mortality
avoided
will
still
accrue
in
the
methyl
bromide
phaseout
scenario
modeled
in
the
Allocation
EIA,
these
benefits
will
be
lower
than
those
reported
in
the
Phaseout
RIA.

3.1.3
Original
Costs
and
Benefits
Determined
in
the
Phaseout
RIA
A
comparison
of
the
costs
and
benefits
for
a
2005
phaseout
scenario
for
each
approach
used
in
the
Phaseout
RIA
yielded
the
results
tabulated
in
Exhibit
3.1.3.1.
The
original
cost
analysis
applied
existing
data
on
methyl
bromide
uses
and
substitutes
to
the
key
markets
to
place
bounds
on
the
possible
cost
impacts
on
producers
and
consumers.
The
costs
of
meeting
the
2005
methyl
bromide
phaseout
reduction
targets
were
computed
using
two
polar­
case
assumption
approaches
to
bound
the
possible
social
costs
of
the
phaseout
based
on
the
supply
responsiveness
of
non­
methyl
bromide
users.

Approach
1
measures
the
cost
to
the
industry
based
on
the
decrease
in
producer
surplus
alone.

This
method
provides
a
lower
bound
for
the
social
costs
of
a
phaseout
in
that
it
assumes
that
alternative
sources
will
supply
additional
quantities
at
the
current
market
price.
Furthermore,
it
is
assumes
that
the
sectors
selected
to
meet
the
reduction
targets
actually
do
switch
to
the
relevant
substitutes,
rather
than
exiting
the
business
or
planting
a
different
crop.
Any
actions
other
than
switching
to
the
assumed
substitute
practices
and
bearing
the
associated
costs
in
full,
such
as
leaving
the
business
or
planting
an
alternative
crop,
would
tend
to
reduce
the
estimated
social
costs.
Under
these
assumptions,
the
costs
of
meeting
the
reduction
targets
are
calculated
as
the
sum
of
the
increased
input
costs
of
these
alternative
practices
and
the
output
reduction
multiplied
by
the
farm
level
price
(
if
yield
losses
occur).
The
impact
on
costs
of
commodity
imports
is
not
specifically
accounted
for,
although
the
model
does
account
for
production
from
either
foreign
or
other
domestic
growers
in
order
to
assume
that
supply
of
a
crop
or
commodity
remains
constant
and
that
prices
are
not
significantly
affected.

Approach
2,
on
the
other
hand,
provides
an
upper
bound
on
the
social
costs
of
the
phaseout
by
assuming
that
no
additional
supplies
will
be
provided
regardless
of
the
price
increase
and
quantity
reductions
for
the
various
commodities.
It
is
based
on
the
net
change
in
consumer
and
producer
surplus.

The
prices
of
these
goods
will
rise
at
both
the
farm
and
the
consumer
levels
based
on
the
substitution
cost
increase
and
supply
reduction
in
each
sector
for
the
highest
cost
producers.
The
quantity
consumed
for
each
crop
or
commodity
falls
either
because
of
the
yield
loss
or
because
of
cost
increases
that
are
passed
through
to
consumers
of
these
commodities.
This
is
an
upper
bound
for
social
costs
because
***
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30/
2006)
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OR
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­
38
­
society
bears
not
only
the
substitution
costs
of
methyl
bromide
users,
but
also
incurs
losses
associated
with
reduced
consumption
of
affected
commodities.

Clearly,
the
true
social
cost
of
the
phaseout
will
likely
fall
somewhere
between
the
results
derived
using
these
two
"
bounding"
methods.
Depending
on
the
commodity
involved,
actual
results
will
probably
be
closer
to
one
or
the
other
of
these
methods.
The
information
necessary
to
refine
the
results,
however,

is
either
unavailable
without
considerable
study
and
verification
or
too
uncertain
to
be
used.
Note
that
costs
are
discounted
at
3
and
7
percent,
as
compared
to
benefits
discounted
at
3
percent.
Costs
and
benefits
were
examined
from
1999
through
2150.

In
addition
to
incorporating
two
different
approaches
that
investigated
producer
surplus
changes
only
versus
producer
and
surplus
changes
combined,
the
model
had
both
a
low
and
high
scenario
for
each
approach.
The
low
scenario
assumed
a
lower
range
of
estimated
methyl
bromide
costs,
and
the
high
scenario
assumed
the
higher
end
of
the
substitute
costs
range.

Exhibit
3.1.3.1.
2005
Phaseout
Methyl
Bromide
Cost/
Benefit
Summary
(
Million
1997$,
Benefits
Discounted
at
3
Percent,
Pre­
plant
Uses)
Costs
Discounted
at
7
%
Costs
Discounted
at
3
%
Annual
NPV
Annual
NPV
Costs
Approach
1
Low
76.4
1,058.7
84.1
2,199.4
Approach
1
High
129.7
1,798.4
142.6
3,732.5
Approach
2
Low
76.6
1,062.0
84.3
2,206.5
Approach
2
High
130.0
1,801.8
142.9
3,739.5
Benefits
116.4
3,046.8
116.4
3,046.8
Cost­
Benefit
Comparison
(
net
benefits)
a
Approach
1
Low
40.1
1,988.1
32.4
847.3
Approach
1
High
­
13.3
1,248.3
­
26.2
­
685.7
Approach
2
Low
39.8
1,984.7
32.1
840.3
Approach
2
High
­
13.5
1,245.0
­
26.5
­
692.8
Benefit/
Cost
Ratio
b
Approach
1
Low
1.52
2.88
1.39
1.39
Approach
1
High
0.90
1.69
0.82
0.82
Approach
2
Low
1.52
2.87
1.38
1.38
Approach
2
High
0.90
1.69
0.81
0.81
a
Negative
numbers
indicate
that
costs
outweigh
benefits.
b
Ratios
less
then
1.00
indicate
that
costs
outweigh
benefits.

Unlike
the
pre­
plant
cost
analysis
that
used
detailed
crop­
specific
data
on
acreage,
production,

yield,
price,
and
relative
cost
of
the
substitutes
to
estimate
the
costs
on
a
regional
basis,
the
post
harvest
analysis
in
the
Phaseout
RIA
used
a
simplified
approach
to
estimate
the
incremental
cost
per
pound
to
replace
methyl
bromide
nationally
by
post
harvest
use
segment.
Post
harvest
phaseout
costs
were
estimated
by
multiplying
total
consumption
for
each
post
harvest
non­
soil
use
(
with
the
exception
of
QPS)

by
the
cost
per
pound
of
methyl
bromide
replaced
for
each
end
use.
The
benefits
associated
with
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
39
­
phaseout
of
methyl
bromide
for
post
harvest
non­
soil
uses
were
calculated
using
the
AHEF.
Results
are
presented
in
Exhibit
3.1.3.2.
See
Chapter
8
for
a
more
detailed
explanation
of
benefits
calculations.

Exhibit
3.1.3.2.
2005
Methyl
Bromide
Post
Harvest
Costs
and
Benefits
(
Million
1997$,
Benefits
Discounted
at
3
Percent,
Excluding
QPS)
Costs
Discounted
at
7%
Costs
Discounted
at
3%

Annual
NPV
Annual
NPV
Costs
Low
2.3
32.3
2.5
66.6
High
13.4
185.5
14.6
382.7
Benefits
32.7
856.7
32.7
856.7
Cost­
Benefit
Comparison
(
net
benefits)
Low
30.4
824.4
30.2
790.0
High
19.4
671.2
18.1
474.0
Benefit/
Cost
Ratio
Low
14.1
26.5
12.9
12.9
High
2.4
4.6
2.2
2.2
3.2
Methodology
and
Inputs
Used
to
Update
the
Phaseout
Model
In
order
to
analyze
the
costs
of
the
U.
S.
critical
use
exemption
nomination,
the
model
has
been
updated
in
several
ways.
The
basic
methodological
framework
was
kept
intact,
however
specific
sectors
underwent
updates
where
improvements
to
either
the
input
data
or
methodology
were
available
from
the
critical
use
exemption
applications
and
public
data
sources.
The
changes
for
each
sector
are
described
below.

3.2.1
Fruit
and
vegetable
growers
The
baseline
for
fruit
and
vegetable
crops
remained
almost
unchanged,
with
the
following
two
exceptions:
substitute
yield
data,
and
the
addition
of
ginger,
sweet
potatoes,
and
forest
seedlings.

Substitute
yield
data
was
increased
in
those
instances
where
recent
data
or
technology
has
shown
improved
yields
over
those
estimated
for
the
previous
Phaseout
RIA.
Ginger,
sweet
potatoes,
and
forest
seedlings
were
included
in
this
version
of
the
baseline,
while
these
sectors
represent
only
2
percent
of
baseline
methyl
bromide
consumption
and
were
not
considered
in
the
original
Phaseout
RIA,
these
sectors
were
nominated
for
CUE
exemptions
and
thus
considered
in
this
analysis.
***
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(
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30/
2006)
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OR
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­
40
­
3.2.2
Perennial
Crops
Perennial
crops
have
a
lifetime
greater
than
one
year
and
are
often
planted
in
rotation.

Therefore,
methyl
bromide
substitutes
could
not
be
immediately
applied
to
all
of
the
planted
acres
of
perennial
crop.
Also,
yield
losses
impact
perennial
crops
across
the
lifetime
of
the
crop,
and
thus
the
revenue
lost
due
to
yield
decreases
needs
to
be
considered.
Previously
yield
losses
for
these
crops
were
applied
in
two
steps.
First,
until
full
market
penetration
of
the
substitutes,
yield
losses
were
applied
to
half
of
the
total
treated
acreage
(
since
some
acreage
would
be
in
perennial
rotation
planting
and
would
therefore
not
be
available
for
application
of
methyl
bromide
substitutes).
Then,
once
substitutes
have
been
used
for
the
entire
treated
acreage,
yield
losses
are
applied
to
all
treated
acres.
The
key
data
needed
to
determine
these
scenarios
were
percentage
of
bearing
acreage
that
is
treated
and
rate
of
replanting.
These
estimates
were
developed
using
information
presented
in
Carpenter
et
al.
(
2000).
The
same
data
were
used,
but
in
the
revised
model
the
cumulative
acreage
that
has
been
treated
with
each
substitute
is
calculated
on
an
annual
basis,
thus
increasing
the
accuracy
of
the
cost
estimates.

3.2.3
Post­
harvest
and
Structural
The
methodology
used
to
estimate
post­
harvest
and
structural
impacts
remained
unchanged.

However,
these
sectors
are
now
considered
in
the
recalculated
Allocation
baseline,
while
previously
they
were
considered
under
a
separate
analysis.

3.2.4
Nurseries
The
methodology
for
nurseries
was
also
unchanged,
however
in
this
analysis
it
was
assumed
that
a
decrease
in
methyl
bromide
consumption
occurred
prior
to
2005
because
some
nurseries
with
perennials
(
i.
e.,
plants
with
a
lifetime
greater
than
one
year)
have
already
applied
methyl
bromide
to
new
plantings,
which
will
not
require
further
methyl
bromide.
Thus,
cost
estimates
were
estimated
for
each
year
of
the
analysis.

3.3
Benefits
The
emission
estimates
for
the
baseline
remained
the
same,
however,
the
benefits
now
combine
pre­
plant
and
post­
harvest
sectors
for
the
baseline.

3.4
Updated
Phaseout
Rule
To
conduct
a
direct
comparison
between
the
economic
impacts
of
the
Phaseout
Rule
(
used
as
the
baseline
for
this
analysis),
and
the
Allocation
Rule
(
presented
in
this
analysis),
certain
assumptions
were
made
and
added
to
the
cost
model.
In
particular,
commodity
sectors
not
included
in
the
analysis
of
the
Phaseout
Rule
economic
impacts
(
i.
e.,
ginger,
sweet
potatoes,
and
forest
seedlings)
were
added
to
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
41
­
the
model
and
assessed
under
both
the
Allocation
and
Phaseout
Rule
analyses.
The
changes
(
as
reported
in
more
detail
in
Section
3.2)
to
the
cost
and
benefit
models
included
the
following:

 
Updated
methyl
bromide
substitute
yield
data
were
added
where
improved
yields
have
been
reported;
 
Cumulative
perennial
acreage
treated
with
substitutes
was
calculated
on
an
annual
basis
to
improve
cost
estimates;
 
Costs
to
the
post­
harvest
and
structural
impacts
sectors
were
considered
in
the
same
analysis
as
costs
to
preharvest
methyl
bromide
users;
 
Methyl
bromide
consumption
in
nurseries
decreased
prior
to
2005
in
the
revised;
and
 
The
revised
benefits
model
included
both
pre­
plant
and
post­
harvest
sectors.

The
changes
made
to
the
model
were
minimal
in
most
cases
and
therefore
did
not
cause
large
differences
in
results
when
the
revised
model
was
run
for
the
Phaseout
Rule
and
compared
to
original
model
results
from
the
Phaseout
Rule.
Exhibits
3.4.1
and
3.4.2
present
the
modeled
costs
and
benefits
estimated
for
the
original
Phaseout
Rule
and
the
revised
Phaseout
Rule,
including
the
new
sectors.
***
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(
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2006)
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OR
ATTRIBUTE***

­
42
­
Exhibit
3.4.1.
Original
2005
Phaseout
Rule
Cost/
Benefit
Summary
(
Million
1997$,
Benefits
Discounted
at
3
Percent)
Costs
Discounted
at
7
%
Costs
Discounted
at
3
%

Annual
NPV
Annual
NPV
Costs
Approach
1
Low
76.4
1,058.7
84.1
2,199.4
Approach
1
High
129.7
1,798.4
142.6
3,732.5
Approach
2
Low
76.6
1,062.0
84.3
2,206.5
Approach
2
High
130.0
1,801.8
142.9
3,739.5
Benefits
116.4
3,046.8
116.4
3,046.8
Cost­
Benefit
Comparison
(
net
benefits)
a
Approach
1
Low
40.1
1,988.1
32.4
847.3
Approach
1
High
­
13.3
1,248.3
­
26.2
­
685.7
Approach
2
Low
39.8
1,984.7
32.1
840.3
Approach
2
High
­
13.5
1,245.0
­
26.5
­
692.8
Benefit/
Cost
Ratio
b
Approach
1
Low
1.52
2.88
1.39
1.39
Approach
1
High
0.90
1.69
0.82
0.82
Approach
2
Low
1.52
2.87
1.38
1.38
Approach
2
High
0.90
1.69
0.81
0.81
a
Negative
numbers
indicate
that
costs
outweigh
benefits.
b
Ratios
less
then
1.00
indicate
that
costs
outweigh
benefits.

Exhibit
3.4.2.
Revised
2005
Phaseout
Rule
Cost/
Benefit
Summary
(
Million
1997$,
Benefits
Discounted
at
3
Percent)
Costs
Discounted
at
7
%
Costs
Discounted
at
3
%

Annual
NPV
Annual
NPV
Costs
Approach
1
Low
47.7
680.8
45.5
1,443.8
Approach
1
High
106.4
1,518.1
99.7
3,159.9
Approach
2
Low
47.9
683.6
45.7
1,449.7
Approach
2
High
106.6
1,521.0
99.9
3,166.1
Benefits
150.4
3,935.9
150.4
3,935.9
Cost­
Benefit
Comparison
(
net
benefits)
a
Approach
1
Low
102.7
3,255.0
104.9
2,492.1
Approach
1
High
44.0
2,417.8
50.7
775.9
Approach
2
Low
102.5
3,252.3
104.7
2,486.2
Approach
2
High
43.8
2,414.9
50.5
769.8
Benefit/
Cost
Ratio
b
Approach
1
Low
3.15
5.78
3.30
2.73
Approach
1
High
1.41
2.59
1.51
1.25
Approach
2
Low
3.14
5.76
3.29
2.72
Approach
2
High
1.41
2.59
1.51
1.24
a
Negative
numbers
indicate
that
costs
outweigh
benefits.
b
Ratios
less
then
1.00
indicate
that
costs
outweigh
benefits.
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
43
­
3.5
Results
Exhibit
3.5.1
presents
the
differences
between
the
original
and
revised
Phaseout
Rule
by
comparing
modeled
total
costs
for
the
rules.

Exhibit
3.5.1.
Model
Results
for
the
Original
and
Revised
Phaseout
Rule:
Difference
in
Total
Costs
(
1997$)
Total
Cost
Differences
(
7
%
Discount)
Total
Cost
Differences
(
3%
Discount)
Annual
NPV
Annual
NPV
Approach
1
Low
(
28.7)
(
377.9)
(
38.6
(
755.6)
Approach
1
High
(
23.3)
(
280.3)
(
42.9
(
572.6)
Approach
2
Low
(
28.7)
(
378.4)
(
38.6
(
756.8)
Approach
2
High
(
23.4)
(
280.8)
(
43.0
(
573.4)

Reductions
in
total
costs
between
the
original
and
revised
Phaseout
Rule
model
output
were
a
result
of:

 
The
addition
of
new
sectors
to
the
cost
model;
 
Updated
yield
estimates;
and
 
Other
revisions
to
the
model
indicated
in
Sections
3.2
and
3.4.

These
differences
in
results
were
expected
because,
as
indicated
by
the
changes
made
to
the
model,
some
methyl
bromide
substitute
yields
were
increased
in
the
revised
model
based
on
recent
technology
that
has
improved
substitute
performance,
thus
decreasing
the
costs
modeled
in
the
original
RIA.
***
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30/
2006)
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OR
ATTRIBUTE***

­
44
­
4.
Economic
Options
Discussion
This
section
provides
an
overview
of
the
three
broad
regulatory
options
that
are
analyzed
in
this
Economic
Impact
Analysis,
and
highlights
salient
features
of
the
options
that
are
important
from
the
perspective
of
the
economic
analysis.
Note
that
these
are
not
the
only
options
that
EPA
considered
during
the
course
of
the
proposed
rulemaking
process,
but
rather
constitute
a
representative
set
of
options
that
EPA
initially
identified
as
the
basis
of
the
economic
analysis.

Section
4.1
below
describes
the
criteria
for
a
critical
use
exemption
as
described
in
the
Montreal
Protocol,
the
U.
S.
nomination
for
quantities
in
2005
and
2006,
and
options
for
implementing
the
exemption.
For
purposes
of
this
analysis,
the
section
also
describes
the
assumptions
made
about
consumption
in
both
the
years
of
the
nomination
and
beyond.
Section
4.2
defines
important
terms
used
in
this
section.
Sections
4.3,
4.4,
and
4.5
describe
three
broad
options
that
EPA
could
use
to
implement
the
CUE
quantities
that
will
be
allocated
to
the
U.
S.
by
the
Parties
to
the
Montreal
Protocol,
including
the
relationship
between
the
option
and
existing
systems
for
allocating
methyl
bromide
to
end
users.
These
sections
also
provide
additional
detail
on
the
options
analyzed
in
this
document
that
is
needed
to
develop
quantitative
cost
estimates.
Included
in
these
sections
is
information
on
existing
systems
that
provide
a
model
for
the
system,
the
entities
holding
allowances
or
permits,
the
operation
of
the
trading
system,
the
method
of
allocation
to
end
users,
and
recordkeeping
and
reporting
requirements.

4.1
Overview
of
Phaseout
Assumptions
and
Allocation
Options
Critical
use
exemption
language
under
Decision
XI/
6
of
the
Parties
to
the
Montreal
Protocol
indicates
that
a
use
of
methyl
bromide
will
be
considered
critical
only
if,
"(
ii)
There
are
no
technically
and
economically
feasible
alternatives
or
substitutes
available
to
the
user
that
are
acceptable
from
the
standpoint
of
environment
and
health
and
are
suitable
to
the
crops
and
circumstances
of
the
nomination; (
b)(
i)
All
technically
and
economically
feasible
steps
have
been
taken
to
minimize
the
critical
use
and
any
associated
emissions
of
methyl
bromide;
(
ii)
Methyl
bromide
is
not
available
in
sufficient
quantity
and
quality
from
existing
stocks
of
banked
or
recycled
methyl
bromide,
also
bearing
in
the
mind
the
developing
countries'
need
for
methyl
bromide;
(
iii)
[
and]
it
is
demonstrated
that
an
appropriate
effort
is
being
made
to
evaluate,
commercialize
and
secure
national
regulatory
approval
of
alternatives
and
substitutes 
Parties
must
demonstrate
that
research
programs
are
in
place
to
develop
and
deploy
alternatives
and
substitutes "
In
addition,
the
nominating
party
must
determine
that
the
lack
of
methyl
bromide
availability
for
that
use
would
result
in
a
significant
market
disruption
(
UNEP
2000
­­
Montreal
Protocol
on
Substances
that
Deplete
the
Ozone
Layer
Decision
IX/
6).

Based
on
the
criteria
indicated
by
the
Montreal
Protocol,
the
United
States
requested
39
percent
of
1991
U.
S.
baseline
consumption
for
2005
and
37
percent
for
2006
for
CUE
purposes
from
the
Parties
to
the
Montreal
Protocol.
This
EIA
assumes
that
methyl
bromide
quantities
consumed
in
the
United
States
in
2005
and
2006
will
be
equal
to
the
quantities
requested
in
the
U.
S.
nomination.
Beyond
2006,
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
45
­
the
EIA
assumes
that
consumption
of
methyl
bromide
for
critical
use
will
continue
at
37
percent
of
baseline
through
2010.
Use
then
drops
by
5
percent
annually
for
7
years
through
2017,
with
a
final
drop
of
2
percent
and
subsequent
consumption
of
0
percent
in
2018
and
beyond.
Exhibit
4.1.1
summarizes
this
phaseout
schedule.

Exhibit
4.1.1.
Assumed
Phaseout
Schedule
for
U.
S.
Methyl
Bromide
Critical
Use
Exemption
Year
Percent
consumption
of
1991
baseline
2005
39
2006
37
2007
37
2008
37
2009
37
2010
37
2011
32
2012
27
2013
22
2014
17
2015
12
2016
7
2017
2
2018
0
These
assumptions
are
used
for
strictly
analytical
purposes
and
do
not
represent
an
attempt
to
predict
the
actual
course
of
a
methyl
bromide
phaseout.
The
maximum
amount
of
methyl
bromide
allowed
for
CUE
each
year
will
be
determined
by
the
Parties
to
the
Montreal
Protocol,
and
actual
phaseout
is
likely
to
differ
from
these
assumptions.

This
lengthened
period
of
methyl
bromide
availability
and
the
need
to
distribute
available
amounts
to
end
users
necessitates
analysis
of
various
options
for
methyl
bromide
allocation
to
determine
an
economically
fair
system
that
will
not
unduly
burden
end
users.
The
system
must
strike
a
balance
between
economic
efficiency
(
i.
e.,
methyl
bromide
is
distributed
in
the
most
cost­
efficient
manner
possible
so
that
no
individual
could
be
made
better
off
without
causing
another
individual
to
be
worse
off)

(
Goodstein
1999),
and
equity
(
i.
e.,
the
avoidance
of
harming
certain
end
users,
such
as
small
entities,

even
if
efficiency
must
be
somewhat
compromised).

Implementing
the
longer
period
for
the
phaseout,
and
the
increased
availability
of
methyl
bromide
to
end
users
eligible
for
a
critical
use
exemption,
requires
developing
and
implementing
a
system
for
allocating
or
distributing
the
methyl
bromide.
The
EPA
considered
a
number
of
possible
alternative
allocation
systems,
and
identified
three
systems
for
additional
economic
analysis.
These
allocation
systems
(
also
described
as
"
models"
or
"
options"
in
this
EIA)
are
as
follows:
***
DRAFT
(
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2006)
DO
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CITE,
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OR
ATTRIBUTE***

­
46
­
Option
1:
Producer/
Importer
Cap
and
Trade
Allowance
with
Market
Distribution
of
Methyl
Bromide
Option
2:
Producer/
Importer
Cap
and
Trade
Allowance
with
End
User
Permit
Trading
Option
3:
Producer/
Importer
Cap
and
Trade
Allowance
with
End
User
Permit
Auction
and
Trading
[
initially
considered
as
an
option
but
not
analyzed
in
the
remainder
of
this
document].

Under
all
three
options,
methyl
bromide
would
be
capped,
and
allowances
would
be
allocated
to
producers
and
importers
based
on
their
historic
levels
of
production
or
import.
Allocation
would
be
determined
by
historic
production
and
trading
of
allowances
between
producers
and
importers
would
be
allowed.
Under
Options
2
and
3
there
would
be
additional
regulations
that
would
distribute
rights
of
critical
use
methyl
bromide
to
approved
users.
Under
Option
2,
EPA
would
provide
permits
to
end
users
using
a
reconstructed
baseline
of
historic
methyl
bromide
consumption.
These
permits
could
then
be
traded,
either
within
sectors
or
across
sectors
(
depending
on
how
the
option
is
implemented).
Option
3
involves
the
distribution
of
permits
to
end
users
at
an
auction
where
approved
critical
users
may
bid
for
the
rights
to
buy
methyl
bromide.
This
option
has
four
sub­
options:
auction
to
sectors
("
sector
auctions")

or
a
universal
auction,
and
post­
auction
trading
within
or
among
sectors.

EPA
is
proposing
Option1
as
the
preferred
regulatory
option,
based
on
a
comparison
of
the
total
costs
of
the
three
options
to
EPA
and
to
industry.
The
following
sections
outline
the
options
in
more
depth,
and
Chapters
6,
7,
and
9
provide
a
detailed
comparison
of
administrative
and
total
costs
of
the
options.

4.2
Definition
of
Terms
Several
terms
are
used
frequently
in
descriptions
of
the
three
main
methyl
bromide
allocation
options:

 
End
users
are
individual
business
entities
within
sectors
that
use
methyl
bromide.
For
example,
one
hypothetical
25­
acre
tomato
farm
in
Florida
represents
one
end
user.

 
Methyl
bromide
allowances
and
permits
refer
to
the
unit
of
distribution
of
methyl
bromide
for
critical
use
exemption
(
CUE
allowances
are
held
by
importers
and
producers,
and
CUE
permits
are
held
by
end
users).
An
allowance
or
permit
gives
an
allowance
or
permit
holder
the
right
to
purchase,
trade,

or
receive
through
allocation
one
kilogram
of
methyl
bromide.
Some
of
the
assumptions
made
for
the
purpose
of
analysis
were:

 
Allowances/
permits
expire
after
one
year.
For
example,
if
an
end
user
possesses
permits
to
use
250
kilograms
of
methyl
bromide
in
2005
but
only
uses
200
kilograms
by
December
31,
2005,
the
end
user
cannot
carry
the
50
kilograms
remaining
in
the
2005
permits
over
to
2006.
***
DRAFT
(
1/
30/
2006)
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OR
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­
47
­
 
If
an
allowance
or
permit
holder
goes
out
of
business,
any
remaining
methyl
bromide
allowances/
permits
can
be
sold
to
an
approved
CUE
end
user
or
producer,
depending
on
the
option,
but
must
be
redeemed
in
the
same
year.

 
Applicators
of
methyl
bromide
purchase
methyl
bromide
directly
from
an
importer,
producer,
or
distributor
and
fumigate
fields
or
commodities
with
the
purchased
methyl
bromide.

 
Importers
of
methyl
bromide
purchase
methyl
bromide
from
abroad
and
sell
it
to
producers,

distributors,
or
directly
to
end
users.
There
are
two
methyl
bromide
importers
in
the
United
States.

 
Producers
of
methyl
bromide
produce
methyl
bromide
to
sell
to
distributors
or
directly
to
end
users.

There
are
two
methyl
bromide
producers
in
the
United
States.

 
Distributors
of
methyl
bromide
purchase
methyl
bromide
from
importers
or
producers
and
sell
methyl
bromide
to
applicators
or
directly
to
end
users.
In
this
analysis,
it
is
estimated
that
there
are
50
distributors
in
the
United
States.

4.3
Option
1:
Producer/
Importer
Cap
and
Trade
Allowance
System
with
Market
Distribution
of
Methyl
Bromide
Option
1
is
based
on
the
existing
U.
S.
system
to
allocate
methyl
bromide
allowances
to
producers
and
importers
similar
to
how
it
is
conducted
under
the
phaseout
program
11
.
In
addition,
it
uses
the
selfcertification
elements
of
the
quarantine
and
preshipment
(
QPS)
exemption
to
regulate
how
end
users
of
methyl
bromide
acquire
the
substance.
Under
this
system,
producers
and
importers
receive
allowances
and
expend
these
allowances
when
they
produce
or
import
methyl
bromide.
Allocation
of
allowances
to
producers
and
importers
is
based
on
pro­
rated
historic
consumption.

4.3.1
Overview
of
QPS
System
QPS
is
defined
as
"
a
process
to
exempt
methyl
bromide
used
for
quarantine
and
preshipment
applications
from
the
Allowance
Program's
control
measures
that
phaseout
production
and
consumption
of
methyl
bromide"
(
Federal
Register
2003).
Methyl
bromide
applicators
wishing
to
purchase
a
specific
amount
of
methyl
bromide
submit
a
certification
to
methyl
bromide
distributors
that
guarantees
that
the
methyl
bromide
will
only
be
used
for
QPS
applications.
Applicators
also
must
justify
use
by
proving
that
11
For
the
current
distribution
system,
EPA
issues
allowances
to
producers
and
consumers
equal
to
the
total
quantity
of
methyl
bromide
consumption
allowed
in
the
given
phaseout
year.
Producers
and
importers
are
allowed
to
trade
their
allowances
and
must
report
expended
or
unexpended
allowances
on
a
quarterly
basis.
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
48
­
methyl
bromide
application
is
required
by
law
for
the
specific
commodity.
12
Distributors
maintain
records
of
the
certification
forms
for
EPA
to
determine
the
amount
of
methyl
bromide
sold
for
QPS
uses
(
Federal
Register
2003).
This
option
for
allocating
methyl
bromide
for
CUE
would
employ
similar
certification
methods
when
a
user
buys
methyl
bromide.

4.3.2
Description
of
Model
Components
A
Producer/
Importer
Cap
and
Trade
Allowance
with
Market
Distribution
of
Methyl
Bromide
(
Option
1)
for
methyl
bromide
would
follow
similar
steps
as
described
above.
There
are
two
"
sub­
options"

to
Option
1:

 
Producers
could
receive
methyl
bromide
allowances
and
sell
methyl
bromide
to
any
CUEcertified
end
user
(
i.
e.,
one
end
user
could
theoretically
purchase
all
methyl
bromide),
regardless
of
sector;
and
 
Producers
could
receive
methyl
bromide
allowances
and
sell
quantities
of
methyl
bromide
that
were
limited
by
sector
(
i.
e.,
a
certain
type
of
end
user
could
only
purchase
a
specific
amount
of
methyl
bromide),
and
therefore
could
only
sell
up
to
a
certain
amount
of
methyl
bromide
within
a
given
sector.

Allowance
Holders
Under
Option
1,
producers
and
importers
would
hold
all
methyl
bromide
allowances.
A
methyl
bromide
allowance
allocated
to
a
producer
or
importer
would
indicate
permission
to
produce
or
import
one
kilogram
of
methyl
bromide.

Trading
System
Under
Option
1,
allowances
provide
the
holder
with
the
right
to
produce
or
import
the
quantity
of
methyl
bromide
represented
by
held
allowances.
Allowances
are
transferable
between
producers
and
importers.
Although
aggregate
production/
import
of
methyl
bromide
is
limited
by
the
number
of
allowances,
individual
producers
and
importers
are
not
necessarily
constrained
by
historic
production
levels,
if
they
are
able
to
purchase
allowances
from
other
purchasers
or
importers.
For
example,
if
one
producer
(
because
of
changes
in
profit
or
production
costs),
decides
to
produce
less
methyl
bromide
than
it
had
produced
historically,
the
producer
could
sell
unused
allowances
to
another
producer
or
importer.

The
producer
that
purchased
the
methyl
bromide
allowances
could
produce
as
much
methyl
bromide
as
12
Applicators
are
not
currently
limited
to
methyl
bromide
obtained
through
certification;
they
are
also
able
to
purchase
methyl
bromide
for
non­
QPS
uses
up
to
the
phaseout
date
for
those
methyl
bromide
uses.
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
49
­
allowed
by
initial
allowances
it
received
through
the
allocation,
plus
the
amount
represented
by
the
allowances
purchased
from
the
other
producer
or
importer.
Similarly,
allowances
sold
from
an
importer
or
producer
to
another
importer
would
mean
that
the
importer
that
purchased
allowances
could
import
additional
amounts
of
methyl
bromide
above
the
quantity
originally
permitted
through
initial
allowance
allocation.

Method
of
End
User/
Applicator
Allocation
End
users
and
applicators
of
methyl
bromide
can
purchase
methyl
bromide
directly
from
a
producer
or
importer,
or
from
an
applicator
or
distributor.
End
users
and
applicators
would
receive
methyl
bromide
through
a
self­
certification
system
similar
to
the
QPS
self­
certification
system.
As
mentioned
earlier,
the
only
major
departure
from
the
QPS
self­
certification
system
would
be
use
of
specified
criteria
(
e.
g.,
township
caps,
nutsedge
infestation)
to
demonstrate
the
need
for
methyl
bromide,
rather
than
demonstrating
that
the
methyl
bromide
would
be
used
for
a
specific
application
(
as
is
the
case
for
the
QPS
system).
For
self­
certification,
methyl
bromide
applicators
and
end
users
would
prepare
a
document
with
criteria
to
support
the
need
for
methyl
bromide
for
critical
use
and
would
give
the
document
to
the
methyl
bromide
seller
(
producers,
importers,
or
distributors).
The
document
would
include
a
checklist
of
criteria
and
spaces
for
applicants
to
further
describe
their
situation
in
detail.
Producers
and
importers
could
sell
methyl
bromide
to
distributors
before
self­
certification
by
applicators
or
end
users
had
been
verified,
but
not
directly
to
end
users
before
self­
certification.
Distributors
typically
collect
several
end
user
and
applicator
requests
for
methyl
bromide
and
then
apply
to
purchase
a
bulk
amount
of
methyl
bromide.

Producer/
Importer
Reporting
Quarterly
reports
would
be
required
for
producers
and
importers
under
Option
1.
These
reports
would
indicate
expended
and
unexpended
allowances
for
the
quarter.
Producers
and
importers
would
also
be
required
to
submit
annual
reports
that
would
indicate
the
amount
of
methyl
bromide
created
and
transferred
(
bought
or
sold),
and
the
amount
of
material
unused
or
held
in
physical
inventory.

Distributor
Reporting
Distributors
would
also
submit
annual
reports
that
would
indicate
amount
of
methyl
bromide
transferred
(
bought
or
sold),
and
the
amount
of
material
unused
and
held
in
physical
inventory
for
themselves
or
another
entity.
EPA
would
report
excess
stockpiled
methyl
bromide
to
the
Parties
of
the
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
50
­
Montreal
Protocol.
For
purposes
of
analyzing
the
cost­
effectiveness
of
the
options
in
the
EIA,
we
assume
no
material
is
stockpiled.

Recordkeeping
Similar
to
QPS
requirements,
producers
and
importers
would
have
to
maintain
records
of
certification
from
distributors
and
other
direct
sales
to
buyers
of
methyl
bromide
for
CUE.
These
records
would
verify
that
methyl
bromide
was
applied
for
authorized
CUE
uses.
Distributors
would
have
to
maintain
similar
self­
certification
records
from
end
users
and
applicators.

4.4
Option
2:
Producer/
Importer
Cap
and
Trade
Allowance
System
with
End
User
Permit
Trading
The
second
option
for
methyl
bromide
allocation
combines
the
QPS­
like
system
for
an
overall
methyl
bromide
cap
(
limits
on
production
based
on
historic
production
levels)
with
a
permit
system
based
on
Canada's
experience
with
methyl
bromide
allocation
the
phaseout
exemptions.
This
section
describes
Canada's
system
and
the
components
of
Canada's
system
that
would
be
incorporated
under
Option
2.

4.4.1
Overview
of
the
Canadian
System
Canada,
like
the
United
States
and
other
Parties
to
the
Montreal
Protocol,
is
in
the
process
of
phasing
out
use
of
methyl
bromide
for
specific
exempted
uses.
The
Canadian
market
for
methyl
bromide
process
is
very
different
from
the
United
States'
market,
because
Canada
does
not
have
any
methyl
bromide
producers;
Canada
only
imports
methyl
bromide.
In
addition,
the
number
of
end
users
in
Canada
is
limited
(
there
are
59
end
users),
whereas
there
are
thousands
of
potential
end
users
in
the
United
States.

The
Canadian
process
of
methyl
bromide
distribution
allocates
methyl
bromide
rights
directly
to
end
users.
The
permit
system
allocates
rights
based
on
applications
from
QPS
users
and
other
entities
that
apply
methyl
bromide
for
critical
use.
Historic
use
and
other
factors
determine
the
number
of
permits
allocated
to
users
under
the
phaseout.
Allowances
are
allocated
on
a
yearly
basis;
both
allowances
and
permits
expire
at
the
end
of
each
year
(
Canadian
Environmental
Protection
Act
1999).

4.4.2
Description
of
Model
Components
Option
2
combines
the
system
of
capping
methyl
bromide
by
limiting
production
based
on
historic
production,
as
described
in
Option
1,
with
a
system
similar
to
the
one
used
in
Canada's
system
of
allocating
methyl
bromide
permits
to
end
users.
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
51
­
Allowance
and
Permit
Holders
Under
Option
2,
importers
and
producers
would
be
given
critical
use
allowances
to
import
and
produce
methyl
bromide.
In
addition,
end
users
would
be
given
methyl
bromide
permits.
A
methyl
bromide
permit
allocated
to
an
end
user
would
indicate
permission
to
apply
one
kilogram
of
methyl
bromide
to
a
crop
or
commodity.
After
initial
allocation
of
permits,
end
users
could
participate
in
a
trading
system.

Trading
System
The
trading
system
for
Option
2
would
involve
identifying
trading
partners,
negotiating,
and
conducting
trades,
and
then
recording
trades
through
a
permit
tracking
system
developed,
operated,
and
maintained
by
EPA.

Traded
quantities
of
methyl
bromide
permits
would
only
be
limited
by
the
production
cap;

individual
end
users
could
buy
or
sell
as
many
methyl
bromide
permits
as
are
permitted
under
the
cap,
or
as
permitted
by
sector
type
for
within­
sector
trading
(
i.
e.,
for
within
sector
trading,
permits
for
methyl
bromide
can
only
be
redeemed
for
the
sector
from
which
the
permit
was
traded).
Two
types
of
trading
are
considered
under
this
option:

 
Within­
sector
trading:
CUE­
approved
end
users
would
receive
methyl
bromide
permits
from
EPA
based
on
historic
use.
End
users
would
then
choose
to
redeem
all
permits
for
their
sector,
or
use
substitutes
for
methyl
bromide
and
sell
some
or
all
permits
to
any
other
entity.
The
entity
that
purchased
the
permits
could
only
redeem
the
permits
for
pre­
plant
fumigation
or
post­
harvest
treatment
of
the
same
crop
or
commodity
produced
by
the
permit
seller.

 
Across­
sector
trading:
CUE­
approved
end
users
would
receive
methyl
bromide
permits
from
EPA
based
on
historic
use.
End
users
would
then
choose
to
redeem
all
permits,
or
use
substitutes
for
methyl
bromide
and
sell
some
or
all
permits
to
any
other
entity.
The
entity
that
purchased
the
permits
could
redeem
the
permits
for
pre­
plant
fumigation
or
post­
harvest
treatment
use
on
any
approved
CUE
crop
or
commodity
if
they
were
a
certified
end
user.
This
construction
allows
brokers,
speculators,
and
citizen
groups
to
buy,
hold,
and
sell
allowances
after
the
initial
allocation
to
historic
users
of
methyl
bromide,
but
does
not
permit
them
to
redeem
allowances
and
acquire
methyl
bromide.
EPA
believes
that
citizen
groups
would
not
engage
in
significant
market
activity,
so
there
will
be
little
impact
on
the
market
of
allowing
such
groups
to
participate
in
trading.

As
an
example
of
the
trading
system
under
Option
2,
if
one
tomato
farmer
decided
to
use
less
methyl
bromide
than
had
been
used
historically
because
of
relatively
low
marginal
costs
of
methyl
bromide
substitutes,
the
tomato
farmer
could
sell
additional
permits
to
another
end
user
or
entity.
The
end
user
that
purchased
the
methyl
bromide
could
apply
as
much
methyl
bromide
as
allowed
by
permits
already
held,
and
could
also
apply
the
amount
purchased
in
permits
from
the
other
end
user.
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­
52
­
Under
the
"
within
sector"
sub­
option,
the
tomato
farmer
could
sell
methyl
bromide
to
any
entity,

but
the
permit
could
only
be
redeemed
for
use
in
tomato
planting
by
a
CUE­
approved
end
user.
This
would
lead
to
the
likely
effect
of
trades
only
occurring
with
other
tomato
farmers.
For
the
"
across­
sector"

sub­
option,
the
tomato
farmer
could
sell
permits
to
any
entity,
and
the
permit
could
be
redeemed
for
use
in
any
of
the
sixteen
approved
CUE
sectors
or
retired
by
another
entity.

Method
of
End
User
Allocation
Under
this
option,
EPA
would
distribute
methyl
bromide
permits
to
all
end
users
that
had
been
granted
CUE
use.
Determination
of
amounts
of
methyl
bromide
to
be
given
to
each
end
user
would
be
based
on
the
past
three
to
five
years
of
methyl
bromide
applied
to
a
certain
number
of
hectares,

multiplied
by
the
application
rates
requested
for
the
particular
end
user's
sector
in
EPA's
nomination
to
the
Parties.
For
example,
the
2003
Nomination
for
a
Critical
Use
Exemption
for
Fresh
Market
Tomatoes
requests
160
kilograms
of
methyl
bromide
per
hectare
for
tomato
growers
in
the
Southeastern
United
States
in
2005.
This
Allocation
Rule
analysis
uses
methyl
bromide
consumption
numbers
requested
in
the
U.
S.
nomination
to
the
Parties
to
the
Montreal
Protocol.
Therefore,
a
tomato
farmer
in
Florida
that
applied
methyl
bromide
to
an
average
of
100
hectares
over
the
three
to
five
years
preceding
methyl
bromide
allocation
would
receive
16,000
methyl
bromide
permits
(
representing
the
right
to
purchase
and
apply
16,000
kilograms
of
methyl
bromide
to
the
farmer's
tomato
crops
in
2005).
Note
that
although
the
permits
are
allocated
to
end
users,
end
users
and
applicators
must
still
purchase
methyl
bromide
from
producers
or
importers
and
must
certify
that
the
methyl
bromide
will
be
used
for
critical
use
exemption.

Reporting
 
Tracking
System
Reporting
under
Option
2
would
be
similar
to
the
reporting
system
described
under
Option
1,

except
reporting
for
end
users
and
producers
would
occur
through
a
tracking
system
(
referred
to
in
this
document
as
"
EPA's
Permit
Tracking
System").
EPA's
Permit
Tracking
System
would
be
used
to
record
permit
allocation,
trades,
redemption
and
aid
the
trading
process.
After
certifying
to
a
distributor,
importer
or
producer
that
purchase
of
methyl
bromide
was
for
critical
use
exemption,
permit
holders
would
withdraw
the
number
of
permits
purchased
from
an
account
in
the
tracking
system.
The
tracking
system
would
then
send
an
electronic
message
to
the
distributor,
importer,
or
producer
showing
permit
redemption.
Upon
receipt
of
the
message
and
appropriate
certification,
the
sale
of
methyl
bromide
could
be
made.
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­
53
­
Producer/
Importer
Reporting
Producers
and
importers
would
be
required
to
submit
quarterly
reports
verifying
expended
and
unexpended
methyl
bromide
allowances
reported
in
the
tracking
system
throughout
the
year.
They
would
also
be
required
to
submit
annual
reports
that
would
verify
the
amount
of
methyl
bromide
created
and
transferred
(
bought
and
sold).

Distributor
Reporting
Distributors
would
also
submit
annual
reports
that
would
verify
the
amount
of
methyl
bromide
transferred
(
bought
or
sold)
that
was
reported
in
the
tracking
system
throughout
the
year.

End
User
Reporting
End
users
would
have
to
annually
verify
data
entered
into
a
tracking
system
showing
actual
methyl
bromide
use
reported
to
indicate
the
amount
of
methyl
bromide
that
was
actually
used
and
not
stockpiled.
EPA
would
report
stockpiled
methyl
bromide
to
the
Montreal
Protocol
Parties.

Recordkeeping
Similar
to
QPS
requirements,
producers
and
importers
would
have
to
maintain
records
of
certification
from
distributors
and
other
direct
sales
to
buyers
for
3
years.
These
records
would
verify
that
methyl
bromide
was
applied
for
authorized
CUE
uses.
Distributors
would
have
to
maintain
similar
selfcertification
records
from
end
users
and
applicators.

4.5
Option
3:
Producer/
Importer
Cap
and
Trade
Allowance
System
with
End
User
Permit
Auction
and
Trading
Distributing
permits
via
an
auction,
rather
than
via
the
free
distribution
mechanism
described
for
Option
2,
is
a
common
distribution
mechanism
described
in
the
economics
literature.
EPA
initially
considered
the
possibility
of
auctioning
permits
to
end
users
(
Option
3).
However,
Option
3
was
dropped
from
further
analysis
relatively
early
in
the
process
as
too
burdensome
to
end
users
and
costly
to
administer,
based
on
EPA's
stakeholder
meetings
across
the
country
and
on
EPA's
history
with
auctions.

Although
the
Option
is
described
in
this
chapter
for
completeness,
it
does
not
receive
a
thorough
treatment
in
this
EIA.
The
option
is
revisited
again
in
the
latter
part
of
Chapter
5,
which
discusses
some
of
the
economic
differences
between
a
system
of
free
distribution
vs.
auction
for
end
users,
as
part
of
a
general
discussion
of
differences
across
the
options.
***
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­
54
­
The
third
option
for
allocation
of
methyl
bromide
permits
for
critical
use
exemption
uses
the
same
cap
system
for
methyl
bromide
as
Options
1
and
2
(
a
limit
on
production
and
import
based
on
historic
production
levels),
but
distributes
methyl
bromide
permits
to
end
users
through
an
auction
system.
This
section
briefly
describes
the
types
of
programs
upon
which
this
option
is
based,
and
the
method
of
auction
that
would
be
used
to
distribute
methyl
bromide
permits.
An
auction
system
differs
significantly
from
Option
2
because,
rather
than
EPA
allocating
permits
to
end
users
based
on
historic
use,
the
"
market"
would
be
used
for
initial
allocation
to
approved
critical
uses,
followed
by
trading
among
end
users
that
purchased
permits.

4.5.1
Overview
of
Auction
Systems
in
Practice
Auction
systems
have
been
used
to
a
limited
extent
for
other
pollutants
in
the
United
States,
such
as
sulfur
dioxide
through
the
SO2
Trading
Program
under
the
Acid
Rain
Program
and.
Through
such
auction
programs,
allowances
are
purchased
to
emit
a
certain
amount
of
pollutant.
Those
entities
that
can
reduce
pollution
with
marginally
lower
costs
than
others
sell
allowances
at
any
price
above
marginal
cost
of
pollutant
reduction
(
i.
e.,
it
is
relatively
cheaper
for
these
entities
to
reduce
pollution).
Those
entities
that
have
higher
marginal
costs
of
pollution
reduction
purchase
allowances
to
pollute
at
any
price
below
marginal
costs
of
pollution
reduction
(
i.
e.,
it
is
cheaper
for
the
entities
to
purchase
an
allowance
to
pollute
than
to
reduce
pollution).
In
the
case
of
a
methyl
bromide,
the
price
determination
would
be
based
on
end
users'
marginal
costs
of
methyl
bromide
substitutes.

4.5.2
Description
of
Model
Components
Option
3
combines
the
system
of
capping
methyl
bromide
by
limiting
production
and
import
based
on
historic
production
and
import
with
an
auction
system
for
end
users.
An
auction
system
for
methyl
bromide
could
be
conducted
in
two
ways,
which
creates
two
sub­
options
for
Option
3:

 
EPA
or
a
contractor
could
hold
remote
auctions
for
methyl
bromide
permits
to
each
of
the
sixteen
CUE­
approved
sectors
("
sector
auction").
Permits
would
be
auctioned
to
CUEapproved
end
users;
end
users
would
become
permit
holders.
Trading
would
then
be
allowed
either
within
or
among
sectors.

 
A
universal
auction
could
be
held.
The
universal
auction
would
also
allow
sale
of
methyl
bromide
permits
to
any
CUE­
approved
end
users;
end
users
would
become
permit
holders.
Under
this
option,
trading
could
be
allowed
either
within
or
among
sectors.

The
decision
to
conduct
sector
versus
universal
auctions
could
be
influenced
by
the
method
that
the
Parties
use
when
granting
methyl
bromide
for
critical
use
exemption
to
the
United
States.
The
Parties
could
provide
methyl
bromide
by
sector
or
as
a
"
lump
sum."
Under
either
system,
although
only
methyl
bromide
critical
users
could
purchase
permits
at
an
auction
and
redeem
permits
for
use,
in
the
secondary
market
anyone
could
purchase
permits,
including
an
environmental
group
that
could
retire
permits.
***
DRAFT
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2006)
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­
55
­
Allowance
and
Permit
Holders
Under
Option
3
for
both
the
universal
and
sector
auctions,
methyl
bromide
allowances
would
be
allocated
to
producers
and
importers
thereby
limiting
production
and
import
to
a
specific
quantity
of
methyl
bromide.
CUE­
approved
end
users
would
purchase
and
hold
permits
from
an
auction
and/
or
through
post­
auction
trading.
A
methyl
bromide
permit
purchased
in
an
auction,
or
purchased
in
a
postauction
trade,
would
indicate
permission
to
purchase
one
kilogram
of
methyl
bromide
from
a
producer,

importer,
or
distributor,
for
the
purpose
of
application
to
a
CUE­
approved
crop
or
commodity.
Under
both
the
sector­
specific
and
universal
auction
options,
although
only
methyl
bromide
critical
users
could
buy
permits
at
auction,
in
the
secondary
market
anyone
could
purchase
permits,
including
an
environmental
group
that
could
retire
their
permits.
However,
in
order
to
redeem
permits
for
actual
methyl
bromide,
the
permit
holder
must
be
an
approved
critical
user
and
follow
the
restrictions
as
to
the
type
of
allowance
her
or
she
may
hold.

Trading
System
Under
Option
3,
methyl
bromide
permits
would
be
allocated
through
an
auction
system
to
CUEapproved
end
users,
and
trading
would
be
allowed
among
end
users
of
methyl
bromide
following
initial
allocation.
As
described
above,
trading
would
either
be
allowed
within
sectors
or
across
sectors.
The
trading
system
following
the
auction
process
would
be
identical
to
the
system
described
under
Option
2.

Auctioned
and
traded
quantities
of
methyl
bromide
permits
would
only
be
limited
by
the
annual
sector
or
universal
production
cap;
individual
end
users
could
buy
or
sell
as
many
methyl
bromide
permits
as
are
permitted
by
the
cap,
or
as
permitted
by
the
sector
limitation
(
i.
e.,
for
sector­
specific
trading,
purchased
permits
could
only
be
redeemed
for
the
same
sector
from
which
the
permits
were
sold).
The
tracking
system
for
purchase
of
permits
through
auction
and
trades
would
also
be
identical
to
that
described
in
Option
2.

Method
of
End
User
Allocation
To
allocate
permits
to
end
users
through
an
auction
system,
EPA
could
run
all
steps
of
the
auction
process,
which
include
planning
the
actual
auction
and
ensuring
that
purchasers
receive
the
permits
for
which
they
paid.
Alternatively,
EPA
could
hire
an
auctioneer
under
a
gratuitous
service
contract
that
would
charge
permit
purchasers
a
fee
to
cover
auction
costs
and
would
run
all
steps
of
the
auction
process.
All
revenues
from
auctions
would
go
to
the
U.
S.
Treasury,
since
there
is
no
special
statutory
authority
authorizing
EPA
to
divert
such
revenues
to
another
purpose.
Note
that
although
end
***
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­
56
­
users
would
purchase
permits
in
an
auction,
they
would
still
have
to
pay
for
methyl
bromide
and
certify
to
distributors
that
the
methyl
bromide
was
for
an
approved
CUE
purpose.

U.
S.
auctions
would
be
held
twice
per
year
because
the
Parties
to
the
Montreal
Protocol
authorize
methyl
bromide
for
countries
two
times
in
a
given
cycle.
In
addition,
multiple
auctions
would
spread
the
supply
of
permits
over
the
year,
providing
more
coordination
between
the
allocation
of
permits
and
the
time
of
fumigation
and,
thus,
would
reduce
the
costs
of
raising
capital
in
order
to
purchase
permits.
Half
of
the
methyl
bromide
for
CUE
allocated
to
the
United
States
for
one
year
would
be
sold
in
the
first
auction,
and
half
would
be
sold
in
the
second.
In
the
case
of
sector
auctions,
32
auctions
would
be
held
annually.
Universal
auctions
would
only
require
two
auctions
to
be
held
annually
and
would
likely
be
much
less
expensive
to
conduct
than
numerous
sector
auctions.

Permits,
once
auctioned,
would
be
tracked
in
a
database
system
as
described
under
Option
2.

Reporting
Reporting
under
Option
3
would
be
identical
to
reporting
under
Option
2.

Recordkeeping
Recordkeeping
under
Option
3
would
be
identical
to
recordkeeping
under
Option
2.

4.6
Potential
Cost
Savings
to
Industry
through
Permit
Trading
In
the
environmental
economics
literature,
traditional
direct
control
approaches
have
been
criticized
as
more
costly
than
marketable
permit
systems
to
achieve
environmental
quality
standards.

Theoretically,
marketable
permit
systems
could
allow
polluters
with
higher
costs
for
emission
control
to
buy
permits
from
polluters
with
lower
costs.
Under
certain
conditions,
total
aggregate
abatement
costs
can
be
reduced
and
pollution
abatement
achieved
at
a
lower
cost
to
the
economy.
Indeed,
many
studies
have
found
that
marketable
permit
systems
can
be
more
cost­
effective
than
fixed
allocation
approaches
in
achieving
emission
reduction
targets
or
air
quality
objectives.

Through
the
economic
analysis
of
the
CUE
applications,
EPA
gathered
a
substantial
body
of
data
on
potential
losses
in
revenue
and
increases
in
operating
costs
associated
with
alternative
pest
control
regiments.
These
data
have
been
used
by
Kim
et
al.
(
2003)
to
estimate
the
types
of
cost
savings
that
might
result
from
permit
trading.
In
particular,
the
data
have
been
used
to
estimate
(
1)
the
cost
savings
arising
from
permit
trading
relative
to
a
situation
where
CUE
permits
are
allocated
but
not
traded
(
command
and
control
regulations)
and
(
2)
the
cost
savings
of
trading
under
the
universal
rather
than
the
***
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­
57
­
sector­
specific
allocation.
The
first
of
these
issues
is
discussed
below.
The
second
is
revisited
in
Chapter
5.

Although
EPA
is
not
considering
an
option
wherein
methyl
bromide
permits
are
allocated
but
not
traded
(
command
and
control
regulation),
it
is
nonetheless
instructive
to
examine
the
potential
cost
savings
that
would
result.
A
permit
trading
system
is
intended
to
reduce
the
total
control
costs
(
across
methyl
bromide
users)
of
meeting
the
target
for
emissions.
If
EPA
were
to
adopt
a
command
and
control
approach,
this
would
involve
developing
and
assigning
permits
to
each
end
user.
Depending
on
the
rule
used
to
allocate
permits,
the
resulting
situation
could
be
very
different
from
the
outcome
if
the
end
users
could
trade
the
permits
and
transfer
rights
to
use
methyl
bromide.

In
their
paper,
Kim
et
al.
estimate
that
the
potential
cost
savings
of
marketable
permit
systems
could
be
significant
over
command
and
control.
The
estimated
cost
of
command
and
control
for
a
(
sector­
specific)
CUE
allocation
ranges
from
approximately
$
56
million
to
over
$
177
million,
depending
on
how
the
allocation
is
conducted.
Note
that
the
baseline
for
these
costs
is
not
the
current
phaseout,
but
continued
use
of
methyl
bromide.
The
lower
end
of
the
range
results
if
EPA
is
able
to
allocate
permits
to
those
end
users
with
high
costs
of
switching
to
substitutes;
the
high
end
of
the
range
results
if
EPA
allocates
permits
to
those
end
users
with
low
costs
of
switching
to
substitutes.
The
potential
upper
bound
magnitude
of
the
cost
savings
of
permit
trading
is
indicated
by
the
difference
between
the
high
and
low
ends
of
the
range.
If
EPA
allocates
permits
to
end
users
with
low
costs
of
switching
and
trading
is
allowed,
these
users
will
sell
their
permits
to
end
users
with
higher
costs
of
switching,
and
the
compliance
costs
under
the
system
will
be
reduced.
Without
trading,
the
full
compliance
cost
will
be
$
177
million.

Exhibits
4.6.1
and
4.6.2,
and
their
accompanying
text,
provide
an
example
that
further
illustrates
the
benefits
of
trading.
***
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­
58
­
Exhibit
4.6.1.
Description
of
Hypothetical
Applicants:
Florida
Tomato
Farmers
(
2003$)
Applicants
Jin
John
James
Jane
Marginal
costs
of
switching
to
an
alternative
per
pound
of
methyl
bromide
$
50
$
30
$
10
$
5
Methyl
bromide
requested
(
pounds)
100
100
100
100
In
this
sample
situation,
only
50
percent
of
the
methyl
bromide
requested
by
the
applicants
described
in
Exhibit
4.6.1
is
approved
for
use.
Assume
that,
under
both
command
and
control
and
permit
trading,
all
CUE
permits
are
assigned
to
users
with
high
costs
of
methyl
bromide
substitution
(
i.
e.,
Jin
and
John).
Jin
and
John
are
not
interested
in
trading
their
methyl
bromide
permits.
As
a
result,
permit
trading
does
not
occur
and
there
are
no
cost
savings
associated
with
permit
trading.
The
total
cost
of
the
Allocation
Rule
to
the
Florida
tomato
industry
under
this
example
would
be
the
sum
of
the
cost
to
James
($
1,000
=
$
10*
100)
and
Jane
($
500
=
$
5*
100),
which
is
$
1,500.

Suppose,
however,
that
Jin,
John,
James,
and
Jane
are
all
able
to
self­
certify.
Further
assume
that,
under
both
command
and
control
and
permit
trading,
all
CUE
permits
are
assigned
to
users
with
low
costs
of
methyl
bromide
substitutes,
i.
e.,
to
James
and
Jane.
For
example,
although
James
and
Jane
may
be
able
to
self­
certify
using
biological
criteria
of
pest
pressure
and
soil
conditions,
their
marginal
costs
of
switching
to
an
alternative
could
be
relatively
low
due
to
other
economic
reasons,
such
as
high
productivity
systems.
In
this
case,
as
illustrated
in
Exhibit
4.6.2,
a
permit
trading
system
will
provide
compliance
cost
savings
over
command
and
control.

Exhibit
4.6.2.
Cost
Savings
of
Option
2
(
Permit
Trading),
Assuming
Imperfect
Allocation
of
Permits
under
Option
1
Allocation
Assumption
Total
Incremental
Costs
to
the
Florida
Tomato
Industry
Savings
from
Permit
Trading
All
CUEs
are
assigned
to
high
cost
users
(
Jin
and
John)
and
no
permit
trading
$
1,500
0
All
CUEs
are
assigned
to
low
cost
users
(
James
and
Jane)
and
no
permit
trading
$
8,000
For
Jin
=
$
50*
100
For
John
=
$
30*
100
0
All
CUEs
are
assigned
to
low
cost
users
and
permit
trading
(
permit
price
=
$
20).
$
1,500
Jin
buys
permits
from
James
and
pays
$
20
per
each
unit
and
John
buys
permits
from
Jane
and
pay
$
20
per
each
unit.

For
Jin
:
The
permits
cost
$
20*
100
=
$
2,000,
but
saves
$
3,000
overall.

For
John:
The
permits
cost
$
20*
100
=
$
2,000,
but
saves
$
1,000
overall
For
James:
Profit
from
permit
trading
is
$
2,000,
but
the
cost
of
switching
to
an
alternative
is
$
1,000.
The
overall
profit
is
$
1,000.

For
Jane:
Profit
from
permit
trading
is
$
2,000,
but
the
cost
of
switching
to
an
alternative
is
$
500.
The
overall
profit
is
$
1,500.
$
6,500
($
3,000
+
$
1,000
+
$
1,000
+
$
1,500
)

Source:
EPA
2003d
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­
59
­
The
cost
savings
discussed
in
this
section
are
already
implicit
in
the
analysis
in
Chapter
5.
In
particular,
all
the
options
being
considered
for
the
CUE
Allocation
Rule
include
a
form
of
trading.
In
the
case
of
Option
1,
trading
occurs
between
producers.
13
More
importantly,
however,
end
users
can,
once
they
certify
that
they
are
a
critical
use,
purchase
methyl
bromide
from
distributors
or
producers.
Thus,
the
market
for
methyl
bromide
acts
to
allocate
methyl
bromide
to
its
highest
valued
use:
those
who
can
reduce
the
use
of
methyl
bromide
most
cheaply
do
so;
those
for
whom
it
is
expensive
bid
up
the
price
and
purchase
higher
quantities.
Because
certification
does
not
bring
with
it
a
limit
on
the
quantity
that
individuals
can
purchase
(
only
aggregate
sectoral
or
universal
amounts
are
limited),
the
market
can
operate
to
allocate
methyl
bromide
efficiently.
Similarly,
the
trading
systems
under
Options
2
and
3
mimic
the
market
operations
in
Option
1;
in
Option
2,
end
users
that
can
switch
cheaply
to
substitutes
do
so,

and
sell
their
permits
to
end
users
for
whom
switching
is
expensive;
and
in
Option
3,
end
users
for
whom
switching
is
expensive
bid
up
the
prices
at
auction
of
permits,
or
purchase
permits
after
the
auction,
in
order
to
assure
a
continued
supply
of
methyl
bromide.

Thus,
the
cost
savings
estimated
by
Kim
et
al.
are
already
embodied
in
the
estimates
in
this
EIA.

They
are
not
explicitly
stated,
however,
because
EPA
is
not
considering
a
command
and
control
option
for
implementing
the
CUE
Allocation.
Were
EPA
to
do
so,
then
the
compliance
cost
savings
of
the
command
and
control
option 
relative
to
the
phaseout
baseline 
would
likely
be
significantly
lower
than
the
cost
savings
estimated
for
the
options
being
considered
by
EPA,
and
might
even
be
negative.
The
cost
savings
of
trading
would
be
evident
in
the
different
compliance
cost
savings
estimated
for
the
command
and
control
option
relative
to
the
options
considered
in
this
EIA.

13
The
original
phaseout
also
allowed
the
market
to
function
so
that
methyl
bromide
is
allocated
to
its
highest
valued
uses.
Under
the
original
phaseout,
however,
there
were
no
constraints
on
purchases
by
sector,
or
within
a
sector
based
on
identification
of
"
critical
uses."
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60
­
5.
Incremental
Costs
Associated
with
Allocation
Options
This
section
discusses
the
incremental
costs
to
the
private
sector
associated
with
the
allocation
rule,
in
comparison
to
a
baseline
of
no
allocation
rule
(
and
a
continuation
of
the
phaseout
schedule
in
the
absence
of
the
CUE).
Several
different
perspectives
on
costs
are
provided.
Section
5.1
focuses
on
the
economic
costs
associated
with
complying
with
the
changes
in
methyl
bromide
use
as
a
result
of
the
CUE.
The
costs
that
are
reported
are
those
for
the
sector­
specific
(
not
universal)
application,
and
no
attempt
is
made
to
distinguish
among
the
options.
The
compliance
cost
and
cost
savings
discussed
in
this
section
include
only
private
sector
costs
(
to
end
users
of
methyl
bromide
and
consumers
of
commodities
produced
with
methyl
bromide).
Administrative
costs
to
the
private
sector
and
government
are
not
included
in
these
estimates,
but
are
discussed
in
later
chapters.
Section
5.2
discusses
qualitative
differences
in
control
costs
(
i.
e.,
the
economic
efficiency)
across
the
three
options.
This
section
also
provides
a
quantitative
illustration
of
the
cost
savings
associated
with
universal,
rather
than
the
sectorspecific
constraints
on
methyl
bromide
use.
The
final
section
concludes
with
a
discussion
of
the
distribution
of
costs,
and
equity
implications
of
the
alternative
allocation
options.

5.1
Comparison
of
Updated
Baseline
Phaseout
and
Allocation
Rule
Phaseout
This
section
presents
the
incremental
private
sector
compliance
costs
of
the
CUE.
These
costs
are
calculated
as
the
difference
between
(
1)
the
estimated
compliance
costs
for
the
original
methyl
bromide
complete
phaseout
in
2005
(
the
baseline
for
this
analysis)
and
(
2)
the
cost
of
the
phaseout
including
the
continued
use
of
methyl
bromide
for
critical
use
exemptions
(
CUE)
beyond
the
2005
phaseout
date.
(
Costs
under
the
baseline
are
reported
in
Chapter
3
of
this
EIA,
which
describes
the
baseline
calculated
for
the
original
phaseout
and
the
updates
that
have
been
made
to
that
baseline,
such
as
extending
the
phaseout
schedule
and
modifying
the
sectors,
for
the
current
analysis.)
Thus,
the
cost
results
reported
in
Chapter
5
are
the
incremental
costs
of
adopting
the
CUE
rule,
on
top
of
the
2005
phaseout.
Because
the
CUE
increases
the
available
methyl
bromide
to
end
users,
the
cost
of
complying
with
the
phaseout
together
with
CUE
allocation
rule
is
lower
than
the
cost
of
complying
with
the
original
phaseout
alone.
Consequently,
the
incremental
costs
of
the
CUE
allocation
rule
will
be
negative,
i.
e.,
the
rule
will
have
cost
savings.

Section
5.1
is
divided
up
into
several
subsections.
The
first
subsection
presents
an
overview
of
the
modeling
framework
used
to
calculate
cost
for
the
baseline
phaseout
and
for
the
phaseout
combined
with
the
CUE
rule.
The
second
subsection
presents
the
results
of
the
incremental
cost
calculation,
i.
e.,

the
difference
between
costs
under
the
baseline
phaseout
and
with
the
new
CUE
phaseout
schedule.

The
final
subsection
discusses
some
of
the
underlying
assumptions
and
caveats
inherent
in
the
analysis.

The
inputs
used
to
calculate
the
costs
for
both
the
baseline
phaseout
and
the
CUE
scenario
are
presented
in
Appendix
B.
See
Chapter
3
for
additional
information.
***
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­
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­
5.1.1
Framework
for
Modeling
Cost
The
basic
modeling
framework
employed
for
this
analysis
is
an
updated
version
of
the
cost
model
used
to
estimate
compliance
costs
as
presented
in
the
Phaseout
RIA.
The
framework
has
been
updated
in
several
ways
(
as
described
in
Chapter
3
of
the
EIA)
and
is
used
to
calculate
costs
under
both
the
baseline
phaseout
and
the
phaseout
combined
with
the
CUE
rule.
The
difference
between
the
costs
of
these
two
scenarios
is
the
incremental
cost
associated
with
the
Allocation
Rule.

The
model
essentially
relies
on
existing
data
on
methyl
bromide
uses
and
substitutes
for
the
key
markets
where
it
is
used
to
bound
the
possible
cost
impacts
on
commodity
producers
(
methyl
bromide
end
users)
and
consumers.
The
model
is
divided
up
into
sectors,
each
of
which
represents
a
particular
use
of
methyl
bromide
and
a
geographic
area
of
the
United
States.
Each
sector
contains
quantitative
information
on
current
farm
acreage
and
methyl
bromide
consumption,
on
the
costs
(
including
application
rates
and
input
costs)
of
using
methyl
bromide
and
substitute
products,
on
other
constraints
on
the
use
of
substitutes
(
e.
g.,
feasibility
for
addressing
problem
pests
and
legal
limitation),
and
on
yield
differences.

The
model
uses
these
factors,
and
other
inputs
based
on
qualitative
assessments
of
likely
substitutes
and
market
shares
in
different
sectors,
to
develop
a
dynamic
assessment
of
the
relative
use
rates
of
methyl
bromide
and
substitute
products
as
methyl
bromide
is
phased
out.

The
model
calculates
the
cost
of
switching
to
alternative
products
under
the
phaseout
(
whether
the
baseline
or
the
phaseout
with
CUE),
as
changes
in
producer
and
consumer
surplus.
Two
different
assumptions
regarding
commodity
product
markets
are
used
to
calculate
surplus
changes.
Approach
1
assumes
that
no
change
in
commodity
output
occurs
(
i.
e.,
domestic
and
foreign
producers
expand
crop
production
to
counteract
any
yield
losses
that
occur
due
to
the
expanded
use
of
substitutes).
Approach
2
assumes
that
no
additional
supplies
are
introduced
into
the
market.
Under
each
approach,
two
different
assumptions
are
used
to
calculate
these
costs:
high
and
low
scenarios
are
developed
to
reflect
the
range
in
the
data
on
the
cost
of
substitutes
for
methyl
bromide.
Once
changes
in
surplus
are
calculated
for
the
phaseout
schedules
(
the
baseline
phaseout
and
the
phaseout
with
CUE),
the
difference
between
the
cost
estimates
(
i.
e.,
the
difference
between
the
changes
in
surplus)
is
calculated
to
give
the
incremental
cost
of
the
CUE
Allocation
Rule.
In
this
chapter,
these
incremental
costs
will
be
referred
to
as
the
compliance
cost
or
cost
savings
of
the
Allocation
Rule.

Description
of
CUE
Phaseout
Schedule
As
described
in
Chapter
4,
this
EIA
assumes
that
methyl
bromide
quantities
consumed
in
the
United
States
in
2005
and
2006
will
be
equal
to
the
quantities
requested
in
the
U.
S.
nomination,
i.
e.,
39
and
37
percent
of
the
United
States
1991
baseline,
respectively.
By
comparison,
the
phaseout
schedule
for
the
original
Phaseout
RIA,
assumed
that
methyl
bromide
would
be
phased
out
completely
by
2005.

Beyond
2006,
the
EIA
assumes
that
consumption
of
methyl
bromide
for
critical
use
will
continue
at
37
percent
of
baseline
through
2010.
Use
then
drops
by
5
percent
annually
for
7
years
through
2017,
with
a
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­
62
­
final
drop
of
2
percent
and
subsequent
consumption
of
0
percent
in
2018
and
beyond.
Exhibit
4.1.1
summarizes
this
phaseout
schedule.
These
assumptions
are
used
for
strictly
analytical
purposes
and
do
not
represent
an
attempt
by
EPA
to
predict
the
actual
course
of
a
methyl
bromide
phaseout.
Methyl
bromide
allowed
for
CUE
each
year
will
be
determined
by
the
Parties
to
the
Montreal
Protocol,
and
actual
phaseout
is
likely
to
differ
from
these
assumptions.

Methyl
Bromide
Market
Characterization
Inputs
To
implement
the
cost
analysis,
a
variety
of
market
and
substitute
use
data
were
needed.

Appendix
B
provides
the
inputs
used
for
this
analysis.
The
level
of
disaggregation
for
methyl
bromide
uses
was
defined
by
the
original
phaseout
RIA,
with
the
addition
of
forest
seedlings,
ginger,
and
sweet
potatoes,
as
described
in
Chapter
3.
The
original
uses
were
based
on
commodity
and
location
and
by
consideration
of
the
most
cost­
effective
substitute
chemicals
or
procedures.
The
analysis
includes
coverage
of
markets
in
California,
Florida,
Georgia,
North
Carolina,
South
Carolina,
Oregon,
Washington,

and
Texas,
as
well
as
non­
region
specific
uses
for
nursery,
forest
seedlings,
and
post
harvest.
It
is
important
to
note,
however,
that
other
states
were
also
included
in
CUE
applications.

Chapter
2
describes
the
general
characterization
of
each
market
sector.
Quantity
information
for
each
market
sector
was
obtained
in
terms
of
acreage
planted,
yields
per
acre,
and
methyl
bromide
use
per
acre
by
sector.
Appendix
B
presents
treated
acreage,
crop
production,
crop
yield,
and
methyl
bromide
consumption
data
by
region
and
crop.
Farm­
and
wholesale­
level
prices
for
each
market
segment,
with
the
exception
of
forest
seedlings,
nurseries,
and
post­
harvest
uses
14
were
also
obtained
to
assess
the
effects
of
yield
impacts
on
producer
revenue.
Appendix
B
also
lists
farm­
and
wholesale­
level
prices
for
each
crop
by
state.
Data
for
the
model
were
drawn
from
a
review
of
the
literature,
the
CUE
applications,
the
National
Center
for
Food
and
Agricultural
Policy,
the
U.
S.
Department
of
Agriculture
Agricultural
Price
Summaries,
Census
of
Agriculture,
and
Crop
Profiles,
the
University
of
Florida
Food
and
Resource
Economics
Department,
and
the
California
Pesticide
Use
Reporting
Database.

Methyl
Bromide
Substitute
Market
Share
Information
Alternatives
to
methyl
bromide
were
identified
through
a
review
of
existing
documentation.
From
the
identified
alternatives,
substitute
costs
and
yield
impacts
were
derived.
Appendix
B
lists
methyl
bromide
alternatives
included
in
this
analysis
and
compares
alternative
costs
and
yields
to
those
for
methyl
bromide.
The
methodology
and
sources
used
to
derive
this
information
are
also
presented.

Exhibit
5.1.1.1
discusses
the
process
by
which
substitutes
are
adopted
by
market
sectors.
The
target
market
shares
for
each
substitute
were
calculated
by
taking
the
substitute
with
the
overall
least
cost
(
taking
into
account
both
price
and
effectiveness)
up
to
its
maximum
market
applicability,
followed
by
the
14
Data
were
unavailable
or
not
applicable
for
these
three
sectors.
***
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­
63
­
next
least
cost
option,
until
all
required
methyl
bromide
reductions
had
been
accomplished
for
each
year.

Note
that
in
reality,
however,
the
amount
of
material
available
for
CUE
is
dependent
on
available
substitutes.
The
following
steps
were
undertaken
to
estimate
substitute
market
share
information
for
each
year:

C
In
2005,
the
sectors
were
each
assigned
the
total
amount
of
methyl
bromide
requested
in
the
critical
use
nominations.

C
In
each
future
year
subject
to
a
target
reduction
of
methyl
bromide
use,
methyl
bromide
use
was
reduced
proportionally
in
each
sector.

C
Substitute
market
shares
were
calculated
based
on
cost
and
yield
of
each
alternative
relative
to
methyl
bromide.
Technical
considerations
specific
to
each
replacement
option
helped
determine
the
maximum
market
applicability
of
each
option
for
each
crop.

Cost
Calculations
For
each
sector,
incremental
costs
were
modeled
to
develop
estimated
changes
in
producer
and
consumer
surpluses
resulting
from
the
stepwise
implementation
of
replacement
options
(
in
lieu
of
continued
use
of
methyl
bromide).
The
modeling
approaches
used
both
low
and
high
scenarios
based
on
the
range
of
substitute
costs
relative
to
methyl
bromide.
Substitute
costs
were
compared
to
methyl
bromide
costs
of
$
1,350
per
treated
acre
for
contract
fumigation
in
California,
15
and
$
780
per
treated
acre
15
California
state
law
requires
fumigation
by
licensed
contractors.
This
increases
the
price
of
methyl
bromide
per
acre.
Exhibit
5.1.1.1.
Using
Methyl
Bromide
Substitutes:
The
Learning
Curve
Analysis
of
costs
to
industry
(
methyl
bromide
end
users,
henceforth
referred
to
as
compliance
(
or
control)
costs
or
compliance
(
or
control)
cost
savings)
in
both
the
Phaseout
RIA
and
Allocation
EIA
assumes
that
annual
costs
to
industry
remain
relatively
constant
through
the
time
periods
modeled.
These
annual
costs
result
from
the
cost
of
using
methyl
bromide
substitutes
and
other
crop
production
cost
changes
caused
by
methyl
bromide
phaseout.
Differences
in
substitute
prices
by
year
and
changes
resulting
from
improvement
production
efficiency,
however,
are
not
analyzed.
One
factor
that
can
lead
to
significant
cost
decline
over
time
is
the
knowledge
that
is
accumulated
through
experience
with
substitutes.
This
accumulation
of
knowledge
is
termed
the
"
learning
curve"
and
was
described
by
Boze
(
1994)
and
T.
P.
Wright
(
1936),
among
others.
Although
some
substitutes
may
be
initially
expensive
compared
to
methyl
bromide,
as
end
users
become
more
familiar
with
substitutes,
costs
per
unit
of
output
decrease
sharply
in
the
first
few
years
of
experience.
In
addition,
as
end
users
become
more
familiar
with
substitutes,
commodity
yields
increase.
This
results
from
increased
familiarization
with
the
substitute
technology,
fewer
mistakes,
and
a
higher
level
of
confidence
with
the
technology.
The
learning
curve
declines
in
later
years,
as
most
of
the
compliance
cost
saving
benefits
from
increased
experience
and
learning
have
been
realized,
and
only
small
incremental
improvement
opportunities
remain.
Although
the
learning
curve
is
not
quantified
in
cost
models
in
the
Phaseout
RIA
and
Allocation
EIA,
it
can
significantly
decrease
industry
compliance
costs
and
is
therefore
an
important
factor
to
consider
when
attempting
to
predict
compliance
costs
under
the
Phaseout
RIA
and
Allocation
EIA
cost
models.
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­
64
­
for
farmer
application
in
all
other
regions.
Each
cost
scenario
was
broken
down
by
crop,
and
each
crop
was
disaggregated
by
region
except
for
nursery,
forest
seedlings,
and
post
harvest
sectors,
which
were
presented
on
a
national
basis.
Finally,
the
cost
of
the
Allocation
Rule
was
calculated
as
the
difference
between
the
cost
estimates
(
relative
to
continued
use
of
methyl
bromide)
of
the
baseline
methyl
bromide
phaseout
in
2005
and
the
Allocation
Rule
schedule.

Alternative
Approaches
to
Calculating
Consumer
and
Producer
Surplus
This
analysis
takes
two
approaches
to
calculating
surplus
changes
of
the
phaseout
(
additional
detail
and
the
rationale
supporting
the
methodology
may
be
found
in
the
Phaseout
RIA).
These
two
approaches
look
at
changes
to
consumers
and
producers
in
the
commodity
markets
(
output
markets
where
methyl
bromide
is
an
input).
The
approaches
provide
upper
and
lower
bound
estimates
of
the
private
sector
cost
of
compliance
with
a
phaseout;
the
true
cost
of
the
phaseout
will
likely
fall
somewhere
between
the
results
of
the
two
polar
approaches.
16
Approach
1:
No
Change
in
Commodity
Output.
This
approach
assumes
that,
as
methyl
bromide
is
phased
out,
other
domestic
and
foreign
producers
expand
crop
production
to
counteract
any
yield
losses
that
occur
due
to
the
expanded
use
of
substitutes.
Crop
prices
are,
thus,
unchanged,
and
there
is
no
change
in
consumer
surplus
in
the
output
market.
Producer
surplus
in
the
output
market
declines,

however,
because
of
the
increased
cost
of
substitutes
and
yield
losses
that
result
from
some
substitutes.

The
change
in
producer
surplus
equals
the
sum
of
(
1)
the
increased
input
costs
of
substitute
practices,

i.
e.,
acreage
multiplied
by
the
increased
cost
of
materials
and
application
per
acre,
and
(
2)
the
value
of
lost
output,
i.
e.,
the
reduction
in
output
(
the
yield
loss,
if
any)
multiplied
by
the
farm
level
price.
This
approach
is
a
lower
bound
on
private
sector
costs,
because
it
assumes
that
alternative
sources
will
supply
additional
quantities
at
the
current
market
price.
It
is
a
high
end
estimate
of
producer
surplus
losses
(
of
the
lower
bound
private
sector
cost)
in
the
sense
that
producers
using
methyl
bromide
are
assumed
to
adopted
the
identified
substitutes,
regardless
of
possible
alternative
uses
for
their
assets
that
might
be
more
profitable.

Approach
2:
Commodity
Prices
Change.
This
approach
assumes
that
no
additional
supplies
of
commodities
using
methyl
bromide
are
forthcoming.
Thus,
output
in
commodity
markets
fall,
and
prices
rise
to
both
the
farm
and
the
consumer.
Increased
price
is
calculated
using
elasticity
of
demand
and
output
declines
due
to
yield
changes.
The
consumer
surplus
in
output
markets
declines
because
they
pay
more
for
the
product
they
consume,
and
consume
less
of
the
product
than
previously.
Specifically,

the
change
in
consumer
surplus
is
calculated
as
the
(
1)
increase
in
price
multiplied
by
the
new
quantity
consumed,
plus
(
2)
one­
half
of
the
price
increase
multiplied
by
the
fall
in
quantity.
Producers
face
higher
input
costs
for
the
crop
they
still
produce
and
lose
the
market
value
of
the
lost
yield
(
as
in
Approach
1).

16
In
this
context,
social
cost
does
not
include
any
of
the
administrative
costs
of
compliance
borne
by
the
private
sector
or
government.
These
are
described
in
later
chapters.
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­
However,
these
producer
surplus
losses
are
partially
offset
by
the
higher
price
that
producers
receive
for
the
commodity
they
sell.
This
approach
provides
an
upper
bound
estimate
of
private
sector
compliance
costs.

Note
that
these
are
methods
for
calculating
the
cost
of
the
phaseout
relative
to
a
situation
of
no
regulation.
In
this
EIA,
incremental
compliance
or
control
costs
are
calculated
as
the
difference
in
costs
between
two
phaseout
schedules.
As
illustrated
later
in
this
chapter,
there
is
very
little
difference
in
the
incremental
costs
estimated
by
the
two
approaches.
Approach
1
is
generally
more
conservative:
it
relies
on
an
upper
bound
estimate
of
producer
surplus
changes
under
a
phaseout,
and
also
provides
a
lower
estimate
of
cost
savings.
For
these
reasons,
in
cases
where
the
cost
estimate
for
one
approach
is
reported
in
the
text,
Approach
1
is
used.

5.1.2
Results
of
the
Cost
Analysis
for
Allocation
of
Methyl
Bromide
CUE
This
section
provides
estimates
of
the
private
sector
control
(
or
compliance)
cost
associated
with
the
CUE
allocation
rule.
These
estimates
represent
the
incremental
costs
of
the
rule,
that
is,
the
difference
between
the
costs
of
the
phaseout
with
and
without
the
CUE
allocation.
Because
the
CUE
allocation
rule
increases
the
availability
of
methyl
bromide
for
some
uses
relative
to
the
baseline
phaseout,
the
cost
estimated
here
are
negative
(
i.
e.,
represent
cost
savings)
because
some
end
users
do
not
need
to
switch
away
from
methyl
bromide
and,
therefore,
do
not
incur
the
higher
(
compliance)
cost
of
using
substitute
products.

Exhibit
5.1.2.1
displays
annualized
and
net
present
value
costs
for
Approach
1
and
Approach
2
of
the
Allocation
Rule
schedule
relative
to
the
2005
phaseout
baseline,
based
on
the
summation
of
reduced
or
increased
producer
surplus
changes
over
region,
crop,
year,
and
scenario.
Exhibit
5.1.2.2
presents
these
costs
on
a
sector­
specific
basis
17
.
The
annualized
and
NPV
costs
for
individual
crops
for
Approach
1
low
and
high
scenarios
at
discount
rates
of
3
percent
and
7
percent
are
presented
in
Section
5.3.

Detailed
information
on
cost
and
price
points
is
available
in
Appendix
B.

The
cost
model
used
for
this
analysis
was
developed
to
estimate
the
control
costs
associated
with
a
phaseout
of
methyl
bromide.
Thus,
for
the
model
analysis,
acreages
devoted
to
commodity
production
per
sector
are
assumed
not
to
change,
and
the
model
allocates
(
within
the
acreage
constraint,

quantity
constraints
on
methyl
bromide
by
sector,
and
other
constraints
discussed
above),
methyl
bromide
to
its
most
valued
uses,
i.
e.,
to
uses
where
the
cost
of
substitutes
tends
to
be
highest.
Thus,
the
model
approximately
simulates
the
results
of
a
sector­
specific
allocation,
if
it
is
assumed
that
selfcertification
by
end
users
is
consistent
with
methyl
bromide
being
sold
to
its
highest
valued
uses
(
within
a
17
Note
that
in
this
exhibit,
costs
are
positive
for
the
forest
seedlings
sector
because
some
methyl
bromide
substitutes
in
this
sector
produce
yields
greater
methyl
bromide
yields.
Thus,
use
of
methyl
bromide
in
the
forest
seedlings
sector
can
lead
to
higher
costs
for
the
producer.
Additionally,
costs
are
presented
as
$
0
for
the
lettuce
sector
because,
although
included
in
the
Phaseout
RIA,
lettuce
did
not
apply
for
CUE
and
therefore
was
assumed
to
receive
zero
allowances
under
the
Allocation
RIA.
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­
66
­
sector).
If
the
highest
valued
uses
are
not
among
those
who
may
self­
certify,
then
the
model
will
tend
to
overstate
the
cost
savings
of
the
Allocation
Rule.

The
model
does
not
attempt
to
reproduce
the
outcome
or
estimate
costs
under
any
specific
option.
Doing
so
would
require
quantifying
a
number
of
effects
that
are
outside
the
structure
of
the
current
model.
Thus,
the
exhibits
in
this
section
do
not
report
separate
costs
for
the
individual
options
or
for
sector­
specific
and
universal
allocations
within
these
options.
Differences
among
the
options
are
discussed
qualitatively
subsequently
in
this
chapter.
In
addition,
later
in
the
chapter,
some
rough
constraints
are
added
to
the
model
in
order
to
illustrate
potential
cost
differences
between
a
sectorspecific
and
universal
allocation;
however,
these
should
not
be
considered
estimates,
but
illustrations.

Exhibit
5.1.2.1.
Estimated
Compliance
Cost
Savings
for
the
Allocation
Rule
Schedule
(
1999
 
2150)
(
1997$)
Cost
(
1997$)
Low
High
Approach
1
Discount
Rate:
3
percent
NPV
415
million
617
million
Annualized
13
million
19
million
Discount
Rate:
7
percent
NPV
249
million
383
million
Annualized
17
million
27
million
Approach
2
Discount
Rate:
3
percent
NPV
416
million
618
million
Annualized
13
million
19
million
Discount
Rate:
7
percent
NPV
250
million
384
million
Annualized
17
million
27
million
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
67
­
Exhibit
5.1.2.2.
CUE
Compliance
Cost
Savings
Based
on
Approach
1,
High
Scenario
(
1997$)
3
Percent
Discount
7
Percent
Discount
Annualized
NPV
Annualized
NPV
Eggplant
98,430
3,120,068
144,303
2,059,398
Forest
Seedlings
(
17,534)
(
555,813)
(
25,728)
(
367,173)

Ginger
48,533
1,538,423
71,205
1,016,191
Lettuce
0
0
$
0
0
Nursery
1,432,451
45,406,507
2,101,821
29,995,786
Pepper
380,278
12,054,217
552,216
7,880,858
Strawberry
7,570,791
239,982,490
11,067,925
157,954,059
Sweet
Potato
203,376
6,446,696
292,064
4,168,148
Tomato
5,581,986
176,940,408
8,145,142
116,242,041
Cucurbits
222,801
7,062,436
317,649
4,533,271
Orchards
3,228,038
102,323,863
3,120,442
44,532,875
Post
Harvest
702,005
22,252,492
1,030,045
14,700,118
Total
19,451,154
616,571,788
26,817,084
382,715,573
Note:
Positive
numbers
indicate
compliance
cost
savings
from
the
2005
phaseout.
Negative
numbers
(
in
parentheses)
indicate
increased
compliance
costs
associated
with
continued
methyl
bromide
use.

5.1.3
Assumptions
and
Caveats
It
is
believed
that
this
analysis
presents
reasonable
estimates
of
the
range
of
potential
costs
of
a
methyl
bromide
phaseout
for
the
Allocation
Rule
under
the
assumed
critical
use
exemption
schedule.

Nevertheless,
the
following
limitations
to
this
analysis
should
be
considered:

 
The
analysis
does
not
include
consideration
of
low
cost
options
available
to
growers
to
help
reduce
the
yield
impact
when
used
with
a
substitute.
Some
of
the
widely
available
practices
include
adoption
of
IPM,
off­
season
herbicide
treatments,
changes
in
irrigation,
fertilization,
and
crop
production
schedules,
expansion
of
on­
farm
acreage
to
maintain
production
levels,
use
of
biocontrol
agents
in
combination
with
organic
amendments,
and
planting
to
non­
host
crops
in
the
off­
season.
While
these
technologies
generally
are
not
direct
replacements
to
methyl
bromide,
it
is
likely
that
growers
will
seek
to
adopt
such
strategies
in
an
effort
to
control
soil­
borne
pests
and
diseases.
Although
these
approaches
will
add
to
the
costs
of
crop
production,
they
will
also
offset
any
potential
yield
loss
assumed
for
the
primary
substitution
strategies.

 
Methyl
bromide
formulations
have
traditionally
included
chloropicrin
at
2
percent
as
an
odorant
although
it
is
also
an
effective
fungicide.
The
resulting
98:
2
formulation
(
i.
e.,
methyl
bromide:
chloropicrin)
has
been
the
preferred
market
formulation
used
for
pre­
plant
applications.
Recent
concerns
about
methyl
bromide
availability
have
led
some
formulators
and
users
to
market
and/
or
use
methyl
bromide
formulations
with
higher
proportions
of
chloropicrin.
In
fact,
self
reported
data
suggest
many
users
typically
apply
67:
33
formulations,
and
interviews
with
applicators
also
verify
that
most
East
Coast
growers
have
switched
to
a
67:
33
formulation
(
Godbehere
2003).
Cost
estimates
generated
for
this
analysis
may
therefore
be
overstated.
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
68
­
 
The
analysis
includes
possible
replacement
chemicals
that
may
not
be
currently
registered
for
certain
crops
or
that
may
have
regional
restrictions
(
e.
g.,
township
restrictions
for
Telone
®

C­
17
in
California,
Basamid
®
for
food
crops).

 
The
analysis
does
not
include
the
full
array
of
technologies
currently
under
development,
some
of
which
are
complete
substitutes
for
methyl
bromide,
and
others
which
are
partial
substitutes.
New
alternatives
are
being
identified
that
if
successfully
commercialized
could
significantly
reduce
the
impact
of
the
phaseout.
For
example,
technologies
such
as
methyl
iodide,
high­
energy
emitting
technologies,
and
plant
extracts
have
each
received
significant
research
attention.
18
 
A
midpoint
of
the
reported
ranges
of
potential
yield
losses
were
applied
to
derive
the
costs
of
the
phaseout
even
though
recent
research
suggests
that
substitutes
can
be
used
with
no
or
limited
statistical
impact
on
yield
in
certain
crops
or
circumstances.
19
For
this
reason,
it
is
believed
that
the
cost
estimate
may
be
conservative.
Innovative
uses
of
many
of
the
commercially
available
and
technically
feasible
technologies
have
been
identified
and
refined
leading
to
dramatic
reductions
in
estimated
yield
losses.
Further,
it
is
believed
that
once
farmers
begin
to
implement
alternative
approaches
to
producing
crops
without
the
use
of
methyl
bromide,
yield
variability
will
decline.

 
The
analysis
assumes
that
growers
that
switch
to
substitutes
will
continue
to
incur
costs
associated
with
the
phaseout
in
later
years,
and
provides
annual
values
for
revenue
losses
associated
with
a
proposed
methyl
bromide
phaseout.
This
is
based
on
the
assumption
that
growers
would
have
opted
to
use
methyl
bromide
in
the
baseline
(
if
there
were
not
regulationinduced
scarcity).
Following
1999,
costs
are
calculated
as
snapshots
in
time
for
all
years.
They
do
not
take
into
account
the
idea
that
over
time
the
cost
of
substitutes
is
likely
to
change.

 
The
analysis
does
not
take
into
account
any
limitations
on
the
market
longevity
of
methyl
bromide
as
a
fumigant.
Market
longevity
is
the
determination
of
a
pesticide's
"
life
span"
in
the
market,
determined
by
regulations,
effectiveness
of
the
pesticide
and
its
substitutes,
and
pesticide
costs.

5.2
Economic
Efficiency
Across
the
Regulatory
Options
This
section
discusses
six
regulatory
options
for
implementing
the
critical
use
exemption
process
for
historical
methyl
bromide
uses
in
pre­
plant
and
post­
harvest
applications.
Each
of
the
options
limits
production
and
imports
of
methyl
bromide,
and
requires
end
users
who
purchase
methyl
bromide
to
certify
that
they
meet
the
requirements
for
a
critical
use
exemption.
In
the
preceding
section,
the
control
or
compliance
cost
for
the
regulatory
options
is
estimated
assuming
that
the
total
quantity
of
methyl
bromide
consumed
by
each
sector
is
fixed
under
the
regulation,
and
that
within
each
sector
methyl
bromide
is
allocated
to
its
most
valuable
use
(
subject
to
legal
and
other
constraints).
Thus,
the
control
18
Transfer
of
techniques
being
developed
internationally
is
also
possible
(
i.
e.,
grafting,
amendments
from
industrial
by­
products).

19
In
early
years
of
research,
studies
examined
efficacy
of
alternatives
without
major
modifications
to
application
systems,
use
of
combination
treatments,
or
alteration
of
production
cycle.
Reliance
on
yield
loss
estimates
from
these
early
studies
may
be
inappropriate
because
recent
studies
suggest
that
innovative
techniques
can
be
developed
to
increase
the
efficacy
of
a
particular
alternative.
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
69
­
costs
estimated
do
not
distinguish
among
the
six
critical
use
exemption
implementation
options.
This
section
explores,
qualitatively,
factors
that
could
cause
control
costs
to
vary
across
the
regulatory
options.

Note
that,
as
indicated
below,
EPA
is
not
currently
considering
all
of
these
options.

5.2.1
Introduction
In
theory,
market­
based
regulatory
mechanisms 
such
as
auctions,
tradable
permits,
or
taxes 

can
achieve
a
pre­
determined
emissions
or
output
goal
at
the
least­
cost
to
society
(
Tietenberg
1985,
EPA
2001).
In
a
trading
program,
for
example,
this
result
occurs
because
the
flexibility
afforded
by
trading
allows
those
who
can
reduce
consumption
of
methyl
bromide
most
cheaply
(
e.
g.,
by
switching
to
substitutes)
to
do
so.
Those
for
whom
reducing
consumption
is
more
expensive
will
choose
to
purchase
critical
use
permits
(
which
allow
them
to
use
methyl
bromide)
from
those
end
users
that
switch
to
substitutes.
The
result
is
that
the
overall
goal
of
reducing
methyl
bromide
consumption
(
in
this
case
within
the
confines
of
critical
uses)
is
achieved
at
least
cost
to
society.
20
A
free
market
for
methyl
bromide
(
or
a
permit
auction
that
gives
the
holder
of
a
permit
the
right
to
purchase
methyl
bromide
21
and
so
mimics
the
operations
of
a
market)
achieves
analogous
results
to
those
of
a
trading
system:
the
methyl
bromide
is
allocated
to
its
highest
valued
uses
(
i.
e.,
those
for
which
it
is
most
expensive
or
difficult
to
substitute
away
from
methyl
bromide).

Thus,
the
relative
economic
efficiency
of
the
regulatory
options 
the
relative
cost
of
control 
will
depend
on
how
much
methyl
bromide
is
consumed
in
each
sector
and
the
extent
to
which
sectors
switch
to
substitutes,
which
are
in
general
(
although
not
entirely)
more
costly.
In
turn,
the
pattern
of
consumption
of
methyl
bromide
and
substitute
products
in
each
sector
will
largely
depend
on
which
end
users
end
up
with
the
permits,
allowing
them
to
purchase
methyl
bromide
from
distributors
under
some
variants
of
the
regulatory
options,
or
purchase
methyl
bromide
directly
on
the
market
under
other
variants
of
the
regulatory
options.
22,23
20
The
least
cost,
or
efficiency,
properties
of
the
alternative
regulatory
options
can
be
measured
and
compared
using
the
changes
in
consumer
and
producer
surpluses
that
are
reported
in
Section
5.1.
Discussions
of
economic
efficiency
in
the
context
of
trading
systems
usually
do
not
focus
on
administrative
or
transaction
costs,
except
to
the
extent
that
they
affect
the
final
holdings
of
permits
(
and
in
this
case
methyl
bromide)
among
users.
The
concept
of
economic
efficiency
can
be
extended
to
the
idea
of
seeking
to
minimize
total
cost
to
society
(
including
producers,
consumers,
and
government)
in
achieving
a
given
environmental
objective
(
OECD
2001a).
Full
social
costs 
including
not
only
changes
in
producer
and
consumer
surpluses,
but
also
private
and
public
sector
administrative
costs
of
the
regulatory
options 
are
discussed
in
Chapters
6
and
7
and
compared
in
Chapter
9
of
this
economic
analysis.

21
Both
the
market
and
the
auction,
of
course,
are
subject
to
the
restrictions
that
purchasers
of
methyl
bromide
must
be
certified
critical
uses.

22
The
final
distribution
of
permits
and
methyl
bromide
consumption
will
also
have
equity
impacts.
These
are
discussed
in
Section
5.3.

23
Permit
holdings
are
not
synonymous
with
methyl
bromide
consumption,
since
small
users
may
under
some
circumstances
find
it
advantageous
neither
to
sell
very
small
quantities
of
permits
nor
to
apply
the
methyl
bromide.
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
70
­
The
remainder
of
this
section
compares,
in
qualitative
terms,
the
economic
efficiency,
or
leastcost
properties
of
the
alternative
regulatory
options.
24
From
the
perspective
of
economic
efficiency,
the
primary
differences
among
these
options
result
from
two
features:
(
1)
the
method
by
which
end
users
obtain
the
right
to
purchase
methyl
bromide,
and
(
2)
whether
limits
are
placed
on
the
quantity
of
methyl
bromide
going
to
a
particular
critical
use
(
i.
e.,
the
limits
placed
on
aggregate
purchases
or
trades
of
methyl
bromide
for
a
sector).
Together,
these
two
features
will
determine
which
uses
are
able
to
consume
methyl
bromide
each
year
of
the
phaseout.
25
Each
feature
is
discussed
in
turn
below.

5.2.2
The
Method
of
Allocation:
Three
Broad
Options
Three
broad
options 
each
involving
a
different
approach
to
distributing
methyl
bromide 
are
discussed
here.
All
three
of
the
options
use
market
forces
to
distribute
methyl
bromide.
Under
the
first
option,
the
Producer/
Importer
Cap
and
Trade
Allowance
with
Market
Distribution
of
Methyl
Bromide,
the
market
determines
which
end
users
purchase
methyl
bromide,
subject
to
aggregate
limits
(
under
a
universal
authorization)
or
sector­
specific
limits
(
under
a
sector­
specific
authorization).
26
Under
the
second
option,
the
Cap
with
End
User
Permit
Trading,
permits
are
allocated
directly
to
end
users
based
on
historical
usage,
and
end
users
can
then
buy
and
sell
the
permits,
again
subject
to
whatever
cap
is
in
effect.
Under
the
third
option,
the
Cap
with
End
User
Permit
Trading
and
Auction,
permits
are
auctioned
to
end
users,
who
can
then
choose
to
buy
and
sell
them
(
subject
to
the
cap
in
effect).
27
Note
that
EPA
is
not
currently
considering
proposing
this
third
option.
It
is
discussed
here
for
completeness,
and
because
an
auction
mechanism
is
one
of
the
commonly
discussed
approaches
to
distributing
emission
permits.

For
a
variety
of
reasons,
however,
no
existing
emissions
trading
system
has
chosen
to
use
an
auction
mechanism
for
distributing
the
bulk
of
its
permits.
28
24
The
efficiency
properties
of
these
regulations
generally
refer
to
the
overall
cost
of
complying
with
the
restrictions
on
consumption
of
methyl
bromide,
compared
to
a
world
with
no
restrictions.
However,
for
this
economic
analysis,
the
costs
of
the
regulatory
options
are
calculated
with
reference
to
a
baseline
in
which
methyl
bromide
consumption
is
phased
out
in
2005.
Because
the
regulatory
options
allow
for
consumption
of
methyl
bromide
to
continue
in
2005
and
beyond,
the
cost
of
the
options,
compared
with
the
baseline,
is
negative.
Thus,
to
say
that
the
regulatory
options
have
a
lower
cost
of
compliance
(
i.
e.,
increased
efficiency)
implies
a
greater
discrepancy
in
costs
between
the
regulatory
options
and
the
baseline,
i.
e.,
that
costs
are
more
negative.

25
Each
of
the
three
broad
options
uses
a
different
mechanism
for
conveying
the
initial
right
to
purchase
methyl
bromide
to
end
users.
Because
this
right
is
a
valuable
asset,
the
method
of
allocation 
whether
free
distribution
or
auction
of
permits
or
simply
the
market
mechanisms
of
Option
1 
will
have
distributional
consequences
(
these
are
discussed
below,
in
Section
5.3).

26
In
theory,
a
universal
or
U.
S.­
wide
authorization
for
the
CUE
could
be
implemented
using
sector­
specific
caps
under
any
of
the
options.
For
simplicity,
and
because
it
detracts
nothing
from
the
analysis,
we
assume
that
a
universal
authorization
would
be
implemented
using
aggregate
permit
caps,
and
a
sector­
specific
authorization
would
be
implemented,
as
it
must
be,
using
sector­
specific
permit
caps.

27
Under
all
options,
it
is
assumed
that
only
certified
users
are
able
to
obtain
methyl
bromide.

28
Note
that
the
overall
economic
efficiency
of
the
auction
in
Option
3
is
highly
dependent
on
the
uses
to
which
revenues
are
put..
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
71
­
Much
of
the
literature
on
permit
trading
focuses
on
the
efficiency
properties
of
trading
relative
to
more
rigid
methods
of
limiting
consumption
of
a
pollutant,
particularly
command
and
control
rules.
Like
other
markets,
permit
trading
assigns
the
commodity
to
its
most
valued
uses,
which
are
those
that
are
willing
to
pay
the
most
for
the
right
to
continue
using
methyl
bromide.
Thus,
it
is
commonly
asserted
that
the
final
distribution
of
permits
(
and
in
this
case
methyl
bromide)
after
trading
will
be
the
same
regardless
of
the
initial
allocation
of
permits.
29
It
is
unclear,
however,
to
what
extent
all
three
options
will
result
in
exactly
the
same
distribution
of
methyl
bromide
among
end
users.
Because
participating
entities
in
a
trading
system
equalize
control
costs
at
the
margin,
a
variety
of
economic
incentive
mechanisms 
including
pollution
charges
and
tradable
permits 
are
generally
said
to
result
in
an
economically
efficient
level
of
control
and
control
costs
(
Tietenberg
1985).
Economic
efficiency,
however,
depends
not
only
on
control
costs
at
the
margin,
but
also
on
whether
long­
run
optimality
conditions
are
met,
i.
e.,
whether
or
not
entry
and
exit
leads
to
the
optimal
assignment
of
controls
across
entities
and,
hence,
to
lowest
aggregate
control
costs
(
Spulber
1985).
If
the
three
options
place
different
financial
burdens
on
end
users,
then
it
may
be
that
entry
and
exit
decisions
(
and
decisions
of
scale,
since
farm
sizes
are
not
identical)
could
differ
across
the
options.

In
turn,
the
pattern
of
methyl
bromide
consumption
(
and
the
relative
economic
efficiency)
might
also
differ
across
the
options.
30
However,
it
is
difficult
to
say,
a
priori,
what
the
impacts
on
the
distribution
of
methyl
bromide
will
be
across
the
options,
and
how
great
an
impact
financial
burden
might
have
on
the
economic
efficiency
or
the
relative
control
costs
of
the
options.
31
Thus,
in
theory,
each
of
the
three
broad
regulatory
options
should
essentially
result
in
the
same
efficiency
of
control
costs,
assuming
that
the
method
of
allocation
is
the
same
(
either
universal
or
sectorspecific
for
each
of
the
options,
as
discussed
in
the
next
section).
Under
Option
1,
those
who
are
willing
to
pay
the
highest
price
for
methyl
bromide
should
obtain
methyl
bromide.
Under
Options
2
and
3,
the
same
result
should
occur,
regardless
of
whether
the
initial
method
of
distributing
the
permits
is
by
auction
(
Option
3)
or
free
distribution
(
Option
2).
32
Under
these
options,
those
users
to
whom
methyl
bromide
is
29
The
initial
allocation
of
permits
will
have
a
significant
impact
on
distributional
issues.
These
impacts
are
discussed
in
Section
5.3
below.

30
The
relative
financial
burden
placed
on
end
users
under
each
option
would
depend
on
the
price
of
methyl
bromide
and
on
the
price
of
permits
(
and
on
the
numbers
of
permits
that
end
users
purchase).

31
The
economics
literature
addresses
the
issue
of
the
general
welfare
and
efficiency
effects
of
alternative
distribution
mechanisms
for
permits
(
such
as
grandfathering
based
on
historical
emissions,
output­
based
allocation
methods,
and
different
forms
of
auctions
and
treatment
of
revenues),
but
does
not
tend
to
focus
on
entry­
exit
decisions,
the
efficiency
of
control
costs,
and
the
distribution
of
emissions
across
market
participants
(
see,
for
example,
Parry
(
2002),
Jensen
and
Rasmussen
(
1998),
and
Burtraw
et
al.
(
2002).

32
If
the
method
of
allocation
is
free
distribution,
then
the
final
holdings
of
permits
should
also
be
the
same
regardless
of
the
formula
used
for
allocation.
One
exception
is
an
updated
Allocation
Rule,
in
which
the
formula
for
distribution
(
in
years
subsequent
to
the
initial
year)
would
depend
not
only
on
historical
use
levels,
but
also
on
actual
use
in
recent
years.
Thus,
end
users
may
be
able
to
affect
their
allocation
in
future
years
by
modifying
their
behavior
in
earlier
years.
***
DRAFT
(
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30/
2006)
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NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
72
­
most
valuable
should
be
willing
to
pay
the
highest
price
for
permits
that
allow
them
to
purchase
the
methyl
bromide.
Consequently,
the
control
costs
reported
in
Section
5.1
could
be
taken
to
represent
the
control
costs
for
any
of
the
three
broad
options.
In
reality,
however,
a
number
of
additional
factors
could
affect
whether
or
not
the
markets
operate
across
the
options
to
produce
the
same
pattern
of
methyl
bromide
consumption
and
control
costs
across
end
users.
These
factors
are
discussed
below.

5.2.3
Factors
Affecting
Consumption
by
End
Users
Under
the
Three
Broad
Options
The
market
for
methyl
bromide
has
a
number
of
factors
necessary
for
markets
to
function
smoothly.
For
example,
the
volume
of
trading
is
sufficiently
large
and
the
market
is
reasonably
competitive
(
so
that
no
participant
has
sufficient
market
power
to
affect
the
price).
Thus,
the
capped
market
for
sales
of
methyl
bromide
under
Option
1,
the
trading
under
Options
2
or
3,
and
the
auction
under
Option
3,
all
may
work
smoothly.
If
markets
do
function
smoothly,
then
the
consumption
of
methyl
bromide
across
end
users
will
be
similar
across
the
three
options.
In
this
case,
the
three
options
would
have
similar
costs,
and
the
outcome
under
each
option
would
be
equally
efficient.
However,
a
number
of
factors
are
likely
to
affect
the
final
holdings
of
methyl
bromide
permits
and,
thus,
the
economic
efficiency
of
the
three
options.

Before
discussing
these
factors,
a
few
general
points
should
be
made.
First,
the
argument
for
the
cost­
minimizing
properties
of
permit
trading
rests
on
several
assumptions:
that
prices
are
known
by
buyers
and
sellers,
transaction
costs
are
low,
prices
adjust
to
clear
the
market,
and
buyers
and
sellers
take
full
advantage
of
the
opportunities
to
reduce
compliance
costs
by
engaging
in
trading
activity
(
Ellerman
et
al.
2000).
Similar
conditions
are
required
for
commodity
markets 
such
as
the
one
under
Option
1 
to
function
smoothly
and
efficiently.
However,
not
all
of
these
market
conditions
are
equally
likely
to
be
met
under
the
options
and
so
the
relative
efficiency
of
the
options
will
differ.
As
summarized
in
Exhibit
5.2.3.1
and
discussed
more
fully
below,
the
agricultural
community
has
a
number
of
characteristics
that
could
make
it
difficult
to
implement
a
system
of
tradable
permits
effectively.

Second,
to
some
extent,
whether
or
not
the
conditions
for
smoothly
functioning
markets
are
met
will
depend
on
the
design
of
the
regulatory
system
and,
therefore,
will
be
under
the
control
of
the
government
designing
the
trading
or
allocation
program.
For
example,
restrictions
on
trading
will
tend
to
limit
trading.
Other
factors
affecting
how
markets
function
under
the
options
relate
to
features
of
agricultural
production
techniques,
or
to
contractual
and
other
relationships
in
current
methyl
bromide
markets.
These
innate
features
of
production
or
markets
are
difficult
to
alter
but,
nonetheless,
will
affect
how
declining
supplies
of
methyl
bromide
are
rationed
by
the
market
under
the
three
options.
***
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30/
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OR
ATTRIBUTE***

­
73
­
Third,
many
of
the
factors
affecting
efficiency
are
important
not
only
for
the
regulatory
options
being
considered
here,
but
also
because
they
affect
how
the
methyl
bromide
market
would
operate
under
the
original
phaseout
schedule
and
the
efficiency
properties
of
the
baseline.
Thus,
relative
to
a
world
of
no
regulations,
some
of
the
factors
discussed
below
tend
to
reduce
the
efficiency,
and
so
increase
the
cost,
of
achieving
both
the
regulatory
outcomes
considered
in
this
document,
and
the
baseline
phaseout.

Because
Section
5.1
reports
estimated
incremental
private
sector
costs
of
the
regulatory
options
relative
to
costs
in
the
baseline,
and
because
many
of
the
factors
below
affect
the
operations
of
both
the
2005
phaseout
and
the
allocation
phaseout,
it
can
be
difficult
to
determine
whether,
on
balance,
the
estimated
incremental
costs
(
i.
e.,
the
cost
savings)
reported
in
Section
5.1
are
an
over­
or
underestimate
of
true
cost
savings.
33
33
This
section
does
not
discuss
general
limitations
of
the
analysis.
Some
of
these
limitations
suggest
that
actual
costs
could
be
significantly
less
than
estimated,
particularly
in
the
later
years
of
the
phaseout.
For
example,
the
original
Phaseout
RIA
contained
a
discussion
of
the
learning
curve,
and
of
how
familiarity
with
the
system
and
with
substitutes
would
likely
over
time
reduce
the
cost
of
compliance.
These
potential
cost
reductions
over
time
are
not
quantified
in
this
economic
analysis.
Exhibit
5.2.3.1:
Is
the
Agricultural
Community
a
Good
Candidate
for
Tradable
Permits?

End
users
of
methyl
bromide
have
a
number
of
characteristics
that
suggest
a
tradable
permit
system
could
generate
cost
savings.
End
users
are
likely
to
be
varied
in
their
control
costs,
because
of
the
different
uses
of
methyl
bromide
and
differences
in
the
applicability
of
substitutes
to
different
sectors.
Further,
the
number
of
end
users
is
both
large
enough
to
generate
a
market,
and
sufficiently
limited
as
to
be
manageable.
Although
the
U.
S.
farm
sector
overall
has
over
2
million
farms,
the
number
of
farms
eligible
for
a
CUE
allocation
will
be
much
smaller.
A
review
of
a
select
number
of
CUE
nominations
suggests
that
the
aggregate
number
of
eligible
farms
is
likely
to
be
in
the
low
thousands.
However,
realizing
the
potential
cost
savings
of
a
trading
system
may
be
difficult,
for
several
reasons.

First,
if
CUE
eligible
farms
are
representative
of
farms
for
each
sector,
the
number
of
small
farms
is
likely
to
be
a
substantial
proportion
of
total
farms.
Currently,
small
farms
with
less
than
$
250,000
in
annual
sales
comprise
about
91%
of
all
farms,
and
just
under
half
of
the
total
output.
In
some
sectors,
the
predominance
of
small
farms
is
even
greater.
The
small
size
of
the
vast
majority
of
farms
suggests
that
the
information,
research,
reporting,
and
other
requirements
associated
with
trading
and/
or
auctions
could
be
prohibitive
for
Options
2
and
3.

Second,
the
transition
to
a
trading
system
is
generally
easier
when
the
community
is
familiar
with
other
regulatory
regimes,
such
as
non­
tradable
permits
(
e.
g.,
California
growers
must
receive
permits
from
the
state
for
any
pesticide
or
fumigant),
and
their
associated
reporting
and
monitoring
requirements.
In
the
case
of
methyl
bromide
regulations,
a
large
number
of
growers
are
not
familiar
with
the
specific
type
of
permit
trading
system
that
would
be
put
in
place
under
Option
2.
Thus,
the
skills
and
information
required
by
participating
in
trading
will
tend
to
be
outside
the
"
core
competencies"
of
the
regulated
community.

Third,
over
time,
the
phaseout
will
result
in
smaller
available
quantities
and
smaller
amounts
for
each
sector
or
user.
To
the
extent
that
the
sizes
of
potential
transactions
decline,
it
may
be
less
advantageous
for
a
certain
number
of
end
users
to
undertake
the
effort
of
buying
and
selling
permits
or
participating
in
an
auction.

Finally,
a
liquid
market
may
require
some
amount
of
time
to
develop,
and
also
rests
on
predictability
in
current
and
future
regulatory
requirements.
The
number
of
CUE
permits
will
likely
vary
from
year
to
year
because
of
the
dynamic
regulatory
nature
of
the
system.
In
the
U.
S
Acid
Rain
Program,
for
example,
enabling
legislation
established
the
requirements
for
utilities
and
allowance
allocations
for
1995
through
1999,
and
for
2000
and
beyond.
Trading
began
as
early
as
early
as
1992,
and
an
active
market
in
allowance
trading 
including
a
futures
market
for
allowances 
emerged,
with
stable
prices,
as
early
as
1996
(
Ellerman,
et
al.
1997).
***
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2006)
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OR
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­
74
­
The
Number
of
Potential
Trading
Partners
There
is
no
set
number
of
participants
that
is
optimal
for
a
trading
system.
Too
small
a
number
of
participants
may
lead
to
insufficient
differences
in
control
costs,
or
excessive
market
power,
so
that
trades
are
unlikely
to
occur
or
occur
inefficiently.
Too
large
a
number
of
traders
may
make
it
difficult
for
buyers
and
sellers
to
find
each
other
and
complete
trades,
without
centralized,
automated
assistance.
Too
large
a
number
may
also
increase
the
public
sector
administrative
costs
of
the
system
to
an
unmanageable
level.

Early
simulation
experiments
(
in
the
1980s)
suggested
that
a
trading
market
can
function
with
as
few
as
8
to
10
participants
(
EPA
2001),
although
it
can
be
debated
whether
a
higher
number 
such
as
30
or
40 
might
make
for
a
more
liquid
market.
Two
systems
that
are
considered
to
have
been
successful
in
terms
of
trading
have
numbered
between
fewer
than
100
participants
to
over
1000,
depending
in
part
on
whether
operating
units
or
firms
are
counted.
In
particular,
the
U.
S.
Acid
Rain
Program
(
Title
IV
of
the
1990
Clean
Air
Act
Amendments)
initially
awarded
allowances
in
1995
to
61
large
operating
utilities
(
representing
over
250
generating
units)
in
its
first
year
of
operation
(
Ellerman
et
al.
1997),
and
the
system
now
includes
over
1000
participants
(
EPA
2003c).
The
U.
S.
Lead
Credit
Trading
system
was
designed
to
reduce
the
cost
of
phasing
out
lead
in
gasoline
and
operated
between
1982
and
1985
(
with
banking
of
credits
until
1987)
among
all
petroleum
refineries
and
importers,
regardless
of
size
(
a
number
in
the
low
hundreds).
34
Current
efforts
to
design
trading
systems
for
greenhouse
gas
emissions
in
Europe
and
Countries
with
Economies
in
Transition
(
CEIT)
have
tended
to
include
a
few
hundred
participants
initially,
with
the
intent
to
expand
to
a
larger
number
subsequently.

It
is
unknown
at
this
time
what
the
number
of
participants
in
a
CUE
trading
system
might
be.

Although
the
U.
S.
farm
sector
overall
has
more
than
2
million
farms,
farms
eligible
for
a
CUE
allocation
will
be
much
smaller.
A
cursory
review
of
a
select
number
of
CUE
nominations
suggests
that
the
aggregate
number
of
eligible
farms
is
likely
to
be
in
the
low
thousands 
a
small
fraction
of
the
total
number
of
farms
(
see
CUE
Applications
included
in
Nomination
2003;
U.
S.
Nomination
for
Methyl
Bromide
2003).
For
individual
sectors,
the
number
of
farms
represented
in
the
applications
ranges
from
fewer
than
10
(
for
ginger)
to
several
hundred
(
for
tomatoes
or
cucurbits).
Thus,
the
number
of
participants
in
a
CUE
trading
system 
whether
sector­
specific
or
universal 
is
likely
to
be
manageable.

Information
Requirements
and
Access
to
Information
The
information
that
participants
in
the
system
have
regarding
the
operations
of
the
system
will
affect
the
level
and
nature
of
trading
and,
hence,
the
efficiency
properties
of
the
regulatory
options.
A
key
factor
for
markets
to
work
smoothly
is
that
participants
have
complete
knowledge
and
foresight
about
34
Between
1982
and
1987,
the
number
of
refineries
in
the
United
States
ranged
between
around
215
and
300
(
EIA
2001).
***
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30/
2006)
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OR
ATTRIBUTE***

­
75
­
present
and
future
prices
and
quantities
and
qualities
of
the
available
array
of
outputs
and
inputs.

Information
is
not
costless
to
obtain,
however,
and
it
is
likely
that
not
all
participants
in
the
methyl
bromide
phaseout
will
possess
the
same
level
of
information
on
the
regulatory
options.
To
the
extent
that
end
users
find
the
information
costs
prohibitive,
the
efficiency
of
the
outcome
will
be
lower,
methyl
bromide
consumption
will
fall
and
the
introduction
of
substitutes
will
rise.

Lack
of
information
can
alter
the
outcome
under
the
regulatory
options
in
different
ways.
For
example,
lack
of
information
on
cost
and
efficacy
of
substitutes
may
affect
the
extent
to
which
purchases
of
methyl
bromide
(
under
Option
1)
or
permits
(
under
Option
3),
or
transfers
of
permits
under
Option
2
accurately
reflect
the
value
of
substitutes
relative
to
methyl
bromide
for
the
end
user.

For
example,
both
across
and
within
sectors,
large
farmers
are
likely
to
possess
more
information
on
regulatory
requirements
and
market
conditions,
for
the
following
reasons.
Participation
in
the
system
is
voluntary:
end
users
can
always
choose
not
to
self­
certify
and
so
not
purchase
methyl
bromide
under
any
of
the
options.
This
is
combined
with
the
fact
that
many
of
the
administrative
costs
of
participating
in
the
system
are
one­
time
costs 
not
only
the
cost
of
self­
certification,
but
also
learning
about
the
rules
governing
purchases,
trading,
or
the
auction,
and
other
costs
that
are
incurred
for
the
production
operation
as
a
whole,
and
not
per
transaction
(
i.
e.,
not
per
methyl
bromide
purchase
or
permit
trade).
35
Together,
these
factors
suggest
that
large
farms
will
be
better
able
than
small
farms
to
spread
these
fixed,
one­
time
costs
of
gathering
information
across
a
larger
quantity
of
purchases
of
methyl
bromide
or
permit
trades,
and
so
be
more
willing
to
undertake
the
effort.
Stated
slightly
differently,
the
benefit
of
the
additional
information
in
reducing
compliance
costs
across
a
larger
acreage
or
output
level
will
be
greater
for
large
farms
than
for
small
farms,
even
though
the
cost
of
acquiring
the
additional
information
will
be
relatively
similar
for
both
size
farms.

Similarly,
large
farmers
are
also
more
likely
to
have
accurate
information
on
market
conditions.

Again,
this
information
might
be
acquired
by
working
with
a
broker,
subscribing
to
a
service,
or
having
existing
farm
staff
dedicate
a
portion
of
their
time
to
gathering
and
interpreting
information.
For
example,

a
large
farm
may
have
a
staff
person
dedicated
to
following
and
ensuring
compliance
with
regulatory
requirements 
folding
these
new
requirements
into
that
staff
person's
time
may
not
affect
normal
farm
operations.
However,
on
a
small
farm
with
fewer
employees,
extra
time
and
resources
cannot
be
spared
without
detrimental
effects
to
the
farm's
productivity.
Since
these
costs
are
fixed
regardless
of
whether
trading
occurs
or
the
magnitude
of
individual
trades,
large
farms
will
more
likely
be
able
to
acquire
the
information
needed
to
make
purchases
of
methyl
bromide
or
permit
trades,
and
so
keep
markets
functioning
smoothly
and
efficiently.

Information
costs
can
also
work
to
encourage
continued
use
of
methyl
bromide,
somewhat
offsetting
the
effect
of
high
information
costs
in
discouraging
participation
in
the
regulatory
system.
For
35
Costs
that
are
borne
on
a
per
transaction
basis
are
discussed
in
Section
5.3.3
below.
***
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­
76
­
example,
in
sectors
and
on
farms
where
methyl
bromide
is
a
particularly
small
percentage
of
total
production
costs,
end
users
will
likely
be
willing
to
spend
less
time
investigating
alternative
production
practices
and
substitutes
for
methyl
bromide.
Thus,
they
will
be
more
likely
to
participate
in
the
regulatory
system,
in
order
to
obtain
needed
methyl
bromide.
As
costs
of
obtaining
methyl
bromide
rise,
however,

such
costs
will
begin
to
outweigh
the
cost
of
gathering
and
testing
information
on
alternative
products.

In
summary,
to
the
extent
that
there
are
one­
time
administrative
and
informational
costs
associated
with
participation
in
the
regulatory
system,
the
higher
these
costs
are,
the
lower
participation
will
be
because
participation
is
voluntary.
With
lower
participation
rates,
the
total
volume
of
trading
will
also
be
lower,
aggregate
control
costs
of
the
regulatory
options
will
be
higher,
and
the
outcome
will
be
less
efficient.
Self­
certification
is
one
cost
that
will
occur
across
all
options,
and
so
may
deter
participation
in
the
regulatory
system,
which
is
essentially
voluntary,
even
for
Option
1.
However,
under
Option
1,

purchases
of
methyl
bromide
continue
to
occur
through
distributors
and
methyl
bromide
producers.
The
Option
1
system
is,
therefore,
not
as
different
from
current
practices 
and
so
does
not
require
as
much
additional
information 
as
the
distribution
and
auction
systems
under
Options
2
and
3.
In
addition
to
the
costs
of
understanding
trading
and
determining
whether
or
not
trading
is
a
viable
option,
Option
2
has
the
cost
of
providing
historical
information
in
order
to
receive
an
initial
allocation,
and
Option
3
has
the
cost
of
understanding
the
process
of
the
auction
and
making
a
decision
about
what
to
bid.
36
Further,
large
farmers
will
be
more
likely
than
small
farmers
to
have
access
to
accurate
information
and
will
be
more
likely
to
participate
in
the
system.
High
one­
time
administrative
and
information
costs
may,
therefore,
deter
small
end
users
more
than
large
end
users
from
participating
in
the
system.
As
a
result,
large
end
users
may
be
more
likely
than
small
users
to
continue
using
methyl
bromide.

Finally,
the
one­
time
or
fixed
information
costs
are
less
valuable
to
end
users
than
they
might
be,

because
the
regulatory
system
is
explicitly
time
limited:
the
phaseout
is
being
delayed,
but
not
eliminated.

Moreover,
the
magnitude
of
one­
time
or
otherwise
fixed
information
costs
should
be
compared
with
the
cost
of
learning
about
the
availability,
applicability,
and
cost
of
substitutes
for
methyl
bromide.
High
levels
of
learning
costs,
which
are
also
incurred
on
a
fixed
cost
basis
(
i.
e.,
are
not
proportional
to
output),
would
tend
to
increase
the
desirability
of
participating
in
the
regulatory
system,
in
order
to
obtain
a
continued
supply
of
methyl
bromide.

Program
Predictability
For
a
program
to
be
effective,
it
must
have
credibility
in
the
eyes
of
both
the
participants
and
the
general
public.
Key
features
affecting
credibility
include
(
1)
whether
or
not
accurate
information
about
actual
consumption
as
well
as
permit
flows
and
stocks
(
in
Options
2
and
3),
are
kept
in
the
public
domain
36
For
a
more
complete
discussion
of
private
sector
administrative
costs
of
the
alternative
regulatory
options,
see
Chapter
6.
***
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NOT
CITE,
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OR
ATTRIBUTE***

­
77
­
and
updated
routinely;
(
2)
if
enforcement
systems
include
spot
checks
and
non­
compliant
parties
are
liable
for
sanctions
that
deter
them
from
deliberately
breaking
compliance;
and
(
3)
regulatory
uncertainty
is
low,
i.
e.,
the
program
is
stable
and
predictable,
so
that
participants
can
plan
current
and
future
behavior
(
OECD
2001b).

Under
Options
2
and
3,
more
effort
will
be
required
to
ensure
that
permit
allocations
or
permit
definitions
and
terms
are
secure
from
capricious
or
erratic
changes
over
time,
so
that
the
permit
itself
will
be
a
marketable
commodity.
For
example,
the
trading
system
in
these
options
will
require
stable
rules
for
both
the
initial
allocation
of
permits
in
each
year
of
the
program
and
for
system
operation,
as
well
as
a
firm
legal
status
for
the
permits
themselves.
The
lower
the
perceived
credibility
or
reliability
of
the
system,

the
less
likely
participants
may
be
to
engage
in
trades,
since
the
value
of
the
tradable
permit
will
be
less
certain.
In
turn,
a
lower
volume
of
trading
suggests
that
not
all
cost­
effective
gains
from
trade
may
occur,

and
aggregate
control
costs
will
be
higher.

System
Design
and
Facilitating
Transfers
Transfers
of
permits
between
end
users
can
take
a
variety
of
forms.
They
can
be
bilateral
market
transactions,
trading
on
an
exchange,
transactions
arranged
by
a
broker
or
other
intermediary,
or
operations
organized
by
an
administrative
authority
(
OECD
2001b).
The
types
of
rules
governing
transfers
will
affect
how
easily
such
transfers
can
be
made,
and
hence,
the
extent
to
which
a
liquid
market
in
tradable
permits
can
arise.
For
example,
the
more
restrictions
imposed
by
the
government,
such
as
requiring
prior
approval
of
transfers,
the
less
flexible
the
permit
market
will
be.
Similarly,
the
institutions
that
are
available
to
assist
buyers
in
finding
sellers
(
and
vice
versa)
cheaply
and
easily
will
affect
the
ease
with
which
transfers
or
sales
of
permits
can
be
made.
For
example,
brokers
can
play
a
positive
role
in
some
markets,
if
the
volume
of
transfers
is
large
enough,
in
ensuring
the
market
operates
in
a
fluid
and
competitive
way.

Not
only
are
rules
governing
transfers
important.
Other
features
of
system
design,
for
example,

how
frequently
auctions
are
held
(
under
Option
3)
and
the
coordination
between
the
timing
of
auctions
and
typical
methyl
bromide
use
or
purchasing
patterns,
are
also
important.
Some
factors,
however,
are
outside
the
control
of
the
government
or
other
institutions.
Differences
in
control
costs
(
i.
e.,
the
cost
of
switching
to
substitutes)
across
participants
must
be
sufficiently
large
as
to
encourage
profitable
permit
transfers.
Broadening
trading
across
sectors,
as
described
below,
increases
the
opportunities
for
profitable
trades;
however
it
also
has
distributional
and
equity
implications,
as
described
in
Section
5.3.

The
wider
the
opportunities
for
trades,
the
more
easily
such
transfers
can
take
effect,
and
the
greater
the
flexibility
that
purchasers
have,
the
more
likely
it
is
that
the
low­
cost
properties
of
the
trading
systems
in
Options
2
and
3
will
be
realized.
The
future
structure
of
the
system
is
unknown
and
so
the
impacts
of
alternative
designs
cannot
be
evaluated
at
this
time.
***
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30/
2006)
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OR
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­
78
­
Transaction
Costs
and
Transaction
Size
High
transaction
costs
can
impede
permit
trading 
or
methyl
bromide
purchases 
and
so
affect
the
efficiency
of
the
outcome
under
any
of
the
three
options.
37
Transaction
costs
in
a
trading
system
can
be
high
or
low
because
of
features
of
system
design,
such
as
rules
governing
purchases
or
transfers,
as
described
just
above
(
facilitating
transfers),
or
because
of
institutions
that
arise
or
are
set
up,
or
fail
to
arise
or
be
developed,
to
facilitate
exchanges.
38
Transaction
costs
also
will
be
affected
by
the
administrative
costs
such
as
reporting
or
monitoring
that
are
linked
to
individual
transactions,
including
transfers
under
Options
2
and
3,
or
the
purchase
of
methyl
bromide
under
Option
1,
or
of
a
permit
under
Option
3.
Bargaining
and
decision
costs 
the
time
and
costs
(
e.
g.,
lawyers
fees)
to
end
users
of
entering
into
negotiations 
are
also
an
important
component
of
transaction
costs
in
a
trading
system
(
Stavins
1995).

Finally,
the
flexibility
of
transactions
under
the
system
combined
with
the
magnitude
of
transaction
costs
will
affect
how
end
users
act
and
the
pattern
of
final
consumption
of
methyl
bromide
across
end
uses.
For
example,
under
any
of
the
options,
end
users
may
or
may
not
be
able
to
alter
decisions
of
how
much
methyl
bromide
to
purchase
and
use
over
the
course
of
the
year.
One
possibility
is
that
purchasing
decisions
(
i.
e.,
arrangements
between
distributors
and
end
users)
will
be
made
once
per
year
under
Option
1,
with
no
repurchasing
possible.
This
could
require
some
end
users
to
make
consumption
decisions
well
in
advance
of
actual
consumption
needs.
In
contrast,
ongoing
markets
in
tradable
permits,

or
auctions
that
are
held
more
than
once
per
year,
could
provide
end
users
with
more
decision
making
flexibility,
and
with
the
ability
to
more
easily
change
consumption
decisions
over
the
course
of
the
year.

However,
if
a
user
enters
into
an
agreement
to
buy
methyl
bromide
but
does
not
use
it,
presumably
the
user
could
negotiate
a
refund
of
sorts
so
that
the
material
would
be
available
for
re­
sale.
If
transactions
costs
are
low,
end
users
will
be
able
to
avail
themselves
of
transactions
in
these
markets.
Those
end
user
buying
and
trading
decisions
will
also
be
affected
by
rules
in
the
system 
for
example,
whether
unused
permits
would
be
stockpiled
for
future
use
or
reported
to
the
Parties
as
unused.

The
relationship
between
the
average
value
of
a
transfer
and
average
transaction
costs
is
also
a
factor
determining
transfers
of
permits
(
OECD
2001a).
If
the
size
of
a
large
number
of
transactions 

whether
purchases
of
methyl
bromide
under
Option
1,
permit
purchases
under
the
auction
in
Option
3,
or
transfers
of
permits
under
Options
2
and
3 
is
too
small,
then
potential
buyers
and
sellers
may
find
that
37
With
high
transaction
costs,
the
prices
that
sellers
receive
for
pollution
rights
is
depressed
and
the
prices
that
buyers
must
pay
for
these
rights
remains
high,
which
makes
transactions
less
attractive
for
both
buyers
and
sellers.
With
transaction
costs
acting
as
a
barrier
to
trading,
sources
find
it
difficult
to
identify
potential
trading
partners
and
to
conclude
trades.
Transaction
costs
were
especially
high
for
some
of
the
early
emissions
and
effluent
trading
programs.
Only
a
tiny
fraction
of
the
potentially
beneficial
trades
actually
took
place
(
EPA
2001).

38
A
large
body
of
literature
on
transaction
costs
has
developed
in
the
context
of
organizational
structures
and
contractual
arrangements
(
Williamson
and
Masten
1999).
***
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OR
ATTRIBUTE***

­
79
­
the
transaction
costs
of
these
purchases
outweigh
the
value
of
the
transactions.
In
these
cases,
the
purchases
or
transfers
may
not
occur
and
in
this
way,
potential
efficiency
gains
from
the
narrow
perspective
of
control
costs
will
not
be
exploited
under
the
system.

Keeping
transaction
costs
low
is
one
means
of
limiting
the
ratio
of
transaction
costs
to
the
value
of
the
transaction,
or
transaction
size.
However,
some
factors
will
be
outside
the
administrative
realm.

For
example,
under
Options
1
and
3,
as
the
available
quantity
of
methyl
bromide
falls
over
time,
small
users
may
find
that
they
can
acquire
only
small
amounts
via
the
market
or
auction,
and
consequently
may
not
undertake
the
effort.
As
another
example,
under
Option
2,
average
transaction
size
will
tend
to
fall
over
time;
as
the
aggregate
quantity
of
methyl
bromide
available
to
critical
uses
falls,
the
initial
allocation
to
individual
users
based
on
historical
use
will
become
small,
particularly
for
the
smallest
users.
If
high
transaction
costs
and
small
transaction
sizes
limit
transfers,
the
final
distribution
of
permits
under
Option
2
may
be
more
similar
to
the
initial
allocation
of
permits
prior
to
trading.
The
outcome
under
Option
2,
in
terms
of
consumption,
however,
may
be
different
from
the
final
distribution
of
permits;
because
suppliers,

distributors,
and
applicators
will
also
face
transaction
costs,
small
transactions
between
them
and
end
users
will
also
be
discouraged.

Thus,
both
high
transactions
costs
and
low
transaction
size
can
limit
the
volume
of
transfers
under
the
trading
system
in
Options
2
or
3,
the
likelihood
that
end
users
will
participate
in
the
auction
under
Option
3,
or
the
ability
of
end
users
to
purchase
methyl
bromide
under
Option
1,
2,
and
3.
Some
administrative
costs
and
transactions
costs
associated
with
the
regulatory
options
are
discussed
in
Chapter
6
of
this
economic
analysis.

Other
Factors
Influencing
Business
Decisions
Factors
that
are
only
indirectly
linked
to
control
or
compliance
costs
and
profits
can
also
influence
business
decisions
and
affect
the
outcome
under
the
regulatory
options.
For
example,
end
users
may
be
willing
to
pay
more
to
continue
using
methyl
bromide
or
a
well­
known
substitute
because
it
is
a
product
that
they
have
used
in
the
past
or
are
familiar
with.
To
some
extent,
this
revealed
preference
for
using
methyl
bromide
may
be
related
to
training
costs
and
other
costs
of
adopting
a
less­
familiar
substitute,
and
so
may
actually
be
related
to
profits,
although
not
in
a
way
that
can
be
easily
measured.
Similarly,

preexisting
contractual
arrangements,
or
historical
relationships
such
as
those
between
distributors
and
end
users,
may
affect
the
distribution
of
sales
of
methyl
bromide
(
under
Option
1).
Such
relationships
make
it
difficult
to
project
the
outcome
of
the
regulatory
options
and
to
estimate
the
efficiency
losses
that
might
occur.
Finally,
to
the
extent
that
methyl
bromide
costs
are
perceived
as
small
relative
to
the
cost
of
other
production
inputs,
farm
owners
and
operators
may
not
find
it
necessary
to
spend
the
resources
needed
to
develop
the
information
required
to
make
a
profit
maximizing
decision
regarding
the
use
of
methyl
bromide
relative
to
substitutes.
These
and
other
effects
may
operate
to
reduce
the
efficiency
of
the
final
***
DRAFT
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30/
2006)
DO
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OR
ATTRIBUTE***

­
80
­
solution
to
allocation
under
any
of
the
options,
and
may
affect
end
users
under
one
option
differently
than
another.
39
5.2.4
Limits
on
Purchases
or
Trading:
Universal
vs.
Sector­
Specific
Allocation
and
Trading
Choosing
the
sectoral
flexibility
of
transferable
permits
is
a
balancing
act,
reflecting
the
tradeoff
between
(
1)
assuring
the
maximum
flexibility
in
transfers
in
order
to
achieve
the
lowest
cost
or
most
efficient
distribution
of
methyl
bromide
among
end
users
and
(
2)
maintaining
the
benefits
that
the
CUE
nominations
and
authorizations
were
designed
to
provide
to
producers
(
i.
e.,
ensuring
a
continuing
supply,

at
least
initially,
to
sectors
for
which
methyl
bromide
is
a
critical
input
in
production).
40
A
broad
base
(
i.
e.,
universal)
for
trading
in
Options
2
and
3,
and
analogous
conditions
for
the
market
in
Option
1,
is
generally
believed
to
be
more
economically
efficient
than
a
narrow
base
(
i.
e.,

sectoral),
for
several
reasons.
First
and
foremost,
a
broader
base
allows
end
users
with
diverse
costs
of
control
to
trade
with
each
other
(
in
Options
2
and
3)
and
so
makes
it
possible
to
exploit
the
efficiency
gains
from
trade
in
a
trading
system.
In
particular,
greater
differences
in
methyl
bromide
substitution
costs
among
end
users
allow
for
greater
potential
efficiency
gains
from
trade;
allowing
trading
across
sectors
increases
the
likelihood
of
significant
cost
differences.
Similarly,
in
the
market
under
Option
1,
a
universal
approach,
rather
than
sector­
specific
limits,
permits
methyl
bromide
to
go
to
its
highest
valued
uses,
regardless
of
the
sector.

Second,
a
larger
number
of
participants
make
it
less
likely
that
an
individual
user
can
influence
the
market
or
corner
supplies
of
methyl
bromide.
Third,
a
larger
number
of
participants
(
up
to
a
point)

allows
the
market
for
permits
or
methyl
bromide
to
operate
more
fluidly,
so
that
buyers
and
sellers
can
conduct
transactions
more
easily.
Thus,
the
universal
approach
will
likely
have
lower
control
costs
and
be
more
economically
efficient
than
imposing
sector­
specific
quantity
limits
on
trading
or
purchases
of
methyl
bromide.
(
See
Section
9.1
for
a
quantitative
assessment
of
the
total
cost
savings,
including
administrative
costs,
of
the
two
types
of
caps.)

How
much
more
efficient
the
universal
authorization
will
be
than
the
sector­
specific
authorization
depends
on
several
factors.
First,
it
depends
on
how
well
markets
function
based
on
the
factors
discussed
in
the
section
above
on
the
broad
options.
For
example,
historical
relationships
between
distributors
and
customers
consuming
large
amounts
of
methyl
bromide
may
be
particularly
important
in
influencing
the
outcome
under
a
universal
authorization
under
Option
1.
As
supplies
of
methyl
bromide
39
To
the
extent
that
some
farms
or
farms
in
some
sectors
have
a
higher
willingness
to
pay
for
methyl
bromide
than
other
farms,
they
will
end
up
with
greater
quantities
under
either
the
sector­
specific
or
the
universal
allocation.
It
is
unlikely,
however,
that
individual
farms
or
consortia
will
be
able
to
garner
additional
supplies
of
methyl
bromide
on
the
basis
of
market
power,
since
the
number
of
farms
is
too
large
for
individual
farms,
or
a
single
consortium,
to
affect
prices
or
the
final
pattern
of
consumption
of
methyl
bromide.

40
Note
that
this
section
does
not
discuss
the
functioning
of
the
allowance
system
for
(
and
trading
among)
producers,
which
is
designed
to
limit
total
production
and,
in
the
case
of
the
sector­
specific
allocation,
to
limit
quantities
of
methyl
bromide
going
to
individual
sectors.
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
81
­
diminish
over
time,
distributors
may
be
particularly
mindful
of
the
needs
of
historically
important
clients.

Thus,
it
is
possible
that
a
portion
of
the
methyl
bromide
supplies
that
would
go
to
sectors
consuming
small
amounts
of
methyl
bromide
under
a
sector­
specific
authorization
would
instead
be
diverted
to
historically
large
individual
customers
or
cooperatives
or
associations
with
which
the
suppliers
and
distributors
have
historically
done
large
amounts
of
business.
Since
these
users
may
not
necessarily
be
those
placing
the
highest
value
on
methyl
bromide
use,
this
diversion
could
reduce
the
efficiency
properties
of
the
universal
authorization.

Second,
to
some
extent
it
depends
on
whether
the
sector­
specific
authorizations
that
the
United
States
receives
from
the
Parties
to
the
Montreal
Protocol
correspond
to
the
most
valued
uses
of
methyl
bromide
in
the
United
States.
To
the
extent
that
there
is
a
good
correspondence,
the
sector­
specific
allocations
would
mirror
the
final
pattern
of
consumption
under
a
universal
system.
Such
a
correspondence
is
unlikely
to
occur,
however,
in
part
because
of
the
complexity
of
the
criteria
used
to
determine
the
U.
S.
sector­
specific
nominations.
Criteria
include
costs
of
substitutes
and
yield
changes,

applicability
of
alternatives
by
crop
and
region,
and
health
and
environmental
effects
of
substitute
pesticides.
In
addition,
the
factors
influencing
the
operations
of
the
markets
and
the
extent
to
which
all
cost­
effective
trades
take
place,
and
the
uncertain
relationship
at
this
time
between
the
international
authorization
and
the
U.
S.
nominations
will
affect
the
efficiency
of
the
outcome.

Exhibit
5.2.4.1
illustrates
the
magnitude
of
compliance
cost
savings
that
might
occur
under
a
universal
allocation
relative
to
a
sector­
specific
allocation.
In
this
table,
estimated
compliance
cost
savings
for
Approach
1
and
the
"
high"
scenario
are
presented.
41
Recall
that
the
model
reports
cost
savings,
because
the
incremental
compliance
cost
of
the
rule
is
the
difference
between
the
estimated
changes
in
surplus
(
1)
for
the
baseline
phaseout
in
2005,
and
(
2)
for
the
critical
use
exemption
phaseout.

This
difference
gives
the
incremental
cost
of
the
Allocation
Rule,
relative
to
the
baseline
phaseout.
Note
that,
because
the
allocation
rule
increases
the
quantity
of
methyl
bromide
that
can
be
used
for
some
years,
this
incremental
cost
is
negative,
i.
e.,
the
Allocation
Rule
generates
cost
savings
relative
to
the
original
phaseout.

In
the
exhibit,
sector­
specific
cost
estimates
are
those
presented
in
Section
5.1.
Cost
for
an
illustrative
universal
scenario
is
presented.
Under
this
scenario,
it
is
assumed
that
the
two
largest
users
of
methyl
bromide 
strawberries
and
tomatoes 
are
able
to
consume
a
higher
proportion
of
total
methyl
bromide
under
the
universal
allocation
than
the
sector­
specific
allocation.
Specifically,
it
is
assumed
that
the
combined
consumption
of
methyl
bromide
by
these
two
sectors
equals
80
percent
under
the
universal
allocation.
This
value
is
assumed
because,
based
on
CUE
applications
prepared
by
the
strawberry
and
tomato
sectors,
original
requests
from
these
sectors
amounted
to
82
percent
of
the
total
amount
of
methyl
41
As
explained
earlier
in
the
chapter,
this
approach
provides
a
conservative
estimate
of
costs
and
cost
savings.
***
DRAFT
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30/
2006)
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OR
ATTRIBUTE***

­
82
­
bromide
nominated
for
CUE
by
the
United
States
in
2002.
Consumption
of
the
remaining
methyl
bromide
is
assumed
to
be
divided
among
the
remaining
sectors
based
on
proportions
in
the
nomination.

Exhibit
5.2.4.1.
Net
Present
Value
Compliance
Cost
Savings
under
Approach
1,
High
Scenario:
Sector­
Specific
vs.
Illustrative
Universal
Allocation
( 
1997$)

Sector­
Specific
Allocation
Illustrative
Universal
Allocation
Discount
Rate
3%
High
scenario
617
million
696
million
Discount
Rate
7%
High
scenario
383
million
447
million
Note:
Under
the
sector­
specific
allocation,
which
follows
the
nomination,
strawberries
and
tomatoes
receive
a
little
over
half
to
the
total
methyl
bromide
in
2005.
For
the
universal
allocations,
it
is
assumed
that
approximately
80
percent
of
total
methyl
bromide
goes
to
these
two
sectors,
combined.
Note
that
this
scenario
is
intended
to
be
illustrative
only,
rather
than
a
projection
of
what
is
likely
to
occur
under
the
universal
allocation.

The
cost
estimates
presented
for
the
universal
allocation
scenario
are
intended
only
to
illustrate
the
magnitude
of
compliance
cost
savings
that
might
result
from
following
a
universal
allocation
method
rather
than
a
sector­
specific
approach.
The
estimates
are
not
intended
to
be
a
projection
or
estimate
of
the
actual
compliance
cost
savings
that
would
occur,
since
the
data
are
currently
unavailable
to
estimate
how
the
consumption
of
methyl
bromide
would
change.
The
estimates
suggest
that,
depending
on
how
methyl
bromide
consumption
changes,
compliance
cost
savings
aggregated
across
all
sectors
could
well
be
higher
under
the
universal
than
the
sector­
specific
allocation
(
i.
e.,
the
universal
allocation
could
have
lower
aggregate
costs
than
the
sector­
specific
allocation).
In
the
analysis,
additional
compliance
cost
savings
of
moving
to
the
universal
allocation
are
roughly
10
percent
of
the
sector­
specific
compliance
cost
savings.
Actual
compliance
cost
savings
would,
of
course,
depend
on
the
rate
of
adoption
of
substitutes,

and
on
which
sectors
were
able
to
obtain
methyl
bromide
under
the
three
broad
options.

5.2.5
Comparison
of
EIA
and
Other
Compliance
Cost
Savings
Estimates
An
analysis
comparing
potential
compliance
cost
savings
under
sector­
specific
versus
universal
allocation
schemes
was
also
conducted
by
Kim
et
al.
and
can
be
compared
to
the
cost
estimates
presented
above
in
Section
5.2.4.
This
analysis
supports
the
phaseout
model's
projection
that
sectorspecific
allocations
are
more
costly
to
the
overall
regulated
community
than
the
universal
allocation.
The
full
analysis
is
provided
in
Appendix
C.
***
DRAFT
(
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30/
2006)
DO
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QUOTE
OR
ATTRIBUTE***

­
83
­
Kim
et
al.'
s
analysis
found
that,
as
predicted
by
economic
theory,
universal
trading
under
Option
2
would
offer
more
compliance
cost
savings
than
sector­
specific
trading.
As
described
in
detail
in
Chapter
4,
two
types
of
permit
trading
could
occur:

 
Sector­
specific
availability/
trading,
which
means
that
end
users
could
only
redeem
permits
for
use
on
the
identical
crop
or
commodity
for
which
the
permits
were
initially
held;
and
 
Universal
availability/
trading,
which
means
that
permits
could
be
redeemed
for
use
in
any
CUEapproved
sector,
regardless
of
the
sector
to
which
the
permit
was
initially
allocated.

Kim
et
al.'
s
analysis
found
that,
as
predicted
by
economic
theory,
universal
trading
would
offer
more
compliance
cost
savings
than
sector­
specific
trading.
This
can
be
explained
by
the
fact
that
trading
across
all
sectors
would
increase
the
number
of
sectors
involved
in
trading,
and
thus
result
in
more
methyl
bromide
substitution
cost
differences
among
end
users.
With
higher
marginal
cost
differences
for
substitutes,
more
opportunity
for
cost
savings
would
be
realized
because
end
users
with
relatively
low
marginal
costs
of
substitution
could
sell
methyl
bromide
use
permits
to
end
users
with
relatively
high
costs
of
substitution.
Permit
sellers
would
benefit
from
the
revenue
gained
from
sales,
and
buyers
would
benefit
from
continued
use
of
methyl
bromide
allowed
by
the
additional
permits.

Incremental
costs
in
Kim
et
al.'
s
analysis
include
profit
loss
from
reduced
methyl
bromide
consumption
under
the
Allocation
Rule
(
e.
g.,
reduced
yields,
forced
switches
to
other
crops
or
commodities,
or
business
closure)
and
increased
production
costs.
These
estimates
tend
to
be
different
from
the
cost
model
estimates
for
the
Allocation
Rule
because
the
cost
model,
as
described
in
Chapter
3
and
Appendix
B,
used
a
variety
of
literature
and
other
sources
for
yield,
cost,
and
other
data,
whereas
Kim
et
al.
exclusively
used
applicable
portions
of
the
data
provided
by
CUE
applicants.

Kim
et
al.
estimated
that
incremental
costs
of
the
Allocation
Rule
to
industry
under
a
sectorspecific
trading
system
would
be
$
55
million,
whereas
incremental
costs
to
industry
under
a
universal
trading
system
would
be
much
lower
at
approximately
$
35
million.
42
The
phaseout
cost
model
estimates
a
difference
in
cost
between
universal
and
sector­
specific
allocation
of
$
79
million
or
$
64
million,
at
a
3
and
7
percent
discount
rate,
respectively,
compared
to
Kim
et
al.'
s
estimate
of
$
20.2
million.
The
values
of
the
cost
model
and
Kim
et
al.
differ
because
the
analyses
compare
different
baseline
situations
and
have
similar
but
different
data
sets.
The
phaseout
cost
model
compares
industry
costs
for
sector­
specific
and
universal
allocation
under
the
Allocation
Rule,
which
allows
continued
use
of
methyl
bromide
beyond
42
Kim
et
al.
estimated
that
compliance
cost
savings
of
the
Allocation
Rule
under
a
sector­
specific
trading
system
would
be
$
121.5
million
compared
to
a
high­
cost
non­
trading
command
and
control
scenario
(
all
permits
initially
allocated
to
applicants
with
lower
costs
of
methyl
bromide
substitution).
Incremental
costs
under
a
high­
cost
nontrading
scenario
were
estimated
to
be
$
177.2
million,
and
incremental
costs
under
a
sector­
specific
trading
system
were
estimated
to
be
$
55.7
million).
Compliance
cost
savings
for
the
universal
trading
system
compared
to
a
highcost
non­
trading
scenario
were
estimated
to
be
$
143.6
million
($
177.2
million
in
incremental
costs
for
the
high­
cost
scenario
and
$
35.5
million
in
incremental
costs
for
universal
trading).
Incremental
costs
in
Kim
et
al.'
s
analysis
include
profit
loss
from
reduced
methyl
bromide
consumption
under
the
Allocation
Rule
(
e.
g.,
reduced
yields,
forced
switches
to
other
crops
or
commodities,
or
business
closure)
and
increased
production
costs
***
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OR
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­
84
­
2005
for
CUE,
to
a
complete
phaseout
of
methyl
bromide
in
2005
under
the
Phaseout
Rule.
Kim
et
al.'
s
analysis
compares
industry
costs
for
universal
and
sector­
specific
allocation
under
a
market
trading
system
to
a
system
that
does
not
allow
trading
(
command­
and­
control).
A
scenario
of
complete
phaseout
of
methyl
bromide
use
is
not
considered.

For
further
discussion
of
the
compliance
cost
savings
associated
with
universal
versus
sectorspecific
allocation,
readers
are
referred
to
Appendix
C,
"
Marketable
Permit
Designs
for
the
Methyl
Bromide
Critical
Use
Exemption
Request
in
the
United
States"
(
Kim
et
al.
2003),
and
Section
6.4
of
this
EIA.

5.2.6
Summary:
Efficiency,
Costs,
and
Limitations
of
the
Analysis
Exhibit
5.2.6.1
summarizes
the
foregoing
discussion
and
the
likely
differences
in
the
economic
efficiency
of
the
regulatory
options.
The
most
readily
identifiable
difference
across
the
options
in
terms
of
efficiency
impacts
is
whether
trading
is
universal
or
sector­
specific.
Between
the
universal
and
sectorspecific
trading
and
allocations,
the
universal
option
is
clearly
lower
cost
from
the
perspective
of
economic
efficiency,
because
the
universal
option
allows
more
entities
to
trade,
and
thus
is
more
likely
to
capture
the
potential
gains
from
trade
within
agriculture.
Across
the
three
broad
regulatory
options,

however,
the
implications
are
less
clear­
cut.
Because
participation
in
the
regulatory
system
is
essentially
voluntary
(
end
users
can
opt
to
use
substitutes
and
not
obtain
methyl
bromide),
the
efficiency
of
the
regulatory
options
will
depend
on
which
end
users
choose
to
participate
and
how
consumption
of
methyl
bromide
is
distributed
among
these
end
users.
The
foregoing
discussion
suggests
that
a
number
of
the
factors
affecting
the
efficiency
of
market
outcomes
under
the
regulatory
options
will
depend
on
the
design
of
the
option 
whether
it
facilitates
trades,
how
great
information
requirements
are,
and
other
features
affecting
participation.

Some
factors,
however,
are
independent
of
how
the
system
is
designed.
In
particular,
information
requirements
will
be
lowest
under
Option
1,
thus
facilitating
participation
and
efficiency,
relative
to
the
options
involving
permit
trading
or
auction.
Under
Option
1,
however,
prior
existing
contractual
arrangements
and
historical
relationships
may
influence
which
end
users
purchase
of
methyl
bromide;

such
impediments
will
not
operate
in
Options
2
and
3.
The
final
column
in
Exhibit
5.2.6.1
summarizes
some
of
the
features
of
the
three
broad
options
that
are
not
easily
classified
or
compared.
This
column
combines
information
on
the
magnitude
of
transaction
costs
(
the
information
that
is
needed
to
make
a
purchase
or
find
buyers
and
sellers
for
a
trade),
and
on
timing
issues
that
increase
transaction
costs
(
the
number
of
chances
end
users
have
to
optimize
the
quantity
being
requested).
The
assessment
in
this
last
column
should
be
considered
particularly
tentative;
considerably
more
information
is
needed
on
how
markets
would
operate
under
each
of
the
options,
as
well
as
on
how
system
design
decisions
would
influence
the
types
of
transactions
that
could
occur
and
the
associated
transaction
costs.
***
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2006)
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OR
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­
85
­

Exhibit
5.2.6.1.
Summary
of
Some
Key
Factors
Affecting
the
Efficiency
of
the
Regulatory
Options
Authorization
and/
or
Trading
Regulatory
Option
Information
Requirements
and
fixed
costs
of
participation
Historical
impediments
to
the
fluid
market
Casting
a
broad
net
and
differences
in
control
costs
Transactions
and
Transaction
costs
Option
1.
Producer/

Importer
Allowance
Cap
with
Market
Distribution
Low
Certification,
methyl
bromide
market
information,
and
information
on
substitutes
High
Contractual
and
historical
relationships
between
distributors
and
large
customers
and/
or
large
sectors
Low
No
restrictions
on
trading
across
sectors
Low
because
prices
of
methyl
bromide
should
be
relatively
easy
to
discover.

High
if
no
repurchasing
possible.

Option
2.
Producer/
Importer
Cap
and
Trade
Allowance
with
End
User
Permit
Trading
High
Option
1
plus
trading
market,

plus
data
for
allocation
Low
No
existing
contracts
among
end
users
Low
No
restrictions
on
trading
across
sectors
High,
because
of
costs
of
finding
buyers
and
sellers.

Low,
because
of
flexibility
of
permit
market
Universal
Option
3.
Producer/
Importer
Cap
and
Trade
Allowance
with
End
User
Permit
Trading
and
Auction
High
Option
1
plus
trading
market,

plus
operation
of
auction
Low
No
existing
contracts
among
end
users
or
between
government
and
end
users
Low
No
restrictions
on
trading
across
sectors
High
because
of
cost
of
participating
in
auction,
and
finding
buyers
and
sellers.

Low
because
of
frequency
of
auction
and
flexibility
of
permit
market
Option
1.
Producer/

Importer
Allowance
Cap
with
Market
Distribution
Low
Certification,
methyl
bromide
market
information,
and
information
on
substitutes
Low
Contractual
and
historical
relationships
constrained
by
sectorspecific
limits
High
Restricted
trading
across
sectors
Low
because
prices
of
methyl
bromide
should
be
relatively
easy
to
discover.

High
if
no
repurchasing
possible.

Option
2.
Producer/
Importer
Cap
and
Trade
Allowance
with
End
User
Permit
Trading
High
Option
1
plus
trading
market,

plus
data
for
allocation
Low
No
existing
contracts
among
end
users
High
Restricted
trading
across
sectors
High,
because
of
costs
of
finding
buyers
and
sellers.

Low,
because
of
flexibility
of
permit
market
Sector­
Specific
Option
3.
Producer/
Importer
Cap
and
Trade
Allowance
with
End
User
Permit
Trading
and
Auction
High
Option
1
plus
trading
market,

plus
operation
of
auction
Low
No
existing
contracts
among
end
users
or
between
government
and
end
users
High
Restricted
trading
across
sectors
High
because
of
cost
of
participating
in
auction,
and
finding
buyers
and
sellers.

Low
because
of
frequency
of
auction
and
flexibility
of
permit
market
A
"
low"
indicates
that
impediments
to
efficient
markets
are
low,
and
so
the
outcome
will
be
closer
to
the
least
cost,
or
efficient
solution.
In
the
third
or
fourth
columns,
low
signifies
low
costs.
In
the
second
to
last
column,
low
signifies
that
the
net
is
broad,
and
so
there
are
fewer
impediments
to
trading.
Low
in
the
last
column
reflects
low
transactions
costs,
or
low
impediments
to
trading.
***
DRAFT
(
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30/
2006)
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OR
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­
86
­
5.3
Economic
Impacts
and
Equity
Issues
Across
the
Regulatory
Options
This
section
examines
distributional
issues
associated
with
the
regulatory
options,
including
economic
impacts
and
equity
effects.
An
analysis
of
economic
impacts
examines
how
costs
are
distributed 
who
gains
and
who
loses
(
and
by
how
much)
from
the
policy,
and
how
are
the
gainers
and
losers
different
under
the
alternative
regulatory
approaches.
Equity
assessment
is
generally
concerned
with
identifying
whether
sub­
populations,
such
as
minorities
or
small
businesses,
may
experience
negative
impacts
as
a
result
of
a
regulation
(
EPA
2000).
The
first
subsection
below
looks
at
the
economic
impacts
of
the
three
broad
regulatory
options
on
two
particular
groups:
methyl
bromide
producers
and
end
users.
The
subsequent
subsection
looks
at
impacts
of
the
universal
vs.
the
sectorspecific
approaches.
The
final
subsection
discusses
distributional
effects
on
small
farms.

5.3.1
Economic
Impacts:
Non­
Social
Cost
Transfers
As
methyl
bromide
use
in
the
U.
S.
is
limited
according
to
the
allocation
from
the
Parties
to
the
Montreal
Protocol,
the
declining
supply
will
be
rationed
among
the
different
end
users,
using
a
mechanism
and
limits
defined
by
the
U.
S.
rule.
As
described
in
Section
5.1,
both
consumer
and
producer
surplus
losses
may
result
from
the
phaseout.
43
Impacts
on
consumers
depend
on
price
rises
in
the
commodity
markets,
which
in
turn
depend
primarily
on
the
commodities
supplied
by
other
domestic
and
foreign
producers,
and
so
will
be
largely
unaffected
by
the
method
by
which
methyl
bromide
is
distributed
to
end
users
(
i.
e.,
which
regulatory
option
is
chosen).
As
discussed
in
Section
5.1,
end
users
of
methyl
bromide
will
also
experience
producer
surplus
changes.
44
This
section
examines
transfers
between
methyl
bromide
producers,
end
users,
and
the
government,
which
will
be
different
under
the
three
broad
regulatory
options.
45
Under
the
first
regulatory
option
(
i.
e.,
the
cap
on
production/
imports
with
tradable
allowances),
allowances
are
issued
to
methyl
bromide
producers,
based
on
historical
production,
allowing
each
to
produce
a
fraction
of
their
previous
production,
so
that
the
sum
of
their
production
(
together
with
imports)
equals
the
phaseout
target
for
each
year.
Impacts
on
methyl
bromide
producers
and
end
users
under
this
option
are
examined
in
two
steps:

first,
the
impacts
of
a
phaseout
relative
to
no
regulation
are
considered,
and
second,
the
impacts
of
the
43
These
losses,
however,
will
be
smaller
under
the
Allocation
Rule
phaseout,
and
so
the
net
impact
of
the
Allocation
Rule
phaseout
is
a
negative
cost,
compared
to
the
phaseout.

44
The
total
impacts
of
a
methyl
bromide
phaseout
on
methyl
bromide
users
stem
from
two
sources:
the
increasing
price
of
methyl
bromide
over
its
price
in
the
absence
of
the
phaseout
(
the
non­
social
cost
transfers
discussed
in
this
section)
and
producer
surplus
losses
borne
by
methyl
bromide
users,
as
described
under
Approaches
1
and
2
above,
in
section
5.1.

45
Impacts
on
producers
of
substitutes
for
methyl
bromide
are
not
explicitly
addressed.
In
a
competitive
market,
the
prices
at
which
they
sell
their
products
will
equal
the
full
cost
of
production
including
normal
economic
profits,
or
return
on
capital.
Hence,
social
and
private
costs
for
these
alternatives
are
equal,
so
that
no
additional
social
welfare
gains
or
losses
need
to
be
incorporated
in
this
analysis.
***
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­
87
­
Allocation
Rule
relative
to
the
Phaseout
Rule.
After
examining
the
effects
of
the
regulatory
options
generally
in
this
way,
differences
across
the
alternative
regulatory
options
are
considered.

Consider,
first,
the
effects
of
a
phaseout,
relative
to
a
situation
of
no
regulation.
In
this
case,
the
phaseout
target
is
below
the
desired
level
of
consumption
of
methyl
bromide,
and
so
competition
among
end
users
leads
to
higher
methyl
bromide
prices.
The
increase
in
the
price
of
methyl
bromide,
multiplied
by
the
production
quantity
capped
by
the
allowances
in
each
year,
is
a
transfer
from
those
end
users
who
continue
to
use
methyl
bromide
to
the
producers
of
methyl
bromide.
This
increase
in
price
for
the
baseline
scenario
(
the
Phaseout
Rule)
occurs
through
2005.
After
2005,
no
money
is
transferred
to
producers
or
importers
because
no
production
or
imports
are
permitted.
These
costs
through
2005
are
not
social
costs,
but
are
a
transfer
from
one
group
to
another.
This
effect
is
discussed
additionally
in
the
Phaseout
RIA
(
ICF
2000b).
Note
that
transfers
to
producers
would
be
smaller
in
the
case
of
the
permit
auction
in
Option
3
(
as
discussed
below),
or
a
tax
of
the
type
that
was
used
in
the
case
of
CFCs.
Another
issue
that
arises
under
methyl
bromide
phaseout
involves
the
possible
development
of
black
market
for
methyl
bromide.
Exhibit
5.3.1.1
discusses
this
issue
in
detail.

Windfall
profits
could
be
an
issue
of
significant
concern
to
some
elements
of
the
regulated
community.
Since
1991,
when
the
phaseout
of
methyl
bromide
began,
to
2002
the
price
of
methyl
bromide
has
almost
doubled.
Staff
economists
at
EPA
estimate
that
the
price
of
methyl
bromide
may
have
risen
from
$
5.90
to
$
11.70
per
kilogram
(
in
constant
2002
dollars)
during
this
time
horizon.

Assuming
that
the
cost
of
producing
and
importing
methyl
bromide
has
risen
at
the
same
rate
as
inflation,

this
translates
into
annual
windfall
profits
of
about
more
than
$
66
million.
No
one
can
predict
the
future
price
of
methyl
bromide,
although
some
estimates
are
made
in
analytic
documents
that
are
available
in
the
docket
and
accompany
today's
proposed
rulemaking.
EPA
seeks
comment
on
future
windfall
profits
and
how
different
methods
of
allocating
methyl
bromide
would
influence
methyl
bromide
pricing.
***
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­
88
­
Exhibit
5.3.1.1.
Is
a
Possible
Black
Market
a
Concern
for
Methyl
Bromide?

The
United
Nations
Environment
Program
(
UNEP)
has
expressed
concern
about
illegal
trade
in
Ozone
Depleting
Substances
(
ODS)
arising
as
a
result
of
the
ODS
phaseout
(
UNEP
2002).
The
incentive
for
a
black
market
to
develop
can
arise
as
a
substance
is
phased
out,
because
the
consumption
by
some
countries
or
for
particular
uses
is
restricted.
Coupled
with
high
demand,
these
restrictions 
sometimes
supplemented
by
taxes
or
surcharges 
raise
the
price
of
the
substance
in
highly
restricted
markets
relative
to
prices
elsewhere.
If
the
price
difference
is
high
enough,
and
if
the
substance
can
be
readily
obtained
at
the
cheaper
price
and
easily
transported
and
introduced
illegally
into
a
high­
priced
market,
then
an
incentive
exists
for
a
black
market
to
develop.
If,
in
addition,
controlling
the
illegal
trade
is
difficult,
then
an
active
market
may
develop.
Numerous
sources
of
the
illegal
good
(
e.
g.,
a
relatively
large
number
of
producers)
and
a
widely
dispersed
distribution
chain
for
the
good,
are
two
conditions
that
create
difficulty
in
identifying
the
good
in
transit
and
undermine
enforcement
efforts
(
UNEP
2001).

The
circumstances
surrounding
the
CFC
phaseout
in
the
United
States
(
in
particular
CFC­
12,
primarily
in
mobile
air­
conditioning
applications)
were
ideal
for
the
development
of
a
black
market
during
the
phaseout.
First,
a
high
demand
for
CFCs
in
the
United
States
combined
with
an
excise
tax
that
was
greater
(
per
pound)
than
the
price
of
CFCs
at
the
time
resulted
in
a
wide
price
differential
between
prices
in
the
United
States
and
the
rest
of
the
world
in
the
1990s
(
FBI
undated).
For
example,
in
1999
a
30­
pound
cylinder
of
CFC­
12
could
be
purchased
from
Canada
for
approximately
$
180
and
then
sold
at
greater
than
three
times
this
rate
(
approximately
$
450)
in
the
United
States
(
EPA
2003a).

Second,
there
was
a
ready
supply
of
CFCs.
CFC
production
facilities
existed
in
a
number
of
countries,
including
Russia,
China,
India,
and
Eastern
Europe.
CFC
production
was
also
still
legal
in
developing
countries
at
the
time
of
CFC
phaseout
in
the
United
States
(
UNEP
2001).
Once
imported,
illegal
CFCs
could
be
fairly
easily
distributed
via
the
large
and
dispersed
network
of
parts
providers
and
auto
repair
shops
located
in
thousands
of
towns
and
cities
around
the
United
States.
In
1997,
for
example,
the
distribution
chain
comprised
over
7,600
automobile
and
other
motor
vehicle
wholesale
shops,
over
7,100
used
wholesale
motor
vehicle
parts
shops,
and
over
42,500
automotive
parts
and
accessories
stores
(
U.
S.
Census
Bureau
2002).

As
a
result
of
these
factors,
1.5
million
pounds
of
illegal
imports
of
CFCs,
valued
at
$
18
million
on
the
black
market,
had
been
seized
by
the
late
1990s
(
FBI
undated).
As
an
example
of
annual
illegal
trade,
in
1995
it
was
estimated
that
16,000
to
38,000
tons
of
CFCs
were
traded
illegally
worldwide
(
UNEP
2001).
Since
the
illegal
trade
was
first
detected
in
the
1990s,
both
the
United
States
and
the
international
community
have
taken,
and
continue
to
take,
a
number
of
steps
to
stem
the
flow
of
illegal
CFCs,
including
actions
such
as
collaboration
of
environmental
agencies
with
customs
agents
and
UNEP­
led
national
training
programs
for
customs
agents
(
UNEP
2001).

It
is
reasonable
to
investigate
whether
the
same
potential
exists
for
illegal
trade
in
methyl
bromide
as
a
result
of
the
phaseout.
Methyl
bromide
phaseout
schedules
are
different
in
developing
and
developed
countries;
methyl
bromide
is
to
be
phased
out
in
developed
countries
in
2005,
with
the
exception
of
certain
uses,
and
in
developing
countries
by
2015
(
UNEP
2000),
suggesting
the
existence
of
a
supply
of
methyl
bromide
that
could
be
imported
illegally
into
the
United
States.
Methyl
bromide
is
also
in
high
demand
by
thousands
of
farmers
in
the
United
States,
suggesting
that
profits
could
be
made
from
its
illegal
sale.
However,
most
of
the
conditions
for
the
development
of
a
black
market
do
not
exist
for
methyl
bromide
and,
as
described
below,
the
situation
for
methyl
bromide
is
very
different
from
that
of
CFCs.

It
is
unlikely
that
an
illegal
market
for
methyl
bromide
will
arise
for
a
variety
of
reasons.
First,
it
is
difficult
and
risky
to
produce
methyl
bromide
illegally.
The
number
of
producers
of
methyl
bromide
is
smaller,
and
thus
more
easily
monitored,
than
the
number
of
producers
of
CFCs.
Only
three
major
facilities
produce
methyl
bromide
in
appreciable
amounts;
the
U.
S.
and
Israel
combined
produce
80
percent
of
global
methyl
bromide
supplies.
In
total,
only
five
industrialized
countries
have
reported
methyl
bromide
production
facilities:
France,
Israel,
Japan,
Ukraine,
and
the
United
States.
The
four
known
developing
countries
with
methyl
bromide
production,
which
together
produce
only
about
5
percent
of
methyl
bromide
supplies,
are
China,
India,
North
Korea,
and
Romania,
and
North
Korea
reportedly
no
longer
produces
methyl
bromide
(
GTZ
2001).

Second,
it
is
difficult
to
illegally
transport
methyl
bromide
into
the
United
States.
A
key
factor
is
that
the
health
risks
involved
with
illegal
transport
of
methyl
bromide
are
much
higher
than
the
risks
posed
by
CFCs.
As
a
colorless
and
odorless
gas
that
is
classified
as
a
poisoninhalation
hazard,
methyl
bromide
can
enter
the
respiratory
tract
and
cause
pulmonary
edema
if
inhaled
(
Albemarle
1999),
presenting
the
risk
of
death
if
a
leak
occurs
during
shipment.

Finally,
the
distribution
chain
for
methyl
bromide
is
highly
regulated
through
applicator
and
end
user
certification
requirements.
As
a
federallyregistered
"
restricted
use"
pesticide,
any
individual
who
uses
methyl
bromide
or
oversees
its
use
for
any
purpose
must
possess
a
valid
Qualified
Applicator
Certificate,
typically
issued
by
state
agricultural
departments
(
EPA
2003b).
This
reduces
the
ability
of
importers
to
introduce
methyl
bromide
illegally
into
the
market.

Based
on
the
above
considerations,
there
are
a
host
of
factors
that
would
tend
to
indicate
that
conditions
are
not
ideal
for
the
development
of
a
black
market
for
methyl
bromide.
One
factor
that
may
impact
this
preliminary
determination
is
the
price
differential
for
methyl
bromide
that
exists
between
domestic
and
international
markets
(
i.
e.,
methyl
bromide
prices
have
tended
to
be
higher
in
the
U.
S.
and
other
developed
countries
than
they
are
in
Article
5
countries,
and
over
the
past
few
years
the
magnitude
of
this
price
differential
has
increased).
In
spite
of
this
(
slightly
increasing)
difference,
the
small
number
of
producers
of
methyl
bromide,
the
limited
distribution
chain,
and
danger
to
human
health
associated
with
illegal
transport
of
the
substance
will
likely
outweigh
the
price
differential's
ability
to
encourage
black
market
development
(
Land
2003).

For
all
of
the
above
reasons,
it
is
unlikely
that
a
significant
black
market
for
methyl
bromide
would
develop
under
the
2005
phaseout.
Moreover,
to
the
extent
that
the
proposed
rule
examined
in
this
economic
analysis
allows
extended
uses
for
which
methyl
bromide
is
a
critical
input,
the
options
examined
herein
would
tend
to
depress
the
demand
for
methyl
bromide
in
the
near
term
and
further
weaken
any
incentive
for
a
black
market
to
develop.
If
a
black
market
were
to
develop
for
methyl
bromide
it
would
likely
have
already
been
detected,
as
evidenced
by
the
rise
of
a
black
market
in
CFCs
within
several
years
of
CFC
phaseout.
Since
the
first
phaseout
step
in
1999
for
methyl
bromide,
no
illegal
trade
in
methyl
bromide
has
been
identified
by
industry
or
regulatory
agencies
(
Land
2003).
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
89
­
Under
the
Allocation
Rule,
the
phaseout
occurs
more
gradually
than
under
the
baseline.
In
each
year
of
the
allocation
phaseout,
therefore,
methyl
bromide
prices
will
be
lower
than
under
the
baseline.

The
amount
of
transfer
from
end
users
to
methyl
bromide
producers
will
be
determined
by
the
extent
of
the
price
rise
under
the
Allocation
Rule
and
the
limits
on
quantity
produced
and
consumed.
Whether
or
not
the
transfer
is
higher
or
lower
than
under
the
original
phaseout
will
depend
on
the
magnitude
of
the
increase
in
the
price
of
methyl
bromide,
which
in
turn
depends
on
the
nature
of
the
demand
for
methyl
bromide,
and
how
responsive
or
flexible
prices
are
(
the
elasticity
of
demand)
in
response
to
the
restrictions
on
quantity.
The
more
inelastic
(
i.
e.,
the
higher
the
price
rise
for
a
given
quantity
restriction),

the
greater
will
be
transfers
to
methyl
bromide
producers
under
the
original
phaseout
than
under
the
allocation
phaseout.
(
It
should
be
noted
that
under
the
baseline
scenario,
the
bulk
of
the
market
for
methyl
bromide
ceases
in
2005
because
there
is
no
CUE.
Therefore,
while
producers
and
importers
may
have
a
surplus
that
could
be
equal
to
or
higher
than
the
baseline
scenario,
the
end
users
(
i.
e.,
farmers
and
other
commodity
producers)
have
a
benefit,
which
is
the
use
of
methyl
bromide
that
would
not
otherwise
be
available.)

The
effects
will
be
slightly
different
under
the
three
regulatory
options.
Each
of
the
three
broad
options
uses
a
different
mechanism
for
conveying
to
end
users
the
initial
right
to
purchase
methyl
bromide.
46
Because
this
right
is
a
valuable
asset,
the
options
will
have
different
distributional
consequences.
Under
Option
2,
the
allowance
system
for
producers
and
importers
is
combined
with
tradable
permits
allocated
to
end
users.
To
the
extent
that
some
end
users
must
pay
for
additional
permits
over
and
above
those
that
they
have
been
allocated
under
Option
2,
their
bid
prices
for
methyl
bromide
will
be
slightly
lower
and
so
the
transfer
to
methyl
bromide
producers
will
be
lower
under
Option
2
than
Option
1.
Under
a
permit
auction
(
Option
3),
end
users
must
pay
for
permits
covering
all
methyl
bromide
that
is
purchased,
as
well
as
paying
for
the
methyl
bromide
they
purchase.
Methyl
bromide
end
users
will
be
worse
off
under
Option
3
than
Option
2,
because
they
must
purchase
under
Option
3
what
they
receive
for
free
under
Option
2.
In
the
auction
case,
the
transfers
are
in
the
form
of
auction
revenues
that
go
from
end
users
to
the
government,
rather
than
to
methyl
bromide
producers.
47
46
Depending
on
its
design,
a
tradable
permit
scheme
can
control
the
distributive
effects
of
environmental
protection
policies,
achieving
desired
income
distribution
or
transfers
among
different
groups
through
the
choice
of
initial
permit
allocation
methods.
Not
surprisingly,
the
distributional
implications
of
the
initial
permit
allocation
method
are
some
of
the
most
controversial
and
politically
sensitive
aspects
of
designing
a
tradable
permit
system
(
OECD
2002).
However,
in
the
case
of
methyl
bromide
there
will
be
few
cost
differences
among
the
various
trading
schemes,
assuming
that
methyl
bromide
will
be
first
purchased
by
growers
with
the
highest
substitute
costs,
then
by
those
with
the
next
highest
substitute
costs,
etc.

47
A
recent
study
of
alternative
mechanisms
for
distributing
carbon
emission
allowances
to
the
electricity
sector
(
Burtraw
et
al.
2001)
gets
analogous
results.
This
study
finds
that
electricity
consumers
lose
the
most
surplus
under
an
auction
approach
(
although
they
gain
it
back
through
lump­
sum
distribution
of
revenues),
while
electricity
producers
gain
the
most
under
the
system
that
allocates
allowances
based
on
historical
generation,
rather
than
auction.
In
general,
the
uses
to
which
auction
revenues
are
put
will
affect
both
the
efficiency
and
the
distributional
implications
of
Option
3.
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
90
­
5.3.2
Economic
Impacts
Across
Sectors
As
discussed
in
Chapter
3,
two
approaches
are
used
in
this
analysis
to
estimate
and
bound
the
compliance
cost
of
the
regulatory
options.
Because
the
surplus
changes
calculated
using
this
method
provide
the
basis
for
many
of
the
impacts
reported
below,
it
is
worthwhile
to
review
the
methodology
briefly.
Under
each
approach,
changes
in
consumer
and
producer
surplus
are
calculated
for
the
baseline
phaseout
and
the
Allocation
Rule
phaseout,
relative
to
a
situation
of
no
regulation.
This
interim
result
is
used
to
calculate
the
incremental
compliance
cost
of
the
Allocation
Rule.
Specifically,
the
compliance
cost
of
the
rule
is
the
difference
between
the
estimated
changes
in
surplus
(
1)
for
the
baseline
phaseout
in
2005,
and
(
2)
for
the
critical
use
exemption
phaseout.
This
difference
gives
the
incremental
cost
of
the
Allocation
Rule,
relative
to
the
baseline
phaseout.
Note
that,
because
the
allocation
rule
increases
the
quantity
of
methyl
bromide
that
can
be
used
for
some
years,
this
incremental
cost
is
negative,
i.
e.,
the
Allocation
Rule
generates
cost
savings
relative
to
the
original
phaseout.

Overall,
the
change
in
aggregate
producer
surplus
(
for
methyl
bromide
users)
of
moving
from
the
phaseout
baseline
to
the
Allocation
Rule
phaseout
is
negative
(
i.
e.,
costs
are
lower
so
that
the
increased
availability
of
methyl
bromide
produces
compliance
cost
savings).
However,
it
is
possible
for
some
sectors
to
gain
and
others
to
lose,
particularly
in
the
short
term.
48
Exhibit
5.3.2.1
presents
the
annualized
and
NPV
compliance
costs
for
individual
sectors
for
Approach
1,
high
scenario,
using
discount
rates
of
3
and
7
percent.
49
The
analysis
estimates
that
most
of
the
compliance
cost
savings
resulting
from
the
critical
use
exemption
will
occur
in
the
strawberry,
tomato,
nursery,
and
orchard
sectors.
However,
for
the
forest
seedlings
sector,
it
maybe
more
cost
effective
to
invest
in
alternatives
to
methyl
bromide.
It
is
important
to
remember
that
no
one
is
forced
to
use
methyl
bromide
under
the
Allocation
Rule;
thus,
no
one
can
in
reality
be
made
worse
off
by
the
increased
availability
of
methyl
bromide.

What
happens
when
we
compare
the
compliance
cost
savings
accruing
to
individual
sectors
under
the
sector­
specific
and
the
universal
allocations?
In
Exhibit
5.3.2.2,
illustrative
results
are
displayed
for
annualized
compliance
cost
savings,
for
the
high
substitute
cost
scenario,
using
a
7
percent
discount
rate.
Again,
the
universal
allocation
cost
estimate
is
intended
to
be
illustrative,
not
predictive.

Strawberries
and
tomatoes,
the
sectors
that
are
assumed
to
get
a
larger
share
of
methyl
bromide
under
48
To
some
extent,
as
discussed
in
Section
5.1,
the
presence
of
winners
as
well
as
losers
under
the
increased
availability
of
methyl
bromide
reflects
the
fact
that
end
users
may
require
time
and
training
to
make
effective
use
of
alternatives
to
methyl
bromide.
Put
another
way,
the
negative
cost
savings
associated
with
the
increased
availability
of
methyl
bromide
under
the
Allocation
Rule
may
result
from
the
modest
yield
losses,
or
even
gains,
that
are
assumed
in
the
cost
analysis
for
many
substitutes.
While
the
analysis
assumes
that
these
yields
occur
immediately
upon
switching,
in
reality
it
make
take
time
for
end
users
to
learn
how
to
use
substitutes
to
methyl
bromide
most
effectively.
In
addition,
cost
is
not
the
only
factor
influencing
sectoral
decisions
to
continue
using
methyl
bromide
under
the
phaseout
or
employ
substitute
technologies
and
products.
Thus,
while
in
the
short
run,
some
end
users
appear
to
be
made
worse
off
(
in
terms
of
compliance
or
control
costs)
by
the
Allocation
Rule,
in
the
long
run,
compliance
costs
for
all
end
users
cannot
be
higher
under
the
Allocation
Rule
than
under
the
original
phaseout.

49
As
explained
earlier
in
the
chapter,
this
approach
provides
a
conservative
estimate
of
costs
and
cost
savings.
Further,
the
model
results
are
most
analogous
to
the
sector­
specific
allocation,
for
any
of
the
three
broad
options.
***
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­
the
universal
allocation
(
see
discussion
in
Section
5.2
for
additional
detail),
have
greater
compliance
cost
savings
under
the
universal
allocation
than
under
the
sector­
specific
allocation.
In
comparison,
other
sectors
have
slightly
lower
compliance
cost
savings.

Exhibit
5.3.2.1.
Compliance
Cost
Savings
Based
on
Approach
1,
High
Scenario
(
1997$)
3
Percent
Discount
7
Percent
Discount
Annualized
NPV
Annualized
NPV
Cucurbits
222,801
7,062,436
317,649
4,533,271
Eggplant
98,430
3,120,068
144,303
2,059,398
Forest
Seedlings
(
17,534)
(
555,813)
(
25,728)
(
367,173)

Ginger
48,533
1,538,423
71,205
1,016,191
Lettuce
0
0
0
0
Nursery
1,432,451
45,406,507
2,101,821
29,995,786
Orchards
3,228,038
102,323,863
3,120,442
44,532,875
Pepper
380,278
12,054,217
552,216
7,880,858
Post
Harvest
702,005
22,252,492
1,030,045
14,700,118
Strawberry
7,570,791
239,982,490
11,067,925
157,954,059
Sweet
Potato
203,376
6,446,696
292,064
4,168,148
Tomato
5,581,986
176,940,408
8,145,142
116,242,041
Total
19,451,154
616,571,788
26,817,084
382,715,573
Note:
Positive
numbers
indicate
compliance
cost
savings
from
the
2005
phaseout.
Negative
numbers
(
in
parentheses)
indicate
increased
costs
associated
with
continued
methyl
bromide
use.
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­
Exhibit
5.3.2.2
Compliance
Cost
Savings
under
Approach
1:
Annualized
Value
High
scenario
(
1997$)
Sector­
Specific
Allocation
7%
Discount
Rate
Illustrative
Universal
allocation
7%
Discount
Rate
Eggplant
144,303
63,519
Forest
Seedlings
(
25,728)
(
11,130)

Ginger
71,205
30,824
Lettuce
0
0
Nursery
2,101,821
413,435
Pepper
552,216
309,924
Strawberry
11,067,925
17,759,937
Sweet
Potato
292,064
205,257
Tomato
8,145,142
10,378,010
Cucurbits
317,649
253,220
Orchards
3,120,442
1,456,291
Post
Harvest
1,030,045
445,582
Total
26,817,084
31,304,869
Note
that
under
the
sector­
specific
allocation,
which
follows
the
nomination,
strawberries
and
tomatoes
receive
a
little
over
half
to
the
total
methyl
bromide
in
2005.
For
the
universal
allocations,
it
is
assumed
that
approximately
80
percent
of
total
methyl
bromide
goes
to
these
two
sectors,
combined.
Note
that
this
scenario
is
intended
to
be
illustrative
only,
rather
than
a
projection
of
what
is
likely
to
occur
under
the
universal
allocation.

The
foregoing
discussion
highlights
one
of
the
key
issues
in
the
choice
between
a
universal
allocation
and
trading
system
and
one
that
is
sector­
specific:
the
tradeoff
between
efficiency
and
equity.

While
universal
trading
tends
to
redistribute
methyl
bromide
consumption
in
the
direction
of
the
economically
efficient
outcome,
it
does
so
at
the
expense
of
certain
individual
sectors.
In
particular,
to
the
extent
that
the
CUE
analysis
and
nominations,
which
are
the
basis
of
the
sector­
specific
quantity
limits,

are
based
on
some
notion
of
economic
need,
moving
away
from
this
pattern
of
consumption
has
not
only
distributional,
but
perhaps
also
equity
implications.

Under
Option
2,
it
can
be
argued
that
if
the
pattern
of
methyl
bromide
consumption
shifts
away
from
the
initial
allocations
based
on
historical
consumption,
the
shift
is
voluntary
on
the
part
of
end
users
(
i.
e.,
end
users
can
choose
to
sell
their
allowances,
but
are
not
forced
to).
Thus,
the
voluntary
switching
by
end
users
from
methyl
bromide
to
substitutes,
or
a
decision
to
go
out
of
business,
does
not
constitute
an
undesirable
economic
impact
on
the
end
users.
However,
to
the
extent
that
the
pattern
of
methyl
bromide
consumption
differs
from
the
initial
allocation,
it
may
be
said
to
have
equity
impacts
on
affected
sectors,
or
at
the
least
to
be
at
odds
with
the
initial
intent
of
the
Critical
Use
Exemption
according
to
some
opinions.
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­
5.3.3
Equity
Effects:
Small
Farmers
in
Affected
Sectors
It
is
important
to
point
out
that
because
the
Allocation
Rule
provides
each
sector
with
the
opportunity
to
purchase
more
methyl
bromide
than
under
the
2005
phaseout,
no
farmer 
not
even
a
small
farmer 
can
be
a
loser
under
the
rule.
There
may,
however,
be
differences
in
the
impacts
across
the
regulatory
options.
This
section
addresses
those
relative
impacts.

There
are
three
possible
routes
by
which
small
farms
could
be
adversely
affected
or
benefited
by
the
Allocation
Rule.
First,
as
discussed
in
Section
5.2
on
economic
efficiency,
it
is
possible
that
larger
farms
may
have
several
advantages,
relative
to
smaller
farms,
under
all
the
regulatory
options.
To
the
extent
that
many
of
the
administrative
and
transactions
costs
under
Options
2
and
3
are
fixed
rather
than
related
to
the
size
of
the
transaction,
larger
farms
may
more
easily
be
able
to
bear
the
costs
of
participating
in
these
systems.
They
may
also
be
more
able
to
engage
in
transactions
and
trades
because
transaction
sizes
will
be
larger.

Second,
to
the
extent
that
suppliers
and
distributors
have
historical
relationships
with
large
customers,
small
farms
may
or
may
not
be
adversely
affected
by
moving
from
the
sector­
specific
allocation
to
the
universal
allocation.
Under
Option
1,
if
purchasing
relationships
are
with
cooperatives
or
other
groups
of
end
users,
then
historical
relationships
may
benefit
small
farms
that
are
in
largeconsuming
sectors.
To
the
extent
that
ongoing
relationships
are
with
large
individual
farms
that
are
also
historically
large
consumers
of
methyl
bromide,
however,
small
farmers
may
be
at
a
relative
disadvantage
under
the
universal
allocation
and
Option
1.

Third,
and
this
is
the
focus
of
this
section,
the
pattern
of
consumption
of
methyl
bromide
by
end
use
sector
will
be
different
under
universal
allocation
and
trading
than
under
a
sector­
specific
approach.

If
small
farms
are
disproportionately
located
in
sectors
that
are
adversely
affected
by
using
a
framework
with
universal
allocation,
there
may
be
equity
impacts
of
moving
to
a
system
with
fewer
restrictions
on
trading,
as
in
the
universal
approach.

Unfortunately,
there
are
few
data
on
the
relative
size
distributions
of
farms
by
sector,
and
equally
little
agreement
on
what
constitutes
a
small
farm.
The
Economic
Research
Service
of
the
USDA
and
the
Bureau
of
Labor
Statistics
define
small
farms
as
those
with
less
than
$
250,000
in
annual
sales
(
ERS
2003,
BLS
2003).
50
The
"
small"
classification
used
by
the
Small
Business
Administration
depends
on
the
crop
or
farm
sector;
for
the
farm
sectors
included
in
the
CUE
nominations,
the
cutoff
is
generally
$
750,000
or
less
(
SBA
2002).

By
the
foregoing
definitions,
most
of
the
farms
in
the
United
States
are
small.
About
2.1
million
farms
comprise
the
agricultural
production
industry
in
the
United
States.
According
to
the
U.
S.

Department
of
Agriculture,
an
establishment
must
sell
at
least
$
1,000
worth
of
produce
per
year
to
qualify
as
a
farm.
Almost
1.9
million,
or
91
percent,
of
U.
S.
farms
are
small
family
farms
with
less
than
$
250,000
50
In
the
past,
the
Economic
Research
Service
of
USDA
used
$
50,000
in
agricultural
sales
as
the
delineation
between
large
and
small
farms
(
ERS
2003).
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­
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­
in
annual
sales,
but
they
own
about
two­
thirds
of
the
Nation's
farmland.
Operation
of
these
farms
is
the
primary
occupation
of
about
one­
third
of
their
owners;
two­
thirds
are
operated
as
a
secondary
source
of
income,
primarily
as
homes
for
the
rural
lifestyle
they
provide,
or
as
limited
retirement
enterprises.
Large
family
farms
numbered
about
150,000
and
commercially
operated
farms
barely
40,000,
but
together
they
were
responsible
for
just
over
half
of
the
total
output
of
the
agricultural
production
industry.
Analogous
farm
data
specific
to
the
minor
crops
using
methyl
bromide
is
not
generally
available
through
USDA.
If
however,
these
farms
are
similar
in
size
to
the
rest
of
the
industry,
the
number
of
small
farms
relative
to
large
farms
will
be
similarly
high.
It
appears
that
there
is
considerable
concentration
of
output
and
sales
among
the
nation's
largest
farms.
Thus,
possible
effects
of
the
regulatory
options
that
disadvantage
small
farms
could
affect
a
large
number
of
enterprises.
Moreover,
to
the
extent
that
large
farms
may
be
spread
out
throughout
the
farming
industry,
options
that
tend
to
favor
large
farms
may
have
effects
that
are
spread
out
across
sectors,
rather
than
concentrated
in
specific
sectors.

It
is
unclear
whether
farms
using
methyl
bromide
are
representative
of
all
farms
or
all
farms
in
a
given
sector.
Even
if
they
are,
the
multiplicity
of
definitions
suggests
that
it
would
be
difficult
to
determine,

whether
particular
sectors
will
be
adversely
affected
as
a
result
of
a
preponderance
of
small
farms,
or
conversely
whether
a
sector
that
is
adversely
affected
contains
a
disproportionate
number
of
small
farms.
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­
6.
Private
Administrative
and
Transaction
Costs
Farm
businesses
and
other
entities
in
the
agricultural
community
will
incur
costs
associated
with
administering
requirements
of
the
Allocation
Rule.
Additionally,
certain
transaction
costs
associated
with
permit
trading
will
accrue
under
Option
2.
Affected
entities
include
producers,
importers,
distributors
and
other
suppliers,
and
end
users
of
methyl
bromide.
This
chapter
discusses
administrative
and
transaction
costs
to
the
private
sector
for
the
two
methyl
bromide
allocation
options.
The
administrative
costs
analyzed
include
costs
of
self­
certification
under
Option
1,
costs
of
a
permit
trading
system
under
Option
2,
and
reporting
and
recordkeeping
under
both
options.
Transaction
costs
are
analyzed
qualitatively
for
the
permit
trading
system
under
Option
2.

A
significant
portion
of
administrative
costs
under
Options
1
and
2
will
result
from
preparing
and
submitting
various
reporting
forms
and
maintaining
records
of
transactions.
Although
the
exact
content
of
these
forms
is
not
currently
known,
estimated
administrative
costs
associated
with
reporting
and
recordkeeping
are
based
on
the
existing
phaseout
requirements,
industry
reports,
other
notification
requirements
under
existing
EPA
programs
such
as
the
Toxic
Substances
Control
Act
(
TSCA)
and
the
Clean
Air
Act,
and
ICF
estimates.
Because
the
permit
trading
system
for
methyl
bromide
has
not
yet
been
implemented,
the
costs
of
trading
are
difficult
to
estimate
quantitatively.
Costs
of
permit
trading
are
estimated
based
on
cost
analyses
for
the
SO2
Trading
System
under
the
Acid
Rain
Program.
This
program
was
established
by
Title
IV
of
the
1990
Clean
Air
Act
Amendments
and
aims
to
reduce
sulfur
dioxide
(
SO2)
and
nitrogen
oxides
(
NOx)
emissions
from
electric
power
generation
in
the
United
States
by
setting
a
cap
that
changes
annually.
A
program
was
implemented
for
SO2
trading
to
help
utilities
meet
this
cap
in
a
flexible
manner.
The
trading
program
will
be
referred
to
as
the
SO2
Trading
Program
in
the
remainder
of
this
document.
Costs
of
the
programs
used
to
estimate
CUE
permit
and
allowance
allocation
options
were
revised
to
fit
the
specifics
of
the
options
and
updated
to
2002
standard
dollars.

The
remainder
of
this
chapter
is
organized
as
follows:

 
Section
6.1
discusses
the
administrative
activities
that
would
be
performed
under
Option
1
and
the
hours
and
costs
associated
with
these
activities.

 
Section
6.2
discusses
the
administrative
activities
that
would
be
performed
under
Option
2
and
the
hours
and
costs
associated
with
these
activities.

 
Section
6.3
presents
a
qualitative
discussion
of
market
evaluation
and
transaction
costs
that
could
be
faced
by
the
private
sector
in
addition
to
administrative
costs.

6.1
Private
Administrative
Activities
 
Option
1
Administrative
activities
that
would
be
performed
by
private
sector
participants
under
a
critical
use
exemption
allowance
and/
or
permitting
system
for
methyl
bromide
for
Option
1
include
those
associated
with
rule
familiarization,
reporting
and
recordkeeping,
general
inventory
preparation,
allowance
trading,

and
self­
certification.
The
estimated
total
hours
and
costs
associated
with
each
of
these
activities
are
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­
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­
summarized
in
Exhibit
6.1.1.
Hour
estimates
were
based
on
similar
programs
currently
operating
in
the
United
States.
To
determine
total
costs,
hour
estimates
were
multiplied
by
a
blended
average
hourly
industry
wage
rate
of
$
80,
including
fringe
benefits
and
overhead
(
ICF
estimate).
Activities
that
would
only
be
performed
in
the
first
year
of
the
Allocation
Rule
(
i.
e.,
one­
time
activities)
are
highlighted
in
gray.

The
remainder
of
Section
6.1
describes
each
of
the
administrative
requirements
for
Option
1
and
their
associated
costs
in
detail.

6.1.1
Rule
Familiarization
Potentially
regulated
industries
will
need
to
understand
reporting
requirements
and
become
familiar
with
rules
before
completing
forms
and
reports.
This
will
require
complete
review
of
the
forms
and
research
into
areas
where
questions
may
arise.
The
level
of
effort
for
this
activity
is
an
estimated
20
hours
per
entity
for
all
reports
combined
(
ICF
estimate),
including
self­
certification
forms.
There
are
2
methyl
bromide
producers
and
2
methyl
bromide
importers
in
the
United
States,
and
at
least
50
distributors.
54
entities
would
therefore
participate
in
rule
familiarization,
resulting
in
a
total
estimated
level
of
effort
of
1,080
hours.
This
would
be
a
one­
time
cost
because
forms
are
not
expected
to
change
greatly
from
year
to
year.
Given
an
assumed
average
hourly
rate
of
$
80,
the
estimate
one­
time
cost
associated
with
rule
familiarization
is
$
86,400.
***
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­
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­
Exhibit
6.1.1.
Private
Administrative
Activities,
Option
1
(
1997$)

Activity
Type
No.
of
Entities
Total
Responses
Hours
per
Response
Total
Hours
Total
Cost
Rule
Familiarization
Activities
Producer
rule
familiarization
2
2
20
40
$
3,200
Importer
rule
familiarization
2
2
20
40
$
3,200
Distributor
rule
familiarization
50
50
20
1,000
$
80,000
Subtotal:
Annual
Burden
0
$
0
Subtotal:
One­
Time
Burden
1,080
$
86,400
General
Inventory
Activities
Producer
annual
methyl
bromide
general
inventories
2
2
20
40
$
3,200
Producer
quarterly
methyl
bromide
general
inventories
2
8
10
80
$
6,400
Importer
annual
methyl
bromide
general
inventories
2
2
20
40
$
3,200
Importer
quarterly
methyl
bromide
general
inventories
2
8
10
80
$
6,400
Distributor
annual
general
inventories
50
50
20
1,000
$
80,000
Subtotal:
Annual
Burden
1,240
$
99,200
Subtotal:
One­
Time
Burden
0
$
0
Annual
and
Quarterly
Reporting
Activities
Complete
quarterly
producer
reports
2
8
2
16
$
1,280
Complete
annual
producer
reports
2
2
2
4
$
320
Complete
quarterly
importer
reports
2
8
2
16
$
1,280
Complete
annual
importer
reports
2
2
2
4
$
320
Complete
annual
distributor
reports
50
50
2
100
$
8,000
Subtotal:
Annual
Burden
140
$
11,200
Subtotal:
One­
Time
Burden
0
$
0
Allowance
Trading
Activities
Producer
trading
of
methyl
bromide
allowances
2
2
8
16
$
1,280
Importer
trading
of
methyl
bromide
allowances
2
2
8
16
$
1,280
Subtotal:
Annual
Burden
32
$
2,560
Subtotal:
One­
Time
Burden
0
$
0
Self­
Certification
Activities
Producer
processing
and
recordkeeping
of
distributors'
selfcertification
forms:
inventory,
tracking
and
verification
2
2
96
192
$
15,360
Importer
processing
and
recordkeeping
of
distributors'
selfcertification
forms:
inventory,
tracking
and
verification
2
2
96
192
$
15,360
Distributor
processing
and
recordkeeping
of
distributors'
selfcertification
forms:
inventory,
tracking
and
verification
50
50
96
4,800
$
384,000
Distributors
complete
self­
certification
forms
for
producers/
importers
50
50
8
380
$
30,400
End
users
and
applicators
complete
self­
certification
forms
for
distributors
2,600
2,600
8
20,800
$
1,664,000
Subtotal:
Annual
Burden
26,364
$
2,109,120
Subtotal:
One­
Time
Burden
0
$
0
TOTAL
ANNUAL
BURDEN
27,776
$
2,222,080
TOTAL
ONE­
TIME
BURDEN
1,080
$
86,400
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
98
­
6.1.2
General
Inventories
To
complete
the
producer,
importer,
and
distributor
reports,
inventories
of
methyl
bromide
will
also
need
to
be
completed.
These
inventories
are
referred
to
as
"
general
inventories,"
to
distinguish
them
from
inventories
performed
for
self­
certification
tracking.
Annual
inventories
require
approximately
40
hours
(
Godbehere
2003),
but
20
of
these
hours
are
assumed
to
be
used
for
inventory
of
self­
certified
methyl
bromide
that
is
purchased
and
sold,
and
are
addressed
below
under
"
Self­
Certification
Form
Processing
and
Recordkeeping"
(
see
Section
6.1.5).
An
additional
10
hours
annually
are
estimated
to
be
necessary
for
quarterly
inventories,
prepared
by
producers
and
importers,
for
completion
of
quarterly
reports.

Combined,
the
annual
level
of
effort
for
producers,
importers,
and
distributors
to
complete
these
annual
and
quarterly
inventories
is
estimated
to
be
1,240
hours.
Given
an
assumed
average
hourly
rate
of
$
80,
the
estimate
annual
cost
associated
with
general
inventories
under
Option
1
is
$
99,200.

6.1.3
Annual
and
Quarterly
Reporting
Producers
and
importers
will
need
to
submit
annual
reports
of
the
amount
of
methyl
bromide
created
and
transferred
during
the
year.
It
is
estimated
that
report
completion
will
require
two
hours
per
report,
resulting
in
a
total
of
8
hours
annually
for
the
annual
reporting
of
the
two
producers
and
two
importers.

Producers
and
importers
will
also
need
to
submit
quarterly
reports
of
the
amount
of
allowances
expended
and
unexpended.
These
reports
are
also
estimated
to
require
two
hours
each
for
completion.

Given
that
there
are
two
producers
and
two
importers,
a
total
of
16
quarterly
reports
will
be
submitted
annually,
resulting
in
32
hours
per
year
for
producer
and
importer
quarterly
reports.

In
addition,
methyl
bromide
distributors
will
need
to
submit
annual
reports
of
the
amount
of
methyl
bromide
transferred
to
EPA
under
Option
1.
For
the
purposes
of
this
report,
it
is
assumed
that
there
are
approximately
50
distributors
of
methyl
bromide
in
the
United
States.
It
is
estimated
that
report
completion
will
require
two
hours
per
report,
therefore
resulting
in
a
total
annual
level
of
effort
of
100
hours.

Given
an
assumed
average
hourly
rate
of
$
80,
the
estimate
annual
cost
associated
with
annual
and
quarterly
routine
reporting
activities
for
producers,
importers,
and
distributors
under
Option
1
is
$
11,200.

6.1.4
Allowance
Trading
After
receiving
methyl
bromide
allowances
from
EPA,
producers
and
importers
may
trade
allowances
among
themselves
to
increase
the
amount
of
methyl
bromide
they
are
permitted
to
import
or
produce,
in
the
case
of
allowance
purchasers,
or
to
gain
profit
from
extra
unneeded
production
or
import
allowances,
in
the
case
of
allowance
sellers.
It
is
estimated
that
each
producer
and
importer
will
make
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
99
­
one
trade,
and
that
each
trade
will
involve
8
hours
of
staff
time
to
identify
buyers
or
sellers,
and
settle
upon
selling
prices.
The
total
estimated
level
of
effort
for
allowance
trading
for
the
4
producers
and
importers
is
32
hours
annually.
Given
an
assumed
average
hourly
rate
of
$
80,
the
estimated
annual
cost
associated
with
allowance
trading
is
$
2,560.

6.1.5
Self­
Certification
Producers,
importers,
distributors
and
other
suppliers
will
need
to
process
certification
forms
verifying
that
methyl
bromide
is
sold
to
CUE­
certified
purchasers,
and
will
need
to
maintain
records
of
CUE
certification
for
three
years.
Specifically,
the
activities
that
will
be
performed
by
producers,

importers,
and
distributors
for
self­
certification
report
processing
and
recordkeeping
include:

 
track
certification
forms
throughout
the
year
and
verify
reports;
and
 
perform
annual
inventory
of
methyl
bromide
to
compare
actual
amounts
sold
and
certification
amounts
indicated.

Completing
these
activities
will
require
managerial
effort
that
will
total
96
hours
annually
for
each
producer,
importer,
and
distributor
(
EPA
1994,
ICF
estimate).
There
are
2
methyl
bromide
producers,
2
methyl
bromide
importers,
and
approximately
50
methyl
bromide
distributors
in
the
United
States
(
a
total
of
54
entities),
such
that
the
total
estimated
annual
level
of
effort
will
be
approximately
5,184
hours.

In
addition,
applicators
and
end
users
will
need
to
certify
to
distributors
or
other
suppliers
that
they
have
been
approved
for
use
of
methyl
bromide
for
CUE
purposes
before
they
can
purchase
and
subsequently
use
methyl
bromide.
Distributors
and
other
suppliers,
in
turn,
will
need
to
certify
to
producers
and
importers
that
methyl
bromide
purchased
will
be
used
for
CUE­
approved
purposes.

Affected
parties
will
be
required
to
self­
certify.
The
activities
that
will
be
performed
to
complete
selfcertification
forms
are
as
follows:

 
perform
research
necessary
to
complete
the
self­
certification
form
(
e.
g.,
historic
use,
substitute
availability
and
feasibility);
and
 
prepare
and
submit
the
self­
certification
form.

The
estimated
level
of
effort
required
to
perform
research
and
complete
each
form
is
8
hours
(
ICF
estimate).
It
is
assumed
that
there
are
600
applicators
and
2,000
end
users
in
the
United
States
and,
as
previously
stated,
this
analysis
assumes
that
there
are
50
methyl
bromide
distributors.
Hence,
there
are
2,650
affected
entities,
and
the
total
estimated
annual
level
of
effort
for
this
activity
will
be
21,180
hours
(
ICF
estimate).

Combined,
the
estimated
annual
level
of
effort
associated
with
self­
certification
activities
under
Option
1
is
26,364
hours.
Given
an
assumed
average
hourly
rate
of
$
80,
the
total
annual
cost
associated
with
this
rule
component
is
$
2,109,120.
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
100
­
6.1.6
Total
Private
Administrative
Costs:
Option
1
In
total,
the
estimated
level
of
effort
associated
with
private
sector
administrative
costs
for
Option
1
is
27,776
hours.
When
multiplied
by
the
assumed
average
hourly
rate
of
$
80,
this
translates
into
an
estimated
annual
cost
of
$
2,222,080.
The
one­
time
costs
associated
with
rule
familiarization
are
estimated
to
total
$
86,400.
The
contribution
of
this
option's
private
administrative
costs
to
all
costs
considered
for
the
options
are
summarized
in
Chapter
9.

6.2
Private
Administrative
Activities
 
Option
2
Option
2
would
require
all
activities
and
associated
costs
described
under
Option
1,
for
the
following:

 
Rule
familiarization
activities;

 
General
inventory
activities;

 
Annual
and
quarterly
reporting
activities;

 
Allowance
trading
activities;
and
 
Self­
certification
activities.

It
is
assumed
that
all
of
the
above­
listed
overlapping
activities
incur
the
same
costs
under
Options
1
and
2.
Detailed
sub­
task
activity
descriptions
for
these
overlapping
activities
are
located
above
in
Section
6.1.
Activities
under
Option
2
that
would
not
be
required
under
Option
1
include
submission
of
information
for
permit
baseline
construction,
trading
system
familiarization,
and
allowance
trading
activities.
Exhibit
6.2.1
provides
the
annual
and
one­
time
estimates
of
hour
and
cost
burdens
associated
with
each
of
these
activities
and
their
individual
components.
Those
overlapping
activities
that
would
be
required
under
both
Options
1
and
2
are
included
in
summary
form
in
the
exhibit,
without
descriptions
of
individual
components.

Hour
estimates
have
been
based
on
similar
programs
currently
operating
in
the
United
States.
To
determine
total
costs,
hour
estimates
were
multiplied
by
a
blended
average
hourly
industry
wage
rate
of
$
80,
including
fringe
benefits
and
overhead
(
ICF
estimate).

The
remainder
of
Section
6.2
describes
each
of
the
administrative
requirements
for
Option
2
and
their
associated
costs
in
detail.
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
101
­
Exhibit
6.2.1.
Private
Administrative
Activities,
Option
2
(
1997$)

Activity
Type
No.
of
Entities
Total
Responses
Hours
per
Response
Total
Hours
Total
Cost
Rule
Familiarization
Activities
Subtotal:
Annual
Burden
0
$
0
Subtotal:
One­
Time
Burden
1,080
$
86,400
General
Inventory
Activities
Subtotal:
Annual
Burden
1,240
$
99,200
Subtotal:
One­
Time
Burden
0
$
0
Annual
and
Quarterly
Reporting
Activities
Subtotal:
Annual
Burden
140
$
11,200
Subtotal:
One­
Time
Burden
0
$
0
Allowance
Trading
Activities
Subtotal:
Annual
Burden
32
$
2,560
Subtotal:
One­
Time
Burden
0
$
0
Self­
Certification
Activities
Subtotal:
Annual
Burden
26,364
$
2,109,120
Subtotal:
One­
Time
Burden
0
$
0
Submission
of
Baseline
Information
End
user
submission
of
information
for
permit
2,000
2,000
20
40,000
$
3,200,000
Subtotal:
Annual
Burden
40,000
$
3,200,000
Subtotal:
One­
Time
Burden
0
$
0
Trading
System
Familiarization
Producer
tracking
system
familiarization
2
2
12
24
$
1,920
Importer
tracking
system
Familiarization
2
2
12
24
$
1,920
Distributor
tracking
system
familiarization
50
50
12
600
$
48,000
End
user
tracking
system
familiarization
2000
2000
12
24,000
$
1,920,000
Subtotal:
Annual
Burden
0
$
0
Subtotal:
One­
Time
Burden
24,648
$
1,971,840
Permit
Tracking
and
Reporting
End
user
annual
tracking
and
entry
of
methyl
bromide
trades
into
tracking
system,
verification
reporting
2,000
2,000
6
12,000
$
960,000
Subtotal:
Annual
Burden
12,000
$
960,000
Subtotal:
One­
Time
Burden
0
0
TOTAL
ANNUAL
BURDEN
79,776
$
6,382,080
TOTAL
ONE­
TIME
BURDEN
25,728
$
2,058,240
These
costs
are
also
incurred
under
Option
1.
These
costs
are
also
incurred
under
Option
1.

These
costs
are
also
incurred
under
Option
1.

These
costs
are
also
incurred
under
Option
1.

These
costs
are
also
incurred
under
Option
1.
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
102
­
6.2.1
Submission
of
Baseline
Information
End
users
will
need
to
submit
information
in
addition
to
that
already
submitted
in
CUE
applications
to
EPA
on
historic
use
so
that
EPA
may
create
individual
operator­
level
baselines.
EPA
will
then
issue
prorated
permits
based
on
baseline
use.
This
analysis
assumes
that
approximately
2,000
end
users
will
apply
to
receive
CUE
permits,
based
on
an
estimate
of
the
number
of
farms
identified
in
CUE
applications.
EPA
has
received
56
CUE
applications,
with
each
application
representing
a
number
of
entities
with
similar
characteristics
(
i.
e.,
a
group
of
growers
in
a
state
or
a
number
of
states
that
grow
a
particular
crop).
See
Appendix
D
for
more
data
on
the
number
of
entities
that
submitted
CUE
applications
in
2002.
The
activities
that
will
be
required
for
end
users
to
complete
the
CUE
permit
application
process
are
as
follows:

 
perform
research
necessary
to
provide
information
to
EPA
(
e.
g.,
historic
use,
substitute
availability
and
feasibility);

 
complete
permit
form
with
information;
and
 
provide
documentation
(
e.
g.,
receipts).

It
is
estimated
that
approximately
20
hours
will
be
required
for
preparation
and
completion
of
each
form
that
provides
EPA
with
information
to
construct
end
user
baselines.
Assuming
that
EPA
will
receive
2,000
applications
from
end
users,
the
estimated
total
annual
level
of
effort
for
these
activities
is
40,000
hours,
at
an
annual
cost
of
$
3,200,000
(
assuming
an
average
hourly
rate
of
$
80).

6.2.2
Annual
and
Quarterly
Permit
Tracking
To
record
methyl
bromide
permit
trades
under
Option
2,
methyl
bromide
producers,
importers,

distributors
and
end
users
will
report
trades
and
sales
of
methyl
bromide
through
an
electronic
tracking
system
developed
and
operated
by
EPA.
This
tracking
system,
in
addition
to
maintaining
a
running
tally
of
trades
conducted
amongst
end
users
and
producers
and
importers,
will
also
take
the
place
of
the
reporting
forms
used
under
Option
1.
Through
this
system,
after
a
permit
holder
submits
an
order
with
a
distributor
or
other
methyl
bromide
supplier,
permit
holders
will
debit
permits
from
their
account,
which
will
be
recorded
in
EPA's
Permit
Tracking
System.
The
tracking
system
will
then
send
an
e­
mail
to
the
methyl
bromide
supplier
from
whom
methyl
bromide
was
ordered
indicating
redemption
of
a
certain
amount
of
the
permit
holder's
methyl
bromide
allotment.

Similarly,
producers
and
importers
will
enter
trades
into
the
system
as
well
as
methyl
bromide
purchases
and
transfers
on
an
annual
basis.
Distributors
will
also
submit
data
on
an
annual
basis.

Although
it
is
difficult
to
predict
the
level
of
trading
activity
that
will
occur
under
a
permit
trading
system,

and
therefore
difficult
to
estimate
the
total
number
of
end
users
and
associated
costs
of
tracking
activity,

this
analysis
assumes
that
one­
third
of
all
methyl
bromide
end
users
(
660,
or
approximately
one­
third
of
2,000
applicators)
will
conduct
trades.
All
end
users,
however,
will
still
be
required
to
submit
annual
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
103
­
reports.
Additionally,
two
producers,
two
importers,
and
50
distributors
are
assumed
to
enter
data
into
the
tracking
system.
The
activities
performed
for
tracking
system
data
entry
are
as
follows:

 
enter
methyl
bromide
transfers
and
purchases
into
the
EPA
online
trade
tracking
system.

This
analysis
assumes
that
annual
tracking
and
entry
of
methyl
bromide
sales
and
trades
will
require
the
same
hours
and
costs
as
similar
inventory
activities
under
Option
1.
Because
end
users
would
not
be
required
to
perform
tracking
and
verification
reporting
activities
under
Option
1,
however,

Option
2
incurs
an
additional
level
of
effort
of
12,000
hours,
resulting
in
costs
of
$
960,000.

6.2.3
Tracking
System
Verification
Reports
Although
resources
required
for
these
online
reports
will
be
minimal,
tracking
system
users
will
need
to
submit
verification
that
data
entered
into
the
tracking
system
over
the
course
of
the
year
are
correct
for
an
annual
"
true­
up."
It
is
assumed
that
completion
of
these
verification
forms
will
require
a
level
of
effort
comparable
to
that
required
to
complete
expended
and
unexpended
allowance/
permit
reports
and
reports
of
the
amount
of
methyl
bromide
purchased,
sold,
or
used
(
see
Section
6.1.2).
The
activities
performed
for
preparing
verification
reports
to
submit
to
EPA
are
as
follows:

 
prepare
verification
forms
annually.

This
analysis
assumes
that
verification
reporting
costs
will
be
identical
to
costs
of
reporting
activities
under
Option
1.
For
end
user
verification
reports,
see
Section
6.2.2
above.

6.2.4
Trade
Tracking
System
Familiarization
To
record
methyl
bromide
permit
trades
under
Option
2,
methyl
bromide
producers,
importers,

distributors
and
end
users
will
report
trades
and
sales
of
methyl
bromide
through
an
electronic
tracking
system
developed
and
operated
by
EPA.
This
tracking
system,
in
addition
to
maintaining
a
running
tally
of
trades
conducted
amongst
end
users
and
producers
and
importers,
will
also
take
the
place
of
the
reporting
forms
required
under
Option
1.
It
is
assumed
that
all
2,000
end
users
will
need
to
become
familiar
with
rules
and
entry
methods
for
the
tracking
systems.
It
is
also
assumed
that
two
methyl
bromide
producers,
two
importers,
and
approximately
50
distributors
will
need
to
become
familiar
with
the
system.
Based
on
a
familiarization
estimate
of
12
hours
per
entity,
a
total
of
24,648
hours
are
estimated
to
be
devoted
to
this
activity,
at
an
estimated
one­
time
cost
of
$
1,971,840.

6.2.5
Allowance
Trading
As
described
in
6.1.4,
producers
and
importers
may
trade
allowances
among
themselves
to
increase
the
amount
of
methyl
bromide
they
are
permitted
to
import
or
produce,
in
the
case
of
allowance
purchasers,
or
to
gain
profit
from
extra
unneeded
production
or
import
allowances,
in
the
case
of
allowance
sellers.
It
is
estimated
that
each
of
the
two
producers
and
two
importers
will
make
one
trade,
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
104
­
and
that
each
trade
will
require
8
hours
in
order
to
negotiate
identify
buyers
or
sellers,
and
settle
upon
selling
prices.
The
total
estimated
level
of
effort
for
allowance
trading
is,
therefore,
assumed
to
be
32
hours
annually.
Given
an
assumed
average
hourly
rate
of
$
80,
the
estimated
annual
cost
associated
with
allowance
trading
is
$
2,560.

6.2.6
Total
Private
Administrative
Costs:
Option
2
As
shown
in
Exhibit
6.2.1,
this
policy
option
is
associated
with
a
one­
time
cost
for
rule
and
trading
system
familiarization
of
$
2,058,240,
resulting
from
a
level
of
effort
of
25,728
hours.
In
addition,
the
total
estimated
annual
level
of
effort
associated
with
all
private
administrative
costs
under
Option
2
is
79,776
hours,
resulting
in
a
total
estimated
annual
cost
of
$
6,382,080 
when
multiplied
by
the
assumed
average
hourly
rate
of
$
80.

The
contribution
of
this
option's
private
administrative
costs
to
all
costs
considered
for
the
options
are
summarized
in
Chapter
9.

6.2.7
Comparison
of
Total
Private
Administrative
Costs:
Options
1
and
2
Exhibit
6.2.7.1
compares
the
total
annual
and
one­
time
costs
for
Options
1
and
2.
Note
that
Option
2
costs
include
the
costs
of
all
activities
that
would
be
conducted
under
Option
1,
plus
the
costs
of
participating
in
a
permit
trading
system.
Total
annual
costs
associated
with
private
administrative
activities
under
Option
1
are
approximately
$
4.2
million
less
than
those
under
Option
2,
with
approximately
52,000
less
hours
of
effort
required
on
a
yearly
basis.
Similarly,
total
one­
time
costs
associated
with
rule
familiarization
under
Option
1
are
approximately
$
2
million
less
than
those
associated
with
trading
system
familiarization
under
Option
2,
with
approximately
25,000
less
hours
of
effort
required
during
the
first
year.
Option
2
costs
are
higher
because
of
the
additional
hours
and
resources
required
for
permit
trading.
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
105
­
Exhibit
6.2.7.1.
Private
Administrative
Activities,
Options
1
and
2
(
1997$)

Activity
Type
Option
1
Option
2
Rule
Familiarization
Activities
Subtotal:
Annual
Burden
$
0
$
0
Subtotal:
One­
Time
Burden
$
86,400
$
86,400
General
Inventory
Activities
Subtotal:
Annual
Burden
$
99,200
$
99,200
Subtotal:
One­
Time
Burden
$
0
$
0
Annual
and
Quarterly
Reporting
Activities
Subtotal:
Annual
Burden
$
11,200
$
11,200
Subtotal:
One­
Time
Burden
$
0
$
0
Allowance
Trading
Activities
Subtotal:
Annual
Burden
$
2,560
$
2,560
Subtotal:
One­
Time
Burden
$
0
$
0
Self­
Certification
Activities
Subtotal:
Annual
Burden
$
2,109,120
$
2,109,120
Subtotal:
One­
Time
Burden
$
0
$
0
Submission
of
Baseline
Information
Subtotal:
Annual
Burden
NA
$
3,200,000
Subtotal:
One­
Time
Burden
NA
$
0
Trading
System
Familiarization
Subtotal:
Annual
Burden
NA
$
0
Subtotal:
One­
Time
Burden
NA
$
1,971,840
Annual
and
Quarterly
Permit
Tracking
Subtotal:
Annual
Burden
NA
$
960,000
Subtotal:
One­
Time
Burden
NA
$
0
TOTAL
ANNUAL
BURDEN
$
2,222,080
$
6,382,080
TOTAL
ONE­
TIME
BURDEN
$
86,400
$
2,058,240
6.3
Participation
in
Permit
Trading
System
(
Option
2)

In
addition
to
the
administrative
costs
that
will
be
faced
by
private
entities
participating
in
a
methyl
bromide
permit
trading
system
under
Option
2,
trading
activities
will
lead
to
market
evaluation
and
transaction
costs.
Applicators
and
end
users
participating
in
a
trading
system
will
need
to
evaluate
the
market
and
methyl
bromide
substitute
options
before
conducting
trades.
These
administrative
costs
are
referred
to
as
"
market
evaluation
costs"
and
are
discussed
qualitatively
in
Section
6.3.1,
below.

Additional
transaction
costs
of
participating
in
a
permit
trading
system,
including
identifying
other
market
participants,
negotiating
prices,
and
conducting
actual
trades,
are
discussed
qualitatively
in
Section
6.3.2,

below.
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
106
­
6.3.1
Market
Evaluation
Costs
Market
evaluation
costs
to
participants
for
allowance/
permit
trading
systems
are
not
quantified
because
it
is
difficult
to
predict
how
the
option
of
trading
allowances
or
permits
will
affect
trading
participants'
costs
of
evaluation
(
EPA
1992).
Market
evaluation
costs
are
trading
participants'
evaluation
of
the
best
method
to
comply
with
the
methyl
bromide
phaseout
and
CUE
requirements.
Market
evaluation
choices
vary
based
on
the
level
of
complexity
of
compliance
choices
under
a
regulation
and
the
resulting
level
of
effort
invested
to
evaluate
various
choices.
This
analysis
does
not
provide
a
quantitative
cost
estimate
for
market
evaluations
because
it
is
difficult
to
quantify
trade
participant
choices,
or
even
the
number
of
participants,
at
this
time.

6.3.2
Transaction
Costs
Transaction
costs
involve
the
time
and
resources
spent
identifying
trading
partners
willing
to
sell
the
quantity
of
desired
permits.
More
specifically,
this
requires
identifying
and
contacting
permit
holders
and
negotiating
deals,
or
hiring
a
broker
that
gathers
information
on
permit
supply
and
demand
to
help
negotiate
a
price
(
EPA
1992).
Transaction
costs
vary
depending
on
the
volume
of
trades,
the
costs
incurred
for
each
trade,
and
the
value
of
traded
permits
(
e.
g.,
if
transferring
parties
hire
brokers
who
charge
for
services
based
on
a
percentage
of
permit
value,
permits
with
higher
value
will
lead
to
higher
transaction
costs).
In
this
analysis,
transaction
costs
have
been
estimated
quantitatively
for
producers
and
importers,
but
not
for
end
users
because
of
the
numerous
variables
involved
in
estimating
such
costs
for
end
users.
This
section
discusses
transaction
costs
to
end
users
qualitatively.

Other
market
factors
that
lead
to
varying
transaction
costs
include
the
frequency
of
transactions,

the
amount
of
public
information
available
on
prices
and
trading
volumes,
and
the
complexity
of
trades.

For
example,
markets
where
transactions
are
simple
and
occur
frequently,
and
public
information
on
price
and
volume
is
readily
available,
tend
to
create
lower
transaction
costs
for
market
participants
(
EPA
1992).

Because
information
is
not
yet
available
on
the
volume
of
methyl
bromide
permit
trading
that
will
occur
under
Option
2,
the
market
price
that
will
emerge
for
permits,
the
amount
of
information
that
will
be
available
to
market
participants,
and
the
complexity
of
the
trades
that
will
be
negotiated,
transaction
costs
have
not
been
quantified
at
this
time.
However,
based
on
similar
permit
markets
that
currently
operate
and
the
known
characteristics
of
various
trading
options
for
methyl
bromide,
some
comparisons
of
transaction
costs
can
be
made.

By
way
of
comparison,
existing
trading
markets
can
be
examined
to
assess
to
predict
the
types
of
transaction
costs
that
may
arise
under
a
methyl
bromide
trading
program
and
the
various
transaction
costs
of
within­
versus
across­
sector
trades.
For
example,
California's
RECLAIM
program
can
be
compared
to
methyl
bromide
trading
under
Option
2.
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
107
­
The
RECLAIM
(
Regional
Clean
Air
Incentives
Market)
program
was
created
in
1993
by
California's
South
Coast
Air
Quality
Management
District
(
SCAQMD)
to
control
pollution
in
the
form
of
nitrogen
and
sulfur
oxides.
The
program
initially
set
a
cap
on
all
power
plants
and
other
industrial
pollution
sources
that
emitted
more
than
a
certain
amount
of
these
pollutants.
The
caps
on
each
plant
are
reduced
annually
through
2003,
and
remain
at
the
level
of
the
2003
allocation
in
ensuing
years.
The
plants
receive
a
set
number
of
pollution
allowances
annually
and
can
either
implement
technology
to
reduce
pollution,
or
buy
extra
pollution
allowances
from
firms
that
over­
comply.
The
allowances
are
in
the
form
of
RECLAIM
Trading
Credits
(
RTCs)
that
are
each
equal
to
one
pound
of
RECLAIM
pollutant
and
expire
after
one
year.
Participants
in
the
RECLAIM
program
must
report
monthly
aggregated
emissions,

a
Quarterly
Certification
of
Emissions,
and
total
daily
mass
emissions
(
SCAQMD
Regulation
XX
["
20"]

2001).

The
RECLAIM
program
is
similar
to
the
system
envisioned
for
methyl
bromide
permit
trading,
in
that
allowances
would
be
allocated
annually
to
end
users
based
on
historic
levels.
The
allowances
would
also
expire
annually,
and
individual
allocations
would
be
reduced
based
on
the
overall
phaseout
of
methyl
bromide
required
by
the
Parties
to
the
Montreal
Protocol.
One
significant
difference
between
the
RECLAIM
program
and
potential
trading
under
methyl
bromide
allocation
is
the
number
of
parties
involved
in
trading.
RECLAIM
involves
approximately
370
potential
trading
participants
(
EPA
2002)
to
which
allowances
are
allocated,
while
methyl
bromide
allocation
could
potentially
involve
thousands
of
end
users.

The
RECLAIM
program
has
resulted
in
significant
cost
savings
compared
to
estimated
costs
of
a
system
of
strict
command­
and­
control
(
e.
g.,
dictating
to
each
utility
the
amount
of
emissions
reductions
required).
Although
no
exact
estimates
of
savings
compared
to
command­
and­
control
have
been
made
(
40%
savings
were
estimated
when
the
program
was
developed),
the
high
volume
of
trading
that
has
occurred
(
as
of
2001,
over
300,000
tons
worth
of
NOx
RTCs
and
over
100,000
tons
worth
of
SO2
RTCs
has
been
traded)
suggest
high
savings.
Transaction
costs
under
the
current
RECLAIM
trading
structure
have
also
been
relatively
low
(
Ellerman
et
al.
2003).
One
possible
reason
for
these
low
transaction
costs
is
that
trades
are
conducted
directly
between
RECLAIM
companies
with
the
assistance
of
brokers
or
agents
(
Ellerman
et
al.
2003).
The
Air
Quality
Management
District
(
AQMD)
believes
that
certain
types
of
transaction
costs
would
be
higher
if
a
centralized
market
were
used
for
permit
trading
(
e.
g.,
all
credits
would
be
traded
through
a
"
single
point
of
exchange")
(
AQMD
Board
Meeting
2001).
Transaction
costs
could
be
higher
because
a
centralized
system
would
be
expensive
to
operate.
Because
the
methyl
bromide
trading
program
would
also
be
a
decentralized
system,
involving
exchanges
between
individual
end
users,
transaction
costs
could
be
lower
than
other
trading
programs.

However,
decentralized
trading
programs
such
as
RECLAIM
and
the
potential
trading
program
for
methyl
bromide
CUE
permits,
can
lead
to
high
transaction
costs
in
some
areas.
Although
relatively
low
compared
to
other
trading
programs,
transaction
costs
have
prevented
some
trades
in
the
RECLAIM
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
108
­
market.
In
the
first
few
years
of
RECLAIM,
transaction
costs
were
believed
to
reduce
trading
probabilities
by
40
percent.
Some
of
these
transaction
costs
may
result
from
firms'
need
to
search
for
and
identify
trading
partners
on
their
own,
without
the
help
of
a
centralized
system.
In
a
heterogeneous
market
such
as
RECLAIM,
which
includes
many
types
of
firms,
transaction
costs
may
be
higher
because
the
firms
do
not
tend
to
participate
in
the
same
markets
for
everyday
business.
Therefore,
participating
in
a
permit
market
requires
additional
effort
to
identify
trading
partners
(
Gangadharan
2000).
A
methyl
bromide
trading
system
under
Option
2,
especially
for
across­
sector
trading,
could
involve
similar
transaction
costs
because
participants
are
relatively
heterogeneous
(
e.
g.,
post­
harvest
versus
pre­
plant
users
of
methyl
bromide)
and
would
be
participating
in
a
decentralized
system,
albeit
with
the
aid
of
an
electronic
database.
However,
methyl
bromide
trading
would
be
less
heterogenous
than
RECLAIM,
since
the
majority
of
methyl
bromide
end
uses
are
pre­
plant
uses.

Transaction
costs
could
be
lower
under
the
more
homogeneous
within­
sector
trading
program
for
methyl
bromide
because
participants
could
be
easier
to
identify
and
contact,
and
information
on
prices
could
be
more
apparent
within
a
sector.
However,
compliance
cost
savings
could
be
lower.
Because
permits
purchased
under
the
within­
sector
trading
program
can
only
be
redeemed
for
use
in
the
same
sector
as
the
original
permit
holder,
trading
volume
and
frequency
could
be
limited.
Limited
trading
volume
means
that
there
will
be
fewer
opportunities
for
costs
savings
(
i.
e.,
there
will
be
fewer
participants
with
substitution
cost
differentials
that
lead
to
savings
when
trades
occur).

As
indicated
by
the
RECLAIM
experience,
even
after
permit
or
credit
trading
programs
have
been
operating
for
years,
it
is
difficult
to
predict
the
levels
of
transaction
costs
that
will
emerge.
Overall,

however,
the
similarity
of
the
methyl
bromide
trading
system
under
Option
2
to
RECLAIM
suggests
that
transaction
costs
for
the
trading
program
could,
like
RECLAIM,
be
relatively
low.

Although
industry
would
face
administrative
and
transaction
costs
as
a
result
of
participating
in
a
methyl
bromide
permit
trading
system
for
CUE,
trading
itself,
as
indicated
by
the
above
description
of
RECLAIM,
also
provides
industry
with
the
opportunity
to
reduce
compliance
costs.
Because
trading
is
voluntary,
end
users
will
only
trade
if
the
benefits
of
trading
outweigh
the
costs.
The
cost
savings
of
trading
are
described
in
more
detail
in
Section
4.6.
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
109
­
7.
Public
Administrative
Costs
EPA
has
jurisdiction
over
public
implementation
of
an
allocation
system
for
CUE
for
2005
and
beyond
and
will
bear
the
associated
cost
burdens
of
regulating
and
distributing
methyl
bromide
under
the
allocation
system.
Costs
to
the
government
associated
with
these
options
are
discussed
in
this
chapter
and
include
estimates
of
staffing
and
extramural
resources
(
contractor
costs)
required
for
development
and
implementation
of
an
allocation
system
(
distribution
of
allowances
to
producers
and
importers
under
Option
1
and
distribution
of
permits
to
end
users
under
Option
2).
Additionally,
costs
associated
with
development
and
operation
of
a
trading
system
and
EPA's
Permit
Tracking
System
under
Option
2,
and
all
report
processing
and
recordkeeping
activities
are
discussed.
Because
the
allocation
options
have
not
been
empirically
"
tested,"
staff
and
extramural
cost
estimates
for
methyl
bromide
allocation
are
based
on
administrative
costs
faced
by
EPA
and
other
public
administrators
under
programs
similar
to
the
options
discussed.

This
chapter
outlines
the
types
of
activities
that
will
be
faced
by
EPA
for
implementation
and
operation
of
a
critical
use
exemption
allowance/
permit
system
for
methyl
bromide
under
various
allocation
options.
Estimates
of
EPA
staff
hours,
one­
time
costs,
and
extramural
costs
for
each
activity
are
provided.
The
specific
activities
that
would
be
required
under
each
option
are
described,
and
total
cost
estimates
are
provided
for
each
option.

Costs
are
based
on
estimates
from
similar
programs
that
include
reporting
and
recordkeeping
of
chemicals,
such
as
the
methyl
bromide
phaseout
program,
the
Premanufacturing
Notification
(
PMN)

requirements
under
Section
5
of
the
Toxic
Substances
Control
Act
(
TSCA)
(
EPA
1994),
and
allowance
trading
under
such
programs
as
the
Acid
Rain
Program
(
referred
to
in
this
report
as
the
SO2
Trading
Program).
Some
of
the
costs
under
PMN,
for
example,
provide
estimates
of
the
time
required
for
EPA
to
screen
forms
it
receives,
to
process
forms,
and
to
notify
senders
that
forms
have
been
received
(
EPA
1994).

The
remainder
of
this
chapter
discusses
the
types
of
costs
that
are
expected
under
Options
1
and
2.
It
is
worth
noting
that
some
activities
are
attributable
to
one
option
or
the
other,
and
some
to
both
options.
This
chapter
is
organized
as
follows:

 
Section
7.1
discusses
the
public
administrative
activities
that
would
be
performed
under
Option
1
and
the
hours
and
costs
associated
with
these
activities.

 
Section
7.2
discusses
the
public
administrative
activities
that
would
be
performed
under
Option
2
and
the
hours
and
costs
associated
with
these
activities.

Total
first
year
costs
associated
with
public
administrative
activities
under
Option
1
are
nearly
$
40,000,
while
those
associated
with
Option
2
are
significantly
greater 
estimated
at
over
$
2.4
million.

Similarly,
recurring
costs
under
Option
1
are
significantly
lower
than
those
under
Option
2,
with
annual
costs
under
Option
1
estimated
at
approximately
$
25,000
compared
to
$
1.9
million
under
Option
2.
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
110
­
Costs
are
magnified
in
Option
2
over
Option
1
because
the
number
of
controlled
entities
is
significantly
increased.

7.1
Public
Administrative
Activities
 
Option
1
This
section
summarizes
the
estimated
labor
and
cost
burden
associated
with
the
activities
that
would
be
performed
by
the
public
sector
(
EPA)
under
a
critical
use
exemption
allowance
and/
or
permitting
system
for
methyl
bromide
under
Option
1.
Specifically,
these
administrative
activities
include
writing/
revising
reporting
forms,
processing
reports,
determining
historical
baselines,
distributing
allowances,
and
reporting
to
the
Parties
of
the
Montreal
Protocol.
The
estimated
number
of
EPA
or
extramural
respondents
affected
by
each
requirement,
as
well
as
the
associated
labor
and
cost
burden
is
presented
in
Exhibit
7.1.1.
Estimated
levels
of
effort
(
hours)
for
each
activity
were
developed
based
on
similar
programs
currently
operating
in
the
United
States.
Hours
that
only
occur
in
the
first
year
of
the
Allocation
Rule
are
highlighted
in
gray.
Cost
estimates
were
developed
using
an
average
loaded
hourly
wage
rate
for
government
employees
of
$
75
(
ICF
estimates).
Average
labor
cost
for
extramural
staff
is
assumed
to
be
$
80/
hour
(
ICF
estimate).

The
remainder
of
this
section
describes
in
detail
the
public
administrative
activities
and
labor/
cost
assumptions
presented
in
Exhibit
7.1.1.

7.1.1
Write/
Revise
Reporting
Forms
and
Guidance
EPA
will
need
to
develop
reporting
forms
for
methyl
bromide
producers,
importers,
and
distributors
that
participate
in
the
methyl
bromide
allocation
system.
These
reporting
forms
will
allow
EPA
to
monitor
the
amount
of
methyl
bromide
that
is
being
purchased
and
sold
on
an
annual
basis
and
will
help
determine
future
allocation
quantities.
Two
basic
forms
will
need
to
be
developed:
a
quarterly
reporting
form
requesting
data
on
expended
and
unexpended
methyl
bromide
allowances
from
producers
and
importers,

and
an
annual
reporting
form
requesting
information
on
quantity
of
methyl
bromide
purchased,
sold,
or
used
by
producers,
importers,
and
distributors.
These
basic
forms
will
only
require
slight
revision
for
various
applicant
types
(
e.
g.,
distributors
versus
producers).
EPA
will
also
need
to
prepare
a
guidance
document
explaining
use
of
the
forms.
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
111
­
Exhibit
7.1.1.
Public
Administration
Activities,
Option
1
(
1997$)

Activity
EPA
or
Extramural
No.
of
Respondents
Total
Responses
Hours
per
Response
Total
Hours
Total
Cost
Write/
Revise
Reporting
Forms
EPA
­
­
12
12
$
900
Extramural
­
­
50
50
$
4,000
EPA
­
­
12
12
$
900
Extramural
­
­
50
50
$
4,000
EPA
­
­
12
12
$
900
Extramural
­
­
50
50
$
4,000
Subtotal:
Annual
Burden
0
$
0
Subtotal:
One­
Time
Burden
186
$
14,700
Annual
and
Quarterly
Report
Processing
EPA
2
8
2
16
$
1,200
Extramural
2
8
1
8
$
640
EPA
2
2
2
4
$
300
Extramural
2
2
1
2
$
160
EPA
2
8
2
16
$
1,200
Extramural
2
8
1
8
$
640
EPA
2
2
2
4
$
300
Extramural
2
2
1
2
$
160
EPA
50
50
2
100
$
7,500
Extramural
50
50
1
50
$
4,000
Tally
reported
information
(
e.
g.,
quantity
of
methyl
bromide
purchased,
sold,
used,
and
stockpiled)
EPA
­
­
48
48
$
3,600
Subtotal:
Annual
Burden
258
$
19,700
Subtotal:
One­
Time
Burden
0
$
0
Determination
of
Historic
Production
EPA
2
2
4
8
$
600
Extramural
2
2
2
4
$
320
EPA
2
2
4
8
$
600
Extramural
2
2
2
4
$
320
Subtotal:
Annual
Burden
24
$
1,840
Subtotal:
One­
Time
Burden
0
$
0
Distribution
of
Allowances
EPA
2
2
8
16
$
1,200
Extramural
2
2
2
4
$
320
EPA
2
2
8
16
$
1,200
Extramural
2
2
2
4
$
320
Subtotal:
Annual
Burden
40
$
3,040
Subtotal:
One­
Time
Burden
0
$
0
Report
to
Parties
of
Montreal
Protocol
Report
methyl
bromide
use
to
parties
to
the
Montreal
Protocol
EPA
­
­
10
10
$
750
Subtotal:
Annual
Burden
10
$
750
Subtotal:
One­
Time
Burden
0
$
0
TOTAL
ANNUAL
BURDEN
332
$
25,330
TOTAL
ONE­
TIME
BURDEN
186
$
14,700
Distribute
methyl
bromide
allowances
to
importers
­­
send
allowance
notifications
Distribute
methyl
bromide
allowances
to
producers
­­
send
allowance
notifications
Determine
importers'
historic
production
of
methyl
bromide
Process
quarterly
producer
reports,
verify
receipt
Process
annual
producer
reports,
verify
receipt
Process
quarterly
importer
reports,
verify
receipt
Process
annual
importer
reports,
verify
receipt
Process
annual
distributor
reports,
verify
receipt
Determine
producers'
historic
production
of
methyl
bromide
Write/
revise
reporting
forms
and
guidance
document
for
distributors
Write/
revise
reporting
forms
and
guidance
document
for
producers
Write/
revise
reporting
forms
and
guidance
document
for
importers
This
analysis
assumes
that
a
total
of
36
hours
of
EPA
time
and
150
hours
of
extramural
staff
time
will
be
required
to
prepare
drafts
and
final
versions
of
each
of
the
forms
and
associated
guidance
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
112
­
documents,
based
on
estimates
of
form
preparation
costs
for
CFC
and
HCFC
reporting
(
ICF
estimates).

Thus,
the
total
estimated
one­
time
cost
associated
with
this
activity
is
186
hours
at
a
cost
of
$
14,700.
It
should
be
noted
that
quarterly
reporting
forms
for
unexpended
and
expended
allowances
from
producers
and
importers,
and
quarterly
reporting
forms
for
unexpended
and
expended
amounts
of
allowances
have
already
been
written
for
the
QPS
system.
Many
components
of
Option
1
will
be
similar
to
the
QPS
system,
such
that
costs
may
be
somewhat
lower
than
those
identified
here.

7.1.2
Annual
and
Quarterly
Report
Processing
All
producer
and
importer
reporting
forms
will
need
to
be
processed
in
order
to
tally
methyl
bromide
information.
Specifically,
all
participants
in
methyl
bromide
allocation
systems
will
need
to
perform
the
following
activities:

 
submit
forms
reporting
basic
methyl
bromide
purchase,
sale,
and
use
information,
which
EPA
will
process
as
they
are
received
on
an
annual
and
quarterly
basis;

 
assign
tracking
numbers
to
forms;

 
notify
submitters
upon
receipt
of
forms;
and
 
record
necessary
information
from
forms.

I
t
is
estimated
that
the
processing
of
each
report
will
require
2
hours
of
EPA
time
and
one
hour
of
extramural
time
(
ICF
estimate).
Because
there
are
two
producers,
two
importers,
and
an
estimated
50
distributors
of
methyl
bromide
in
the
United
States,
there
will
be
a
total
of
54
annual
reports
to
process.
In
addition,
because
producers
and
importers
must
also
submit
reports
on
a
quarterly
basis,
there
will
be
an
additional
16
quarterly
reports
to
process.
Combined,
the
estimated
level
of
effort
required
from
EPA
and
extramural
staff
is
estimated
to
be
210
hours,
at
an
annual
cost
of
$
16,100.

In
addition
to
processing
reports,
EPA
currently
tallies
expended
and
unexpended
methyl
bromide
allowances
under
the
QPS
system,
and
will
also
need
to
tally
this
information
for
the
CUE
process
based
on
reports
it
receives.
EPA
will
need
to
tally
the
quantity
of
methyl
bromide
purchased,

sold,
and
used
annually,
and
the
amount
of
methyl
bromide
that
is
actually
used
versus
stockpiled.
The
activities
that
will
be
required
to
tally
this
information
include:

 
track
all
information
in
applicator,
producer
and
reporter
forms;
and
 
prepare
report
summarizing
expended
and
unexpended
allowances
for
the
year.

Tallying
methyl
bromide
information
from
reports
will
require
an
estimated
48
hours
of
EPA
effort
annually,
at
a
cost
of
$
3,600.
It
is
assumed
that
EPA
will
perform
this
work
independently
and
there
will
be
no
extramural
costs
for
allowance
tallying.

Combined,
total
activities
associated
with
the
processing
of
annual
and
quarterly
reports
by
EPA
and
extramural
staff
will
require
258
hours
of
effort,
at
an
estimated
annual
cost
of
$
19,700.
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
113
­
7.1.3
Determination
of
Historic
Production
EPA
will
need
to
determine
historic
methyl
bromide
production
levels
in
order
to
distribute
methyl
bromide
allowances
to
producers
and
importers
accordingly.
The
activities
that
will
be
required
to
distribute
allowances
are
as
follows:

 
determine
historic
production
through
EPA's
ODS
Tracking
System,
which
tabulates
annual
methyl
bromide
production
information.
Data
on
historic
production
provided
by
the
tracking
system
will
allow
EPA
to
determine
the
number
of
allowances
to
be
allocated
to
producers
and
importers.

The
level
of
EPA
effort
required
to
tabulate
and
summarize
historic
production
information
is
estimated
to
be
approximately
16
hours
annually
(
ICF
estimate).
Contractors
will
likely
perform
some
additional
analysis
and
quality
control
of
historic
production
information,
resulting
in
estimated
annual
extramural
levels
of
effort
of
8
hours,
at
a
cost
of
approximately
$
1,840
(
ICF
estimate).

7.1.4
Distribution
of
Allowances
Based
on
historic
production
levels,
EPA
will
need
to
distribute
methyl
bromide
allowances
to
producers
and
importers.
Specifically,
the
following
will
be
required:

 
send
allowance
notifications
to
producers
and
importers.
These
allowances
give
producers
and
importers
the
right
to
produce
or
import
a
specific
amount
of
methyl
bromide
in
a
given
year.

There
are
two
producers
and
two
importers
of
methyl
bromide
in
the
United
States.
The
estimated
level
of
EPA
and
extramural
effort
for
developing
correspondence
and
sending
allowance
notifications
is
approximately
10
hours
per
notification
(
ICF
estimate).
Four
notifications
will
be
sent,
so
the
total
level
of
effort
will
be
approximately
40
hours,
at
an
estimated
cost
of
$
3,040.

7.1.5
Reporting
to
Parties
to
the
Montreal
Protocol
After
tallying
actual
methyl
bromide
use
and
the
amount
of
methyl
bromide
stockpiled,
EPA
will
be
required
to
report
methyl
bromide
use
to
the
Parties
to
the
Montreal
Protocol.
Actual
use
of
methyl
bromide
will
be
an
important
factor
determining
the
amount
of
methyl
bromide
the
United
States
receives
annually
from
the
Parties
to
the
Montreal
Protocol,
so
accurate
international
reporting
by
EPA
under
each
of
the
options
will
be
important.
It
is
estimated
that
the
level
of
effort
for
reporting
methyl
bromide
use
to
the
Parties
to
the
Montreal
Protocol
will
be
approximately
10
hours
for
EPA
annually
(
ICF
estimate)
and
that
no
extramural
costs
will
be
incurred
for
this
activity.
The
total
annual
cost
associated
with
this
activity
is
$
750.
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
114
­
7.1.6
Total
Cost
of
Public
Administrative
Activities:
Option
1
As
shown
in
Exhibit
7.1.1,
there
is
a
one­
time
cost
for
writing/
revising
reporting
forms
and
guidance
documents
associated
with
this
option
of
$
14,700,
resulting
from
a
level
of
effort
of
186
hours.

In
addition,
the
total
estimated
annual
level
of
effort
associated
with
all
public
administrative
costs
under
Option
1
is
332
hours,
resulting
in
a
total
estimated
annual
cost
of
$
25,330.
The
total
first
year
cost
of
this
option
is
$
39,280.

The
contribution
of
this
option's
public
administrative
costs
to
all
costs
considered
for
the
options
are
summarized
in
Chapter
9.

7.2
Public
Administrative
Activities
 
Option
2
Option
2
would
require
all
activities
and
associated
costs
described
under
Option
1
for
the
following:

 
Write/
revise
reporting
forms;

 
Annual
and
quarterly
report
processing;

 
Determination
of
historic
production;

 
Distribution
of
allowances;
and
 
Report
to
Parties
of
Montreal
Protocol.

It
is
assumed
that
all
of
the
above­
listed
overlapping
activities
incur
the
same
costs
under
Options
1
and
2.
Detailed
sub­
task
activity
descriptions
for
these
overlapping
activities
are
located
above
in
Section
7.1.
Additional
activities
under
Option
2
that
would
not
be
required
under
Option
1
include
writing
requests
for
additional
CUE
information,
allocating
permits,
and
developing
and
maintaining
a
permit
tracking
system.
Exhibit
7.2.1
provides
the
annual
and
one­
time
estimates
of
hour
and
cost
burdens
associated
with
each
of
these
activities
and
their
individual
components.
Those
overlapping
activities
that
would
be
required
under
both
Options
1
and
2
are
included
in
summary
form
in
the
exhibit,
without
descriptions
of
individual
components.

Estimated
levels
of
effort
(
hours)
for
each
activity
were
developed
based
on
similar
programs
currently
operating
in
the
United
States.
Cost
estimates
were
developed
using
an
average
loaded
hourly
wage
rate
for
government
employees
of
$
75
(
ICF
estimate).
Average
labor
cost
for
extramural
staff
is
assumed
to
be
$
80
(
ICF
estimate).

The
remainder
of
this
section
describes
in
detail
the
activities
and
hour/
cost
assumptions
presented
in
Exhibit
7.2.1.
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
115
­
Exhibit
7.2.1.
Public
Administrative
Activities,
Option
2
(
1997$)

Activity
EPA
or
Extramural
No.
of
Respondents
Total
Responses
Hours
per
Response
Total
Hours
Total
Cost
Write/
Revise
Reporting
Forms
Subtotal:
Annual
Burden
0
$
0
Subtotal:
One­
Time
Burden
186
$
14,700
Annual
and
Quarterly
Report
Processing
Subtotal:
Annual
Burden
258
$
19,700
Subtotal:
One­
Time
Burden
0
$
0
Determination
of
Historic
Production
Subtotal:
Annual
Burden
24
$
1,840
Subtotal:
One­
Time
Burden
0
$
0
Distribution
of
Allowances
Subtotal:
Annual
Burden
40
$
3,040
Subtotal:
One­
Time
Burden
0
$
0
Report
to
Parties
of
Montreal
Protocol
Subtotal:
Annual
Burden
10
$
750
Subtotal:
One­
Time
Burden
0
$
0
Writing
of
Information
Requests
EPA
NA
NA
8
8
$
600
Extramural
NA
NA
8
8
$
640
Subtotal:
Annual
Burden
0
$
0
Subtotal:
One­
Time
Burden
16
$
1,240
Allocate
Permits
EPA
NA
NA
50
50
$
3,750
Extramural
NA
NA
50
50
$
0
EPA
NA
NA
100
100
$
7,500
Extramural
NA
NA
100
100
$
7,500
EPA
2,000
2,000
2
4,000
$
300,000
Extramural
2,000
2,000
1
2,000
$
0
EPA
2,000
2,000
2
4,000
$
300,000
Extramural
2,000
2,000
1
2,000
$
150,000
Determine
extenuating
circumstances
that
limit
MB
alternative
efficacy
EPA
2,000
2,000
1
2,000
$
150,000
EPA
2,000
2,000
0.5
1,000
$
0
Extramural
2,000
2,000
0.5
1,000
$
75,000
EPA
2,000
2,000
0.5
1,000
$
75,000
Extramural
2,000
2,000
0.5
1,000
$
75,000
Conduct
appeals
process
for
one­
tenth
of
applicants
EPA
200
200
30
6,000
$
0
Subtotal:
Annual
Burden
24,300
$
1,853,250
Subtotal:
One­
Time
Burden
0
$
0
Develop
and
Maintain
Tracking
System
Plan
structure
of
trade
tracking
systems
EPA
­
­
40
40
$
3,000
Identify
software
development
team
for
trade
tracking
system
design
EPA
­
­
20
20
$
1,600
Perform
test
run
of
trade
tracking
system
EPA
­
­
60
60
$
4,500
General
development
software
and
test
run
assistance
for
trade
tracking
system
Extramural
­
­
6,250
6,250
$
500,000
EPA
­
­
12
12
$
900
Extramural
­
­
8
8
$
640
EPA
NA
NA
48
48
$
3,600
Extramural
NA
NA
250
250
$
20,000
Subtotal:
Annual
Burden
298
$
23,600
Subtotal:
One­
Time
Burden
6,390
$
510,640
End
User
Verification
Reports
EPA
2,000
2,000
0.5
1,000
$
75,000
Extramural
2,000
2,000
1
2,000
$
160,000
Subtotal:
Annual
Burden
3,000
$
235,000
Subtotal:
One­
Time
Burden
0
$
0
TOTAL
ANNUAL
BURDEN
27,930
$
2,137,180
TOTAL
ONE­
TIME
BURDEN
6,592
$
526,580
Process
end
user
tracking
system
verification
reports
and
perform
statistical
analysis
Write
tracking
system
verification
reports
Maintain
a
trade
tracking
system
Publicize
permit
application
process
Outreach
and
support
workshops
Process
end
user
applications
(
verify
permit
receipt,
enter
into
computer)

Determine
end
users'
historic
methyl
bromide
use
These
costs
are
also
incurred
under
Option
1.

These
costs
are
also
incurred
under
Option
1.

Create
methyl
bromide
permits
and
place
in
accounts
in
tracking
system
Notify
applicants
of
permits
that
have
been
allocated
to
their
account
Write
CUE
additional
information
requests
These
costs
are
also
incurred
under
Option
1.

These
costs
are
also
incurred
under
Option
1.

These
costs
are
also
incurred
under
Option
1.
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
116
­
7.2.1
Write
Information
Requests
for
Additional
CUE
EPA
will
need
to
write
a
form
requesting
additional
information
from
end
users
to
aid
in
the
determination
of
the
quantity
of
permits
each
end
user
will
receive
under
Option
2.
It
is
estimated
that
this
one­
time
activity
will
require
8
hours
of
EPA
staff
time
and
8
hours
of
contractor
support.
The
request
will
be
for
a
subset
of
information
in
the
CUE
applications
that
have
already
been
written,
and
will
therefore
not
impose
a
large
burden
on
each
applicant
(
in
aggregate,
it
will
require
an
estimated
4,000
hours
of
effort
from
the
regulated
community).
Some
new
information
in
the
form
of
records,
receipts,
etc.
will
be
required
to
document
data
submitted
in
the
CUE.
The
one­
time
cost
associated
with
this
activity
is
estimated
to
be
$
1,240.

7.2.2
Allocate
Permits
EPA
will
need
to
distribute
permits
for
methyl
bromide
use
to
end
users
under
Option
2.
This
activity
could
potentially
be
very
time
consuming
because
thousands
of
permits
may
need
to
be
distributed.
This
analysis
assumes
that
at
least
2,000
end
users
will
apply
to
receive
CUE
permits,
based
on
the
number
of
applicants
that
initially
applied.
Although
EPA
received
56
CUE
applications,
many
of
the
entities
that
originally
applied
for
CUE
were
consortia
of
numerous
end
users.
Permits
will
not
be
allocated
to
consortia,
but
rather
to
individual
end
users.
Permits
will
need
to
be
distributed
based
on
the
number
of
farms
identified
in
CUE
applications.
The
specific
activities
that
will
be
required
to
allocate
permits,
as
well
as
the
assumed
labor
and
cost
estimates
associated
with
each,
are
as
follows
(
ICF
estimates):

 
Publicize
permit
application
process
on
website
or
through
mass
mailing
(
e­
mail
or
paper)
using
EPA's
Methyl
Bromide
Stakeholders
Database,
and
post
a
Federal
Register
Notice.
It
is
estimated
that
this
activity
will
require
50
hours
of
EPA
staff
and
50
hours
of
extramural
staff
time
annually,
at
a
cost
of
$
7,750
per
year.

 
Hold
five
workshops
throughout
the
year
for
outreach
and
support
of
the
application
and
permit
allocation
process
(
5,
3­
day
workshops
with
2
staff
members).
It
is
estimated
that
this
activity
will
require
a
total
of
100
hours
of
EPA
staff
and
100
hours
of
extramural
staff
time,
at
an
estimated
annual
cost
of
$
15,500.

 
Process
end
user
CUE
applications,
create
electronic
versions
of
applications,
track
in
computer
database,
verify
three
to
five
data
receipts
submitted
by
each
end
user,
and
prepare
analyses.
For
each
of
the
2,000
applications,
it
is
estimated
that
this
activity
will
require
two
hours
of
EPA
staff
and
one
hour
of
extramural
staff
time.
In
total,
the
annual
cost
associated
with
this
activity
is
$
460,000.

 
Determine
historic
methyl
bromide
use
based
on
the
information
provided
by
end
users.
It
is
estimated
that
this
activity
will
require
a
total
of
6,000
hours
per
year
of
extramural/
EPA
staff
time,
at
an
estimated
annual
cost
of
$
460,000.
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
117
­
 
Determine
the
extenuating
circumstances
that
limit
efficacy/
feasibility
of
methyl
bromide
alternatives.
It
is
estimated
that
this
activity
will
require
2,000
hours
of
EPA
staff
time,
at
an
annual
cost
of
$
150,000.

 
Create
permits
and
place
in
an
account.
It
is
estimated
that
this
activity
will
require
a
total
of
one
half
hour
each
of
EPA
and
extramural
staff
time
per
application
(
assumed
to
number
2,000),
at
an
estimated
annual
cost
of
$
155,000.

 
Notify
applicants
of
permits
allocated.
It
is
estimated
that
this
activity
will
require
a
total
of
one
half
hour
each
of
EPA
and
extramural
staff
time
per
application,
at
an
estimated
annual
cost
of
$
155,000.

 
Conduct
an
appeals
process.
It
is
assumed
that
an
appeals
process
will
be
needed
for
onetenth
of
applicants
(
an
estimated
200).
It
is
estimated
that
each
appeal
will
require
30
hours
of
EPA
staff
time,
totaling
an
estimated
$
450,000
per
year.

7.2.3
Develop
and
Maintain
a
Permit
Tracking
System
If
methyl
bromide
permits
are
initially
allocated
to
end
users,
EPA
will
need
to
develop
a
new
tracking
system
in
which
end
users,
distributors
and
other
suppliers,
importers,
and
producers
report
trades
of
permits
and
allowances.
The
level
of
effort
estimated
for
the
development
of
a
permit
tracking
system
is
120
hours
of
EPA
staff
time
(
ICF
estimate).
This
effort,
estimated
to
cost
$
9,100,
would
include:

 
planning
the
structure
of
the
tracking
system
(
40
hours);

 
identifying
a
software
development
team
for
design
of
the
system
(
20
hours);
and
 
developing
the
system
(
60
hours).

I
n
addition,
contractor
support
would
be
needed
to
develop
the
software,
at
an
estimated
onetime
cost
of
$
500,000,
based
on
cost
estimates
for
the
SO2
Trading
Program
(
ICF
1992).
This
cost
estimate
is
lower
than
that
of
the
SO2
Trading
Program
because
EPA
now
has
more
experience
and
familiarity
with
tracking
systems.
Also,
the
methyl
bromide
tracking
system
will
be
web­
based,
which
is
less
expensive
than
the
mainframe
technology
used
for
the
SO2
tracking
system.

The
level
of
effort
for
maintaining
and
operating
the
tracking
system
is
estimated
to
require
approximately
4
hours
of
EPA
staff
time
per
month
(
48
hours
annually)
to
ensure
that
the
tracking
system
is
working
properly
and
to
address
data
entry
issues
raised
by
participants
in
the
system
(
ICF
estimate).

In
addition,
annual
extramural
costs
of
approximately
$
20,000
are
estimated
to
be
required
for
system
maintenance
and
upgrading.

7.2.4
Process
Annual
Verification
Reports
for
Tracking
System
After
a
tracking
system
has
been
developed
to
automatically
record
methyl
bromide
allowance
and
permit
trades,
EPA
will
need
to
ensure
that
data
entered
into
the
system
are
accurate.
This
will
be
performed
through
an
annual
"
true­
up"
period,
during
which
producers,
importers,
distributors
and
other
suppliers,
and
applicators
will
submit
signed
forms
verifying
the
accuracy
of
data
entered
into
the
system.
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
118
­
In
addition,
all
2,000
end
users
must
report
on
the
use
and/
or
trade
of
methyl
bromide
permits.

Therefore,
EPA
will
also
have
to
process
2,000
verification
reports
annually,
and
contractor
support
will
be
needed
for
statistical
analysis
and
report
preparation.
It
is
assumed
that
these
activities
will
require
the
same
level
of
effort
and
costs
as
those
anticipated
under
Option
1
for
report
processing.
Because
EPA
would
not
be
required
to
process
end
user
verification
reports
under
Option
1,
however,
Option
2
incurs
an
additional
level
of
effort
of
3,000
hours,
resulting
in
costs
of
$
235,000.

7.2.5
Total
Costs
of
Public
Administrative
Activities:
Option
2
As
shown
in
Exhibit
7.2.1,
total
one­
time
public
administrative
costs
associated
with
writing
information
requests
and
developing
the
Tracking
System
under
Option
2
are
estimated
to
require
6,592
hours
and
cost
$
526,580.
On
an
annual
basis,
this
option
is
estimated
to
require
a
level
of
effort
of
27,930
hours,
at
an
annual
cost
of
$
2,137,180.
Total
first­
year
costs
are
estimated
at
approximately
$
2.66
million.
The
contribution
of
public
administrative
costs
to
overall
costs
considered
for
this
option
is
summarized
in
Chapter
9.

7.2.6
Comparison
of
Total
Costs
of
Public
Administrative
Activities:
Options
1
and
2
Exhibit
7.2.6.1
compares
the
total
annual
and
one­
time
costs
of
Options
1
and
2.
Note
that
Option
2
costs
include
the
costs
of
all
activities
that
would
be
conducted
under
Option
1,
plus
the
costs
of
creating
and
maintaining
a
permit
trading
system.
Total
annual
costs
associated
with
public
administrative
activities
under
Option
1
are
approximately
$
2.1
million
less
than
those
under
Option
2,

with
approximately
27,598
less
hours
of
effort
required
on
a
yearly
basis.
Similarly,
total
one­
time
costs
associated
with
rule
familiarization
under
Option
1
are
approximately
$
511,880
less
than
those
associated
with
trading
system
familiarization
under
Option
2,
with
approximately
6,406
less
hours
of
effort
hours
required
during
the
first
year.
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
119
­
Exhibit
7.2.6.1.
Public
Administrative
Activities,
Options
1
and
2
(
1997$)

Activity
Option
1
Option
2
Write/
Revise
Reporting
Forms
Subtotal:
Annual
Burden
$
0
$
0
Subtotal:
One­
Time
Burden
$
14,700
$
14,700
Annual
and
Quarterly
Report
Processing
Subtotal:
Annual
Burden
$
19,700
$
19,700
Subtotal:
One­
Time
Burden
$
0
$
0
Determination
of
Historic
Production
Subtotal:
Annual
Burden
$
1,840
$
1,840
Subtotal:
One­
Time
Burden
$
0
$
0
Distribution
of
Allowances
Subtotal:
Annual
Burden
$
3,040
$
3,040
Subtotal:
One­
Time
Burden
$
0
$
0
Report
to
Parties
of
Montreal
Protocol
Subtotal:
Annual
Burden
$
750
$
750
Subtotal:
One­
Time
Burden
$
0
$
0
Writing
of
Information
Requests
Subtotal:
Annual
Burden
NA
$
0
Subtotal:
One­
Time
Burden
NA
$
1,240
Allocate
Permits
Subtotal:
Annual
Burden
NA
$
1,853,250
Subtotal:
One­
Time
Burden
NA
$
0
Develop
and
Maintain
Tracking
System
Subtotal:
Annual
Burden
NA
$
23,600
Subtotal:
One­
Time
Burden
NA
$
510,640
Process
End
User
Verification
Reports
Subtotal:
Annual
Burden
NA
$
235,000
Subtotal:
One­
Time
Burden
NA
$
0
TOTAL
ANNUAL
BURDEN
$
25,330
$
2,137,180
TOTAL
ONE­
TIME
BURDEN
$
14,700
$
526,580
***
DRAFT
(
1/
30/
2006)
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OR
ATTRIBUTE***

­
120
­
8.
Benefits
Analysis
This
chapter
presents
benefits
of
the
Allocation
Rule
compared
to
a
2005
methyl
bromide
phaseout
(
the
Phaseout
Rule).
Because
the
Allocation
Rule
will
involve
increased
levels
of
methyl
bromide
consumption
compared
to
the
Phaseout
Rule,
more
damage
to
stratospheric
ozone
will
result.

The
quantified
benefits
from
decreased
stratospheric
ozone
levels
will
be
negative,
including
increased
cataract
and
skin
cancer
incidence
and
skin
cancer
mortality.
Changes
in
the
incidence
and
mortality
for
the
numbers
of
skin
cancers
and
incidence
for
cataracts,
however,
are
not
the
only
indicators
of
the
damage
to
human
health
and
the
environment
that
result
from
increases
in
UV
radiation
due
to
ozone
depletion.

Increased
UV
radiation
can
cause
a
wide
variety
of
additional
human
health
problems,
including
actinic
keratosis
(
a
skin
disease)
and
immune
system
disorders.
Increased
UV
levels
also
lead
to
higher
concentrations
of
tropospheric
ozone
(
smog)
that
can
adversely
impact
human
respiratory
and
pulmonary
systems.
Furthermore,
the
impact
of
ozone
depletion
is
not
limited
to
humans;
plants
and
animals
can
also
suffer
serious
consequences
from
UV
radiation.
Overall,
in
addition
to
skin
cancers
and
cataracts,
the
following
endpoints
are
expected
to
change
due
to
the
phaseout
modifications.
In
particular,
the
following
can
be
expected
based
on
continued
methyl
bromide
use:

 
Increased
mortality
from
acute
exposure;
51
 
immune
system
suppression;
 
aquatic
and
terrestrial
ecosystem
disruption,
including
reproductive/
developmental
effects,
immune
system
suppression;
 
impacts
on
agriculture
such
as
decreased
plant
productivity,
slowed
metabolism,
hastened
plant
disease;
 
impacts
on
materials
(
i.
e.,
accelerated
breakdown
of
plastics
and
other
synthetics);
and
 
lost
productivity
and
evacuations
associated
with
local
methyl
bromide
exposure.

Therefore,
negative
impacts
will
follow
in
each
of
these
areas
as
a
result
of
the
CUE.
The
level
of
negative
benefit
will
vary
depending
on
the
quantity
of
methyl
bromide
allocated
for
CUE
and
the
actual
quantities
consumed
annually.

51
Incremental
human
health
effects
due
to
acute
exposure
expected
from
the
CUE
scenario
were
examined
for
this
analysis.
Between
2005
and
2018,
5.4
fatalities
are
expected
due
to
acute
methyl
bromide
exposure
and
106.3
cases
of
acute
methyl
bromide
exposure
are
expected
in
California.
Benefits
(
or
lost
benefits)
associated
with
acute
exposure
to
methyl
bromide
are
not
examined
further
in
this
document,
as
analysis
of
these
exposures
fall
under
the
purview
of
the
Office
of
Pesticide
Programs
(
OPP)
and
any
re­
registration
requirements
under
FIFRA.
(
CADPR
2000,
EPA
1999b,
ICF
1999).
***
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(
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30/
2006)
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OR
ATTRIBUTE***

­
121
­
9.
Cost
Comparison:
Options
and
Method
of
Allocation
This
chapter
summarizes
the
total
costs
of
the
Allocation
Rule
compared
to
those
associated
with
the
Phaseout
Rule
(
EPA
1999a).
In
all
scenarios
analyzed
for
the
Allocation
Rule,
it
is
assumed
that
methyl
bromide
will
be
distributed
to
end
users
in
2005
at
a
rate
of
39
percent
of
baseline
consumption
with
a
gradual
phaseout
to
0
percent
by
2018.
For
the
Allocation
Rule,
costs
are
the
total
cost
savings
to
industry
(
end
users)
resulting
from
a
new
methyl
bromide
phaseout
schedule
and
new
methods
of
allocation.
These
include
positive
administrative
costs
to
comply
with
the
new
allocation
methods
(
i.
e.,

self­
certifying
or
applying
for
and
trading
methyl
bromide
permits,
and
reporting)
and
negative
costs
(
compliance
cost
savings)
resulting
from
the
increased
levels
of
methyl
bromide
available
under
the
Allocation
Rule
as
compared
to
the
Phaseout
Rule.

Total
costs
are
estimated
for
the
time
period
2005
to
2018
(
costs
are
presented
at
discount
rates
of
3
and
7
percent)
in
1997
dollars.
Additionally
some
costs
are
discussed
qualitatively,
including
transaction
costs
and
factors
that
could
cause
variations
in
economic
efficiency
and
equity
between
the
two
options.
Overall,
the
increased
use
of
methyl
bromide
in
excess
of
the
original
phaseout
schedule
results
in
total
cost
savings
for
industry
as
a
whole.

9.1
Incremental
Costs
of
Allocation
Options
All
costs
for
the
allocation
options
under
the
Allocation
Rule
will
be
lower
than
costs
under
the
Phaseout
Rule,
resulting
in
negative
costs
(
total
positive
cost
savings),
because
more
methyl
bromide
will
be
available
for
use
under
the
Allocation
Rule
than
under
the
Phaseout
Rule.

As
discussed
in
Chapter
5,
costs
of
methyl
bromide
phaseout
under
the
Allocation
Rule
and
costs
under
the
Phaseout
Rule
were
estimated
using
a
spreadsheet
model
that
determined
market
penetration
of
methyl
bromide
substitutes
by
region
(
based
on
substitute
efficacy,
regional
conditions,
and
other
factors)
and
resulting
cost
and
yield
impacts.
Data
were
derived
from
a
review
of
the
literature,
the
CUE
applications,
and
consultations
with
experts.
As
presented
in
Chapter
5
of
this
report 
assuming
that
methyl
bromide
is
allocated
to
its
most
valuable
uses 
costs
(
excluding
administrative
costs)
will
be
identical
for
the
two
options
considered
under
the
Allocation
Rule.
Negative
Costs
I
n
this
Economic
Impact
Analysis,
incremental
costs
(
or
cost
savings)
are
calculated
based
on
a
comparison
of
continued
methyl
bromide
use
under
the
Allocation
Rule
to
no
consumption
in
2005
and
beyond
under
the
Phaseout
Rule.
If
control
and
other
costs
to
methyl
bromide
end
users
are
higher
under
the
Allocation
Rule
than
under
the
Phaseout
Rule,
costs
are
positive
(
or
cost
savings
are
negative).
If
costs
to
end
users
are
lower
under
the
Allocation
Rule
than
the
Phaseout
Rule,
costs
are
negative
(
or
cost
savings
are
positive).
***
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OR
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­
122
­
Costs
will
differ,
however,
depending
on
whether
allocation
of
methyl
bromide
is
accomplished
on
a
sector­
specific
or
universal
basis,
a
factor
which
may
be
determined
by
the
Parties
to
the
Montreal
Protocol.
Exhibit
9.1.1
presents
total
annualized
and
net
present
value
(
NPV)
costs
compared
to
the
Phaseout
Rule
for
universal
and
sector­
specific
allocation
scenarios
for
the
Approach
1
high
scenario,

which
measures
cost
based
on
producer
surplus
alone
and
uses
the
higher
range
of
substitute
costs.

Approach
1
was
used
because
it
is
a
conservatively
high
estimate
of
the
cost
of
methyl
bromide
substitute
use.

Exhibit
9.1.1.
Annualized
and
Net
Present
Value
Private
Compliance
Costs
of
the
Allocation
Rule
for
Approach
1,
High
Scenario
(
1997$)
Annualized
Costs
Net
Present
Value
Costs
Discount
Rate
Sector­
Specific
Allocation
Illustrative
Universal
Allocation
Sector­
Specific
Allocation
Illustrative
Universal
Allocation
3%
­
19.5
million
­
21.9
million
­
616.6
million
­
695.6
million
7%
­
26.8
million
­
31.3
million
­
382.7
million
­
446.8
million
Note:
Exhibit
9.1.1
does
not
include
administrative
costs.

9.2
Administrative
Costs
Both
the
private
and
public
sectors
will
incur
administrative
costs
associated
with
meeting
requirements
under
the
Allocation
Rule,
as
described
in
detail
in
Chapters
6
and
7.
In
addition
to
costs
related
to
yield
impacts
and
higher
substitution
costs
identified
above,
the
Allocation
Rule
will
also
lead
to
administrative
costs
for
private
entities
receiving
methyl
bromide
through
allocation
or
trade,
such
as
rule
familiarization,
reporting,
and
entry
of
information
into
a
tracking
database.
Furthermore,
EPA
will
face
costs
of
running
the
allocation
program,
including
form
writing
and
processing,
tracking
quantities
of
used
and
stockpiled
methyl
bromide,
creating
and
operating
a
trade
tracking
system
for
Option
2,
and
other
basic
administrative
activities.
Total
administrative
costs
to
the
public
and
private
sector
under
Options
1
and
2
are
summarized
in
Exhibit
9.2.1.
It
is
assumed
that
administrative
costs
are
the
same
for
universal
versus
sector­
specific
allocation.
***
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2006)
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OR
ATTRIBUTE***

­
123
­
Exhibit
9.2.1.
Net
Present
Value
of
Administrative
Costs
of
the
Allocation
Rule
for
Both
Sector­
Specific
and
Universal
Allocations
(
1997$)
Option
1
Option
2
Discount
Rate
Private
Administrative
Costs
Public
Administrative
Costs
Total
Administrative
Costs
Private
Administrative
Costs
Public
Administrative
Costs
Total
Administrative
Costs
3%
30.6
million
0.4
million
31.0
million
89.8
million
29.9
million
119.7
million
7%
22.4
million
0.3
million
22.7
million
66.1
million
22.0
million
88.1
million
9.3
Total
Costs
The
net
present
values
of
the
total
costs
of
the
Allocation
Rule
(
sector
specific
and
universal
allocation),
including
incremental
costs
of
the
allocation
options
and
public
and
private
administrative
costs,
are
summarized
in
Exhibits
9.3.1
and
9.3.2.
Total
costs
are
calculated
by
adding
total
administrative
costs
and
private
compliance
costs.
In
all
cases,
private
compliance
costs
savings
outweigh
the
administrative
costs
associated
with
the
Allocation
Rule,
resulting
in
negative
total
costs.

Negative
total
costs
represent
total
cost
savings.

Exhibit
9.3.1.
Net
Present
Value
of
Total
Costs
for
Sector­
Specific
Allocation
(
1997$)
Option
1
Option
2
Discount
Rate
Total
Administrative
Costs
Private
Compliance
Costs
Total
Costs
Total
Administrative
Costs
Private
Compliance
Costs
Total
Costs
3%
31.0
million
­
616.6
million
­
585.6
million
119.7
million
­
616.6
million
­
496.9
million
7%
22.7
million
­
382.7
million
­
360.0
million
88.1
million
­
382.7
million
­
294.6
million
Exhibit
9.3.2.
Net
Present
Value
of
Total
Costs
for
Universal
Allocation
(
1997$)
a
Option
1
Option
2
Discount
Rate
Total
Administrative
Costs
Private
Compliance
Costs
Total
Costs
Total
Administrative
Costs
Private
Compliance
Costs
Total
Costs
3%
31.0
million
­
695.6
million
­
664.6
million
119.7
million
­
695.6
million
­
575.9
million
7%
22.7
million
­
446.8
million
­
424.1
million
88.1
million
­
446.8
million
­
358.7
million
a
Illustrative,
not
predictive,
scenario.
***
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2006)
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­
124
­
9.4
Cost
Comparison
Overall
costs
to
industry
are
negative
under
both
options,
because
more
methyl
bromide
is
available
under
the
Allocation
Rule
than
under
the
Phaseout
Rule,
and
these
negative
costs
outweigh
the
positive
administrative
costs
incurred
under
the
options.
Exhibit
9.4.1
presents
a
comparison
of
the
net
present
value
costs
of
the
Allocation
Rule
for
each
option.
Total
costs
include
incremental
costs
of
the
allocation
options
and
public
and
private
administrative
costs
under
the
option.

Exhibit
9.4.1.
Costs
of
the
Allocation
Rule,
Approach
1,
High
Scenario,
Options
1
and
2
(
1997$)
Allocation
Type
Discount
Rate
Option
1
Costs
Option
2
Costs
3%
­
585.6
million
­
496.6
million
7%
­
360.0
million
­
294.6
million
3%
­
585.6
million
­
496.9
million
7%
­
360.0
million
­
294.6
million
Sector­
Specific
Allocation
7%
­
360.0
million
­
294.6
million
3%
­
664.6
million
­
575.9
million
7%
­
424.1
million
­
358.7
million
3%
­
664.6
million
­
575.9
million
7%
­
424.1
million
­
358.7.
million
Illustrative
Universal
Allocation
7%
­
424.1
million
­
358.7
million
As
indicated
in
Exhibit
9.4.1,
total
cost
savings
are
generally
greater
under
the
Allocation
Rule
for
universal
allocation
than
sector­
specific
allocation
options.
Under
the
Allocation
Rule,
methyl
bromide
will
be
allocated
to
the
highest
value
end
uses.
Specifically,
commodities
with
the
lowest
costs
for
alternatives
or
low
yield
inputs
will
switch
to
alternatives
before
high
value
uses,
with
the
end
result
that
methyl
bromide
is
used
for
uses
that
have
the
highest
cost
of
substitution.
Under
universal
allocation,
a
greater
number
of
entities
will
be
able
to
trade
permits
(
under
Option
2),
thus
leading
to
greater
economic
efficiency
and
total
cost
savings.
Under
Option
1,
universal
allocation
results
in
greater
total
cost
savings
because
methyl
bromide
is
allocated
more
directly
to
a
greater
number
of
end
users,
rather
than
requiring
a
two­
step
process
of
allocation
to
sectors
followed
by
allocation
to
end
users.

Another
way
of
investigating
cost
effectiveness
of
the
Allocation
Rule
is
to
look
at
the
relative
cost
of
options
under
the
Allocation
Rule.
Exhibit
9.4.2
presents
costs
of
each
option
and
the
ratio
of
cost
for
Option
1
to
Option
2.
Relative
costs
are
calculated
by
dividing
Option
1
costs
by
Option
2
costs.
As
the
exhibit
indicates,
Option
2
is
roughly
between
10
percent
and
13
percent
more
costly
than
Option
1,

depending
on
the
allocation
method
and
discount
rate
employed.
***
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­
125
­
Exhibit
9.4.2.
Relative
Costs
of
Option
1
and
Option
2,
Approach
1,
High
Scenario
(
1997$)
Allocation
Type
Discount
Rate
Option
1
Costs
Option
2
Costs
Relative
Costs
3%
­
585.6
million
­
496.9
million
1.18
Sector­
Specific
Allocation
7%
­
360.0
million
­
294.6
million
1.22
3%
­
664.6
million
­
575.9
million
1.15
Illustrative
Universal
Allocation
7%
­
424.1
million
­
358.7
million
1.18
As
indicated
in
Exhibit
9.4.2,
the
relative
costs
between
Option
1
and
Option
2
are
greater
than
unity,
meaning
that
Option
1
will
result
in
relatively
more
total
cost
savings
than
Option
2.
This
is
because
Option
2
involves
a
greater
number
of
entities,
thus
increasing
private
costs
of
participation
as
well
as
public
form
processing.
Option
2
also
requires
the
development
of
a
permit
trading
system
for
at
least
2000
end
users,
including
a
trade
tracking
database,
determination
of
historic
methyl
bromide
use
for
at
least
2000
end
users,
distribution
of
permits
to
end
users,
and
processing
of
verification
reports
from
importers,
producers,
distributors,
and
end
users.
Conversely,
Option
1
involves
fewer
entities
and
uses
a
system
similar
to
the
QPS
system
already
in
place,
thus
resulting
in
comparatively
low
costs.

9.5
Efficiency
and
Equity
Although
the
quantitative
cost
comparisons
presented
in
Section
9.4
provide
initial
estimates
of
the
allocation
options
that
may
lead
to
the
greatest
total
cost
savings
to
society,
the
options
also
result
in
differing
levels
of
efficiency
and
equity
for
industry
that
must
also
be
considered.
Efficiency,
or
the
leastcost
method
of
allocation,
depends
on
the
end
users
that
ultimately
receive
methyl
bromide.
If
methyl
bromide
is
allocated
to
the
highest­
valued
uses
(
i.
e.,
uses
with
the
highest
substitute
costs
and/
or
greatest
yield
losses
in
absence
of
methyl
bromide),
with
few
transaction
costs
involved,
a
relatively
efficient
outcome
will
result.
As
discussed
in
Chapter
5,
universal
allocation
under
Options
1
or
2
would
result
in
the
most
efficient
allocation
because
with
fewer
limits
on
trading,
end
users
would
have
more
chance
of
identifying
trading
partners
with
large
control
cost
differentials
(
thus
resulting
in
higher
cost
saving
potential).
Universal
allocation
would
also
allow
for
a
higher
trading
volume,
thereby
increasing
the
potential
for
lower
aggregate
control
costs
and
higher
efficiency.

Under
a
sector­
specific
system,
each
critical
end
use
type
would
be
guaranteed
at
least
some
methyl
bromide.
Within
each
crop
type
or
consortium,
methyl
bromide
would
be
allocated
to
the
most
efficient
use.
This
system
would
help
ensure
the
continued
domestic
production
of
each
of
these
products
in
an
economically
feasible
manner.
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
126
­
9.6
Industry
Total
Cost
Savings:
Summary
For
both
methyl
bromide
allocation
options
under
the
proposed
Allocation
Rule,
costs
to
end
users
will
be
less
than
under
the
Phaseout
Rule.
This
is
because
methyl
bromide
end
users
will
receive
more
methyl
bromide
than
would
have
been
the
case
under
the
Phaseout
Rule,
where
methyl
bromide
would
have
been
eliminated
by
2005.
Under
the
Allocation
Rule,
industry
will
be
able
to
continue
using
methyl
bromide
for
CUE
purposes
until
2018,
as
described
in
the
revised
phaseout
schedule
presented
in
Section
4.1.
Although
both
Option
1
and
Option
2
will
lead
to
total
cost
savings
for
industry
as
a
whole,

affected
entities
(
producers,
importers,
distributors,
applicators,
and
end
users)
will
experience
various
impacts.
This
section
discusses
net
cost
savings
to
industry
participants
for
the
two
options
and
concludes
with
a
summary
of
total
cost
savings
to
industry
as
a
whole.

Option
1
is
very
similar
to
the
existing
QPS
self
certification
system
and
will
therefore
pose
few
new
costs
to
producers,
importers,
distributors,
applicators,
or
end
users.
Under
the
QPS
system,

producers
and
importers
already
submit
annual
forms
and
distributors
submit
quarterly
forms
delineating
methyl
bromide
distribution
and
implied
consumption.
For
methyl
bromide
allocation
under
Option
1
of
the
proposed
Allocation
Rule,
similar
self­
certification
procedures
will
be
in
place
and
hence,
will
entail
activities
with
which
the
industry
is
already
familiar.
Additionally,
reporting
requirements
for
distributors
again
would
be
similar
to
requirements
under
the
QPS
system,
but
would
entail
reduced
frequency
of
reporting
for
amounts
of
methyl
bromide
bought
and
sold
(
i.
e.,
quarterly
versus
annual
reporting).
End
users
under
the
QPS
system
already
submit
self
certification
forms,
so
although
more
end
users
will
have
to
prepare
these
forms
than
do
currently,
it
is
a
familiar
process
and
will
not
entail
a
steep
learning
curve
or
impose
high
additional
costs.

Option
2
would
present
more
costs
to
industry
than
Option
1
because
it
involves
end
user
participation
in
a
permit
trading
system.
Many
end
users
do
not
have
experience
with
this
type
of
system,

or
trading
in
general.
Reporting
trades
in
a
tracking
database
operated
by
EPA
also
may
pose
significant
incremental
cost
burdens.
Anticipated
activities,
as
described
in
more
detail
in
Chapter
6,
would
include
becoming
familiar
with
the
system,
reporting
trades
in
the
tracking
database,
incurring
transaction
costs
such
as
time
and
resources
spent
identifying
and
contacting
trading
partners,
and
negotiating
costs
or
hiring
a
broker
to
perform
this
activity.
In
particular,
many
of
these
costs
would
be
borne
by
small
users
because,
according
to
the
Bureau
of
Labor
Statistics
definition
of
a
small
farm
(
less
than
$
250,000
in
annual
sales),
91
percent
of
farms
in
the
United
States
are
small
farms.

However,
these
additional
costs
to
industry
over
the
current
methyl
bromide
purchasing
system
will
be
greatly
outweighed
by
the
advantage
afforded
by
continued
methyl
bromide
use
under
the
CUE
system
beyond
2005.
Under
a
2005
phaseout,
affected
entities,
especially
small
farms,
would
be
required
to
switch
more
quickly
to
substitutes.
Furthermore,
many
small
farms
may
not
have
as
many
resources
as
larger
entities
for
conducting
trades,
and
may
lack
sufficient
information
to
settle
on
prices.
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
127
­
With
continued
methyl
bromide
use,
small
farmers
will
have
a
longer
"
buffer
time"
to
identify
methyl
bromide
substitutes
and
prepare
for
the
phaseout
in
other
ways.

It
is
critical
to
note
that
both
options
are
deregulatory
in
nature,
and
would
substantially
lower
the
cost
of
compliance
to
all
users,
including
small
users.
Exhibits
9.3.1
and
9.3.2
above
present
the
total
cost
savings
to
industry
under
both
options
of
the
Allocation
Rule
for
sector­
specific
and
universal
allocation.
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
128
­
10.
References
AQMD
Board
Meeting.
2001.
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Number
29.
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9,
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July
2003
<
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gov/
hb/
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html>.

BLS.
2003.
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03
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of
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S.
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27
May
2003
<
http://
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cg/
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Boze,
Ken
M.
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Palmer,
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Bharvirkar,
and
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Paul.
2002.
"
The
Effect
on
Asset
Values
of
the
Allocation
of
Carbon
Dioxide
Emission
Allowances."
Resources
for
the
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Discussion
Paper
02­
15.
Resources
for
the
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DC,
March.

Burtraw,
D.,
K.
Palmer,
R.
Bharvirkar,
and
A.
Paul.
2001.
"
The
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of
Allowance
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on
the
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and
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of
Carbon
Emission
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Resources
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DC,
April.

CADPR.
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California
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gov/
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pur/
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2000.
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Pesticide
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Report
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1998.
California
Department
of
Pesticide
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at
<
http://
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ca.
gov/
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pur/
pur98rep/
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pdf>.

CADPR.
1995.
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of
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Regulation.
California
Pesticide
Use
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Available
at
<
www.
cdpr.
ca.
gov/
docs/
pur/
purmain.
htm>.

Canadian
Environmental
Protection
Act
(
CEPA).
1999.
Ozone­
depleting
Substances
Regulations,
1998.
Available
at
<
http://
laws.
justice.
gc.
ca/
en/
C­
15.31/
SOR­
99­
7/
69623.
html>.

Carey,
Bill.
2000.
"
Producing
Southern
Pine
Seedlings
with
Methyl
Bromide
Alternatives,"
2000
Annual
International
Research
Conference
on
Methyl
Bromide
Alternatives
and
Emissions
Reductions.

Carey,
Bill
and
Scott
Enebak.
1997.
"
Pine
Seedling
Production
as
Affected
by
Fumigation
and
Plant
Growth
Promoting
Phizobacteria
at
a
Georgia
Nursery."
Research
Report
98­
2.
1997
Southern
Forest
Nursery
Management
Cooperative,
Auburn
University.

Carpenter,
Janet,
Leonard
Gianessi
and
Lori
Lynch.
2000.
"
The
Economic
Impact
of
the
Scheduled
U.
S.
Phaseout
of
Methyl
Bromide."
NCFAP.
Available
at
<
http://
www.
ncfap.
org/
reports/
pesticides/
methyl%
20bromide/
methylbromide.
htm>.

CASS.
1999.
California
Agricultural
Statistics
Service.
Crop
Statistics.
Available
at
<
www.
nass.
usda.
gov/
ca>.

CDFA.
2001.
"
Nursery
Inspection
Procedures
Manual
(
NIPM)."
California
Department
of
Food
and
Agriculture,
Revised
September
2001.
Available
at
<
http://
www.
cdfa.
ca.
gov/
phpps/
pe/
nipm.
htm>.

Chellemi,
Dan
O.,
Robert
C.
Hochmuth,
Ted
Winsberg,
Walter
Guetler,
Kenneth
D.
Shuler,
Lawrence
E.
Datnoff,
David
T.
Kaplan,
Robert
McSorley,
Robert
A.
Dunn,
and
Steve
M.
Olson.
1997.
"
Application
of
Soil
Solarization
to
Fall
Production
of
Cucurbits
and
Pepper."
Proc.
Fla.
State
Horticultural
Society
110:
333­
336.

CRS
(
Congressional
Research
Service).
2003.
U.
S.
Tobacco
Production,
Consumption
and
Export
Trends.
Updated
June
2003.
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
129
­
Csinos,
A.
S.,
D.
R.
Sumner,
C.
W.
Johnson,
A.
W.
Johnson,
C.
Dowler,
and
R.
M.
McPherson.
1998.
"
Alternatives
for
Methyl
Bromide
Fumigation
of
Tobacco
Seedbeds,
Pepper
and
Tomato
Seedlings."
Available
at
<
http://
www.
epa.
gov/
ozone/
mbr/
airc/
1998/
026csinos.
pdf>.

CUE
02
 
0002.
California
Bean
Shippers
Association.
2002
Application
for
Critical
Use
Exemption
of
Methyl
Bromide
for
Use
in
2005
in
the
United
States.

CUE
02
 
0003.
Auburn
University
Southern
Forest
Nursery
Management
Cooperative.
2002
Application
for
Critical
Use
Exemption
of
Methyl
Bromide
for
Use
in
2005
in
the
United
States.

CUE
02
 
0004.
Michigan
Solanaceous
Crop.
2002
Application
for
Critical
Use
Exemption
of
Methyl
Bromide
for
Use
in
2005
in
the
United
States.

CUE
02
 
0005.
Michigan
Cucurbit.
2002
Application
for
Critical
Use
Exemption
of
Methyl
Bromide
for
Use
in
2005
in
the
United
States.

CUE
02
 
0007.
International
Paper
Consortium.
2002
Application
for
Critical
Use
Exemption
of
Methyl
Bromide
for
Use
in
2005
in
the
United
States.

CUE
02
 
0008.
Western
Forest
and
Conservation
Public
Nursery
Association.
2002
Application
for
Critical
Use
Exemption
of
Methyl
Bromide
for
Use
in
2005
in
the
United
States.

CUE
02
 
0009.
Nursery
Technology
Cooperative.
2002
Application
for
Critical
Use
Exemption
of
Methyl
Bromide
for
Use
in
2005
in
the
United
States.

CUE
02
 
0010.
Western
Raspberry
Nursery
Consortium.
2002
Application
for
Critical
Use
Exemption
of
Methyl
Bromide
for
Use
in
2005
in
the
United
States.

CUE
02
 
0011.
Illinois
Department
of
Natural
Resources,
Nursery
Program.
2002
Application
for
Critical
Use
Exemption
of
Methyl
Bromide
for
Use
in
2005
in
the
United
States.

CUE
02
 
0012.
Virginia
Tomato
Growers.
2002
Application
for
Critical
Use
Exemption
of
Methyl
Bromide
for
Use
in
2005
in
the
United
States.

CUE
02
 
0013.
California
Grape
and
Tree
Fruit
League
(
Stone
Fruit)
.
2002
Application
for
Critical
Use
Exemption
of
Methyl
Bromide
for
Use
in
2005
in
the
United
States.

CUE
02
 
0014.
California
Grape
and
Tree
Fruit
League
(
Table
and
Raisin
Grapes)
.
2002
Application
for
Critical
Use
Exemption
of
Methyl
Bromide
for
Use
in
2005
in
the
United
States.

CUE
02
 
0015.
California
Dried
Plum
Board.
2002
Application
for
Critical
Use
Exemption
of
Methyl
Bromide
for
Use
in
2005
in
the
United
States.

CUE
02
 
0016.
Sweet
Potato
Council
of
California.
2002
Application
for
Critical
Use
Exemption
of
Methyl
Bromide
for
Use
in
2005
in
the
United
States.

CUE
02
 
0017.
California
Pepper
Commission.
2002
Application
for
Critical
Use
Exemption
of
Methyl
Bromide
for
Use
in
2005
in
the
United
States.

CUE
02
 
0019.
California
Pistachio
Processors.
2002
Application
for
Critical
Use
Exemption
of
Methyl
Bromide
for
Use
in
2005
in
the
United
States.
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
130
­
CUE
02
 
0021.
Weyerhaeuser
Company
Forest
Tree
Nurseries
(
SE).
2002
Application
for
Critical
Use
Exemption
of
Methyl
Bromide
for
Use
in
2005
in
the
United
States.

CUE
02
 
0022.
Weyerhaeuser
Company
Forest
Tree
Nurseries
(
NW).
2002
Application
for
Critical
Use
Exemption
of
Methyl
Bromide
for
Use
in
2005
in
the
United
States.

CUE
02
 
0023.
Rice
Millers'
Association.
2002
Application
for
Critical
Use
Exemption
of
Methyl
Bromide
for
Use
in
2005
in
the
United
States.

CUE
02
 
0024.
California
Strawberry
Commission.
2002
Application
for
Critical
Use
Exemption
of
Methyl
Bromide
for
Use
in
2005
in
the
United
States.

CUE
02
 
0025.
Tobacco
Growers
Association
of
North
Carolina.
2002
Application
for
Critical
Use
Exemption
of
Methyl
Bromide
for
Use
in
2005
in
the
United
States.

CUE
02
 
0026.
Kraft
Food
North
America,
Inc.
2002
Application
for
Critical
Use
Exemption
of
Methyl
Bromide
for
Use
in
2005
in
the
United
States.

CUE
02
 
0027.
Pet
Food
Institute.
2002
Application
for
Critical
Use
Exemption
of
Methyl
Bromide
for
Use
in
2005
in
the
United
States.

CUE
02
 
0029.
California
Walnut
Commission.
2002
Application
for
Critical
Use
Exemption
of
Methyl
Bromide
for
Use
in
2005
in
the
United
States.

CUE
02
 
0030.
California
Walnut
Commission
and
Walnut
Marketing
Board.
2002
Application
for
Critical
Use
Exemption
of
Methyl
Bromide
for
Use
in
2005
in
the
United
States.

CUE
02
 
0031.
North
American
Millers
Association.
2002
Application
for
Critical
Use
Exemption
of
Methyl
Bromide
for
Use
in
2005
in
the
United
States.

CUE
02
 
0032.
Wisconsin
Department
of
Natural
Resources
State
Nursery
Managers.
2002
Application
for
Critical
Use
Exemption
of
Methyl
Bromide
for
Use
in
2005
in
the
United
States.

CUE
02
 
0033.
Gwaltney
of
Smithfield.
2002
Application
for
Critical
Use
Exemption
of
Methyl
Bromide
for
Use
in
2005
in
the
United
States.

CUE
02
 
0034.
California
Strawberry
Nursery
Association.
2002
Application
for
Critical
Use
Exemption
of
Methyl
Bromide
for
Use
in
2005
in
the
United
States.

CUE
02
 
0035.
California
Association
of
Nurserymen
­
Deciduous
Fruit
and
Nut
Tree
Growers.
2002
Application
for
Critical
Use
Exemption
of
Methyl
Bromide
for
Use
in
2005
in
the
United
States.

CUE
02
 
0036.
California
Association
of
Nurserymen
 
Citrus
and
Avocado
Growers.
2002
Application
for
Critical
Use
Exemption
of
Methyl
Bromide
for
Use
in
2005
in
the
United
States.

CUE
02
 
0037.
Southeastern
Strawberry
Consortium
(
Strawberry
Plasticulture).
2002
Application
for
Critical
Use
Exemption
of
Methyl
Bromide
for
Use
in
2005
in
the
United
States.

CUE
02
 
0038.
Southeastern
Strawberry
Consortium
(
Strawberry
Nurseries).
2002
Application
for
Critical
Use
Exemption
of
Methyl
Bromide
for
Use
in
2005
in
the
United
States.

CUE
02
 
0039.
Michigan
Seedling
Association.
2002
Application
for
Critical
Use
Exemption
of
Methyl
Bromide
for
Use
in
2005
in
the
United
States.
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
131
­
CUE
02
 
0040.
Southeastern
Tomato
Consortium.
2002
Application
for
Critical
Use
Exemption
of
Methyl
Bromide
for
Use
in
2005
in
the
United
States.

CUE
02
 
0041.
Southeastern
Pepper
Consortium.
2002
Application
for
Critical
Use
Exemption
of
Methyl
Bromide
for
Use
in
2005
in
the
United
States.

CUE
02
 
0042.
Southeastern
Cucurbit
Consortium.
2002
Application
for
Critical
Use
Exemption
of
Methyl
Bromide
for
Use
in
2005
in
the
United
States.

CUE
02
 
0043.
Almond
Hullers
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CUE
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CUE
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CUE
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***
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QUOTE
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***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
138
­
Wright,
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***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
139
­
Appendix
A:
Summary
of
Cost
Information
in
CUE
Applications
This
appendix
presents
a
summary
of
cost
information
submitted
by
the
applicants
for
methyl
bromide
Critical
Use
Exemption
(
CUE).
Cost
data
for
each
sector
are
summarized
below
including
the
cost
of
methyl
bromide
for
each
state
or
region
that
applied.
Applications
that
contained
confidential
business
information
(
CBI)
are
not
represented
in
this
appendix.
52
Where
provided
by
applicants,

operating
cost
data
are
broken
out
by
pre­
harvest,
and
harvest
and
post­
harvest
costs.
Pre­
harvest
operations
include
fumigation
of
soil
with
methyl
bromide
to
eliminate
nematodes,
weeds
and
other
pests
before
a
crop
is
planted
and
preparing
the
soil
for
harvest.
Harvest
and
post­
harvest
operations
include
costs
incurred
during
and
after
harvest
(
e.
g.,
picking
and
shipping
the
crop).
Some
commodities
and
crops
in
this
appendix
have
more
cost
information
than
others
because
of
the
variable
amounts
of
information
submitted
in
applications.
The
cost
data
presented
below
were
extracted
from
the
following
CUE
worksheets:


Worksheet
2­
C:
Estimated
Revenue;


Worksheet
2­
D:
MeBr
Use
and
Costs;


Worksheet
2­
E:
Pre­
harvest
Costs,
and
Harvest
and
Post­
Harvest
Costs;
and

Worksheet
2­
F:
Fixed
and
Overhead
Costs.

Total
costs
are
calculated
by
summing
the
pre­
harvest
costs,
harvest
and
post­
harvest
costs,
and
fixed
and
overhead
costs.
The
total
pre­
harvest
production
costs
include
the
indicated
cost
of
methyl
bromide.
The
relative
cost
of
methyl
bromide
is
presented
below
as
a
percentage
of
the
total
pre­
harvest
costs
and
total
operating
costs.
Profits
were
estimated
by
subtracting
the
calculated
total
costs
from
the
revenue
provided
by
the
CUE
applicants.
This
calculation
sometimes
results
in
negative
values
possibly
indicating
that
production
using
methyl
bromide
is
not
profitable
or
that
the
applicant
may
have
provided
inaccurate
or
incomplete
cost
or
revenue
information.

All
costs
provided
in
the
tables
are
rounded
to
the
nearest
whole
dollar;
therefore,
totals
may
not
always
sum
due
to
independent
rounding.

The
remainder
of
the
document
provides
tables
of
cost
data
for
fruit
and
vegetable
growers,
tree
nurseries
and
other
growers,
and
post­
harvest
uses
such
as
commodity
storage
and
structural
fumigation.
53
52
An
application
was
determined
to
contain
CBI
if
the
applicant
did
not
sign
the
clause
on
Worksheet
5
that
indicated
that
the
applicant
does
not
"
assert
any
claim
of
confidentiality."

53
These
post­
harvest
operations
refer
to
methyl
bromide
fumigation
of
internal
storage
spaces
in
warehouses
and
processing
facilities
to
prevent
insect,
rat,
mouse,
and
other
pest
damage
to
commodities.
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
140
­
1.
Fruit
and
Vegetable
Growers
Exhibit
1.1.
Summary
of
Costs
per
Hectare
for
Bell
Pepper
Farms
(
2001$)

Costs
Georgia
Southeast
Methyl
Bromide
2,916
1,592
Total
Pre­
Harvest
9,282
2,153
Total
Harvest
and
Post­
Harvest
10,540
22,659
Fixed
and
Overhead
1,612
2,379
Total
21,434
27,191
Methyl
Bromide
Costs
Percent
of
Pre­
Harvest
31%
74%

Methyl
Bromide
Costs
Percent
of
Total
14%
6%

Note:
Applications
for
California
and
Florida
bell
peppers
contained
CBI
and
are
not
represented
in
this
appendix.
Source:
CUE
02­
0049,
CUE
02­
0041,
CUE
02­
0017,
CUE
02­
0054
Exhibit
1.2.
Estimated
Revenue
and
Profit
per
Hectare
for
Bell
Pepper
Farms
by
Region
(
2001$)

Georgia
Southeast
Estimated
Revenue
23,493
30,578
Total
Costs
$
21,434
27,191
Estimated
Profit
$
2,059
3,387
Methyl
Bromide
Costs
Percent
of
Revenue
12%
5%

Source:
CUE
02­
0049,
CUE
02­
0041
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
141
­
Exhibit
1.3.
Summary
of
Costs
per
Hectare
for
Cucurbit
Farms
by
Region
(
2001$)

Costs
Georgia
Cucumber
Michigan
Squash
a
Georgia
Squash
Georgia
Melon
Methyl
Bromide
2,915
2,021
2,916
2,916
Total
Pre­
Harvest
6,164
3,123
5,917
6,596
Total
Harvest
and
Post­
Harvest
7,195
8,231
7,003
7,855
Fixed
and
Overhead
1,612
793
7,581
7,581
Total
Costs
14,971
12,147
20,501
22,032
Methyl
Bromide
Costs
Percent
of
Pre­
Harvest
47%
65%
49%
44%

Methyl
Bromide
Costs
Percent
of
Total
19%
17%
14%
13%

a
CUE
applicant
referred
to
budget
summaries
provided
with
the
CUE
application
for
information
required
in
Worksheet
2­
E.
Methyl
bromide,
Total
Pre­
Harvest
and
Total
Harvest
and
Post­
Harvest,
and
Fixed
and
Overhead
costs
were
provided
by
these
summaries.
Note:
Application
for
Southeast
cucumbers
contained
CBI
and
is
not
represented
in
this
appendix.
Source:
CUE
02­
0051,
CUE
02­
0005,
CUE
02­
0048,
CUE
02­
0052,
CUE
02­
0042
Exhibit
1.4.
Estimated
Revenue
and
Profit
per
Hectare
for
Cucurbit
Farms
by
Region
(
2001$)

Georgia
Cucumber
Michigan
Squasha
Georgia
Squash
Georgia
Melon
Estimated
Revenue
13,978
8,800
23,287
11,070
Total
Costs
14,971
12,147
20,501
22,032
Estimated
Profit
(
994)
(
3,348)
2,786
(
10,962)
Methyl
Bromide
Costs
21%
23%
13%
26%
a
Worksheet
2­
C
not
provided.
Estimated
Revenue
displayed
for
Michigan
squash
is
the
average
revenue
as
provided
in
Worksheet
2­
B
for
squash.
Source:
CUE
02­
0051,
CUE
02­
0005,
CUE
02­
0048,
CUE
02­
0052
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
142
­
Exhibit
1.5.
Summary
of
Costs
per
Hectare
for
Eggplant
Farms
(
2001$)

Costs
Georgia
Methyl
Bromide
2,916
Total
Pre­
Harvest
7,152
Total
Harvest
and
Post­
Harvest
14,773
Fixed
and
Overhead
1,612
Total
23,538
Methyl
Bromide
Costs
Percent
of
Pre­
Harvest
41%

Methyl
Bromide
Costs
Percent
of
Total
12%

Note:
Application
for
Florida
eggplant
contained
CBI
and
is
not
represented
in
this
appendix.
Source:
CUE
02­
0050,
CUE
02­
0054
Exhibit
1.6.
Estimated
Revenue
and
Profit
per
Hectare
for
Eggplant
Farms
in
Georgia
(
2001$)

Estimated
Revenue
48,548
Total
Costs
23,538
Estimated
Profit
25,010
Methyl
Bromide
Costs
Percent
of
Total
Revenue
6%

Source:
CUE
02­
0050
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
143
­
Exhibit
1.7.
Summary
of
Costs
per
Hectare
for
Strawberry
Farms
(
2001$)

Costs
Florida
Other
Southeastern
States
Methyl
Bromide
1,846
1,581
Total
Pre­
Harvest
15,483
17,585
Total
Harvest
and
Post­
Harvest
24,921
12,045
Fixed
and
Overhead
9,216
5,849
Total
49,620
35,479
Methyl
Bromide
Costs
Percent
of
Pre­
Harvest
12%
9%

Methyl
Bromide
Costs
Percent
of
Total
4%
4%

Note:
Application
for
California
strawberries
contained
CBI
and
is
not
represented
in
this
appendix.
Source:
CUE
02­
0053,
CUE
02­
0037,
CUE
02­
0024
Exhibit
1.8.
2001
Estimated
Revenue
and
Profit
per
Hectare
for
Strawberries
(
2001$)

Florida
Other
Southeastern
States
Estimated
Revenue
155,765
50,903
Total
Costs
49,620
35,479
Estimated
Profit
106,145
15,424
Methyl
Bromide
Costs
Percent
of
Revenue
3%
3%

Source:
CUE
02­
0053,
CUE
02­
0037
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
144
­
Exhibit
1.9.
Summary
of
Costs
per
Hectare
for
Strawberry
Nurseries
(
2001$)

Costs
North
Carolina
and
Tennessee
Methyl
Bromide
3,505
Total
Pre­
Harvest
N/
A
Total
Harvest
and
Post­
Harvest
N/
A
Fertilizer
1,988
Pest
Control
7,122
Transplanter
3,616
Operator
Labor
324
Hand
Labor
203
Harvest
Labor
9,884
Other
189
Fixed
and
Overhead
5,399
Total
32,231
Methyl
Bromide
Costs
Percent
of
Pre­
Harvest
NA
Methyl
Bromide
Costs
Percent
of
Total
12%

Notes:
NA
=
Not
applicable.
Costs
provided
in
the
CUE
application
for
North
Carolina
and
Tennessee
could
not
easily
be
separated
into
Pre­
Harvest
and
Harvest
and
Post­
Harvest
costs.
Application
for
California
strawberry
nurseries
contained
CBI
and
is
not
represented
in
this
appendix.
Source:
CUE
02­
0038,
CUE
02­
0034
Exhibit
1.10.
Estimated
Revenue
and
Profit
per
Hectare
for
Strawberry
Nurseries
(
2001$)

North
Carolina
and
Tennessee
Estimated
Revenue
42,006
Estimated
Total
Costs
32,231
Estimated
Profit
9,776
Methyl
Bromide
Costs
Percent
of
Revenue
8%

Source:
CUE
02­
0038
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
145
­
Exhibit
1.11.
Summary
of
Costs
per
Hectare
for
Sweet
Potato
Farms
in
California
(
2001$)
Costs
California
Methyl
Bromide
1,730
Total
Pre­
Harvest
8,797
Total
Harvest
and
Post­
Harvest
2,471
Fixed
and
Overhead
1,829
Total
13,096
Methyl
Bromide
Costs
Percent
of
Pre­
Harvest
20%

Methyl
Bromide
Costs
Percent
of
Total
13%

Source:
CUE
02­
0016
Exhibit
1.12.
Estimated
Revenue
and
Profit
per
Hectare
for
Sweet
Potato
Farms
in
California
(
2001$)

Estimated
Revenue
13,168
Total
Costs
13,096
Estimated
Profit
72
Methyl
Bromide
Costs
Percent
of
Revenue
13%

Source:
CUE
02­
0016
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
146
­
Exhibit
1.13.
Estimated
Annual
Tomato
Sector
Production
Costs
per
Hectare
by
State
or
Region
(
2001$)

Costs
Virginia
Michigan
Georgia
Other
Southeastern
States
a
Methyl
Bromide
3,265
2,970
2,916
1,592
Total
Pre­
Harvest
6,635
7,979
8,457
2,031
Total
Harvest
and
Post­
Harvest
15,096
17,420
19,093
25,810
Fixed
and
Overhead
7,169
5,172
1,424
2,243
Total
Costs
28,899
30,571
28,974
30,084
Methyl
Bromide
Costs
Percent
of
Pre­
Harvest
49%
37%
34%
78%

Methyl
Bromide
Costs
Percent
of
Total
11%
10%
10%
5%

a
Includes
Alabama,
Arkansas,
North
Carolina,
South
Carolina,
and
Tennessee.
Notes:
California
tomato
costs
are
not
provided
above,
as
they
were
not
included
in
the
U.
S.
CUE
Nomination.
Application
for
Florida
tomatoes
contained
CBI
and
is
not
represented
in
this
appendix.
IE
=
Included
elsewhere.
Source:
CUE
02­
0004,
CUE
02­
0012,
CUE
02­
0040,
CUE
02­
0047,
CUE
02­
0046
Exhibit
1.14.
Estimated
Revenue
and
Profit
per
Hectare
for
Tomatoes
by
State
or
Region
(
2001$)

Virginia
Michigan
Georgia
Other
Southeastern
States
Estimated
Revenue
36,887
36,800
46,718
32,123
Estimated
Total
Costs
28,899
30,571
28,974
30,084
Estimated
Profit
7,988
6,229
17,444
2,039
Methyl
Bromide
Costs
Percent
of
Revenue
9%
8%
6%
5%

Source:
CUE
02­
0004,
CUE
02­
0012,
CUE
02­
0040,
CUE
02­
0047
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
147
­
2.
Tree
Nurseries
and
Other
Growers
Exhibit
2.1.
Forest
Seedling
Industry
Production
Costs
per
Hectare
by
Region
(
2001$)

Costs
Southeast
West
North
Methyl
Bromide
3,967
3,947
3,870
Total
Pre­
Harvest
18,598
11,104
60,865
Total
Harvest
and
Post­
Harvest
6,623
6,872
36,404
Fixed
and
Overhead
3,098
14,399
4,612
Total
Costs
28,320
32,375
101,880
Methyl
Bromide
Costs
Percent
of
Pre­
Harvest
21%
36%
6%

Methyl
Bromide
Costs
Percent
of
Total
14%
12%
4%

Source:
Southeastern
region
costs
represent
the
average
of
costs
from
CUE
02­
0003,
CUE
02­
0007,
and
CUE
02­
0021;
Western
region
costs
represent
the
average
of
costs
from
CUE
02­
0008,
CUE
02­
0009,
and
CUE
02­
0022;
Northern
region
costs
represent
the
average
of
costs
from
CUE
02­
0011,
CUE
02­
0032,
and
CUE
02­
0039.

Exhibit
2.2.
Estimated
Revenue
and
Profit
per
Hectare
for
Forest
Seedlings
by
Region
(
2001$)

Southeast
West
North
Estimated
Revenue
62,340
131,555
283,580
Estimated
Total
Costs
28,320
32,375
101,880
Estimated
Profit
34,021
99,180
181,700
Methyl
Bromide
Costs
Percent
of
Revenue
6%
3%
1%

Source:
Southeastern
region
revenue
and
costs
represent
the
average
from
CUE
02­
0003,
CUE
02­
0007,
and
CUE
02­
0021;
Western
region
revenue
and
costs
represent
the
average
from
CUE
02­
0008,
CUE
02­
0009,
and
CUE
02­
0022;
Northern
region
revenue
and
costs
represent
the
average
from
CUE
02­
0011,
CUE
02­
0032,
and
CUE
02­
0039.
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
148
­
Exhibit
2.3.
Summary
of
Costs
per
Hectare
for
Ginger
Farms
in
Hawaii
(
2001$)
Costs
Hawaii
Methyl
Bromide
Costs
6,462
Total
Pre­
Harvest
26,133
Total
Harvest
and
Post­
Harvest
18,253
Fixed
and
Overhead
17,922
Total
62,308
Methyl
Bromide
Costs
Percent
of
Pre­
Harvest
25%

Methyl
Bromide
Costs
Percent
of
Total
10%
Source:
CUE
02­
0045
Exhibit
2.4.
Estimated
Revenue
and
Profit
per
Hectare
for
Ginger
Farms
in
Hawaii
(
2001$)
Estimated
Revenue
55,597
Total
Costs
62,308
Estimated
Profit
6,711
Note:
According
to
CTAHR
1998,
the
annual
economic
profit
is
generally
$
388
dollars
per
hectare.
Source:
CUE
02­
0045
Exhibit
2.5.
Summary
of
Costs
for
Nursery
Transplants
(
2001$)
Costs
Costs
Per
Area
Methyl
Bromide
0.09
per
ft3
Total
Pre­
Harvest
a
5,023
per
hectare
Total
Harvest
and
Post­
Harvest
a
2,001
per
hectare
Fixed
and
Overhead
589
per
hectare
Total
7,614
per
hectare
a
Labor
cost
provided
in
the
CUE
is
equally
allocated
to
pre­
harvest
and
harvest/
post­
harvest
costs.
Note:
The
total
pre­
harvest
production
costs
and
total
production
costs
do
not
include
the
cost
of
methyl
bromide.
Source:
CUE
02­
0025
Exhibit
2.6.
Estimated
Revenue
and
Profit
per
Hectare
for
Nursery
Transplant
(
2001$)
Estimated
Revenue
10,801
Total
Costs
a
7,613
Estimated
Profit
3,187
a
Total
production
costs
do
not
include
the
cost
of
methyl
bromide.
Source:
CUE
02­
0025
Exhibit
2.7.
Summary
of
Costs
per
Hectare
for
Orchard
Nurseries
(
2001$)
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
149
­
Costs
Western
Raspberry
Nursery
Consortium
California
Deciduous
Fruit
and
Nut
Nursery
Trees
California
Citrus
Nursery
Trees
a
Methyl
Bromide
19,178
4,308
3,939
Total
Pre­
Harvest
N/
A
51,900
48,894
Total
Harvest
and
Post­
Harvest
N/
A
7,109
30,301
Labor
and
Management
14,191
NA
NA
Non
Labor
31,280
NA
NA
Fixed
and
Overhead
6,088
98,216
106,978
Total
54,756
157,225
186,173
Methyl
Bromide
Costs
Percent
of
Pre­
Harvest
N/
A
8%
8%

Methyl
Bromide
Percent
of
Total
6%
3%
2%

a
California
applicant
for
citrus
nursery
trees
also
submitted
within
the
same
CUE
application
a
request
for
methyl
bromide
for
use
on
avocado
nursery
trees;
however
cost
data
for
avocado
nursery
trees
were
inadequate
for
analysis.
Notes:
NA
=
Not
applicable.
Costs
provided
in
the
CUE
application
from
the
Western
Raspberry
Nursery
Consortium
could
not
easily
be
separated
into
Pre­
Harvest
and
Post­
Harvest
costs.
Source:
CUE
02­
0010,
CUE
02­
0035,
CUE
02­
0036
Exhibit
2.8.
Estimated
Revenue
and
Profit
per
Hectare
for
Orchard
Nurseries
(
2001$)
Western
Raspberry
Nursery
Consortium
California
Deciduous
Fruit
and
Nut
Nursery
Trees
California
Citrus
Nursery
Trees
Estimated
Revenue
44,477
174,537
467,779
Total
Costs
54,756
157,225
186,173
Estimated
Profit
(
10,278)
17,312
281,606
Methyl
Bromide
Costs
Percent
of
Revenue
7%
2%
1%

Source:
CUE
02­
0010,
CUE
02­
0035,
CUE
02­
0036
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
150
­
Exhibit
2.9.
Summary
of
Costs
per
Hectare
for
Orchard
Replant
(
2001$)
Costs
Walnuts
a
Methyl
Bromide
1,483
Total
Pre­
Harvest
highly
variable
Total
Harvest
and
Post­
Harvest
NA
Other
Operating
NA
Fixed
and
Overhead
494
Total
Costs
NA
Methyl
Bromide
Costs
Percent
of
Pre­
Harvest
NA
Methyl
Bromide
Costs
Percent
of
Total
NA
a
Walnut
nursery
costs
are
for
1999.
As
indicated
by
the
applicant,
1999
is
a
more
typical
representation
of
methyl
bromide
use
and
cost.
Note:
Applications
for
stone
fruit,
table
and
raisin
grape,
and
almond
orchard
replant
contained
CBI
and
are
not
represented
in
this
appendix.
Source:
CUE
02­
0029,
CUE
02­
0013,
CUE
02­
0014,
CUE
02­
0043.

Exhibit
2.10.
Summary
of
Costs
per
Hectare
for
Turfgrass
Production
in
2001
(
2001$)
Costs
United
States
a
Methyl
Bromide
3,707
Total
Pre­
Harvest
7,828
Total
Harvest
and
Post­
Harvest
1,468
Fixed
and
Overhead
6,912
Total
16,208
Methyl
Bromide
Percent
of
Pre­
Harvest
47%

Methyl
Bromide
Percent
of
Total
23%

a
Costs
represent
U.
S.
turfgrass
production,
concentrated
in
California,
Florida,
Georgia,
Alabama,
and
Texas.
Source:
CUE
02­
0044
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
151
­
Exhibit
2.11.
Estimated
Average
Revenue
and
Profit
per
Hectare
for
Turfgrass
(
2001$)
Estimated
Revenue
58,883
Estimated
Total
Costs
16,208
Estimated
Profit
42,675
Methyl
Bromide
Costs
Percent
of
Revenue
6%

Source:
CUE
02­
0044
3.
Post
Harvest
Commodity
Fumigation
and
Structural
Fumigation54
Exhibit
3.1.
Commodity
Storage
Post­
harvest
Fumigation
Costs
(
2001$)
Costs
Walnuts
Beans
Meat
Methyl
Bromide
7.48
per
MT
of
walnuts
115,230
per
feet3
12.66
per
1000
feet3
Fixed
and
Overhead
and
Other
Operating
697
per
MT
of
walnuts
NA
NA
Total
704
per
MT
of
walnuts
NA
NA
Methyl
Bromide
Costs
Percent
of
Total
1%
NA
NA
Notes:
NA
=
Not
applicable.
Pistachio
data
were
unavailable
(
CUE
02­
0019).
Application
for
dried
fruit
contained
CBI
and
is
not
represented
in
this
appendix.
Source:
CUE
02­
0002,
CUE
02­
0030,
CUE
02­
0033,
CUE
02­
0015
Exhibit
3.2.
Estimated
Revenue
and
Profit
for
Commodity
Storage
(
2001$)

Walnuts
Beans
Estimated
Revenue
4,317
per
hectare
4,148,410
per
feet3
Note:
Pistachio
data
were
unavailable
(
CUE
02­
0019)
and
meat
revenue
data
units
were
unclear.
Source:
CUE
02­
0002,
CUE
02­
0030
54
Food
processing
applicants
have
not
provided
relevant
cost
information
on
the
CUE
worksheets;
therefore
they
are
not
represented
in
the
appendix.
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
152
­
Appendix
B:
Inputs
and
Methodology
for
the
Cost
Analysis
Estimates
of
total
costs
of
methyl
bromide
phaseout
in
this
Allocation
EIA
and
the
Phaseout
RIA
are
based
on
a
cost
model.
Total
cost
outputs
from
the
model
can
be
compared
for
different
phaseout
schedules
(
e.
g.,
a
phaseout
in
2005
for
the
Phaseout
RIA,
and
a
more
gradual
phaseout
for
the
Allocation
EIA).
This
appendix
describes
the
various
components
of
the
cost
model
and
how
inputs
for
the
cost
model
were
obtained
and/
or
estimated.
Methodologies
differ
for
estimating
the
costs
of
the
critical
use
exemptions
(
CUE)
of
methyl
bromide
for
each
sector
in
the
model.
The
appendix
also
provides
detailed
tables
and
descriptions
of
model
inputs.
The
appendix
is
divided
into
the
following
sections:

 
General
Methodology
 
describes
both
Approach
1
and
Approach
2
calculations,
and
presents
the
inputs
and
equations
used
for
all
crops,
except
nurseries.
In
addition,
this
section
discusses
the
adjustments
made
to
the
orchard
crops
to
account
for
the
crop
lifetime.

 
Nurseries
 
presents
the
methodology
and
input
data
for
the
estimate
of
methyl
bromide
CUE
costs
in
the
nursery
sector.

 
Post­
Harvest
 
presents
the
analysis
of
CUE
costs
in
post­
harvest
uses.

1.
General
Methodology
The
general
methodology
for
pre­
plant
crops
involves
the
following
steps:

Step
1.
Develop
market
characterization
data
for
each
crop
and
region
Step
2.
Determine
cost
and
yield
differences
for
substitutes
Step
3.
Determine
market
shares
for
each
region,
crop,
substitute,
and
year
Step
4.
Calculate
cost
change,
by
crop
and
region,
for
Approach
1
Step
5.
Calculate
Approach
2
cost
change
for
each
crop
Step
6.
Calculate
the
net
present
value
and
annualized
costs
for
each
crop
1.1
Step
1.
Develop
crop
input
data
The
level
of
disaggregation
for
methyl
bromide
uses
was
defined
by
commodity
and
location
and
by
consideration
of
the
most
cost­
effective
substitute
chemicals
or
procedures.
The
analysis
includes
coverage
of
markets
in
California,
Florida,
Georgia,
Hawaii,
North
Carolina,
South
Carolina,
Oregon,

Washington,
Texas,
and
a
U.
S.
estimate
for
forest
seedlings.

Quantitative
information
about
crops
within
each
market
sector
treated
with
methyl
bromide
is
presented
in
Exhibit
1.1.1,
including
data
displaying
the
amount
of
treated
acreage,
crop
production,
total
methyl
bromide
consumption
and
the
cost
of
current
methyl
bromide
consumption.
Crop
production
is
presented
in
terms
of
total
production
(
lb/
year)
and
yield
(
lb/
ac).
Treated
acreage
estimates
are
not
multiyear
averages;
rather,
percentages
of
total
crop
acreage
treated
and
actual
treated
acreage
data
have
been
obtained
from
available
sources
for
each
region.
A
detailed
explanation
of
the
methodology
and
sources
used
to
derive
this
information
are
as
follows:

California:
***
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(
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2006)
DO
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OR
ATTRIBUTE***

­
153
­
 
Treated
acreage
and
methyl
bromide
consumption
data
were
extracted
directly
from
the
California
Pesticide
Use
Reporting
Database
(
CADPR
1995)
and
CUE
applications
and
the
nomination
for
sweet
potato
(
CUE
02­
0016,
EPA
2003b).
All
county­
level
data
were
aggregated
into
selected
regions.
Because
actual
data
points
were
used,
no
range
is
provided
for
methyl
bromide
use.

 
Total
crop
production
figures
were
derived
from
various
sources
and
divided
up
proportionally
by
region
based
on
production
acreage:

­
USDA
1999
for
almond,
lettuce,
peach,
prune,
and
walnut;

­
Carpenter
et
al.
2000
for
tomato
and
watermelon;

­
NASS
1999
for
grape,
nursery,
and
strawberry;
and
­
NASS
2002c
for
sweet
potato.

 
Crop
yield
figures
were
based
on
state
and
national
data
presented
in
NASS
1999
for
all
California
crops
except
sweet
potato,
and
on
NASS
2002c
for
sweet
potato.

 
Percent
of
acreage
treated
data
for
all
orchard
crops
were
extracted
from
Carpenter
et
al.
2000.

Florida:

 
Harvested
acreage
and
crop
production
data
were
extracted
from
Carpenter
et
al.
2000,
except
for
tomato
acreage
data,
which
were
extracted
from
USDA
1999.
In
all
cases,
data
were
divided
up
by
region
based
on
county­
level
estimates.

 
Crop
yield
figures
were
based
on
state
and
national
data
presented
in
NASS
1999.

 
Percent
of
acres
treated
estimates
were
based
on
different
sources
for
different
crops:

­
Tomato:
93
percent
(
USDA
1999);

­
Pepper:
85
percent
(
NAPIAP
1993);

­
Cucumber:
0,
assume
double
crop
plantings
after
tomato
and
pepper;

­
Eggplant:
assumed
90
percent;

­
Watermelon:
20
percent
(
NAPIAP
1993
percent
for
melons);
and
­
Orchard
crops:
Carpenter
et
al.
2000.

 
Methyl
bromide
consumption
figures
are
based
on
a
range
of
application
rates
(
the
label
rate
for
methyl
bromide/
chloropicrin
98:
2)
multiplied
by
treated
acreage.
However,
for
strawberry,
reported
methyl
bromide
use
figures
were
extracted
from
USDA
1999.

Southeast:

 
Crop
production
data
were
taken
from
Carpenter
et
al.
2000
except:

­
Strawberry,
tomato,
and
nursery:
NAPIAP
1993;
***
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(
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DO
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OR
ATTRIBUTE***

­
154
­
­
Pepper:
NCDA
1998;
and
­
Apple:
USDA
1999.

 
Crop
yield
figures
were
based
on
state
and
national
data
presented
in
NASS
1999.

 
Percent
of
acres
treated
with
methyl
bromide
in
the
Southeast
were
assumed
to
equal
percent
of
acres
treated
in
Florida
by
crop,
with
the
following
exceptions:

­
Apple:
acres
treated
were
reported
in
USDA
1999;

­
Nursery:
assumed
20
percent
of
acres
treated;
and
­
Orchard
crops:
Carpenter
et
al.
2000.

 
Methyl
bromide
consumption
figures
are
based
on
a
range
of
application
rates
(
the
label
rate
for
methyl
bromide/
chloropicrin
98:
2)
multiplied
by
treated
acreage.
The
following
exceptions
should
be
noted:

­
Tomato:
application
rate
of
250
lb/
ac
based
on
use
in
the
North
Carolina
mountain
region
from
USDA
1999;

­
Pepper:
reported
methyl
bromide
use
figures
from
NAPIAP
1993;
and
­
Apple:
reported
methyl
bromide
application
rate
from
USDA
1999.

Texas:

 
All
crop
production
data
were
extracted
from
Carpenter
et
al.
2000.

 
Crop
yield
figures
were
based
on
state
and
national
data
presented
in
NASS
1999.

 
Methyl
bromide
consumption
figures
are
based
on
a
range
of
application
rates
(
the
label
rate
for
methyl
bromide/
chloropicrin
98:
2)
multiplied
by
treated
acreage.

Oregon
and
Washington:

 
Acreage
and
crop
production
figures
were
calculated
proportionally
using
weighted
averages
from
USDA
1995.
Methyl
bromide
consumption
was
determined
by
multiplying
treated
acreage
by
the
label
rate
for
strawberries.

Hawaii:

 
Acreage
and
crop
production
figures
were
calculated
using
data
from
NASS
2002a.
Methyl
bromide
consumption
was
determined
by
the
U.
S.
CUE
Nomination
for
Ginger.

United
States:

 
Acreage,
crop
production,
and
methyl
bromide
figures
were
calculated
using
data
from
the
U.
S.
CUE
Nomination
for
Forest
Tree
Seedlings.
***
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OR
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­
155
­
Exhibit
1.1.1.
Methyl
Bromide
Market
Characterization
Region
Crop
Treated
Acreage
(
ac)
Total
Acres
(
ac)
Total
Production
(
lb/
yr)
Yield
(
lb/
ac)
Baseline
Methyl
Bromide
Consumption
(
lb)
Cost
of
Methyl
Bromide
($/
ac)
(
1997$)

California
(
Northern)
Almond
186
3,241
79,233,000
1,341
93,396
1,350
Grape
2,028
13,853
7,586,408,547
14,249
832,156
1,350
Peach
260
5,762
188,700,000
20,472
198,366
1,350
Prune
527
12,713
440,000,000
11,998
169,911
1,350
Strawberry
781
492
22,036,583
46,825
200,842
1,350
Walnut
240
5,689
70,200,000
2,078
156,948
1,350
California
(
Coastal)
Grape
783
3,275
1,793,509,564
14,249
301,553
1,350
Lettuce
3,146
4,584
4,201,425,000
20,724
883,092
1,350
Strawberry
21,674
23,865
1,251,185,662
46,825
3,878,662
1,350
Tomato
1,562
3,049
171,942,000
7,380
200,813
1,350
California
(
Central)
Almond
4,462
35,323
448,987,000
1,341
911,831
1,350
Grape
1,751
5,523
3,024,596,434
14,249
624,271
1,350
Lettuce
398
2,200
466,825,000
20,724
52,797
1,350
Peach
1,040
5,300
1,698,300,000
20,472
181,544
1,350
Strawberry
558
246
18,299,251
46,825
124,677
1,350
Sweet
Potato
5,501
10,000
1,332,700,000
16,200
766,042
1,350
Walnut
760
9,248
397,800,000
2,078
220,628
1,350
Cucurbits
1,788
4,357
283,728,000
17,379
307,686
1,350
Florida
(
Southeast)
Citrus
315
266,473
7,498,890,000
24,810
39,407
780
Eggplant
1,575
1,750
60,092,000
34,338
378,000
780
Pepper
6,113
7,192
47,648,000
6,625
1,467,168
780
Tomato
6,938
7,460
493,452,000
36,696
1,665,072
780
Florida
(
Southwest)
Citrus
213
179,948
4,994,190,000
24,810
26,611
780
Eggplant
232
258
­
0
55,728
780
Pepper
7,353
8,650
271,392,000
7,135
1,764,600
780
Tomato
13,529
14,547
263,686,000
36,696
3,246,890
780
Cucurbits
1,583
7,917
405,442,000
17,379
380,016
780
Florida
(
North
and
Central)
Citrus
472
398,839
14,896,620,000
24,810
58,982
780
Eggplant
232
258
­
0
55,728
780
***
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OR
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­
156
­
Region
Crop
Treated
Acreage
(
ac)
Total
Acres
(
ac)
Total
Production
(
lb/
yr)
Yield
(
lb/
ac)
Baseline
Methyl
Bromide
Consumption
(
lb)
Cost
of
Methyl
Bromide
($/
ac)
(
1997$)

Pepper
3,683
4,333
13,264,000
7,135
883,932
780
Strawberry
5,280
5,333
172,758,000
21,193
1,230,000
780
Tomato
14,222
15,293
434,036,000
36,696
3,413,398
780
Cucurbits
5,350
26,750
574,682,000
17,379
1,284,000
780
Southeast
(
GA,
NC,
SC)
Apple
50
13,000
200,000,000
17,163
45,000
780
Pepper
4,845
5,700
456,000
7,135
969,000
780
Strawberry
17,523
17,700
312,000
28,562
4,205,520
780
Tomato
7,347
7,900
1,938,000
36,696
1,836,750
780
Cucurbits
10,540
52,700
1,104,172,000
17,379
2,529,600
780
Other
(
TX)
Citrus
79
65,900
558,567,016
24,810
9,885
780
Pepper
4,080
4,800
87,010,000
7,135
979,200
780
Cucurbits
9,567
47,833
449,458,000
17,379
2,295,984
780
Other
(
HI)
Ginger
267
360
12,100,000
44,000
44,680
780
Other
(
OR
and
WA)
Strawberry
7,722
7,800
73,000,000
28,562
1,853,280
780
Other
(
US)
Forest
Seedlings
3,025
NA
NA
0
446,482
780
TOTAL
53,578,098
Exhibit
1.1.2
displays
high
and
low
farm­
level
prices
($/
lb)
for
crops
within
each
market
sector.

Comments
are
provided
to
explain
variations
between
high
and
low
prices.
Exhibit
1.1.3
displays
wholesale
prices
($/
lb)
and
the
corresponding
price
elasticity
for
each
crop.
The
information
in
Exhibit
1.1.2
and
Exhibit
1.1.3
is
used
to
assess
the
effects
of
yield
impacts
on
producer
revenues.
***
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OR
ATTRIBUTE***

­
157
­
Exhibit
1.1.2.
Farm
Level
Prices
Farm
Level
Price
($/
lb)
(
1997$)
State
Crop
Low
High
Comments
Almond
1.55
1.55
Grape
0.12
0.30
Low
price
for
raisins;
high
price
for
wine
grapes
Lettuce
0.18
0.25
Low
price
for
romaine;
high
price
for
leaf
lettuce
Nursery
h
h
Peach
0.12
0.13
Low
price
for
freestone
peaches;
high
price
for
clingstone
peaches
Prune
0.41
0.41
Strawberry
0.26
0.61
Low
price
for
processing
strawberries;
high
price
for
fresh
strawberries
Sweet
Potato
0.16
0.16
Tomato
0.03
0.27
Low
price
for
processing
tomatoes;
high
price
for
fresh
market
tomatoes
Walnut
0.66
0.66
Californiaa
Cucurbits
0.11
0.11
Citrus
0.04
0.04
Eggplant
0.28
0.28
Pepperj
0.38
0.38
Strawberry
1.00
1.00
Tomato
0.25
0.45
Floridab
Cucurbits
0.08
0.08
Apple
0.11
0.15
Low
price
from
North
Carolina;
high
price
from
Georgia
Nursery
h
h
Pepper
0.25
0.25
Price
from
North
Carolina
Strawberry
0.70
0.70
Price
from
North
Carolina
Tomato
0.25
0.33
Low
price
from
North
Carolina;
high
price
from
South
Carolina.
Southeast
(
Georgia,
South
Carolina,
and
North
Carolina)
c,
d,
e
Cucurbits
0.06
0.12
Low
price
from
Georgia;
high
price
from
South
Carolina
Citrus
0.06
0.06
Pepper
0.35
0.35
Texasf
Cucurbits
0.08
0.08
Washington
and
Oregong
Strawberry
0.40
0.50
Low
price
from
Oregon;
high
price
from
Washington
Hawaii
Ginger
0.45
0.45
U.
S.
Forest
Seedlings
NA
NA
***
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OR
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­
158
­
Exhibit
1.1.3.
Wholesale
Prices
and
Price
Elasticities
(
1997$)

Crop
Wholesale
Price
Demand
Flexibility
Almonds
1.77
­
0.3445
Apple
0.17
­
0.2943
Citrus
0.06
­
0.2763
Forest
Seedlings
NA
NA
Eggplant
0.31
­
0.1600
Ginger
0.53
­
0.1000
Grapes
0.53
­
0.2550
Lettuce
0.22
­
0.1600
Peaches
0.21
­
0.2763
Pepper
0.40
­
0.3445
Prunes
0.67
­
0.2763
Strawberry
1.07
­
0.2550
Sweet
Potato
0.28
­
0.1000
Tomato
0.44
­
0.2763
Walnuts
0.75
­
0.3445
Cucurbits
0.23
­
0.2500
Sources:
CASS
1999,
FASS
1999,
GASS
1998,
NCDA
1998,
SCASS
1999,
TASS
1999,
WASS
1999,
USDA
Agricultural
Prices
1997
Summary,
USDA
1998a.
Prices
for
nursery
crops
are
highly
variable.

1.2
Step
2.
Determine
cost
and
yield
differences
for
substitutes
Exhibit
1.2.1
presents
aggregate
data
for
the
costs
and
yields
of
substitutes
relative
to
methyl
bromide.
High
and
low
cost
and
yield
values
indicate
the
range
from
highest
reasonable
reported
value
to
lowest
reasonable
reported
value.
Medium
yield
values
relative
to
methyl
bromide
are
based
on
an
average
of
highest
and
lowest
reasonable
reported
values,
and
are
used
in
both
the
lower
and
upper
bounds
of
the
cost
model.
Cost
and
yield
values
are
derived
primarily
from
publishers'
research
articles,

personal
communication
with
experts
and
field
researchers,
EPA
methyl
bromide
alternatives
case
studies
Volumes
I­
IV
(
EPA
1995,
1996,
1997,
1999a),
and
NCFAP
(
1999).
It
is
important
to
note
that
in
the
cost
model,
yields
(
and
resulting
costs)
were
only
updated
for
published
studies
indicating
improved
methyl
bromide
substitute
yields
for
particular
crops.
A
detailed
explanation
of
other
cost
values
not
included
in
the
model
is
provided
in
Appendix
A.
***
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2006)
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OR
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­
159
­
"
Non­
chemical"
substitutes
represent
organically
produced
crops.
Traditionally,
organically
produced
commodities
do
not
compete
with
chemically
treated
crop
production
sectors
such
as
those
treated
with
methyl
bromide.
Since
it
has
been
assumed
that
this
organically
treated
sector
constitutes
a
separate
market
that
does
not
make
use
of
methyl
bromide
application,
and
because
these
producers
already
incur
higher
organic
production
costs,
the
yield
and
cost
values
for
this
alternative
are
assigned
a
default
value
of
1.00.
This
is
a
conservative
estimate
in
that
organically
produced
commodities
intermittently
compete
with
products
in
the
chemically
treated
sector.
To
successfully
compete
in
this
sector,
producers
either
have
to
rely
on
consumers
to
choose
organically
produced
commodities
regardless
of
price,
or
bear
some
of
the
increased
production
costs.
Most
organic
products
competing
in
the
chemically
treated
crop
production
sector
reflect
production
costs
that
are
approximately
1.78
times
more
than
their
chemically
produced
counterparts.
55
Exhibit
1.2.1.
Summary
of
Cost
and
Yield
Estimates
Relative
to
Methyl
Bromide
Cost
Relative
to
Methyl
Bromide
(%)
Yield
Relative
to
Methyl
Bromide
(%)
Substitute
Low
High
EIA
Low
High
Non­
orchard
Crops
Metam
sodium
0.51
0.83
0.89
0.78
1.00
Metam
sodium
combination
0.97
1.46
0.91
0.82
1.00
Telone
II
1.10
1.25
0.78
0.55
1.00
Telone
C­
17
1.10
1.25
0.78
0.55
1.00
Telone
combination
0.80
1.25
0.95
0.90
1.00
Basamid
0.72
1.15
0.87
0.81
0.92
Basamid
combination
0.72
1.15
0.93
0.81
1.04
Methyl
iodide
1.83
1.97
0.99
0.78
1.20
Ozone
0.77
0.92
0.99
0.90
1.08
Plant
extracts
0.77
0.81
0.85
0.80
0.90
Solarization
0.27
0.90
0.93
0.92
0.94
Solarization
combination
0.61
1.24
1.21
1.17
1.24
Steam
1.00
1.00
1.00
1.00
1.00
Flooding
0.04
0.09
0.58
0.58
0.58
Hydroponics
1.03
1.19
1.23
1.23
2.55
55
In
a
study
comparing
seven
organically
produced
crops
to
seven
chemically
produced
crops
at
a
local
food
store,
the
average
price
of
organically
produced
crops
was
found
to
be
1.78
times
more
than
chemically
produced
crops.
The
prices
of
cucumbers,
celery,
bananas,
carrots,
red
lettuce,
green
lettuce,
and
Boston
red
lettuce
were
compared.
The
crops
used
to
complete
this
analysis
were
chosen
randomly
on
the
basis
of
availability
(
ICF
2000b).
***
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OR
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­
160
­
Cost
Relative
to
Methyl
Bromide
(%)
Yield
Relative
to
Methyl
Bromide
(%)
Substitute
Low
High
EIA
Low
High
Composting
0.72
2.04
0.61
0.32
0.89
Resistant
cultivars
0.58
1.16
0.90
0.80
1.00
Non­
chemical
production
1.00
1.00
1.00
1.00
1.00
Orchard
Crops
Metam
sodium
0.51
0.83
0.90
0.80
1.00
Metam
sodium
combination
0.80
1.25
0.95
0.90
1.00
Telone
II
1.10
1.25
0.77
0.55
0.99
Telone
C­
17
1.10
1.25
0.78
0.55
1.00
Telone
combination
0.80
1.25
0.95
0.90
1.00
Basamid
0.72
1.15
0.87
0.81
0.92
Basamid
combination
0.72
1.15
0.93
0.81
1.04
Methyl
iodide
1.83
1.97
0.99
0.78
1.20
Ozone
0.77
0.92
0.99
0.90
1.08
Plant
extracts
0.77
0.81
1.05
1.00
1.10
Solarization
0.27
0.90
0.91
0.85
0.96
Solarization
combination
0.61
1.24
0.95
0.90
1.00
Steam
1.00
1.00
1.00
1.00
1.00
Flooding
0.04
0.09
0.58
0.58
0.58
Hydroponics
1.03
1.19
1.23
1.23
2.55
Composting
0.72
2.04
0.61
0.32
0.89
Resistant
cultivars
0.58
1.16
0.90
0.80
1.00
Non­
chemical
production
1.00
1.00
1.00
1.00
1.00
Crop
Specific
Differences
Citrus
Composting
0.72
1.43
0.89
0.89
0.89
Eggplant
Flooding
0.04
0.09
0.67
0.67
0.67
Forest
Seedlings
Basamid
0.89
0.96
1.01
1.08
0.93
Forest
Seedlings
Metam
sodium
0.94
0.96
0.99
1.06
0.91
Peach
Resistant
cultivars
0.58
1.16
1.00
1.00
1.00
Pepper
Solarization
combination
0.80
1.25
1.21
1.17
1.24
Pepper
Flooding
0.04
0.09
0.67
0.67
0.67
Pepper
Composting
0.72
0.94
0.89
0.89
0.89
***
DRAFT
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2006)
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OR
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­
161
­
Cost
Relative
to
Methyl
Bromide
(%)
Yield
Relative
to
Methyl
Bromide
(%)
Substitute
Low
High
EIA
Low
High
Strawberry
Metam
sodium
0.56
0.67
0.89
0.78
1.00
Strawberry
Solarization
combination
0.61
0.96
1.02
0.80
1.24
Tomato
Solarization
combination
0.61
1.24
1.21
1.17
1.24
1.3
Step
3.
Determine
market
shares
for
each
region,
crop,
substitute,
and
year
Market
shares
are
calculated
based
on
the
most
cost
effective
alternatives
replacing
the
quantity
of
methyl
bromide
being
phased
out.
Each
alternative
is
evaluated
to
determine
the
overall
cost
change
per
acre
for
replacing
methyl
bromide,
calculated
as:

Total
Cost
Change
per
Acre
($)
=
Net
Cost
Change
per
Acre
($)
+
Net
Yield
Change
per
Acre
($)

Where
the
net
cost
change
per
acre
is
defined
as
the
change
in
application
cost
for
each
substitute
per
acre
of
treated
crop,
calculated
as:

Net
Cost
Change
per
Acre
($)
=
Cost
of
Methyl
Bromide
($/
ac)
*
(
Substitute
Cost
Relative
to
Methyl
Bromide
(%)
 
100%)

Where:

Cost
of
Methyl
Bromide
($/
ac)
=
the
mean
of
the
high
and
low
estimates
of
either
the
contractor
application
rate
(
California,
$
1350)
or
the
farmer
application
rate
(
all
other
regions,
$
780)

Yield
(
lbs/
ac)
=
the
amount
of
crop
produced
when
the
acres
are
treated
with
methyl
bromide
The
net
yield
change
per
acre
is
defined
as
the
change
in
revenue
due
to
yield
differences
for
each
substitute
per
acre
of
treated
crop,
calculated
as:

Net
Yield
Change
per
Acre
($)
=
100%
­
Substitute
Yield
Relative
to
Methyl
Bromide
(%)
*
Yield
(
lbs/
ac)
*
Price
per
Pound
($/
lb)

Where:

Substitute
Yield
Relative
to
Methyl
Bromide
(%)
=
the
average
of
the
high
and
low
estimates
for
the
yield
of
each
substitute
relative
to
methyl
bromide
Substitute
Cost
Relative
to
Methyl
Bromide
(%)
=
the
high
or
low
estimate
of
the
cost
of
each
substitute
Price
per
Pound
($/
lb)
=
farm
price
for
each
pound
of
crop
produced
***
DRAFT
(
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30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
162
­
Once
the
substitutes
have
been
evaluated
to
determine
the
most
cost
effective
substitute,
the
top
performer
was
allowed
to
obtain
either
its
maximum
market
penetration
or
the
total
amount
of
methyl
bromide
to
be
replaced
in
that
year,
whichever
is
smaller.
If
more
methyl
bromide
needs
to
be
replaced,

the
next
most
cost
effective
alternative
is
used,
followed
by
the
next,
until
all
required
methyl
bromide
has
been
replaced
for
that
region
and
crop.
Exhibit
1.3.1
provides
a
basis
for
the
maximum
market
share
estimates
used
in
this
analysis.

The
quantity
of
methyl
bromide
phased
out
for
each
crop
was
determined
from
the
baseline
quantity
of
methyl
bromide
used
prior
to
the
phaseout,
and
the
quantity
of
methyl
bromide
nominated
for
critical
use
exemption
for
each
crop.
In
the
baseline
scenario,
all
methyl
bromide
was
phased
out
in
2005,

while
the
sector­
specific
scenario
assumed
that
each
crop
received
the
total
amount
of
methyl
bromide
nominated
for
critical
use
exemption.
The
universal
scenario
assumed
that
strawberries
and
tomatoes
received
80
percent
of
the
total
methyl
bromide
nominated,
and
the
remainder
was
split
between
the
other
sectors
proportionally
to
their
CUE
nominations.
Exhibit
1.3.2
shows
the
baseline
methyl
bromide
consumption,
the
sector­
specific
nominations
and
corresponding
allocations
for
2005,
and
the
80
percent
universal
scenario
and
corresponding
allocations
for
2005.
In
years
post­
2005,
the
methyl
bromide
allocated
to
each
crop
was
reduced
proportionally
to
the
total
reduction
for
that
year.
***
DRAFT
(
1/
30/
2006)
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CITE,
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OR
ATTRIBUTE***

­
163
­

Exhibit
1.3.1.
Maximum
Market
Penetration
for
Each
Substitute
Region/
Crop
Metam
sodium
Telone
combination
Basamid
Solarization
combination
Flooding
Hydroponics
Composting
Resistant
cultivars
Non­
chemical
production
Total
California
(
Northern)
Almond
60%
40%
10%
10%
120%

Grape
60%
70%
5%
5%
5%
145%

Peach
60%
40%
5%
5%
5%
115%

Prune
60%
70%
5%
5%
140%

Strawberry
60%
70%
10%
5%
5%
5%
155%

Walnut
60%
40%
5%
10%
115%

California
(
Coastal)
Grape
60%
70%
5%
5%
5%
145%

Lettuce
60%
40%
5%
10%
5%
120%

Strawberry
60%
70%
10%
5%
5%
5%
155%

Tomato
60%
40%
5%
5%
5%
115%

California
(
Central)
Almond
60%
40%
15%
10%
125%

Grape
60%
70%
5%
5%
5%
145%

Lettuce
60%
40%
20%
10%
5%
135%

Peach
60%
40%
5%
5%
5%
115%

Strawberry
60%
70%
20%
5%
5%
5%
165%

Sweet
Potato
60%
70%
10%
5%
145%

Walnut
60%
40%
20%
10%
130%

Cucurbits
80%
40%
20%
10%
150%

Florida
***
DRAFT
(
1/
30/
2006)
DO
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CITE,
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OR
ATTRIBUTE***

­
164
­

Exhibit
1.3.1.
Maximum
Market
Penetration
for
Each
Substitute
Region/
Crop
Metam
sodium
Telone
combination
Basamid
Solarization
combination
Flooding
Hydroponics
Composting
Resistant
cultivars
Non­
chemical
production
Total
(
Southeast)

Citrus
60%
50%
10%
5%
5%
5%
135%

Eggplant
60%
50%
10%
5%
5%
5%
135%

Pepper
60%
70%
15%
5%
10%
5%
5%
170%

Tomato
60%
70%
10%
5%
10%
5%
160%

Florida
(
Southwest)

Citrus
60%
50%
10%
5%
5%
5%
135%

Eggplant
60%
50%
10%
5%
10%
5%
140%

Pepper
60%
70%
15%
5%
10%
5%
5%
170%

Tomato
60%
70%
10%
5%
10%
5%
160%

Cucurbits
80%
50%
10%
10%
150%

Florida
(
North
and
Central)

Citrus
60%
50%
10%
5%
5%
5%
135%

Eggplant
60%
50%
10%
5%
5%
5%
135%

Pepper
60%
70%
15%
5%
10%
5%
5%
170%

Strawberry
60%
70%
15%
5%
5%
5%
160%

Tomato
60%
70%
10%
5%
10%
5%
160%

Cucurbits
80%
50%
10%
10%
150%

Southeast
(
GA,

NC,
SC)
Apple
60%
70%
10%
10%
5%
155%

Pepper
60%
70%
15%
5%
10%
5%
5%
170%

Strawberry
60%
70%
15%
10%
5%
5%
165%
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
165
­

Exhibit
1.3.1.
Maximum
Market
Penetration
for
Each
Substitute
Region/
Crop
Metam
sodium
Telone
combination
Basamid
Solarization
combination
Flooding
Hydroponics
Composting
Resistant
cultivars
Non­
chemical
production
Total
Tomato
60%
70%
10%
5%
10%
5%
160%

Cucurbits
80%
50%
10%
10%
150%

Other
(
HI)
Ginger
60%
50%
50%
5%
5%
170%

Other
(
TX)

Citrus
60%
50%
10%
5%
5%
5%
135%

Pepper
60%
70%
10%
5%
10%
5%
5%
165%

Cucurbits
80%
50%
10%
10%
150%

Other
(
US)
Forest
Seedlings
60%
50%
50%
160%

Other
(
OR
and
WA)
Strawberry
60%
70%
5%
5%
5%
5%
150%
***
DRAFT
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2006)
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OR
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­
166
­
Exhibit
1.3.2.
Summary
of
Baseline
Consumption,
CUE
Nominations,
and
a
Universal
Scenario
Sector
Baseline
Methyl
Bromide
Consumption
(
lbs)
Methyl
Bromide
CUE
Nominations
(
lbs)
2005
CUE
Consumption
Universal
80%
Consumption
(
lbs)
Universal
2005
Consumption
Pre­
plant
Cucurbits
6,797,286
2,619,039
39%
1,132,957
16.7%

Eggplant
489,456
162,211
33%
70,170
14.3%

Orchard
Replant
1,557,118
Apple
45,000
0%
0
0.0%

Almond
1,005,227
12%
53,693
5.3%

Grape
1,757,980
75%
570,357
32.4%

Peach
379,910
12%
20,292
5.3%

Prune
169,911
12%
9,076
5.3%

Walnut
377,576
12%
20,168
5.3%

Citrus
134,885
0%
0
0.0%

Pepper
6,063,900
2,393,009
39%
1,035,179
17.1%

Strawberry
11,492,981
5,443,865
47%
9,202,724
80.1%

Tomato
10,362,923
6,317,903
61%
8,297,858
80.1%

Lettuce
935,889
0
0%
0
0.0%

Forest
Seedlings
446,482
424,496
95%
183,630
41.1%

Ginger
44,680
20,332
46%
8,795
19.7%

Sweet
Potato
766,042
495,084
65%
214,166
28.0%

Nurseries
Nursery
Transplant
Trays
690,048
2,917
0.4%
1,262
0.2%

Orchard
Nurseries
316,594
100,965
32%
43,676
13.8%

Ornamentals
(
roses
and
chrysanthemums)
262,351
64,853
25%
28,055
10.7%

Strawberry
Nurseries
411,361
121,249
29%
52,450
12.8%

Turfgrass
1,992,504
776,588
39%
335,940
16.9%

Post­
Harvest
Food
Production
&

Storage
923,895
193,495
21%
83,703
9.1%

Perishables
2,795,940
1,182,603
42%
511,576
18.3%

Durables
1,678,005
0
0%
0
0%

Transport
Vehicles
196,245
0
0%
0
0%

Non­
Ag
1,678,005
0
0%
0
0%

Total
53,578,098
21,875,728
21,875,728
21,875,728
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
167
­
1.4
Step
4.
Calculate
cost
change,
by
crop
and
region,
for
Approach
1
To
determine
the
annual
revenue
change
for
Approach
1
the
total
change
in
sales
(
due
to
yield
changes)

are
added
to
the
total
change
in
cost
(
due
to
treatment
cost
differences).
The
following
set
of
equations
are
performed
for
each
crop
and
region,
and
then
summed
across
all
regions
to
obtain
the
total
revenue
change
per
crop.

Cumulative
Treated
Acres
is
the
total
number
of
acres
that
will
exhibit
yield
loss
in
a
given
year.
For
non­
orchard
crops,
Cumulative
Treated
Acres
is
equivalent
to
Annual
Treated
Acres
for
each
substitute.
For
orchard
crops,
Cumulative
Treated
Acres
is
equivalent
to
the
combined
Annual
Treated
Acres
for
all
prior
years
Cumulative
Treated
Acres,
Orchards
(
ac)
=
Cumulative
Treated
Acres,
j­
1
+
Annual
Treated
Acres,
j
Where:

Cumulative
Treated
Acres,
j­
1
=
the
cumulative
treated
acres
for
one
year
prior
to
the
current
year,
j
Annual
Treated
Acres,
j
=
The
acres
treated
by
the
alternative
in
current
year,
j
Yield
Loss
is
the
change
in
crop
yield,
expressed
as
a
percent,
resulting
from
substitution
for
methyl
bromide.

Yield
Loss
(%)
=
100%
 
Substitute
Yield
Relative
to
Methyl
Bromide
(%)

Where:

Substitute
Yield
Relative
to
Methyl
Bromide
(%)
=
the
average
of
the
high
and
low
estimates
for
the
yield
of
each
substitute
relative
to
methyl
bromide
Annual
Change
in
Sales
is
a
measure
of
the
difference
in
revenue,
based
on
changes
in
yield
between
methyl
bromide
and
the
alternatives.

Annual
Change
in
Sales
($)
=
Cumulative
Treated
Acres
(
ac)
*
Yield
(
lbs/
ac)
*
Price
Per
Pound
($/
lb)
*
Yield
Loss
(%)

Where:

Cumulative
Treated
Acres
(
ac)
=
the
total
number
of
acres
treated
with
the
alternative
that
will
exhibit
yield
loss
in
the
year.
For
crops
with
longer
lifetimes
(
e.
g.,
orchards)
it
is
assumed
that
yield
loss
will
be
exhibited
for
the
lifetime
of
the
crop.

Yield
(
lbs/
ac)
=
the
amount
of
crop
produced
when
the
acres
are
treated
with
methyl
bromide
Price
per
Pound
($/
lb)
=
farm
price
for
each
pound
of
crop
produced
Yield
Loss
(%)
=
the
predicted
proportion
of
the
yield
that
will
be
lost
due
to
the
use
of
the
substitute
Net
Cost
Change
per
Acre
is
the
change
in
application
cost
for
each
substitute
per
acre
of
treated
crop.
***
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OR
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­
168
­
Net
Cost
Change
per
Acre
($)
=
Cost
of
Methyl
Bromide
($/
ac)
*
(
Substitute
Cost
Relative
to
Methyl
Bromide
(%)
 
100%)
Where:

Cost
of
Methyl
Bromide
($/
ac)
=
the
mean
of
the
high
and
low
estimates
of
either
the
contractor
application
rate
(
California,
$
1350)
or
the
farmer
application
rate
(
all
other
regions,
$
780)

Substitute
Cost
Relative
to
Methyl
Bromide
(%)
=
the
high
or
low
estimate
of
the
cost
of
each
substitute
Annual
Cost
Change
is
the
total
treatment
cost
difference
resulting
from
replacing
a
percent
of
the
methyl
bromide
market
with
a
substitute.

Annual
Cost
Change
($)
=
Net
Cost
Change
Per
Acre
($/
ac)
*
Treated
Acres
(
ac)
*
Market
Share
(%)

Where:

Net
Cost
Change
per
Acre
($/
ac)
=
the
cost
difference
between
treating
one
acre
of
the
crop
with
methyl
bromide
versus
the
substitute
Treated
Acres
(
ac)
=
the
number
of
acres
in
the
region
treated
with
methyl
bromide
prior
to
regulation
Market
Share
(%)
=
the
percent
of
the
methyl
bromide
market
attributed
to
each
substitute
Revenue
Change
is
the
difference
between
pre­
and
post­
phaseout
revenue
estimates.

Revenue
Change
($)
=
Annual
Change
in
Sales
($)
+
Annual
Cost
Change
($)

Where:

Annual
Change
in
Sales
($)
=
the
change
in
revenues
due
to
changes
in
yield
between
methyl
bromide
and
the
substitutes
Annual
Cost
Change
($)
=
the
change
in
revenues
due
to
change
in
treatment
costs
1.5
Step
5.
Calculate
Approach
2
cost
change
for
each
crop
Approach
2
is
calculated
by
crop,
using
the
totals
by
region,
where
appropriate.
The
following
set
of
equations
is
used
to
determine
the
producer
surplus
loss,
consumer
surplus
loss,
and
total
social
welfare
change
for
Approach
2.

Production
Change
is
the
amount
of
crop
production
lost
due
to
yield
loss
from
methyl
bromide
substitutes.

Production
Change
(
lbs)
=
Reduced
Sales
($)
/
Price
per
Pound
($/
lb)

Where:

Change
in
Sales
($)
=
the
revenues
lost
due
to
yield
differences
from
the
methyl
bromide
alternative
(
see
Approach
1)

Price
per
Pound
($/
lb)
=
the
weighted
farm
price
for
each
pound
of
crop
produced
***
DRAFT
(
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30/
2006)
DO
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CITE,
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OR
ATTRIBUTE***

­
169
­
New
Production
is
a
revised
production
estimate
based
on
the
total
pounds
of
crop
produced
historically
plus
the
change
in
production
due
to
the
substitution
of
methyl
bromide.

New
Production
(
lbs)
=
Production
(
lbs)
+
Production
Change
(
lbs)

Where:

Production
(
lbs)
=
the
estimated
pre­
phaseout
production
of
the
crop
Production
Change
(
lbs)
=
the
amount
of
crop
lost
due
to
yield
loss
from
methyl
bromide
substitutes
Price
Change
is
the
resulting
change
in
price
for
consumers
due
to
production
losses
and
market
demand
flexibility.

Price
Change
($/
lb)
=
Production
Change
(
lbs)
/
Production
(
lbs)
*
Demand
Flexibility
*
Wholesale
Price
($/
lb)

Where:

Production
Change
(
lbs)
=
the
amount
of
crop
lost
due
to
yield
loss
from
methyl
bromide
substitutes
Production
(
lbs)
=
the
estimated
pre­
phaseout
production
of
the
crop
Demand
Flexibility
=
percentage
change
in
demand
due
to
percentage
change
in
price
Wholesale
Price
($/
lb)
=
the
average
market
price
of
the
crop
to
the
consumer
Consumer
Surplus
Change
is
the
increase
in
costs
due
to
decreased
production
of
the
crop
that
are
passed
on
to
consumers.

Consumer
Surplus
Change
($)
=
New
Production
(
lbs)
*
Price
Change
($/
lb)
+
[
0.5
*
Production
Change
(
lbs)
*
Price
Change
($/
lb)]

Where:

New
Production
(
lbs)
=
a
revised
crop
production
estimate
based
on
the
total
pounds
of
crop
produced
historically
minus
the
change
in
production
due
to
the
substitution
of
methyl
bromide
Price
Change
($/
lb)
=
change
in
price
for
consumers
due
to
production
losses
and
market
demand
flexibility
Production
Change
(
lbs)
=
the
amount
of
crop
lost
due
to
yield
loss
from
methyl
bromide
substitutes
Producer
Surplus
Change
is
the
amount
of
the
revenue
change
that
is
passed
on
to
the
producers.

Producer
Surplus
Change
($)
=
Revenue
Change
($)
 
New
Production
(
lbs)
*
Price
Change
($/
lb)

Where:

Revenue
Change
($)
=
the
total
change
in
revenue
due
to
methyl
bromide
phaseout
as
calculated
in
Approach
1
New
Production
(
lbs)
=
a
revised
crop
production
estimate
based
on
the
total
pounds
of
crop
produced
historically
minus
the
change
in
production
due
to
the
substitution
of
methyl
bromide
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
170
­
Price
Change
($/
lb)
=
change
in
price
for
consumers
due
to
production
losses
and
market
demand
flexibility
Total
Social
Welfare
Change
is
the
sum
of
consumer
surplus
and
producer
surplus
changes.
Total
Social
Welfare
Change
($)
=
Consumer
Surplus
Change
($)
+
Producer
Surplus
Change
($)

Where:

Consumer
Surplus
Change
($)
=
the
increase
in
consumer
costs
due
to
decreased
production
of
the
crop
Producer
Surplus
Change
($)
=
the
increase
in
costs
to
the
producer
due
to
phaseout
of
methyl
bromide
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
171
­
2.
Nurseries
Exhibit
2.1
presents
cost
and
total
impact
of
replacing
methyl
bromide
for
nursery
crops
(
i.
e.,

perennials).
Since
yield
losses
must
be
applied
in
two
steps
for
crops
that
have
a
lifetime
greater
than
one
year,

corresponding
costs
were
estimated
based
on
the
percent
of
acres
treated
until
substitutes
achieve
full
market
penetration.
The
framework
for
this
analysis
was
adapted
from
NCFAP
(
1999).
The
cost
of
complete
phaseout
is
calculated
as
follows:

Cost
of
complete
phaseout
=
(
acres
*
percent
of
acres
treated
*
increased
cost)
+
(
crop
value
*
percent
of
acres
treated
*
yield
loss)

Cost
data
for
interim
years
is
calculated
as
the
percent
of
methyl
bromide
phased
out
in
each
crop,

multiplied
by
the
cost
of
complete
phaseout
for
that
crop.

Exhibit
2.1.
Cost
of
Replacing
Methyl
Bromide
for
Nursery
Crops
(
1997$)

Crop
State
Acres
Percent
of
Acres
Treated
Crop
Value
($
1,000)
Yield
Loss
Increased
Cost
($)
MeBr
Consumption
(
lbs)
Cost
of
Complete
Phaseout
($
1,000)
Caladium
CA
1,400
67%
18,000
10.0%
­
131,692
1,206
Cut
Flowers
Carnations
CA
241
95%
17,678
0.0%
6,571
32,144
1,504
Mums
outdoor
CA
102
100%
7,192
7.5%
14,320
539
Mums
ghouse
CA
102
67%
7,192
0.0%
6,571
9,595
449
Roses
CA
483
60%
68,017
0.0%
550
40,687
159
Other
cut
flowers
CA
4,680
75%
153,060
7.5%
492,791
8,610
Gladiola
FL
3,292
10%
15,999
10.0%
46,218
160
Other
cut
flowers
FL
281
90%
11,269
10.0%
35,506
1,014
Sod
CA
8,420
20%
79,357
10.0%
433
236,427
2,316
FL
52,030
20%
64,215
10.0%
433
1,460,963
5,790
GA
10,510
20%
34,643
10.0%
433
295,113
1,603
Strawberry
plants
CA
2,585
100%
19,379
15.0%
362,924
2,907
OR
345
100%
48,437
­

Perennial
nurseries
CA
2,255
100%
124,217
5.0%
250
316,594
6,775
Rose
plant
nurseries
CA
1,967
95%
34,863
5.0%
250
262,351
2,123
Tobacco
plants
FL
75
100%
864
0.0%
200
10,530
15
GA
800
80%
9,215
0.0%
200
89,854
128
TN
12,000
35%
48,380
0.0%
200
589,664
840
Total
4,475,810
36,139
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
172
­
3.
Post­
Harvest
This
analysis
applies
information
on
relative
costs
of
alternatives
to
methyl
bromide
for
postharvest
treatments
to
determine
the
total
cost
of
a
phaseout
of
post­
harvest
uses
of
methyl
bromide
(
excluding
uses
for
quarantine
and
preshipment
applications).
Unlike
the
pre­
plant
cost
analysis,
which
uses
detailed
crop­
specific
data
on
acreage,
production,
yield,
price,
and
relative
cost
of
the
substitutes
to
estimate
the
costs
on
a
regional
basis,
the
post­
harvest
analysis
uses
a
simplified
approach
to
estimate
the
incremental
cost
per
pound
to
replace
methyl
bromide
nationally
by
post­
harvest
use
segment.
56
Critical
use
exemptions
for
post­
harvest
uses
were
only
requested
for
food
production
&
storage
and
perishables,
therefore
the
costs
for
phasing
out
methyl
bromide
in
the
remaining
sectors
were
the
same
for
the
baseline
and
the
CUE
scenario.

The
estimation
of
costs
associated
with
phasing
out
post­
harvest
non­
soil
use
of
methyl
bromide
involves
the
following
three
general
steps:

Step
1:
Determine
methyl
bromide
consumption
for
each
post­
harvest
non­
soil
use,
shown
in
Exhibit
3.1.

Step
2:
Derive
replacement
cost
information
and
express
results
in
terms
of
cost
per
pound
of
methyl
bromide
replaced;
and
Step
3:
Multiply
total
consumption
for
each
post­
harvest
non­
soil
use
by
cost
per
pound
replaced
to
express
total
costs
for
replacement
of
methyl
bromide
for
post­
harvest
non­
soil
use.

The
relative
costs
to
replace
methyl
bromide
are
shown
in
Exhibit
3.2,
and
are
derived
in
the
following
ways:

 
The
relative
costs
of
heat
treatments
were
based
on
information
provided
in
EPA
(
1995).
The
following
data
were
used:
heat
treatments
cost
$
747
to
$
830
per
million
cubic
feet;
methyl
bromide
treatments
cost
$
2,000
to
$
4,500
per
million
cubic
feet
for
$
1,253
to
$
3,670
cost
savings
per
million
cubic
feet;
and
total
methyl
bromide
use
is
estimated
to
be
999
to
3,995
pounds.
The
relative
cost
to
replace
methyl
bromide
is
therefore
estimated
to
be
$­
1.25
to
$­
0.92.

 
The
relative
costs
of
phosphine
57
tablets
were
based
on
information
provided
in
EPA
(
1997).
The
following
data
were
used:
tablets
cost
$
8.25
per
thousand
cubic
feet;
methyl
bromide
treatments
56
The
data
used
in
to
estimate
post­
harvest
impacts
are
not
as
thorough
as
those
used
for
the
pre­
plant
analysis.
Therefore,
the
analysis
does
not
reflect
the
potential
variability
in
costs
that
might
occur
regionally
or
by
commodity.

57
EcofumeTM
,
a
treatment
containing
phosphine,
is
less
expensive,
more
effective
in
a
shorter
time
frame,
and
provides
improved
health,
worker
safety
conditions,
and
environmental
benefits
compared
to
other
phosphine
***
DRAFT
(
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30/
2006)
DO
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CITE,
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OR
ATTRIBUTE***

­
173
­
cost
$
7.40
per
thousand
cubic
feet
for
a
cost
per
thousand
cubic
feet
of
$
0.85;
and
total
methyl
bromide
use
is
estimated
to
be
1.00
to
4.00
pounds.
The
relative
cost
to
replace
methyl
bromide
is
therefore
estimated
to
be
$
0.21
to
$
0.85.

 
The
relative
costs
of
phosphine
Turbo
Horn
TM
treatments
were
based
on
information
provided
in
EPA
(
1997).
The
following
data
were
used:
Turbo
Horn
TM
costs
$
8.15
per
thousand
cubic
feet;
methyl
bromide
treatments
cost
$
7.40
per
thousand
cubic
feet
for
a
cost
per
cubic
feet
of
$
0.75;
and
total
methyl
bromide
use
is
estimated
to
be
1.00
to
4.00
pounds.
The
relative
cost
to
replace
methyl
bromide
is
therefore
estimated
to
be
$
0.19
to
$
0.75.

 
The
relative
costs
of
phosphine
combination
treatments
were
based
on
information
provided
in
EPA
(
1997).
The
following
data
were
used:
combination
treatments
cost
$
9.25
per
thousand
cubic
feet;
methyl
bromide
treatments
cost
$
7.40
per
thousand
cubic
feet
for
a
cost
per
thousand
cubic
feet
of
$
1.85;
and
total
methyl
bromide
use
is
estimated
to
be
1.00
to
4.00
pounds.
The
relative
cost
to
replace
methyl
bromide
is
therefore
estimated
to
be
$
0.46
to
$
1.85.

 
The
relative
costs
of
Vikane
TM
treatments
were
based
on
information
provided
in
EPA
(
1999c).
The
following
data
were
used:
Vikane
TM
treatment
cost
$
121.20
to
$
314.70
per
35K
cubic
feet;
methyl
bromide
treatments
cost
$
138.75
to
$
235.00
per
35K
cubic
feet
for
a
cost
per
35K
cubic
feet
of
$­
17.55
to
$
79.70;
and
total
methyl
bromide
use
is
estimated
to
be
35
to
105
pounds.
The
relative
cost
to
replace
methyl
bromide
is
therefore
estimated
to
be
$­
0.50
to
$
0.76.

 
The
relative
costs
of
irradiation
were
derived
from
information
contained
in
NCFAP
(
1999).
The
following
approach
was
used:
the
ratio
of
irradiation
costs
relative
to
phosphine
treatment
costs
as
presented
in
NCFAP
(
ratio
=
3.42)
was
used
to
scale
the
cost
per
pound
to
replace
methyl
bromide
with
phosphine
(
estimated
above).
The
resulting
scaled
value
was
used
as
the
cost
to
replace
methyl
bromide
with
irradiation.

 
The
relative
costs
of
controlled
atmosphere
were
derived
from
information
contained
in
NCFAP
(
1999).
The
following
approach
was
used:
the
ratio
of
controlled
atmosphere
costs
relative
to
phosphine
treatment
costs
as
presented
in
NCFAP
(
ratio
=
1.46)
was
used
to
scale
the
cost
per
pound
to
replace
methyl
bromide
with
phosphine
(
estimated
above).
The
resulting
scaled
value
was
used
as
the
cost
to
replace
methyl
bromide
with
controlled
atmosphere.

Exhibits
3.1
and
3.2
summarize
total
methyl
bromide
consumption
and
methyl
bromide
replacement
costs,
respectively,
for
the
post­
harvest
sector.

treatments
analyzed
(
i.
e.,
tablets
and
combination
treatments)
(
EPA
1997).
EcofumeTM
has
only
recently
been
approved
and
comparative
cost
information
is
not
available,
thus
this
new
treatment
is
not
considered
in
this
analysis.
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
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OR
ATTRIBUTE***

­
174
­
Exhibit
3.1.
Estimated
Methyl
Bromide
Consumption
for
Post­
Harvest
Uses
(
pounds)

Post­
Harvest
Sector
Methyl
Bromide
Consumption
Non­
Ag
1,678,005
Food
Production
&
Storage
923,895
Transport
Vehicles
196,245
Perishables
2,795,940
Durables
1,678,005
Quarantine
&
Preshipment
560,070
Exhibit
3.2.
Estimated
Cost
per
Pound
Replaced
for
Post­
Harvest
Non­
Soil
Uses
of
Methyl
Bromide
Post­
Harvest
Sector
Low
($)
Substitute
High
($)
Substitute
Non­
Ag
(
0.92)
Heat
0.76
Vikane
 
Food
Production
(
1.25)
Heat
0.85
Phosphine
Tablets
High
Food
Storage
(
0.92)
Heat
0.75
Phosphine
Turbo
Horn
Transport
Vehicles
0.85
Phosphine
Tablets
1.24
Controlled
Atmospheres
Perishables
1.24
Controlled
Atmosphere
2.91
Irradiation
Durables
0.76
Vikane
1.85
Phosphine
Combo
High
QPS
2.70
Controlled
Atmosphere
6.33
Irradiation
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
175
­
Appendix
C:
Marketable
Permit
Designs
for
the
Methyl
Bromide
Critical
Use
Exemption
Request
in
the
United
States
Hong
Jin
Kim
Economist
Office
of
Pesticide
Programs
U.
S.
Environmental
Protection
Agency
1200
Pennsylvania
Ave.
(
Mailcode
=
7503C)
Washington
DC
20460
(
703)
308­
8134
phone
(
703)
308­
6077
fax
Kim.
Hong­
Jin@
epamail.
epa.
gov
John
Faulkner
Economist
Office
of
Pesticide
Programs
U.
S.
Environmental
Protection
Agency
David
Widawsky
Economist/
Branch
Chief
Office
of
Pesticide
Programs
U.
S.
Environmental
Protection
Agency
The
findings,
results,
and
opinions
expressed
in
this
paper
are
those
of
the
authors
and
do
not
reflect
those
of
the
U.
S.
EPA.

ABSTRACT
This
paper
analyzes
potential
cost
savings
to
the
U.
S.
agricultural
sector
associated
with
applying
marketable
permit
designs
for
methyl
bromide
critical
use
exemptions
(
CUE),
under
the
phaseout
of
methyl
bromide.
A
necessary
condition
for
an
efficient
trading
system
is
heterogeneity
among
methyl
bromide
users
with
respect
to
the
costs
of
switching
to
potential
alternative
pest
control
measures,
which
would
lead
to
cost
savings
from
trading.
Using
data
on
these
costs
from
current
methyl
bromide
users,

the
authors
show
that
this
necessary
condition
appears
to
be
met,
and
characterize
the
potential
cost
savings
that
could
occur
if
critical
use
permits
can
be
traded
from
methyl
bromide
users
with
lower
costs
to
those
with
higher
costs.
Several
potential
mechanisms
for
implementing
these
trades
are
considered,

causing
differences
in
the
extent
to
which
permit
for
use
may
be
traded
within
a
commodity­
use,
or
traded
among
users
producing
different
commodities.
The
total
incremental
costs
of
the
program
were
higher
when
permits
are
traded
only
among
methyl
bromide
users
within
a
commodity
sector,
while
the
costs
were
lowest
when
the
methyl
bromide
users
are
allowed
to
freely
trade
their
permits
across
sectors.
***
DRAFT
(
1/
30/
2006)
DO
NOT
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QUOTE
OR
ATTRIBUTE***

­
176
­
INTRODUCTION
Methyl
bromide
is
a
pesticide
to
control
insects,
nematodes,
weeds,
pathogens,
and
rodents.

Methyl
bromide
is
primary
used
in
agriculture
for
soil
fumigation,
commodity
treatment,
and
structural
fumigation.
Methyl
bromide
is
used
in
the
U.
S.
for
soil
fumigation
prior
to
planting
crops
to
control
a
broad
spectrum
of
soil
pests.
Tomatoes
and
strawberries
account
for
about
50
percent
of
the
total
methyl
bromide
use
in
the
United
States.
Others
such
as
perennial
crops,
pepper,
and
ornamental
and
nursery
crops
widely
use
methyl
bromide
to
control
soil
pests
and
account
for
about
35
percent
of
the
total
methyl
bromide
use.
Methyl
bromide
is
also
used
for
protecting
the
quality
of
commodities
in
storage
and
for
food­
processing
facilities
for
pest
control.
Methyl
bromide
uses
for
post­
harvest
treatments
account
for
about
15
percent
of
the
total
methyl
bromide
use
(
United
States
Environmental
Protection
Agency
(
US
EPA),
2003a).

Under
the
Clean
Air
Act
Amendments
(
CAAA)
and
the
Montreal
Protocol
on
Substances
that
Deplete
the
Ozone
Layer,
the
production
and
import
of
methyl
bromide
in
the
United
States
is
scheduled
for
phase
out
by
January
1,
2005.
However,
current
users
of
methyl
bromide
have
the
option
to
apply
for
a
critical
use
exemption
(
CUE)
that
would
provide
additional
time
to
transition
to
technically
and
economically
feasible
alternative
fumigants.
The
U.
S.
Environmental
Protection
Agency
invited
applications
for
CUEs
from
individuals
and
groups
of
methyl
bromide
users,
and
reviewed
the
submitted
CUE
applications
for
their
current
use
of
methyl
bromide,
with
special
attention
paid
to
the
availability
of
alternatives
identified
by
the
Methyl
Bromide
Technical
Options
Committee
(
MBTOC).

Based
on
the
economic
analyses
of
estimating
costs
and
revenues
associated
with
the
use
of
methyl
bromide
and
technically
feasible
alternatives,
the
U.
S.
EPA
nominated
a
set
of
methyl
bromide
uses
for
CUEs,
under
the
Montreal
Protocol.
These
uses,
for
crop
production
and
structural/
storage
operation,
were
deemed
critical
because
available
alternative
are
either
technically
or
economically
infeasible.
The
international
parties
of
the
Montreal
Protocol
are
currently
reviewing
the
CUE
nominations
and
are
expected
to
report
findings
and
recommendations
by
the
Fall
of
2003.
The
goal
of
this
paper
is
to
explore
the
feasibility
of
implementing
the
allocation
of
methyl
bromide
CUEs
with
permit
trading,
by
assessing
whether
the
economic
conditions
exist
to
support
a
market­
based
approach
as
one
option
among
many.
We
look
at
some
specific
data
on
costs
of
production
for
methyl
bromide
users,
introduce
a
basic
theoretical
model
for
permit
trading,
simulate
some
results
using
the
permit
trading
model
,
and
suggest
directions
for
further
work
to
expand
analyses
of
this
option.

In
the
environmental
economics
literature,
traditional
direct
control
approaches
have
been
criticized
as
more
costly
than
marketable
permit
systems
to
achieve
environmental
quality
standards.

Theoretically,
marketable
permit
systems
could
allow
polluters
with
higher
costs
for
emission
control
to
buy
permits
from
polluters
with
lower
costs.
Under
certain
conditions,
total
aggregate
abatement
costs
can
be
reduced
and
pollution
abatement
achieved
at
a
lower
cost
to
the
economy.
However,
the
actual
***
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2006)
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OR
ATTRIBUTE***

­
177
­
realized
benefit
from
a
marketable
permit
system
may
not
be
as
big
as
the
theoretically
conceivable
benefit
associated
with
marketable
permit
systems
due
to
the
difficulties
of
implementing
marketable
permit
systems.

Marketable
permit
systems
have
been
used
in
areas
of
air
quality
management,
renewable
energy,
solid
waste
management,
and
water
resources
management.
Implementation
of
such
marketbased
mechanisms
depends
on
meeting
well­
known
theoretical
conditions
and
overcoming
practical
difficulties.
Emission
trading
in
the
energy
sector
is
one
area
where
a
marketable
permit
system
has
received
considerable
attention
(
Berry,
2002;
Boots,
2003;
Nielsen
and
Jeppesen,
2003).
Solid
waste
management
is
another
area
where
researchers
have
examined
marketable
permit
system
as
an
efficient
tool
to
meet
minimum
recycling
targets
(
Sprenger,
1999;
Allen
and
et
al.,
1993;
Dinan,
1992).
The
marketable
permit
system
has
been
extensively
studied
in
water
resources
management
to
reduce
water
pollution
in
a
cost­
effective
way
(
Austin,
2001;
Morgan
and
et
al.,
2001;
Stephenson
and
Shabman,

2001).
Many
studies
(
Atkinson
and
Lewis,
1974;
Atkinson
and
Tietenberg,
1982;
Oates,
Portney
and
McGartland,
1989;
Tietenberg,
1995;
Schmalensee
and
Joskow,
1998)
have
found
that
marketable
permit
systems
can
be
more
cost­
effective
than
fixed
allocation
approaches
in
achieving
emission
reduction
targets
or
air
quality
objectives.

Pesticide
regulatory
policy
in
the
U.
S.
is
most
commonly
directed
toward
mitigating
risk
with
stipulations
on
how
a
pesticide
is
used
(
rates,
timing,
equipment,
etc.),
which
determines
risk.
Trading
of
pesticide
risk,
per
se,
has
not
been
explored,
in
part
because
of
the
link
between
use
pattern
and
risk.

Hence,
no
study
has
been
identified
to
look
at
potential
cost
savings
of
applying
marketable
permit
designs
for
pesticide
uses.
Methyl
bromide,
in
its
role
as
an
ozone
depleter,
is
different
because
ozone
depletion
is
almost
(
but
not
entirely)
separable
from
use
patterns.
58
Therefore,
this
paper
explores
the
potential
of
marketable
permit
systems
to
provide
the
methyl
bromide
users
with
more
flexibility
in
meeting
their
required
reduction
of
methyl
bromide
use
in
a
cost­
effective
way.
An
objective
of
this
study
is
to
analyze
the
potential
cost
savings
of
marketable
permit
systems
for
methyl
bromide
under
a
CUE
program.

DEFINING
THE
PROBLEM:
MARKETABLE
PERMIT
DESIGN
Through
economic
analysis
of
the
CUE
applications,
EPA
gathered
a
substantial
body
of
data
on
potential
losses
in
revenue
and
increases
in
operating
costs
associated
with
alternative
pest
control
regimens.
These
data
helped
EPA
to
estimate
the
incremental
costs
that
might
accrue
in
the
absence
of
methyl
bromide.
The
incremental
costs
associated
with
the
use
of
alternatives
appeared
to
have
a
wide
58
There
are
other
risks
from
methyl
bromide
beyond
ozone
depletion,
and
these
risks
are
addressed
by
EPA
in
implementing
the
Federal
Fungicide,
Rodenticide,
and
Insecticide
Act
(
FIFRA).
For
the
purposes
of
a
CUE
program
we
focus
on
ozone
depletion
in
this
paper.
Site
specific
factors
can
also
affect
the
ozone
depletion
potential
of
a
given
methyl
bromide
use
(
soil
moisture
and
temperature
status,
length
of
contact
time
with
soil),
but
these
factors
do
not
change
the
basic
conclusions
of
this
paper,
and
are
not
explicitly
addressed.
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
178
­
range
among
the
CUE
applications.
For
example,
the
incremental
costs
for
structural/
storage
uses
are
mainly
from
production
delays
due
to
a
longer
treatment
time
and
required
capital
expenditures
with
alternatives.
Costs
of
adoption
methyl
bromide
alternatives
(
per
unit
of
commodity)
may
be
higher
in
these
industries
than
in
crop
production
systems.
Within
the
CUE
applications
for
crop
production,

incremental
costs
varied
due
to
the
fact
that
different
methyl
bromide
alternatives
were
available
for
different
crops,
depending
on
a
range
of
factors.

A
permit
trading
system
is
intended
to
reduce
the
total
control
costs
(
across
methyl
bromide
users)
of
meeting
the
target
for
emissions.
In
the
case
of
emission
trading
for
power
plants,
this
may
mean
minimizing
the
cost
of
expenditures
on
equipment.
In
the
case
of
methyl
bromide,
the
"
cost"
may
include
changes
in
expenditures,
as
well
as
changes
in
gross
revenue
because
methyl
bromide
is
a
productive
input,
rather
than
simply
an
undesirable
output.
Assume
that
methyl
bromide
trading
occurs
on
a
one­
for­
one
basis,
that
is,
reduction
in
use
of
one
pound
in
one
place
is
offset
by
an
identical
increase
in
another
place.
This
assumption
is
generally
valid
because
there
is
no
spatial
dispersion
effect
of
methyl
bromide
use;
nearly
and
all
emissions
can
be
considered
to
have
the
same
effects
on
the
ozone
layer.
This
objective
can
be
represented
as
finding
the
set
of
individual
methyl
bromide
uses,
Xi
MeBr
,
that
minimize
the
total
cost
of
meeting
(
or
exceeding)
a
target
in
use
reduction:

where,

Ci
:
total
incremental
costs
of
switching
to
methyl
bromide
alternatives
for
i
th
methyl
bromide
users
Xi
MeBr
:

the
number
of
kilograms
of
methyl
bromide
to
be
replaced
with
alternatives
for
i
th
methyl
bromide
user
E:
the
total
reduction
of
methyl
bromide
in
kilograms
required
for
the
United
States
This
is
equivalent
to
minimizing
the
following
Lagrangian:

where,

 :
the
Lagrangian
multiplier
From
the
first­
order
condition
(
FOC),
a
solution
satisfies:

Equation
3
implies
that
when
the
cost
is
minimized
for
reducing
methyl
bromide
use,
then
the
marginal
costs
of
replacing
methyl
bromide
with
alternatives
are
the
same
across
all
methyl
bromide
users.
The
equation
above
also
shows
that
the
marginal
cost
for
each
methyl
bromide
user
should
be
)
1
(
,....,
1
,
)
(

1
1
m
i
E
to
subject
Min
m
i
MeBr
i
MeBr
i
m
i
i
X
X
C
=
 
 
 
=
=

)
2
(
,....,
1
),
(
)
(

1
1
m
i
E
m
i
MeBr
i
MeBr
i
m
i
i
X
X
C
=
 
+
 
 
=
=
 
)
3
(
)
(
'
 
=
X
C
MeBr
i
i
***
DRAFT
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30/
2006)
DO
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OR
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­
179
­
equal
to
the
Lagrangian
multiplier,
which
reflects
the
value
of
changing
(
increasing
or
decreasing)
the
target
for
methyl
bromide
use
reduction.
In
other
words,
it
represents
the
change
in
the
total
incremental
costs
associated
with
a
change
in
the
total
reduction
of
methyl
bromide
required
for
the
United
States.

The
total
costs
of
meeting
the
reduction
of
methyl
bromide
required
for
the
United
States
would
be
minimized
if
each
methyl
bromide
user
reduced
the
use
of
methyl
bromide
such
that
its
marginal
cost
is
equal
to
its
contribution
to
the
total
costs.

However,
this
condition
may
not
hold
because
the
marginal
costs
may
be
constant
and
different
across
all
CUE
applicants.
In
practice,
the
total
costs
of
switching
to
alternatives
for
all
CUE
applicants
are
more
likely
to
be
minimized
when
applicants
with
lower
costs
switch
to
alternatives
first,
until
the
total
required
reduction
in
the
United
States
is
attained.
The
marginal
cost
for
the
last
user
applicant
switching
to
methyl
bromide
alternatives
should
be
equal
to
the
estimated
Lagrangian
multiplier.

This
study
analyzes
the
potential
efficiency
improvement
associated
with
implementation
of
two
different
marketable
permit
designs
to
the
U.
S.
agricultural
production
sectors:
1)
a
Sectoral
Marketable
Permit
System
(
SMPS)
that
allows
one­
to­
one
permit
trading
only
for
methyl
bromide
in
the
same
sector
(
e.
g.,
tomatoes,
peppers),
and
2)
Uniform
Marketable
Permit
System
(
UMPS)
in
which
all
the
methyl
bromide
users
freely
trade
their
methyl
bromide
permits.
The
incremental
costs
accounted
for
in
this
study
are
the
sum
of
economic
losses
from
reduced
yields
and
increased
production
costs
associated
with
the
use
of
alternatives.
59
Therefore,
the
cost
savings
indicated
in
this
study
represent
the
differences
between
the
total
costs
of
marketable
permit
systems
to
the
U.
S.
agricultural
production
sectors
and
those
of
a
system
whereby
CUEs
are
fixed
based
on
historical
methyl
bromide
use
or
production
output.

DATA
The
methyl
bromide
users
considered
for
this
study
represent
individual
growers,
consortia,
and
industries
using
methyl
bromide
for
crop
production
such
as
tomatoes
and
strawberry,
and
for
fumigation
of
stored
commodities
and
structural
fumigation
(
e.
g.,
flour
mills).
The
U.
S.
Environmental
Protection
Agency
(
EPA)
received
fifty­
six
critical
use
exemption
(
CUE)
applications
for
2002.
These
applications
were
aggregated
into16
sectors
for
the
purpose
of
the
U.
S.
nomination
of
CUEs
to
the
International
Parties
of
the
Montreal
Protocol.
Table
1
lists
the
sectors
(
and
the
amount
of
methyl
bromide
requested)

in
the
U.
S.
nomination:
tomatoes,
strawberries,
cucurbits,
peppers,
orchard
replant,
food
processing,

turfgrass,
sweet
potatoes,
forest
seedlings,
commodity
uses,
eggplant,
strawberry
nursery,
orchard
seedlings,
ornamental
nurseries,
ginger,
and
tobacco.
The
U.
S.
nomination
for
each
crop/
use
was
based
on
the
economic
and
technical
evaluation
of
the
use
of
methyl
bromide
and
alternatives,
and
also
other
59
This
doesn't
include
transaction
costs,
R&
D
for
adopting
new
alternatives,
etc.
Depending
on
who
would
incur
the
costs,
sellers
or
buyers
of
permits,
not
including
these
costs
could
over
or
underestimate
the
efficiency
gains
from
trading.
***
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1/
30/
2006)
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OR
ATTRIBUTE***

­
180
­
factors
such
as
regulatory
constraints
(
buffer
zones
and
township
caps)
and
environmental
considerations
(
groundwater
contamination,
historic
use
rate,
and
etc.).
The
total
amount
of
9,920,965
kilograms
for
2005
was
nominated
for
the
sixteen
sectors
by
the
United
States,
which
comprises
39
percent
of
the
1991
baseline
(
US
EPA,
2003b).

Why
does
switching
to
methyl
bromide
alternatives
lead
to
costs?

Economic
analyses
were
only
conducted
for
pre­
plant
and
post­
harvest
uses
when
EPA
and
USDA
identified
an
alternative
to
be
technically
feasible
in
the
CUE
review
process.
For
pre­
plant
uses,

economic
impacts
arise
due
to
potential
losses
in
revenue,
both
from
yield
declines
(
when
alternatives
are
less
efficient)
and
increases
in
operating
costs.
For
example,
supplementary
weed
control
or
additional
irrigation
may
be
required
when
adopting
methyl
bromide
alternatives.
CUE
reviewers
analyzed
crop
budgets
for
pre­
plant
sectors
to
determine
the
likely
economic
impact
if
methyl
bromide
were
unavailable.
Efforts
were
also
made
to
quantify
economic
impacts
to
methyl
bromide
users
due
to
decreases
in
grade
and
quality
of
the
crops
that
lead
to
changes
in
the
prices
producers
receive;

however,
not
all
potential
economic
losses
were
quantifiable.

Economic
losses
in
the
post­
harvest
sectors
can
be
characterized
as
arising
from
three
contributing
factors.
First,
the
direct
pest
control
costs
increased
in
most
cases
because
alternatives
such
as
phosphine
and
heat
treatment
are
more
expensive
(
increased
labor
time
required
for
longer
treatment
time
and
increased
number
of
treatments.
Second,
large
capital
expenditures
may
be
required
to
adopt
an
alternative.
For
example,
investments
to
retrofit
a
facility
may
be
necessary
to
make
it
suitable
for
heat
treatment.
Finally,
additional
production
downtimes
for
the
use
of
alternatives
are
unavoidable.
Many
facilities
operate
at
or
near
full
production
capacity
and
alternatives
that
take
longer
than
methyl
bromide
or
require
more
frequent
application
can
result
in
manufacturing
slowdowns,
shutdowns,
and
shipping
delays.
Slowing
down
production
would
result
in
additional
costs
to
the
methyl
bromide
users.

Economic
loss
was
calculated
as
the
additional
costs,
per
kilogram
of
methyl
bromide,
if
methyl
bromide
users
had
to
replace
methyl
bromide
with
available
alternatives.
Comparing
these
losses
provides
a
rough
measure
of
the
loss
in
economic
efficiency
associated
with
adoption
of
methyl
bromide
alternatives.
This
measure
indicates
incremental
cost
of
switching
to
the
available
alternatives
and
was
used
to
estimate
potential
cost
savings
to
the
U.
S.
agricultural
sector
through
the
use
of
a
marketable
permit
system
for
methyl
bromide.
EPA
reviewed
each
CUE
application
and
estimated
the
incremental
costs
associated
with
the
use
of
alternatives
for
the
methyl
bromide
users
represented
in
each
application
(
US
EPA,
2003b).

Table
2
shows
technically
feasible
alternatives
and
the
economic
loss
per
kilogram
of
methyl
bromide
for
each
sector.
Economic
losses
for
each
sector
are
presented
as
a
range
because
different
yield
losses
were
estimated
for
different
alternatives
and
the
methyl
bromide
users
within
each
sector.
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
181
­
Variations
in
price
and
operating
expenses
across
different
methyl
bromide
users
within
each
sector
also
contributed
to
variability
in
the
range
of
economic
losses.
Attachment
1
shows
the
technically
feasible
alternative
and
the
estimated
economic
loss
per
kilogram
of
methyl
bromide
across
methyl
bromide
CUE
applicants.
These
estimates
were
used
to
estimate
the
potential
cost
savings
associated
with
implementation
of
a
marketable
permit
system,
and
are
based
on
methyl
bromide
users
adopting
the
best
available
alternatives
(
lowest
cost).
This
analysis
incorporates
CUE
reviewers'
point
estimates
of
the
most
likely
yield
and
quality
losses
associated
with
these
alternatives.
Different
methyl
bromide
alternatives
and
point
estimates
of
yield
changes
would
lead
to
different
estimates
of
the
potential
cost
savings
of
a
methyl
bromide
marketable
permit
system.

The
economic
loss
of
replacing
methyl
bromide
with
alternatives
ranged
from
$
6
to
$
607
per
kilogram
of
methyl
bromide,
depending
on
the
methyl
bromide
use.
The
economic
losses
per
kilogram
of
methyl
bromide
show
a
wide
range
across
the
sectors
and
also
among
users
within
the
same
sector.
The
economic
loss
for
structural/
storage
uses
of
methyl
bromide
appear
to
be
much
higher
than
those
to
crop
producers.
Wide
variation
in
economic
losses
among
methyl
bromide
users
would
provide
users
with
more
flexibility
in
meeting
their
required
reduction
of
methyl
bromide
with
marketable
permit
system.

EMPIRICAL
RESULTS
The
potential
cost
savings
were
measured
as
differences
between
the
total
costs
of
marketable
permit
systems
to
the
U.
S.
agricultural
production
sectors
and
those
of
a
direct
and
fixed
allocation
of
CUEs
according
to
historical
methyl
bromide
use
or
commodity
production.
The
potential
cost
savings
of
marketable
permit
systems
were
estimated
using
the
assumption
that
39
percent
of
the
1991
U.
S.

baseline
(
reflecting
the
size
of
the
U.
S.
nomination)
would
be
exempted
for
critical
needs
for
methyl
bromide
use
after
the
phaseout.
Three
different
schemes
for
initial
allocation
were
analyzed
to
estimate
the
potential
maximum
and
minimum
cost
savings
associated
with
the
use
of
marketable
permit
systems.

They
are:
(
1)
high­
cost
scenario
where
all
the
permits
are
given
to
the
applicants
with
lower
costs
in
each
sector,
(
2)
low­
cost
scenario
where
all
the
permits
are
given
to
the
applicants
with
higher
costs
in
each
sector,
and
(
3)
average­
cost
scenario
where
all
the
users
in
each
sector
are
required
to
have
the
same
percentage
reduction
in
their
uses
of
methyl
bromide.
The
maximum
cost
savings
would
occur
when
all
the
permits
in
each
sector
are
distributed
to
the
applicants
with
lower
adjustment
costs,
while
minimum
cost
saving
would
be
associated
with
the
case
when
the
applicants
with
higher
adjustment
costs
in
each
sector
are
given
the
permits
to
use
methyl
bromide.

This
study
does
not
address
trading
for
sectors
in
which
no
technically
feasible
alternatives
have
been
identified
or
all
the
2005
requested
amounts
of
methyl
bromide
were
included
in
the
U.
S.

nomination.
The
sectors
in
this
category
are
cucurbits,
turfgrass,
sweet
potatoes,
eggplant,
strawberry
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
182
­
nursery,
and
tobacco.
Therefore,
this
study
incorporates
for
81
percent
of
the
total
requests
by
sectors
in
2005,
for
the
purposes
of
estimating
potential
efficiency
gains
from
trading.
The
cost
savings
of
marketable
permit
system
estimated
in
this
study
would
be
smaller
than
the
case
that
all
16
sectors
were
allowed
to
trade
their
permits.
60
Table
3
shows
the
potential
cost
savings
of
marketable
permit
systems.
If
critical
use
exemptions
were
allocated
to
users
with
higher
incremental
costs
under
a
fixed
allocation
system,
then
a
marketable
permit
design
would
provide
the
smallest
cost
savings.
This
is
because
there
is
not
much
of
need
for
permit
trading.
At
the
same
time,
identifying
and
allocating
methyl
bromide
to
users
with
high
incremental
switching
costs
could
require
substantial
transaction
costs
and
would
not
be
uncontroversial.
On
the
other
hand,
the
more
the
applicants
with
lower
incremental
switching
costs
are
given
the
critical
use
exemptions,
the
higher
the
potential
cost
savings
could
be.
If
39
percent
of
the
1991
baseline
were
exempted
for
critical
needs
for
methyl
bromide,
we
estimated
the
total
incremental
cost
under
a
fixed
allocation
system
ranges
from
$
55
to
$
177
million
depending
on
the
allocation
of
the
critical
use
exemption
among
methyl
bromide
users.
If
methyl
bromide
critical
use
exemptions
were
allocated
among
all
users,
reducing
methyl
bromide
use
by
the
same
proportion
for
each
user,
then
the
estimate
of
the
total
cost
of
adjustment
is
$
120
million.

Under
a
permit
system,
where
trading
occurs
only
among
users
in
a
given
sector,
the
total
incremental
cost
was
estimated
at
$
55
million.
Under
this
Sectoral
Marketable
Permit
System
(
SMPS),

some
sectors
have
minimal
cost
savings
because
there
is
little
variation
in
economic
losses
per
kilogram
of
methyl
bromide.
These
sectors
include
forest
seedling,
orchard
replant,
ornamental
nurseries,
and
ginger.
The
SMPS
did
not
provide
significant
cost
savings
to
these
sectors
in
our
simulation,
while
tomato,
strawberry,
pepper,
commodity,
and
food
processing
sectors
enjoyed
significant
cost
savings.
In
particular,
the
food­
processing
sector
reduced
its
cost
from
$
42
to
$
5.5
million
and
tomato
sector
from
$
52
to
$
14.5
million,
a
result
of
trading
between
users
with
high
costs
and
those
with
low
costs
of
adopting
alternatives
to
methyl
bromide.

Table
3
also
illustrates
the
incremental
costs
under
a
Uniform
Marketable
Permit
System
(
UMPS),
when
trading
occurs
across
sectors
and
the
permit
price
is
assumed
to
be
the
marginal
cost
for
the
last
user
switching
to
methyl
bromide
alternatives
in
order
to
sell
the
permit.
The
permit
price
was
$
14.49,
which
corresponds
to
the
economic
loss
per
kilogram
of
methyl
bromide
measured
for
the
representative
user
in
the
forest
seedling
sector.
This
marketable
permit
system
is
most
cost­
effective,
at
$
35.5
million,
when
methyl
bromide
users
are
allowed
to
trade
freely
across
sectors.
The
total
adjustment
cost
of
the
UMPS
is
less
than
one­
third
that
of
a
fixed
allocation
system
based
on
proportional
reductions
among
methyl
bromide
users
(
average
cost
scenario
in
Table
3).
The
potential
cost
savings
of
60
This
may
also
lead
to
an
overstatement
of
benefits
because
the
total
2005
requested
amount
may
be
greater
than
the
current
methyl
bromide
use.
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
183
­
marketable
permit
systems
could
range
from
36
percent
to
80
percent,
depending
on
the
trading
system
and
initial
allocation
of
CUEs
Payment
and
receipt
of
marketable
permits
among
methyl
bromide
users
would
affect
individual
income.
Buyers
of
permits
would
incur
additional
costs
to
purchase
permits,
but
this
would
be
more
than
offset
by
avoiding
costs
of
adjusting
to
alternatives,
so
they
would
realize
a
net
gain
from
trade.
Users
who
sell
marketable
permits
would
enjoy
more
income
because
their
cost
of
adjusting
to
alternatives
would
be
less
than
that
value
of
the
permit
they
sold.
The
total
costs
of
meeting
a
required
reduction
of
methyl
bromide
to
the
economy
as
a
whole
may
be
minimized
using
a
marketable
permit
system,
but
it
is
also
important
to
bear
in
mind
that
the
initial
distribution
of
permits
can
affect
the
distribution
of
gains
and
losses,
and
these
equity
considerations
may
be
an
important
factor
in
designing
a
trading
system.

The
potential
cost
savings
estimated
in
this
study
were
based
on
the
assumption
that
the
price
of
methyl
bromide
remains
at
the
2001
price,
which
was
$
8.8
to
$
11
per
kilogram.
However,
It
is
unlikely
that
the
price
of
methyl
bromide
in
2005
will
be
the
same
as
that
in
2001.
The
price
of
methyl
bromide
in
United
States
has
increased
approximately
300
percent
over
the
seven­
year
period
from
1995
to
2001
(
US
EPA,
2003a).
The
price
of
methyl
bromide
has
increased
due
to
the
decreased
production
levels
and
the
price
policies
of
suppliers.
The
potential
cost
savings
associated
with
marketable
permit
systems
will
be
smaller
if
the
price
of
methyl
bromide
increases
and
more
growers
switch
to
the
alternatives,
so
the
price
assumption
may
lead
to
overestimates
of
savings
from
trading.
The
cost­
effectiveness
of
a
marketable
permit
design
also
depends
on
the
total
amount
of
the
critical
use
exemption
allowed.

Smaller
amounts
of
total
methyl
bromide
in
CUEs
leads
to
lower
savings
and
a
narrower
market,
while
greater
amounts
of
CUEs
lead
to
a
broader
market
and
more
trading.
Similarly,
trading
across
sectors
leads
to
broader
markets
and
greater
impetus
to
trade.
One
factor
that
may
lead
to
underestimating
the
gains
from
a
trading
system
include
our
assumption
that
the
point
estimate
of
costs
for
a
portion
of
a
sector
is
representative
of
all
methyl
bromide
users
in
the
sector,
whereas
there
may
be
greater
heterogeneity
among
users.
Another
factor
is
heterogeneity
in
implicit
costs
of
adopting
methyl
bromide
alternatives
(
e.
g.,
transaction
costs,
R&
D)
that
would
lead
to
gains
from
trading.

Theoretically,
the
different
initial
allocation
of
the
permits
to
use
methyl
bromide
should
not
affect
the
efficient
outcome
of
the
permit
system.
No
one
would
be
worse
off
when
permit
trading
is
allowed.

Permits
could
correct
inefficiency
in
initial
allocation
because
trading
would
tend
to
allocate
methyl
bromide
to
users
with
the
highest
costs
of
adoption
alternatives.
Initial
allocation
can,
however,
affect
how
much
each
user
gains
or
losses
from
the
CUE
allocation
process,
as
well
as
the
transaction
costs
of
the
program.
Below
we
briefly
introduce
and
discuss
four
possible
options
for
allocating
initial
permits.

Each
option
varies
widely
in
the
method
and
amount
of
information
required
to
distribute
the
initial
allocation
of
permits.
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
184
­
Allocation
to
CUE
Applicants
In
this
option,
the
permits
could
be
allocated
to
the
individuals
or
organizations
submitting
CUE
applications
to
the
U.
S.
government,
based
on
the
U.
S.
nomination
affirmed
by
the
International
Parties
to
the
Montreal
Protocol.
CUE
applicants
who
incurred
significant
costs
in
applying
for
a
CUE
would
probably
favor
this
option,
which
implicitly
confers
to
them
a
property
right
to
the
initial
distribution
of
permits.
Methyl
bromide
users
not
represented
among
those
applicants
would
have
to
buy
permits
to
be
able
to
use
methyl
bromide.
Because
most
of
the
CUE
applicants
are
not
individual
users,
but
consortia
representing
many
users,
this
option
requires
a
process
to
distribute
the
permits
to
individual
users
in
each
consortium.
Permits
could
be
distributed
to
consortia
that
completed
CUE
applications,
and
the
consortia
might
distribute
permits
to
their
members.
However,
there
are
many
ways
consortia
could
use
to
make
distributions
to
members,
with
many
potential
equity
issues.
The
U.
S.
nomination
was
based
on
users
with
a
critical
need
for
methyl
bromide,
which
for
many
sectors
was
less
than
applicants'
request.

The
challenge
for
consortia
under
this
allocation
scheme,
therefore,
is
to
distribute
permits
to
members
with
a
critical
need
for
methyl
bromide
use,
recognizing
heterogeneity
among
members
in
a
consortium,

with
respect
to
costs
of
adopting
alternatives.

Allocation
by
Grandfathering
Permits
could
be
distributed
in
proportion
to
historical
use,
for
the
types
of
uses
and
regions
granted
a
CUE.
This
option
could
be
satisfactory
to
current
methyl
bromide
users,
but
would
reward
those
who
have
used
the
most
methyl
bromide
in
the
past.
Those
who
have
already
switched
to
methyl
bromide
alternatives
could
receive
fewer
permits
under
this
system.
This
option
would
provide
an
incentive
to
use
as
much
methyl
bromide
as
possible
now
in
order
to
get
the
most
permits.

Output­
based
Allocation
In
this
option,
permits
would
be
distributed
in
proportion
to
the
acres
grown
by
each
grower
of
a
crop
in
a
region.
For
post­
harvest
uses,
allocation
could
be
based
on
the
volume
of
commodity
treated
or
by
the
area
treated
(
for
structural
uses).
This
option
treats
all
users
equally
according
to
output,
but
not
necessarily
according
to
patterns
of
production
costs.
Users
who
already
switched
to
alternatives
would
be
rewarded
by
being
able
to
sell
their
permits.
However,
this
option
might
not
be
viewed
as
fair
by
others
who
attempt
to
buy
permits
to
supplement
their
initial
allocation.

Allocation
Auction
Permits
could
also
be
distributed
to
the
highest
bidder
among
those
uses
covered
by
the
CUE.

This
option
would
probably
lead
to
minimal
permit
trading,
if
any.
Some
users
may
object
to
bidding
for
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
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OR
ATTRIBUTE***

­
185
­
permits
after
incurring
the
cost
of
applying
for
the
CUE.
A
small
portion
of
auction
proceeds
could
be
to
applicants
to
offset
part
of
the
costs
of
applying
for
the
CUE,
or
a
portion
of
the
CUE
could
be
allocated
for
applicants,
again
to
offset
costs.

CONCLUSION
Marketable
permit
trading
for
methyl
bromide
critical
use
exemptions
could
significantly
reduce
economic
losses
to
current
methyl
bromide
users,
when
they
are
faced
with
adopting
less
effective
pesticide
alternatives.
The
effectiveness
of
marketable
permit
trading
largely
depends
on
the
four
factors;

1)
heterogeneity
in
the
incremental
costs
associated
with
alternatives,
2)
the
initial
allocation
of
the
critical
use
exemptions,
3)
price
of
methyl
bromide,
and
4)
total
amount
of
the
critical
use
exemption
allowed.

This
study
shows
that
there
are
considerable
variations
of
the
incremental
costs
among
the
methyl
bromide
uses,
and
that
this
could
lead
to
gains
from
trade
in
CUEs.
The
allocation
system
affects
the
distribution
of
gains
from
trade
(
but
not
overall
efficiency),
and
we
explored
several
different
options
for
allocation.
The
total
amounts
of
the
critical
use
exemptions
influence
the
total
size
of
potential
efficiency
gains.
The
potential
savings
of
marketable
permit
trading
to
methyl
bromide
critical
use
exemptions
are
likely
to
be
significant,
compared
to
a
fixed
allocation
system.
However,
the
size
of
the
savings
cannot
be
measured
accurately
until
the
allocation
and
the
total
amounts
of
the
critical
use
exemptions
are
determined
and
price
of
methyl
bromide
in
2005
can
be
reasonably
forecasted.
This
also
forms
the
basis
for
the
continued
research
in
this
area.
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
186
­
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S.
E.
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D.
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Lewis
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1974),
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Atkinson,
S.
E.
and
T.
H.
Tietenberg
(
1982),
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The
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121.

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S.
(
2001),
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Designing
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25(
2):
339­
403.

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D.
(
2002),
"
The
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Ecological
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42(
3):
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379.

Boots,
M.
(
2003),
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Green
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and
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in
the
Netherlands,"
Energy
Policy
31(
1):
43­
50.

Dinan,
T.
M.
(
1992),
"
Implementation
Issues
for
Marketable
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A
Case
Study
of
Newsprint,"
Journal
of
Regulatory
Economics
4(
1):
71­
87.

Kraemer,
A.
and
K.
M.
Banholzer
(
1999),
Ch.
IV
 
Tradable
Permits
in
Water
Resource
Management
and
Water
Pollution
Control,
Implementing
Domestic
Tradable
Permits
for
Environmental
Protection,
OECD,
Organization
for
Economic
Co­
Operation
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Development.

Morgan,
C.
L.
and
et
al.,
(
2001),
"
Tradable
Permits
for
Controlling
Nitrates
in
Groundwater
at
the
Farm
Level:
A
Conceptual
Model,"
Journal
of
Agricultural
and
Applied
Economics
32(
2).

Nielsen,
L.
and
T.
Jeppesen
(
2003),
"
Tradable
Green
Certificates
in
Selected
European
Countries
 
Overview
and
Assessment,"
Energy
Policy
31(
1):
3­
14.

Oates,
W.
E.,
P.
R.
Portney
and
A.
M.
McGartland
(
1989),
`
The
Net
Behavior
of
Incentivebased
Regulation:
A
Case
study
of
Environmental
Standard
Setting',
American
Economic
Review
79,
1233­
1242.

Schmalensee,
R.
and
P.
L.
Joskow
,
A.
D.
Ellerman,
J.
P.
Montero,
and
E.
M.
Bailey
(
1998),
"
An
Interim
Evaluation
of
Sulfur
Dioxide
Emissions
Trading,"
Journal
of
Economic
Perspectives
12(
3),
53­
68
Sprenger,
R.
 
U.
(
1999),
"
Designing
a
scheme
for
trading
non­
returnable
beverage
containers
in
Germany,"
UK,
Edward
Elgar
Publishing
Limited:
231­
254.

Stephenson,
K.
and
Shabman,
L.
(
2001),
"
The
Trouble
with
Implementing
TMDLs,"
Regulation
24(
1):
28­
32.

Tietenberg,
T.
H.
(
1995),
"
Tradable
Permits
for
Pollution
Control
when
Emission
Location
Matters:
What
have
we
Learned?"'
Environmental
and
Resource
Economics
5,
95­
113.
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
187
­
United
States
Environmental
Protection
Agency
(
2003a),
methyl
bromide
phase
out
website,

http://
www.
epa.
gov/
spdpublic/
mbr.

United
States
Environmental
Protection
Agency
(
2003b),
methyl
bromide
dockets
and
documents,

http://
cascade.
epa.
gov/
RightSite/
dk_
public_
home.
htm.

Table
1.
Total
Methyl
Bromide
Request
and
U.
S.
Nomination
for
each
sector
in
2005
Sector
Total
Request
by
Sector
(
kilograms)
U.
S.
Sector
Nomination
(
kilograms)

Fresh
Market
Tomatoes
5,233,521
2,865,262
Strawberries
2,893,763
2,468,873
Cucurbits1
1,187,773
1,187,773
Peppers
2,003,793
1,085,265
Orchard
Replant2
1,256,223
706,176
Food
Processing3
612,576
536,328
Turfgrass
791,427
352,194
Sweet
Potatoes
224,528
224,528
Forest
Seedlings4
454,289
192,515
Commodity
Uses5
135,828
87,753
Eggplant
163,173
73,565
Strawberry
Nursery
380,948
54,988
Orchard
Seedlings6
290,088
45,789
Ornamental
Nurseries7
267,461
29,412
Ginger
18,336
9,221
Tobacco
4,612
1,323
Total
15,918,339
9,920,968
Percentage
of
1991
Baseline
(
25,527,550)
62%
39%

1Cucurbits
represents
a
crop
group
that
includes
cucumbers,
melons,
cantaloupes,
honeydews,
watermelons,
and
various
squash
varieties.
2Orchard
replant
represents
stone
fruit
(
including
cherry,
peach,
nectarine,
plum,
and
prune),
almonds,
walnuts,
and
grapes.
3Food
Processing
represents
rice
milling,
flour
milling,
pet
food
manufacturing,
and
bakeries.
4Forest
Seedlings
represent
seedlings
of
conifers
and
hardwoods.
5Commodity
Uses
represent
dried
fruits,
nuts,
beans,
and
meat
warehouses.
6Orchard
Seedlings
represent
fruit
tree
nurseries
that
include
citrus,
peaches,
prunes,
nectarines,
cherries,
plums,
apples,
avocados,
pears,
ornamental
fruit
trees,
and
raspberry
nurseries.
7Ornamental
Nurseries
represent
chrysanthemum
propagative
material
and
nursery
roses.
***
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2006)
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OR
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­
188
­
Table
2.
The
Technically
Feasible
Alternatives
and
Economic
Losses
per
Kilogram
Sector
Technically
Feasible
Alternatives
Economic
Losses
per
Kilogram
of
Methyl
Bromide
Fresh
Market
Tomatoes
Chloropicrin;
1,3
D
+
Chloropicrin1;
1,3
D
+
Chloropicrin
+
Pebulate;
Metam
sodium
$
6.14
 
$
95.96
Strawberries
1,3
D
+
Chloropicrin;
1,3
D
+
Metam
sodium
$
17.28
 
$
46.72
Cucurbits
Metam
sodium
$
6.72
­
$
37.42
Peppers
1,3
D
+
Chloropicrin
$
4.15
 
$
20.02
Orchard
Replant
1,3
D;
1,3
D
+
Metam
sodium;
1,3
D
+
Chloropicrin
$
10.98
­
$
43.91
Food
Processing
Heat
treatment
$
71
­
$
602
Turfgrass
No
technically
feasible
alternatives
available
Not
available
Sweet
Potatoes
Fallow/
crop
rotation
$
9.02
Forest
Seedlings
Dazomet
w/
tarp;
Metam
sodium;
1,3
D
+
Chloropicrin
+
Pebulate;
$
7.71
­
$
45.32
Commodity
Uses
Phosphine
$
80
­
$
607
Eggplant
No
technically
feasible
alternatives
available
Not
available
Strawberry
Nursery
No
technically
feasible
alternatives
available
Not
available
Orchard
Seedlings
1,3
D
+
Metam
sodium;
1,3
D
+
Chloropicrin;
$
12.92
 
$
18.60
Ornamental
Nurseries
Steam
sterilization;
1,3,
D
+
hoeing
$
8.68
­
$
21.72
Ginger
Metam
sodium;
Fallow
$
20.19
Tobacco
No
technically
feasible
alternatives
available
Not
available
11,3­
D
is
also
known
as
1,3
Dichloropropene
and
is
also
sold
under
the
trade
name
Telone
®
.
***
DRAFT
(
1/
30/
2006)
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OR
ATTRIBUTE***

­
189
­

Table
3.
Cost
Savings
of
Marketable
Permit
Systems
Command
and
Control
System
Sectoral
Marketable
Permit
System
(
SMPS)
4
Uniform
Marketable
Permit
System
(
UMPS)
5
Incremental
Cost
to
the
Sector
in
1,000
$

Sector
2005
Request
in
1,000
kg
Reduction
in
Methyl
Bromide
use
in
1,000
kg
High
Cost
Scenario1
Average
Cost
Scenario2
Low
Cost
Scenario3
Reduction
in
Methyl
Bromide
use
in
1,000
kg
Incremental
Cost
to
the
Sector
in
1,000
$
Reduction
in
Methyl
Bromide
use
in
1,000
kg
Incremental
Cost
to
the
Sector
in
1,000
$

Commodity
135
47
$
14,745
$
7,531
$
3,752
47
$
3,752
0
$
680
Food
Processing
606
75
$
41,937
$
31,551
$
5,353
75
$
5,353
0
$
1,093
Forest
Seedling
443
262
$
4,353
$
3,671
$
2,549
262
$
2,549
364
$
2,344
Ginger
18
9
$
184
$
184
$
184
9
$
184
0
$
132
Orchard
Replant
1,091
384
$
16,883
$
12,539
$
4,560
384
$
4,560
374
$
4,258
Orchard
Seedling
290
244
$
3,424
$
3,382
$
3,164
244
$
3,164
244
$
3,161
Ornamental
Nurseries
267
238
$
5,142
$
4,804
$
4,758
238
$
4,758
32
$
3,266
Pepper
2,004
919
$
18,389
$
14,315
$
9,502
919
$
9,502
632
$
7,918
Strawberry
2,894
425
$
19,851
$
10,592
$
7,342
425
$
7,342
0
$
6,157
Tomatoes
5,234
2,368
$
52,272
$
31,615
$
14,541
2,368
$
14,541
3,327
$
6,539
Total
12,98
1
4,972
$
177,180
$
120,193
$
55,706
4,972
$
55,706
4,972
$
35,546
1
High­
cost
scenario
represents
the
case
when
all
the
permits
are
initially
allocated
to
the
applicants
with
lower
costs
in
each
sector.

2
Average­
cost
scenario
represents
the
case
when
all
the
applicants
in
each
sector
are
required
to
have
the
same
percentage
reduction
in
their
uses
of
methyl
bromide
to
meet
the
U.
S.
nominations
in
each
sector.

3
Low­
cost
scenario
represents
the
case
when
all
the
permits
are
initially
allocated
to
the
applicants
with
higher
costs
in
each
sector.

4
Sectoral
Marketable
Permit
System
(
SMPS)
allows
one­
to­
one
permit
trading
only
for
the
CUE
applicants
in
the
same
sector.

5
Uniform
Marketable
Permit
System
(
UMPS)
allows
all
the
CUE
applicants
freely
trade
their
methyl
bromide
permits
to
use
by
one­
to­
one
basis.
***
DRAFT
(
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30/
2006)
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OR
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­
190
­

Attachment
1.
The
Technically
Feasible
Alternatives
and
Economic
Losses
for
each
CUE
Application
in
2005
Sector
CUE
Application
Technically
Feasible
Alternatives
2005
Applicant
Requested
(
in
kilograms)
Economic
Losses
per
Kilogram
of
Methyl
Bromide
Tomato
#
1
Chloropicrin
52,348
$
95.96
Tomato
#
2
1,3
D
+
Chloropicrin
+
Metam
sodium
136,078
$
24.77
Tomato
#
2
1,3
D
+
Herbicide
453,592
$
29.59
Tomato
#
3
1,3
D
+
Chloropicrin
+
Pebulate
902,603
$
23.34
Tomato
#
4
1,3
D
+
Chloropicrin
3,326,644
$
6.14
Tomato
#
5
1,3
D
+
Chloropicrin
+
Pebulate
362,
257
$
18.10
Fresh
Market
Tomatoes
Total
kilograms
requested
:
5,233,521
Straw
#
1
1,3
D
+
Chloropicrin
2,041,164
$
17.28
Straw
#
2
1,3
D
+
Chloropicrin
272,908
$
35.83
Straw
#
3
1,3
D
+
Chloropicrin
579,691
$
46.72
Strawberries
Total
kilograms
requested
:
2,893,763
Cuke
#
1
Metam
sodium
28,187
$
37.42
Cuke
#
2
No
Technically
Feasible
Alternative
753,688
N/
A
Cuke
#
3
Metam
sodium
92,874
$
6.71
Cuke
#
4
No
Technically
Feasible
Alternative
67,224
N/
A
Cucurbits
Cuke
#
5
Metam
sodium
245,800
$
6.92
Total
kilograms
requested
:
1,187,773
Pepper
#
1
1,3
D
+
Chloropicrin
181,437
$
4.15
Pepper
#
2
1,3
D
+
Chloropicrin
112,445
$
6.69
Pepper
#
3
1,3
D
+
Chloropicrin
338,248
$
6.69
Pepper
#
4
1,3
D
+
Chloropicrin
1,371,662
$
20.02
Peppers
Total
kilograms
requested
:
2,003,793
***
DRAFT
(
1/
30/
2006)
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NOT
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OR
ATTRIBUTE***

­
191
­

Sector
CUE
Application
Technically
Feasible
Alternatives
2005
Applicant
Requested
(
in
kilograms)
Economic
Losses
per
Kilogram
of
Methyl
Bromide
OrchSeed
#
1
1,3
D
+
Chloropicrin
46,510
$
18.60
OrchSeed
#
2
1,3
D
+
Chloropicrin
224,528
$
12.92
OrchSeed
#
3
1,3
D
+
Chloropicrin
19,051
$
13.12
Orchard
Seedlings
Total
kilograms
requested
:
290,088
Food
#
1
Heat
Treatment
202,756
$
71
Food
#
2
Heat
Treatment
14,742
$
433
Food
#
3
Heat
Treatment
48,081
$
582
Food
#
4
Heat
Treatment
340,194
$
602
Food
Processing
Total
kilograms
requested
:
612,576
Turf
#
1
No
Technically
Feasible
Alternatives
680,388
N/
A
Turfgrass
Turf
#
2
No
Technically
Feasible
Alternatives
111,039
N/
A
Total
kilograms
requested
:
791,427
Sweet
Potato
SweetPot
#
1
Crop
rotation
224,
528
$
9.02
Forest
#
1
Dazomet
with
tarping
246,032
$
10.15
Forest
#
2
Dazomet
with
tarping
41,730
$
8.76
Forest
#
3
Dazomet
with
tarping
20,412
$
7.71
Forest
#
4
Dazomet
with
tarping
52,390
$
14.49
Forest
#
5
Dazomet
with
tarping
4,264
$
28.89
Forest
#
6
Dazomet
with
tarping
22,453
$
24.62
Forest
#
7
Dazomet
with
tarping
24,752
$
14.34
Forest
Seedling
Forest
#
8
Dazomet
with
tarping
33,112
$
34.61
***
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2006)
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­
192
­

Forest
#
9
Dazomet
with
tarping
9,144
$
45.32
Total
kilograms
requested
:
454,289
Sector
CUE
Application
Technically
Feasible
Alternatives
2005
Applicant
Requested
(
in
kilograms)
Economic
Losses
per
Kilogram
of
Methyl
Bromide
Commodity
#
1
No
Technically
Feasible
Alternative
181
N/
A
Commodity
#
2
Phosphine
12,088
$
218
Commodity
#
3
Phosphine
20,412
$
414
Commodity
#
4
Phosphine
4,536
$
607
Commodity
#
5
Phosphine
97,704
$
80
Commodity
#
6
No
Technically
Feasible
Alternative
907
N/
A
Commodity
Uses
Total
kilograms
requested
:
135,828
Eggplant
#
1
No
Technically
Feasible
Alternative
48,868
N/
A
Eggplant
#
2
No
Technically
Feasible
Alternative
114,305
N/
A
Eggplant
Total
kilograms
requested
:
163,173
StrawNurs
#
1
No
Technically
Feasible
Alternative
358,338
N/
A
Strawberry
Nursery
StrawNurs
#
2
No
Technically
Feasible
Alternative
22,611
N/
A
Total
kilograms
requested
:
380,948
OrchRep
#
1
1,3
D
+
Chloropicrin
716,449
$
43.91
OrchRep
#
2
No
Technically
Feasible
Alternative
165,561
N/
A
OrchRep
#
3
1,3
D
+
Chloropicrin
226,796
$
10.98
OrchRep
#
4
1,3
D
+
Chloropicrin
147,417
$
10.98
Orchard
Replant
Total
kilograms
requested
:
1,256,223
Ornamental
Ornament
#
1
Steam
sterilization
31,593
$
8.68
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
193
­

Ornament
#
2
1,3
D
+
hoeing
235,868
$
21.72
Nurseries
Total
kilograms
requested
:
267,461
Ginger
Ginger
Fallow
18,336
$
20.19
Tobacco
Tobacco
No
Technically
Feasible
Alternative
4,612
N/
A
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
194
­
Appendix
D:
Number
of
Entities
that
Applied
for
CUE
Applications
for
Critical
Use
Exemption
in
2002
were
submitted
by
groups
consisting
of
multiple
entities
(
e.
g.,
groups
of
crop
growers
or
commodity
producers).
These
groups,
termed
"
consortia,"

typically
represented
many
individual
entities
that
grew
similar
crops
or
produced
similar
commodities.
As
an
example
of
the
diverse
nature
of
consortia
(
as
opposed
to
individuals)
that
applied
for
CUE
in
2002,
in
the
southeastern
United
States
alone,
applications
were
submitted
by
the
Southeastern
Strawberry
Consortium,
the
Southeastern
Tomato
Consortium,
the
Southeastern
Cucurbit
Consortium,
the
Florida
Fruit
and
Vegetable
Association,
the
Auburn
University
Southern
Forest
Nursery
Management
Cooperative,
and
the
Georgia
Fruit
and
Vegetable
Growers
Association.
The
number
of
individual
entities
that
were
represented
in
each
2002
CUE
application
was
estimated
and
is
provided
in
Exhibit
1
below.

The
number
of
end
users
represented
by
each
group
or
consortia
application
was
estimated.

These
estimates
were
made
as
follows:

1)
56
CUE
applications
were
submitted
to
EPA
and
analyzed.

2)
Worksheet
5
of
each
CUE
application
that
was
nominated
for
receipt
of
methyl
bromide
for
CUE
was
consulted.
Worksheet
5
contained
a
section
for
consortia
to
indicate
the
number
of
users
represented
by
the
application,
and
the
range
of
acres
farmed
by
the
users.
The
number
of
end
users
indicated
in
this
section
was
tallied.

3)
For
consortia
and
other
groups
that
did
not
indicate
the
number
of
users
in
Worksheet
5,
an
estimate
of
the
number
of
entities
represented
in
the
application
was
made
based
on
Worksheet
1.
Worksheet
1
contained
a
section
that
requested
information
on
the
area
that
methyl
bromide
would
be
applied
to,

and
the
size
of
the
operation
of
a
"
representative
user"
within
the
application.
The
area
requested
for
methyl
bromide
application
was
then
divided
by
the
area
of
the
operation
of
a
typical
user
to
estimate
the
number
of
entities
represented
in
the
application.

4)
Numbers
of
entities
represented
in
the
CUE
applications
(
determined
by
Worksheets
1
or
5)
were
tallied.

Exhibit
1
provides
estimates
of
the
number
of
entities
in
each
sector
that
applied
for
methyl
bromide
for
CUE
in
2002.
Only
those
entities
that
applied
and
were
nominated
to
receive
methyl
bromide
for
CUE
are
included
in
the
exhibit.
***
DRAFT
(
1/
30/
2006)
DO
NOT
CITE,
QUOTE
OR
ATTRIBUTE***

­
195
­
Exhibit
1.
Approximate
Number
of
Entities
Applying
for
Methyl
Bromide
CUE
in
2002
Sector
Applicants
Number
of
Entities
Almond
Almond
Hullers
and
Processors
Association
10
Bean
California
Bean
Shippers
Association
6
Bell
Pepper
California
Pepper
Commission,
Florida
Fruit
and
Vegetable
Association
Solanaceous
Application,
Georgia
Fruit
and
Vegetable
Growers
Association,
Southeastern
Pepper
Consortium
8161
Citrus
and
Avocado
California
Association
of
Nurserymen
Citrus
and
Avocado
Growers
3
Cucumber
Georgia
Fruit
and
Vegetable
Growers
Association
7961
Cucurbits
Michigan
Cucurbit
Growers,
Southeastern
Cucurbit
Consortium
375
Deciduous
Fruit
&
Nut
Trees
California
Association
of
Nurserymen
Deciduous
Fruit
and
Nut
Tree
6
Dried
Plum
California
Dried
Plum
Board
60
Eggplant
Georgia
Fruit
and
Vegetable
Growers
Association
7961
Forest
Seedling
Auburn
University
Southern
Forest
Nursery
Management
Cooperative,
Illinois
Department
of
Natural
Resources,
International
Paper,
Michigan
Seedling
Association,
Nursery
Technology
Cooperative,
Western
Forest
and
Conservation
Public
Nursery
Association,
Weyerhaeuser
Company
120
Ginger
Hawaii
Farm
Bureau
Federation
7
Meat
Gwaltney
of
Smithfield
1
Melon
Georgia
Fruit
and
Vegetable
Growers
Association
7961
Milling
Kraft
Foods
North
America,
Inc.;
North
American
Millers'
Association;
Rice
Millers'
Association
3662
Pet
Food
Pet
Food
Institute
78
Pistachio
California
Pistachio
Processors
3
Raspberry
Western
Raspberry
Nursery
Consortium
7
Rose
Garden
Rose
Council
9
Squash
Georgia
Fruit
and
Vegetable
Growers
Association
7961
Stone
Fruit
California
Grape
and
Tree
Fruit
League)
90
Strawberry
California
Strawberry
Commission,
Florida
Fruit
and
Vegetable
Association,
Southeastern
Strawberry
Consortium
1,494
Strawberry
Nursery
California
Strawberry
Nursery
Association,
Southeastern
Strawberry
Consortium
19
Sweet
Potato
Sweet
Potato
Council
of
California
78
Table
and
Raisin
Grape
California
Grape
and
Tree
Fruit
League
5
Tobacco
Seedling
Tobacco
Growers
Association
of
North
Carolina
­­
63
Tomato
Florida
Fruit
and
Vegetable
Association,
Georgia
Fruit
and
Vegetable
Growers
Association,
Southeastern
Tomato
Consortium,
Michigan
Solanaceous
Crops,
Virginia
Tomato
Growers
349
Walnut
 
preharvest
California
Walnut
Commission
and
Walnut
Processing
Board
38
Walnut
 
post­
harvest
California
Walnut
Commission
and
Walnut
Processing
Board
51
TOTAL
3,218
61
Georgia
squash,
eggplant,
cucurbit,
and
melon
farm
numbers
(
79
in
each
application)
were
not
counted
in
the
total
because
they
were
a
repeat
of
the
number
of
Georgia
tomato
farms
represented.

62
Does
not
include
the
number
of
entities
represented
by
the
North
American
Millers
Association
because
insufficient
information
was
available
to
determine
this
value.
Only
the
Rice
Millers'
Association
and
Kraft
Foods
North
America,
Inc.
are
included
in
this
estimate.

63
The
farm
numbers
provided
in
the
application
(
7,730)
were
unreasonably
high
for
the
amount
of
methyl
bromide
requested
and
were
therefore
not
included
in
the
total
estimate.
