U.S. Environmental Protection Agency
Office of Air Quality Planning and Standards
March 2013
Economic Impact and Small Business Analysis  -  Proposed Mineral Wool and Wool Fiberglass RTR NESHAPs
	This report is the economic impact analysis for the proposed Mineral Wool Production and Wool Fiberglass Manufacturing Risk and Technology Review (RTR) standards.   These standards are to be proposed on March 15, 2013. Promulgation of these standards is scheduled to occur on January 30, 2014.  The report presents impacts to firms affected by the requirements in the proposed rules and their consumers.   Impacts to small firms are accounted for in adherence to the Regulatory Flexibility Act as amended by the Small Business Regulatory Enforcement Fairness Act (SBREFA).  These industries are found in NAICS 327993.
 On November 25, 2011 the EPA proposed revisions to the Mineral Wool and the Wool Fiberglass Manufacturing NESHAP, 40 CFR part 63, subparts DDD and NNN, respectively, to address the results of the RTR that the EPA is required to conduct under sections 112(d)(6) and 112(f)(2)(76 FR 72812). The limits in those proposed amendments would apply only to major sources, that is, sources emitting at least 10 tons per year of a single HAP or 25 tons per year of any combination of HAP; area sources emit less than this amount.

In the November 2011 proposal, the Agency noted that since promulgation of the 1999 NESHAP, sources had modified certain processes by using HAP-free binders instead of phenolic-formaldehyde binders (76 FR 72777). When a facility completely phases out its use of phenol-formaldehyde binders it generally becomes an area source because it no longer has the potential to emit at least 10 tons per year of a single HAP or 25 tons per year of any combination of HAP. While 20 of the existing 30 wool fiberglass facilities have become area sources through the phase-out of phenol/formaldehyde in the binders, the furnaces at these sources continue to emit chromium and other HAP metal compounds. This demonstrates that emissions from furnaces are completely separate and independent from emissions on bonded lines. Further, while replacement of phenol/formaldehyde binders with non-HAP binders is an environmentally responsible, or `green' choice within the wool fiberglass manufacturing industry, furnaces at area sources may continue to emit chromium and other HAP metal compounds which are not currently required to be reduced by any regulation. 

While subpart NNN applies to wool fiberglass manufacturing facilities that are major sources, today's proposed rulemaking would also apply to gas-fired furnace operations at wool fiberglass manufacturing facilities that are area sources. Sources in the wool fiberglass manufacturing category that have reduced their HAP emissions below major source levels (10 tons per year of a single HAP or 25 tons per year of any combination of HAP) are not subject to the major source rule (subpart NNN). When those sources also operate gas-fired furnaces, they would be subject to this proposed area source rule (subpart NN).  The economic impact analysis for this proposed area source wool fiberglass rule is in a separate report that is part of this rulemaking package.  

The Mineral Wool Production amendments include emissions limits for carbonyl sulfide, formaldehyde, phenol and methanol and the addition of combined collection and curing processes as new regulated sources. 
             The amendments for Wool Fiberglass Manufacturing include emissions limits for phenol, methanol, chromium compounds, and particulate matter, revised emissions limits for formaldehyde, and work practice standards for hydrogen fluoride and hydrochloric acid.  For more information on this regulatory action, please refer to the preamble for this action.

Background on Mineral Wool Industry
	Mineral wood often is defined as any fibrous glassy substance made from minerals or mineral products such as slag and glass. The chemical composition of mineral wool can vary widely.   The basic materials for glass wool manufacture include sand, soda ash, dolomite, limestone, sodium sulfate, sodium nitrate, and minerals containing boron and alumina.  Traditional stone wool production involves melting a combination of alumino-silicate rock (usually basalt), blast furnace slag, and limestone or dolomite.  In addition, for both glass and stone wool the batch may contain recycled process or product waste.  For glass wool, other forms of waste glass (cullet) are also used as feedstock.  
	These materials are processed into insulation and other fibrous building materials that are used for structural strength and fire resistance.  Generally, these products take one of four forms:  "blowing" wool or "pouring" wool, which is put into the structural spaces of buildings; batts, which may be covered with a vapor barrier of paper or foil and are shaped to fit between the structural members of buildings; industrial and commercial products such as high-density fiber felts and blankets, which are used for insulating boilers, ovens, pipes, refrigerators, and other process equipment; and bulk fiber, which is used as a raw material in manufacturing other products, such as ceiling tile, wall board, spray-on insulation, cement, and mortar.  
	Glass wool and stone wool production make use of different proprietary technologies, including melting, fiberizing and curing.   Production of mineral wool is a high temperature, energy intensive process.  Mineral wool plants use a mix of technologies and fuels:  a total of 11 proprietary fiberizing technologies are employed worldwide.  Glass wool furnaces are predominantly gas fired, but there are a substantial number of furnaces that are electrically heated.   
In the production of mineral wool products that do not require high rigidity, oil is typically applied to suppress dust and add some strength to the fiber; the fiber is then sized and bagged or baled. This is known as a "nonbonded" product which is manufactured on a "nonbonded" production line.  

For mineral wool products requiring a higher structural rigidity, a HAP-based (phenol/formaldehyde) binder may be applied to the fiber. This is known as a "bonded" product made on a bonded production line. The binder-laden fiber mat is then thermoset in a curing oven and cooled. The major differences between the "nonbonded" and bonded production lines are the application of binder during the collection process followed by the curing oven. Four facilities only manufacture nonbonded products, while the other 3 facilities operate both bonded and nonbonded production lines. A total of 11 cupolas and 3 curing ovens are operated by the facilities in this source category. 

As mentioned previously, mineral wool manufacturing facilities are included in NAICS 327993.     The industry's revenue for 2011 was $5.1 billion, and the estimated gross profit was 40.15%.  Exports from US mineral wool firms exceeded imports by about $330 million in 2011.  According to the size definition applied to this industry by the U.S. Small Business Administration (750 company employees or less), five of the seven parent firms in this industry affected by this proposed  rule are classified as small businesses.   Of the five small firms, their average number of employees is 108.   All of these firms are U.S. owned except for Roxul USA.  Roxul USA is a subsidiary of a Danish company, Rockwool International, which is the world's largest producer of mineral wool insulation.  Roxul USA's facility, which is located in Mississippi, is slated to begin mineral wool production in 2014.  

      This analysis identified the businesses that will be affected by this rule and provides an analysis at a screening level to assist in determining whether this rule is likely to impose a significant economic impact on affected businesses.  The analysis employed here is a "sales test" that computes the annualized compliance costs as a share of sales for each company. The annualized cost per sales for a company represents the maximum price increase in affected product needed for the company to completely recover the annualized costs imposed by the regulation.  
      The "sales test" is the impact methodology EPA employs in economic impact analysis such as this one as opposed to a "profits test", in which annualized compliance costs are calculated as a share of profits.  This is because revenues or sales data are commonly available data for entities normally impacted by EPA regulations and profits data normally made available are often not the true profits earned by firms due to accounting and tax considerations.  Firms and entities often have ways legally available in the tax code to minimize their reported profits; thus, using reported profits may lead to a less than accurate estimate of the economic impact of a regulation to an affected firm or entity and their consumers.   While screening level analyses are often employed to estimate impacts to small business or entities as part an analysis in compliance with the Regulatory Flexibility Act (RFA) as amended by the Small Business Regulatory Enforcement Fairness Act (SBREFA), a screening level analysis can also be employed in an economic impact analysis such as this one whose focus is on the regulated companies. 
For these firms, the impacts of the final rule range from 0.006 percent to 0.1 percent, expressed as annual compliance costs as a percent of sales.  The price elasticity of demand for the mineral wool industry is estimated at -0.8, and the price elasticity of supply for the industry is estimated at -0.7.  With the responsiveness of mineral wool demand and supply to be less in percentage terms than the change in product price as approximated by the cost to revenue ratio, since this ratio is the maximum price change that producers may face, and with this ratio at or below 1 percent for the majority of production from this industry, it is expected that mineral wool price and output changes in response to this final rule will be less than 1 percent.  The total annual compliance costs of the current proposed rule for this industry are $59,200 2011 dollars).  Since confidential business information (CBI) provided by the subject firms has been used to estimate these impacts, we will not provide the names of the affected firms nor provide impact estimates by firm.  
Background on the Wool Fiberglass Industry	
      Wool fiberglass is a thick, fluffy material made from discontinuous fibers, is used for thermal insulation and sound absorption. It is commonly found in ship and submarine bulkheads and hulls; automobile engine compartments and body panel liners; in furnaces and air conditioning units; acoustical wall and ceiling panels; and architectural partitions. Fiberglass can be tailored for specific applications such as Type E (electrical), used as electrical insulation tape, textiles and reinforcement; Type C (chemical), which has superior acid resistance, and Type T, for thermal insulation. 
      
	The basic raw materials for fiberglass products are a variety of natural minerals and manufactured chemicals. The major ingredients are silica sand, limestone, and soda ash. Other ingredients may include calcined alumina, borax, feldspar, nepheline syenite, magnesite, and kaolin clay, among others. Silica sand is used as the glass former, and soda ash and limestone help primarily to lower the melting temperature. Other ingredients are used to improve certain properties, such as borides for chemical resistance and ductability. Waste glass, also called cullet, is also used as a raw material and may be `internal' from the production of fiberglass or may be `external' from glass recycling. The raw materials must be carefully weighed in exact quantities, their chemical compositions evaluated, and thoroughly mixed together (called batching) before being melted into glass for the manufacture of fiberglass. 
      The costs used as input to the economic impact analysis include the cost of emissions control and the costs of monitoring, recordkeeping, reporting and testing.  These are the full cost of compliance estimated by EPA for this proposed rule. Based on emissions test data received, we estimate that there are currently two furnaces located at a single facility that cannot meet the chromium compounds emission limit.  We have estimated the cost impact for that facility based on the installation of a sodium hydroxide (NaOH) scrubber to remove chromium compounds from the furnace exhaust stream(s). The capital equipment cost was estimated to be $250,000 for each unit (scrubber) with an annual operation cost of $100,000 per unit. The highest chromium compound emitting furnace was idled in December 2011 and the company indicated that it may be re-built prior to being brought back on-line.
      This economic impact analysis identified the businesses that will be affected by this rule and provides an analysis at a screening level to assist in determining whether this rule is likely to impose a significant economic impact on affected businesses.  The analysis employed here is a "sales test" that computes the annualized compliance costs as a share of sales for each company. The annualized cost per sales for a company represents the maximum price increase in affected product needed for the company to completely recover the annualized costs imposed by the regulation.  This is the same methodology employed for economic impact analysis for the mineral wool industry, shown earlier in this report.
      The "sales test" is the impact methodology EPA employs in economic impact analysis such as this one as opposed to a "profits test", in which annualized compliance costs are calculated as a share of profits.  This is because revenues or sales data are commonly available data for entities normally impacted by EPA regulations and profits data normally made available are often not the true profits earned by firms due to accounting and tax considerations.  Firms and entities often have ways legally available in the tax code to minimize their reported profits; thus, using reported profits may lead to a less than accurate estimate of the economic impact of a regulation to an affected firm or entity and their consumers.   While screening level analyses are often employed to estimate impacts to small business or entities as part an analysis in compliance with the Regulatory Flexibility Act (RFA) as amended by the Small Business Regulatory Enforcement Fairness Act (SBREFA), a screening level analysis can also be employed in an economic impact analysis such as this one whose focus is on the regulated companies. 
      As mentioned earlier, wool fiberglass facilities are also included in NAICS (North American Industrial Classification System) 327993 along with mineral wool facilities.   There are five parent firms owning these facilities with major HAP sources affected by this proposal, and these firms are shown in Table 1.  None of these firms is a small business as defined by the SBA (750 employees or less for an ultimate parent company, as mentioned earlier for the relevant NAICS code).     Each of these firms has revenues in excess of $3 billion in 2011, as shown in Table 1.   All of the firms are owned by parent companies based in the U.S. except for CertainTeed, which is owned by Saint-Gobain, a French conglomerate, and Knauf, Inc., which is owned by Gebr. Knauf Verwaltungsgesellschaft) KG,  a German conglomerate.  Table 1 provides the annualized costs and economic impacts to the affected firms from this proposed rule.  EPA used no CBI in generating economic impacts for this industry. 	
Table 1:  Wool Fiberglass Firms that Are Affected by the Proposed Rule, their Revenues and Costs Incurred from the Proposed Rule, and Economic Impacts from this Rule
Wool Fiberglass Firm 
Annual Revenues in 2011 (billions)
Total Annualized Costs (2011 dollars)[f]
Annualized Costs as a Percentage of Annual Revenues in 2011
Owens Corning
$5.30[c]
                                       
                                   $324,400
                                       
                                     0.006
Johns Manville (owned by Berkshire-Hathaway)
                                  $143.69[d]
                                       
                                       
                                    386,000
                                       
                                       
                                    0.0003
 Certain Teed (owned by Saint-Gobain)
                                   $56.31[b]
                                       
                                       
                                    223,000
                                       
                                       
                                    0.0004
Guardian, Inc.
                                   $5.60[e]
                                       
                                    266,800
                                       
                                     0.005
Knauf, Inc. (owned by Gebr. Knauf Verwaltungsgesellschaft) KG
                                     $3.02
                                       
                                       
                                       
                                       
                                    10,200
                                       
                                       
                                       
                                       
                                   0.000003
[a] Taken from http://www.reuters.com/article/2011/07/22/idUS50641+22-Jul-2011+BW20110722.  Conversion from euros uses euro to U.S. dollar value as of August 15, 2011.
[b]Taken from 2011 annual report for Saint-Gobain, Inc., found at   http://www.saint-gobain.com/files/Rapport_annuel_2011_EN.pdf, p. 6.    Conversion from euros uses euro to U.S. dollar value as of August 15, 2011.
[c] Taken from http://investor.owenscorning.com/phoenix.zhtml?c=71581&p=irol-IRHome.  
[d] Taken from the 2011 Berkshire-Hathaway annual report athttp://www.berkshirehathaway.com/2011ar/2011ar.pdf, p. 24.  
[e] Revenues available at http://www.insideview.com/directory/guardian-industries-corp.  

f Costs are taken from RTI International to U.S. EPA/OAQPS/SPPD/NRG, "Estimated Cost Impact for Wool Fiberglass Manufacturing Industry to Comply with Proposed  Residual Risk and Technology Review (RTR) Amendments Wool Fiberglass Manufacturing RTR," March 12, 2013.

	The economic impact on these wool fiberglass firms, measured in annual compliance costs as a percent of sales or revenues, is less than 0.007 percent for each affected parent firm based on using available revenue data for 2011 to be consistent with the year for the cost estimates.    The total annualized costs of the proposed rule to the wool fiberglass industry are $1,210,000 (2011 dollars).  The price elasticity of demand for the wool fiberglass industry is estimated at -0.8, and the price elasticity of supply for the wool fiberglass industry is estimated at -0.7.  With the responsiveness of wool fiberglass demand and supply at less than 1:1 compared to a price change of 1 percent, and with the change in product price as approximated by the cost to revenue ratio at less than 0.1 percent, for this ratio is the maximum price change that producers may face, it is expected that wool fiberglass price and output changes will be less than 0.1 percent. Hence, the overall economic impact of this proposed rule should be low on the affected industry and its consumers.
       The total annualized costs of the proposed RTR rules for the mineral wool and wool fiberglass manufacturing categories together are $1,270,000 (2011 dollars).  For more information on the compliance costs (i.e., the costs of control + the costs of monitoring, testing, and other administrative costs), please refer to the cost memos for this rule for these industries. 
	For the proposed rules, we find that we can certify that there is not a significant impact on a substantial number of small entities (or SISNOSE).  This is based on no small firm being significantly impacted by this rule as shown in the impact results presented in this economic impact and small business impact analysis.  We include all small firms affected by this rule in the determination of this conclusion.  Of the eleven firms affected by these two rules, five mineral wool companies are small firms, and none of the small firms is affected significantly.  All of these small firms are mineral wool manufacturers; no wool fiberglass manufacturer is a small business.  Since the proposed area source rule for wool fiberglass manufacturing does not impact small businesses, the Agency can provide a certification of no SISNOSE for the entire rulemaking in today's action.
      Although these proposed rules would not have a significant economic impact on a substantial number of small entities, the EPA nonetheless has tried to reduce the impact that these rules would have on small entities. The actions we are proposing to take to reduce impacts on small businesses include less frequent compliance testing for the entire mineral wool industry and subcategorizing the Mineral Wool Production Source Category in developing the proposed COS, HF and HCl emissions limits.
      A Small Business Regulatory Enforcement Fairness Act (SBREFA) panel was convened for the proposed rules for the earlier 2011 RTR proposal based on anticipated significant impacts to affected small businesses (all of these businesses are mineral wool producers).  Details of the findings and conclusions of this panel can be found in the report of the panel in the docket for this rulemaking and are summarized in the preamble for the proposed rule.  
      	

