U.S. Environmental Protection Agency
Office of Air Quality Planning and Standards
March 2013
Economic Impact and Small Business Analysis  -  Proposed Wool Fiberglass Area Source NESHAP
	This report is the economic impact analysis for the proposed Wool Fiberglass Manufacturing area source standard.   This standard is scheduled to be proposed under a settlement agreement on March 15, 2013. The report presents impacts to firms affected by the requirements in the proposed rule and also 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).  
The rule includes emissions limits for furnaces, test methods, startup/shutdown provisions, and other requirements.  For more information on this regulatory action, please refer to the preamble for this action. 
Wool fiberglass 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%.  We use economic data for 2011 in this analysis in order to be consistent with the year dollars for the costs (2011).  

      This economic impact analysis identified the businesses that will be affected by this rule using information from the cost memo for this proposal, and provides an analysis at a screening level to help estimate the rule's economic impact on affected businesses and their consumers.  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.  
      In the next section is background information on the wool fiberglass industry, and impact results then follow. 
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, borides and soda ash. Other ingredients may include calcined alumina, borides, 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. 
      There are three parent firms owning these facilities with major HAP sources that will incur costs as a result of this proposal, and these firms are shown in Table 1.  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 eight gas-fired furnaces located at five facilities. Three of these eight furnaces do not meet the proposed chromium compounds emission limit; the remaining five furnaces currently meet the limit but would incur compliance testing costs because they meet the applicability requirements of the proposed rule (i.e., they are gas-fired glass-melting furnaces). We have estimated the add-on control cost impact for those affected facilities (three furnaces) 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. Guardian and Johns-Manville (owned by Berkshire-Hathaway) are wool fiberglass producers who are expected to incur no compliance costs as a result of this proposal as shown in the cost memo for this proposal.  None of these firms affected by the proposal 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), for all of these firms have in excess of 10,000 employees as of 2011.     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.  Table 1 provides the annualized compliance 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 Area Source Rule, their Revenues and Costs Incurred from the Proposed Area Source Rule, and Economic Impacts from this Area Source Rule
Wool Fiberglass Firm 
Annual Revenues in 2011 (billions)
Total Annualized Costs (2011 dollars)[e]
Annualized Costs as a Percentage of Annual Revenues in 2011
Owens Corning
                                                                      $5.30[c] 
                                                                               
                                                                       $140,000
                                                                               
                                                                          0.003
 Certain Teed (owned by Saint-Gobain)
                                                                  $56.31[a,][b]
                                                                               
                                                                               
                                                                         20,000
                                                                               
                                                                               
                                                                       0.000004
Knauf Group (owned by Gebr. Knauf Verwaltungsgesellschaft KG)
                                                                       $3.02[d]
                                                                               
                                                                               
                                                                               
                                                                               
                                                                        220,000
                                                                               
                                                                               
                                                                               
                                                                               
                                                                          0.007
[a] Taken from   http://www.irs.gov/Individuals/International-Taxpayers/Yearly-Average-Currency-Exchange-Rates.  Conversion from euros uses euro to U.S. dollar value as an average for all of 2011.  The conversion from euro to U.S. dollar value for 2011 is 0.748.  That is, 0.748 euro = $1.  
 [b] Taken from 2011 annual report for Saint-Gobain, Inc., found at    http://www.saint-gobain.com/files/Saint-Gobain-annual-report-2011.pdf,  p. 4.    
[c] Taken from http://investor.owenscorning.com/phoenix.zhtml?c=71581&p=irol-IRHome.  
[d]http://www.investorpoint.com/stock/USG-Usg+Corp./income-statement/. 

 [e]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 Area Source Rule," March 12, 2013.

	The economic impact on these firms, measured in annual compliance costs as a percent of sales or revenues, is less than 0.01 percent for each of the affected parent firms based on using the most current year for available revenue data.    The total annualized costs of the proposed rule to the wool fiberglass industry are $380,000 (2011 dollars).  
      To examine impacts on price and output from this proposal in an illustrative way, we use estimates of the price elasticity of demand and supply for this industry.  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 0.01 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 0.01 percent. Hence, the overall economic impact of this proposed rule should be relatively low on the affected industry and its consumers.  It should be noted that the wool fiberglass firms mentioned above that are expected to not incur any costs as a result of this proposal will experience some increase in revenues to the extent that wool fiberglass prices increase as a response to this proposal.  For more information on the compliance costs, please refer to the cost memo for this proposed rule. 
	For the proposed rule, 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 impacted by this rule as shown in the impact results presented in this economic impact and small business impact analysis, and that no wool fiberglass manufacturer is a small business.   
      	

