
MEMORANDUM

DATE:		March 5, 2018
TO: 		Friction Products Manufacturing Risk and Technology Review Docket, 
      Docket ID: EPA-HQ-OAR-2017-0358 
SUBJECT:	Economic Impact Analysis for Friction Material Manufacturing Proposal

Overview
This regulatory action proposes to eliminate the startup, shutdown, and malfunction (SSM) exemption included in the 2002 Friction Products Manufacturing NESHAP, consistent with the United States Court of Appeals decision in Sierra Club v. EPA 551 F.3d 1019 (D.C. Cir. 2008).  Eliminating the SSM exemption and related requirements to implement a SSM plan will remove requirements for annual recordkeeping and reporting of SSM events.  This action also proposes additional deviation reporting in the existing semiannual compliance report.  We also estimate that prior to the first year of compliance industry will expend time reading the new rule.  
Given these actions, we estimate this rule will result in a net cost savings to the industry as explained below. The equivalent annualized value (in 2016$) of these net cost savings over 2019 through 2027 is $6,461 per year when costs are discounted at a 7 percent rate, and $7,381 per year when costs are discounted at a 3 percent rate.

Impacts to Affected Entities
The proposed removal of the SSM exemption would result in the emissions standards in the rule applying at all times.  Based on discussions with affected entities, we believe facilities are already operating control technologies during all periods of operation and therefore would incur no costs associated with additional operation of controls.  
We also propose to eliminate the requirement for the development of a SSM plan.  The 2002 NESHAP required this SSM plan to be developed by the compliance date of October 18, 2005, for existing sources and October 18, 2002, for new or reconstructed sources, with no requirement for updates to the plan.  Because there is no requirement for updates, no cost savings are estimated for the proposed removal of this provision requiring initial development of a plan.
All affected facilities are anticipated to experience a small cost savings associated with the proposed removal of recordkeeping and reporting requirements specific to SSM events.  Currently, facilities are required to maintain SSM records, as outlined under 40 CFR § 63.9545(a)(2), and report on SSM events under §§ 63.9540(b)(4), 63.9540(c), and 63.9540(d).  
To estimate the cost savings associated with eliminating these annual recordkeeping and reporting requirements, information developed as part of the Information Collection Request (ICR) process as well as input from industry was consulted.[,]  Table 4 at the end of the document summarizes the 2014 ICR renewal burden estimates associated with the annual SSM reporting requirements that this action proposes to eliminate.  Industry input was utilized to estimate the burden associated with entering records of startup, shutdown, and malfunction.  These figures have been adjusted to reflect two responding facilities, and updated labor rates have also been used.
Labor rates were updated using the May 2016 National Occupational Employment and Wage Estimates for the United States.  Occupational code 51-8090 for miscellaneous plant and system operators was utilized to represent the rate for technical staff, code 11-1021 for general and operations managers was utilized for the managerial rate, and the clerical staff rate utilized occupational code 43-6010.  
Table 1. Wage Rate by Labor Category. (2016$)

BLS Mean Wage Estimate
                                     +110%
Clerical
                                    $19.39
                                    $40.72
Managerial
                                    $58.70
                                    $123.27
Technical
                                    $30.65
                                    $64.37

Based on the burden estimate and these wage rates, the proposed removal of the recordkeeping and reporting requirements specific to startup, shutdown, and malfunction would result in a total annual cost savings of $7,400. 
This regulatory action also proposes to require additional reporting in the semi-annual compliance report already required under this rule.  On any occasion where sources fail to meet an applicable standard it is proposed facilities report the number, date, time, duration, and cause of the emissions deviation (if known); as well as the affected source(s) or equipment, an estimate of the quantity of each regulated pollutant emitted over any emission limit, and a description of the method used to estimate the emissions.  The ICR associated with this rulemaking was consulted to estimate the burden associated with this additional reporting.  Table 5 summarizes these calculations, resulting in an estimated annual cost of $43.  
We have also estimated the one-time cost of a facility reading this rule and understanding its requirements, based on the ICR burden estimates associated with this rulemaking.  Given two affected entities will need to review this rule, a total of 9 technical hours, 0.45 management hours, and 0.9 clerical hours were allocated for reading, at a total cost of $671.  These calculations are summarized in Table 6 at the end of the document.
Present Value Analysis
In implementing Executive Order 13771 the Office of Management and Budget has requested agencies calculate the present value in 2016 of the costs or cost savings of an action using both 7 percent and 3 percent end-of-period discount rates.  OMB directs this present value be calculated over the full duration of the expected effects of the action.  For this proposed rule, an eight-year time period was selected as section 112 of the Clean Air Act requires standards to be reviewed every 8 years.  A 180-day compliance date is proposed, so compliance is projected to begin in 2019 as this rule is expected to be finalized by December 31, 2018.
Table 2 below shows the undiscounted stream of costs and costs savings per year, as well as their present values discounted to 2016. As seen in the table, we assume that the year before compliance begins industry will read the new regulation. Beginning in 2019, the first year of compliance, industry will incur an estimated $43 in additional costs related to deviation reporting, as described above.  Also in 2019 industry will no longer have to submit SSM reports, resulting in an annual cost savings of $7,400.  
Table 2. Undiscounted Costs, Cost Savings and Present Value Analysis. (2016$)
Year
                                     Cost
                                 Cost Savings
                               Net Cost Savings 
2018  -  Pre-compliance
                                     $671
                                       
                                     -$671
2019  -  Compliance Begins
                                      $43
                                     $7400
                                     $7358
2020
                                      $43
                                     $7400
                                     $7358
2021
                                      $43
                                     $7400
                                     $7358
2022
                                      $43
                                     $7400
                                     $7358
2023
                                      $43
                                     $7400
                                     $7358
2024
                                      $43
                                     $7400
                                     $7358
2025
                                      $43
                                     $7400
                                     $7358
2026
                                      $43
                                     $7400
                                     $7358
2027
                                      $43
                                     $7400
                                     $7358
2016 Present Value (7%)
                                     $774
                                    $39,358
                                    $38,583
2016 Present Value (3%)
                                     $918
                                    $52,730
                                    $51,813

Table 3 summarizes the present value in 2016 of the net cost savings, accounting for the additional compliance costs to industry, as well as the equivalent annualized values over the chosen 8-year time frame. The equivalent annualized value is the annualized present value of net cost savings. Note that the values in Table 3 are cost savings as the regulatory requirements proposed for removal are estimated to relieve more burden than the new requirements impose.  
Table 3.  2016 Present Value of Net Cost Savings and Equivalent Annualized Values. (2016$)

                            2016 Present Value of 
                               Net Cost Savings
                            Equivalent Annualized 
                               Net Cost Savings
7% Discount Rate
                                    $38,583
                                    $6,461
3% Discount Rate
                                    $51,813
                                    $7,381

Small Business Impacts Analysis
This proposed rule will not affect any small businesses.  Additionally, this proposal would provide cost savings to industry by removing requirements under the current rule related to startup, shutdown, and malfunction.  An agency may certify that a rule will not have a significant economic impact on a substantial number of small entities (SISNOSE) if the rule relieves regulatory burden, has no net burden, or otherwise has a positive economic effect on the small entities subject to the rule.  As this rule has no net burden, there is no significant impact on a substantial number of small entities.


Table 4.  Annual Cost Savings from Removal of Startup, Shutdown, and Malfunction Requirements. (2016$)
Burden Item
(A)
Person-Hours per Occurrence
(B)
No. of Occurrences per respondent per year
(C)
Hours per respondent per year
(=A*B)
(D)
Respondents per year
(E)
Technical Hours per year
(=C*D)
(F)
Management Hours per year
(=E*0.05)
(G)
Clerical Hours per year
(=E*0.1)
Cost
Startup, shutdown, malfunction report[(a)]
                                       8
                                       2
                                      16
                                      0.2
                                      3.2
                                     0.16
                                     0.32
                                     $239
Entering records of startup, shutdown, malfunction[(b)]
                                       8
                                       6
                                      48
                                       2
                                      96
                                      4.8
                                      9.6
                                    $7,162
Total Cost Savings
                                       
                                       
                                       
                                       
                                       
                                       
                                       
                                    $7,400
 The 2014 ICR estimate assumed that 10 percent of respondents will have a startup, shutdown, or malfunction occur that is not managed according to the regulation.  Given that there are 2 affected entities, this results in an estimate of 0.2 respondents per year.
 Assumes that information would be entered six times per year, requiring 8 person-hours each time.
Table 5.  Annual Costs Associated with Additional Deviation Reporting Requirements. (2016$)
Burden Item
(A)
Person-Hours per Occurrence
(B)
No. of Occurrences per respondent per year
(C)
Hours per respondent per year
(=A*B)
(D)
Respondents per year
(E)
Technical Hours per year
(=C*D)
(F)
Management Hours per year
(=E*0.05)
(G)
Clerical Hours per year
(=E*0.1)
Cost
Additional Req'ments in semiannual Report of Deviation[(a)]
                                       1
                                       2
                                       2
                                      0.3
                                      0.6
                                     0.03
                                     0.006
                                      $43
Total Cost 
                                       
                                       
                                       
                                       
                                       
                                       
                                       
                                      $43
 The ICR estimates that 15 percent of respondents will report deviation.
Table 6.  One-Time Cost of Reviewing Revised Rule. (2016$)
Burden Item
(A)
Person-Hours per Occurrence
(B)
No. of Occurrences per respondent per year
(C)
Hours per respondent per year
(=A*B)
(D)
Respondents per year
(E)
Technical Hours per year
(=C*D)
(F)
Management Hours per year
(=E*0.05)
(G)
Clerical Hours per year
(=E*0.1)
Cost
Familiarize with requirements[(a)]
                                      4.5
                                       1
                                      4.5
                                       2
                                       9
                                     0.45
                                      0.9
                                     $671
Total Cost 
                                       
                                       
                                       
                                       
                                       
                                       
                                       
                                     $671
  This estimate of the person-hours needed to read instructions is the total of the ICR estimate associated with this rulemaking.  


