MEMORANDUM
TO:	Docket for rulemaking, "National Emission Standards for Hazardous Air Pollutants: Flexible Polyurethane Foam Fabrication Operations Residual Risk and Technology Review and Flexible Polyurethane Foam Production and Fabrication Area Source Technology Review" (EPA-HQ-OAR-2020-0572)
DATE: 	July 27, 2021
FROM:	Tess Petesch 
		US EPA/OAR/OAQPS/HEID/AEG
SUBJECT:	Economic Impact Analysis for Final Residual Risk and Technology Review of the National Emission Standards for Hazardous Air Pollutants for Flexible Polyurethane Foam Fabrication Operations 

      
      This memo summarizes the cost impacts of the U.S. Environmental Protection Agency's (EPA) final Residual Risk and Technology Review (RTR) of the National Emission Standards for Hazardous Air Pollutants (NESHAP) for Flexible Polyurethane Foam Fabrication Operations (40 CFR part 63 subpart MMMMM). The Flexible Polyurethane Foam Fabrication Operations source category consists of facilities engaged in cutting, gluing, and/or laminating pieces of flexible polyurethane foam (i.e., the post-processing of polyurethane foam, the production of which is a separate category). Flexible polyurethane foam is used in upholstered products such as furniture, automobiles, and some appliances. The EPA also conducted a technology review of the Flexible Polyurethane Foam Production and Fabrication Area Source rule (40 CFR part 63 subpart OOOOOO). 
      The revisions in the final RTR for Flexible Polyurethane Foam Fabrication Operations for the major source category (subpart MMMMM) include codifications of current practices, definition changes, and updates to the startup, shutdown, and malfunction provisions. The EPA is also adding a periodic Hydrochloric Acid (HCl) emissions performance testing requirement for flame laminators to be conducted once every five years, which will have cost impacts on two of the three major sources in the category. Only two of the three major sources perform flame lamination and are thus required to conduct the HCl emissions testing. The other major source has loop-slitter operations but does not perform flame lamination. In this memo we also estimate the costs of fulfilling several annual and periodic recordkeeping and reporting requirements and the one-time costs to review the rule changes and become familiar with the updated electronic reporting requirements.
      Area sources, which are affected by this rule through subpart OOOOOO, also may incur minimal costs related to reviewing the rule; however, the EPA did not quantify this cost. Such costs for area sources are expected to be small because they will not see any substantive changes to their requirements. 
      The costs presented in this memo are assumed to be upper bound estimates of the costs for the major source category because all three major sources emit HAP at low enough levels that they can reclassify as area sources due to the EPA's 2020 rule, "Reclassification of Major Sources as Area Sources Under Section 112 of the Clean Air Act," or "MM2A." If the major sources in this category reclassify as area sources, the EPA expects they will incur minimal to no costs due to this rule. However, since the EPA cannot be certain the major sources in this category will pursue and obtain area source status, we present the costs of the rule below assuming the three affected facilities remain major sources.
      See the workbook titled "Polyurethane Foam Final Economic Calculation Workbook" in the docket (EPA-HQ-OAR-2020-0572) for the cost inputs and calculations. The EPA estimates the cost of the HCl emissions testing requirement at about $6,000 per test. The two facilities affected by this requirement each have two flame lamination lines so the testing will cost $12,000 per facility in year 1 and every five years thereafter. The first year of testing is also assumed to require installation and calibration of equipment which is estimated to cost $3,200 per facility for the two affected facilities which perform flame lamination. This is a one-time expense. These estimates are based on EPA knowledge of historical testing costs. The other costs estimated in this analysis are categorized as `recordkeeping and reporting' costs in Table 1 below. These costs are related to becoming familiar with the regulatory requirements and the electronic reporting system (one-time costs in year 1 for all three facilities), the initial emissions performance test report (one-time cost in year 1 for two facilities), notifications of performance tests and compliance status (every five years for two facilities), and the semi-annual compliance reports and electronic reporting (annual for all three facilities). See the workbook for the labor and wage assumptions used to calculate these recordkeeping and reporting costs. 
      Table 1 summarizes the estimated costs in 2019 dollars for all three affected major source facilities over a 10-year time frame from 2022 to 2031 and shows the discounted stream of costs, net present value, and equivalent annualized value (EAV)  at 3% and 7% discount rates. The net present value of the estimated cost impacts of the rule over the 10-year time frame is about $121,000 at a 7% discount rate and about $135,000 at a 3% discount rate. The EAV of the estimated cost impacts are about $17,000 and $16,000, at 7% and 3% discount rates, respectively.
      
      
      
Table 1. Cost Impacts of Subpart MMMMM RTR from 2022 to 2031 (2019$)
                                     Year
                         Recordkeeping & Reporting
                             HCl Emissions Testing
                        Discounted stream of costs (7%)
                        Discounted stream of costs (3%)
                                     2022
                                   $19,040 
                                   $30,400 
                                    $49,440
                                    $49,440
                                     2023
                                    $7,757 
                                       
                                    $7,250
                                    $7,531
                                     2024
                                    $7,757 
                                       
                                    $6,775
                                    $7,312
                                     2025
                                    $7,757 
                                       
                                    $6,332
                                    $7,099
                                     2026
                                    $7,757 
                                       
                                    $5,918
                                    $6,892
                                     2027
                                   $12,928 
                                   $24,000 
                                    $26,329
                                    $31,855
                                     2028
                                    $7,757 
                                       
                                    $5,169
                                    $6,496
                                     2029
                                    $7,757 
                                       
                                    $4,831
                                    $6,307
                                     2030
                                    $7,757 
                                       
                                    $4,515
                                    $6,123
                                     2031
                                    $7,757 
                                       
                                    $4,219
                                    $5,945
                                                              Net present value
                                   $120,778 
                                   $135,001 
                                                    Equivalent annualized value
                                   $17,196 
                                   $15,826 

      The estimated cost impacts in this memo are higher than those estimated in the economic impact analysis for the proposed rule. The EPA updated several assumptions and included some additional costs which were omitted at proposal. The updated cost estimates are based on the ICR for the final rule. This final cost analysis is assumed to better reflect the true costs of this action, assuming the three affected major sources do not reclassify as area sources. As mentioned, the estimated costs are considered to be an upper bound estimate of the true potential costs because the three major sources can reclassify as area sources under MM2A, which would obviate the need for them to fulfill the major source requirements in this rule. Regardless of whether the affected facilities remain major sources or become area sources, the updated cost estimates are still minimal, therefore this rule is not anticipated to have market impacts. 
      The EPA conducted a small entity screening to determine whether small entities may be affected by this final rule and incur significant economic impacts. The EPA used publicly available information from the Hoover's, Inc. online database to identify the ultimate parent company for each affected facility as well as the company's NAICS code, number of employees, and annual revenues. 
      The three major sources affected by the rule are categorized under the Small Business Administration's (SBA) size standards for NAICS 326150: Urethane and Other Foam Product (except Polystyrene) Manufacturing.  The SBA defines an entity in NAICS 326150 as small if it has 750 or fewer employees. All three of the affected major source facilities are owned at the ultimate parent company level by FXI Holdings, Inc. In 2020, FXI Holdings had 4,150 employees and revenues of $1.1 billion; therefore, it is not a small entity as defined by the SBA. While the area source category contains facilities owned by small entities, area sources are expected to incur minimal to no costs due to the minor changes in this final rule that may affect them. Thus, this rule will not have a significant impact on a substantial number of small entities. 
