January 27, 2012

NESHAP for Mercury Cell Chlor-Alkali Plants

Proposed Rule
Summary

Score: 27 / 60

Additional details
Agency
Environmental Protection Agency
Regulatory Identification Number
2060-AN99
Agency Name
Environmental Protection Agency
Rule Publication Date
03/14/2011
Comment Closing Date
04/13/2011
Dollar Year
2007
Time Horizon (Years)
20

RULE SUMMARY

Proposed new standards either to prohibit the use of mercury in chlorine production or to adopt new safety standards to reduce leakage.

MONETIZED COSTS & BENEFITS (AS REPORTED BY AGENCY)

Dollar Year
2007
 
Time Horizon (Years)
20
 
Discount Rates
3%
7%
Expected Costs (Annualized)
$13 million
$13 million
Expected Benefits (Annualized)
$22 - $43 million
$21 - $40 million
Expected Costs (Total)    
Expected Benefits (Total)    
Net Benefits (Annualized)    
Net Benefits (Total)
$9-$3 million
$8-$27 million

METHODOLOGY

There are twelve criteria within our evaluation within three broad categories: Openness, Analysis and Use. For each criterion, the evaluators assign a score ranging from 0 (no useful content) to 5 (comprehensive analysis with potential best practices). Thus, each analysis has the opportunity to earn between 0 and 60 points.

Criterion Score

Openness

1. How easily were the RIA , the proposed rule, and any supplementary materials found online?
The RIA is available at regulations.gov by searching the docket or by searching the EPA's website for the RIN and following intuitive links.
5/5
2. How verifiable are the data used in the analysis?
Some of the data are from peer-reviewed literature and other data are from EPA technical support documents or previous regulations, which are usually linked.
4/5
3. How verifiable are the models and assumptions used in the analysis?
Some of the assumptions are from peer-reviewed data. A considerable number are from EPA publications, which are usually linked. Some key assumptions, such as the reduction in electric consumption resulting from the new technology, are not explained. The RIA makes other assumptions (e.g., the benefit per ton for reductions in particulate matter reductions), which the analysis notes may not be valid, but there is no evidence to support the decision to use the data anyway. For one of the two options the analysis claims, the option will provide no benefits but presents no evidence to justify this assertion.
3/5
4. Was the analysis comprehensible to an informed layperson?
The analysis was clearly written and well-structured. An economist with some experience of EPA regulation could read this quite easily. A layman might struggle to understand the analysis and there is a substantial amount of jargon and acronyms.
4/5

Analysis

5. How well does the analysis identify the desired outcomes and demonstrate that the regulation will achieve them?
3/5
Does the analysis clearly identify ultimate outcomes that affect citizens’ quality of life?
This is a somewhat confused analysis. The purpose of the regulation is to reduce harm from mercury. The analysis provides evidence that mercury is a "highly neurotoxic contaminant" which can travel via air and water and cause serious health conditions such as neuromuscular changes, and when present in high levels can also "harm the brain, heart, kidneys, lungs, and immune system," but it doesn't present any evidence that these possible harms exist in practice or quantify any benefit from reducing mercury emissions. All the quantified benefits are from improved energy efficiency. As cost savings to firms are counted as negative costs, all the benefits of greater energy efficiency are from the reduced social cost of pollution. Roughly 70% of these benefits are from reducing particulate matter emissions generated from the combustion of fossil fuels. The analysis demonstrates a clear link between these emission and respiratory damage. The remaining 30% of monetized benefits are from reductions in carbon dioxide emissions, but the analysis does not explain what these benefits are.
3/5
Does the analysis identify how these outcomes are to be measured?
The analysis estimates health benefits from improved energy efficiency using a statistical technique, which finds a correlation between reductions in particulate matter emissions and reductions in premature mortality and reductions in other respiratory problems. As this regulation would only have a small impact on total particulate matter emissions and because this statistical technique cannot distinguish between sources of emissions and is sensitive to variance in other environmental factors, the regulation would not reduce emissions sufficiently to permit ex post measurement of benefits.
4/5
Does the analysis provide a coherent and testable theory showing how the regulation will produce the desired outcomes?
The analysis demonstrates how the regulation would reduce Mercury emissions and that this may theoretically produce health benefits, but it does not show that mercury in food and water is sufficiently high for those benefits to be realized. For the quantified benefits, the analysis claims that requiring regulated plants to either close or adopt the new technology will produce energy savings, which will in turn result in a reduction in power generation and associated health costs. The analysis does not attempt to justify the claim that 100% of the energy savings will translate into a reduction in consumed power. The analysis assumes no benefits for reductions in several key pollutants associated with electrical generation because those pollutants are subject to binding caps and emissions and, thus, are unlikely to fall. However, the analysis does not address the possibility that these caps may reduce the ability of the electrical generation industry to respond to changes in demand and price, implying that energy saved by reducing demand from chlorine manufacture may be redirected to other industries and households.
3/5
Does the analysis present credible empirical support for the theory?
The analysis provides very limited evidence to support the claims made about mercury and ultimately fails to quantify any benefits from reduced mercury emissions. The analysis presents evidence that the alternative technology is more energy efficient but not that adopting the new technology has resulted in overall power savings in other areas. Nor does the analysis explain how the agency reached their estimate for power savings.
2/5
Does the analysis adequately assess uncertainty about the outcomes?
The analysis identifies some uncertainties in benefits but does not quantify all the uncertainties. Some of the omitted uncertainties would have a considerable impact on the analysis' results (e.g., the analysis assumes constant population density across the U.S. but the affected plants are all located in low population density areas, and although the analysis recognizes this, there is no sensitivity analysis to compensate for the effect). In other instances, the analysis discusses the range of results reached within the academic literature, but ultimately it uses a single point estimate from one peer-reviewed source. The RIA also refers readers to a Monte Carlo analysis from another RIA but does not summarize the results.
3/5
6. How well does the analysis identify and demonstrate the existence of a market failure or other systemic problem the regulation is supposed to solve?
1/5
Does the analysis identify a market failure or other systemic problem?
The RIA does not address market failure. References to social cost imply an externality argument, but the EPA never makes this argument explicitly.
1/5
Does the analysis outline a coherent and testable theory that explains why the problem (associated with the outcome above) is systemic rather than anecdotal?
No. In fact, there are only 4 plants in the U.S. using the technology, and the analysis states these will not be replaced at the end of their lifetime.
0/5
Does the analysis present credible empirical support for the theory?
The analysis presents evidence of mercury seepage and also of pollution from the generation of electricity, but the analysis does not present any evidence to support a claim that the problem is systemic. The NPRM explicitly states that the technology the rule seeks to regulate is outdated and would be replaced in the absence of any regulatory action.
1/5
Does the analysis adequately assess uncertainty about the existence or size of the problem?
EPA conducted a test to determine if mercury lost from these plants could be significantly higher than estimated (and concluded this was not the case). The analysis also recognized uncertainty of the costs of pollution.
2/5
7. How well does the analysis assess the effectiveness of alternative approaches?
1/5
Does the analysis enumerate other alternatives to address the problem?
The agency identifies two options. The first, which is given a more substantial treatment, would require zero emissions, forcing plants using the technology addressed in this rulemaking to close or entirely replace all existing equipment. The second would require changes to work practices but not require the industry to close. However, the analysis does not attribute any benefits to the second option. The RIA mentions the second options briefly at the outset but claims without further evidence that the alternative has very small costs and no benefits. After this, the RIA only addresses the first alternative, which the analysis implies is the chosen option. The introduction to the RIA references this option as the agency's intended action, but the agency does not claim to have chosen an option within the NPRM. As the analysis claims the second option has zero benefits, it is not clear this should be considered a true alternative.
2/5
Is the range of alternatives considered narrow (e.g., some exemptions to a regulation) or broad (e.g., performance-based regulation vs. command and control, market mechanisms, nonbinding guidance, information disclosure, addressing any government failures that caused the original problem)?
The NPRM presents a choice of either regulating the industry through improved procedures requiring all plants to dispose of the regulated technology by imposing a zero-emissions standard. All the quantified benefits from the first option are the result of claimed energy savings but the analysis does not include any alternative that would reduce energy consumption or particulate matter emissions.
1/5
Does the analysis evaluate how alternative approaches would affect the amount of the outcome achieved?
The first option would achieve reductions in particulate matter production. The analysis does not quantify any benefits from the intended purpose of mercury containment. The NPRM suggests that the second option would also lower mercury emissions but it is not clear how or, if so, by how much. The analysis attributes no benefits to the second option.
1/5
Does the analysis adequately address the baseline? That is, what the state of the world is likely to be in the absence of federal intervention not just now but in the future?
The analysis assumes current conditions prevail over the analysis period.
1/5
8. How well does the analysis assess costs and benefits?
2/5
Does the analysis identify and quantify incremental costs of all alternatives considered?
There are only two alternatives. The analysis calculates costs for the first option but only asserts costs for the second option without explanation.
3/5
Does the analysis identify all expenditures likely to arise as a result of the regulation?
Analysis seems to identify most expenditures but could have been improved by more clearly distinguishing between accounting costs and economic costs specifically caused by the regulation. If industry would have converted anyway (which would presumably be the case if the analysis correctly profiles the incentives facing the industry) then the costs of the regulation are those expenses associated with converting earlier; namely the lost value in existing capital and the costs of raising finance to convert earlier. The analysis also only uses a 7% discount rate for costs, even for comparison with benefits at the 3% discount rate, making it harder to determine if this regulation would definitely produce benefits.
3/5
Does the analysis identify how the regulation would likely affect the prices of goods and services?
The analysis performed "sales tests" and "profits tests" to determine the likelihood of plant closure and confirm the regulation is economically significant, but it assumed without justification that market prices would not change. The RIA did not attempt to model the effect of reduced electrical demand on electric suppliers or the effect this may have on price. The anaylsis described which industries consume chlorine, but it did not analyze how those industries are affected by higher prices. The analysis notes that the industry is dominated by a few small players (and FTC has previously intervened for antitrust reasons.) Although the rule notes that the regulation could result in some plants being shut down, and that this regulation may be anti-competitive, the analysis does not attempt to quantify the effect of this on consumers.
2/5
Does the analysis examine costs that stem from changes in human behavior as consumers and producers respond to the regulation?
The analysis contains no examination of elasticity of demand for the product or in the electricity market to model the effect of reduced demand from one consumer. The analysis does address the possibility of plant closures with reference to historical evidence.
1/5
If costs are uncertain, does the analysis present a range of estimates and/or perform a sensitivity analysis?
EPA examines uncertainties and in one case performs a Monte Carlo analysis. The agency, however, uses its intitial point estimate (noting only that the central estimate of the Monte Carlo analysis did not differ much from their point estimate). A comment by the industry, addressed within the NPRM, notes that the industry faces capital costs above the 7% discount rate used in the analysis. Although EPA recognizes this as a problem, it refuses to perform a sensitivity analysis using the higher discount rate on the grounds that it is necessary to make these results comparable with results from other regulations.
3/5
Does the analysis identify the alternative that maximizes net benefits?
The agency only analyzes one option in detail and this is the only option claimed to generate net benefits. However, the agency fails to quantify any benefits for the second - even though this option might reduce mercury emissions. As above, the agency compares costs and the 7% discount rate to benefits at the 3% rate. However, a reasonable person could assume from the analysis that the agency believes the first option will maximize net benefits.
3/5
Does the analysis identify the cost-effectiveness of each alternative considered?
The analysis offers only perfunctory analysis for one alternative. The RIA does not identify any benefits for that alternative and although the stated purpose of the regulation is to reduce mercury emissions, the analysis does not attempt to quantify these reductions. The analysis states costs but does not provide supporting evidence and does not explicitly provide a measure of cost effectiveness for either option.
2/5
Does the analysis identify all parties who would bear costs and assess the incidence of costs?
Agency assumes the producers will bear the full costs, but it presents no evidence to support this claim.
1/5
Does the analysis identify all parties who would receive benefits and assess the incidence of benefits?
The analysis suggests that benefits are dispersed through the population through lower particulate matter emissions. The analysis does not attempt to analyze who may benefit most or assess transfers through secondary effects in the electric industry.
2/5

Use

9. Does the proposed rule or the RIA present evidence that the agency used the analysis?
The NPRM acknowledges the RIA, but the agency only analyzed one alternative.
2/5
10. Did the agency maximize net benefits or explain why it chose another alternative?
The NPRM did not identify a choice. The RIA suggests at the outset (in justifying the decision to not analyze the second option) that the first option was already chosen. The first option would maximize net benefits if the assumption that the second option provides no benefit is correct.
2/5
11. Does the proposed rule establish measures and goals that can be used to track the regulation's results in the future?
No indication the agency will track goals. It would be possible to determine if the plants were shut down but harder to determine if overall electric generation was reduced and nearly impossible to determine if any lives have been saved.
0/5
12. Did the agency indicate what data it will use to assess the regulation's performance in the future and establish provisions for doing so?
Agency does not identify any data for this purpose.
0/5
 
Total 27 / 60