Regulatory Impact Analysis for the Final Clean Air Visibility Rule or the Guidelines for Best Available Retrofit Technology (BART) Determinations Under the Regional Haze Regulations EPA-452/R-05-004 June 2005 Regulatory Impact Analysis for the Final Clean Air Visibility Rule or the Guidelines for Best Available Retrofit Technology (BART) Determinations Under the Regional Haze Regulations U.S. Environmental Protection Agency Office of Air and Radiation Air Quality Strategies and Standards Division, Emission, Monitoring, and Analysis Division and Clean Air Markets Division CONTENTS Section Page 1. EXECUTIVE SUMMARY ........................................ 1-1 1.1 Background .............................................. 1-1 1.2 Results .................................................. 1-2 1.2.1 Health Benefits ...................................... 1-4 1.2.2 Welfare Benefits .................................... 1-7 1.2.3 Uncertainty in the Benefits Estimates .................... 1-7 1.3 Not All Benefits Quantified .................................. 1-8 1.4 Costs and Economic Impacts ................................ 1-10 1.5 Limitations .............................................. 1-11 1.6 References .............................................. 1-12 2. INTRODUCTION AND BACKGROUND ............................ 2-1 2.1 Background .............................................. 2-1 2.2 Regulated Source Categories ................................. 2-3 2.3 Control Scenarios.......................................... 2-4 2.3.1 Electric Generating Units .............................. 2-5 2.3.2 Sources Other than Electric Generating Units .............. 2-6 2.4 Baseline and Years of Analysis ............................... 2-7 2.5 Organization of this Report .................................. 2-8 3. EMISSIONS AND AIR QUALITY IMPACTS ........................ 3-1 3.1 Emissions Inventories and Estimated Emissions Reductions ........ 3-1 3.2 Air Quality Impacts ........................................ 3-4 iii 3.2.1 PM Air Quality Estimates ............................. 3-6 3.2.1.1 Modeling Domain ............................ 3-8 3.2.1.2 Simulation Periods ........................... 3-9 3.2.1.3 Model Inputs ................................ 3-9 3.2.1.4 CMAQ Model Evaluation ...................... 3-9 3.2.1.5 Converting CMAQ Outputs to Benefits Inputs ..... 3-13 3.2.1.6 PM Air Quality Results ....................... 3-15 3.2.2 Visibility Degradation Estimates ....................... 3-15 3.2.2.1 Procedures for Estimating Visibility Degradation . 3-17 3.3 References .............................................. 3-23 4. BENEFITS ANALYSIS AND RESULTS ............................ 4-1 4.1 Benefit Analysis—Data and Methods ......................... 4-11 4.1.1 Valuation Concepts ................................. 4-12 4.1.2 Growth in WTP Reflecting National Income Growth Over Time ........................................ 4-14 4.1.3 Methods for Describing Uncertainty .................... 4-18 4.1.4 Demographic Projections ............................. 4-22 4.1.5 Health Benefits Assessment Methods ................... 4-23 4.1.5.1 Selecting Health Endpoints and Epidemiological Effect Estimates ............................ 4-23 4.1.5.2 Uncertainties Associated with Health Impact Functions .................................. 4-36 4.1.5.3 Baseline Health Effect Incidence Rates .......... 4-42 4.1.5.4 Selecting Unit Values for Monetizing Health Endpoints ................................. 4-46 4.1.6 Human Welfare Impact Assessment .................... 4-58 4.1.6.1 Visibility Benefits ........................... 4-58 4.1.6.2 Agricultural, Forestry, and Other Vegetation- Related Benefits ............................ 4-63 4.1.6.3 Benefits from Reductions in Materials Damage .... 4-65 4.1.6.4 Benefits from Reduced Ecosystem Damage ....... 4-66 4.2 Benefits Analysis—Results ................................. 4-67 4.3 Uncertainty in the Benefits Estimates ......................... 4-70 4.4 Discussion .............................................. 4-73 4.5 Cost Effectiveness Analysis ................................. 4-74 4.6 References .............................................. 4-76 iv 5. QUALITATIVE ASSESSMENT OF NONMONETIZED BENEFITS ...... 5-1 5.1 Introduction .............................................. 5-1 5.2 Atmospheric Deposition of Sulfur and Nitrogen—Impacts on Aquatic, Forest, and Coastal Ecosystems ....................... 5-1 5.2.1 Freshwater Acidification .............................. 5-2 5.2.2 Forest Ecosystems ................................... 5-4 5.2.3 Coastal Ecosystems .................................. 5-6 5.2.4 Potential Other Impacts ............................... 5-6 5.3 References ............................................... 5-7 6. PROFILE OF POTENTIALLY AFFECTED INDUSTRY SECTORS ...... 6-1 6.1 Power-Sector Overview ..................................... 6-1 6.1.1 Generation ......................................... 6-1 6.1.2 Transmission ....................................... 6-5 6.1.3 Distribution ........................................ 6-5 6.1.4 Deregulation and Restructuring ......................... 6-6 6.1.5 Pollution and EPA Regulation of Emissions ............... 6-7 6.1.6 Pollution Control Technologies ......................... 6-8 6.1.7 Regulation of the Power Sector ......................... 6-9 6.2 Cement ................................................. 6-11 6.2.1 The Supply Side: Production and Costs ................. 6-11 6.2.1.1 Production Process .......................... 6-11 6.2.1.2 Types of Output ............................ 6-12 6.2.1.3 Production Costs ............................ 6-12 6.2.2 The Demand Side ................................... 6-13 6.2.3 Industry Organization: Market Structure, Plants, and Firms . 6-13 6.2.4 Markets and Trends ................................. 6-15 6.3 Industrial Organic Chemicals ................................ 6-17 6.3.1 The Supply Side: Production and Costs ................. 6-17 6.3.1.1 Production Processes ........................ 6-17 6.3.1.2 Types of Output ............................ 6-18 6.3.1.3 Major By-Products and Co-Products ............ 6-18 6.3.1.4 Production Costs ............................ 6-19 6.3.2 The Demand Side ................................... 6-19 6.3.3 Organization of the Industry: Market Concentration, Plants, and Firms ................................... 6-20 6.3.3.1 Capacity Utilization ......................... 6-21 6.3.4 Markets and Trends ................................. 6-22 6.4 Crude Petroleum and Natural Gas ............................ 6-23 6.4.1 The Supply Side: Production and Costs ................. 6-23 v 6.4.1.1 Production Processes ........................ 6-23 6.4.1.2 Types of Output ............................ 6-23 6.4.1.3 Major By-products .......................... 6-24 6.4.1.4 Production Costs ............................ 6-24 6.4.2 Demand-Side Characteristics .......................... 6-24 6.4.3 Organization of the Industry: Market Concentration, Plants, and Firms ................................... 6-26 6.4.4 Markets and Trends ................................. 6-27 6.5 Paper and Allied Products .................................. 6-28 6.5.1 The Supply Side: Production and Costs ................. 6-28 6.5.1.1 Production Process .......................... 6-28 6.5.1.2 Types of Output ............................ 6-29 6.5.1.3 Major By-Products and Co-Products ............ 6-29 6.5.1.4 Production Costs ............................ 6-29 6.5.2 The Demand Side ................................... 6-29 6.5.3 Organization of the Industry: Market Concentration, Plants, and Firms ................................... 6-30 6.5.4 Markets and Trends ................................. 6-32 6.6 Petroleum Refining Industry ................................ 6-33 6.6.1 The Supply Side: Production and Costs ................. 6-33 6.6.1.1 Refinery Production Processes/Technology ....... 6-33 6.6.1.2 Potential Changes in Refining Technology Due to EPA Regulation .......................... 6-34 6.6.1.3 Types of Products ........................... 6-35 6.6.1.4 Production Costs ............................ 6-35 6.6.2 The Demand Side ................................... 6-37 6.6.2.1 Uses and Consumers ......................... 6-38 6.6.2.2 Substitution Possibilities in Consumption ........ 6-39 6.6.3 Industry Organization: Market Concentration, Plants, and Firms ......................................... 6-40 6.6.3.1 Market Structure—Concentration ............... 6-40 6.6.3.2 Plants and Firms ............................ 6-40 6.6.3.3 Firm Characteristics ......................... 6-41 6.6.4 Markets and Trends ................................. 6-42 6.7 Primary Metal Manufacturing ............................... 6-42 6.7.1 The Supply Side: Production and Costs ................. 6-42 6.7.1.1 Production Processes ........................ 6-42 6.7.1.2 Types of Output ............................ 6-46 6.7.1.3 Major By-Products and Co-Products ............ 6-47 6.7.1.4 Production Costs ............................ 6-48 6.7.2 The Demand Side ................................... 6-48 6.7.3 Organization of the Industry: Market Concentration, Plants, and Firms ................................... 6-49 6.7.4 Markets and Trends ................................. 6-51 vi 6.8 References .............................................. 6-52 7. COST, ECONOMIC, AND ENERGY IMPACTS ...................... 7-1 7.1 Modeling Background .....................................