The State of New Jersey

Department of Environmental Protection

ESTIMATED VOC EMISSION REDUCTIONS

AND

ECONOMIC IMPACT ANALYSIS

FOR

PROPOSED AMENDMENTS TO CHEMICALLY FORMULATED CONSUMER PRODUCTS

July 3, 2003

• INTRODUCTION

The Department is proposing amendments to its consumer products rules as discussed in the rule amendment proposal. This document provides additional details on the estimated volatile organic compound (VOC) emission reductions and the economic impact analysis for the rule amendments.

II. ESTIMATED VOC EMISSION REDUCTIONS

Introduction

The New Jersey proposed rules and amendments for chemically formulated consumer products (CFCPs) are based on the Ozone Transport Commission (OTC) model rule for consumer products (chemically formulated), which in turn is based on the California Air Resources Board (CARB) rules and background data. The technical basis for the proposed VOC content limits lies within the framework that the CARB developed for its consumer products rules. Significant technical documentation was developed as part of the CARB process.

Two related rules currently exist regarding CFCPs in New Jersey, an existing New Jersey rule (N.J.A.C. 7:27-24) and a USEPA Federal rule (40 CFR § § 59.201 to 59.214). The proposed rules and amendments are more stringent than either of these. The existing New Jersey rule became effective in November 1995 (the VOC limits became effective in April of 1996) and regulates 23 product categories. The Federal rule became effective in September 1998 and regulates 25 product categories. The Federal rule regulates automotive windshield washer fluids and charcoal lighter materials, while the New Jersey rule does not. Over half of the emissions in the CFCPs VOC emission inventory (as defined by the USEPA) were not regulated by the existing New Jersey rule or Federal rule.

The proposed rule amendments regulate 45 consumer product categories. Twenty-one of these categories (42 sub-categories) were not included in the Federal rule. Fourteen categories have more stringent limits than the Federal rule. Some of the more stringent limits are currently in effect in California, while others have future effective dates in California.

In the New Jersey 1996 Emission Inventory, VOC emissions from CFCPs were estimated to be approximately 80 tons per day, on a typical summer day. This estimate of the daily emissions was calculated using USEPA guidance. These emissions represent approximately 26 percent of the VOC emissions from area sources in the inventory and approximately 8 percent of the total man-made VOC emissions in the inventory. For additional details on the derivation of these estimates see the "NJDEP State Implementation Plan Revision for the Attainment and Maintenance of the Ozone National Ambient Air Quality Standard, 1996 Actual Emission Inventory and Rate of Progress Plans for 2002, 2005 and 2007," dated March 31, 2001. This report may be downloaded from the Department's website at http://www.state.nj.us/dep/baqp/sip/siprevs.htm or obtained by telephoning (609) 633-0530.

Data Sources, Assumptions and Calculations

The estimated emission reductions were calculated using data from the CARB staff reports and surveys ⁽¹⁾

and data from the USEPA 1990 consumer products survey and report. ⁽²⁾ CARB conducted consumer product survey's in 1990, 1994/1995, and 1997 and utilized anti-perspirant/deodorant data from 1993 from required reporting of these categories.

The CARB data was used to calculate a percent VOC emission reduction of the CFCP categories being regulated and the entire CFCPs inventory. VOC emissions and emission reductions were estimated for each individual product category proposed for regulation using CARB data and adjusting it for New Jersey population. The estimated VOC emissions and emission reductions were summed for the product categories being regulated. These totals were compared to estimated emissions for the entire CFCPs inventory to calculate a percentage reduction of the inventory.

Results

The estimated reduction of VOC emissions for the CFCPs inventory was calculated to be 14.2 percent. As part of the regional effort to address the 1-hour ozone additional reduction requirements, the OTC commissioned a study to quantify the reduction benefits of the six rules being prepared for use on a regional basis. ⁽³⁾ This estimated reduction calculation was used in the study to calculate projected VOC emission reductions for the region. The calculations were later updated to reflect changes in aerosol anti-perspirant and deodorant limits in California. The results of the analysis are shown in Table 1.

As shown in Table 1, calculations were performed under two scenarios. The first scenario used survey information from USEPA's 1990 survey combined with California's survey information for the categories not in the USEPA survey. The second scenario used California survey information only. The estimated 14.2 percent VOC emission reduction falls within the range calculated under these two scenarios.

It is estimated that the proposed rules and amendments will achieve a 14.2 percent reduction of the CFCPs VOC emissions inventory, as defined by the USEPA, beyond the current Federal rule. This is a reduction of approximately 32 percent of the categories being regulated (the entire CFCPs inventory is not being regulated).

As shown in the regional study ⁽⁴⁾, it is estimated that the rule will result in a reduction of VOC emissions of approximately 11 tpd in New Jersey in 2005 and 12 tpd in 2007. Regionally, it is estimated that the rule will result in a reduction of VOC emissions of approximately 8.7 tons per day (tpd) in the multi-state Philadelphia Non-attainment Area in 2005 and 26.3 tpd in the multi-state New York Non-attainment Area in 2007.

II. ECONOMIC IMPACT ANALYSIS

Introduction

Economic Impact

The analysis and discussion herein is based on the economic analyses performed by CARB historically ⁽⁵⁾, for VOC limits more stringent than the existing New Jersey and Federal rules. California has regulated VOCs in CFCPs through four main phases of regulations, Phase I in 1990, Phase II in 1991, Phase III or Midterm Measures in 1997 and Midterm Measures II in 1999. The proposed New Jersey rules and amendments are primarily based on the most stringent of California's four phases of regulation. The majority of the proposed VOC limits, which are more stringent than the existing New Jersey and Federal rules, are contained in California's more recent Midterm Measures and Midterm Measures II rules. Information regarding the CARB economic analyses can be found on the CARB Consumer Products website at http://www.arb.ca.gov/consprod/consprod.htm. The Department believes that consumer product sales in California are comparable to those in the northeast, proportioned by population, for the purposes of conducting this economic analysis. In addition, many manufacturers market consumer products nationally.

Relying on CARB's analyses provides an overall conservative approach. The Department's cost estimates may be somewhat inflated, since the Department conservatively assumed that manufacturers will incur the same costs to comply with the proposed New Jersey rules and amendments as they incurred to comply with CARB's regulations. In reality, manufacturers of nationally marketed products will incur some costs, such as reformulation costs, only once, to comply with the CARB regulations. In addition, manufacturers will have to reformulate for the other states in the northeast region adopting the OTC model rule.

The economic analysis used by CARB for their Midterm Measures and Midterm Measures II represents a significant update to and expansion of the methodology used to conduct the cost-effectiveness analyses for the original Phase I and Phase II consumer products rulemakings. Therefore, more detail is presented for the categories of products that were regulated in CARB's last two phases of regulation, Midterm Measures and Midterm Measures II. Some of the more stringent limits in the New Jersey proposed rules and amendments were contained in California's Phase I and Phase II regulations. CARB did not present detailed information by category for these two phase's of regulation. However, the overall cost-effectiveness calculated by CARB for Phase I and Phase II are similar to Midterm Measures and Midterm Measures II.

CARB's data from Midterm Measures and Midterm Measures II was compiled, input into a spreadsheet and recalculated based on New Jersey's proposed rules and amendments. CARB's data and spreadsheets were adjusted to account for differences in the regulated products between California and New Jersey. There are differences because the proposed New Jersey rules and amendments do not regulate windshield washer fluids and nail polish removers at the same VOC limits as the CARB rules. Even so, the results of New Jersey's economic analysis are similar to California's.

VOC limits for hairspray, anti-perspirants and deodorants, and adhesives were proposed in California prior to their Midterm Measures proposal. The cost data CARB used for these categories was included in our analysis, but may be overestimated. CARB subsequently determined that some of their assumptions for Phase I and II non-recurring costs were too high. In addition, the limits originally proposed in California for aerosol anti-perspirants and adhesives were re-evaluated by CARB based on industry comments and determined to be infeasible. Therefore, the costs to reformulate these products in CARB's analysis are overestimated.

CARB also used a conservative approach in assuming there would be no cross-line technology transfers. For example, CARB did not account for potential savings in one-time research and development and other costs that could apply to several products that a single manufacturer produces. While CARB was aware that companies undertake these types of efforts and similar efforts to reduce costs whenever possible, CARB found it difficult to quantify such cost savings, given the complexity and high degree of competitiveness in the consumer products industry.

The CARB economic impact analysis, on which the Department's analysis is based, evaluated the proposed VOC limits for cost-effectiveness, their potential effects on businesses subject to the limits, and the potential cost impacts to consumers. In conducting its economic analysis, CARB consulted a combination of publicly available financial databases (Dun and Bradstreet, Ward's Business Directory of U.S. Manufacturing Industries), numerous consumer and commercial products surveys, and industry journals and literature, such as the Chemical Market Reporter. CARB also incorporated projected cost information provided by industry representatives.

CARB assumed changes in packaging, labeling, distribution and other recurring costs to be negligible relative to baseline levels of these costs (CARB, 1997). Worst-case formulations (from a cost standpoint) using HFC-152a or HFC-134a as propellants were assumed for compliant aerosol products if no other, less costly propellant systems were considered to be likely used in "typical" compliant formulations; despite this assumption, alternative formulations using other non-VOC propellants, compressed gases, or dimethyl ether (DME), or some combination with these or existing propellant systems may allow even lower-cost compliant products than shown in CARB's analysis.

In addition, New Jersey was part of a regional group, organized by the OTC and made up of OTC state representatives, that met with representatives of the CFCP industry several times from July 2000 to January 2001. In developing the model rule, the regional group attempted to minimize the economic impact to manufacturers by listening to the concerns of industry, maintaining uniformity with the CARB rules, making changes to the CARB rules where appropriate, minimizing reporting, record keeping and labeling requirements, providing flexibility options, streamlining the processing of flexibility options, and setting compliance dates either equal to or later than those in California.

Cost-Effectiveness

The cost-effectiveness of a limit is generally defined as the ratio of total dollars to be spent to comply with the limit (as an annual cost) to the mass reduction of the pollutant(s) to be achieved by complying with that limit (in annual pounds or tons). The cost-effectiveness is presented to show the proposal's cost efficiency in reducing a pound of VOC. First, annual costs were calculated. Annual costs include annualized non-recurring costs (e.g., total research and development, product and consumer testing, equipment purchases/modifications, etc.) and annual recurring costs (e.g., raw materials, labeling, packaging, etc.).

For each product category (see categories in Table 2), CARB estimated non-recurring and recurring "low" and "high" costs. These "low" and "high" costs are a range of estimated costs. Non-recurring fixed costs were annualized using the cost recovery method, with a cost recovery factor (CRF) of 0.16274 corresponding to 10 percent interest over a 10 year project horizon (see CARB staff report references in footnotes to Table 2).

The projected annual costs then became the inputs for determining the three main outputs of the economic analysis: estimated cost-effectiveness, the potential business impacts and the potential consumer impacts. The projected annual costs were divided by the number of product units sold to result in a cost per unit. The estimated cost-effectiveness in dollars per pound of VOC reduced, and estimated cost in dollars per unit, by product category, are shown in Table 2. A summary of the overall cost analysis is shown in Table 3.