Document 2qRZw70EZVdZn49Jzz302K5pp

EXECUTIVE SUMMARY OF PRELIMINARY ESTIMATES OF DIRECT COMPLIANCE COSTS AND OTHER ECONOMIC EFFECTS OF OSHA'S GENERIC CARCINOGEN PROPOSAL ON SUBSTANCE PRODUCING AND USING INDUSTRIES Prepared for: American Industrial Health Council 1075 Central Park Avenue Scarsdale, New York 10583 Prepared by: Booz, Allen & Hamilton Inc. Foster D. Snell Division 66 Hanover Road Florham Park, New Jersey 07932 February 27, 1978 VC3306 I. EXECUTIVE SUMMARY This volume contains a summary of the major elements of and most significant conclu sions reached in a preliminary assessment of compliance costs and other economic effects of OSHA's generic carcinogen proposal to producer and user industries. The compliance cost estimates in the full report are based on a detailed study of a limited number of substances and generalized factors for scaling to the potential regulation of many substances. They must be considered rough estimates, probably on the low side. Nevertheless, the economic impacts are clearly large and a more definitive study is needed. A methodology for such a study is included in Appendix A of the full report. This Executive Summary is divided into four sections: . A. Highlights of the Study . B. Objectives, Scope and Methodology . C Preliminary Assessment of the Cost of Compliance with the OSHA Proposal . D. Other Economic Effects of the OSHA Proposal The full report contains eight chapters (and appendices): Executive Summary, Introduction, Economic Scope, Methodology, Case Studies, Compliance Costs, R&D Laboratories, U.S. Economic Impacts and AIHC Alternatives. 1-1 1 VC3307 I-A. HIGHLIGHTS OF THE STUDY VC3308 I-A. HIGHLIGHTS OF THE STUDY 1. DIRECT COMPLIANCE COSTS OF THE PROPOSED REGULATION WILL BE IN THE BILLIONS OF DOLLARS . The estimates presented here (all in 1977 constant dollars) are rough and reflect some, but not all of the costs. The biggest single cost element excluded relates to the inclusion of trace quantities in the regulation. . The table below presents capital and annual costs for three regulatory scenarios of substance coverage for two potential exposure targets. Direct Compliance Costs ($ Billion, 1977) Scenario Capital Cost 10 ppma to 1 ppm^ Annual Cost 10 ppma to 1 ppm** Low scenario (38 high volume substances) Medium scenario (1,870 substances) High scenario (2,415 substances) 9-23 17-47 30-88 6-11 10-20 18-36 a. The 10 ppm level also includes control to 100 micrograms per cubic meter for solids. b. The 1 ppm attempt level also includes attempt to control to 10 micrograms per cubic meter for solids. IA-1 VC3309 3 The capital costs of compliance estimated at the medium scenario represent 32 percent to 88 percent of 1976 capital expenditures for all manufacturing, depending on the exposure levels established. The producer industry portion of the capital costs at the medium scenario range from $0.4 billion to $1.1 billion depending on the exposure level. Higher costs are involved in attempting to control to an exposure level below 1 ppm. These costs will often be in the tens of millions of dollars for individual plants. The user industry portion of the capital costs at the medium scenario range from $16 billion to $46 billion depending on the exposure level. Although higher costs were judged to be needed to attempt control below an exposure level of 1 ppm, these were not quantified because of apparent technical unfeasibility of such levels of control. Costs to users will be broadly distributed throughout U.S. industry. Application of the proposal as written to R&D laboratories can add more than $4 billion per year to the annual costs at the medium level. The compliance costs can vary widely depending on six major factors: the number of substances to be regulated, their categorization, the levels of exposure permitted, the method of compliance permitted, forcing of substitution and whether or not trace concentrations are considered as exposures. If no exemption is made for exposure to minor constituents and trace impurities, compliance costs can be much higher than the estimates presented in this report. The technical feasibility of achieving specific exposure levels for a given substance varies by application and by industry. Generally, the lowest minimum exposure level felt by industry contacts to be technically feasible is far higher in user industries than in producer industries. I A-2 4 wr-^i o .2 OTHER ECONOMIC IMPACTS ON THE U.S. ECONOMY CAN BE SIGNIFICANT Not all potential indirect impacts were considered in this study. The regulation can be expected to reduce both labor productivity and capital productivity. The added costs and productivity declines will be inflationary. Very rough estimates indicate that the regulation has the potential to add a percentage point or more to the U.S. inflation rate. Increased operating costs are likely to make U.S. firms less competitive than foreign manufacturers, adversely affecting the U.S. balance of trade. If permissible exposure limits are set at extremely low levels, or if no exposure is permitted for a given substance in some or all of its applications, costs will increase dramatically and existing production and end-use patterns will be altered significantly. In industries that use substances covered by this regulation, the impact can be expected to be greater on small businesses than on large companies. If low exposure levels are specified, the effect can be particularly sever . This is also true of smaller businesses in the substance producing industries. Substitution efforts, required or encouraged under this proposal, will require extensive research and development efforts. This could have a major negative affect on innovation and new product development. I A-3 VC3311 3. THE ALTERNATIVE APPROACH PROPOSED BY AIHC WOULD LIKELY RESULT IN SIGNIFICANTLY LOWER COMPLIANCE COSTS AND LESS DISRUPTIVE EFFECTS An alternative approach has been proposed by the American Industrial Health Council (AIHC): and it feels that the approach provides benefits equivalent to those of OSHA's proposal. The key elements of the AIHC alternatives that differ from the OSHA recommendation and have potential for altering the economic effects, are: Different basis for classification and categorization of substances. Different basis for establishing permissible exposure levels for substances classified as "confirmed" carcinogensl Modification of requirements for nonengineering compliance activities, especially for substances classified as "suspect" carcinogens*2 Consideration of economic feasibility in the requirement to use engineering controls to reduce employee exposure levels Provision for partial exemption for workplaces consistently below the PEL Provision for exemption of mixtures containing small amounts of regulated materials Elimination of provision for OSHA to establish zero exposure limits when substitutes are available Establishment of special regulatory approaches for laboratories, construction, agriculture and transportation Establishment of priorities for regulating individual substances. i-OSHA Category I, AIHC Categories I or TI 2OSHA Category II, AIHC Category III 6 vr^i 7 These differences, taken toqothor, are likely to result in lower impact compliance patterns. Some of the reasons include greater discrimination in substance selection for regulation, lower average cost of compliance per substance and probably a more orderly regulatory procedure that would better permit the economy to adjust. IA-5 VC3313 I-B. OBJECTIVES, SCOPE AND METHODOLOGY VC3314 VC3315 I-B. OBJECTIVES, SCOPE AND METHODOLOGY 1. THE OBJECTIVE OF THE STUDY IS TO ESTIMATE ASPECTS OF THE COMPLIANCE COSTS AND OTHER ECONOMIC EFFECTS OF THE OSHA GENERIC CARCINOGEN PROPOSAL ON A PRELIMINARY BASIS The generic carcinogen proposal provides criteria for classification of chemical substances and regulatory action on substances posing a potential occupational carcinogen risk. Through these regulations, OSHA proposes to establish a standardized framework for future rulemaking, which it feels will enable it to move expeditiously in establishing regulations to control worker exposure to specific toxic substances. The American Industrial Health Council (AIHC) commissioned this study because it felt that: - The economic impact of the OSHA proposal might be large. OSHA had not adequately addressed economic consequences of the proposal. Economic impacts would be considered, if at all by OSHA, in later individual substance rulemaking only after major issues had already been resolved. - Economic impact should be considered in all phases of the decisionmaking process, so that final regulations will provide the optimum protection to workers for the dollars spent. Even though time was too limited to provide a definitive economic assessment, any broad scope estimates that could be developed would be helpful to the decision process. IB-1 9 UTO1 Because of the time limitations, the study was compressed to focus on seven selected case-study substances. The selected substances were felt to be reasonably illustrative of a number of important products produced by the chemical industry. These data were supplemented by a number of other industry inputs covering a variety of substances, to assess the direct compliance costs of the proposed regulation. The study also considered some of the economic effects of the regulation on the overall U.S. economy. Because the study scope did not include macroeconomic modeling, these issues are generally addressed qualitatively rather than quantitatively. Because this estimate was developed from a narrow base, it must be considered as a preliminary and partial estimate, rather than as a definitive assessment. The major variables affecting cost include the engineering controls to meet requirements of lowest exposure level feasible, the substitution potential of individual substances, the number of regulated substances and the number of workers covered. Possible economic benefits incurred from this regulation (such as possibly enhanced future industrial health) are not analyzed, nor are social costs and benefits included within the scope of the study. Operating cost benefits resulting from compliance activities are consider d as reductions in compliance costs. IB-2 i lA-noi 10 2. THE STUDY COVERS BOTH THE MANUFACTURE OF CHEMICAL SUBSTANCES AND THEIR DOWNSTREAM APPLICATION! COMPLIANCE COSTS AND OTHER ECONOMIC IMPACTS WERE ASSESSED AT VARIOUS LEVELS OF PERMISSIBLE EXPOSURES . The U.S. economy was divided into two broad categories in terms of the role of substances potentially controlled by this regulation. Substance producing industries: basic chemicals (SICs 218,282 and 286), parts of petroleum refining (SICs 2911 and 299) and other basic nonferrous metals (SIC 3339). Substance using industries: other manufacturing and nonmanufacturing sectors. . Impacts were assessed in the aggregate for these two groups. . Compliance costs and other economic effects were assessed as a function of various levels of control; for example, the permissible exposure levels reviewed ranged from 50 ppm for one substance to an attempt to control exposures below 10 ppb for another. . Substitution of potentially regulated substances was also considered in the case studies when motivated both by compliance costs and by regulatory action. The major factor influencing substitution is the degree of dependence of various segments of the economy on a given substance. IB-3 11 e 3. THE APPROACH CONCENTRATES ON SPECIFIC CASE STUDIES AND THE DEVELOPMENT OF GENERALIZED ESTIMATING FACTORS FOR SCALING COMPLIANCE COSTS TO SUBSTANCE PRODUCING AND USING INDUSTRIES AT DIFFERENT LEVELS OF REGULATORY CONTROL Selected case studies were examined under alternative control requirements to project the compliance costs and other aspects of the economic effects of the OSHA regulation over and above current v practice and compliance with existing regulations. From an inital list of more than 2,400 substances listed by NIOSH in 1976 as suspected carcinogens, seven high volume substances were selected for case study. The seven substances may meet OSHA's categorization criteria and are illustrative of the impacts likely to be felt by a variety of chemical industry materials. . To scope the compliance costs of the proposal, the study team develop d generalized estimating factors from which compliance costs can be calculated. These factors were developed largely from case study results supplemented by voluntary submission of similar data by various companies and the results of literature searches. These factors were then applied to alternative scenarios of control (varied by the number of substances, categorization and exposure limits under which each case-study substance might be regulated) to approximate the total cost of compliance to U.S. producer and user industries. Exhibit 1-1, on the following page, describes the major steps involved in developing the estimating factors and the compliance cost to U.S. producer and user industries. . The case study substances are tabulated in Exhibit 1-2, following Exhibit 1-1. . Qualitative assessment of the macroeconomic effects of the regulation was based on the compliance cost estimates and on the generalized findings from the case studies. IB-4 12 i i ^-i n 7 Case Study Substances Industry Survey Other OSHA Economic Impact Statements Industry Statistics Booz, Allen Study Team Judgments National Occupational Hazards Survey (NOHS) Booz, Allen Study Team Judgments N10SH Suspected Carcinogens (1976) and Staff Categori zation Judgment SELECTED SCENARIOS APPROXIMATE COMPLIANCE COST FACTORS EXHIBIT 1-1 American Industrial Health Council METHODOLOGY FOR DEVELOPING PRELIMINARY ESTIMATE OF THE COMPLIANCE COST OF OSHA'S CARCINOGEN PROPOSAL Substance Producing Industries (% of 1976 Value of Shipments ) \ Capital Costs Annual Costs User Industry Cost (per Exposed Worker) tw- U1 o (O O V) a P1S4 U Category II Category I (3 Exposur Levels) o Source; Booz, Allen Hamilton Inc., Foster D. Snell Division 13 VC3320 Case Substance Ethylene oxide n-Propanol Sodium chromate and its derivatives Tetrachloroethylene Toluene-2, 4-diamine Vinyl chloride monomer Pesticide (composite) EXHIBIT 1-2 American Industrial Health Council PROFILE OF CASE STUDIES Use As Chemical Intermediate Broad Moderate Moderate Direct Use In Downstream Industries a Minor Widespread Widespread Narrow Narrow Narrow None widespread Minor None Widespread Typical Downstream Uses Sterilizing agent Inks; coatings Pigments; leather tanning; corrosion control; petroleum drilling Dry cleaning; metal degreasing Hair dye (application phased out) - Crop protection a. Industries that use substances i'n manners other than as a chemical intermediate. Source: Booz, Allen & Hamilton Inc., Foster D. Snell Division VC3321 14 4. THE DATA PRESENTED IN THE STUDY REPRESENT PRELIMINARY ESTIMATES OF SOME, BUT NOT ALL OF THE POTENTIAL COMPLIANCE COSTS AND OTHER ECONOMIC EFFECTS. A GREAT DEAL*" OF ADDITIONAL WORK MUST BE DONE TO PROVIDE A DEFINITIVE ECONOMIC IMPACT ASSESSMENT The study has two basic areas of limitation, which tend to understate the potential compliance costs and other economic effects of the proposal: estimates and assumptions made where definitive data were not available; and elements of costs that were not addressed within the study scope. These are described below: . Certain elements of information, upon which the projections were based, had to be estimated or assumed, because definitive data was not available. In general these assumptions and estimates were made in such a way that reasonable but lowside projections would result. These are the numbers reported in this study. The estimating factors used to project overall costs were based on large production chemicals. Individual smaller volume chemicals are reported by industry sources to have unit costs of compliance many times as large as the high volume chemicals. The estimating factors for the lower exposure levels represent a mix of compliance with engineering controls, engineering controls to a higher exposure level coupled with respirators, and substitution. To the extent that this mix does not represent the use of engineering controls that will be required under the regulations, it does not reflect accurately the engineering control costs required. Engineering control cost inputs at the lowest exposure level were rough estimates based on currently available technology. They did not include unproven technologies that are extremely capital intensive and require high contingency factors for failure. The cost factors used for engineering controls in user industries should have a broader base than was available in this study. The cost factors used for engineering controls, where multiple substances are encountered in the same plant unit, are based on judgmental assumptions. A firm data base should be sought for a more refined assessment. IB-5 15 Monitoring costs were estimated at industry-average levels, and it was assumed for purposes of this study that multiple substance monitoring programs would be used. In fact, as concentrations are reduced and increasing sophistication of analysis is required, monitoring costs rise rapidly and multisubstance monitoring becomes difficult. Thus, the costs for monitoring at the lowest levels of control are probably underestimated. The standardized cost estimating guidelines assumed an employee turnover rate of 10 percent per year. For industries with extremely high rates of turnover, such as cleaning or repair services, medical and recordkeeping costs might1be much higher than this estimate. An 8 percent figure was used throughout the study as the basis for the pretax cost of money. It should be recognized that such investment costs will be looked at in terms of each company's return on investment parameters. If a 20 percent "opportunity cost" of money, were used in this study, annual cost figures would in many cases be 40 or more percent higher than the figures presented here. Certain elements of costs, some of which are potentially significant, were not addressed in this study. No consideration is given to exposures to impurities and trace quantities. If this is considered, a much larger worker population would be covered than projected under the scenarios of this study. The study concentrated on chemicals and a small number of additional substances. The petroleum industry was addressed only insofar as it provides feedstock to the chemical industry. If common petroleum products, such as gasoline and oil, are to be classified as Category I or II materials, essentially all workers in all industries would be covered by the regulation. - Similarly, the mineral producing ihdustries have not been addressed in this study. IB-6 VC.3323 16 The study assumed that costs of compliance with an emergency temporary standard (ETS) would be the same as those of parallel elements of a permanent standard. However, industry reports that such standards imposed in the past have proved costly to industry. Major cost elements cited relate to errors in judgment made when compliance activities were forced before thorough research and engineering evaluations could be undertaken. An assumption was made throughout the study that once a permissible exposure level is established, no changes would be made. As new technology evolves, control systems installed for compliance may be quickly obsoleted by improved controls developed later. Thus, duplicate costs might have to be borne to achieve the new, lowest level technically feasible. The study concentrated on the cost of retrofitting existing plants. No provision is included for the added cost of including these same engineering control features into new plant construction. While the relative cost of "designed in" controls would be lower than that of "retrofit" controls, this can still represent a significant institutionalized addition to the $7.6 billion annual capital cost incurred by the chemical industry and the $53 billion incurred by all industry (1976 dollars). No provision is made in the study for the actions likely to be taken by other government agencies once a material is categorized. Past experience indicates that an OSHA action on a specific substance is normally followed by regulatory action, in other agencies, such as EPA, FDA and CPSC. IB-7 VC3324 17 Direct costs do not include hiqher capital and annual costs that would likely result from the inflationary pressure created by this regulation, primarily in construction and industrial hygiene services. The study scope did not include macroeconomic modeling to quantify other impacts of the regulation on the U.S. economy. A methodology for a broader based study which would be more definitive and would address the issues described above is outlined in Appendix A of this report. - Such a study should address benefits of the regulation as well as costs. Such a study should also address the costs and benefits of alternatives to the regulations as proposed. Ttl O VC33?S 18 I-C. PRELIMINARY ASSESSMENT OF THE COST OF COMPLIANCE WITH THE OSHA PROPOSAL VC3326 I-C. PRELIMINARY ASSESSMENT OF COST OF COMPLIANCE WITH THE OSHA PROPOSAL 1. THE CASE STUDIES ILLUSTRATE THE DIFFERING COMMERCIAL ROLES OF CHEMICALS AND PROVIDE DATA AND INSIGHTS INTO T11E COST OF COMPLIANCE WtTH THE PROPOSAL (1) Compliance Cost Impacts Were Found To Vary Greatly Depending Largely On Use Patterns Outside The Chemical Industry . Exhibit 1-3, following the next page, shows a comparison of direct costs by case study. . These show an average per substance capital cost requirement varying from $150 million (Category II) to $580 million (Category I, lowest attempted level of exposure). Annual compliance costs vary from $240 million to $470 million for the same conditions. . The lowest level of control technically attainable varied from sub stance to substance and from application to application for the same substance. Control for each substance is a function of its inherent characteristics, such as volatility, and of its processing techniques, such as continuous versus batch. Generally, the exposure levels at which the technical limits of engineering control are reached are higher among substance users than among substance producers, since users typically handle chemicals under more open conditions than producers. . Technology limitations (such as processing techniques or older facili ties) can lead to plant closings as an alternative to compliance with extremely low permissible exposure level requirements. In general, these costs are not addressed in this study . The current state of the art is such that experienced engineers have great difficulty in judging the lowest exposure levels achievable with current technology. IC-1 VC3377 19 Some respondents, but not all, estimated the cost of applying specific engineering control technologies. These estimates are generally not as reliable as those made for attainment of higher exposure levels. More workers are exposed to chemical agents in user industries than in producing industries because chemicals are so commonly dis tributed throughout the U.S. economy. Thus, nonengineering compliance elements (such as showers and other industrial hygiene services) represent a much more significant element for chemical users than for producers. Furthermore, user industries generally have fewer resources and have fewer of the functional skills needed for compliance than chemical producers have. The case studies showed substitution potential to be related to specific applications of each substance. Complex technical and economic issues are involved in each substitution situation. - A simple cost tradeoff can influence substitution potential if compliance costs raise the price of chemicals sufficiently to motivate a shift to alternative chemicals. This is seen to occur in some n-propanol case study applications. Substitution could be dramatically costly and disruptive if forced where no technological alternatives exist, such as in the cases of ethylene oxide for detergents or vinyl chloride for polyvinyl chloride. IC-2 VC3328 20 Category II Uosiqnation Case Study Substance Capital Costs Annual Costs Vinyl Chloride VCM Producers PVC Producers Subtotal ** __ Tetrachloroethylene Production Fluorocarbon Producers Dry Cleaning Metal Degreasing Other <1 <1 178 8 205 Subtotal 391 Ethylene Oxide Production 1 Continuous Process Derivatives 1 Batch Process Derivatives 2 Medical 10 Subtotal 14 <1 <\ 190 27 4 B6 704 1 1 2 45 49 Sodium Chromate/Dichromate Production Chromic Acid Pigments Tanning Metal Finishing Corrosion Control Others Subtotal 377 687 exhibit 1-3 (i) American Industrial Health Council TOTAL ESTIMATED DIRECT COSTS of OSIIA'S GENERIC CARCINOGEN PROPOSAL TO PRODUCERS AND USERS OF THE CASE STUDY SUBSTANCES (1V77 S MILLION) Capital Costs Category I Designation - Lowest Attempted Level of Exposure Lowest Attempted Ann.ua 1 Level of Exposure for Costs Which Estimates Were Developed 268 742 1010 90 215 305 Below 1 ppm Below 1 ppm 36 5 726 37 331. nr. 17 3 289 34 848 1191 Below 1 Below 1 50 ppm 10 ppm 10 ppm ppm ppm 96 145 211 20 474 42 47 87 92 268 Below 1 ppm Below 1 ppm Below 1 ppm Below 1 ppm 10 3 774 6 42 3 _54_5 1 IR 3 4 1 332 5 35 1 789 1167 10 ugms/m3 10 ngms/m3 10 ugms/m3 10 ugms/m3 10 ugms/m3 10 ugms/m3 10 ngms/m3 VC3329 21 EXHIBIT 1-3 (2) American Industrial Health Council Case Study 5ubstance n-Propanol Producers Propylamines Propyl Acetate Ink Paint and Other Cateqory II Dcsignation Capital Costs Annual Costs <1 <1 <1 40 180 <1 <1 <1 40 180 Capit a 1 Costs 4 1 1 - Subtotal Toluen -2,4-Diamine Subtotal Pesticide Product Manufacturers 220 <1 2 220 '1 6 36 Formulators/distributors/ Applicators Potential crop loss Subtotal 10 12 10 10 - _ - TOTAL OP ALL CASE STUDY SUBSTANCES AVERAGE FOR ALL CASE STUDY SUBSTANCES 1014 145 1671 239 4044 578 a. Mot applicable Sourc : Booz, Allen (. Hamilton Inc., Foster D. Snell Divisi Category I Designation - Lowest Attempted Level of Exposure Annual Costs Lowest Attempted Level of Exposure for Which Estimates Were Developed 1 1 ppm 1 1 ppm 1 1 ppm Manufacturers would stop production - Manufacturers would 1 stop production 2 23 Below 100 ppb 300 300 3256 465 Manufacturers would stop production Manufacturers would stop production Manufacturers would stop production Manufacturers would stop production VC3330 22 (2) Cost Impacts Were Found To Vary Greatly Depending On The Categorization And The Permissible Exposure Level Set In The Final Regulations . Compliance costs within the chemical industry are highly sensitive to categorization. For the case-study substances, costs ranged \ from negligible figures under Category II to hundreds of millions of dollars under Category I and extremely low permissible levels. . Compliance costs outside the chemical industry are less sensitive to categorization, because the nonengineering costs required for both categories are a more significant portion of the overall cost. . The level at which the permissible exposure level is set has a major effect on costs. This is further addressed in Section 2 of this chap ter . IC-3 23 2. GENERALIZED COMPLIANCE COST ESTIMATING FACTORS WERE DEVELOPED TO ENABLE EVALUATION OF DIFFERENT SCENARIOS OF REGULATORY IMPLEMENTATION Estimating factors were developed separately for the substance producing and substance using industries. Compliance cost per dollar value of shipments is used as a basis for the estimating factors for use within the substance producing industries. These factors are based on a relatively small sample with wide variations so they must be considered as rough approximations rather than firm figures, especially at the extreme exposure limitations. Compliance cost per exposed worker is used as a basis for the estimating factors for use outside the substance producing industries. These factors are reasonably reliable for the non engineering control segment, but are far less likely to be reliable for the engineering control costs, for which input data were limited and variations were high. Certain requirements of the proposed regulation are already being met by some employers. Therefore, to provide the incremental compliance cost of the regulation over and above the cost of existing compliance activities, the estimating factors are adjusted downward in some cases. Exhibit 1-4, on the following page, presents the estimating factors developed for both industry segments. Modifications to the factors for multiple substance exposure and their use are discussed in Chapter VI. For the substance producing industries, the factors indicate capital costs ranging up to 30 percent of annual value of shipments, depending upon the categorization and level of control required. Annual costs range up to 12 percent, depending upon the same factors. IC-4 VC3332 24 Regulatory Status and Control Level Attempted Category 11 designation Category I designation 10 ppm (or 100 pg/m3) 1 ppm (or 10 ug/m3) attempt Below 1 ppm (or 1 itg/m3) Substance Producing Industries'1 Capital /uinual Costs Costs (percent of annual ([jercent of annual value of shipments) value of shipments) Probable I'rol>Jble Estimate Range Estimate Range 0.5 (0.2-1.0) 0.5 (0.3-1.0) 2.2 (1.4-6.3) 1.2 (0.9-2.5) 8.0 (5.6-17.5) 2,7 (2.2-6.4) 30 (21.9-51.6) 12 (6.7-21.4) EXHIBIT 1-4 American Industrial Health Council ESTIMATING FACTORS FOR ASSESSING THE COMPLIANCE COST IMPACTS OF OSHA'S CH1ERIC CARCINOGEN PROPOSAL Substance User Industries'-1 Capital Annual Costs Costs ($ thousands,, 1977 ($ thousands, 1977 per exposed aiployee) per exposed employee) Probable Probable Estimate Range Estimate Range 1.0 (0.6-1.4) 1.0 (0.8-1.4) 4.5C (3.0-21) 2.0 (1.4-5.5) 7.0C d (4.0-33) 3.0 d (1.9-16.0) ^ The factors for producer industries are based on survey inputs which generally reflect multiple exposures to substances on the NICGH suspected carcinogen list, within a single production unit. b. The factors presented here for user industries assumed exposure to a single substance. Additional factors for control of nultiple substances in a single plant unit are assumed to be up to twice these numbers. These are presented in Exhibit VIA-6. The factors used depend on the scenario parameters as shotm in Chapter VI-B. c. Compliance to this level by engineering controls is not feasible for many applications. Thus this figure represents a mix of compliance by substitution, by engineering controls, and by engineering controls to a higher exposure level coupled with respirator use. Because of this, the ratio of costs between various control levels will not apply to a single substance. d. Ccnplianoe to this level by engineering controls is generally not feasible, so no factor has been developed. Source: Booz, Allen t Hamilton Inc., Foster D. Snell Division 25 These factors represent average figures, for a mix of compliance by engineering controls, engineering controls to a higher expo sure level plus respirators, and substitution. - The factors at the lowest exposure levels would be higher for any substance where compliance is achievable by engineering controls alone. For the user industries, capital costs range from $1,000 per exposed worker for Category II designation to $7,000 for Category I designa tion at the 1 ppm exposure level. The cost variations between different exposure levels are smaller for user industries than for producing industries because the low levels are rarely feasible in user industries. Thus a given estimate gener ally reflects engineering controls to levels of feasibility coupled with use of respiratory protection. The potential range of these factors varies between producer and user industries. Exhibit 1-4 presents the probable range of the average figure, based on statistical analysis coupled with study team judgment. For capital costs within the substance producing industries, the range is judged to be within minus 30 percent and plus 100 percent of the figure presented. For annual costs within the substance producing industries, the range is judged to be generally within minus 40 percent and plus 100 percent of the figures presented. For Category II designation within the user industries, capital cost ranges are judged to be minus 40 percent to plus 40 percent. Annual costs are judged to be minus 20 percent to plus 40 percent. - For Category I designation within the user industries, capital and annual costs are generally judged to be least accurate. The range is generally minus 30 to 40 percent and plus 200 to 400 percent, f differing exposure levels. 3. COMPLIANCE COSTS OF THE PROPOSAL TO SUBSTANCE PRODUCING AND USING INDUSTRIES WERE ESTIMATED UNDER THREE SCENARIOS OF REGULATORY COVERAGE. UNDER THE MEDIUM LEVEL SCENARIO, COMPLIANCE COSTS ARE ESTIMATED TO BE $10 BILLION TO $20 BILLIONPER YEAR IN 1977 DOLLARS, DEPENDING ON THE LEVEL OF EXPOSURE PERMITTED Three scenarios were evaluated, each at three levels of permissible exposure. Scenario A, the low level scenario, assumes that the 38 substances on the 1976 NIOSH suspected carcinogen list that are produced at levels above 25 million pounds per year and that have been assigned to Category I or II (based on the proposal's classification criteria) by the staff of NIOSH's National Occupational Hazard Survey (NOHS) will be regulated. Scenario B, the medium level scenario, assumes that 1,870 substances from the 1976 NIOSH suspected carcinogen list will be regulated as assigned to Category I or II by the staff of NOHS. Scenario C, the high level scenario, assumes that all 2,415 substances on the NIOSH suspected carcinogens list will be regulated whether or not they have been categorized by the NOHS staff. Exhibit 1-5, following the next page, presents the cost estimates for each of the three scenarios evaluated. These were developed by applying the estimating factors described in the previous section to estimates of the value of shipments and number of workers affected under each scenario. At the 10 ppm exposure level, capital costs vary from $9 billion to $30 billion, depending on the scenario. Annual costs vary from $6 billion to $18 billion, all in 1977 dollars. IC-6 VC3335 27 At the 1 ppiri exposure? level, capital costs vary from $2 3 billion to $88 billion depending on the scenario. Annual costs vary from $11 billion to $36 billion. Compliance costs at the below 1 ppm attempt level were not esti mated for the user industries where this level is generally not feasible. For the substance producing industries, though, capital cost estimates vary from $2.4 billion to $7.3 billion, depending on the scenario. Annual costs vary from $1 billion to $4.8 billion. These must be considered as very rough estimates, probably on the low side. Costs to the substance producing industries generally represent 2-3 percent of the total cost. 1C-7 VC3336 Control Level Attempted 10 ppm exposure (or 100 micrograins per cubic meter for solids) . Capital Cost . Annual Cost 1 ppm exposure (or 10 micrograms per cubic meter for solids) . Capital Cost . Annual Cost EXHIBIT 1-5 American Industrial Health Council ESTIMATES OF COMPLIANCE COST OF OSHA'S GENERIC CARCINOGEN PROPOSAL TO PRODUCER AND USER INDUSTRIES UNDER THREE SCENARIOS ($ Billions, 1977) Scenarios Low Scenario B Medium Scenario High Scenario Covers 38 High Volume Covers 1870 Substances Substances As Cate- Categorized By NIOSHa Producers Users Total Producers Users Total Covers 2415 Substances Listed As Suspected Producers Users Total 0.2 0.2 8.8 5.7 9 6 0.4 0.3 16.1 9.8 17 10 0.6 0.4 29.0 17.2 30 18 0.6 0.3 22.7 10.2 23 11 1.1 45.7 47 2.0 85.5 88 0.5 19.5 20 0.7 35.0 36 aCategorized by the staff of National Occupational Hazard Survey (NOHS), a NIOSH unit, based on the proposed classification criteria. Source: Booz, Allen & Hamilton Inc., Foster D. Snell Division VC3337 29 4. A ROUGH ESTIMATE OF COMPLIANCE COSTS OF THE PROPOSED STANDARD, AS WRITTEN, TO R&D LABORATORIES INDICATES THAT $4.7 BILLION DOLLARS PER YEAR WOULD HAVE TO BE SPENT, LARGELY FOR ATMOSPHERIC MONITORING The requirement for personal exposure monitoring, if applied to laboratories where a large number of substances are commonly encountered, is estimated to cost somewhere in the range of $4.4 billion per year under Scenario B, assuming the regulation were to be followed as written. R&D Total costs are roughly estimated at $4.7 billion per year. This figure is not added to the total compliance costs reported elsewhere, because it was roughly derived and because it is difficult to see how the regulation can, in practice, be feasi ble in R&D laboratories as written, if a large number of substances are regulated. Other types of laboratories, such as quality control and clinical laboratories can be expected to be similarly affected. Their costs are not included in the $4.7 billion cost estimate presented above. IC-9 VC3338 30 I-D. OTHER ECONOMIC EFFECTS OF THE OSHA PROPOSAL VC3339 I-D. OTHER ECONOMIC EFFECTS OF THE OSHA PROPOSAL IN ADDITION TO THE DIRECT COMPLIANCE COSTS, OTHER SIGNIFICANT ECONOMIC EFFECTS WERE ILLUSTRATED BY THE CASE STUDIES, ESPECIALLY WHERE PERMISSIBLE EXPOSURE LEVELS WERE VERY LOW . Compliance costs, particularly at the low levels of exposure, can cause significant price increases which can lead to supply/demand realignments and cost-motivated substitution, in situations where substitution is technically feasible. This was exemplified in several of the case studies: Vinyl chloride--If vinyl chloride monomer were regulated to a permissible exposure level below 1 ppm, the price of polyvinyl chloride resins would be likely to increase more than 20 percent. This could lead to substitution of other plastic products for certain applications. - n-Propanol--The printing industry, a major segment of n-propanol demand, would probably be able to substitute other solvents rather than increase direct costs for compliance. Ethylene oxide--A new process for manufacturing ethylene glycol directly might replace a significant portion of ethylene oxide demand, which could result in many plant closings, if the economics of the new process prove to be sound. This could happen without the regulation, but over a longer period. . Market structure may change, probably toward industry concentration with disproportionate effects on small businesses. ID-1 VC3340 31 - Tetrachloroethylene--Approximately 75 percent of all dry cleaning establishments could require capital expenditures of $35,000 or more per establishment. This could force many small, marginal establishments out of business, thus concentrating the dry cleaning industry. Chromates--Automobile refinishing operations would require a capital investment of $10-20,000 establishment. This could force a substantial number of auto body shops out of business. Pesticides--Manufacturers uniformly stated that they would probably stop production if an individual pesti cide were designated as a Category I substance, result ing in dislocation or possibly deteriorating crop pro tection. Vinyl chloride--The VCM and PVC markets would concentrate further, if the permissible exposure level were below 1 ppm, since older, less technologically developed plants would require disproportionate compliance investment. If extremely low permissible exposure levels (PEL) are established, both producers and users can be expected to concentrate operations into a smaller number of larger plants where economies of scale can justify the high investments. If no exposure is permitted, or if low PELs encourage significant substitution, new capacity for replacement products will probably be built by the larger companies who have better access to the large amounts of capital required. The same is likely to be true of user industries where substitution requires new capital investment. Substitution efforts, required or encouraged under this proposal, will require increased research and development efforts and a significant amount of time to accomplish. To the extent this occurs it can have a major negative effect on innovation and new product development. ID-2 VC3341 32 The degree to which these substitution effects will occur depends on the particular substance involved. Productivity is likely to deteriorate--effective capacity may be curtailed and man-hours per unit of output may be increased. In past periods, the compliance with VCM standards decreased capacity by 5 to 10 percent and increased nonproductive support employment by 10 to 20 percent. Trade balance may deteriorate. In three of the case studies (chromates, vinyl chloride and pesticides), increased compliance costs would adversely affect trade balance of the primary substance and derivatives. Many other potential economic impacts may exist that were not illustrated in the case studies, and may similarly be omitted from the macroeconomic discussion that follows. ID-3 VC3342 33 2. THE REGULATION IS LIKELY TO HAVE SIGNIFICANT EFFECTS ON THE U.S. ECONOMY; PRIMARILY ON INFLATION, PRODUCTIVITY AND TRADE BALANCE Direct costs related to this proposal can add appreciably to the U.S. inflation rate. The table below, shows a crude indicator of inflationary effects for each scenario studied at two exposure targets, based simply on the ratio of annual costs to the gross national product. This is a very rough and lowside approximation, because secondary effects are not considered. Scenario Low Scenario Medium Scenario High Scenario Crude Indicator Of Inflationary Impact (annual costs as a percent of GNP)a 10 ppm Exposure Target 1 ppm Exposure Target 0.3 0.6 0.6 1.1 0.9 1.9 a Based on $1.9 trillion Gross National Product ID-4 VC3343 The capital investment for compliance is significant for all of the scenarios studied. The table below, shows the capital requirements for each scenario in relation to 1976 capital expenditures by all manufacturing industries. The economic dislocation resulting from this capital investment will depend, of course, on the time period over which it is made. Scenario_______ Estimated Capital Investment ($ billion, 1977) 10 ppm Exposure Target 1 ppm Exposure Target Low 9 23 Medium 17 47 High 30 88 Estimated Capital As A Percent of 1976 Capital Expenditures For All Manufacturing ($53 Billion)3 (percent) 10 ppm 1 ppm Exposure Target Exposure Target 17 43 32 88 57 166 3 Source; Chemical & Engineering News, (June 6, 1977) ID-5 VC3344 35 Investment requirements of the higher magnitudes identified are likely to create bottlenecks in equipment supplies and in other capital investment dependent industries. This can increase prices dramatically within these industries, limiting discretionary cap ital investment for other purposes. Investment in new production facilities is likely to decline, depending on the time over which investment in engineering controls is spread. Many companies are likely to reallocate capital investment to cover the compliance requirements, rather than to add to overall capital expenditures. This will result in a decline in capital spending for purposes other than compliance. Capital expenditures for new production facilities, in particular, are likely to be significantly affected. This can be expected to have a negative effect on future employment, productivity and economic growth. Productivity is likely to decline--effective capacity may be cur tailed, and man-hours per unit of output may be increased. A 1-5 percent decline in the productivity of production labor was noted for most of the case-study substances. - A decline in productivity of support labor of up to 25 percent was also noted. Trade balance may deteriorate, especially in industry segments that manufacture potentially regulated substances. In 1976, the chemical and allied products industry had exports of approximately $10 billion or approximately 9 percent of all U.S. exports. ID-6 36 To the extent that manufacturing costs increase dispropor tionately versus foreign manufacturers, the U.S. trade balance could be adversely affected. Market structure may change, probably toward increased concentration and with disproportionate effects on small businesses. Ventilation and emissions control equipment are likely to be significant energy users. Vinyl chloride experience alone shows an increased energy requirement equivalent to 1 million barrels of oil per year. ID-7 VC33AA 37 3. THE RATE AT WHICH SPECIFIC REGULATIONS ARE ESTABLISHED AND IMPLEMENTED CAN HAVE A SIGNIFICANT EFFECT ON ECONOMIC IMPACTS Concentrating the compliance expenditures in time is likely to create the most intense economic impacts, particularly since off setting benefits are likely to accrue many years after control costs are incurred. The capital expenditures required have been estimated in constant 1977 dollars assuming normal supply-demand conditions. The actual dollar impact will not only be affected by normal inflation factors, but also by supply-bottlenecks resulting from any bunching of capi tal investment. The initial impact of the regulation is likely to be more unset tling than the long term effects. Uncertainty of firms about the impact of higher costs on sales can be expected to retard invest ment and may lead to cutbacks in output and employment. Since the cost and loss of productivity associated with retrofitted controls are greater than those of designed-in controls, near term impacts will probably be greater than long term impacts. * *** This concludes the Executive Summary of the study findings. The approach of the study concentrated on a limited number of specific case study substances and d velopment of generalized compliance cost factors for scaling to the potential regulation of many substances. This study therefore represents a rough estimate of the scaled direct costs of compliance and other economic impacts. The cost elements that it addresses are limited and represent what is probably a lowside estimate. The preliminary study demonstrates that the economic impacts are likely to be signifi cant and illustrates the need for a more thorough study. A methodology for a more definitive study is in included in the full report. ID-8 VC3347 38