December 1, 2011

MEMORANDUM

SUBJECT:	Regulatory Impact Results for the Reconsideration Proposal for National Emission Standards for Hazardous Air Pollutants for Industrial, Commercial, and Institutional Boilers and Process Heaters at Major Sources

FROM:	Tom Walton
      Economist
      AEG (C439-02)

TO:		Brian Shrager
                        Environmental Engineer
      ESG (D243-01)

      The EPA analyzed the economic impacts and benefits of this proposed rule using the identical methodology as the RIA for the boiler rules finalized in February 2011 and included as Attachment A to this memo. Therefore, all changes to the costs, benefits, and economic impacts for this proposed rule are due to changes in the proposed rule for major source boilers, which are fully described in the preamble to the proposed rule. There are no changes to the area source boiler impacts. The following table shows an approximation of the changes in monetized benefits and engineering costs due to changes in the major source boilers reconsideration proposal, and includes values that show a comparison based on the final rule inventory.

Benefits
Annual Engineering Costs (considering fuel savings)
Boiler Final Rule
$22 to $54 billion
 $1.40 billion
Changes due to addition of about 300 sources to inventory
+$2.4 to $6.0 billion
 +$0.16 billion
Changes due to Provision changes in this Proposal
+$2.7 to $6.6 billion
 -$0.1 billion
Net Change
+$5.1 to $13 billion
 +$0.06 billion
* Monetized benefits are shown at a 3% discount rate.  These benefits do not include benefits associated with reduced exposure to HAP, direct exposure to SO2, visibility impairment, or ecosystem effects.

      The market impact results are very similar to the ones in the final rule in the RIA. The agencies economic model suggests the average national price increases for industrial sectors are less than 0.01 percent, while average annual domestic production may fall by less than 0.01 percent. Because of higher domestic prices, imports slightly rise. The change in US surplus is now -1.93 billion dollars (2006$). For the RIA, it was -1.86 billion dollars (2006$). Table 1 shows the price, production, import, and export changes for this proposed rule, which are very close to the estimated changes for the final rule RIA.

Table 1.  Price, Production, Import, and Export Changes Resulting from the Boiler MACT and Proposed Reconsideration
Industry Sector
U.S. Prices
U.S. Production
Imports
U.S. Consumption
Exports
Energy
0.027%
-0.012%
0.050%
-0.006%
-0.004%
Coal
0.014%
-0.011%
0.029%
-0.010%
-0.001%
Crude Oil Extraction
-0.001%
-0.021%
-0.003%
-0.008%
0.000%
Electric generation
0.083%
-0.009%
0.164%
-0.009%
-0.013%
Natural Gas
0.002%
-0.014%
0.025%
-0.007%
-0.001%
Refined Petroleum
0.017%
-0.008%
0.016%
-0.003%
-0.001%
Nonmanufacturing
0.001%
-0.003%
0.001%
-0.003%
0.000%
Manufacturing
Food, beverages, and textiles
0.014%
-0.013%
0.017%
-0.008%
-0.009%
Lumber, paper, and printing
0.114%
-0.050%
0.117%
-0.030%
-0.079%
Chemicals
0.006%
-0.015%
0.007%
-0.010%
-0.006%
Plastics and Rubber
0.010%
-0.012%
0.011%
-0.008%
-0.010%
Nonmetallic Minerals
0.003%
-0.004%
0.001%
-0.003%
-0.003%
Primary Metals
0.018%
-0.021%
0.017%
-0.011%
-0.017%
Fabricated Metals
0.003%
-0.005%
0.004%
-0.004%
-0.002%
Machinery and Equipment
0.006%
-0.008%
0.006%
-0.004%
-0.010%
Electronic Equipment
-0.001%
-0.002%
0.000%
-0.001%
0.001%
Transportation Equipment
0.003%
-0.006%
0.004%
-0.004%
-0.007%
Other
0.004%
-0.009%
0.007%
-0.003%
-0.004%
Wholesale and Retail Trade
-0.002%
-0.001%
-0.001%
-0.001%
0.001%
Transportation Services
-0.001%
-0.003%
-0.001%
-0.003%
0.001%
Other Services
0.000%
-0.001%
0.000%
-0.001%
0.000%

      The results for sales tests for small businesses are somewhat lower than those calculated for the final rule. For the sales tests using small companies identified in the Combustion Survey, the mean cost to receipts dropped from 4 percent in the RIA to 2 percent for the proposed rule and the median was 0.2 percent for both. The number of parent companies with sales tests exceeding 3 percent dropped from 8 in the RIA to 6 for the reconsideration proposal. There was no change in the results for small public entities. Median cost is still about $1.1 million and representative small major public entities would have cost-to-revenue ratios above 10 percent.

      The change in employment estimates between the RIA and the reconsideration proposal is minimal. The estimated employment changes range between −3,100 to +6,500 employees, with a central estimate of +1,700 employees for the major source NESHAP in the RIA. For the reconsideration proposal, the estimated employment changes range between −3,000 to +6,300 employees, with a central estimate of +1,600.

      The benefits estimates increased for the proposal. The range for the RIA was $22 billion (2008$) to 54 billion (2008$) at 3 percent discount rate. The range for the proposal was $27 billion (2008$) to 67 billion (2008$) at 3 percent discount rate.  The range for the RIA was $20 billion (2008$) to 49 billion (2008$) at 7 percent discount rate.  The range for the proposal was $25 billion (2008$) to 61 billion (2008$) at 7 percent discount rate.

      The health benefits were calculated using the methodology described in the final Boiler RIA, using the revised emission reductions estimated for the reconsideration proposal. We were unable to estimate the benefits from reducing exposure to HAPs and ozone, ecosystem impairment, and visibility impairment, including reducing 187,000 tons of carbon monoxide, 37,000 tons of HCl, 1,000 tons of HF, 2,200 tons of other metals, and 1,000 to 3,600 pounds of mercury. Energy disbenefits due to increased CO2 emissions from increased electricity usage range from $5.8 million to $75 million depending on the discount rate, and thus do not affect the rounded monetized benefits.  Please refer to the full description in the final Boiler RIA of the unquantified benefits as well as technical details of the analysis and its limitations and uncertainties. These monetized benefits are approximately 23% higher than the final Boiler MACT due to the increase in SO2 emission reductions.  These benefit-per-ton estimates were calculated for a 2014 analysis year (i.e., using population and income growth for 2014), which slightly underestimates the 2015 benefits.  See Tables 2 and 3 for the updated benefits results.

Table 2: Summary of Monetized Benefits Estimates for Boiler MACT Reconsideration Proposal in 2015
                                   Pollutant
                          Emissions Reductions (tons)
                          Benefit per ton (Pope, 3%)
                          Benefit per ton (Laden, 3%)
                          Benefit per ton (Pope, 7%)
                          Benefit per ton (Laden, 7%)
                Total Monetized Benefits (billions 2008$ at 3%)
                Total Monetized Benefits (billions 2008$ at 7%)
Direct PM2.5
                                    25,601
                                    $72,000
                                   $180,000
                                    $65,000
                                   $160,000
                                                                           $1.8
                                      to
$4.5
                                                                           $1.7
to
$4.1
SO2
                                    558,430
                                    $46,000
                                   $110,000
                                    $42,000
                                   $100,000
                                                                            $25
                                      to
$63
                                                                            $23
                                      to
$57

                                     Total
                                                                            $27
                                                                             to
$67
                                                                            $25
                                                                             to
$61
*All estimates are for the implementation year (2015), and are rounded to two significant figures so numbers may not sum across columns. These models assume that all fine particles, regardless of their chemical composition, are equally potent in causing premature mortality because the scientific evidence is not yet sufficient to allow differentiation of effect estimates by particle type. The benefit per ton estimates vary because each ton of precursor reduced has a different propensity to become PM2.5. The monetized benefits incorporate the conversion from precursor emissions to ambient fine particles. These estimates do not include benefits from reducing HAP emissions, nor energy disbenefits associated with the increased emissions from additional energy usage, or ozone benefits. These benefits reflect existing boilers and new boilers anticipated to come online by 2015.

Table 3: Summary of Estimated Reductions in Health Incidences from PM2.5 for the
Boiler MACT Reconsideration Proposal in 2015 (95[th] percentile confidence interval)*

                                Proposed Option
Avoided Premature Mortality

Pope et al.
                                     3,100

                               (1,700 -- 8,600)
Laden et al.
                                     8,000

                               (6,600 -- 20,000)
Woodruff (Infant mortality)
                                      13

                                   (0 -- 62)
Avoided Morbidity

Chronic Bronchitis
                                     2,000

                                (360 -- 6,300)
Acute Myocardial Infarction
                                     4,900

                               (2,600 -- 14,000)
Hospital Admissions, Respiratory
                                      750

                                (560 -- 1,900)
Hospital Admissions, Cardiovascular
                                     1,600

                               (1,900 -- 3,200)
Emergency Room Visits, Respiratory
                                     3,000

                               (2,800 -- 7,200)
Acute Bronchitis
                                     4,600

                                 (0 -- 16,000)
Work Loss Days
                                    390,000

                             (550,000 -- 730,000)
Asthma Exacerbation
                                    51,000

                              (6,100 -- 260,000)
Minor Restricted Activity Days
                                   2,300,000

                           (3,200,000 -- 4,500,000)
Lower Respiratory Symptoms
                                    55,000

                              (39,000 -- 140,000)
Upper Respiratory Symptoms
                                    41,000

                              (17,000 -- 120,000)
*All estimates are for the analysis year (2015) and are rounded to whole numbers with two significant figures. These models assume that all fine particles, regardless of their chemical composition, are equally potent in causing premature mortality because the scientific evidence is not yet sufficient to allow differentiation of effect estimates by particle type. These estimates do not include benefits from reducing HAP emissions, VOC emissions and ozone exposure, nor energy disbenefits associated with the increased emissions from additional energy usage. These confidence intervals only reflect the standard errors within the epidemiology studies, but they do not reflect other sources of uncertainty inherent within the boiler-specific BPT estimates. These benefits reflect existing boilers and new boilers anticipated to come online by 2015.

         Figure 1: Breakdown of Monetized Benefits by Fuel Subcategory

Figure 2: Total Monetized PM2.5 Benefits Estimates for the Boiler MACT Reconsideration Proposal in 2015

Table 4 shows the estimated costs and benefits for the boiler MACT and the reconsideration proposal. The estimated net benefits are greater than the range for the RIA, which was $18.5 billion to $47.5 billion at a 7 percent discount rate and was $20.5 billion to $52.5 billion at 3 percent.

            Table 4. Summary of Estimated Social Costs and Benefits
Category
                               Primary Estimate
                                 Low Estimate
                                 High Estimate
                                  Year Dollar
                                 Discount Rate
                                Period Covered
Benefits

Annualized    Monetized ($millions/year)

                                    $25,000
                                    $61,000
                                     2008
                                      7%
                                     2015

                                    $27,000
                                    $67,000
                                     2008
                                      3%
                                     2015
Costs

Annualized    Monetized ($millions/year)
                                    $1,490

                                     2008
                                      7%
                                     2015

                                    $1,490

                                     2008
                                      3%
                                     2015
Net Benefits

Annualized    Monetized ($millions/year)

                                    $23,510
                                    $59,510
                                     2008
                                      7%
                                     2015

                                    $25,510
                                    $65,510
                                     2008
                                      3%
                                     2015

                                   Appendix

February 2011

Regulatory Impact Analysis:
National Emission Standards for Hazardous Air Pollutants for Industrial, Commercial, and Institutional Boilers and Process Heaters

U.S. Environmental Protection Agency
Office of Air Quality Planning and Standards (OAQPS)
Air Economics Group
Risk and Benefits Group
Air Quality Modeling Group
Research Triangle Park, NC 27711

Regulatory Impact Analysis:
National Emission Standards for Hazardous Air Pollutants for Industrial, Commercial, and Institutional Boilers and Process Heaters

February 2011

U.S. Environmental Protection Agency
Office of Air Quality Planning and Standards (OAQPS)
Air Economics Group
Risk and Benefits Group
Air Quality Modeling Group
Research Triangle Park, NC 27711

Contents
Section	Page
1	Introduction	1-1
1.1	Executive Summary	1-1
1.2	Organization of this Report	1-3
1.3	Section 1 References	1-6
2	Industry Profiles	2-1
2.1	Food Manufacturing	2-1
2.1.1	Introduction	2-1
2.1.2	Supply and Demand Characteristics	2-4
<IP_ADDRESS>	Goods and Services Used in Food Manufacturing	2-4
<IP_ADDRESS>	Energy	2-4
<IP_ADDRESS>	Uses and Consumers	2-7
2.1.3	Firm and Market Characteristics	2-7
<IP_ADDRESS>	Location	2-7
<IP_ADDRESS>	Production Capacity and Utilization	2-9
<IP_ADDRESS>	Employment	2-9
<IP_ADDRESS>	Plants and Capacity	2-10
<IP_ADDRESS>	Firm Characteristics	2-10
<IP_ADDRESS>	Size Distribution	2-12
<IP_ADDRESS>	Domestic Production	2-12
<IP_ADDRESS>	International Trade	2-12
<IP_ADDRESS>	Market Prices	2-16
2.2	Wood Product Manufacturing	2-16
2.2.1	Introduction	2-16
2.2.2	Supply and Demand Characteristics	2-20
<IP_ADDRESS>	Goods and Services Used in Wood Product Manufacturing	2-20
<IP_ADDRESS>	Uses and Consumers	2-22
2.2.3	Firm and Market Characteristics	2-24
<IP_ADDRESS>	Location	2-24
<IP_ADDRESS>	Production Capacity and Utilization	2-25
<IP_ADDRESS>	Employment	2-26
<IP_ADDRESS>	Plants and Capacity	2-26
<IP_ADDRESS>	Firm Characteristics	2-27
<IP_ADDRESS>	Size Distribution	2-27
<IP_ADDRESS>	Domestic Production	2-28
<IP_ADDRESS>	International Trade	2-28
<IP_ADDRESS>	Market Prices	2-31
2.3	Paper Manufacturing	2-33
2.3.1	Introduction	2-33
2.3.2	Supply and Demand Characteristics	2-37
<IP_ADDRESS>	Goods and Services Used in Paper Manufacturing	2-37
<IP_ADDRESS>	Uses and Consumers	2-42
2.3.3	Firm and Market Characteristics	2-43
<IP_ADDRESS>	Location	2-43
<IP_ADDRESS>	Production Capacity and Utilization	2-44
<IP_ADDRESS>	Employment	2-44
<IP_ADDRESS>	Plants and Capacity	2-45
<IP_ADDRESS>	Firm Characteristics	2-45
<IP_ADDRESS>	Size Distribution	2-47
<IP_ADDRESS>	Domestic Production	2-48
<IP_ADDRESS>	International Trade	2-49
<IP_ADDRESS>	Market Prices	2-49
2.4	Chemical Manufacturing	2-51
2.4.1	Introduction	2-51
2.4.2	Supply and Demand Characteristics	2-54
<IP_ADDRESS>	Goods and Services Used in Chemical Manufacturing	2-55
<IP_ADDRESS>	Uses and Consumers	2-55
2.4.3	Firm and Market Characteristics	2-58
<IP_ADDRESS>	Location	2-58
<IP_ADDRESS>	Production Capacity and Utilization	2-60
<IP_ADDRESS>	Employment	2-60
<IP_ADDRESS>	Plants and Capacity	2-60
<IP_ADDRESS>	Firm Characteristics	2-62
<IP_ADDRESS>	Size Distribution	2-64
<IP_ADDRESS>	Domestic Production	2-64
<IP_ADDRESS>	International Trade	2-64
<IP_ADDRESS>	Market Prices	2-64
2.5	Section 2 References	2-68
3	Engineering Cost Analysis	3-1
3.1	Major Sources	3-2
3.2	Area Sources	3-5
3.3	Section 3 References	3-6
4	Economic Impact Analysis	4-1
4.1	Partial Equilibrium Analysis (Multiple Markets)	4-1
4.1.1	Overview	4-1
4.1.2	Economic Impact Analysis Results	4-2
<IP_ADDRESS>	Market-Level Results	4-2
<IP_ADDRESS>	Social Cost Estimates Major Source Rule	4-3
<IP_ADDRESS>	Social Cost Estimates Area Source Rule	4-5
<IP_ADDRESS>	Job Effects	4-6
4.2	Section 4 References	4-14
5	Small Entity Analyses	5-1
5.1	Small Entity Screening Analysis	5-1
5.1.1	Small Businesses	5-1
<IP_ADDRESS>	Representative Small Business Analysis Using Census Statistics of U.S. Businesses	5-1
<IP_ADDRESS>	Additional Small Business Analysis Using Sample of Small Businesses Identified in Combustion Facility Survey	5-4
5.1.2	Small Governmental Jurisdictions and Not-for-Profit Enterprises	5-5
5.2	Final Regulatory Flexibility Analysis (FRFA): Major Sources	5-6
5.2.1	Need for Rule and Objectives	5-6
5.2.2	Summary of the Significant Issues raised by the Public Comments and Agency Assessment	5-6
5.2.3	Description of and Estimate of the Number of Small entities to Which the Rules Will Apply	5-7
5.2.4	Description of the Projected Reporting, Record keeping and Other Compliance Requirements of the Rule	5-9
5.2.5	Description of the steps the Agency has Taken to Minimize the Significant Economic Impact on Small Entities	5-11
5.3	Final Regulatory Flexibility Analysis (FRFA): Area Sources	5-12
5.3.1	Need for Rule and Objectives	5-12
5.3.2	Summary of the Significant Issues raised by the Public Comments and Agency Assessment	5-12
5.3.3	Description of and Estimate of the Number of Small entities to Which the Rules Will Apply	5-13
5.3.4	Description of the Projected Reporting, Record keeping and Other Compliance Requirements of the Rule	5-15
5.3.5	Description of the steps the Agency has Taken to Minimize the Significant Economic Impact on Small Entities	5-16
5.4	Section 5 References	5-16
6	Air Quality Modeling of Emissions Reductions	6-1
6.1	Synopsis	6-1
6.2	Photochemical Model Background	6-2
6.3	Model Domain and Grid Resolution	6-3
6.4	Emissions Input Data	6-4
6.4.1	2005 Baseline Emissions	6-4
6.4.2	Future Year Baseline Emissions	6-5
6.4.3	Future Year Sector Contribution Approach	6-7
6.5	Model Results	6-9
6.5.1	Impacts of Sector on Total Mercury Deposition	6-10
6.5.2	Impacts of Sector on Future Annual PM2.5 Levels	6-10
6.5.3	Impacts of Sector on Future 24-hour PM2.5 Levels	6-11
6.5.4	Impacts of Sector on Future Visibility Levels	6-11
6.5.5	Impacts of Sector on Future Ozone Levels	6-12
6.6	Section 6 References	6-12
7	Benefits of Emissions Reductions	7-1
7.1	Synopsis	7-1
7.2	Calculating Benefits	7-2
7.2.1	Methodology Improvements since Proposal	7-4
7.2.2	Benefits Analysis Approach for PM2.5 and Ozone	7-5
7.2.3	Health Impact Analysis (HIA)	7-6
7.2.4	Estimating PM2.5-related Premature Mortality	7-10
7.2.5	Economic Valuation of Health Impact	7-12
7.2.6	Calculating Boiler Sector-specific Benefit-per-ton Estimates	7-14
7.3	Health Benefits Results	7-20
7.4	Energy Disbenefits	7-34
7.4.1	Social Cost of Carbon and Greenhouse Gas Disbenefits	7-34
7.5	Unquantified or Nonmonetized Benefits	7-37
7.5.1	Other SO2 Benefits	7-37
7.5.2	Carbon Monoxide Benefits	7-39
7.5.3	Visibility Benefits	7-40
7.5.4	Ozone Vegetation Benefits	7-40
7.5.5	Direct HAP Benefits	7-40
<IP_ADDRESS>	Mercury	7-44
<IP_ADDRESS>	Hydrogen Chloride (HCl)	7-49
<IP_ADDRESS>	Chlorine Gas (Cl2)	7-50
<IP_ADDRESS>	Hydrogen Cyanide (HCN)	7-50
<IP_ADDRESS>	Hydrogen Fluoride (HF)	7-50
<IP_ADDRESS>	Toluene	7-50
<IP_ADDRESS>	Formaldehyde	7-51
<IP_ADDRESS>	Polycyclic Aromatic Hydrocarbons (PAHs)	7-53
<IP_ADDRESS>	Acetaldehyde	7-54
<IP_ADDRESS>	Nickel	7-55
<IP_ADDRESS>	Manganese	7-55
<IP_ADDRESS>	Dioxins (Chlorinated dibenzodioxins (CDDs)	7-56
<IP_ADDRESS>	Furans (Chlorinated dibenzofurans (CDFs))	7-57
<IP_ADDRESS>	Other Air Toxics	7-57
7.6	Limitations and Uncertainties	7-57
7.6.1	Monte Carlo Analysis	7-58
7.6.2	LML Assessment for PM2.5	7-59
7.6.3	Alternate Concentration-response Functions for PM Mortality	7-59
7.6.4	Alternate Concentration-response Functions for Ozone Mortality	7-60
7.6.5	Qualitative Assessment of Uncertainty and Other Analysis Limitations	7-60
7.7	Section 7 References	7-62
8	Comparison of Monetized Benefits and Costs	8-1
8.1	Boiler MACT	8-1
8.2	Boiler Area Source Rule	8-1
8.3	Section 8 References	8-5
Appendixes
A	OAQPS Multimarket Model to Assess the Economic Impacts of Environmental Regulation	A-1
B	Detailed Economic Model Results by Sector	B-1

List of Figures
Number	Page
2-1.	Distribution of Employment within Food Manufacturing (NAICS 311): 2006	2-3
2-2.	Distribution of Total Value of Shipments within Food Manufacturing (NAICS 311): 2006	2-3
2-3.	Electric Power Use Trends in Food Manufacturing (NAICS 311): 1997 - 2005	2-7
2-4.	Establishment Concentration in Food Manufacturing (NAICS 311): 2002	2-8
2-5.	Capacity Utilization Trends in Food Manufacturing (NAICS 311)	2-9
2-6.	Employment Concentration in Food Manufacturing (NAICS 311): 2002	2-10
2-7.	Capacity Trends in Food Manufacturing (NAICS 311)	2-11
2-8.	Industrial Production Trends in Food Manufacturing (NAICS 311)	2-15
2-9.	International Trade Trends in Food Manufacturing (NAICS 311)	2-15
2-10.	Producer Price Trends in Food Manufacturing (NAICS 311)	2-16
2-11.	Distribution of Value of Shipments within Wood Product Manufacturing (NAICS 322): 2007	2-19
2-12.	Distribution of Employment within Wood Product Manufacturing (NAICS 322): 2007	2-20
2-13.	Electrical Power Use Trends in the Wood Product Manufacturing Industry (NAICS 321): 1997 - 2005	2-24
2-14.	Establishment Concentration in the Wood Product Manufacturing Industry (NAICS 321): 2002	2-26
2-15.	Capacity Utilization Trends in the Wood Product Manufacturing Industry (NAICS 321)	2-27
2-16.	Employment Concentration in the Wood Product Manufacturing Industry (NAICS 321): 2002	2-28
2-17.	Capacity Trends in the Wood Product Manufacturing Industry (NAICS 321)	2-29
2-18.	Industrial Production Trends in the Wood Product Manufacturing Industry (NAICS 321): 1997 - 2009	2-32
2-19.	International Trade Trends in the Wood Product Manufacturing Industry (NAICS 321)]	2-32
2-20.	Producer Price Trends in the Wood Product Manufacturing Industry (NAICS 321)	2-33
2-21.	Distribution of Value of Shipments within Paper Manufacturing (NAICS 322): 2007	2-36
2-22.	Distribution of Employment within Paper Manufacturing (NAICS 322): 2007	2-36
2-23.	Electrical Power Use Trends in the Paper Manufacturing Industry: 1997 - 2005	2-41
2-24.	Establishment Concentration in Paper Manufacturing Industry (NAICS 322): 2002	2-43
2-25.	Capacity Utilization Trends in the Paper Manufacturing Industry (NAICS 322)	2-44
2-26.	Employment Concentration in the Paper Manufacturing Industry (NAICS 322): 2002	2-45
2-27.	Capacity Trends in the Paper Manufacturing Industry (NAICS 322)	2-46
2-28.	Industrial Production Trends in the Paper Manufacturing Industry (NAICS 322): 1997 - 2009	2-49
2-29.	International Trade Trends in the Paper Manufacturing Industry (NAICS 322)	2-50
2-30.	Producer Price Trends in the Paper Manufacturing Industry (NAICS 222)	2-50
2-31.	Distribution of Employment within Chemical Manufacturing (NAICS 325): 2007	2-53
2-32.	Distribution of Total Value of Shipments within Chemical Manufacturing (NAICS 325): 2007	2-53
2-33.	Electric Power Use Trends in Chemical Manufacturing (NAICS 325):  1997 - 2005	2-58
2-34.	Establishment Concentration in Chemical Manufacturing (NAICS 325): 2002	2-60
2-35.	Capacity Utilization Trends in Chemical Manufacturing (NAICS 325)	2-61
2-36.	Employment Concentration in Chemical Manufacturing (NAICS 325): 2002	2-61
2-37.	Capacity Trends in Chemical Manufacturing (NAICS 325)	2-62
2-38.	Industrial Production Trends in Chemical Manufacturing (NAICS 325)	2-66
2-39.	International Trade Trends in Chemical Manufacturing (NAICS 325)	2-67
2-40.	Producer Price Trends in Chemical Manufacturing (NAICS 325)	2-67

4-1.	Market-Level Changes by Source and Option	4-3
4-2.	Distribution of U.S. Surplus Changes by Sector: Major Sources	4-4
4-3.	Distribution of Total Surplus Changes by Sector: Area Sources	4-6
4-4.	Employment Impacts Using Morgenstern, Pizer, Shih (2002) (1,000 FTEs)	4-10

5-1.	Share of NAICS/Enterprise Employment Categories (<500 employees) with Sales Tests Exceeding 3%	5-4

6-1.	Map of the photochemical modeling domains. The black outer box denotes the 36 km national modeling domain; the red inner box is the 12 km western U.S. grid; and the blue inner box is the 12 km eastern U.S. grid.	6-3
6-2.	Locations of boilers in the NEI point inventory for the future baseline (2016)	6-9

7-1.	Total Monetized PM2.5 and Ozone Benefits for the Final Boiler MACT and Boiler Area Source Rule in 2014	7-2
7-2.	Illustration of BenMAP Approach	7-7
7-3.	Data Inputs and Outputs for the BenMAP Model for a PM2.5 Analysis	7-8
7-4.	Change in Ambient PM2.5 Levels from SO2 Emissions from Point Source Boilers	7-17
7-5.	Change in Ambient PM2.5 Levels from PM Emissions from Point Source Boilers	7-18
7-6.	Change in Ambient PM2.5 Levels from SO2 Emissions from Non-point Source Boilers	7-18
7-7.	Change in Ambient PM2.5 Levels from PM Emissions from Non-point Source Boilers	7-19
7-8.	Breakdown of Monetized PM2.5 Health Benefits Estimates using Mortality Function from Pope et al. (2002)	7-28
7-9.	Breakdown of Monetized Ozone Health Benefits Estimates using Mortality Function from Bell et al. (2004)	7-29
7-10.	Total Monetized PM2.5 and Ozone Benefits Estimates for the Final Boiler MACT and Boiler Area Source Rule in 2014	7-30
7-11.	Breakdown of Monetized PM2.5 Benefits Estimates by Precursor for the Final Boiler MACT in 2014	7-31
7-12.	Breakdown of Monetized PM2.5 Benefits Estimates by Precursor for the Final Boiler Area Source Rule in 2014	7-31
7-13.	Breakdown of Monetized PM2.5 Benefits Estimates by Subcategory for the Final Boiler MACT in 2014	7-32
7-14.	Breakdown of Monetized PM2.5 Benefits Estimates by Subcategory for the Final Boiler Area Source Rule in 2014	7-32
7-15.	Percentage of Population Exposed to Baseline Air Quality Levels for Final Boiler MACT and Boiler Area Source Rule	7-33
7-16.	Cumulative Percentage of Population Exposed to Baseline Air Quality Levels for Final Boiler MACT and Boiler Area Source Rule	7-34
7-17.	Estimated County Level Carcinogenic Risk from HAP exposure from outdoor sources (2002 NATA)	7-42
7-18.	Estimated County Level Noncancer (Respiratory) Risk from HAP exposure from outdoor sources (2002 NATA)	7-42
7-19.	Percentage Reduction in Total Mercury Deposition in the Eastern U.S.	7-48
7-20.	Percentage Reduction in Total Mercury Deposition in the Western U.S.	7-49

8-1.	Net Benefits for the Final Major and Area Source Boiler Rules at 3% Discount Rate	8-4
8-2.	Net Benefits for the Final Major and Area Source Boiler Rules at 7% Discount Rate	8-5

List of Tables
Number	Page
1-1.	Summary of the Monetized Benefits, Social Costs, and Net Benefits for the Boiler MACT (Major Sources) in 2014 (millions of 2008$)	1-4
1-2.	Summary of the Monetized Benefits, Social Costs, and Net Benefits for the Boiler Area Source Rule in 2014 (millions of 2008$)	1-5

2-1.	Key Statistics: Food Manufacturing (North American Industry Classification System [NAICS] 311)	2-2
2-2.	Industry Data: Food Manufacturing (NAICS 311)	2-2
2-3.	Costs of Goods and Services Used in Food Manufacturing (NAICS 311) ($2007)	2-5
2-4.	Key Goods and Services Used in Food Manufacturing (NAICS 311) ($2007, millions)	2-5
2-5.	Energy Used in Food Manufacturing (NAICS 311)	2-6
2-6.	Demand by Sector: Food Manufacturing (NAICS 311) ($2007, millions)	2-8
2-7.	Top Publicly Held U.S. Food Companies: 2007	2-11
2-8.	Corporate Income and Profitability for Food Manufacturing (NAICS 311)	2-12
2-9.	Small Business Size Standards: Food Manufacturing (NAICS 311)	2-13
2-10.	Distribution of Economic Data by Enterprise Size: Food Manufacturing (NAICS 311)	2-14
2-11.	Key Statistics: Wood Product Manufacturing (NAICS 321)	2-17
2-12.	Industry Data: Wood Product Manufacturing (NAICS 321)	2-17
2-13.	Costs of Goods and Services in Wood Product Manufacturing (NAICS 321) ($2007)	2-21
2-14.	Key Goods and Services Used in Wood Product Manufacturing (NAICS 321) ($2007, millions)	2-22
2-15.	Energy Used in Wood Product Manufacturing (NAICS 321)	2-23
2-16.	Demand by Sector: Wood Product Manufacturing (NAICS 321) ($2007, millions)	2-25
2-17.	Largest U.S. Paper and Forest Products Companies: 2006	2-29
2-18.	Distribution of Economic Data by Enterprise Size: Wood Product Manufacturing (NAICS 321)	2-30
2-19.	Small Business Size Standards: Wood Product Manufacturing (NAICS 321)	2-31
2-20.	Key Statistics: Paper Manufacturing (NAICS 322)	2-34
2-21.	Industry Data: Paper Manufacturing (NAICS 322)	2-34
2-22.	Costs of Goods and Services Used in the Paper Manufacturing Industry (NAICS 322)	2-38
2-23.	Key Goods and Services Used in the Paper Manufacturing Industry (NAICS 322) ($millions, $2007)	2-39
2-24.	Energy Used in Paper Manufacturing (NAICS 322)	2-40
2-25.	Estimated Energy Sources for the U.S. Pulp and Paper Industry	2-41
2-26.	Demand by Sector: Paper Manufacturing Industry (NAICS 322) ($millions, $2007)	2-42
2-27.	Largest U.S. Paper and Forest Products Companies: 2006	2-46
2-28.	Distribution of Economic Data by Enterprise Size: Paper Manufacturing (NAICS 322)	2-47
2-29.	Small Business Size Standards: Paper Manufacturing (NAICS 322)	2-48
2-30.	Key Statistics: Chemical Manufacturing (NAICS 325)	2-52
2-31.	Industry Data: Chemical Manufacturing (NAICS 325)	2-52
2-32.	Key Goods and Services Used in Chemical Manufacturing (NAICS 325) ($2007, millions)	2-54
2-33.	Costs of Goods and Services Used in Chemical Manufacturing (NAICS 325) ($2007)	2-56
2-34.	Energy Used in Chemical Manufacturing (NAICS 325)	2-57
2-35.	Demand by Sector: Chemical Manufacturing (NAICS 325) ($2007 millions)	2-59
2-36.	Top Chemical Producers: 2007	2-63
2-37.	2007 Corporate Income and Profitability (NAICS 325)	2-63
2-38.	Small Business Size Standards: Chemical Manufacturing (NAICS 325)	2-65
2-39.	Distribution of Economic Data by Enterprise Size: Chemical Manufacturing (NAICS 325)	2-66

3-1.	Summary of Capital and Annual Costs for New and Existing Major Sources	3-3
3-2.	Summary of Annual Costs for New and Existing Area Sources	3-6

4-1.	Distribution of Social Costs Major Sources (billion, 2008$): 2014	4-4
4-2.	Distribution of Social Costs Area Sources (billion, 2008$): 2014	4-5
4-3.	Employment Impacts Using Morgenstern, Pizer, Shih (2002) (FTE)	4-9
4-4.	Cost Approach Jobs Impacts in FTEs	4-12
4-5.	Employment Impacts	4-13
4-6.	Aggregate Employment in FTEs	4-13
4-7.	Aggregate Employment Distributed to Regulated Entities and Others in FTEs	4-14

5-1.	Affected Sectors and Size Standards	5-2
5-2.	Major Sources: Sales Tests Using Small Companies Identified in the Combustion Survey	5-3
5-3.	Information Collection Effort for Facilities with Combustion Units: Major Sources	5-8
5-4.	Estimated Affected Facilities Using 13 State Boiler Inspector Inventory: Area Sources	5-14

6-1.	Geographic Elements of Domains Used in Photochemical Modeling	6-4
6-2.	Control Strategies and/or Growth Assumptions Included in the 2016 Projection	6-6
6-3.	Estimated Future Year (2016) Controllable Boiler Sector Emissions	6-8

7-1.	Human Health and Welfare Effects of Air Pollutants Affected	7-9
7-2.	Summary of Monetized Benefits Estimates for Final Boiler MACT in 2014 (millions of 2008$)	7-21
7-3.	Summary of Monetized Benefits Estimates for Final Boiler Area Source Rule in 2014 (millions of 2008$)	7-21
7-4.	Summary of Estimated Reductions in Health Incidences from PM2.5 for the Final Boiler MACT in 2014 (95[th] percentile confidence interval) 	7-22
7-5.	Summary of Estimated Reductions in Health Incidences from PM2.5 for the Final Boiler Area Source Rule in 2014 (95[th] percentile confidence interval)	7-23
7-6.	Summary of Monetized Benefits Estimates from PM2.5 for the Final Boiler MACT in 2014 (95[th] percentile confidence interval)	7-24
7-7.	Summary of Monetized Benefits Estimates from PM2.5 for the Final Boiler Area Source Rule in 2014 (95[th] percentile confidence interval)	7-25
7-8.	Summary of Monetized Benefits Estimates from Ozone for the Final Boiler MACT in 2014 (95[th] percentile confidence interval)	7-26
7-9.	Social Cost of Carbon (SCC) Estimates (per tonne of CO2) for 2014	7-36
7-10. Monetized SCC-Derived Disbenefits of CO2 Emission Increases in 2014 (millions of 2008$)	7-37
7-11.	Top HAPs by Mass from Boilers by Fuel Type	7-44

8-1.	Summary of the Monetized Benefits, Social Costs, and Net Benefits for the Boiler MACT in 2014 (millions of 2008$)	8-2
8-2	Summary of the Monetized Benefits, Social Costs, and Net Benefits for the Boiler Area Source Rule in 2014 (millions of 2008$)	8-3

Introduction
The U.S. Environmental Protection Agency (EPA) is promulgating two rules for national emission standards for hazardous air pollutants (NESHAP) for new and existing industrial, commercial, and institutional boilers and process heaters. One rule requires all major sources to meet hazardous air pollutant (HAP) emissions standards reflecting the application of the maximum achievable control technology (MACT). In the other rule, EPA is promulgating a NESHAP for two area source categories: industrial boilers and institutional and commercial boilers. The emission standards for controlling mercury and polycyclic organic matter (POM) emissions are based on the MACT. The emission standards for controlling other HAPs are based on EPA's determination as to what constitutes the generally available control technology (GACT) or management practices. As part of the regulatory process, EPA is required to develop a regulatory impact analysis (RIA). The RIA includes an economic impact analysis (EIA) and a small entity impacts analysis and documents the RIA methods and results.
Executive Summary
The key results of the RIA are as follows:
Engineering Cost Analysis: EPA estimates the major source NESHAP's total annualized costs will be $1.4 billion (2008$). For the area source NESHAP, EPA estimates the total annualized costs will be $0.5 billion.
Market Analysis: Under the major source NESHAP, the Agency's economic model suggests the average national prices for industrial sectors could be small (less than 0.01% higher). Average annual domestic production may also fall by less than 0.01%. Because of higher domestic prices, imports rise by less than 0.01% per year. Market-level effects for the area source NESHAP are smaller when compared to the major source rule; average price, production, and import changes are less than 0.01%.
Social Cost Analysis: The estimated social cost of the major source rule is just under $1.5 billion (2008$). The Agency's economic model suggests that industries are able to pass approximately $0.5 billion of the rule's costs to consumers (e.g., higher market prices). Domestic industries' surplus falls by $1.4 billion, while other countries on net benefit from higher prices (a net increase in rest-of-the world [ROW] surplus of less than $0.1 billion). Additional costs and fuel savings for new and existing major sources that are not included in the economic model represent a net benefit of $0.4 billion. The estimated social cost of the area source rule is approximately $0.5 billion (2008$). The Agency's economic model suggests that industries are able to pass approximately $0.2 billion of the rule's costs to consumers. Domestic industries' surplus falls by $0.3 billion and the net increase in ROW surplus is less than $0.1 billion. Additional costs and fuel savings for unknown, existing, and new area sources not included in the economic model results represent a net benefit of less than $0.1 billion.
Employment Changes:  The estimated employment changes range between −3100 to 6,500  employees, with a central estimate of +1,700 employees for the major source NESHAP.   The estimated employment changes range between −1,000 to 2,000  employees, with a central estimate of +500 employees for the area source NESHAP.
Small Entity Analyses: EPA performed a screening analysis for impacts on small entities by comparing compliance costs to sales/revenues (e.g., sales and revenue tests). EPA's analysis found the tests were typically higher than 3% for small entities included in the screening analysis. Pursuant to section 603 of the RFA, EPA prepared an initial regulatory flexibility analysis (IRFA) for the proposed rule and convened a Small Business Advocacy Review Panel to obtain advice and recommendations of representatives of the regulated small entities. A detailed discussion of the Panel's advice and recommendations is found in the final Panel Report (Docket ID No. EPA-HQ-OAR-2002-0058-0797). A summary of the Panel's recommendations is also presented in the preamble to the proposed rule at 75 FR 32044-32045 (June 4, 2010). In the proposed rule, EPA included provisions consistent with four of the Panel's recommendations. As required by section 604 of the RFA, we also prepared a final regulatory flexibility analysis (FRFA) the final rule (see Section 5).
Benefits Analysis:
The benefits from reducing some air pollutants have not been monetized in this analysis, including reducing a combined 113,000 tons of carbon monoxide, 30,000 tons of HCl, 830 tons of HF, 2,900 pounds of mercury, 3,000 tons of other metals, and 23 grams of dioxins/furans (TEQ) each year. We assess the benefits of these emission reductions qualitatively in this analysis.
We have monetized the benefits from reducing PM (as a surrogate for metal HAP), as well as the co-benefits that result from the HAP emissions reductions (e.g., the pollution control equipment for HCl also reduces sulfur dioxide, a pre-cursor to PM2.5). Thus all monetized benefits reported reflect improvements in ambient PM2.5 and ozone concentrations. As such, although the monetized benefits likely underestimate the total benefits, the extent of the underestimate is unclear.
Using a 3% discount rate, we estimate the total monetized benefits of the Boiler MACT to be $22 billion to $54 billion in the implementation year (2014). Using a 7% discount rate, we estimate the total monetized benefits of the Boiler MACT to be $20 billion to $49 billion in the implementation year. Using alternate relationships between PM2.5 and premature mortality supplied by experts, higher and lower benefits estimates are plausible, but most of the expert-based estimates fall between these estimates.
Using a 3% discount rate, we estimate the total monetized benefits of the Boiler Area Source Rule to be $210 million to $520 million in the implementation year (2014). Using a 7% discount rate, we estimate the total monetized of the Boiler Area Source Rule to be $190 million to $470 million in the implementation year.
Using a 3% discount rate, we estimate the total monetized benefits of the combined Boiler MACT and Boiler Area Source Rule to be $22 billion to $58 billion in the implementation year (2014). Using a 7% discount rate, we estimate the total monetized benefits of the combined Boiler MACT and Boiler Area Source Rule to be $20 billion to $50 billion in the implementation year. All estimates are in 2008$.
Net Benefits: For the Boiler MACT, the net benefits are $21 billion to $53 billion at a 3% discount rate for the benefits and $19 million to $48 billion at a 7% discount rate. For the Boiler Area Source Rule, the net benefits are −$280 million to $30 million at a 3% discount rate for the benefits and −$300 million to −$20 million at a 7% discount rate. These results are shown in Tables 1-1 and 1-2.
Organization of this Report
The remainder of this report supports and details the methodology and the results of the EIA:
         #          Section 2 presents the affected industry profiles.
         #          Section 3 describes the engineering cost analysis.
         #          Section 4 describes the economic impact analysis.
         #          Section 5 describes the small entity analyses.
Section 6 describes the air quality modeling performed by EPA.
Section 7 presents the benefits estimates.
Section 8 presents the net benefits.
Appendix A describes the multimarket model used in the economic analysis.
Appendix B provides additional economic model result tables by sector.
Table 1-1.	Summary of the Monetized Benefits, Social Costs, and Net Benefits for the Boiler MACT (Major Sources) in 2014 (millions of 2008$)[a]

3% Discount Rate
7% Discount Rate
Selected
Total Monetized Benefits[b]
                                    $22,000
                                      to
                                    $54,000
                                    $20,000
                                      to
                                    $49,000
Total Social Costs[3]
                                    $1,500
                                     1,500
Net Benefits
                                    $20,500
                                      to
                                    $52,500
                                    $18,500
                                      to
                                    $47,500
Non-monetized Benefits
112,000 tons of carbon monoxide

30,000 tons of HCl

820 tons of HF

2,800 pounds of mercury

2,700 tons of other metals

23 grams of dioxins/furans (TEQ)

Health effects from SO2 exposure

Ecosystem effects

Visibility impairment
                                  Alternative
Total Monetized Benefits[b]
                                    $18,000
                                      to
                                    $43,000
                                    $16,000
                                      to
                                    $39,000
Total Social Costs[b]
                                    $1,900
                                    $1,900
Net Benefits
                                    $16,100
                                      to
                                    $41,100
                                    $14,100
                                      to
                                    $37,100
Non-monetized Benefits
112,000 tons of carbon monoxide

22,000 tons of HCl

620 tons of HF

2,400 pounds of mercury

2,600 tons of other metals

23 grams of dioxins/furans (TEQ)

Health effects from SO2 exposure

Ecosystem effects

Visibility impairment
[a]	All estimates are for the implementation year (2014), and are rounded to two significant figures. These results include units anticipated to come online and the lowest cost disposal assumption.
[b]	The total monetized benefits reflect the human health benefits associated with reducing exposure to PM2.5 through reductions of directly emitted PM2.5 and PM2.5 precursors such as SO2, as well as reducing exposure to ozone through reductions of VOCs. It is important to note that the monetized benefits include many but not all health effects associated with PM2.5 exposure. Benefits are shown as a range from Pope et al. (2002) to Laden et al. (2006). These models assume that all fine particles, regardless of their chemical composition, are equally potent in causing premature mortality because the scientific evidence is not yet sufficient to allow differentiation of effect estimates by particle type. These estimates include energy disbenefits associated with the increased emissions from additional energy usage valued at $22 million for the selected option and $37 million for the alternative option. Ozone benefits are valued at $3.6 to $15 million for both options.
[c]	The methodology used to estimate social costs for one year in the multimarket model using surplus changes results in the same social costs for both discount rates.
Table 1-2.	Summary of the Monetized Benefits, Social Costs, and Net Benefits for the Boiler Area Source Rule in 2014 (millions of 2008$)[a]

3% Discount Rate
7% Discount Rate
Final MACT/GACT Approach: Selected
Total Monetized Benefits[b]
                                     $210
                                      to
                                     $520
                                     $190
                                      to
                                     $470
Total Social Costs[c]
                                     $490
                                     $490
Net Benefits
                                    −$280
                                      to
                                      $30
                                    −$300
                                      to
                                    −$20
Non-monetized Benefits
1,100 tons of carbon monoxide

340 tons of HCl

8 tons of HF

90 pounds of mercury

320 tons of other metals

<1 gram of dioxins/furans (TEQ)

Health effects from SO2 exposure

Ecosystem effects

Visibility impairment
Proposed MACT Approach: Alternative
Total Monetized Benefits[b]
                                     $200
                                      to
                                     $490
                                     $180
                                      to
                                     $440
Total Social Costs[c]
                                     $850
                                     $850
Net Benefits
                                    −$650
                                      to
                                    −$360
                                    −$670
                                      to
                                    −$410
Non-monetized Benefits
1,100 tons of carbon monoxide

340 tons of HCl

8 tons of HF

90 pounds of mercury

320 tons of other metals

<1 gram of dioxins/furans (TEQ)

Health effects from SO2 exposure

Ecosystem effects

Visibility impairment
[a] All estimates are for the implementation year (2014), and are rounded to two significant figures. These results include units anticipated to come online and the lowest cost disposal assumption.
[b]	The total monetized benefits reflect the human health benefits associated with reducing exposure to PM2.5 through reductions of directly emitted PM2.5 and PM2.5 precursors such as SO2. It is important to note that the monetized benefits include many but not all health effects associated with PM2.5 exposure. Benefits are shown as a range from Pope et al. (2002) to Laden et al. (2006). These models assume that all fine particles, regardless of their chemical composition, are equally potent in causing premature mortality because the scientific evidence is not yet sufficient to allow differentiation of effect estimates by particle type. These estimates include energy disbenefits associated with the increased emissions from additional energy usage valued at less than $1 million.
[c]	The methodology used to estimate social costs for one year in the multimarket model using surplus changes results in the same social costs for both discount rates.
Section 1 References
Laden, F., J. Schwartz, F.E. Speizer, and D.W. Dockery. 2006. "Reduction in Fine Particulate Air Pollution and Mortality." American Journal of Respiratory and Critical Care Medicine 173:667-672.
Pope, C.A., III, R.T. Burnett, M.J. Thun, E.E. Calle, D. Krewski, K. Ito, and G.D. Thurston. 2002. "Lung Cancer, Cardiopulmonary Mortality, and Long-term Exposure to Fine Particulate Air Pollution." Journal of the American Medical Association 287:1132-1141.

Industry Profiles
In this section, we provide an introduction selected industries that are affected by the rules. The industries were selected based on high facility population counts within 3-digit NAICs industries reported in the combustion facility survey. The purpose is to give the reader a general understanding of economic aspects and industry trends to provide additional context for the economic impact analysis.
Food Manufacturing
Introduction
Food manufacturing involves the transformation of raw agricultural and livestock products into processed food. Between 1997 and 2002, shipment values stagnated, falling 0.38%, while the number of employees and payroll increased 2.71% and 7.76%, respectively (Table 2-1). This trend reversed between 2002 and 2006, as shipment values rose 4.77 % and number of employees and payroll fell 5.94% and 3.28% respectively (Table 2-1). Shipments, payroll, and employment continued to increase between 2006 and 2007, but there was a notable drop in the number of establishments between 2002 and 2007 (Table 2-1). As Table 2-2 shows, payroll per employee grew 4.91% from 1997 to 2002 and continued to increase, albeit at a slower rate of 2.83%, from 2002 to 2006. Between 2006 and 2007, the payroll per employee declined as the growth in employees outpaced the increase in the annual payroll (Table 2-2).
The food manufacturing industry consists of nine different industry groups, each distinguished by the livestock or agricultural products used as raw materials for the processed food products as follows:
Animal Food Manufacturing (North American Industry Classification System [NAICS] 3111)
Grain and Oilseed Milling (NAICS 3112)
Sugar and Confectionery Product Manufacturing (NAICS 3113)
Fruit and Vegetable Preserving and Specialty Food Manufacturing (NAICS 3114)
Dairy Product Manufacturing (NAICS 3115)
Animal Slaughtering and Processing (NAICS 3116)
Seafood Product Preparation and Packaging (3117)
Bakeries and Tortilla Manufacturing (NAICS 3118)
Table 2-1.	Key Statistics: Food Manufacturing (North American Industry Classification System [NAICS] 311)

1997
2002
2006
2007
Shipments ($2007, millions)
$528,928
$526,939
$552,075
$589,550
Payroll ($2007, millions)
$48,118
$51,852
$50,151
$50,467
Employees
1,466,956
1,506,781
1,417,274
1,466,683
Establishments
26,302
27,899
                                      NA
                                    22,055
NA = Not available.
Sources:	U.S. Census Bureau; generated by RTI International; using American FactFinder; "Sector 31: Annual Survey of Manufactures: General Statistics: Statistics for Industry Groups and Industries: 2006 and 2005." <http://factfinder.census.gov>; (July 8, 2008).
	U.S. Census Bureau; generated by RTI International; using American FactFinder; "Sector 00: All sectors: Core Business Statistics Series: Comparative Statistics for the United States and the States (1997 NAICS Basis): 2002 and 1997." <http://factfinder.census.gov>; (July 8, 2008).
	U.S. Census Bureau; generated by RTI International; using American FactFinder; "Sector 00: All sectors: Core Business Statistics Series: Comparative Statistics for the United States and the States (2007 NAICS Basis): 2002 and 2007." <http://factfinder.census.gov>; (January 4, 2010).
Table 2-2.	Industry Data: Food Manufacturing (NAICS 311)
Industry Data
1997
2002
2006
2007
Total shipments ($2007, millions)
$528,928
                                                                       $526,939
                                                                       $552,075
                                                                        589,550
Shipments per establishment ($2007, thousands)
$20,110
                                                                        $18,887
                                      NA
                                                                        $26,731
Average Shipments per employee ($2007)
$360,561
                                                                       $349,712
                                                                       $389,533
                                                                       $401,961
Average Shipments per $ of payroll ($2007)
$10.99
                                                                         $10.16
                                                                         $11.01
                                                                         $11.68
Average Annual payroll per employee ($2007)
$32,800.97
                                                                     $34,412.12
                                                                     $35,385.46
                                                                     $34,409.00
Average Employees per establishment
                                      56
                                      54
                                      NA
                                      67
NA = Not available.
Sources: U.S. Census Bureau; generated by RTI International; using American FactFinder; "Sector 31: Annual Survey of Manufactures: General Statistics: Statistics for Industry Groups and Industries: 2006 and 2005." <http://factfinder.census.gov>; (July 8, 2008).
	U.S. Census Bureau; generated by RTI International; using American FactFinder; "Sector 00: All sectors: Core Business Statistics Series: Comparative Statistics for the United States and the States (1997 NAICS Basis): 2002 and 1997." <http://factfinder.census.gov>; (July 8, 2008).
	U.S. Census Bureau; generated by RTI International; using American FactFinder; "Sector 00: All sectors: Core Business Statistics Series: Comparative Statistics for the United States and the States (2007 NAICS Basis): 2002 and 2007." <http://factfinder.census.gov>; (January 4, 2010).
In 2006, Animal Slaughtering and Processing made up the largest share of both employment (33%) and the value of shipments (27%) in food manufacturing (Figures 2-1 and 2-2).

Figure 2-1.	Distribution of Employment within Food Manufacturing (NAICS 311): 2006
Source:	U.S. Census Bureau; generated by RTI International; using American FactFinder; "Sector 31: Annual Survey of Manufactures: General Statistics: Statistics for Industry Groups and Industries: 2006 and 2005." <http://factfinder.census.gov>; (July 8, 2008).

Figure 2-2.	Distribution of Total Value of Shipments within Food Manufacturing (NAICS 311): 2006
Source:	U.S. Census Bureau; generated by RTI International; using American FactFinder; "Sector 31: Annual Survey of Manufactures: General Statistics: Statistics for Industry Groups and Industries: 2006 and 2005." <http://factfinder.census.gov>; (July 8, 2008).
Many major environmental regulations directly affect the food manufacturing industry and/or other markets that provide key goods and services to the industry (e.g., energy). RTI's multimarket model is specifically designed to analyze these types of regulations. The model emphasizes the links among industrial sectors and provides policy makers with new insights about the direct and indirect effects of a regulatory program and the distribution of costs across the U.S. economy.
Supply and Demand Characteristics
Next, we provide a broad overview of the supply and demand sides of the food manufacturing industry. We emphasize the economic interactions this industry has with other industries and people, including identifying the key goods and services used by the industry and the major uses and consumers of food manufacturing products.
Goods and Services Used in Food Manufacturing
In 2006, the cost of materials made up 57% of the value of shipments in food production. Total employee compensation accounted for 12% of this value, with half of that coming from production workers' wages (Table 2-3).
The top 10 industry groups supplying inputs to food production accounted for 84% of the total intermediate inputs to the industry, with the top three industry groups (food products, animal products, and crop products) accounting for over half of the total intermediate inputs (Table 2-4). Electric power generation, transmission, and distribution accounted for 2% of the total intermediate inputs, whereas boilers, tanks, and shipping containers accounted for 1%.
Energy
The Department of Energy (DOE) classifies the entire food products industry as an energy-intensive industry to model within its Industrial Demand Module (DOE, 2008). In 2002, food manufacturing accounted for 6.86% of the total fuel consumption by all manufacturing industries (NAICS 311 - 339) and 19.24% of the conventional boiler use fuel consumption by all manufacturing industries (DOE, Energy Information Administration, 2007a).
Table 2-3.	Costs of Goods and Services Used in Food Manufacturing (NAICS 311) ($2007)
Industry Ratios
2005
Share
2006
Share
Total shipments ($millions)
$563,797
100%
$552,075
100%
Total compensation ($millions)
$64,909
12%
$64,027
12%
Annual payroll
$50,650
9%
$50,151
9%
Fringe benefits
$14,259
3%
$13,877
3%
Total employees
1,440,283

1,417,274

Average compensation per employee
$45,067

$45,176

Total production workers' wages ($millions)
$33,983
6%
$33,670
6%
Total production workers
1,099,530

1,090,081

Total production hours (thousands)
2,242,558

2,198,396

Average production wages per hour
$15

$15

Total cost of materials ($thousands)
$315,993
56%
$312,847
57%
Materials, parts, packaging
$286,895
51%
$284,028
51%
Purchased electricity
$4,513
1%
$4,787
1%
Purchased fuel
$5,136
1%
$5,398
1%
Other
$19,449
3%
$18,634
3%
Source:	U.S. Census Bureau; generated by RTI International; using American FactFinder; "Sector 31: Annual Survey of Manufactures: General Statistics: Statistics for Industry Groups and Industries: 2006 and 2005." <http://factfinder.census.gov>; (July 8, 2008).
Table 2-4.	Key Goods and Services Used in Food Manufacturing (NAICS 311) ($2007, millions)
Sector
BEA Code
Food Products
Food products
                                     3110
$91,518
Animal products
                                     1120
$85,785
Crop products
                                     1110
$43,109
Management of companies and enterprises
                                     5500
$34,235
Wholesale trade
                                     4200
$27,849
Converted paper products
                                     3222
$18,782
Truck transportation
                                     4840
$12,943
Plastics and rubber products
                                     3260
$9,641
Electric power generation, transmission, and distribution
                                     2211
$6,004
Boilers, tanks, and shipping containers
                                     3324
$4,564
Total intermediate inputs
                                     T005
$400,067
Source:	U.S. Bureau of Economic Analysis (BEA). 2008. "2002 Benchmark Input-Output Accounts: 2002 Standard Make and Use Tables at the Summary Level." Table 2. Washington, DC: BEA.
In both 2005 and 2006, purchased electricity and fuel each accounted for 1% of the total value of shipments in food manufacturing (Table 2-3). In 2002, total energy consumption totaled 1,116 TBTU, a 7% increase over 1998 (Table 2-5). Of this total fuel consumption, the largest share (41.72%) was consumed for indirect uses including conventional boiler use and combined heat and power (CHP) and/or cogeneration process (MECS Table 5.2). Between 1997 and 2005, while the manufacturing sector as a whole used less electricity, food manufacturing used more electricity (Figure 2-3). From 2005 to 2006, the electricity consumption increased by nearly 9% (Table 2-5).
Table 2-5.	Energy Used in Food Manufacturing (NAICS 311)
Fuel Type
1998
2002
2006
Net electricity[a] (million kWh)
62,457
67,521
73,440
Residual fuel oil (million bbl)
2
2
4
Distillate fuel oil[b] (million bbl)
3
3
3
Natural gas[c] (billion cu ft)
553
560
618
LPG and NGL[d] (million bbl)
1
1
1
Coal (million short tons)
6
8
7
Coke and breeze (million short tons)
*
*
*
Other[e] (trillion BTU)
97
90
107
Total (trillion BTU)
1,044
1,116
1,186
[a]	Net electricity is obtained by summing purchases, transfers in, and generation from noncombustible renewable resources, minus quantities sold and transferred out. It does not include electricity inputs from on-site cogeneration or generation from combustible fuels because that energy has already been included as generating fuel (for example, coal).
[b]	Distillate fuel oil includes Nos. 1, 2, and 4 fuel oils and Nos. 1, 2, and 4 diesel fuels.
[c]	Natural gas includes natural gas obtained from utilities, local distribution companies, and any other supplier(s), such as independent gas producers, gas brokers, marketers, and any marketing subsidiaries of utilities.
[d]	Examples of liquefied petroleum gases (LPGs) are ethane, ethylene, propane, propylene, normal butane, butylene, ethane-propane mixtures, propane-butane mixtures, and isobutene produced at refineries or natural gas processing plants, including plants that fractionate raw natural gas liquids (NGLs).
[e]	Other includes net steam (the sum of purchases, generation from renewables, and net transfers), and other energy that respondents indicated was used to produce heat and power.
*	Estimate less than 0.5.
Sources:	U.S. Department of Energy, Energy Information Administration. 2007a. "2002 Energy Consumption by Manufacturers -- Data Tables." Tables 3.2 and N3.2. Washington, DC: DOE <http://www.eia.doe.gov/emeu/mecs/mecs2002/data02/shelltables.html>.
	U.S. Department of Energy, Energy Information Administration. 2009a. "2006 Energy Consumption by Manufacturers -- Data Tables." Table 3.1. Washington, DC: DOE. <http://www.eia.doe.gov/emeu/mecs/mecs2006/2006tables.html>.

Figure 2-3.	Electric Power Use Trends in Food Manufacturing (NAICS 311): 1997 - 2005
Source:	Federal Reserve Board. 2009. "Industrial Production and Capacity Utilization: Electric Power Use: Manufacturing and Mining." <http://www.federalreserve.gov/datadownload/>.
Uses and Consumers
The majority of food manufacturing's total commodity output (58%) is sold for personal consumption. Of the sales for intermediate use, 42% are sold back into the food manufacturing industry (Table 2-6).
Firm and Market Characteristics
This remaining subsection describes geographic, production, and market data. These data provide the basis for further analysis, including regulatory flexibility analyses, and give a complete picture of the recent historical trends of production and pricing.
Location
In 2002, California had the most food manufacturing establishments in the United States, followed by New York and Texas (see Figure 2-4). In addition, Pennsylvania, Illinois, Wisconsin, New Jersey, and Florida had over 1,000 establishments in their states.
Table 2-6.	Demand by Sector: Food Manufacturing (NAICS 311) ($2007, millions)
Sector
BEA Code
Food Products
Food manufacturing
                                     3110
$91,518
Food services and drinking places
                                     7220
$37,291
Animal production
                                     1120
$15,870
General state and local government services
                                     S007
$15,170
Retail trade
                                     4A00
$13,985
Beverage manufacturing
                                     3121
$11,703
Hospitals
                                     6220
$9,539
Educational services
                                     6100
$4,485
Nursing and residential care facilities
                                     6230
$4,187
Social assistance
                                     6240
$2,277
Total intermediate use
                                     T001
$217,570
Personal consumption expenditures
                                     F010
$301,748
Exports of goods and services
                                     F040
$28,151
Imports of goods and services
                                     F050
−$33,119
   Total final uses (GDP)
                                     T004
$299,470
   Total commodity output
                                     T007
$517,040
Source:	U.S. Bureau of Economic Analysis (BEA). 2008. "2002 Benchmark Input-Output Accounts: 2002 Standard Make and Use Tables at the Summary Level." Table 2. Washington, DC: BEA.

Figure 2-4.	Establishment Concentration in Food Manufacturing (NAICS 311): 2002
Source:	U.S. Census Bureau; generated by RTI International; using American FactFinder; "Sector 31: Manufacturing: Geographic Area Series: Industry Statistics for the States, Metropolitan and Micropolitan Statistical Areas, Counties, and Places: 2002." <http://factfinder.census.gov>; (July 23, 2008).
Production Capacity and Utilization
Capacity utilization of the food manufacturing industry did not fall off during the recession of 2001 as much as the manufacturing sector as a whole (Figure 2-5). Food manufacturing's capacity utilization has remained higher than manufacturing as a whole and went above 85% in the spring of 2008. The effects of the recent economic downturn have not affected capacity utilization as sharply in the food industry relative to the overall manufacturing sector (Figure 2-5).

Figure 2-5.	Capacity Utilization Trends in Food Manufacturing (NAICS 311)
Source:	Federal Reserve Board. 2009. "Industrial Production and Capacity Utilization: Capacity Utilization." <http://www.federalreserve.gov/datadownload/>.
Employment
The geographic distribution of employment in food manufacturing varies substantially from the distribution of establishments. In 2002, Arkansas, ranked thirty-first in number of establishments and had the eighth most employees (53,844) because of its national high of 199 employees per establishment. New York, ranked second in number of establishments, had only the tenth most employees (50,012). North Carolina and Georgia also had greater than 50,000 employees, despite having fewer than 600 establishments (Figure 2-6).

Figure 2-6.	Employment Concentration in Food Manufacturing (NAICS 311): 2002
Source:	U.S. Census Bureau; generated by RTI International; using American FactFinder; "Sector 31: Manufacturing: Geographic Area Series: Industry Statistics for the States, Metropolitan and Micropolitan Statistical Areas, Counties, and Places: 2002." <http://factfinder.census.gov>; (July 23, 2008).
Plants and Capacity
Production capacity in food manufacturing only grew 17.94% between 1997 and early 2008, a compound annual growth rate (CAGR) of 1.45%. This is substantially less than the 42.50% growth for the manufacturing industry as a whole (Figure 2-7).
Firm Characteristics
In fiscal year 2007, the top eight food manufacturing companies each had greater than $10 billion in sales. These companies, however, are global, many with a large portion of both sales and production coming from operations outside of the United States (Table 2-7). The largest U.S. food manufacturing company, Kraft Foods Inc., has 50.27% of its long-lived assets located outside of the United States (Kraft Foods Inc., 2008).

Figure 2-7.	Capacity Trends in Food Manufacturing (NAICS 311)
Source:	Federal Reserve Board. 2009. "Industrial Production and Capacity Utilization: Industrial Capacity." <http://www.federalreserve.gov/datadownload/>.
Table 2-7.	Top Publicly Held U.S. Food Companies: 2007

Sales ($millions)
% of Sales in North America
Kraft Foods Inc.
37,241
57.8%
Tyson Foods Inc.
26,900
90.0%
General Mills Inc.
12,442
82.9%
Sara Lee Corp.
12,278
53.8%
ConAgra Foods Inc.
12,028
89.2%
Smithfield Foods Inc.[a]
11,911
86.2%
Dean Foods Co.
11,822
>99.0%
Kellogg Co.[a]
11,776
66.1%
H.J. Heinz Co.
9,002
42.3%
Campbell Soup Co.
7,867
69.0%
[a]	Percentage of sales in the United States is actually percentage of sales in North America.
Source:	Graves, T. 2008. "Food and Nonalcoholic Beverages." Standard and Poor's Industry Surveys. 176(25).
For the industry as a whole, the number of corporations as well as the number of corporations with net income in the food manufacturing industry grew between 2004 and 2005. Although the overall number of companies continued to grow in 2006, the number of those with a positive net income declined along with profit margins and total receipts (Table 2-8).
Table 2-8.	Corporate Income and Profitability for Food Manufacturing (NAICS 311)

2004
2005
2006
Number of corporations
                                    14,408
                                    14,956
                                    16,146
Number of corporations with net income
                                     6,541
                                     7,503
                                     7,333
Total receipts (thousands)
                                 $502,149,944
                                 $504,944,378
                                 $484,193,319
Business receipts (thousands)
                                 $477,906,423
                                 $465,369,666
                                 $459,884,663
Before-tax profit margin
                                     5.27%
                                    10.09%
                                     7.43%
After-tax profit margin
                                     3.74%
                                     7.62%
                                     5.11%
Source:	Internal Revenue Service, U.S. Department of Treasury. 2008a. "Corporation Source Book: Data File 2005." <http://www.irs.gov/taxstats/article/0,,id=167415,00.html>; (January 14, 2009).
Size Distribution
The primary criterion for categorizing a business as small is number of employees, using definitions by the SBA for regulatory flexibility analyses. The data describing size standards are provided in Table 2-9. Over 80% of the NAICS industries within the food manufacturing industry use a cutoff of 500 employees. In 2002, enterprises with fewer than 500 employees accounted for 32% of employment and 23% of receipts within food manufacturing (Table 2-10).
Domestic Production
Between 1997 and early 2008, overall manufacturing production grew faster (34.88%) than the food manufacturing component (26.18%) (Figure 2-8). The food manufacturing industry has been less volatile, particularly during the recession of 2001 and the current economic downturn.
International Trade
In 2006, the United States regained a trade surplus in food manufacturing it had briefly lost during 2004 to 2005 (see Figure 2-9). The trade surplus in 2007 was over $4 billion. Both exports and imports have declined since their 2008 peak as a result of the global economic recession.
Table 2-9.	Small Business Size Standards: Food Manufacturing (NAICS 311)
                                     NAICS
                                  Description
                                   Employees
                                    311111
Dog and Cat Food Manufacturing
500
                                    311119
Other Animal Food Manufacturing
500
                                    311211
Flour Milling
500
                                    311212
Rice Milling
500
                                    311213
Malt Manufacturing
500
                                    311221
Wet Corn Milling
750
                                    311222
Soybean Processing
500
                                    311223
Other Oilseed Processing
1,000
                                    311225
Fats and Oils Refining and Blending
1,000
                                    311230
Breakfast Cereal Manufacturing
1,000
                                    311311
Sugarcane Mills
500
                                    311312
Cane Sugar Refining
750
                                    311313
Beet Sugar Manufacturing
750
                                    311320
Chocolate and Confectionery Manufacturing from Cacao Beans
500
                                    311330
Confectionery Manufacturing from Purchased Chocolate
500
                                    311340
Non-Chocolate Confectionery Manufacturing
500
                                    311411
Frozen Fruit, Juice and Vegetable Manufacturing
500
                                    311412
Frozen Specialty Food Manufacturing
500
                                    311421
Fruit and Vegetable Canning3
3,500
                                    311422
Specialty Canning
1,000
                                    311423
Dried and Dehydrated Food Manufacturing
500
                                    311511
Fluid Milk Manufacturing
500
                                    311512
Creamery Butter Manufacturing
500
                                    311513
Cheese Manufacturing
500
                                    311514
Dry, Condensed, and Evaporated Dairy Product Manufacturing
500
                                    311520
Ice Cream and Frozen Dessert Manufacturing
500
                                    311611
Animal (except Poultry) Slaughtering
500
                                    311612
Meat Processed from Carcasses
500
                                    311613
Rendering and Meat By-product Processing
500
                                    311615
Poultry Processing
500
                                    311711
Seafood Canning
500
                                    311712
Fresh and Frozen Seafood Processing
500
                                    311811
Retail Bakeries
500
                                    311812
Commercial Bakeries
500
                                    311813
Frozen Cakes, Pies, and Other Pastries Manufacturing
500
                                    311821
Cookie and Cracker Manufacturing
750
                                    311822
Flour Mixes and Dough Manufacturing from Purchased Flour
500
(continued)
Table 2-9.	Small Business Size Standards: Food Manufacturing (NAICS 311) (continued)
                                     NAICS
                                  Description
                                   Employees
                                    311823
Dry Pasta Manufacturing
500
                                    311830
Tortilla Manufacturing
500
                                    311911
Roasted Nuts and Peanut Butter Manufacturing
500
                                    311919
Other Snack Food Manufacturing
500
                                    311920
Coffee and Tea Manufacturing
500
                                    311930
Flavoring Syrup and Concentrate Manufacturing
500
                                    311941
Mayonnaise, Dressing and Other Prepared Sauce Manufacturing
500
                                    311942
Spice and Extract Manufacturing
500
                                    311991
Perishable Prepared Food Manufacturing
500
                                    311999
All Other Miscellaneous Food Manufacturing
500
Source:	U.S. Small Business Administration (SBA). 2008. "Table of Small Business Size Standards Matched to North American Industry Classification System Codes." Effective August 22, 2008. <http://www.sba.gov/services/contractingopportunities/sizestandardstopics/size/index.html>.

Table 2-10.	Distribution of Economic Data by Enterprise Size: Food Manufacturing (NAICS 311)

                               Enterprises with:
                                   Variable
                                     Total
                             1 to 20 Employees[a]
                              20 to 99 Employees
                             100 to 499 Employees
                             500 to 749 Employees
                             750 to 999 Employees
                           1,000 to 1,499 Employees
Firms
                                                                         21,384
                                                                         13,645
                                                                          3,935
                                                                          1,247
                                                                            147
                                                                             63
                                                                             96
Establishments
                                                                         25,698
                                                                         13,719
                                                                          4,254
                                                                          1,951
                                                                            370
                                                                            211
                                                                            319
Employment
                                                                      1,443,766
                                                                         85,850
                                                                        156,158
                                                                        218,041
                                                                         67,104
                                                                         30,099
                                                                         72,262
Receipts ($millions)
                                                                       $457,521
                                                                        $12,665
                                                                        $32,274
                                                                        $56,661
                                                                        $23,103
                                                                        $10,007
                                                                        $21,878
Receipts/firm ($thousands)
                                                                        $21,395
                                                                           $928
                                                                         $8,202
                                                                        $45,438
                                                                       $157,163
                                                                       $158,835
                                                                       $227,898
Receipts/establishment ($thousands)
                                                                        $17,804
                                                                           $923
                                                                         $7,587
                                                                        $29,042
                                                                        $62,440
                                                                        $47,425
                                                                        $68,584
Receipts/employment ($)
                                                                       $316,894
                                                                       $147,523
                                                                       $206,678
                                                                       $259,862
                                                                       $344,286
                                                                       $332,457
                                                                       $302,762
[a]	Excludes Statistics of U.S. Businesses (SUSB) employment category for zero employees. These entities only operated for a fraction of the year.
Source:	U.S. Census Bureau. 2008. "Firm Size Data from the Statistics of U.S. Businesses: U.S. Detail Employment Sizes: 2002." <http://www.census.gov/csd/susb/download_susb02.htm>.

Figure 2-8.	Industrial Production Trends in Food Manufacturing (NAICS 311)
Source:	Federal Reserve Board. 2008. "Industrial Production and Capacity Utilization: Industrial Production." <http://www.federalreserve.gov/datadownload/>.

Figure 2-9.	International Trade Trends in Food Manufacturing (NAICS 311)
Source:	U.S. International Trade Commission. 2008. "U.S. Domestic Exports" & "U.S. Imports for Consumption." <http://dataweb.usitc.gov/scripts/user_set.asp>.
Market Prices
Prices of goods in food manufacturing have moved generally in line with prices in overall manufacturing (see Figure 2-10). Both indexes increased over 31% since between early 2003 and early 2008, a CAGR of 5.13%. This rise was followed by a marked decline in recent years along with the downward trend in prices throughout the economy.

Figure 2-10.	Producer Price Trends in Food Manufacturing (NAICS 311)
Source:	U.S. Department of Labor; Bureau of Labor Statistics. 2010. "Producer Price Indexes." <http://www.bls.gov/pPI/Series Id: PCU311 -- 311 -- Food Manufacturing & PCUOMFG - OMFG - Total Manufacturing>.
Wood Product Manufacturing
Introduction
According to a report by Standard & Poor's (2008), a number of factors are shaping the current economic environment for wood products, including, but not limited to, the housing slump, high input costs, low prices for lumber and other building materials, and a weak dollar. Table 2-11 shows that revenues in this industry are not entirely predictable, exhibiting a drop in shipment revenue between 1997 and 2002 but a rise back to within $5 billion of the 1997 value in 2006 and a decline to within $14 billion of the 2006 value in 2007.
Table 2-11.	Key Statistics: Wood Product Manufacturing (NAICS 321)

1997
2002
2006
2007
Shipments ($2007, millions)
$110,956
$102,721
$115,390
$101,879
Payroll ($2007, millions)
$17,959
$18,528
$18,623
$17,439
Employees
570,034
543,459
536,094
519,651
Establishments
17,367
17,255
                                      NA
14,862
NA = Not available.
Sources:	U.S. Census Bureau; generated by RTI International; using American FactFinder; "Sector 31: Annual Survey of Manufactures: General Statistics: Statistics for Industry Groups and Industries: 2006 and 2005." <http://factfinder.census.gov>; (July 8, 2008).
	U.S. Census Bureau; generated by RTI International; using American FactFinder; "Sector 00: All Sectors: Core Business Statistics Series: Comparative Statistics for the United States and the States (1997 NAICS Basis): 2002 and 1997." <http://factfinder.census.gov>; (July 8, 2008).
	U.S. Census Bureau; generated by Kapur Energy and Environment; using American FactFinder; "Sector 00: EC0700A1: All Sectors: Geographic Area Series: Economy-Wide Key Statistics: 2007." Accessed on December 27, 2009.
While total payroll dropped 3% over from 1997 to 2007, annual payroll per employee rose 6.5% because of the decline in the number of employees (Table 2-12). Shipments per employee grew 10.6% from 1997 to 2006 and dropped 8.9% from 2006 to 2007 (Table 2-12).
Table 2-12.	Industry Data: Wood Product Manufacturing (NAICS 321)
Industry Data
1997
2002
2006
2007
Total shipments ($2007, millions)
$110,956
$102,721
$115,390
$101,879
Shipments per establishment ($thousands)
$25,613
$5,953
                                      NA
$6,855
Average Shipments per employee ($2007)
$194,648
$189,014
$215,243
$196,053
Average Shipments per $ of payroll ($2007)
$6.18
$5.54
$6.20
$5.84
Average Annual payroll per employee ($2007)
$31,504
$34,093
$34,738
$33,558
Average Employees per establishment
                                      33
                                      31
                                      NA
                                      35
NA = Not available.
Sources:	U.S. Census Bureau; generated by RTI International; using American FactFinder; "Sector 31: Annual Survey of Manufactures: General Statistics: Statistics for Industry Groups and Industries: 2006 and 2005." <http://factfinder.census.gov>; (July 8, 2008).
	U.S. Census Bureau; generated by RTI International; using American FactFinder; "Sector 00: All Sectors: Core Business Statistics Series: Comparative Statistics for the United States and the States (1997 NAICS Basis): 2002 and 1997." <http://factfinder.census.gov>; (July 8, 2008).
	U.S. Census Bureau; generated by Kapur Energy and Environment; using American FactFinder; "Sector 00: EC0700A1: All Sectors: Geographic Area Series: Economy-Wide Key Statistics: 2007." Accessed on December 27, 2009.
The U.S. Census Bureau categorizes this industry's facilities into three categories: "sawmills and wood preservation;" "veneer, plywood, and engineered wood product manufacturing;" and "other wood product manufacturing." These are further divided into the following types of facilities as defined by the Census Bureau:
Sawmills and Wood Preservation
Sawmills and Wood Preservation (NAICS 32111): This industry comprises establishments primarily engaged in one or more of the following manufacturing activities: (a) sawing dimension lumber, boards, beams, timber, poles, ties, shingles, shakes, siding, and wood chips from logs or bolts; (b) sawing round wood poles, pilings, and posts and treating them with preservatives; and (c) treating wood sawed, planed, or shaped in other establishments with creosote or other preservatives to prevent decay and to protect against fire and insects. Sawmills may plane the rough lumber that they make with a planning machine to achieve smoothness and uniformity of size.
Veneer, Plywood, and Engineered Wood Product Manufacturing
Veneer, Plywood, and Engineered Wood Product Manufacturing (NAICS 32121): This industry comprises establishments primarily engaged in one or more of the following manufacturing activities: (a) veneer and/or plywood, (b) engineered wood members, and (c) reconstituted wood products. This industry includes manufacturing plywood from veneer made in the same establishment or from veneer made in other establishments, and manufacturing plywood faced with non-wood materials, such as plastics or metal.
Other Wood Product Manufacturing
Millwork (NAICS 32191): This industry comprises establishments primarily engaged in manufacturing hardwood and softwood cut stock and dimension stock (i.e., shapes); wood windows and wood doors; and other millwork including wood flooring. Dimension stock or cut stock is defined as lumber and worked wood products cut or shaped to specialized sizes. These establishments generally use woodworking machinery, such as jointers, planers, lathes, and routers to shape wood.
Wood Container and Pallet Manufacturing (NAICS 32192): This industry comprises establishments primarily engaged in manufacturing wood pallets, wood box shook, wood boxes, other wood containers, and wood parts for pallets and containers.
All Other Wood Product Manufacturing (NAICS 32199): This industry comprises establishments primarily engaged in manufacturing wood products (except establishments operating sawmills and wood preservation facilities; and establishments manufacturing veneer, plywood, engineered wood products, millwork, wood containers, or pallets).
Figure 2-11 shows that the industry proportion of the value of shipments for other wood product manufacturing (51%) was greater than the value of shipments for sawmills and wood preservation (27%) and veneer, plywood, and engineered wood products (22%). Figure 2-12 indicates that the majority of employees in this industry fell under other wood products (60%). Veneer, plywood, and engineered wood products had the same percentage (20%) of employees as sawmills and wood preservation (20%), even though it contributed to a lesser portion of the value of shipments.

Figure 2-11.	Distribution of Value of Shipments within Wood Product Manufacturing (NAICS 322): 2007
Source:	U.S. Census Bureau; generated by Kapur Energy and Environment; "Sector 00: EC0700A1: All Sectors: Geographic Area Series: Economy-Wide Key Statistics: 2007." <http://factfinder.census.gov>. Accessed on December 27, 2009. [Source for 2007 numbers]

Figure 2-12.	Distribution of Employment within Wood Product Manufacturing (NAICS 322): 2007
Source:	U.S. Census Bureau; generated by Kapur Energy and Environment; "Sector 00: EC0700A1: All Sectors: Geographic Area Series: Economy-Wide Key Statistics: 2007" Release Date: 12/22/09. <http://factfinder.census.gov>. Accessed on December 27, 2009.
Supply and Demand Characteristics
Next, we provide a broad overview of the supply and demand sides of the wood product manufacturing industry. We emphasize the economic interactions this industry has with other industries and people and identify the key goods and services used by the industry and the major uses and consumers wood products.
Goods and Services Used in Wood Product Manufacturing
In 2007, the cost of materials made up 59% of the total shipment value of goods in the wood product manufacturing industry (Table 2-13). Total compensation of employees represented 22% of the total value in 2007. Both the number of total shipments and the number of employees in this industry decreased between 2005 and 2007 -- the former by 14% and the latter by 3%.
The top 10 industry groups supplying inputs to the wood product industry accounted for 80% of the total intermediate inputs according to 2008 Bureau of Economic Analysis data (Table 2-14). The largest comes from the wood product industry itself. This is quite understandable, since the descriptions of the various industries within wood product manufacturing imply that they supply each other with products in order to add value and distribute their products to the broader market. The top five inputs are rounded out by forestry and logging products, wholesale trade, management of companies and enterprises, and truck transportation, which together make up 70% of the total cost of input.
Table 2-13.	Costs of Goods and Services in Wood Product Manufacturing (NAICS 321) ($2007)
Industry Ratios
2005
Share
2006
Share
2007
Share
Total shipments (millions)
$118,705
100%
$115,390
100%
$102,002
100%
Total compensation (millions)
$23,327
20%
$23,306
20%
$22,513
22%
Annual payroll millions
$18,884
16%
$18,623
16%
$17,444
17%
Fringe benefits
$4,442
4%
$4,683
4%
$5,069
5%
Total employees
538,890

536,094

524,212

Average compensation per employee
$43,286

$43,473

$42,947

Total production workers' wages (millions)
$13,363
11%
$13,132
11%
$12,086
12%
Total production workers
431,569

432,315

417,471

Total production hours (thousands)
911,332

887,613

837,074

 Average production wages per hour ($2007)
$15

$15

$14

Total cost of materials (thousands)
$71,808
60%
$69,892
61%
$60,682
59%
Materials, parts, packaging
$65,319
55%
$63,499
55%
$54,462
53%
Purchased electricity
$1,530
1%
$1,625
1%
$1,446
1%
Purchased fuel
$810
1%
$835
1%
$843
1%
Other
$4,149
3%
$3,933
3%
$3,931
4%
Sources:	U.S. Census Bureau; generated by RTI International; using American FactFinder; "Sector 31: Annual Survey of Manufactures: General Statistics: Statistics for Industry Groups and Industries: 2006 and 2005." <http://factfinder.census.gov>; (July 8, 2008).
	U.S. Census Bureau; generated by Kapur Energy and Environment: using American FactFinder; "Sector 31: EC0731I1: Manufacturing: Industry Series: Detailed Statistics by Industry for the United States: 2007." Accessed on December 27, 2009.
<IP_ADDRESS>.1 Energy. The Department of Energy (DOE) categorizes wood product manufacturing (NAICS 321) as a non-energy-intensive industry. The 2008 Annual Energy Outlook predicts that the wood product industry will be one of five (out of eight) non-energy-intensive industries experiencing positive average growth of delivered energy consumption between 2006 and 2030 (DOE, 2008).
Table 2-14.	Key Goods and Services Used in Wood Product Manufacturing (NAICS 321) ($2007, millions)
Description
BEA Commodity Code
Wood Products
Wood products
3210
$20,989
Forestry and logging products
1130
$18,914
Wholesale trade
4200
$5,417
Management of companies and enterprises
5500
$2,853
Truck transportation
4840
$2,542
Electric power generation, transmission, and distribution
2211
$1,388
Other fabricated metal products
332B
$1,310
Nonmetallic mineral products
3270
$1,110
Real estate
5310
$799
All other administrative and support services
561A
$748
Architectural and structural metal products
3323
$725
Rail transportation
4820
$723
Other inputs

$14,650
Total intermediate inputs
T005
$72,169
Source:	U.S. Bureau of Economic Analysis (BEA). 2008. "2002 Benchmark Input-Output Accounts: 2002 Standard Make and Use Tables at the Summary Level." Table 2. Washington, DC: BEA.
Table 2-15 shows that total energy use between 1998 and 2002. Figure 2-13 shows that electrical power use decreased, since 2000.
Uses and Consumers
Table 2-16 shows that three of the top four consumers of wood products are represented by the construction sector of the economy (NAICS 23). New residential construction, new nonresidential construction, and maintenance and repair construction consume 35% of the total commodity output in this industry. The top 10 consumers of wood products make up 54% of the demand for wood products. Although many of the top consumers deal with construction, repair, or real estate services, other types of consumers, such as food services and drinking places, rail transportation, plastics and rubber products manufacturing, and other, use these products.
Table 2-15.	Energy Used in Wood Product Manufacturing (NAICS 321)
Fuel Type
1998
2002
2006
Net electricity[a] (million kWh)
21,170
20,985
26,723
Residual fuel oil (million bbl)
*
*
1
Distillate fuel oil[b] (million bbl)
2
2
3
Natural gas[c] (billion cu ft)
71
56
84
LPG and NGL[d] (million bbl)
1
1
1
Coal (million short tons)
*
*
Q
Coke and breeze (million short tons)
 --
 --
*
Other[e] (trillion BTU)
341
229
228
Total (trillion BTU)
504
375
445
[a]	Net electricity is obtained by summing purchases, transfers in, and generation from noncombustible renewable resources, minus quantities sold and transferred out. It does not include electricity inputs from on-site cogeneration or generation from combustible fuels because that energy has already been included as generating fuel (for example, coal).
[b]	Distillate fuel oil includes Nos. 1, 2, and 4 fuel oils and Nos. 1, 2, and 4 diesel fuels.
[c]	Natural gas includes natural gas obtained from utilities, local distribution companies, and any other supplier(s), such as independent gas producers, gas brokers, marketers, and any marketing subsidiaries of utilities.
[d]	Examples of liquefied petroleum gases (LPGs) are ethane, ethylene, propane, propylene, normal butane, butylene, ethane-propane mixtures, propane-butane mixtures, and isobutene produced at refineries or natural gas processing plants, including plants that fractionate raw natural gas liquids (NGLs).
[e]	Other includes net steam (the sum of purchases, generation from renewables, and net transfers), and other energy that respondents indicated was used to produce heat and power.
* 	Estimate less than 0.5.
Q = Withheld because relative standard error is greater than 50%.
Sources:	U.S. Department of Energy, Energy Information Administration. 2007a. "2002 Energy Consumption by Manufacturers -- Data Tables." Tables 3.2 and N3.2. <http://www.eia.doe.gov/emeu/mecs/
mecs2002/data02/shelltables.html>. Washington, DC: DOE.
	U.S. Department of Energy, Energy Information Administration. 2007b. "2006 Energy Consumption by Manufacturers -- Data Tables." Tables 3.1. <http://www.eia.doe.gov/emeu/mecs/mecs2006/2006tables.html>. [Source for 2006 numbers]

Figure 2-13.	Electrical Power Use Trends in the Wood Product Manufacturing Industry (NAICS 321): 1997 - 2005
Source:	Federal Reserve Board. 2009. "Industrial Production and Capacity Utilization: Electric Power Use: Manufacturing and Mining." <http://www.federalreserve.gov/datadownload/>
Firm and Market Characteristics
This section describes geographic, production, and market data. These data provide the basis for further analysis, including regulatory flexibility analyses, as well as a complete picture of the recent historical trends of production and pricing.
Location
As Figure 2-14 illustrates, the states with the largest number of wood product manufacturing establishments are dispersed throughout the country, with a significant concentration of establishments in the northeastern states. Other states with many establishments include California, Texas, and North Carolina.
Table 2-16.	Demand by Sector: Wood Product Manufacturing (NAICS 321) ($2007, millions)
Sector
BEA Code
3210 Wood Products
New residential construction
                                     2302
$19,997
New nonresidential construction
                                     2301
$11,854
Furniture and related product manufacturing
                                     3370
$8,197
Maintenance and repair construction
                                     2303
$4,048
Motor vehicle body, trailer and parts manufacturing
                                     336A
$2,516
Real estate
                                     5310
$2,335
Food services and drinking places
                                     7220
$2,307
Other miscellaneous manufacturing
                                     3399
$1,311
Wholesale trade
                                     4200
$1,284
Rail transportation
                                     4820
$1,138
Retail trade
                                     4A00
$1,047
Plastics and rubber products manufacturing
                                     3260
$877
General state and local government use
                                     S007
$3,116
Owner occupied dwelling
                                     S008
$11,209
Private fixed investment
                                     F020
$7,933
Exports of goods and services
                                     F040
$3,978
  Total final uses (gross domestic product [GDP])
                                     T004
$3,719
  Total commodity output
                                     T007
$101,753
Source:	U.S. Bureau of Economic Analysis (BEA). 2008. "2002 Benchmark Input-Output Accounts: 2002 Standard Make and Use Tables at the Summary Level." Table 2. Washington, DC: BEA.
Production Capacity and Utilization
Capacity utilization of the wood product manufacturing industry has been experiencing capacity utilization increases and declines with more extreme fluctuations than those of all manufacturing industries combined. The decline in wood product manufacturing is similar to total manufacturing between 1997 and 2002. However, capacity utilization in total manufacturing, which peaked in 2006, started increasing at a faster rate than wood product manufacturing, but decreased sharply after its peak. Wood product manufacturing experienced its own rapid decrease in capacity utilization between 2007 and 2009, though not at the same rate as total manufacturing (Figure 2-15).

Figure 2-14.	Establishment Concentration in the Wood Product Manufacturing Industry (NAICS 321): 2002
Source:	U.S. Census Bureau; generated by RTI International; using American FactFinder; "Sector 31: Manufacturing: Geographic Area Series: Industry Statistics for the States, Metropolitan and Micropolitan Statistical Areas, Counties, and Places: 2002." <http://factfinder.census.gov>; (July 23, 2008).
Employment
California has the largest number of employees in the wood product manufacturing industry with over 39,000 reported in the 2002 census followed by over 32,000 in Oregon (Figure 2-16). The states with the highest number of employees do not directly correlate with the states with the highest number of establishments. States such as Indiana, Georgia, Arkansas, and Oregon had fewer than 600 establishments, as shown in Figure 2-14, but had more than 20,000 employees, whereas states such as Ohio and New York had fewer than 20,000 employees but more than 600 establishments.
Plants and Capacity
While the capacity of the manufacturing sector has been growing consistently since 1997, the wood product manufacturing industry has experienced inconsistent growth. After a small amount of growth in capacity between 1997 and 2001, the wood product manufacturing industry's capacity dipped between 2002 and 2005 but has been growing at a slow rate since then though it started to dip again in 2008 and 2009 (Figure 2-17).

Figure 2-15.	Capacity Utilization Trends in the Wood Product Manufacturing Industry (NAICS 321)
Source:	Federal Reserve Board. 2009. "Industrial Production and Capacity Utilization: Capacity Utilization." <http://www.federalreserve.gov/datadownload/>
Firm Characteristics
In 2006, the top 10 paper and forest product companies produced over $75 billion in sales, with the top two companies -- International Paper and Weyerhaeuser -- generating nearly $22 billion each (Table 2-17). The top two companies' revenue consists of 58% of the revenue of the top 10 companies in Standard & Poor's (S&P's) list (Benwart, 2006). Although these numbers do not exclusively reflect wood products, they do convey the market environment in which firms in this sector compete.
Size Distribution
The primary criterion for categorizing a business as small is the number of employees, using definitions by the SBA for regulatory flexibility analyses. According to SUSB reports for 2002, small companies were the recipients of the majority of receipts in 2002; 53% of receipts were generated by companies with fewer than 500 employees (Table 2-18). The number of employees in the small business cutoff is 500 employees for all subindustries in the wood product manufacturing industry (Table 2-19).

Figure 2-16.	Employment Concentration in the Wood Product Manufacturing Industry (NAICS 321): 2002
Source:	U.S. Census Bureau; generated by RTI International; using American FactFinder; "Sector 31: Manufacturing: Geographic Area Series: Industry Statistics for the States, Metropolitan and Micropolitan Statistical Areas, Counties, and Places: 2002." <http://factfinder.census.gov>; (July 23, 2008).
Domestic Production
Similar to industry capacity rates, industry production rates for wood product manufacturing have decreased since 2006 compared to the steady increase in production for the manufacturing sector since 1997 (Figure 2-18). Similar to capacity utilization trends (Figure 2-16), the index shows a faster rate of decline for wood products than the entire manufacturing sector.
International Trade
Since 1997, the wood product manufacturing industry has contributed to an increasing trade deficit (Figure 2-16). The value of imports has fluctuated greatly since 1997; however, exports have remained fairly constant, with seasonal changes, since 1997.

Figure 2-17.	Capacity Trends in the Wood Product Manufacturing Industry (NAICS 321)
Source:	Federal Reserve Board. 2009. "Industrial Production and Capacity Utilization: Industrial Capacity." <http://www.federalreserve.gov/datadownload/>.
Table 2-17.	Largest U.S. Paper and Forest Products Companies: 2006
Company
                            Revenues ($millions)[a]
International Paper
21,995
Weyerhaeuser
21,896
Smurfit-Stone
7,157
MeadWestvaco
6,530
Temple-Inland
5,558
Bowater
3,530
Grief Inc.
2,628
Louisiana-Pacific
2,235
Packaging Corp.
2,187
Plum Creek
1,627
[a]	Includes revenues from operations other than paper and forest products in certain cases.
Source:	Benwart, S.J. 2006. "Paper & Forest Products." Standard and Poor's Industry Surveys. 176(28).

Table 2-18.	Distribution of Economic Data by Enterprise Size: Wood Product Manufacturing (NAICS 321)

                               Enterprises with
                                   Variable
                                     Total
                             1 to 20 Employees[a]
                              20 to 99 Employees
                             100 to 499 Employees
                             500 to 749 Employees
                             750 to 999 Employees
                           1,000 to 1,499 Employees
Firms
15,198
9,740
3,280
791
63
27
30
Establishments
17,052
9,758
3,482
1,271
166
91
133
Employment
534,011
65,423
132,612
118,910
19,784
11,944
18,533
Receipts ($thousands )
$88,649
$8,204
$18,276
$19,717
$3,192
$1,902
$3,118
Receipts/firm ($thousands)
$5,833
$842
$5,572
$24,927
$50,673
$70,453
$103,927
Receipts/establishment ($thousands)
$5,199
$841
$5,249
$15,513
$19,231
$20,904
$23,442
Receipts/employment ($)
$166,006
$125,393
$137,818
$165,814
$161,363
$159,262
$168,231
[a]	Excludes Statistics of U.S. Businesses (SUSB) employment category for zero employees. These entities only operated for a fraction of the year.
Source:	U.S. Census Bureau. 2008. "Firm Size Data from the Statistics of U.S. Businesses: U.S. Detail Employment Sizes: 2002." <http://www.census.gov/csd/susb/download_susb02.htm>.

Table 2-19.	Small Business Size Standards: Wood Product Manufacturing (NAICS 321)
                                     NAICS
                               NAICS Description
                                   Employees
321113
Sawmills
                                      500
321114
Wood Preservation
                                      500
321211
Hardwood Veneer and Plywood Manufacturing
                                      500
321212
Softwood Veneer and Plywood Manufacturing
                                      500
321213
Engineered Wood Member (except Truss) Manufacturing
                                      500
32121
Truss Manufacturing
                                      500
321219
Reconstituted Wood Product Manufacturing
                                      500
321911
Wood Window and Door Manufacturing
                                      500
321912
Cut Stock, Resawing Lumber, and Planing
                                      500
321918
Other Millwork (including Flooring)
                                      500
321920
Wood Container and Pallet Manufacturing
                                      500
321991
Manufactured Home (Mobile Home) Manufacturing
                                      500
321992
Prefabricated Wood Building Manufacturing
                                      500
321999
All Other Miscellaneous Wood Product Manufacturing
                                      500
Source:	U.S. Small Business Administration (SBA). 2008. "Table of Small Business Size Standards Matched to North American Industry Classification System Codes." Effective August 22, 2008. <http://www.sba.gov/services/contractingopportunities/sizestandardstopics/size/index.html>.
Market Prices
Prices of goods in the wood product manufacturing industry have remained roughly the same since 2005. The prices for the entire manufacturing sector increased between 2003 and 2008 but have decreased since August 2008. Producer price indices (PPIs) show that producer prices for wood products increased by 6% from 2004 to 2007 (Figure 2-20).

Figure 2-18.	Industrial Production Trends in the Wood Product Manufacturing Industry (NAICS 321): 1997 - 2009
Source:	Federal Reserve Board. 2009. "Industrial Production and Capacity Utilization: Industrial Production." <http://www.federalreserve.gov/datadownload/>.

Figure 2-19.	International Trade Trends in the Wood Product Manufacturing Industry (NAICS 321)]
Source:	U.S. International Trade Commission. 2008. "U.S. Domestic Exports" & "U.S. Imports for Consumption." <http://dataweb.usitc.gov/scripts/user_set.asp>.

Figure 2-20.	Producer Price Trends in the Wood Product Manufacturing Industry (NAICS 321)
Source:	U.S. Bureau of Labor Statistics (BLS). 2009a. "Producer Price Index." Series ID: PCU321 -- 321 -- & PCUOMFG -- OMFG -- . <http://www.bls.gov/ppi/home.htm>. Accessed on January 8, 2010.
Paper Manufacturing
Introduction
The paper manufacturing subsector is an essential component of all business operations worldwide. Broadly speaking, paper and paperboard are manufactured by converting timber or other recycled material into products such as printing and writing papers, newsprint, tissue, and containerboard (Benwart, 2006). The subsector has been experiencing a decline in shipments as of late. From 1997 to 2007, shipments in the industry declined 7%, and employment declined by 27% (Table 2-21). While total payroll dropped 26% over this time, annual payroll per employee rose 2% from 1997 to 2007 because of the decline in the number of employees (Table 2-20). Shipments per employee grew 28% from 1997 to 2007, with much of that growth taking place between 2002 and 2006 (Table 2-21).
Table 2-20.	Key Statistics: Paper Manufacturing (NAICS 322)

1997
2002
2006
2007
Shipments ($2007, millions)
$188,496
$175,983
$174,887
$175,806
Payroll ($2007, millions)
$27,983
$24,561
$21,188
$20,804
Employees
574,274
489,367
414,049
416,886
Establishments
5,868
5,495
                                      NA
                                     4,803
NA = Not available.
Sources:	U.S. Census Bureau; generated by RTI International; using American FactFinder; "Sector 31: Annual Survey of Manufactures: General Statistics: Statistics for Industry Groups and Industries: 2006 and 2005." <http://factfinder.census.gov>; (July 8, 2008).
	U.S. Census Bureau; generated by RTI International; using American FactFinder; "Sector 00: All Sectors: Core Business Statistics Series: Comparative Statistics for the United States and the States (1997 NAICS Basis): 2002 and 1997." <http://factfinder.census.gov>; (July 8, 2008).
	U.S. Census Bureau; generated by Kapur Energy and Environment; using American FactFinder; "Sector 00: EC0700A1: All Sectors: Geographic Area Series: Economy-Wide Key Statistics: 2007." Accessed on December 28, 2009. [Source for 2007 numbers]
Table 2-21.	Industry Data: Paper Manufacturing (NAICS 322)
Industry Data
1997
2002
2006
2007
Total shipments ($2007, millions)
$188,496
$175,983
$174,887
$175,806
Shipments per establishment ($2007, thousands)
$32,123
$32,026
                                      NA
$36,603
Average Shipments per employee ($2007)
$328,233
$359,614
$422,381
$421,712
Average Shipments per $ of payroll ($2007)
$6.74
$7.17
$8.25
$8.45
Average Annual payroll per employee ($2007)
$48,727
$50,189
$51,174
$49,904
Average Employees per establishment
                                      98
                                      89
                                      NA
                                      87
NA = Not available.
Sources:	U.S. Census Bureau; generated by RTI International; using American FactFinder; "Sector 31: Annual Survey of Manufactures: General Statistics: Statistics for Industry Groups and Industries: 2006 and 2005." <http://factfinder.census.gov>; (July 8, 2008).
	U.S. Census Bureau; generated by RTI International; using American FactFinder; "Sector 00: All Sectors: Core Business Statistics Series: Comparative Statistics for the United States and the States (1997 NAICS Basis): 2002 and 1997." <http://factfinder.census.gov>; (July 8, 2008).
	U.S. Census Bureau; generated by Kapur Energy and Environment; using American FactFinder; "Sector 00: EC0700A1: All Sectors: Geographic Area Series: Economy-Wide Key Statistics: 2007." <http://factfinder.census.gov>. Accessed on December 28, 2009. [Source for 2007 numbers]
The U.S. Census Bureau categorizes this industry's facilities into two categories: pulp, paper, and paperboard manufacturing and converted paper product manufacturing. These are further divided into the following types of facilities as defined by the Census Bureau (2001):
Pulp, Paper, and Paperboard:
Pulp Mills (NAICS 32211): This industry comprises establishments primarily engaged in manufacturing pulp without manufacturing paper or paperboard. The pulp is made by separating the cellulose fibers from the other impurities in wood or other materials, such as used or recycled rags, linters, scrap paper, and straw.
Paper Mills (NAICS 32212): This industry comprises establishments primarily engaged in manufacturing paper from pulp. These establishments may manufacture or purchase pulp. In addition, the establishments may convert the paper they make. The activity of making paper classifies an establishment into this industry regardless of the output.
Paperboard Mills (NAICS 32213): This industry comprises establishments primarily engaged in manufacturing paperboard from pulp. These establishments may manufacture or purchase pulp. In addition, the establishments may also convert the paperboard they make.
Converted Paper Products:
Paperboard Containers Manufacturing (NAICS 32221): This industry comprises establishments primarily engaged in converting paperboard into containers without manufacturing paperboard. These establishments use corrugating, cutting, and shaping machinery to form paperboard into containers. Products made by these establishments include boxes; corrugated sheets, pads, and pallets; paper dishes; and fiber drums and reels.
Paper Bag and Coated and Treated Paper Manufacturing (NAICS 32222): This industry comprises establishments primarily engaged in one or more of the following manufacturing activities: cutting and coating paper and paperboard; cutting and laminating paper and paperboard and other flexible materials (except plastics film to plastics film); bags or multiwall bags or sacks of paper, metal foil, coated paper, or laminates or coated combinations of paper and foil with plastics film; laminated aluminum and other converted metal foils from purchased foils; and surface coating paper or paperboard.
Stationary Product Manufacturing (NAICS 32223): This industry comprises establishments primarily engaged in converting paper or paperboard into products used for writing, filing, art work, and similar applications.
Other Converted Paper Products (NAICS 32229): This industry comprises establishments primarily engaged in one of the following manufacturing activities:
converting paper and paperboard into products (except containers, bags, coated and treated paper and paperboard, and stationery products), or
converting pulp into pulp products, such as disposable diapers, or molded pulp egg cartons, food trays, and dishes.
Figure 2-21 shows that the value of shipments for converted paper products was 54% of the value of all paper products in 2007, while the value of shipments for pulp, paper, and paperboard products was 46%. Figure 2-22 indicates that 70% of industry employees worked in the converted paper product category of the industry due to the labor intensive aspects of those facilities.

Figure 2-21.	Distribution of Value of Shipments within Paper Manufacturing (NAICS 322): 2007
Source:	U.S. Census Bureau; generated by Kapur Energy and Environment; using American FactFinder: "Sector 31: EC0731I1: Manufacturing: Industry Series: Detailed Statistics by Industry for the United States: 2007." Accessed on December 28, 2009.

Figure 2-22.	Distribution of Employment within Paper Manufacturing (NAICS 322): 2007
Source:	U.S. Census Bureau; generated by Kapur Energy and Environment; using American FactFinder; "Sector 31: EC0731I1: Manufacturing: Industry Series: Detailed Statistics by Industry for the United States: 2007." <http://factfinder.census.gov>. Accessed on December 28, 2009.
Supply and Demand Characteristics
Next, we provide a broad overview of the supply and demand sides of the paper manufacturing industry. We emphasize the economic interactions this industry has with other industries and people and identify the key goods and services used by the industry and the major uses and consumers of paper manufacturing products.
Goods and Services Used in Paper Manufacturing
In 2007, the cost of materials made up 53% of the total shipment value of goods in the paper manufacturing industry (Table 2-22). Total compensation of employees represented 15% of the total value in 2007, down from 17% in 2005. The total number of employees dropped by 2%, between 2005 and 2007, while shipments increased by 3% in the same period.
The top 10 industry groups supplying inputs to the paper manufacturing subsector accounted for 70% of the total intermediate inputs according to 2008 Bureau of Economic Analysis (BEA) data (Table 2-23). Inputs for pulp, paper, and paperboard products are notably different from inputs for converted paper products because the NAICS 3221 group represents the initial step in the paper manufacturing process; thus, its inputs include more raw resources such as wood products, forestry and logging products, natural gas, and electricity. This becomes evident when observing inputs for converted paper products: 49% of the cost of inputs comes from pulp, paper, and paperboard products.
<IP_ADDRESS>.1 Energy. The Department of Energy (DOE) categorizes paper manufacturing (NAICS 322) as an energy-intensive subsector. The 2008 Annual Energy Outlook predicts that the paper-producing subsector will be one of four subsectors experiencing positive average growth of delivered energy consumption between 2006 and 2030 (DOE, 2008).
Energy generation from the recovery boiler is often insufficient for total plant needs, so facilities augment recovery boilers with fossil fuel - fired and wood waste - fired boilers (hogged fuel) to generate steam and often electricity. Industry wide, the use of pulp wastes, bark, and other papermaking residues supplies 58% of the energy requirements of pulp and paper companies (EPA, 2002).
Likewise, Table 2-24 shows that total energy use decreased between 1998 and 2006 by 14%. Figure 2-24 indicates that total electrical power use changed sporadically between 2002 and 2004 but decreased consistently and rapidly after 2004.
Table 2-22.	Costs of Goods and Services Used in the Paper Manufacturing Industry (NAICS 322)
                                   Variable
                                     2005
                                     Share
                                     2006
                                     Share
                                     2007
                                     Share
Total shipments ($2007, millions)
$171,477
100%
$174,887
100%
$176,018
100%
Total compensation ($2007, millions)
$28,846
17%
$27,791
16%
$27,150
15%
Annual payroll
$21,792
13%
$21,188
12%
$20,804
12%
Fringe benefits
$7,054
4%
$6,603
4%
$6,346
4%
Total employees
426,748

414,049

417,367

Average compensation per employee
$67,596

$67,121

$65,051

Total production workers wages ($2007, millions)
$14,965
9%
$14,689
8%
$14,190
8%
Total production workers
331,228

321,684

321,937

Total production hours (thousands)
716,963

691,134

680,732

Average production wages per hour
$21

$21

$21

Total cost of materials ($2007, thousands)
$91,897
54%
$92,452
53%
$94,029
53%
Materials, parts, packaging
$77,494
45%
$78,202
45%
$79,984
45%
Purchase electricity
$3,788
2%
$3,841
2%
$3,780
2%
Purchased fuel ($2007)
$5,537
3%
$5,509
3%
$5,511
3%
Other
$5,078
3%
$4,901
3%
$4,755
3%
Sources:	U.S. Census Bureau; generated by RTI International; using American FactFinder; "Sector 31: Annual Survey of Manufactures: General Statistics: Statistics for Industry Groups and Industries: 2006 and 2005." <http://factfinder.census.gov>; (July 8, 2008).
	U.S. Census Bureau; generated by Kapur Energy and Environment; using American FactFinder; "Sector 31: EC0731I1: Manufacturing: Industry Series: Detailed Statistics by Industry for the United States: 2007." <http://factfinder.census.gov>. Accessed on December 28, 2009. [Source for 2007 numbers]
Table 2-23.	Key Goods and Services Used in the Paper Manufacturing Industry (NAICS 322) ($millions, $2007)
Description
BEA Code
NAICS 3221
Pulp, Paper, and Paperboard
NAICS 3222
Converted Paper Products
Total
Pulp, paper, and paperboard
                                     3221
$4,155
$30,448
$34,603
Wholesale trade
                                     4200
$3,916
$6,356
$10,273
Management of companies and enterprises
                                     5500
$3,154
$3,838
$6,993
Forestry and logging products
                                     1130
$5,389
$0
$5,389
Basic chemicals
                                     3251
$3,734
$263
$3,997
Electric power generation, transmission, and distribution
                                     2211
$2,690
$913
$3,603
Wood products
                                     3210
$3,450
$33
$3,484
Converted paper products
                                     3222
$1,415
$1,745
$3,159
Natural gas distribution
                                     2212
$2,680
$345
$3,026
Truck transportation
                                     4840
$1,428
$1,571
$2,999
Total intermediate inputs
                                     T005
$47,835
$62,690
$110,525
Source:	U.S. Bureau of Economic Analysis (BEA). 2008. "2002 Benchmark Input-Output Accounts: 2002 Standard Make and Use Tables at the Summary Level." Table 2. Washington, DC: BEA.
Table 2-24.	Energy Used in Paper Manufacturing (NAICS 322)
Fuel Type
1998
2002
2006
Net electricity[a] (million kWh)
70,364
65,503
72,518
Residual fuel oil (million bbl)
24
16
15
Distillate fuel oil[b] (million bbl)
2
2
2
Natural gas[c] (billion cu ft)
570
490
461
LPG and NGL[d] (million bbl)
1
2
1
Coal (million short tons)
12
11
10
Coke and breeze (million short tons)
 --
*
 --
Other[e] (trillion BTU)
1,476
1,276
1,303
Total (trillion BTU)
2,744
2,361
2,354
[a]	Net electricity is obtained by summing purchases, transfers in, and generation from noncombustible renewable resources, minus quantities sold and transferred out. It does not include electricity inputs from on-site cogeneration or generation from combustible fuels because that energy has already been included as generating fuel (for example, coal).
[b]	Distillate fuel oil includes Nos. 1, 2, and 4 fuel oils and Nos. 1, 2, and 4 diesel fuels.
[c]	Natural gas includes natural gas obtained from utilities, local distribution companies, and any other supplier(s), such as independent gas producers, gas brokers, marketers, and any marketing subsidiaries of utilities.
[d]	Examples of liquefied petroleum gases (LPG) are ethane, ethylene, propane, propylene, normal butane, butylene, ethane-propane mixtures, propane-butane mixtures, and isobutene produced at refineries or natural gas processing plants, including plants that fractionate raw natural gas liquids (NGLs).
[e]	Other includes net steam (the sum of purchases, generation from renewables, and net transfers), and other energy that respondents indicated was used to produce heat and power.
*	Estimate less than 0.5.
Sources:	U.S. Department of Energy, Energy Information Administration. 2007a. "2002 Energy Consumption by Manufacturers -- Data Tables." Tables 3.2 and N3.2. <http://www.eia.doe.gov/emeu/mecs/mecs2002/
data02/shelltables.html>. Washington, DC: DOE.
	U.S. Department of Energy, Energy Information Administration. 2007b. "2006 Energy Consumption by Manufacturers -- Data Tables." Table 3.1. <http://www.eia.doe.gov/emeu/mecs/mecs2006/2006tables.html>. Accessed on December 27, 2009. [Source for 2006 numbers]
Over the last 25 years, the pulp and paper subsector has changed its energy generation methods from fossil fuels to a greater use of processes such as increases in the use of wood wastes in place of fuel (Table 2-25). During the 1972 - 1999 period, the proportion of total industry power generated from the combination of woodroom wastes, spent liquor solids, and other self-generated methods increased from about 41% to about 56%, while coal, fuel oil, and natural gas use decreased from about 54% to about 36% (EPA, 2002).

Figure 2-23.	Electrical Power Use Trends in the Paper Manufacturing Industry: 1997 - 2005
Source:	Federal Reserve Board. 2009. "Industrial Production and Capacity Utilization: Electric Power Use: Manufacturing and Mining." <http://www.federalreserve.gov/datadownload/>.
Table 2-25.	Estimated Energy Sources for the U.S. Pulp and Paper Industry
Energy Source
1972
1979
1990
1999
Purchased steam
5.4%
6.7%
7.3%
1.5%
Coal
9.8%
9.1%
13.7%
12.5%
Fuel oil
22.3%
19.1%
6.4%
6.3%
Natural gas
21.5%
17.8%
16.4%
17.6%
Other purchased energy
                                       --
                                       --
                                       --
6.7%
Waste wood and wood chips (hogged fuel) and bark
6.6%
9.2%
15.4%
13.5%
Spent liquor solids
33.7%
37.3%
39.4%
40.3%
Other self-generated power
0.6%
0.8%
1.2%
1.6%
Source: 	U.S. Environmental Protection Agency. 2002. "Profile of the Pulp and Paper Industry." Sector Notebook Project. <http://www.epa.gov/Compliance/resources/publications/assistance/sectors/notebooks/
index.html>.
Uses and Consumers
Products manufactured in the NAICS groups 3221 and 3222 have different, but complementary, consumer profiles. NAICS 3221 supplies a significant portion of NAICS 3222 demand (37% of total commodity output). Both industries specialize in products with intermediate uses, with an average of 92% of sales between the two going toward this purpose. NAICS 3222 has a very diverse assortment of subsector groups from which it receives demand. Food manufacturing makes up 21% of the demand, making members of this industry the largest consumer of converted paper products (Table 2-26). Pulp, paper, and paperboard products have a large trade deficit, while converted paper products have a very small trade surplus.
Table 2-26.	Demand by Sector: Paper Manufacturing Industry (NAICS 322) ($millions, $2007)
Sector
BEA Code
3221
Pulp, Paper, and Paperboard
3222
Converted Paper Products
Total
Converted paper product manufacturing
                                     3222
$30,448
$1,745
$32,193