As discussed in Chapter 5, costs of methyl bromide phaseout under the Allocation Rule and costs under the Phaseout Rule were estimated using a spreadsheet model that determined market penetration of methyl bromide substitutes by region ( based on substitute efficacy, regional conditions, and other factors) and resulting cost and yield impacts. Data were derived from a review of the literature, the CUE applications, and consultations with experts. As presented in Chapter 5 of this report   assuming that methyl bromide is allocated to its most valuable uses   costs ( excluding administrative costs) will be identical for the two options considered under the Allocation Rule. Negative Costs I n this Economic Impact Analysis, incremental costs ( or cost savings) are calculated based on a comparison of continued methyl bromide use under the Allocation Rule to no consumption in 2005 and beyond under the Phaseout Rule. If control and other costs to methyl bromide end users are higher under the Allocation Rule than under the Phaseout Rule, costs are positive ( or cost savings are negative). If costs to end users are lower under the Allocation Rule than the Phaseout Rule, costs are negative ( or cost savings are positive). *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 122  Costs will differ, however, depending on whether allocation of methyl bromide is accomplished on a sector specific or universal basis, a factor which may be determined by the Parties to the Montreal Protocol. Exhibit 9.1.1 presents total annualized and net present value ( NPV) costs compared to the Phaseout Rule for universal and sector specific allocation scenarios for the Approach 1 high scenario,

which measures cost based on producer surplus alone and uses the higher range of substitute costs.

Approach 1 was used because it is a conservatively high estimate of the cost of methyl bromide substitute use.

Exhibit 9.1.1. Annualized and Net Present Value Private Compliance Costs of the Allocation Rule for Approach 1, High Scenario ( 1997$) Annualized Costs Net Present Value Costs Discount Rate Sector Specific Allocation Illustrative Universal Allocation Sector Specific Allocation Illustrative Universal Allocation 3%  19.5 million  21.9 million  616.6 million  695.6 million 7%  26.8 million  31.3 million  382.7 million  446.8 million Note: Exhibit 9.1.1 does not include administrative costs.

9.2 Administrative Costs Both the private and public sectors will incur administrative costs associated with meeting requirements under the Allocation Rule, as described in detail in Chapters 6 and 7. In addition to costs related to yield impacts and higher substitution costs identified above, the Allocation Rule will also lead to administrative costs for private entities receiving methyl bromide through allocation or trade, such as rule familiarization, reporting, and entry of information into a tracking database. Furthermore, EPA will face costs of running the allocation program, including form writing and processing, tracking quantities of used and stockpiled methyl bromide, creating and operating a trade tracking system for Option 2, and other basic administrative activities. Total administrative costs to the public and private sector under Options 1 and 2 are summarized in Exhibit 9.2.1. It is assumed that administrative costs are the same for universal versus sector specific allocation. *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 123  Exhibit 9.2.1. Net Present Value of Administrative Costs of the Allocation Rule for Both Sector Specific and Universal Allocations ( 1997$) Option 1 Option 2 Discount Rate Private Administrative Costs Public Administrative Costs Total Administrative Costs Private Administrative Costs Public Administrative Costs Total Administrative Costs 3% 30.6 million 0.4 million 31.0 million 89.8 million 29.9 million 119.7 million 7% 22.4 million 0.3 million 22.7 million 66.1 million 22.0 million 88.1 million 9.3 Total Costs The net present values of the total costs of the Allocation Rule ( sector specific and universal allocation), including incremental costs of the allocation options and public and private administrative costs, are summarized in Exhibits 9.3.1 and 9.3.2. Total costs are calculated by adding total administrative costs and private compliance costs. In all cases, private compliance costs savings outweigh the administrative costs associated with the Allocation Rule, resulting in negative total costs.

Negative total costs represent total cost savings.

Exhibit 9.3.1. Net Present Value of Total Costs for Sector Specific Allocation ( 1997$) Option 1 Option 2 Discount Rate Total Administrative Costs Private Compliance Costs Total Costs Total Administrative Costs Private Compliance Costs Total Costs 3% 31.0 million  616.6 million  585.6 million 119.7 million  616.6 million  496.9 million 7% 22.7 million  382.7 million  360.0 million 88.1 million  382.7 million  294.6 million Exhibit 9.3.2. Net Present Value of Total Costs for Universal Allocation ( 1997$) a Option 1 Option 2 Discount Rate Total Administrative Costs Private Compliance Costs Total Costs Total Administrative Costs Private Compliance Costs Total Costs 3% 31.0 million  695.6 million  664.6 million 119.7 million  695.6 million  575.9 million 7% 22.7 million  446.8 million  424.1 million 88.1 million  446.8 million  358.7 million a Illustrative, not predictive, scenario. *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 124  9.4 Cost Comparison Overall costs to industry are negative under both options, because more methyl bromide is available under the Allocation Rule than under the Phaseout Rule, and these negative costs outweigh the positive administrative costs incurred under the options. Exhibit 9.4.1 presents a comparison of the net present value costs of the Allocation Rule for each option. Total costs include incremental costs of the allocation options and public and private administrative costs under the option.

Exhibit 9.4.1. Costs of the Allocation Rule, Approach 1, High Scenario, Options 1 and 2 ( 1997$) Allocation Type Discount Rate Option 1 Costs Option 2 Costs 3%  585.6 million  496.6 million 7%  360.0 million  294.6 million 3%  585.6 million  496.9 million 7%  360.0 million  294.6 million Sector Specific Allocation 7%  360.0 million  294.6 million 3%  664.6 million  575.9 million 7%  424.1 million  358.7 million 3%  664.6 million  575.9 million 7%  424.1 million  358.7. million Illustrative Universal Allocation 7%  424.1 million  358.7 million As indicated in Exhibit 9.4.1, total cost savings are generally greater under the Allocation Rule for universal allocation than sector specific allocation options. Under the Allocation Rule, methyl bromide will be allocated to the highest value end uses. Specifically, commodities with the lowest costs for alternatives or low yield inputs will switch to alternatives before high value uses, with the end result that methyl bromide is used for uses that have the highest cost of substitution. Under universal allocation, a greater number of entities will be able to trade permits ( under Option 2), thus leading to greater economic efficiency and total cost savings. Under Option 1, universal allocation results in greater total cost savings because methyl bromide is allocated more directly to a greater number of end users, rather than requiring a two step process of allocation to sectors followed by allocation to end users.

Another way of investigating cost effectiveness of the Allocation Rule is to look at the relative cost of options under the Allocation Rule. Exhibit 9.4.2 presents costs of each option and the ratio of cost for Option 1 to Option 2. Relative costs are calculated by dividing Option 1 costs by Option 2 costs. As the exhibit indicates, Option 2 is roughly between 10 percent and 13 percent more costly than Option 1,

depending on the allocation method and discount rate employed. *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 125  Exhibit 9.4.2. Relative Costs of Option 1 and Option 2, Approach 1, High Scenario ( 1997$) Allocation Type Discount Rate Option 1 Costs Option 2 Costs Relative Costs 3%  585.6 million  496.9 million 1.18 Sector Specific Allocation 7%  360.0 million  294.6 million 1.22 3%  664.6 million  575.9 million 1.15 Illustrative Universal Allocation 7%  424.1 million  358.7 million 1.18 As indicated in Exhibit 9.4.2, the relative costs between Option 1 and Option 2 are greater than unity, meaning that Option 1 will result in relatively more total cost savings than Option 2. This is because Option 2 involves a greater number of entities, thus increasing private costs of participation as well as public form processing. Option 2 also requires the development of a permit trading system for at least 2000 end users, including a trade tracking database, determination of historic methyl bromide use for at least 2000 end users, distribution of permits to end users, and processing of verification reports from importers, producers, distributors, and end users. Conversely, Option 1 involves fewer entities and uses a system similar to the QPS system already in place, thus resulting in comparatively low costs.

9.5 Efficiency and Equity Although the quantitative cost comparisons presented in Section 9.4 provide initial estimates of the allocation options that may lead to the greatest total cost savings to society, the options also result in differing levels of efficiency and equity for industry that must also be considered. Efficiency, or the leastcost method of allocation, depends on the end users that ultimately receive methyl bromide. If methyl bromide is allocated to the highest valued uses ( i. e., uses with the highest substitute costs and/ or greatest yield losses in absence of methyl bromide), with few transaction costs involved, a relatively efficient outcome will result. As discussed in Chapter 5, universal allocation under Options 1 or 2 would result in the most efficient allocation because with fewer limits on trading, end users would have more chance of identifying trading partners with large control cost differentials ( thus resulting in higher cost saving potential). Universal allocation would also allow for a higher trading volume, thereby increasing the potential for lower aggregate control costs and higher efficiency.

Under a sector specific system, each critical end use type would be guaranteed at least some methyl bromide. Within each crop type or consortium, methyl bromide would be allocated to the most efficient use. This system would help ensure the continued domestic production of each of these products in an economically feasible manner. *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 126  9.6 Industry Total Cost Savings: Summary For both methyl bromide allocation options under the proposed Allocation Rule, costs to end users will be less than under the Phaseout Rule. This is because methyl bromide end users will receive more methyl bromide than would have been the case under the Phaseout Rule, where methyl bromide would have been eliminated by 2005. Under the Allocation Rule, industry will be able to continue using methyl bromide for CUE purposes until 2018, as described in the revised phaseout schedule presented in Section 4.1. Although both Option 1 and Option 2 will lead to total cost savings for industry as a whole,

affected entities ( producers, importers, distributors, applicators, and end users) will experience various impacts. This section discusses net cost savings to industry participants for the two options and concludes with a summary of total cost savings to industry as a whole.

Option 1 is very similar to the existing QPS self certification system and will therefore pose few new costs to producers, importers, distributors, applicators, or end users. Under the QPS system,

producers and importers already submit annual forms and distributors submit quarterly forms delineating methyl bromide distribution and implied consumption. For methyl bromide allocation under Option 1 of the proposed Allocation Rule, similar self certification procedures will be in place and hence, will entail activities with which the industry is already familiar. Additionally, reporting requirements for distributors again would be similar to requirements under the QPS system, but would entail reduced frequency of reporting for amounts of methyl bromide bought and sold ( i. e., quarterly versus annual reporting). End users under the QPS system already submit self certification forms, so although more end users will have to prepare these forms than do currently, it is a familiar process and will not entail a steep learning curve or impose high additional costs.

Option 2 would present more costs to industry than Option 1 because it involves end user participation in a permit trading system. Many end users do not have experience with this type of system,

or trading in general. Reporting trades in a tracking database operated by EPA also may pose significant incremental cost burdens. Anticipated activities, as described in more detail in Chapter 6, would include becoming familiar with the system, reporting trades in the tracking database, incurring transaction costs such as time and resources spent identifying and contacting trading partners, and negotiating costs or hiring a broker to perform this activity. In particular, many of these costs would be borne by small users because, according to the Bureau of Labor Statistics definition of a small farm ( less than $ 250,000 in annual sales), 91 percent of farms in the United States are small farms.

However, these additional costs to industry over the current methyl bromide purchasing system will be greatly outweighed by the advantage afforded by continued methyl bromide use under the CUE system beyond 2005. Under a 2005 phaseout, affected entities, especially small farms, would be required to switch more quickly to substitutes. Furthermore, many small farms may not have as many resources as larger entities for conducting trades, and may lack sufficient information to settle on prices. *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 127  With continued methyl bromide use, small farmers will have a longer " buffer time" to identify methyl bromide substitutes and prepare for the phaseout in other ways.

It is critical to note that both options are deregulatory in nature, and would substantially lower the cost of compliance to all users, including small users. Exhibits 9.3.1 and 9.3.2 above present the total cost savings to industry under both options of the Allocation Rule for sector specific and universal allocation. *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 128  10. References AQMD Board Meeting. 2001. Agenda Number 29. November 9, 2001. Retrieved 16 July 2003 < http:// www. aqmd. gov/ hb/ 011129a. html>.

BLS. 2003. Career Guide to Industries, 2002 03 Edition, Agricultural Production. Bureau of Labor Statistics, U. S. Department of Labor. Retrieved 27 May 2003 < http:// www. bls. gov/ oco/ cg/ cgs001. htm>.

Boze, Ken M. 1994. " Measuring learning costs." Management Accounting 76: 48 53.

Burtraw, Dallas, Karen Palmer, Ranjit Bharvirkar, and Anthony Paul. 2002. " The Effect on Asset Values of the Allocation of Carbon Dioxide Emission Allowances." Resources for the Future Discussion Paper 02 15. Resources for the Future, Washington, DC, March.

Burtraw, D., K. Palmer, R. Bharvirkar, and A. Paul. 2001. " The Effect of Allowance Allocation on the Cost and Efficiency of Carbon Emission Trading." Resources for the Future: Washington, DC, April.

CADPR. 2002. Summary of Pesticide Use Report Data 1998. California Department of Pesticide Regulation. October. Available at < http:// www. cdpr. ca. gov/ docs/ pur/ pur01rep/ 01_ pur. htm>.

CADPR. 2000. Summary of Pesticide Use Report Data 1998. California Department of Pesticide Regulation. February. Available at < http:// www. cdpr. ca. gov/ docs/ pur/ pur98rep/ comrpt98. pdf>.

CADPR. 1995. California Department of Pesticide Regulation. California Pesticide Use Reports. Available at < www. cdpr. ca. gov/ docs/ pur/ purmain. htm>.

Canadian Environmental Protection Act ( CEPA). 1999. Ozone depleting Substances Regulations, 1998. Available at < http:// laws. justice. gc. ca/ en/ C 15.31/ SOR 99 7/ 69623. html>.

Carey, Bill. 2000. " Producing Southern Pine Seedlings with Methyl Bromide Alternatives," 2000 Annual International Research Conference on Methyl Bromide Alternatives and Emissions Reductions.

Carey, Bill and Scott Enebak. 1997. " Pine Seedling Production as Affected by Fumigation and Plant Growth Promoting Phizobacteria at a Georgia Nursery." Research Report 98 2. 1997 Southern Forest Nursery Management Cooperative, Auburn University.

Carpenter, Janet, Leonard Gianessi and Lori Lynch. 2000. " The Economic Impact of the Scheduled U. S. Phaseout of Methyl Bromide." NCFAP. Available at < http:// www. ncfap. org/ reports/ pesticides/ methyl% 20bromide/ methylbromide. htm>.

CASS. 1999. California Agricultural Statistics Service. Crop Statistics. Available at < www. nass. usda. gov/ ca>.

CDFA. 2001. " Nursery Inspection Procedures Manual ( NIPM)." California Department of Food and Agriculture, Revised September 2001. Available at < http:// www. cdfa. ca. gov/ phpps/ pe/ nipm. htm>.

Chellemi, Dan O., Robert C. Hochmuth, Ted Winsberg, Walter Guetler, Kenneth D. Shuler, Lawrence E. Datnoff, David T. Kaplan, Robert McSorley, Robert A. Dunn, and Steve M. Olson. 1997. " Application of Soil Solarization to Fall Production of Cucurbits and Pepper." Proc. Fla. State Horticultural Society 110: 333 336.

CRS ( Congressional Research Service). 2003. U. S. Tobacco Production, Consumption and Export Trends. Updated June 2003. *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 129  Csinos, A. S., D. R. Sumner, C. W. Johnson, A. W. Johnson, C. Dowler, and R. M. McPherson. 1998. " Alternatives for Methyl Bromide Fumigation of Tobacco Seedbeds, Pepper and Tomato Seedlings." Available at < http:// www. epa. gov/ ozone/ mbr/ airc/ 1998/ 026csinos. pdf>.

CUE 02   0002. California Bean Shippers Association. 2002 Application for Critical Use Exemption of Methyl Bromide for Use in 2005 in the United States.

CUE 02   0003. Auburn University Southern Forest Nursery Management Cooperative. 2002 Application for Critical Use Exemption of Methyl Bromide for Use in 2005 in the United States.

CUE 02   0004. Michigan Solanaceous Crop. 2002 Application for Critical Use Exemption of Methyl Bromide for Use in 2005 in the United States.

CUE 02   0005. Michigan Cucurbit. 2002 Application for Critical Use Exemption of Methyl Bromide for Use in 2005 in the United States.

CUE 02   0007. International Paper Consortium. 2002 Application for Critical Use Exemption of Methyl Bromide for Use in 2005 in the United States.

CUE 02   0008. Western Forest and Conservation Public Nursery Association. 2002 Application for Critical Use Exemption of Methyl Bromide for Use in 2005 in the United States.

CUE 02   0009. Nursery Technology Cooperative. 2002 Application for Critical Use Exemption of Methyl Bromide for Use in 2005 in the United States.

CUE 02   0010. Western Raspberry Nursery Consortium. 2002 Application for Critical Use Exemption of Methyl Bromide for Use in 2005 in the United States.

CUE 02   0011. Illinois Department of Natural Resources, Nursery Program. 2002 Application for Critical Use Exemption of Methyl Bromide for Use in 2005 in the United States.

CUE 02   0012. Virginia Tomato Growers. 2002 Application for Critical Use Exemption of Methyl Bromide for Use in 2005 in the United States.

CUE 02   0013. California Grape and Tree Fruit League ( Stone Fruit) . 2002 Application for Critical Use Exemption of Methyl Bromide for Use in 2005 in the United States.

CUE 02   0014. California Grape and Tree Fruit League ( Table and Raisin Grapes) . 2002 Application for Critical Use Exemption of Methyl Bromide for Use in 2005 in the United States.

CUE 02   0015. California Dried Plum Board. 2002 Application for Critical Use Exemption of Methyl Bromide for Use in 2005 in the United States.

CUE 02   0016. Sweet Potato Council of California. 2002 Application for Critical Use Exemption of Methyl Bromide for Use in 2005 in the United States.

CUE 02   0017. California Pepper Commission. 2002 Application for Critical Use Exemption of Methyl Bromide for Use in 2005 in the United States.

CUE 02   0019. California Pistachio Processors. 2002 Application for Critical Use Exemption of Methyl Bromide for Use in 2005 in the United States. *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 130  CUE 02   0021. Weyerhaeuser Company Forest Tree Nurseries ( SE). 2002 Application for Critical Use Exemption of Methyl Bromide for Use in 2005 in the United States.

CUE 02   0022. Weyerhaeuser Company Forest Tree Nurseries ( NW). 2002 Application for Critical Use Exemption of Methyl Bromide for Use in 2005 in the United States.

CUE 02   0023. Rice Millers' Association. 2002 Application for Critical Use Exemption of Methyl Bromide for Use in 2005 in the United States.

CUE 02   0024. California Strawberry Commission. 2002 Application for Critical Use Exemption of Methyl Bromide for Use in 2005 in the United States.

CUE 02   0025. Tobacco Growers Association of North Carolina. 2002 Application for Critical Use Exemption of Methyl Bromide for Use in 2005 in the United States.

CUE 02   0026. Kraft Food North America, Inc. 2002 Application for Critical Use Exemption of Methyl Bromide for Use in 2005 in the United States.

CUE 02   0027. Pet Food Institute. 2002 Application for Critical Use Exemption of Methyl Bromide for Use in 2005 in the United States.

CUE 02   0029. California Walnut Commission. 2002 Application for Critical Use Exemption of Methyl Bromide for Use in 2005 in the United States.

CUE 02   0030. California Walnut Commission and Walnut Marketing Board. 2002 Application for Critical Use Exemption of Methyl Bromide for Use in 2005 in the United States.

CUE 02   0031. North American Millers Association. 2002 Application for Critical Use Exemption of Methyl Bromide for Use in 2005 in the United States.

CUE 02   0032. Wisconsin Department of Natural Resources State Nursery Managers. 2002 Application for Critical Use Exemption of Methyl Bromide for Use in 2005 in the United States.

CUE 02   0033. Gwaltney of Smithfield. 2002 Application for Critical Use Exemption of Methyl Bromide for Use in 2005 in the United States.

CUE 02   0034. California Strawberry Nursery Association. 2002 Application for Critical Use Exemption of Methyl Bromide for Use in 2005 in the United States.

CUE 02   0035. California Association of Nurserymen  Deciduous Fruit and Nut Tree Growers. 2002 Application for Critical Use Exemption of Methyl Bromide for Use in 2005 in the United States.

CUE 02   0036. California Association of Nurserymen   Citrus and Avocado Growers. 2002 Application for Critical Use Exemption of Methyl Bromide for Use in 2005 in the United States.

CUE 02   0037. Southeastern Strawberry Consortium ( Strawberry Plasticulture). 2002 Application for Critical Use Exemption of Methyl Bromide for Use in 2005 in the United States.

CUE 02   0038. Southeastern Strawberry Consortium ( Strawberry Nurseries). 2002 Application for Critical Use Exemption of Methyl Bromide for Use in 2005 in the United States.

CUE 02   0039. Michigan Seedling Association. 2002 Application for Critical Use Exemption of Methyl Bromide for Use in 2005 in the United States. *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 131  CUE 02   0040. Southeastern Tomato Consortium. 2002 Application for Critical Use Exemption of Methyl Bromide for Use in 2005 in the United States.

CUE 02   0041. Southeastern Pepper Consortium. 2002 Application for Critical Use Exemption of Methyl Bromide for Use in 2005 in the United States.

CUE 02   0042. Southeastern Cucurbit Consortium. 2002 Application for Critical Use Exemption of Methyl Bromide for Use in 2005 in the United States.

CUE 02   0043. Almond Hullers and Processing Association. 2002 Application for Critical Use Exemption of Methyl Bromide for Use in 2005 in the United States.

CUE 02 0044. Turfgrass Producers International. 2002 Application for Critical Use Exemption of Methyl Bromide for Use in 2005 in the United States.

CUE 02   0045. Hawaii Farm Bureau Federation. 2002 Application for Critical Use Exemption of Methyl Bromide for Use in 2005 in the United States.

CUE 02   0046. Florida Fruit and Vegetable Association ( Tomatoes) . 2002 Application for Critical Use Exemption of Methyl Bromide for Use in 2005 in the United States.

CUE 02   0047. Georgia Fruit and Vegetable Growers Association ( Tomatoes) . 2002 Application for Critical Use Exemption of Methyl Bromide for Use in 2005 in the United States.

CUE 02   0048. Georgia Fruit and Vegetable Growers Association ( Squash). 2002 Application for Critical Use Exemption of Methyl Bromide for Use in 2005 in the United States.

CUE 02   0049. Georgia Fruit and Vegetable Growers Association ( Peppers). 2002 Application for Critical Use Exemption of Methyl Bromide for Use in 2005 in the United States.

CUE 02   0050. Georgia Fruit and Vegetable Growers Association ( Eggplants). 2002 Application for Critical Use Exemption of Methyl Bromide for Use in 2005 in the United States.

CUE 02   0051. Georgia Fruit and Vegetable Growers Association ( Cucumber). 2002 Application for Critical Use Exemption of Methyl Bromide for Use in 2005 in the United States.

CUE 02   0052. Georgia Fruit and Vegetable Growers Association ( Melon). 2002 Application for Critical Use Exemption of Methyl Bromide for Use in 2005 in the United States.

CUE 02   0053. Florida Fruit and Vegetable Growers Association ( Strawberries). 2002 Application for Critical Use Exemption of Methyl Bromide for Use in 2005 in the United States.

CUE 02   0054. Florida Fruit and Vegetable Growers Association ( Pepper Attachment). 2002 Application for Critical Use Exemption of Methyl Bromide for Use in 2005 in the United States.

CUE 02   0055. Golf Course Superintendents Association of America. 2002 Application for Critical Use Exemption of Methyl Bromide for Use in 2005 in the United States.

Dade Vegetable Newsletter. 2001. Institute of Food and Agricultural Sciences, University of Florida. Volume 10, No. 1, Spring 2001.

Duniway, John M. 2002. " Microbiological Improvement of Root Health, Growth, and Yield of Strawberry." University of California, Sustainable Agriculture Research and Education Program. Final Report, *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 132  September 2002, last updated May 2003. Available at < http:// www. sarep. ucdavis. edu/ grants/ Reports/ MeBr/ Duniway/ duniway. html>

Eger, Jr. J. E. 2000. " Efficacy of Telone ® Products in Florida Crops: A Seven Year Summary." 2000 Annual International Conference on Methyl Bromide Alternatives and Emissions Reductions   Conference Proceedings. Available at < http:// www. epa. gov/ ozone/ mbr/ airc/ 2000/ index. html>.

EIA. 2001. Annual Energy Review 2001. Table 5.9, Refinery Capacity and Utilization, 1949 2001. Energy Information Administration, Department of Energy.

Ellerman, A. Denny, Paul L. Joskow, and David Harrison Jr. 2003. " Emissions trading in the U. S. Experience, Lessons, and Considerations for Greenhouse Gases." Pew Center on Global Climate Change.

Ellerman, A. D., P. L. Joskow, R. Schmalensee, J. Montero, and E. Bailey. 2000. " Markets for Clean Air: The U. S. Acid Rain Program." Cambridge University Press: New York.

Ellerman, A. D., R. Schmalensee, P. L. Joskow, J. P. Montera, and E. M. Bailey. 1997. " Emissions Trading Under the U. S. Acid Rain Program: Evaluation of Compliance Costs and Allowance Market Performance." MIT Center for Energy and Environmental Policy Research.

EPA. 2003a. " Press Release: US Government Nominates Critical Use Exemptions for Methyl Bromide." February 7, 2003. Available at < http:// www. epa. gov/ spdpublc/ MeBr_ Press_ Release. pdf>.

EPA. 2003b. 2003 Nomination for a Critical Use Exemption for Methyl Bromide from the United States of America: Executive Summary. EPA Docket OAR 2003 0017.

EPA. 2003c. Number of plants in the Acid Rain Program. Retrieved 27 July 2003 < http:// www. epa. gov/ airmarkets/ arp/ plantinfo. html>.

EPA. 2003d. Exhibits Illustrating the Benefits of Trading. Received from Hong Jin Kim, Office of Pesticide Programs, U. S. Environmental Protection Agency.

EPA. 2002. " Regional Clean Air Incentives Market" ( RECLAIM). Retrieved 3 July 2003 < http:// www. epa. gov/ region09/ cross_ pr/ innovations/ reclaim. html>.

EPA. 2001. " The U. S. Experience with Economic Incentives for Protecting the Environment." EPA 240 R 01 001, January.

EPA. 2000. " Guidelines for Preparing Economic Analyses." EPA R 00 003, September.

EPA. 1999a. " Progress Report on the EPA Acid Rain Program." EPA430 R 99 011, November 1999.

EPA. 1999b. U. S. EPA Methyl Bromide Phase Out Web Site. Available at < www. epa. gov/ docs/ ozone/ mbr/ mbrqa. html>.

EPA . 1999c. " Pesticides Industry Sales and Usage: 1996 and 1997 Market Estimates." U. S. Environmental Protection Agency, Office of Prevention, Pesticides and Toxic Substances, Washington, DC. Report No. 733 R 99 001.

EPA. 1998. " An Analysis of Composting as an Environmental Remediation Technology." April. Available at < http:// www. epa. gov/ epaoswer/ non hw/ compost/ index. htm>.

EPA. 1997. " Alternatives to Methyl Bromide: Ten Case Studies." Vol 3. September 1997. *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 133  EPA. 1996. " Alternatives to Methyl Bromide: Ten Case Studies." Vol 2. December 1996.

EPA. 1995. " Alternatives to Methyl Bromide: Ten Case Studies." Vol 1. July 1995.

EPA. 1994. " Regulatory Impact Analysis of Amendments to Regulations for TSCA Section 5 Premanufacture Notifications." Regulatory Impacts Branch, Economics, Exposure and Technology Division, U. S. Environmental Protection Agency. September 9, 1994.

EPA. 1992. " Regulatory Impact Analysis of the Proposed Acid Rain Implementation Regulations." Office of Atmospheric and Indoor Programs, Acid Rain Division, U. S. Environmental Protection Agency. July 30, 1992.

ERS. 2003. " Farm structure: glossary." Economic Research Service. Retrieved 27 May 2003 < http:// ers. usda. gov/ briefing/ farmstructure/ smfar d. htm>.

Ethyl Corporation. 2002. " 2002 Annual Report on Form 10 K." Ethyl Corporation. Available at < http:// www. ethyl. com/ investor/ ar_ 2002/ Ethyl% 202002% 20Annual% 20Report. pdf>.

FASS. 1999. Florida Agricultural Statistics Service. Citrus Summary 1997 1998.

Federal Register. 2003. Part VI   40 CFR Part 82. Protection of Stratospheric Ozone: Process for Exempting Quarantine and Preshipment Applications of Methyl Bromide; Final Rule. January 2.

Federal Register. 2000. 40 CFR Part 82. Protection of Stratospheric Ozone: Incorporation of Stratospheric Ozone: Incorporation of Clean Air Act Amendments for Reductions in Class I, Group VI Controlled Substances. Vol 65, No. 229. November 28. Available at < http:// www. epa. gov/ fedrgstr/ EPAAIR 2000/ November/ Day 28/ a30109. htm>.

Gangadharan, L. 2000. " Tradable Permits in Pollution Markets." Department of Economics, The University of Melbourne. Retrieved 16 July 2003 < http:// www. economics. unimelb. edu. au/ TLdevelopment/ econochat/ GangadharanEcon11. html>.

GASS. 1999. Georgia Agricultural Statistics Service. Crop Statistics.

Gilreath, J. P., J. W. Noling, and P. R. Gilreath. 2000. " Soilborne Pest Control in Tomato, Pepper, and Double Cropped Cucumbers." Southwest Florida Research & Education Center, University of Florida   IFAS. Available at < http:// www. imok. ufl. edu/ liv/ groups/ cultural/ pests/ soilborn. htm>.

Gilreath, J. P., J. W. Noling, S. J. Locascio, D. O. Chellemi. 1999. " Effect of Methyl Bromide, 1,3 Dichloropropene + Chloropicrin with Pebulate and Soil Solarization on Soilborne Pest Control in Tomato Followed by Double Cropped Cucumber." Proc. Fla. State Horticultural Society 112: 292 297.

Godbehere, Steve. 2003. Telephone Interview with ICF Consulting. Vice President of Business Affairs, Hendrix and Dail. July 8, 2003.

Goodstein, Eban S. 1999. Economics and the Environment. Prentice Hall, Second Edition.

Gordon, Tom, Doug Shaw, and Kirk Larson. 1999. " Management of Verticillium Wilt in Strawberry Nurseries." Annual International Research Conference on Methyl Bromide Alternatives and Emissions Reductions   Conference Proceedings 4. Available at < http:// www. epa. gov/ ozone/ mbr/ airc/ 1999/>.

Great Lakes. 2003. " Corporate Profile." Great Lakes Chemical Corporation. Available at < http:// www. e1. greatlakes. com/ corp/ aboutus/ jsp/ corporate_ profile. jsp>. *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 134  HASS. 2001. " Hawaii Ginger Root." Hawaii Agriculture Statistics Service, Hawaii Department of Agriculture. Available at < http:// www. nass. usda. gov/ hi/ speccrop/ ginger. htm>.

Hausbeck, M. K., B. D. Cortright, and S. D. Linderman. 1998. " Evaluation of Fumigants for Managing Fusarium Wilt of Muskmelon." Michigan State University, Department of Botany and Plant Pathology.

Hendrix, James W. 1994. " Cropping Systems Controlling Mycorrhizal Stunt of Burley Tobacco as an Alternative to Soil Fumigation." Available at < http:// www. epa. gov/ ozone/ mbr/ airc/ 1994/ 033. pdf>.

I CF. 2003. " Strawberry Production: U. S. and International Practices, Technology and Economics." Prepared for the U. S. Environmental Protection Agency, Stratospheric Protection Division. ICF Consulting, Washington, D. C. September/ October 2003.

I CF. 2000a. " Human Health Benefits of Stratospheric Ozone Protection," Revised Draft Report. Prepared for the U. S. Environmental Protection Agency, Stratospheric Protection Division. ICF Consulting, Washington, DC. February 29, 2000.

I CF 2000b. " Revised Draft Regulatory Impact Analysis for a Methyl Bromide Phaseout in the United States." Prepared for the U. S. Environmental Protection Agency, Stratospheric Protection Division. ICF Consulting, Washington, D. C. October 27, 2000. Draft.

I CF. 1999. " Direct Costs for the Treatment of Melanoma and Cataracts." Memorandum prepared for the U. S. Environmental Protection Agency, Stratospheric Protection Division. ICF Consulting, Washington, DC. June 8, 1999.

I CF. 1992. " Regulatory Impact Analysis of the Proposed Acid Rain Implementation Regulations." Prepared for Office of Atmospheric and Indoor Programs, Acid Rain Division, U. S. Environmental Protection Agency. July 30, 1992.

Jensen, Jesper and Tobias N. Rasmussen. " Allocation of CO2 Emission Permits: a General Equilibrium Analysis of Policy Instruments." December 21. University of Copenhagen, University of Aarhus.

Kim, Hong Jin, John Faulkner, and David Widawsky. 2003. " Marketable permit designs for the Methyl Bromide Critical Use Exemption Request in the United States." Office of Pesticide Programs, U. S. Environmental Protection Agency.

Lange, A. H. 1967. " Weed Control Studies in Strawberries." California Agriculture. Referenced in: Carpenter, Janet, Leonard Gianessi and Lori Lynch. 2000. " The Economic Impact of the Scheduled U. S. Phaseout of Methyl Bromide." NCFAP. Retrieved 26 August 2002 < http:// www. ncfap. org/ reports/ pesticides/ methylpercent20bromide/ methylbromide. htm>.

McMillan, Robert T. and Herbert H. Bryan. 2000. " Effect of Metam Sodium and Methyl Bromide on Root Knot Nutsedge and Dampoff on Cucumber Cv. Dasher II." In: 2000 Annual International Research Conference on Methyl Bromide Alternatives and Emissions Reductions. Orlando, Florida. 6 9 November, 2000. Available at < http:// mbao. org/ altmet00/ 50mcmillan. pdf>.

Mossler Mark A. and O. Norman Nesheim, Ph. D. 2000. " Florida crop/ pest management profiles: cucumbers." University of Florida Cooperative Extension Service. Available at http:// edis. ifas. ufl. edu/ BODY_ PI041.

NAPIAP. 1993. " The Biologic and Economic Assessment of Methyl Bromide." United States Department of Agriculture, National Agricultural Pesticide Impact Assessment Program, Washington, DC. April 1993. *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 135  NASS ( National Agricultural Statistics Service). 2003a. " Agricultural Statistics 2003." Chapter 4: Statistics of Vegetables and Melons. National Agricultural Statistics Service, U. S. Department of Agriculture. Available at < http:// www. usda. gov/ nass/ pubs/ agr03/ 03_ ch4. pdf>.

NASS ( National Agricultural Statistics Service). 2003b. " Agricultural Statistics 2003." Chapter 5: Statistics of Fruits, Tree Nuts, and Horticultural Specialties. National Agricultural Statistics Service, U. S. Department of Agriculture. Available at < http:// www. usda. gov/ nass/ pubs/ agr03/ 03_ ch5. pdf>.

NASS ( National Agricultural Statistics Service). 2003c. " Agricultural Statistics 2003." Chapter 2: Statistics of Cotton, Tobacco, Sugar Crops, and Honey. National Agricultural Statistics Service, U. S. Department of Agriculture. Available at < http:// www. usda. gov/ nass/ pubs/ agr03/ 03_ ch2. pdf>.

NASS ( National Agricultural Statistics Service). 2003d. " State Level Data for Vegetables and Melons." Agricultural Statistics Database, National Agricultural Statistics Service, U. S. Department of Agriculture. Available at < http:// www. nass. usda. gov: 81/ ipedb/>.

NASS ( National Agricultural Statistics Service). 2003e. Agricultural Chemical Use Database. National Agricultural Statistics Service ( NASS), U. S. Department of Agriculture. Available at < http:// www. pestmanagement. info/ nass/ app_ usageExcel. cfm>.

NASS ( National Agricultural Statistics Service). 2002a. " Agricultural Statistics 2002." Chapter 5: Statistics of Fruits, Tree Nuts, and Horticultural Specialties. National Agricultural Statistics Service, U. S. Department of Agriculture. Available at < http:// www. usda. gov/ nass/ pubs/ agr02/ 02_ intro. pdf>.

NASS ( National Agricultural Statistics Service). 2002b. " Noncitrus Fruits and Nuts, 2001 Preliminary Summary." National Agricultural Statistics Service, U. S. Department of Agriculture. January. Available at < http:// jan. mannlib. cornell. edu/ reports/ nassr/ fruit/ pnf bb/ ncit0102. pdf>.

NASS ( National Agricultural Statistics Service). 2001. " Nursery Crops 2000 Summary." Sp Cr 6 2 ( 01). Agricultural Statistics Board, National Agricultural Statistics Service, U. S. Department of Agriculture. August. Available at < http:// usda. mannlib. cornell. edu/ reports/ nassr/ other/ nursery/ nurser01. pdf>.

NASS ( National Agricultural Statistics Service). 1999. " 1997 Census of Agriculture: United States Summary and State Data." Volume 1: Part 51, Chapter 1. Table 1. Historical Highlights: 1997 and Earlier Census Years; Table 42. Specific Crops by Acres Harvested: 1997 and 1992; and National, State, and County Tables. National Agricultural Statistics Service, U. S. Department of Agriculture. AC97 A 51. March. Available at < http:// www. nass. usda. gov/ census/ census97/ volume1/ us 51/ us1_ 01. pdf>.

NCDA. 1998. North Carolina Agricultural Statistics Service. Vegetable Statistics. www. agr. state. nc. us/ stats.

North Carolina Department of Agriculture and Consumer Services. 2003. " Agricultural Overview: Field Crops." Available at < http:// www. ncagr. com/ stats/ general/ crop_ fld. htm>.

OECD. 2002. " Implementing Domestic Tradable Permits: Recent Developments and Future Challenges. Proceedings of An Experts Workshop on Domestic Tradable Permits," held September 6 7, 2001 in Paris. Organisation for Economic Co operation and Development: Paris.

OECD. 2001a. " Domestic Transferable Permits for Environmental Management: Design and Implementation." Organisation for Economic Co operation and Development: Paris.

OECD. 2001b. " Strategic Guidelines for the Design and Implementation of Domestic Transferable Permits." Environment Directorate, Environment Policy Committee, Working Party on Economic and *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 136  Environmental Policy Integration. ENV/ EPOC/ GEEI( 1999) 13/ FINAL. June 19. Organisation for Economic Co operation and Development: Paris.

Parry, Ian. 2002. " Are tradable emissions permits a good idea?" Resources for the Future Issue Brief 02 33.

Rose, Robin and Dianna Haasa. 1999. " Long Term Forest Nursery Ecological Survey: Alternatives to Methyl Bromide." Nursery Technology Cooperative, Department of Forest Science, College of Forestry, Oregon State University.

Sato, Dwight, Bob Joy, and Matthew Wung. 2000. " Sunn Hemp ` Tropic Sun' as a Cover Crop in Edible Ginger Production." International Research Conference on Methyl Bromide Alternatives and Emissions Reductions, Orlando, FL, November 6 9, 2000.

SBA. 2002. " Agriculture, forestry, and fishing." Small Business Administration. Retrieved 9 July 2003 < http:// www. sba. gov/ size/ naicstb2 agr. html>.

SCAQMD ( South Coast Air Quality Management District) Regulation XX. 2001. Retrieved 3 July 2003 < http:// www. aqmd. gov/ rules/ html/ tofc20. html>.

SCASS. 1999. South Carolina Agricultural Statistics Service. Crop Statistics. < http:// www. nass. usda. gov/ sc>.

Spulber, Daniel F. 1985. " Effluent Regulation and Long Run Optimality. Journal of Environmental Economics and Management 12: 103 116.

Steckler, Richard M. 1999. " Agri 50: Results of Nationwide Field Testing," Annual International Research Conference on Methyl Bromide Alternatives and Emissions Reductions.

TASS. 1999. Texas Agricultural Statistics Service. Crop Statistics. Available at < http:// www. io. com/~ tass>.

Tietenberg, T. H. 1985. " Emissions Trading: An Exercise in Reforming Pollution Policy." Resources for the Future: Washington, DC.

Trout, T., Husein Ajwa, Sally Schneider, and Jim Gartung. 2002. " Fumigation and Fallowing Effects on Replant Problems in California Peach." 2002 Annual International Research Conference on Methyl Bromide Alternatives and Emissions Reductions.

UNEP. 2000. " The Montreal Protocol on Substances that Deplete the Ozone Layer." UNEP Ozone Secretariat, United Nations Environment Programme. Nairobi, Kenya: Secretariat for the Vienna Convention for the Protection of the Ozone Layer & The Montreal Protocol on Substances that Deplete the Ozone Layer.

UNEP. 1998. " 1998 Assessment of Alternatives to Methyl Bromide: Report of the Methyl Bromide Technical Options Committee." Montreal Protocol on Substances that Deplete the Ozone Layer, United Nations Environmental Programme.

U. S. Census of Agriculture. 1997. " Crop Statistics." State Census of Agriculture Data, CropMAP. Available at < http:// www. hort. purdue. edu/ newcrop/ cropmap/ default. html>.

USDA. 2000. " What if ? The tomato industry without MeBr." U. S. Department of Agriculture. Available at < http:// www. ars. usda. gov/ is/ np/ mba/ oct00/ tomato. htm>. *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 137  USDA. 1999. " Crop Profiles." Office of Pest Management Policy & Pesticide Impact Assessment Program. 1999.

USDA. 1998a. " Agricultural Prices 1997." National Agricultural Statistics Service, U. S. Department of Agriculture. Available at < http:// usda. mannlib. cornell. edu/ reports/ nassr/ price/ zap bb/ agpran98. pdf>.

USDA. 1998b. " Loss of Methyl Bromide: Impact on the Strawberry Nursery Industry." Agricultural Research Service, U. S. Department of Agriculture, October, 1998. Available at < http:// www. ars. usda. gov/ is/ np/ mba/ oct98/ straw. htm? pf= 1>.

USDA. 1995. " The US Strawberry Industry." Economic Research Service. Statistical Bulletin Number 914. January 1995.

U. S. Department of Labor. 2003. " General Pay Scale Information." Retrieved 15 July 2003 < http:// wdsc. doleta. gov/ jobs/ Federal_ Application_ Process/ fapgq7. asp>.

U. S. Nomination for a Critical Use Exemption for Commodity Storage. 2003.

U. S. Nomination for a Critical Use Exemption for Cucurbits. 2003.

U. S. Nomination for a Critical Use Exemption for Tomatoes. 2003.

U. S. Nomination for a Critical Use Exemption for Ginger. 2003.

U. S. Nomination for a Critical Use Exemption for Forest Seedlings. 2003.

U. S. Nomination for a Critical Use Exemption for Orchard Nurseries. 2003.

U. S. Nomination for a Critical Use Exemption for Orchard Replant. 2003.

U. S. Nomination for a Critical Use Exemption for Bell Peppers. 2003.

U. S. Nomination for a Critical Use Exemption for Sweet Potatoes. 2003.

U. S. Nomination for a Critical Use Exemption for Strawberry Nursery Production. 2003.

U. S. Nomination for a Critical Use Exemption for [ Tobacco] Nursery Transplant Trays. 2003.

U. S. Nomination for a Critical Use Exemption for Post Harvest/ Food Processing Plants. 2003.

U. S. Nomination for a Critical Use Exemption for Eggplants. 2003.

U. S. Nomination for a Critical Use Exemption for Strawberries. 2003.

U. S. Nomination for a Critical Use Exemption for Turfgrass. 2003.

WASS. 1999. Crop Statistics. Washington Agricultural Statistics Service. Available at < http:// www. nass. usda.. gov/ wa>.

Webster, T. M., A. S. Csinos, A. W. Johnson, C. C. Dowler, D. R. Summer, and R. L. Ferry. 2001. " Methyl bromide alternatives in a bell pepper squash rotation. Crop Protection 20: 605 614.

Williamson, O. E. and S. E. Masten, eds. 1999. " The Economics of Transaction Costs." Edward Elgar Publishing, Inc.: Northampton, Massachusetts. *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 138  Wright, T. P. 1936. " Factors affecting costs of airplanes." Journal of Aeronautical Sciences 3. *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 139  Appendix A: Summary of Cost Information in CUE Applications This appendix presents a summary of cost information submitted by the applicants for methyl bromide Critical Use Exemption ( CUE). Cost data for each sector are summarized below including the cost of methyl bromide for each state or region that applied. Applications that contained confidential business information ( CBI) are not represented in this appendix. 52 Where provided by applicants,

operating cost data are broken out by pre harvest, and harvest and post harvest costs. Pre harvest operations include fumigation of soil with methyl bromide to eliminate nematodes, weeds and other pests before a crop is planted and preparing the soil for harvest. Harvest and post harvest operations include costs incurred during and after harvest ( e. g., picking and shipping the crop). Some commodities and crops in this appendix have more cost information than others because of the variable amounts of information submitted in applications. The cost data presented below were extracted from the following CUE worksheets:

Worksheet 2 C: Estimated Revenue;

Worksheet 2 D: MeBr Use and Costs;

Worksheet 2 E: Pre harvest Costs, and Harvest and Post Harvest Costs; and

Worksheet 2 F: Fixed and Overhead Costs.

Total costs are calculated by summing the pre harvest costs, harvest and post harvest costs, and fixed and overhead costs. The total pre harvest production costs include the indicated cost of methyl bromide. The relative cost of methyl bromide is presented below as a percentage of the total pre harvest costs and total operating costs. Profits were estimated by subtracting the calculated total costs from the revenue provided by the CUE applicants. This calculation sometimes results in negative values possibly indicating that production using methyl bromide is not profitable or that the applicant may have provided inaccurate or incomplete cost or revenue information.

All costs provided in the tables are rounded to the nearest whole dollar; therefore, totals may not always sum due to independent rounding.

The remainder of the document provides tables of cost data for fruit and vegetable growers, tree nurseries and other growers, and post harvest uses such as commodity storage and structural fumigation. 53 52 An application was determined to contain CBI if the applicant did not sign the clause on Worksheet 5 that indicated that the applicant does not " assert any claim of confidentiality."

53 These post harvest operations refer to methyl bromide fumigation of internal storage spaces in warehouses and processing facilities to prevent insect, rat, mouse, and other pest damage to commodities. *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 140  1. Fruit and Vegetable Growers Exhibit 1.1. Summary of Costs per Hectare for Bell Pepper Farms ( 2001$)

Costs Georgia Southeast Methyl Bromide 2,916 1,592 Total Pre Harvest 9,282 2,153 Total Harvest and Post Harvest 10,540 22,659 Fixed and Overhead 1,612 2,379 Total 21,434 27,191 Methyl Bromide Costs Percent of Pre Harvest 31% 74%

Methyl Bromide Costs Percent of Total 14% 6%

Note: Applications for California and Florida bell peppers contained CBI and are not represented in this appendix. Source: CUE 02 0049, CUE 02 0041, CUE 02 0017, CUE 02 0054 Exhibit 1.2. Estimated Revenue and Profit per Hectare for Bell Pepper Farms by Region ( 2001$)

Georgia Southeast Estimated Revenue 23,493 30,578 Total Costs $ 21,434 27,191 Estimated Profit $ 2,059 3,387 Methyl Bromide Costs Percent of Revenue 12% 5%

Source: CUE 02 0049, CUE 02 0041 *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 141  Exhibit 1.3. Summary of Costs per Hectare for Cucurbit Farms by Region ( 2001$)

Costs Georgia Cucumber Michigan Squash a Georgia Squash Georgia Melon Methyl Bromide 2,915 2,021 2,916 2,916 Total Pre Harvest 6,164 3,123 5,917 6,596 Total Harvest and Post Harvest 7,195 8,231 7,003 7,855 Fixed and Overhead 1,612 793 7,581 7,581 Total Costs 14,971 12,147 20,501 22,032 Methyl Bromide Costs Percent of Pre Harvest 47% 65% 49% 44%

Methyl Bromide Costs Percent of Total 19% 17% 14% 13%

a CUE applicant referred to budget summaries provided with the CUE application for information required in Worksheet 2 E. Methyl bromide, Total Pre Harvest and Total Harvest and Post Harvest, and Fixed and Overhead costs were provided by these summaries. Note: Application for Southeast cucumbers contained CBI and is not represented in this appendix. Source: CUE 02 0051, CUE 02 0005, CUE 02 0048, CUE 02 0052, CUE 02 0042 Exhibit 1.4. Estimated Revenue and Profit per Hectare for Cucurbit Farms by Region ( 2001$)

Georgia Cucumber Michigan Squasha Georgia Squash Georgia Melon Estimated Revenue 13,978 8,800 23,287 11,070 Total Costs 14,971 12,147 20,501 22,032 Estimated Profit ( 994) ( 3,348) 2,786 ( 10,962) Methyl Bromide Costs 21% 23% 13% 26% a Worksheet 2 C not provided. Estimated Revenue displayed for Michigan squash is the average revenue as provided in Worksheet 2 B for squash. Source: CUE 02 0051, CUE 02 0005, CUE 02 0048, CUE 02 0052 *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 142  Exhibit 1.5. Summary of Costs per Hectare for Eggplant Farms ( 2001$)

Costs Georgia Methyl Bromide 2,916 Total Pre Harvest 7,152 Total Harvest and Post Harvest 14,773 Fixed and Overhead 1,612 Total 23,538 Methyl Bromide Costs Percent of Pre Harvest 41%

Methyl Bromide Costs Percent of Total 12%

Note: Application for Florida eggplant contained CBI and is not represented in this appendix. Source: CUE 02 0050, CUE 02 0054 Exhibit 1.6. Estimated Revenue and Profit per Hectare for Eggplant Farms in Georgia ( 2001$)

Estimated Revenue 48,548 Total Costs 23,538 Estimated Profit 25,010 Methyl Bromide Costs Percent of Total Revenue 6%

Source: CUE 02 0050 *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 143  Exhibit 1.7. Summary of Costs per Hectare for Strawberry Farms ( 2001$)

Costs Florida Other Southeastern States Methyl Bromide 1,846 1,581 Total Pre Harvest 15,483 17,585 Total Harvest and Post Harvest 24,921 12,045 Fixed and Overhead 9,216 5,849 Total 49,620 35,479 Methyl Bromide Costs Percent of Pre Harvest 12% 9%

Methyl Bromide Costs Percent of Total 4% 4%

Note: Application for California strawberries contained CBI and is not represented in this appendix. Source: CUE 02 0053, CUE 02 0037, CUE 02 0024 Exhibit 1.8. 2001 Estimated Revenue and Profit per Hectare for Strawberries ( 2001$)

Florida Other Southeastern States Estimated Revenue 155,765 50,903 Total Costs 49,620 35,479 Estimated Profit 106,145 15,424 Methyl Bromide Costs Percent of Revenue 3% 3%

Source: CUE 02 0053, CUE 02 0037 *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 144  Exhibit 1.9. Summary of Costs per Hectare for Strawberry Nurseries ( 2001$)

Costs North Carolina and Tennessee Methyl Bromide 3,505 Total Pre Harvest N/ A Total Harvest and Post Harvest N/ A Fertilizer 1,988 Pest Control 7,122 Transplanter 3,616 Operator Labor 324 Hand Labor 203 Harvest Labor 9,884 Other 189 Fixed and Overhead 5,399 Total 32,231 Methyl Bromide Costs Percent of Pre Harvest NA Methyl Bromide Costs Percent of Total 12%

Notes: NA = Not applicable. Costs provided in the CUE application for North Carolina and Tennessee could not easily be separated into Pre Harvest and Harvest and Post Harvest costs. Application for California strawberry nurseries contained CBI and is not represented in this appendix. Source: CUE 02 0038, CUE 02 0034 Exhibit 1.10. Estimated Revenue and Profit per Hectare for Strawberry Nurseries ( 2001$)

North Carolina and Tennessee Estimated Revenue 42,006 Estimated Total Costs 32,231 Estimated Profit 9,776 Methyl Bromide Costs Percent of Revenue 8%

Source: CUE 02 0038 *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 145  Exhibit 1.11. Summary of Costs per Hectare for Sweet Potato Farms in California ( 2001$) Costs California Methyl Bromide 1,730 Total Pre Harvest 8,797 Total Harvest and Post Harvest 2,471 Fixed and Overhead 1,829 Total 13,096 Methyl Bromide Costs Percent of Pre Harvest 20%

Methyl Bromide Costs Percent of Total 13%

Source: CUE 02 0016 Exhibit 1.12. Estimated Revenue and Profit per Hectare for Sweet Potato Farms in California ( 2001$)

Estimated Revenue 13,168 Total Costs 13,096 Estimated Profit 72 Methyl Bromide Costs Percent of Revenue 13%

Source: CUE 02 0016 *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 146  Exhibit 1.13. Estimated Annual Tomato Sector Production Costs per Hectare by State or Region ( 2001$)

Costs Virginia Michigan Georgia Other Southeastern States a Methyl Bromide 3,265 2,970 2,916 1,592 Total Pre Harvest 6,635 7,979 8,457 2,031 Total Harvest and Post Harvest 15,096 17,420 19,093 25,810 Fixed and Overhead 7,169 5,172 1,424 2,243 Total Costs 28,899 30,571 28,974 30,084 Methyl Bromide Costs Percent of Pre Harvest 49% 37% 34% 78%

Methyl Bromide Costs Percent of Total 11% 10% 10% 5%

a Includes Alabama, Arkansas, North Carolina, South Carolina, and Tennessee. Notes: California tomato costs are not provided above, as they were not included in the U. S. CUE Nomination. Application for Florida tomatoes contained CBI and is not represented in this appendix. IE = Included elsewhere. Source: CUE 02 0004, CUE 02 0012, CUE 02 0040, CUE 02 0047, CUE 02 0046 Exhibit 1.14. Estimated Revenue and Profit per Hectare for Tomatoes by State or Region ( 2001$)

Virginia Michigan Georgia Other Southeastern States Estimated Revenue 36,887 36,800 46,718 32,123 Estimated Total Costs 28,899 30,571 28,974 30,084 Estimated Profit 7,988 6,229 17,444 2,039 Methyl Bromide Costs Percent of Revenue 9% 8% 6% 5%

Source: CUE 02 0004, CUE 02 0012, CUE 02 0040, CUE 02 0047 *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 147  2. Tree Nurseries and Other Growers Exhibit 2.1. Forest Seedling Industry Production Costs per Hectare by Region ( 2001$)

Costs Southeast West North Methyl Bromide 3,967 3,947 3,870 Total Pre Harvest 18,598 11,104 60,865 Total Harvest and Post Harvest 6,623 6,872 36,404 Fixed and Overhead 3,098 14,399 4,612 Total Costs 28,320 32,375 101,880 Methyl Bromide Costs Percent of Pre Harvest 21% 36% 6%

Methyl Bromide Costs Percent of Total 14% 12% 4%

Source: Southeastern region costs represent the average of costs from CUE 02 0003, CUE 02 0007, and CUE 02 0021; Western region costs represent the average of costs from CUE 02 0008, CUE 02 0009, and CUE 02 0022; Northern region costs represent the average of costs from CUE 02 0011, CUE 02 0032, and CUE 02 0039.

Exhibit 2.2. Estimated Revenue and Profit per Hectare for Forest Seedlings by Region ( 2001$)

Southeast West North Estimated Revenue 62,340 131,555 283,580 Estimated Total Costs 28,320 32,375 101,880 Estimated Profit 34,021 99,180 181,700 Methyl Bromide Costs Percent of Revenue 6% 3% 1%

Source: Southeastern region revenue and costs represent the average from CUE 02 0003, CUE 02 0007, and CUE 02 0021; Western region revenue and costs represent the average from CUE 02 0008, CUE 02 0009, and CUE 02 0022; Northern region revenue and costs represent the average from CUE 02 0011, CUE 02 0032, and CUE 02 0039. *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 148  Exhibit 2.3. Summary of Costs per Hectare for Ginger Farms in Hawaii ( 2001$) Costs Hawaii Methyl Bromide Costs 6,462 Total Pre Harvest 26,133 Total Harvest and Post Harvest 18,253 Fixed and Overhead 17,922 Total 62,308 Methyl Bromide Costs Percent of Pre Harvest 25%

Methyl Bromide Costs Percent of Total 10% Source: CUE 02 0045 Exhibit 2.4. Estimated Revenue and Profit per Hectare for Ginger Farms in Hawaii ( 2001$) Estimated Revenue 55,597 Total Costs 62,308 Estimated Profit 6,711 Note: According to CTAHR 1998, the annual economic profit is generally $ 388 dollars per hectare. Source: CUE 02 0045 Exhibit 2.5. Summary of Costs for Nursery Transplants ( 2001$) Costs Costs Per Area Methyl Bromide 0.09 per ft3 Total Pre Harvest a 5,023 per hectare Total Harvest and Post Harvest a 2,001 per hectare Fixed and Overhead 589 per hectare Total 7,614 per hectare a Labor cost provided in the CUE is equally allocated to pre harvest and harvest/ post harvest costs. Note: The total pre harvest production costs and total production costs do not include the cost of methyl bromide. Source: CUE 02 0025 Exhibit 2.6. Estimated Revenue and Profit per Hectare for Nursery Transplant ( 2001$) Estimated Revenue 10,801 Total Costs a 7,613 Estimated Profit 3,187 a Total production costs do not include the cost of methyl bromide. Source: CUE 02 0025 Exhibit 2.7. Summary of Costs per Hectare for Orchard Nurseries ( 2001$) *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 149  Costs Western Raspberry Nursery Consortium California Deciduous Fruit and Nut Nursery Trees California Citrus Nursery Trees a Methyl Bromide 19,178 4,308 3,939 Total Pre Harvest N/ A 51,900 48,894 Total Harvest and Post Harvest N/ A 7,109 30,301 Labor and Management 14,191 NA NA Non Labor 31,280 NA NA Fixed and Overhead 6,088 98,216 106,978 Total 54,756 157,225 186,173 Methyl Bromide Costs Percent of Pre Harvest N/ A 8% 8%

Methyl Bromide Percent of Total 6% 3% 2%

a California applicant for citrus nursery trees also submitted within the same CUE application a request for methyl bromide for use on avocado nursery trees; however cost data for avocado nursery trees were inadequate for analysis. Notes: NA = Not applicable. Costs provided in the CUE application from the Western Raspberry Nursery Consortium could not easily be separated into Pre Harvest and Post Harvest costs. Source: CUE 02 0010, CUE 02 0035, CUE 02 0036 Exhibit 2.8. Estimated Revenue and Profit per Hectare for Orchard Nurseries ( 2001$) Western Raspberry Nursery Consortium California Deciduous Fruit and Nut Nursery Trees California Citrus Nursery Trees Estimated Revenue 44,477 174,537 467,779 Total Costs 54,756 157,225 186,173 Estimated Profit ( 10,278) 17,312 281,606 Methyl Bromide Costs Percent of Revenue 7% 2% 1%

Source: CUE 02 0010, CUE 02 0035, CUE 02 0036 *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 150  Exhibit 2.9. Summary of Costs per Hectare for Orchard Replant ( 2001$) Costs Walnuts a Methyl Bromide 1,483 Total Pre Harvest highly variable Total Harvest and Post Harvest NA Other Operating NA Fixed and Overhead 494 Total Costs NA Methyl Bromide Costs Percent of Pre Harvest NA Methyl Bromide Costs Percent of Total NA a Walnut nursery costs are for 1999. As indicated by the applicant, 1999 is a more typical representation of methyl bromide use and cost. Note: Applications for stone fruit, table and raisin grape, and almond orchard replant contained CBI and are not represented in this appendix. Source: CUE 02 0029, CUE 02 0013, CUE 02 0014, CUE 02 0043.

Exhibit 2.10. Summary of Costs per Hectare for Turfgrass Production in 2001 ( 2001$) Costs United States a Methyl Bromide 3,707 Total Pre Harvest 7,828 Total Harvest and Post Harvest 1,468 Fixed and Overhead 6,912 Total 16,208 Methyl Bromide Percent of Pre Harvest 47%

Methyl Bromide Percent of Total 23%

a Costs represent U. S. turfgrass production, concentrated in California, Florida, Georgia, Alabama, and Texas. Source: CUE 02 0044 *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 151  Exhibit 2.11. Estimated Average Revenue and Profit per Hectare for Turfgrass ( 2001$) Estimated Revenue 58,883 Estimated Total Costs 16,208 Estimated Profit 42,675 Methyl Bromide Costs Percent of Revenue 6%

Source: CUE 02 0044 3. Post Harvest Commodity Fumigation and Structural Fumigation54 Exhibit 3.1. Commodity Storage Post harvest Fumigation Costs ( 2001$) Costs Walnuts Beans Meat Methyl Bromide 7.48 per MT of walnuts 115,230 per feet3 12.66 per 1000 feet3 Fixed and Overhead and Other Operating 697 per MT of walnuts NA NA Total 704 per MT of walnuts NA NA Methyl Bromide Costs Percent of Total 1% NA NA Notes: NA = Not applicable. Pistachio data were unavailable ( CUE 02 0019). Application for dried fruit contained CBI and is not represented in this appendix. Source: CUE 02 0002, CUE 02 0030, CUE 02 0033, CUE 02 0015 Exhibit 3.2. Estimated Revenue and Profit for Commodity Storage ( 2001$)

Walnuts Beans Estimated Revenue 4,317 per hectare 4,148,410 per feet3 Note: Pistachio data were unavailable ( CUE 02 0019) and meat revenue data units were unclear. Source: CUE 02 0002, CUE 02 0030 54 Food processing applicants have not provided relevant cost information on the CUE worksheets; therefore they are not represented in the appendix. *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 152  Appendix B: Inputs and Methodology for the Cost Analysis Estimates of total costs of methyl bromide phaseout in this Allocation EIA and the Phaseout RIA are based on a cost model. Total cost outputs from the model can be compared for different phaseout schedules ( e. g., a phaseout in 2005 for the Phaseout RIA, and a more gradual phaseout for the Allocation EIA). This appendix describes the various components of the cost model and how inputs for the cost model were obtained and/ or estimated. Methodologies differ for estimating the costs of the critical use exemptions ( CUE) of methyl bromide for each sector in the model. The appendix also provides detailed tables and descriptions of model inputs. The appendix is divided into the following sections:

  General Methodology   describes both Approach 1 and Approach 2 calculations, and presents the inputs and equations used for all crops, except nurseries. In addition, this section discusses the adjustments made to the orchard crops to account for the crop lifetime.

  Nurseries   presents the methodology and input data for the estimate of methyl bromide CUE costs in the nursery sector.

  Post Harvest   presents the analysis of CUE costs in post harvest uses.

1. General Methodology The general methodology for pre plant crops involves the following steps:

Step 1. Develop market characterization data for each crop and region Step 2. Determine cost and yield differences for substitutes Step 3. Determine market shares for each region, crop, substitute, and year Step 4. Calculate cost change, by crop and region, for Approach 1 Step 5. Calculate Approach 2 cost change for each crop Step 6. Calculate the net present value and annualized costs for each crop 1.1 Step 1. Develop crop input data The level of disaggregation for methyl bromide uses was defined by commodity and location and by consideration of the most cost effective substitute chemicals or procedures. The analysis includes coverage of markets in California, Florida, Georgia, Hawaii, North Carolina, South Carolina, Oregon,

Washington, Texas, and a U. S. estimate for forest seedlings.

Quantitative information about crops within each market sector treated with methyl bromide is presented in Exhibit 1.1.1, including data displaying the amount of treated acreage, crop production, total methyl bromide consumption and the cost of current methyl bromide consumption. Crop production is presented in terms of total production ( lb/ year) and yield ( lb/ ac). Treated acreage estimates are not multiyear averages; rather, percentages of total crop acreage treated and actual treated acreage data have been obtained from available sources for each region. A detailed explanation of the methodology and sources used to derive this information are as follows:

California: *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 153    Treated acreage and methyl bromide consumption data were extracted directly from the California Pesticide Use Reporting Database ( CADPR 1995) and CUE applications and the nomination for sweet potato ( CUE 02 0016, EPA 2003b). All county level data were aggregated into selected regions. Because actual data points were used, no range is provided for methyl bromide use.

  Total crop production figures were derived from various sources and divided up proportionally by region based on production acreage:

 USDA 1999 for almond, lettuce, peach, prune, and walnut;

 Carpenter et al. 2000 for tomato and watermelon;

 NASS 1999 for grape, nursery, and strawberry; and  NASS 2002c for sweet potato.

  Crop yield figures were based on state and national data presented in NASS 1999 for all California crops except sweet potato, and on NASS 2002c for sweet potato.

  Percent of acreage treated data for all orchard crops were extracted from Carpenter et al. 2000.

Florida:

  Harvested acreage and crop production data were extracted from Carpenter et al. 2000, except for tomato acreage data, which were extracted from USDA 1999. In all cases, data were divided up by region based on county level estimates.

  Crop yield figures were based on state and national data presented in NASS 1999.

  Percent of acres treated estimates were based on different sources for different crops:

 Tomato: 93 percent ( USDA 1999);

 Pepper: 85 percent ( NAPIAP 1993);

 Cucumber: 0, assume double crop plantings after tomato and pepper;

 Eggplant: assumed 90 percent;

 Watermelon: 20 percent ( NAPIAP 1993 percent for melons); and  Orchard crops: Carpenter et al. 2000.

  Methyl bromide consumption figures are based on a range of application rates ( the label rate for methyl bromide/ chloropicrin 98: 2) multiplied by treated acreage. However, for strawberry, reported methyl bromide use figures were extracted from USDA 1999.

Southeast:

  Crop production data were taken from Carpenter et al. 2000 except:

 Strawberry, tomato, and nursery: NAPIAP 1993; *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 154   Pepper: NCDA 1998; and  Apple: USDA 1999.

  Crop yield figures were based on state and national data presented in NASS 1999.

  Percent of acres treated with methyl bromide in the Southeast were assumed to equal percent of acres treated in Florida by crop, with the following exceptions:

 Apple: acres treated were reported in USDA 1999;

 Nursery: assumed 20 percent of acres treated; and  Orchard crops: Carpenter et al. 2000.

  Methyl bromide consumption figures are based on a range of application rates ( the label rate for methyl bromide/ chloropicrin 98: 2) multiplied by treated acreage. The following exceptions should be noted:

 Tomato: application rate of 250 lb/ ac based on use in the North Carolina mountain region from USDA 1999;

 Pepper: reported methyl bromide use figures from NAPIAP 1993; and  Apple: reported methyl bromide application rate from USDA 1999.

Texas:

  All crop production data were extracted from Carpenter et al. 2000.

  Crop yield figures were based on state and national data presented in NASS 1999.

  Methyl bromide consumption figures are based on a range of application rates ( the label rate for methyl bromide/ chloropicrin 98: 2) multiplied by treated acreage.

Oregon and Washington:

  Acreage and crop production figures were calculated proportionally using weighted averages from USDA 1995. Methyl bromide consumption was determined by multiplying treated acreage by the label rate for strawberries.

Hawaii:

  Acreage and crop production figures were calculated using data from NASS 2002a. Methyl bromide consumption was determined by the U. S. CUE Nomination for Ginger.

United States:

  Acreage, crop production, and methyl bromide figures were calculated using data from the U. S. CUE Nomination for Forest Tree Seedlings. *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 155  Exhibit 1.1.1. Methyl Bromide Market Characterization Region Crop Treated Acreage ( ac) Total Acres ( ac) Total Production ( lb/ yr) Yield ( lb/ ac) Baseline Methyl Bromide Consumption ( lb) Cost of Methyl Bromide ($/ ac) ( 1997$)

California ( Northern) Almond 186 3,241 79,233,000 1,341 93,396 1,350 Grape 2,028 13,853 7,586,408,547 14,249 832,156 1,350 Peach 260 5,762 188,700,000 20,472 198,366 1,350 Prune 527 12,713 440,000,000 11,998 169,911 1,350 Strawberry 781 492 22,036,583 46,825 200,842 1,350 Walnut 240 5,689 70,200,000 2,078 156,948 1,350 California ( Coastal) Grape 783 3,275 1,793,509,564 14,249 301,553 1,350 Lettuce 3,146 4,584 4,201,425,000 20,724 883,092 1,350 Strawberry 21,674 23,865 1,251,185,662 46,825 3,878,662 1,350 Tomato 1,562 3,049 171,942,000 7,380 200,813 1,350 California ( Central) Almond 4,462 35,323 448,987,000 1,341 911,831 1,350 Grape 1,751 5,523 3,024,596,434 14,249 624,271 1,350 Lettuce 398 2,200 466,825,000 20,724 52,797 1,350 Peach 1,040 5,300 1,698,300,000 20,472 181,544 1,350 Strawberry 558 246 18,299,251 46,825 124,677 1,350 Sweet Potato 5,501 10,000 1,332,700,000 16,200 766,042 1,350 Walnut 760 9,248 397,800,000 2,078 220,628 1,350 Cucurbits 1,788 4,357 283,728,000 17,379 307,686 1,350 Florida ( Southeast) Citrus 315 266,473 7,498,890,000 24,810 39,407 780 Eggplant 1,575 1,750 60,092,000 34,338 378,000 780 Pepper 6,113 7,192 47,648,000 6,625 1,467,168 780 Tomato 6,938 7,460 493,452,000 36,696 1,665,072 780 Florida ( Southwest) Citrus 213 179,948 4,994,190,000 24,810 26,611 780 Eggplant 232 258  0 55,728 780 Pepper 7,353 8,650 271,392,000 7,135 1,764,600 780 Tomato 13,529 14,547 263,686,000 36,696 3,246,890 780 Cucurbits 1,583 7,917 405,442,000 17,379 380,016 780 Florida ( North and Central) Citrus 472 398,839 14,896,620,000 24,810 58,982 780 Eggplant 232 258  0 55,728 780 *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 156  Region Crop Treated Acreage ( ac) Total Acres ( ac) Total Production ( lb/ yr) Yield ( lb/ ac) Baseline Methyl Bromide Consumption ( lb) Cost of Methyl Bromide ($/ ac) ( 1997$)

Pepper 3,683 4,333 13,264,000 7,135 883,932 780 Strawberry 5,280 5,333 172,758,000 21,193 1,230,000 780 Tomato 14,222 15,293 434,036,000 36,696 3,413,398 780 Cucurbits 5,350 26,750 574,682,000 17,379 1,284,000 780 Southeast ( GA, NC, SC) Apple 50 13,000 200,000,000 17,163 45,000 780 Pepper 4,845 5,700 456,000 7,135 969,000 780 Strawberry 17,523 17,700 312,000 28,562 4,205,520 780 Tomato 7,347 7,900 1,938,000 36,696 1,836,750 780 Cucurbits 10,540 52,700 1,104,172,000 17,379 2,529,600 780 Other ( TX) Citrus 79 65,900 558,567,016 24,810 9,885 780 Pepper 4,080 4,800 87,010,000 7,135 979,200 780 Cucurbits 9,567 47,833 449,458,000 17,379 2,295,984 780 Other ( HI) Ginger 267 360 12,100,000 44,000 44,680 780 Other ( OR and WA) Strawberry 7,722 7,800 73,000,000 28,562 1,853,280 780 Other ( US) Forest Seedlings 3,025 NA NA 0 446,482 780 TOTAL 53,578,098 Exhibit 1.1.2 displays high and low farm level prices ($/ lb) for crops within each market sector.

Comments are provided to explain variations between high and low prices. Exhibit 1.1.3 displays wholesale prices ($/ lb) and the corresponding price elasticity for each crop. The information in Exhibit 1.1.2 and Exhibit 1.1.3 is used to assess the effects of yield impacts on producer revenues. *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 157  Exhibit 1.1.2. Farm Level Prices Farm Level Price ($/ lb) ( 1997$) State Crop Low High Comments Almond 1.55 1.55 Grape 0.12 0.30 Low price for raisins; high price for wine grapes Lettuce 0.18 0.25 Low price for romaine; high price for leaf lettuce Nursery h h Peach 0.12 0.13 Low price for freestone peaches; high price for clingstone peaches Prune 0.41 0.41 Strawberry 0.26 0.61 Low price for processing strawberries; high price for fresh strawberries Sweet Potato 0.16 0.16 Tomato 0.03 0.27 Low price for processing tomatoes; high price for fresh market tomatoes Walnut 0.66 0.66 Californiaa Cucurbits 0.11 0.11 Citrus 0.04 0.04 Eggplant 0.28 0.28 Pepperj 0.38 0.38 Strawberry 1.00 1.00 Tomato 0.25 0.45 Floridab Cucurbits 0.08 0.08 Apple 0.11 0.15 Low price from North Carolina; high price from Georgia Nursery h h Pepper 0.25 0.25 Price from North Carolina Strawberry 0.70 0.70 Price from North Carolina Tomato 0.25 0.33 Low price from North Carolina; high price from South Carolina. Southeast ( Georgia, South Carolina, and North Carolina) c, d, e Cucurbits 0.06 0.12 Low price from Georgia; high price from South Carolina Citrus 0.06 0.06 Pepper 0.35 0.35 Texasf Cucurbits 0.08 0.08 Washington and Oregong Strawberry 0.40 0.50 Low price from Oregon; high price from Washington Hawaii Ginger 0.45 0.45 U. S. Forest Seedlings NA NA *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 158  Exhibit 1.1.3. Wholesale Prices and Price Elasticities ( 1997$)

Crop Wholesale Price Demand Flexibility Almonds 1.77  0.3445 Apple 0.17  0.2943 Citrus 0.06  0.2763 Forest Seedlings NA NA Eggplant 0.31  0.1600 Ginger 0.53  0.1000 Grapes 0.53  0.2550 Lettuce 0.22  0.1600 Peaches 0.21  0.2763 Pepper 0.40  0.3445 Prunes 0.67  0.2763 Strawberry 1.07  0.2550 Sweet Potato 0.28  0.1000 Tomato 0.44  0.2763 Walnuts 0.75  0.3445 Cucurbits 0.23  0.2500 Sources: CASS 1999, FASS 1999, GASS 1998, NCDA 1998, SCASS 1999, TASS 1999, WASS 1999, USDA Agricultural Prices 1997 Summary, USDA 1998a. Prices for nursery crops are highly variable.

1.2 Step 2. Determine cost and yield differences for substitutes Exhibit 1.2.1 presents aggregate data for the costs and yields of substitutes relative to methyl bromide. High and low cost and yield values indicate the range from highest reasonable reported value to lowest reasonable reported value. Medium yield values relative to methyl bromide are based on an average of highest and lowest reasonable reported values, and are used in both the lower and upper bounds of the cost model. Cost and yield values are derived primarily from publishers' research articles,

personal communication with experts and field researchers, EPA methyl bromide alternatives case studies Volumes I IV ( EPA 1995, 1996, 1997, 1999a), and NCFAP ( 1999). It is important to note that in the cost model, yields ( and resulting costs) were only updated for published studies indicating improved methyl bromide substitute yields for particular crops. A detailed explanation of other cost values not included in the model is provided in Appendix A. *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 159  " Non chemical" substitutes represent organically produced crops. Traditionally, organically produced commodities do not compete with chemically treated crop production sectors such as those treated with methyl bromide. Since it has been assumed that this organically treated sector constitutes a separate market that does not make use of methyl bromide application, and because these producers already incur higher organic production costs, the yield and cost values for this alternative are assigned a default value of 1.00. This is a conservative estimate in that organically produced commodities intermittently compete with products in the chemically treated sector. To successfully compete in this sector, producers either have to rely on consumers to choose organically produced commodities regardless of price, or bear some of the increased production costs. Most organic products competing in the chemically treated crop production sector reflect production costs that are approximately 1.78 times more than their chemically produced counterparts. 55 Exhibit 1.2.1. Summary of Cost and Yield Estimates Relative to Methyl Bromide Cost Relative to Methyl Bromide (%) Yield Relative to Methyl Bromide (%) Substitute Low High EIA Low High Non orchard Crops Metam sodium 0.51 0.83 0.89 0.78 1.00 Metam sodium combination 0.97 1.46 0.91 0.82 1.00 Telone II 1.10 1.25 0.78 0.55 1.00 Telone C 17 1.10 1.25 0.78 0.55 1.00 Telone combination 0.80 1.25 0.95 0.90 1.00 Basamid 0.72 1.15 0.87 0.81 0.92 Basamid combination 0.72 1.15 0.93 0.81 1.04 Methyl iodide 1.83 1.97 0.99 0.78 1.20 Ozone 0.77 0.92 0.99 0.90 1.08 Plant extracts 0.77 0.81 0.85 0.80 0.90 Solarization 0.27 0.90 0.93 0.92 0.94 Solarization combination 0.61 1.24 1.21 1.17 1.24 Steam 1.00 1.00 1.00 1.00 1.00 Flooding 0.04 0.09 0.58 0.58 0.58 Hydroponics 1.03 1.19 1.23 1.23 2.55 55 In a study comparing seven organically produced crops to seven chemically produced crops at a local food store, the average price of organically produced crops was found to be 1.78 times more than chemically produced crops. The prices of cucumbers, celery, bananas, carrots, red lettuce, green lettuce, and Boston red lettuce were compared. The crops used to complete this analysis were chosen randomly on the basis of availability ( ICF 2000b). *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 160  Cost Relative to Methyl Bromide (%) Yield Relative to Methyl Bromide (%) Substitute Low High EIA Low High Composting 0.72 2.04 0.61 0.32 0.89 Resistant cultivars 0.58 1.16 0.90 0.80 1.00 Non chemical production 1.00 1.00 1.00 1.00 1.00 Orchard Crops Metam sodium 0.51 0.83 0.90 0.80 1.00 Metam sodium combination 0.80 1.25 0.95 0.90 1.00 Telone II 1.10 1.25 0.77 0.55 0.99 Telone C 17 1.10 1.25 0.78 0.55 1.00 Telone combination 0.80 1.25 0.95 0.90 1.00 Basamid 0.72 1.15 0.87 0.81 0.92 Basamid combination 0.72 1.15 0.93 0.81 1.04 Methyl iodide 1.83 1.97 0.99 0.78 1.20 Ozone 0.77 0.92 0.99 0.90 1.08 Plant extracts 0.77 0.81 1.05 1.00 1.10 Solarization 0.27 0.90 0.91 0.85 0.96 Solarization combination 0.61 1.24 0.95 0.90 1.00 Steam 1.00 1.00 1.00 1.00 1.00 Flooding 0.04 0.09 0.58 0.58 0.58 Hydroponics 1.03 1.19 1.23 1.23 2.55 Composting 0.72 2.04 0.61 0.32 0.89 Resistant cultivars 0.58 1.16 0.90 0.80 1.00 Non chemical production 1.00 1.00 1.00 1.00 1.00 Crop Specific Differences Citrus Composting 0.72 1.43 0.89 0.89 0.89 Eggplant Flooding 0.04 0.09 0.67 0.67 0.67 Forest Seedlings Basamid 0.89 0.96 1.01 1.08 0.93 Forest Seedlings Metam sodium 0.94 0.96 0.99 1.06 0.91 Peach Resistant cultivars 0.58 1.16 1.00 1.00 1.00 Pepper Solarization combination 0.80 1.25 1.21 1.17 1.24 Pepper Flooding 0.04 0.09 0.67 0.67 0.67 Pepper Composting 0.72 0.94 0.89 0.89 0.89 *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 161  Cost Relative to Methyl Bromide (%) Yield Relative to Methyl Bromide (%) Substitute Low High EIA Low High Strawberry Metam sodium 0.56 0.67 0.89 0.78 1.00 Strawberry Solarization combination 0.61 0.96 1.02 0.80 1.24 Tomato Solarization combination 0.61 1.24 1.21 1.17 1.24 1.3 Step 3. Determine market shares for each region, crop, substitute, and year Market shares are calculated based on the most cost effective alternatives replacing the quantity of methyl bromide being phased out. Each alternative is evaluated to determine the overall cost change per acre for replacing methyl bromide, calculated as:

Total Cost Change per Acre ($) = Net Cost Change per Acre ($) + Net Yield Change per Acre ($)

Where the net cost change per acre is defined as the change in application cost for each substitute per acre of treated crop, calculated as:

Net Cost Change per Acre ($) = Cost of Methyl Bromide ($/ ac) * ( Substitute Cost Relative to Methyl Bromide (%)   100%)

Where:

Cost of Methyl Bromide ($/ ac) = the mean of the high and low estimates of either the contractor application rate ( California, $ 1350) or the farmer application rate ( all other regions, $ 780)

Yield ( lbs/ ac) = the amount of crop produced when the acres are treated with methyl bromide The net yield change per acre is defined as the change in revenue due to yield differences for each substitute per acre of treated crop, calculated as:

Net Yield Change per Acre ($) = 100%  Substitute Yield Relative to Methyl Bromide (%) * Yield ( lbs/ ac) * Price per Pound ($/ lb)

Where:

Substitute Yield Relative to Methyl Bromide (%) = the average of the high and low estimates for the yield of each substitute relative to methyl bromide Substitute Cost Relative to Methyl Bromide (%) = the high or low estimate of the cost of each substitute Price per Pound ($/ lb) = farm price for each pound of crop produced *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 162  Once the substitutes have been evaluated to determine the most cost effective substitute, the top performer was allowed to obtain either its maximum market penetration or the total amount of methyl bromide to be replaced in that year, whichever is smaller. If more methyl bromide needs to be replaced,

the next most cost effective alternative is used, followed by the next, until all required methyl bromide has been replaced for that region and crop. Exhibit 1.3.1 provides a basis for the maximum market share estimates used in this analysis.

The quantity of methyl bromide phased out for each crop was determined from the baseline quantity of methyl bromide used prior to the phaseout, and the quantity of methyl bromide nominated for critical use exemption for each crop. In the baseline scenario, all methyl bromide was phased out in 2005,

while the sector specific scenario assumed that each crop received the total amount of methyl bromide nominated for critical use exemption. The universal scenario assumed that strawberries and tomatoes received 80 percent of the total methyl bromide nominated, and the remainder was split between the other sectors proportionally to their CUE nominations. Exhibit 1.3.2 shows the baseline methyl bromide consumption, the sector specific nominations and corresponding allocations for 2005, and the 80 percent universal scenario and corresponding allocations for 2005. In years post 2005, the methyl bromide allocated to each crop was reduced proportionally to the total reduction for that year. *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 163

Exhibit 1.3.1. Maximum Market Penetration for Each Substitute Region/ Crop Metam sodium Telone combination Basamid Solarization combination Flooding Hydroponics Composting Resistant cultivars Non chemical production Total California ( Northern) Almond 60% 40% 10% 10% 120%

Grape 60% 70% 5% 5% 5% 145%

Peach 60% 40% 5% 5% 5% 115%

Prune 60% 70% 5% 5% 140%

Strawberry 60% 70% 10% 5% 5% 5% 155%

Walnut 60% 40% 5% 10% 115%

California ( Coastal) Grape 60% 70% 5% 5% 5% 145%

Lettuce 60% 40% 5% 10% 5% 120%

Strawberry 60% 70% 10% 5% 5% 5% 155%

Tomato 60% 40% 5% 5% 5% 115%

California ( Central) Almond 60% 40% 15% 10% 125%

Grape 60% 70% 5% 5% 5% 145%

Lettuce 60% 40% 20% 10% 5% 135%

Peach 60% 40% 5% 5% 5% 115%

Strawberry 60% 70% 20% 5% 5% 5% 165%

Sweet Potato 60% 70% 10% 5% 145%

Walnut 60% 40% 20% 10% 130%

Cucurbits 80% 40% 20% 10% 150%

Florida *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 164

Exhibit 1.3.1. Maximum Market Penetration for Each Substitute Region/ Crop Metam sodium Telone combination Basamid Solarization combination Flooding Hydroponics Composting Resistant cultivars Non chemical production Total ( Southeast)

Citrus 60% 50% 10% 5% 5% 5% 135%

Eggplant 60% 50% 10% 5% 5% 5% 135%

Pepper 60% 70% 15% 5% 10% 5% 5% 170%

Tomato 60% 70% 10% 5% 10% 5% 160%

Florida ( Southwest)

Citrus 60% 50% 10% 5% 5% 5% 135%

Eggplant 60% 50% 10% 5% 10% 5% 140%

Pepper 60% 70% 15% 5% 10% 5% 5% 170%

Tomato 60% 70% 10% 5% 10% 5% 160%

Cucurbits 80% 50% 10% 10% 150%

Florida ( North and Central)

Citrus 60% 50% 10% 5% 5% 5% 135%

Eggplant 60% 50% 10% 5% 5% 5% 135%

Pepper 60% 70% 15% 5% 10% 5% 5% 170%

Strawberry 60% 70% 15% 5% 5% 5% 160%

Tomato 60% 70% 10% 5% 10% 5% 160%

Cucurbits 80% 50% 10% 10% 150%

Southeast ( GA,

NC, SC) Apple 60% 70% 10% 10% 5% 155%

Pepper 60% 70% 15% 5% 10% 5% 5% 170%

Strawberry 60% 70% 15% 10% 5% 5% 165% *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 165

Exhibit 1.3.1. Maximum Market Penetration for Each Substitute Region/ Crop Metam sodium Telone combination Basamid Solarization combination Flooding Hydroponics Composting Resistant cultivars Non chemical production Total Tomato 60% 70% 10% 5% 10% 5% 160%

Cucurbits 80% 50% 10% 10% 150%

Other ( HI) Ginger 60% 50% 50% 5% 5% 170%

Other ( TX)

Citrus 60% 50% 10% 5% 5% 5% 135%

Pepper 60% 70% 10% 5% 10% 5% 5% 165%

Cucurbits 80% 50% 10% 10% 150%

Other ( US) Forest Seedlings 60% 50% 50% 160%

Other ( OR and WA) Strawberry 60% 70% 5% 5% 5% 5% 150% *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 166  Exhibit 1.3.2. Summary of Baseline Consumption, CUE Nominations, and a Universal Scenario Sector Baseline Methyl Bromide Consumption ( lbs) Methyl Bromide CUE Nominations ( lbs) 2005 CUE Consumption Universal 80% Consumption ( lbs) Universal 2005 Consumption Pre plant Cucurbits 6,797,286 2,619,039 39% 1,132,957 16.7%

Eggplant 489,456 162,211 33% 70,170 14.3%

Orchard Replant 1,557,118 Apple 45,000 0% 0 0.0%

Almond 1,005,227 12% 53,693 5.3%

Grape 1,757,980 75% 570,357 32.4%

Peach 379,910 12% 20,292 5.3%

Prune 169,911 12% 9,076 5.3%

Walnut 377,576 12% 20,168 5.3%

Citrus 134,885 0% 0 0.0%

Pepper 6,063,900 2,393,009 39% 1,035,179 17.1%

Strawberry 11,492,981 5,443,865 47% 9,202,724 80.1%

Tomato 10,362,923 6,317,903 61% 8,297,858 80.1%

Lettuce 935,889 0 0% 0 0.0%

Forest Seedlings 446,482 424,496 95% 183,630 41.1%

Ginger 44,680 20,332 46% 8,795 19.7%

Sweet Potato 766,042 495,084 65% 214,166 28.0%

Nurseries Nursery Transplant Trays 690,048 2,917 0.4% 1,262 0.2%

Orchard Nurseries 316,594 100,965 32% 43,676 13.8%

Ornamentals ( roses and chrysanthemums) 262,351 64,853 25% 28,055 10.7%

Strawberry Nurseries 411,361 121,249 29% 52,450 12.8%

Turfgrass 1,992,504 776,588 39% 335,940 16.9%

Post Harvest Food Production &

Storage 923,895 193,495 21% 83,703 9.1%

Perishables 2,795,940 1,182,603 42% 511,576 18.3%

Durables 1,678,005 0 0% 0 0%

Transport Vehicles 196,245 0 0% 0 0%

Non Ag 1,678,005 0 0% 0 0%

Total 53,578,098 21,875,728 21,875,728 21,875,728 *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 167  1.4 Step 4. Calculate cost change, by crop and region, for Approach 1 To determine the annual revenue change for Approach 1 the total change in sales ( due to yield changes)

are added to the total change in cost ( due to treatment cost differences). The following set of equations are performed for each crop and region, and then summed across all regions to obtain the total revenue change per crop.

Cumulative Treated Acres is the total number of acres that will exhibit yield loss in a given year. For non orchard crops, Cumulative Treated Acres is equivalent to Annual Treated Acres for each substitute. For orchard crops, Cumulative Treated Acres is equivalent to the combined Annual Treated Acres for all prior years Cumulative Treated Acres, Orchards ( ac) = Cumulative Treated Acres, j 1 + Annual Treated Acres, j Where:

Cumulative Treated Acres, j 1 = the cumulative treated acres for one year prior to the current year, j Annual Treated Acres, j = The acres treated by the alternative in current year, j Yield Loss is the change in crop yield, expressed as a percent, resulting from substitution for methyl bromide.

Yield Loss (%) = 100%   Substitute Yield Relative to Methyl Bromide (%)

Where:

Substitute Yield Relative to Methyl Bromide (%) = the average of the high and low estimates for the yield of each substitute relative to methyl bromide Annual Change in Sales is a measure of the difference in revenue, based on changes in yield between methyl bromide and the alternatives.

Annual Change in Sales ($) = Cumulative Treated Acres ( ac) * Yield ( lbs/ ac) * Price Per Pound ($/ lb) * Yield Loss (%)

Where:

Cumulative Treated Acres ( ac) = the total number of acres treated with the alternative that will exhibit yield loss in the year. For crops with longer lifetimes ( e. g., orchards) it is assumed that yield loss will be exhibited for the lifetime of the crop.

Yield ( lbs/ ac) = the amount of crop produced when the acres are treated with methyl bromide Price per Pound ($/ lb) = farm price for each pound of crop produced Yield Loss (%) = the predicted proportion of the yield that will be lost due to the use of the substitute Net Cost Change per Acre is the change in application cost for each substitute per acre of treated crop. *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 168  Net Cost Change per Acre ($) = Cost of Methyl Bromide ($/ ac) * ( Substitute Cost Relative to Methyl Bromide (%)   100%) Where:

Cost of Methyl Bromide ($/ ac) = the mean of the high and low estimates of either the contractor application rate ( California, $ 1350) or the farmer application rate ( all other regions, $ 780)

Substitute Cost Relative to Methyl Bromide (%) = the high or low estimate of the cost of each substitute Annual Cost Change is the total treatment cost difference resulting from replacing a percent of the methyl bromide market with a substitute.

Annual Cost Change ($) = Net Cost Change Per Acre ($/ ac) * Treated Acres ( ac) * Market Share (%)

Where:

Net Cost Change per Acre ($/ ac) = the cost difference between treating one acre of the crop with methyl bromide versus the substitute Treated Acres ( ac) = the number of acres in the region treated with methyl bromide prior to regulation Market Share (%) = the percent of the methyl bromide market attributed to each substitute Revenue Change is the difference between pre and post phaseout revenue estimates.

Revenue Change ($) = Annual Change in Sales ($) + Annual Cost Change ($)

Where:

Annual Change in Sales ($) = the change in revenues due to changes in yield between methyl bromide and the substitutes Annual Cost Change ($) = the change in revenues due to change in treatment costs 1.5 Step 5. Calculate Approach 2 cost change for each crop Approach 2 is calculated by crop, using the totals by region, where appropriate. The following set of equations is used to determine the producer surplus loss, consumer surplus loss, and total social welfare change for Approach 2.

Production Change is the amount of crop production lost due to yield loss from methyl bromide substitutes.

Production Change ( lbs) = Reduced Sales ($) / Price per Pound ($/ lb)

Where:

Change in Sales ($) = the revenues lost due to yield differences from the methyl bromide alternative ( see Approach 1)

Price per Pound ($/ lb) = the weighted farm price for each pound of crop produced *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 169  New Production is a revised production estimate based on the total pounds of crop produced historically plus the change in production due to the substitution of methyl bromide.

New Production ( lbs) = Production ( lbs) + Production Change ( lbs)

Where:

Production ( lbs) = the estimated pre phaseout production of the crop Production Change ( lbs) = the amount of crop lost due to yield loss from methyl bromide substitutes Price Change is the resulting change in price for consumers due to production losses and market demand flexibility.

Price Change ($/ lb) = Production Change ( lbs) / Production ( lbs) * Demand Flexibility * Wholesale Price ($/ lb)

Where:

Production Change ( lbs) = the amount of crop lost due to yield loss from methyl bromide substitutes Production ( lbs) = the estimated pre phaseout production of the crop Demand Flexibility = percentage change in demand due to percentage change in price Wholesale Price ($/ lb) = the average market price of the crop to the consumer Consumer Surplus Change is the increase in costs due to decreased production of the crop that are passed on to consumers.

Consumer Surplus Change ($) = New Production ( lbs) * Price Change ($/ lb) + [ 0.5 * Production Change ( lbs) * Price Change ($/ lb)]

Where:

New Production ( lbs) = a revised crop production estimate based on the total pounds of crop produced historically minus the change in production due to the substitution of methyl bromide Price Change ($/ lb) = change in price for consumers due to production losses and market demand flexibility Production Change ( lbs) = the amount of crop lost due to yield loss from methyl bromide substitutes Producer Surplus Change is the amount of the revenue change that is passed on to the producers.

Producer Surplus Change ($) = Revenue Change ($)   New Production ( lbs) * Price Change ($/ lb)

Where:

Revenue Change ($) = the total change in revenue due to methyl bromide phaseout as calculated in Approach 1 New Production ( lbs) = a revised crop production estimate based on the total pounds of crop produced historically minus the change in production due to the substitution of methyl bromide *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 170  Price Change ($/ lb) = change in price for consumers due to production losses and market demand flexibility Total Social Welfare Change is the sum of consumer surplus and producer surplus changes. Total Social Welfare Change ($) = Consumer Surplus Change ($) + Producer Surplus Change ($)

Where:

Consumer Surplus Change ($) = the increase in consumer costs due to decreased production of the crop Producer Surplus Change ($) = the increase in costs to the producer due to phaseout of methyl bromide *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 171  2. Nurseries Exhibit 2.1 presents cost and total impact of replacing methyl bromide for nursery crops ( i. e.,

perennials). Since yield losses must be applied in two steps for crops that have a lifetime greater than one year,

corresponding costs were estimated based on the percent of acres treated until substitutes achieve full market penetration. The framework for this analysis was adapted from NCFAP ( 1999). The cost of complete phaseout is calculated as follows:

Cost of complete phaseout = ( acres * percent of acres treated * increased cost) + ( crop value * percent of acres treated * yield loss)

Cost data for interim years is calculated as the percent of methyl bromide phased out in each crop,

multiplied by the cost of complete phaseout for that crop.

Exhibit 2.1. Cost of Replacing Methyl Bromide for Nursery Crops ( 1997$)

Crop State Acres Percent of Acres Treated Crop Value ($ 1,000) Yield Loss Increased Cost ($) MeBr Consumption ( lbs) Cost of Complete Phaseout ($ 1,000) Caladium CA 1,400 67% 18,000 10.0%  131,692 1,206 Cut Flowers Carnations CA 241 95% 17,678 0.0% 6,571 32,144 1,504 Mums outdoor CA 102 100% 7,192 7.5% 14,320 539 Mums ghouse CA 102 67% 7,192 0.0% 6,571 9,595 449 Roses CA 483 60% 68,017 0.0% 550 40,687 159 Other cut flowers CA 4,680 75% 153,060 7.5% 492,791 8,610 Gladiola FL 3,292 10% 15,999 10.0% 46,218 160 Other cut flowers FL 281 90% 11,269 10.0% 35,506 1,014 Sod CA 8,420 20% 79,357 10.0% 433 236,427 2,316 FL 52,030 20% 64,215 10.0% 433 1,460,963 5,790 GA 10,510 20% 34,643 10.0% 433 295,113 1,603 Strawberry plants CA 2,585 100% 19,379 15.0% 362,924 2,907 OR 345 100% 48,437

Perennial nurseries CA 2,255 100% 124,217 5.0% 250 316,594 6,775 Rose plant nurseries CA 1,967 95% 34,863 5.0% 250 262,351 2,123 Tobacco plants FL 75 100% 864 0.0% 200 10,530 15 GA 800 80% 9,215 0.0% 200 89,854 128 TN 12,000 35% 48,380 0.0% 200 589,664 840 Total 4,475,810 36,139 *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 172  3. Post Harvest This analysis applies information on relative costs of alternatives to methyl bromide for postharvest treatments to determine the total cost of a phaseout of post harvest uses of methyl bromide ( excluding uses for quarantine and preshipment applications). Unlike the pre plant cost analysis, which uses detailed crop specific data on acreage, production, yield, price, and relative cost of the substitutes to estimate the costs on a regional basis, the post harvest analysis uses a simplified approach to estimate the incremental cost per pound to replace methyl bromide nationally by post harvest use segment. 56 Critical use exemptions for post harvest uses were only requested for food production & storage and perishables, therefore the costs for phasing out methyl bromide in the remaining sectors were the same for the baseline and the CUE scenario.

The estimation of costs associated with phasing out post harvest non soil use of methyl bromide involves the following three general steps:

Step 1: Determine methyl bromide consumption for each post harvest non soil use, shown in Exhibit 3.1.

Step 2: Derive replacement cost information and express results in terms of cost per pound of methyl bromide replaced; and Step 3: Multiply total consumption for each post harvest non soil use by cost per pound replaced to express total costs for replacement of methyl bromide for post harvest non soil use.

The relative costs to replace methyl bromide are shown in Exhibit 3.2, and are derived in the following ways:

  The relative costs of heat treatments were based on information provided in EPA ( 1995). The following data were used: heat treatments cost $ 747 to $ 830 per million cubic feet; methyl bromide treatments cost $ 2,000 to $ 4,500 per million cubic feet for $ 1,253 to $ 3,670 cost savings per million cubic feet; and total methyl bromide use is estimated to be 999 to 3,995 pounds. The relative cost to replace methyl bromide is therefore estimated to be $ 1.25 to $ 0.92.

  The relative costs of phosphine 57 tablets were based on information provided in EPA ( 1997). The following data were used: tablets cost $ 8.25 per thousand cubic feet; methyl bromide treatments 56 The data used in to estimate post harvest impacts are not as thorough as those used for the pre plant analysis. Therefore, the analysis does not reflect the potential variability in costs that might occur regionally or by commodity.

57 EcofumeTM , a treatment containing phosphine, is less expensive, more effective in a shorter time frame, and provides improved health, worker safety conditions, and environmental benefits compared to other phosphine *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 173  cost $ 7.40 per thousand cubic feet for a cost per thousand cubic feet of $ 0.85; and total methyl bromide use is estimated to be 1.00 to 4.00 pounds. The relative cost to replace methyl bromide is therefore estimated to be $ 0.21 to $ 0.85.

  The relative costs of phosphine Turbo Horn TM treatments were based on information provided in EPA ( 1997). The following data were used: Turbo Horn TM costs $ 8.15 per thousand cubic feet; methyl bromide treatments cost $ 7.40 per thousand cubic feet for a cost per cubic feet of $ 0.75; and total methyl bromide use is estimated to be 1.00 to 4.00 pounds. The relative cost to replace methyl bromide is therefore estimated to be $ 0.19 to $ 0.75.

  The relative costs of phosphine combination treatments were based on information provided in EPA ( 1997). The following data were used: combination treatments cost $ 9.25 per thousand cubic feet; methyl bromide treatments cost $ 7.40 per thousand cubic feet for a cost per thousand cubic feet of $ 1.85; and total methyl bromide use is estimated to be 1.00 to 4.00 pounds. The relative cost to replace methyl bromide is therefore estimated to be $ 0.46 to $ 1.85.

  The relative costs of Vikane TM treatments were based on information provided in EPA ( 1999c). The following data were used: Vikane TM treatment cost $ 121.20 to $ 314.70 per 35K cubic feet; methyl bromide treatments cost $ 138.75 to $ 235.00 per 35K cubic feet for a cost per 35K cubic feet of $ 17.55 to $ 79.70; and total methyl bromide use is estimated to be 35 to 105 pounds. The relative cost to replace methyl bromide is therefore estimated to be $ 0.50 to $ 0.76.

  The relative costs of irradiation were derived from information contained in NCFAP ( 1999). The following approach was used: the ratio of irradiation costs relative to phosphine treatment costs as presented in NCFAP ( ratio = 3.42) was used to scale the cost per pound to replace methyl bromide with phosphine ( estimated above). The resulting scaled value was used as the cost to replace methyl bromide with irradiation.

  The relative costs of controlled atmosphere were derived from information contained in NCFAP ( 1999). The following approach was used: the ratio of controlled atmosphere costs relative to phosphine treatment costs as presented in NCFAP ( ratio = 1.46) was used to scale the cost per pound to replace methyl bromide with phosphine ( estimated above). The resulting scaled value was used as the cost to replace methyl bromide with controlled atmosphere.

Exhibits 3.1 and 3.2 summarize total methyl bromide consumption and methyl bromide replacement costs, respectively, for the post harvest sector.

treatments analyzed ( i. e., tablets and combination treatments) ( EPA 1997). EcofumeTM has only recently been approved and comparative cost information is not available, thus this new treatment is not considered in this analysis. *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 174  Exhibit 3.1. Estimated Methyl Bromide Consumption for Post Harvest Uses ( pounds)

Post Harvest Sector Methyl Bromide Consumption Non Ag 1,678,005 Food Production & Storage 923,895 Transport Vehicles 196,245 Perishables 2,795,940 Durables 1,678,005 Quarantine & Preshipment 560,070 Exhibit 3.2. Estimated Cost per Pound Replaced for Post Harvest Non Soil Uses of Methyl Bromide Post Harvest Sector Low ($) Substitute High ($) Substitute Non Ag ( 0.92) Heat 0.76 Vikane   Food Production ( 1.25) Heat 0.85 Phosphine Tablets High Food Storage ( 0.92) Heat 0.75 Phosphine Turbo Horn Transport Vehicles 0.85 Phosphine Tablets 1.24 Controlled Atmospheres Perishables 1.24 Controlled Atmosphere 2.91 Irradiation Durables 0.76 Vikane 1.85 Phosphine Combo High QPS 2.70 Controlled Atmosphere 6.33 Irradiation *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 175  Appendix C: Marketable Permit Designs for the Methyl Bromide Critical Use Exemption Request in the United States Hong Jin Kim Economist Office of Pesticide Programs U. S. Environmental Protection Agency 1200 Pennsylvania Ave. ( Mailcode = 7503C) Washington DC 20460 ( 703) 308 8134 phone ( 703) 308 6077 fax Kim. Hong Jin@ epamail. epa. gov John Faulkner Economist Office of Pesticide Programs U. S. Environmental Protection Agency David Widawsky Economist/ Branch Chief Office of Pesticide Programs U. S. Environmental Protection Agency The findings, results, and opinions expressed in this paper are those of the authors and do not reflect those of the U. S. EPA.

ABSTRACT This paper analyzes potential cost savings to the U. S. agricultural sector associated with applying marketable permit designs for methyl bromide critical use exemptions ( CUE), under the phaseout of methyl bromide. A necessary condition for an efficient trading system is heterogeneity among methyl bromide users with respect to the costs of switching to potential alternative pest control measures, which would lead to cost savings from trading. Using data on these costs from current methyl bromide users,

the authors show that this necessary condition appears to be met, and characterize the potential cost savings that could occur if critical use permits can be traded from methyl bromide users with lower costs to those with higher costs. Several potential mechanisms for implementing these trades are considered,

causing differences in the extent to which permit for use may be traded within a commodity use, or traded among users producing different commodities. The total incremental costs of the program were higher when permits are traded only among methyl bromide users within a commodity sector, while the costs were lowest when the methyl bromide users are allowed to freely trade their permits across sectors. *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 176  INTRODUCTION Methyl bromide is a pesticide to control insects, nematodes, weeds, pathogens, and rodents.

Methyl bromide is primary used in agriculture for soil fumigation, commodity treatment, and structural fumigation. Methyl bromide is used in the U. S. for soil fumigation prior to planting crops to control a broad spectrum of soil pests. Tomatoes and strawberries account for about 50 percent of the total methyl bromide use in the United States. Others such as perennial crops, pepper, and ornamental and nursery crops widely use methyl bromide to control soil pests and account for about 35 percent of the total methyl bromide use. Methyl bromide is also used for protecting the quality of commodities in storage and for food processing facilities for pest control. Methyl bromide uses for post harvest treatments account for about 15 percent of the total methyl bromide use ( United States Environmental Protection Agency ( US EPA), 2003a).

Under the Clean Air Act Amendments ( CAAA) and the Montreal Protocol on Substances that Deplete the Ozone Layer, the production and import of methyl bromide in the United States is scheduled for phase out by January 1, 2005. However, current users of methyl bromide have the option to apply for a critical use exemption ( CUE) that would provide additional time to transition to technically and economically feasible alternative fumigants. The U. S. Environmental Protection Agency invited applications for CUEs from individuals and groups of methyl bromide users, and reviewed the submitted CUE applications for their current use of methyl bromide, with special attention paid to the availability of alternatives identified by the Methyl Bromide Technical Options Committee ( MBTOC).

Based on the economic analyses of estimating costs and revenues associated with the use of methyl bromide and technically feasible alternatives, the U. S. EPA nominated a set of methyl bromide uses for CUEs, under the Montreal Protocol. These uses, for crop production and structural/ storage operation, were deemed critical because available alternative are either technically or economically infeasible. The international parties of the Montreal Protocol are currently reviewing the CUE nominations and are expected to report findings and recommendations by the Fall of 2003. The goal of this paper is to explore the feasibility of implementing the allocation of methyl bromide CUEs with permit trading, by assessing whether the economic conditions exist to support a market based approach as one option among many. We look at some specific data on costs of production for methyl bromide users, introduce a basic theoretical model for permit trading, simulate some results using the permit trading model , and suggest directions for further work to expand analyses of this option.

In the environmental economics literature, traditional direct control approaches have been criticized as more costly than marketable permit systems to achieve environmental quality standards.

Theoretically, marketable permit systems could allow polluters with higher costs for emission control to buy permits from polluters with lower costs. Under certain conditions, total aggregate abatement costs can be reduced and pollution abatement achieved at a lower cost to the economy. However, the actual *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 177  realized benefit from a marketable permit system may not be as big as the theoretically conceivable benefit associated with marketable permit systems due to the difficulties of implementing marketable permit systems.

Marketable permit systems have been used in areas of air quality management, renewable energy, solid waste management, and water resources management. Implementation of such marketbased mechanisms depends on meeting well known theoretical conditions and overcoming practical difficulties. Emission trading in the energy sector is one area where a marketable permit system has received considerable attention ( Berry, 2002; Boots, 2003; Nielsen and Jeppesen, 2003). Solid waste management is another area where researchers have examined marketable permit system as an efficient tool to meet minimum recycling targets ( Sprenger, 1999; Allen and et al., 1993; Dinan, 1992). The marketable permit system has been extensively studied in water resources management to reduce water pollution in a cost effective way ( Austin, 2001; Morgan and et al., 2001; Stephenson and Shabman,

2001). Many studies ( Atkinson and Lewis, 1974; Atkinson and Tietenberg, 1982; Oates, Portney and McGartland, 1989; Tietenberg, 1995; Schmalensee and Joskow, 1998) have found that marketable permit systems can be more cost effective than fixed allocation approaches in achieving emission reduction targets or air quality objectives.

Pesticide regulatory policy in the U. S. is most commonly directed toward mitigating risk with stipulations on how a pesticide is used ( rates, timing, equipment, etc.), which determines risk. Trading of pesticide risk, per se, has not been explored, in part because of the link between use pattern and risk.

Hence, no study has been identified to look at potential cost savings of applying marketable permit designs for pesticide uses. Methyl bromide, in its role as an ozone depleter, is different because ozone depletion is almost ( but not entirely) separable from use patterns. 58 Therefore, this paper explores the potential of marketable permit systems to provide the methyl bromide users with more flexibility in meeting their required reduction of methyl bromide use in a cost effective way. An objective of this study is to analyze the potential cost savings of marketable permit systems for methyl bromide under a CUE program.

DEFINING THE PROBLEM: MARKETABLE PERMIT DESIGN Through economic analysis of the CUE applications, EPA gathered a substantial body of data on potential losses in revenue and increases in operating costs associated with alternative pest control regimens. These data helped EPA to estimate the incremental costs that might accrue in the absence of methyl bromide. The incremental costs associated with the use of alternatives appeared to have a wide 58 There are other risks from methyl bromide beyond ozone depletion, and these risks are addressed by EPA in implementing the Federal Fungicide, Rodenticide, and Insecticide Act ( FIFRA). For the purposes of a CUE program we focus on ozone depletion in this paper. Site specific factors can also affect the ozone depletion potential of a given methyl bromide use ( soil moisture and temperature status, length of contact time with soil), but these factors do not change the basic conclusions of this paper, and are not explicitly addressed. *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 178  range among the CUE applications. For example, the incremental costs for structural/ storage uses are mainly from production delays due to a longer treatment time and required capital expenditures with alternatives. Costs of adoption methyl bromide alternatives ( per unit of commodity) may be higher in these industries than in crop production systems. Within the CUE applications for crop production,

incremental costs varied due to the fact that different methyl bromide alternatives were available for different crops, depending on a range of factors.

A permit trading system is intended to reduce the total control costs ( across methyl bromide users) of meeting the target for emissions. In the case of emission trading for power plants, this may mean minimizing the cost of expenditures on equipment. In the case of methyl bromide, the " cost" may include changes in expenditures, as well as changes in gross revenue because methyl bromide is a productive input, rather than simply an undesirable output. Assume that methyl bromide trading occurs on a one for one basis, that is, reduction in use of one pound in one place is offset by an identical increase in another place. This assumption is generally valid because there is no spatial dispersion effect of methyl bromide use; nearly and all emissions can be considered to have the same effects on the ozone layer. This objective can be represented as finding the set of individual methyl bromide uses, Xi MeBr , that minimize the total cost of meeting ( or exceeding) a target in use reduction:

where,

Ci : total incremental costs of switching to methyl bromide alternatives for i th methyl bromide users Xi MeBr :

the number of kilograms of methyl bromide to be replaced with alternatives for i th methyl bromide user E: the total reduction of methyl bromide in kilograms required for the United States This is equivalent to minimizing the following Lagrangian:

where,

 : the Lagrangian multiplier From the first order condition ( FOC), a solution satisfies:

Equation 3 implies that when the cost is minimized for reducing methyl bromide use, then the marginal costs of replacing methyl bromide with alternatives are the same across all methyl bromide users. The equation above also shows that the marginal cost for each methyl bromide user should be ) 1 ( ,...., 1 , ) (

1 1 m i E to subject Min m i MeBr i MeBr i m i i X X C =

= =

) 2 ( ,...., 1 ), ( ) (

1 1 m i E m i MeBr i MeBr i m i i X X C =   +

= =   ) 3 ( ) ( '   = X C MeBr i i *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 179  equal to the Lagrangian multiplier, which reflects the value of changing ( increasing or decreasing) the target for methyl bromide use reduction. In other words, it represents the change in the total incremental costs associated with a change in the total reduction of methyl bromide required for the United States.

The total costs of meeting the reduction of methyl bromide required for the United States would be minimized if each methyl bromide user reduced the use of methyl bromide such that its marginal cost is equal to its contribution to the total costs.

However, this condition may not hold because the marginal costs may be constant and different across all CUE applicants. In practice, the total costs of switching to alternatives for all CUE applicants are more likely to be minimized when applicants with lower costs switch to alternatives first, until the total required reduction in the United States is attained. The marginal cost for the last user applicant switching to methyl bromide alternatives should be equal to the estimated Lagrangian multiplier.

This study analyzes the potential efficiency improvement associated with implementation of two different marketable permit designs to the U. S. agricultural production sectors: 1) a Sectoral Marketable Permit System ( SMPS) that allows one to one permit trading only for methyl bromide in the same sector ( e. g., tomatoes, peppers), and 2) Uniform Marketable Permit System ( UMPS) in which all the methyl bromide users freely trade their methyl bromide permits. The incremental costs accounted for in this study are the sum of economic losses from reduced yields and increased production costs associated with the use of alternatives. 59 Therefore, the cost savings indicated in this study represent the differences between the total costs of marketable permit systems to the U. S. agricultural production sectors and those of a system whereby CUEs are fixed based on historical methyl bromide use or production output.

DATA The methyl bromide users considered for this study represent individual growers, consortia, and industries using methyl bromide for crop production such as tomatoes and strawberry, and for fumigation of stored commodities and structural fumigation ( e. g., flour mills). The U. S. Environmental Protection Agency ( EPA) received fifty six critical use exemption ( CUE) applications for 2002. These applications were aggregated into16 sectors for the purpose of the U. S. nomination of CUEs to the International Parties of the Montreal Protocol. Table 1 lists the sectors ( and the amount of methyl bromide requested)

in the U. S. nomination: tomatoes, strawberries, cucurbits, peppers, orchard replant, food processing,

turfgrass, sweet potatoes, forest seedlings, commodity uses, eggplant, strawberry nursery, orchard seedlings, ornamental nurseries, ginger, and tobacco. The U. S. nomination for each crop/ use was based on the economic and technical evaluation of the use of methyl bromide and alternatives, and also other 59 This doesn't include transaction costs, R& D for adopting new alternatives, etc. Depending on who would incur the costs, sellers or buyers of permits, not including these costs could over or underestimate the efficiency gains from trading. *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 180  factors such as regulatory constraints ( buffer zones and township caps) and environmental considerations ( groundwater contamination, historic use rate, and etc.). The total amount of 9,920,965 kilograms for 2005 was nominated for the sixteen sectors by the United States, which comprises 39 percent of the 1991 baseline ( US EPA, 2003b).

Why does switching to methyl bromide alternatives lead to costs?

Economic analyses were only conducted for pre plant and post harvest uses when EPA and USDA identified an alternative to be technically feasible in the CUE review process. For pre plant uses,

economic impacts arise due to potential losses in revenue, both from yield declines ( when alternatives are less efficient) and increases in operating costs. For example, supplementary weed control or additional irrigation may be required when adopting methyl bromide alternatives. CUE reviewers analyzed crop budgets for pre plant sectors to determine the likely economic impact if methyl bromide were unavailable. Efforts were also made to quantify economic impacts to methyl bromide users due to decreases in grade and quality of the crops that lead to changes in the prices producers receive;

however, not all potential economic losses were quantifiable.

Economic losses in the post harvest sectors can be characterized as arising from three contributing factors. First, the direct pest control costs increased in most cases because alternatives such as phosphine and heat treatment are more expensive ( increased labor time required for longer treatment time and increased number of treatments. Second, large capital expenditures may be required to adopt an alternative. For example, investments to retrofit a facility may be necessary to make it suitable for heat treatment. Finally, additional production downtimes for the use of alternatives are unavoidable. Many facilities operate at or near full production capacity and alternatives that take longer than methyl bromide or require more frequent application can result in manufacturing slowdowns, shutdowns, and shipping delays. Slowing down production would result in additional costs to the methyl bromide users.

Economic loss was calculated as the additional costs, per kilogram of methyl bromide, if methyl bromide users had to replace methyl bromide with available alternatives. Comparing these losses provides a rough measure of the loss in economic efficiency associated with adoption of methyl bromide alternatives. This measure indicates incremental cost of switching to the available alternatives and was used to estimate potential cost savings to the U. S. agricultural sector through the use of a marketable permit system for methyl bromide. EPA reviewed each CUE application and estimated the incremental costs associated with the use of alternatives for the methyl bromide users represented in each application ( US EPA, 2003b).

Table 2 shows technically feasible alternatives and the economic loss per kilogram of methyl bromide for each sector. Economic losses for each sector are presented as a range because different yield losses were estimated for different alternatives and the methyl bromide users within each sector. *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 181  Variations in price and operating expenses across different methyl bromide users within each sector also contributed to variability in the range of economic losses. Attachment 1 shows the technically feasible alternative and the estimated economic loss per kilogram of methyl bromide across methyl bromide CUE applicants. These estimates were used to estimate the potential cost savings associated with implementation of a marketable permit system, and are based on methyl bromide users adopting the best available alternatives ( lowest cost). This analysis incorporates CUE reviewers' point estimates of the most likely yield and quality losses associated with these alternatives. Different methyl bromide alternatives and point estimates of yield changes would lead to different estimates of the potential cost savings of a methyl bromide marketable permit system.

The economic loss of replacing methyl bromide with alternatives ranged from $ 6 to $ 607 per kilogram of methyl bromide, depending on the methyl bromide use. The economic losses per kilogram of methyl bromide show a wide range across the sectors and also among users within the same sector. The economic loss for structural/ storage uses of methyl bromide appear to be much higher than those to crop producers. Wide variation in economic losses among methyl bromide users would provide users with more flexibility in meeting their required reduction of methyl bromide with marketable permit system.

EMPIRICAL RESULTS The potential cost savings were measured as differences between the total costs of marketable permit systems to the U. S. agricultural production sectors and those of a direct and fixed allocation of CUEs according to historical methyl bromide use or commodity production. The potential cost savings of marketable permit systems were estimated using the assumption that 39 percent of the 1991 U. S.

baseline ( reflecting the size of the U. S. nomination) would be exempted for critical needs for methyl bromide use after the phaseout. Three different schemes for initial allocation were analyzed to estimate the potential maximum and minimum cost savings associated with the use of marketable permit systems.

They are: ( 1) high cost scenario where all the permits are given to the applicants with lower costs in each sector, ( 2) low cost scenario where all the permits are given to the applicants with higher costs in each sector, and ( 3) average cost scenario where all the users in each sector are required to have the same percentage reduction in their uses of methyl bromide. The maximum cost savings would occur when all the permits in each sector are distributed to the applicants with lower adjustment costs, while minimum cost saving would be associated with the case when the applicants with higher adjustment costs in each sector are given the permits to use methyl bromide.

This study does not address trading for sectors in which no technically feasible alternatives have been identified or all the 2005 requested amounts of methyl bromide were included in the U. S.

nomination. The sectors in this category are cucurbits, turfgrass, sweet potatoes, eggplant, strawberry *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 182  nursery, and tobacco. Therefore, this study incorporates for 81 percent of the total requests by sectors in 2005, for the purposes of estimating potential efficiency gains from trading. The cost savings of marketable permit system estimated in this study would be smaller than the case that all 16 sectors were allowed to trade their permits. 60 Table 3 shows the potential cost savings of marketable permit systems. If critical use exemptions were allocated to users with higher incremental costs under a fixed allocation system, then a marketable permit design would provide the smallest cost savings. This is because there is not much of need for permit trading. At the same time, identifying and allocating methyl bromide to users with high incremental switching costs could require substantial transaction costs and would not be uncontroversial. On the other hand, the more the applicants with lower incremental switching costs are given the critical use exemptions, the higher the potential cost savings could be. If 39 percent of the 1991 baseline were exempted for critical needs for methyl bromide, we estimated the total incremental cost under a fixed allocation system ranges from $ 55 to $ 177 million depending on the allocation of the critical use exemption among methyl bromide users. If methyl bromide critical use exemptions were allocated among all users, reducing methyl bromide use by the same proportion for each user, then the estimate of the total cost of adjustment is $ 120 million.

Under a permit system, where trading occurs only among users in a given sector, the total incremental cost was estimated at $ 55 million. Under this Sectoral Marketable Permit System ( SMPS),

some sectors have minimal cost savings because there is little variation in economic losses per kilogram of methyl bromide. These sectors include forest seedling, orchard replant, ornamental nurseries, and ginger. The SMPS did not provide significant cost savings to these sectors in our simulation, while tomato, strawberry, pepper, commodity, and food processing sectors enjoyed significant cost savings. In particular, the food processing sector reduced its cost from $ 42 to $ 5.5 million and tomato sector from $ 52 to $ 14.5 million, a result of trading between users with high costs and those with low costs of adopting alternatives to methyl bromide.