Columbia Forest Products describes itself as North America's largest manufacturer of hardwood veneer, and laminated products. They sell their products through a network of wholesale distributors, mass merchandisers and major original equipment manufacturers ( OEMs). Their products include decorative, interior veneers and panels used in high end cabinetry, fine furniture, architectural millwork and commercial fixtures. Columbia Forest Products is an employee owned company with 13 plants in the U. S. and four in Canada ( Columbia Forest Products, 1999).

Weyerhaeuser is an integrated international forest products company. It is involved in growing and harvesting timber, and the manufacturing and distributing of several categories of forest products. Among its wood products are plywood, OSB, and wood composites. The company bills itself as the world's largest private owner of saleable softwood timber and the country's largest producer of softwood lumber and pulp. In addition, it is the top U. S. exporter of forest products. The company has approximately 36,000 U. S. and Canadian employees and sales of $ 11 billion, ten percent of which comes from exports ( Weyerhaeuser, 1999).

Boise Cascade, an integrated international paper and forest products company, manufactures and distributes paper and wood products, distributes office products and building materials, and owns and manages over 2 million acres of timberland. Its building products include lumber, plywood, particleboard, veneer, and engineered wood products. Sales of these products constitute 27 percent of the company's $ 6.2 billion annual revenue ( Financial Times, 1999a; PR NewsWire, 1999a).

<IP_ADDRESS> Financial Condition The financial condition of an industry's firms will affect the incidence of impacts of the costs associated with complying with a new MACT standard. While information necessary to determine which specific firms might experience adverse impacts is not available, one can examine industry wide indicators of financial condition. Each year, Dun & Bradstreet ( D& B) publishes Industry Norms & Key Business Ratios, which reports certain financial ratios for a sample of firms in the industry. This section focuses on measures of profitability and solvency. 2 41 Profitability Ratios The return on sales ratio, also known as the net profit margin, is an indicator of a firm's ability to withstand adverse conditions such as falling prices, rising costs, and declining sales, and is calculated by dividing net profit after taxes by annual net sales.

Return on assets is calculated by dividing a firm's net profit after taxes by its total assets. This ratio is a key indicator of both profitability and operating efficiency by comparing operating profits to the assets available to earn a return. According to Dun & Bradstreet, companies that use their assets efficiently will have a relatively higher return on assets than those firms that do not use their assets efficiently.

The return on equity shows the profitability of the company's operations to owners, after income taxes, and is calculated by dividing net profit after taxes by net worth. According to Dun & Bradstreet, this ratio is looked to as a ` final criterion' of profitability, and a ratio of at least 10 is regarded as desirable for providing dividends plus funds for future growth.

Solvency Ratios The current ratio is calculated by dividing a firm's current assets by its current liabilities. This is a measure of liquidity that gauges the ability of a company to cover its short term liabilities. The standard guideline for financial health is 2. The quick ratio is slightly different than the current ratio, because it does not include inventories, advances on inventories, marketable securities, or notes receivables. The quick ratio measures the protection afforded creditors in cash or near cash assets. Any time this ratio is 1 or greater, the firm is said to be in a liquid condition.

Exhibit 2 23 shows various measures of the financial condition of the plywood and composite wood industry over the period 1995 to 1997. The trends shown in Exhibit 2 23 confirm that the softwood plywood and reconstituted wood products industries have experienced a profit squeeze due to increasing costs and falling prices in recent years.

Exhibit 2 23: Indicators of Financial Condition, 1995 1997*

Indicator Softwood Plywood and Veneer Reconstituted Wood Products Structural Wood Members 1995 1996 1997 1995 1996 1997 1998 Return on Sales 5.8 3.6 1.7 3.8 3.1 3.5 5.0 Return on Assets 15.7 13.5 6.0 7.8 5.9 3.5 13.0 Return on Equity 28.7 22.9 8.7 15.2 10.0 5.7 NA Current Ratio 3.2 2.6 2.7 2.8 2.7 1.7 2.3 Quick Ratio 1.1 1.3 1.2 1.8 1.2 1.1 1.3 * Includes 1998 data for Structural Wood Members, the only data reported for this sector. Source: Dun & Bradstreet ( 1999). Indicator values are based on median values of the industrial sample. For SIC 2436, there were 14 establishments in the sample in 1995, 15 in 1996, and 11 in 1997. For SIC 2493, there were 28 establishments in the sample in 1995, 30 in 1996, and 31 in 1997. For SIC 2439, there were 135 establishments in 1998.

The softwood plywood and veneer industry has not maintained its relatively strong degree of financial health, with many of its profitability indicators significantly lower in 1997 than in 1995. In particular, the softwood plywood and veneer industry experienced 60 to 70 percent declines in all three 2 42 profitability ratios. The falling profitability of this industry is now at a level that indicates the presence of firms that are not using their assets efficiently, are not providing the cash needed for future growth, and may more acutely experience adverse conditions associated with MACT standard compliance costs. The currently low net profit margin is indicative of an industry that is experiencing increasing production costs as a percentage of its value of shipments and falling capacity utilization ( Exhibits 2 5 and 2 18).

The reconstituted wood products industry also saw fairly dramatic decreases in its financial indicators over the time period shown, resulting in a relatively low return on assets and return on equity, as well as a current ratio lower than generally considered healthy. These indicators are consistent with recent trends in the industry associated with increases in production costs relative to the value of shipments ( Exhibit 2 5), rapid expansion of production capacity ( Exhibit 2 20) and competitive pressures on prices from overseas producers. This industry also includes firms that are not using their assets efficiently or providing the cash needed for future growth. The reconstituted wood products industry's profit margin is also somewhat low, but typical of all firms in the lumber and wood products sector ( Dun and Bradstreet, 1999b).

In the fall 1999 issue of Engineered Wood Products Journal, industry analyst Evadna Lynn discussed investor response to the industry's current financial performance ( APA, 1999c). Lynn attributes several recent trends to stockholder pressure for improved financial performance.

° Separating timber assets ° Corporate restructuring ° Cost control through consolidation These trends have contributed to a dynamic market structure in recent years. By selling or otherwise spinning off timber assets, forest products companies are converting them to cash and improving financial performance. Restructuring activities have focused on gaining higher returns from core business activities through the closure or divestiture of less profitable facilities or products. Some of the divested facilities, particularly plywood mills, have been reopened by new owners as sawmills. The industry has seen several major corporate mergers and acquisitions in the late 1990s, including: Weyerhaeuser and MacMillan Bloedel, International Paper and Union Camp, and Louisiana Pacific and Le Groupe Forex ( of Canada). Most post merger cost reductions are gained from streamlining operations, including closure of production facilities ( APA, 1999c; International Paper, 1998).

2.5 Markets This chapter discusses general market conditions for the plywood and composite wood products industries. In particular, this chapter discusses market structure, provide background on current market volumes, prices, and international trade. It also presents information on future market volumes, prices and international trade. The purpose of this chapter is to describe the current status of the industry and to support the development and implementation of the economic impact analysis that is summarized in this RIA.

2.5.1 Market Structure Based on the data, background and analyses reviewed while preparing this industry profile, it is reasonable to conclude that these industries exhibit clear signs of a competitive market for the products that are the subject of this MACT standard. There are several reasons for this conclusion. First, as discussed in section 2.4.2, the plywood and composite wood products industries are unconcentrated. There is little concentration of market power evidenced by each separate industrial category having a 4 firm 71995 is the latest year for which data is available.

2 43 concentration ratio of 50 or below ( often well below) and HH indices below the 1000 benchmark. Next, the output of several of the production sectors are substitutes for each other, putting competitive pressures on suppliers. There are also competitive pressures from alternative products, either traditional sawn lumber or non wood materials. This chapter will focus on other factors of the competitive nature of these industries. For the most part, the markets for these goods also experience competitive pressures by the presence of imported products. Finally, several industry experts have observed trends where prices of the products respond negatively to the presence of excess capacity. The remainder of this chapter will provide additional details related to these observations on industry competitiveness.

2.5.2 Market Volumes This section will present a discussion of market consumption and production volumes for the three industrial sectors examined in this study. For the most part, this discussion will rely on the data contained in Exhibit 2 24 and Exhibit 2 25. Exhibit 2 24 shows the value of product shipments by product class for the period 1989 to 19957 as reported by the International Trade Administration of the U. S. Department of Commerce. Note that value of shipments data for Structural Wood Members is not available for inclusion in this table. Exhibit 2 25 shows the physical volume of output produced, traded and consumed between 1988 and 1997 for selected products as reported by Spelter et al. in their 1997 statistical report. International trade is discussed later in the section. 2 44 Exhibit 2 24: Trade Balance and Selected Statistics, Thousands of 1997 Dollars 1989 1990 1991 1992 1993 1994 1995 % Change Softwood Veneer and Plywood ( SIC 2436, NAICS 321212)

Value of product shipments 7,125 6,887 6,185 6,422 5,643 5,885 6,671  6%

Value of imports 81 69 55 79 82 100 111 37%

Value of exports 452 509 428 452 391 333 375  17%

Trade Surplus ( Deficit) 371 440 373 372 310 234 263  29%

Apparent Consumption 6,755 6,447 5,812 6,050 5,333 5,651 6,407  5%

Ratio of Imports to Consumption 0.01 0.01 0.01 0.01 0.02 0.02 0.02 45%

Ratio of Export to Product Shipments 0.06 0.07 0.07 0.07 0.07 0.06 0.06  11%

Ratio of Imports to Exports 0.18 0.14 0.13 0.18 0.21 0.30 0.30 65%

Reconstituted Wood Products ( SIC 2493, NAICS 321219)

Value of product shipments 5,013 4,761 4,743 5,359 4,940 5,511 5,772 15%

Value of imports 461 409 364 540 616 861 1,080 134%

Value of exports 261 334 350 328 271 301 345 32%

Trade Surplus ( Deficit) ( 200) ( 75) ( 14) ( 212) ( 345) ( 560) ( 735) 268%

Apparent Consumption 5,213 4,836 4,757 5,572 5,285 6,070 6,507 25%

Ratio of Imports to Consumption 0.09 0.08 0.08 0.10 0.12 0.14 0.17 88%

Ratio of Export to Product Shipments 0.05 0.07 0.07 0.06 0.05 0.05 0.06 15%

Ratio of Imports to Exports 1.76 1.22 1.04 1.65 2.27 2.86 3.13 77%

Source: U. S. Department of Commerce, International Trade Administration ( 1998). 2 45 Exhibit 2 25: Production, Trade and Consumption Volumes for Selected Products ( 1988 1997)

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 % Change Softwood Plywood ( M ft3, 3/ 8 in basis)

Product shipments 22,089 21,385 20,919 18,652 19,332 19,315 19,368 19,367 19,181 17,963  19%

Imports 96 49 38 28 47 41 47 60 85 104 8%

Exports 1,004 1,442 1,613 1,322 1,442 1,409 1,211 1,267 1,248 1,548 54%

Apparent Consumption 21,181 19,991 19,344 17,358 17,937 17,946 18,474 18,160 18,018 16,519  22%

Other Structural Panels ( M ft3, 3/ 8 in basis)

Product shipments 4,604 5,105 5,418 5,613 6,653 7,002 7,486 7,903 9,314 10,534 129%

Imports 815 1,111 1,313 988 1,572 2,163 2,588 3,214 4,414 5,272 547%

Exports 57 49 60 78 82 157 167 193%*

Apparent Consumption 5,416 6,213 6,728 6,544 8,176 9,105 9,995 11,036 13,572 15,639 189%

Particleboard/ Medium Density Fiberboard ( M ft3, 3/ 4 in basis)

Product shipments 4,768 4,828 4,856 4,730 5,046 5,402 5,793 5,307 5,705 5,916 24%

Imports 1,634 425 363 293 405 572 775 840 814 963  41%

Exports 163 333 373 369 394 318 297 319 154 188 15%

Apparent Consumption 6,239 4,920 4,746 4,654 5,057 5,656 6,271 5,828 6,365 6,691 7%

Hardboard ( M ft3, 1/ 8 in basis)

Product shipments 5,118 5,196 5,025 4,895 5,273 5,248 5,206 4,930 5,280 4,501  12%

Imports 633 718 689 571 571 639 1,119 1,152 1,183 1,306 106%

Exports 322 427 552 606 836 917 1,190 1,377 1,426 1,259 291%

Apparent Consumption 5,429 5,487 5,162 4,860 5,008 4,970 5,135 4,705 5,037 4,548  16%

Source: Spelter et al. ( 1997).

* since 1991 2 46 <IP_ADDRESS> Domestic Production As Exhibit 2 24 shows, the value of shipments ( representing production) of softwood plywood and veneer was slightly lower in 1995 than it was in 1989. During the period, production reached its lowest level in 1993 and then began to climb, in response to meeting demand from rising expenditures for renovation and remodeling and new housing starts. The value of shipments of reconstituted wood products rose 15 percent between 1989 and 1995, linked to the underlying growth in the construction sector and the growth in market share of structural panel products over softwood plywood.

Figure 2 10 compares the value of product shipments of softwood plywood and veneer to reconstituted wood products from 1989 1995.

Figure 2 10: Value of Product Shipments, 1989 1995 1989 1990 1991 1992 1993 1994 1995  1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 1997 Dollars ($ 1,000,000)

Year Softwood plywood & veneer Reconstituted wood products Source: U. S. Department of Commerce, International Trade Administration ( 1998).

Trends in product shipments by volume ( Exhibit 2 25) have been mixed for this group of industries. A statistical report produced by the U. S. Forest Service's Forest Products Laboratory ( Spelter et al., 1997) focused on production of softwood plywood, Other Structural Panels ( OSB and waferboard), particleboard and MDF as a group, and hardboard. Production by the Other Structural Panels category experienced high growth during the period, with 1997 production almost 130 percent greater than it was in 1988. Most of this increase can be attributed to the rapid increase in OSB's share of the structural panel market in recent years. Particleboard and MDF production grew a moderate 24 percent, while production of softwood plywood and hardboard declined by 19 percent and 12 percent respectively. Historically, softwood plywood production made a continuous steady climb through the late 1980' s. At that point, the product began losing market share to OSB and production leveled off. This trend was accompanied by a certain amount of mill attrition ( Spelter et al., 1997). 2 47 <IP_ADDRESS> Domestic Consumption Domestic, or apparent, consumption is the sum of domestic production and imports, less exports. The dollar value of apparent consumption ( Exhibit 2 25) for softwood plywood and veneer was slightly lower in 1995 than it was in 1989. During the period, demand for softwood plywood and veneer dropped slightly in the early 1990s and reached its lowest level in 1993 and then began to climb. The value of domestic consumption of reconstituted wood products followed a similar pattern, increasing by 25 percent overall between 1989 and 1995. Drivers of consumption trends described here are the same as those presented in the previous section on production ( increased demand for renovation, remodeling and new housing starts).

Figure 2 11 compares the apparent consumption of softwood plywood and veneer to reconstituted wood products from 1989 1995.

Figure 2 11: Apparent Consumption, 1989 1995 1989 1990 1991 1992 1993 1994 1995 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 1997 Dollars ($ 1,000,000)

Year Softwood plywood & veneer Reconstituted wood products Source: U. S. Department of Commerce, International Trade Administration ( 1998)

Further examination of consumption volumes ( Exhibit 2 25) shows the following trends for softwood plywood, other structural panels, particleboard and MDF as a group, and hardboard.

° By volume, apparent consumption of softwood plywood fell by over 20 percent in the last 10 years. ° At the same time, consumption of other structural panels increased by almost 200 percent. ° Particleboard and MDF were consumed at a slightly higher level in 1997 than they were in 1988, following a decline that ended in 1992. ° Hardboard consumption has fluctuated during the same 10 years, with a 16 percent decline from 1988. 2 48 Demand for softwood plywood and OSB combined experienced an annual average growth rate of 2 3 percent from 1970 to 1996 ( Spelter et al., 1997). Most of this demand was met by increased production of OSB by both domestic and imported producers.

<IP_ADDRESS> International Trade Imports Import value trends during the 1989 1995 period ( Exhibit 2 24) show the constant dollar value of softwood plywood and veneer imports grew by 37 percent, particularly during the later years when the price for the commodity was rising rapidly and supplies of timber were declining. The ratio of imports to consumption of softwood plywood and veneer, while only 0.02, grew by 45 percent. The trade surplus for softwood plywood and veneer fell by 37 percent. Imports of reconstituted wood products more than doubled from 1989 to 1995 and the value of imports' share of consumption grew by almost 90 percent and the trade deficit nearly quadrupled.

Looking at import volumes ( Exhibit 2 25) for softwood plywood, other structural panels, particleboard and MDF as a group, and hardboard, imports have made the biggest gains in the other structural panel category, taking advantage of the overall growth in demand for those products. Imports now supply over a third of the other structural panel market. Imports of hardboard have also grown, more than doubling in volume since 1988. There was a slight increase in imports of softwood plywood over the 10 years, and a decline of 40 percent in imports of particleboard and MDF. Exhibit 2 26 shows U. S. imports of by major region and trading partner.

Exhibit 2 26: 1997 U. S. Wood Products Imports by Region and Major Trading Partner Trade Areas Value* ($ millions) Share NAFTA 8,128 85.1 Latin America 541 5.7 Western Europe 234 2.5 Japan/ Chinese Economic Areas 35 0.4 Other Asia 458 4.8 Rest of World 150 1.6 World Total 9,554 100.0 Top 5 Countries Canada 7,991 83.6 Indonesia 340 3.6 Brazil 303 3.2 Mexico 137 1.4 Chile 108 1.1 * Includes Sawmills ( SIC 2421), Softwood Plywood and Veneer ( SIC 2436), Reconstituted Wood Products ( 2435), and Hardwood Plywood and Veneer ( SIC 2435). Source: U. S. Department of Commerce, International Trade Administration ( 1999). 2 49 Exhibit 2 26 shows that a vast majority, 85.1 percent, of U. S. imported wood products originated in the North American Free Trade Agreement ( NAFTA) trade zone, of which only 1.5 percent originates in Mexico. The U. S. is also importing a significantly greater value of wood products than it is exporting. In 1997 the U. S. exported about $ 3,683 million of wood products while it imported $ 9,554 million.

Imports of softwood plywood and veneer grew by 24 percent from 1996 to 1997. Seventy seven percent of U. S. softwood plywood and veneer imports are from Canada. This growth is consistent with the strong demand for softwood plywood and veneer during this period. The overall penetration of imports into the U. S. market is quite small ( 2 percent), which is attributed to the efficiency and low costs of U. S. softwood plywood and veneer producers ( U. S. Department of Commerce, International Trade Administration, 1999).

Imports of reconstituted wood products grew by seven percent from 1996 to 1997. Seventy eight percent of U. S. reconstituted wood products imports are from Canada. The overall penetration of imports into the U. S. market is significant ( 18 percent), which is attributed to recent capacity additions by Canadian reconstituted wood products producers ( U. S. Department of Commerce, International Trade Administration, 1999).

Exports Export trends during the 1989 1995 period ( Exhibit 2 24) show the value of softwood plywood and veneer exports fell by 17 percent, particularly during the later years when the price for the commodity was rising rapidly and supplies of timber were declining. Economic crises in several Asian economies and the falling value of the Canadian dollar relative to the U. S. dollar played a role in this trend. The ratio of exports to value of shipments of softwood plywood and veneer fell by 11 percent. Exports of reconstituted wood products grew by 32 percent from 1989 to 1995 and the proportion of exports to shipments grew by almost 15 percent.

Export volumes ( Exhibit 2 25) of hardboard quadrupled between 1988 to 1997, and constitute a significant portion of the total shipments from this industry. Exports of softwood plywood grew by 50 percent, and have become an increasingly important part of the sector's overall production. While total exports of other structural panels grew significantly, this market still remains a small portion of production. Exports of particleboard and MDF grew significantly through 1992 but have dropped steadily in recent years and are now just 15 percent higher than they were seven years ago. Exhibit 2 27 shows U. S. exports by major region and trading partner. 2 50 Exhibit 2 27: 1997 U. S. Wood Product Exports by Region and Major Trading Partner Trade Areas Value* ($ millions) Share NAFTA 1,001 27.5 Latin America 203 5.6 Western Europe 1,230 33.8 Japan/ Chinese Economic Areas 837 23.0 Other Asia 205 5.6 Rest of World 161 4.4 World Total 3,638 100.0 Top 5 Countries Canada 800 22.0 Japan 636 17.5 Germany 292 8.0 United Kingdom 244 6.7 Mexico 202 5.5 * Includes Sawmills ( SIC 2421), Softwood Plywood and Veneer ( SIC 2436), Reconstituted Wood Products ( SIC 2493), and Hardwood Plywood and Veneer ( SIC 2435). Source: U. S. Department of Commerce, International Trade Administration ( 1999).

By region, the U. S. exports its largest share ( 33.8 percent) of wood products to Western Europe. However, no single country in Europe imports the most significant share of U. S. wood products. Canada imports the largest share, 22 percent, due to two reasons. First, Canada's economy has strengthened. Second, on January 1, 1998 Canada completed its final stage of tariff removal as directed under the U. S. Canada Free Trade Agreement. For the two aforementioned reasons, U. S. wood product exports to Canada increased 21 percent to $ 800 million in 1997 ( U. S. Department of Commerce, International Trade Administration, 1999).

Continued growth in U. S. exports of wood products is dependent on an Asian economic revival, particularly in Japan's economy. In 1996, prior to the economic crisis, Japan was the largest importer of U. S. wood products. By 1997, Japan's share of U. S. wood product exports fell to 17 percent, a 24 percent decrease from the previous year. To further exacerbate the problem, U. S. exports to Japan are expected to decline an additional 30 percent in 1998 and 1999. Japan has undertaken several steps to revitalize its economy, such as the implementation of the Enhanced Initiative on Deregulation and Competition Policy. However, an increase in the Japanese consumption tax from 3 percent to 5 percent in 1996 is believed to have canceled out the potential gains of the Policy, resulting in the expected continuing decline in Japanese demand for U. S. plywood and wood products ( U. S. Department of Commerce, International Trade Administration, 1999).

In 1997, exports of softwood plywood and veneer accounted for about 10.6 percent of wood product exports from the U. S. This was a 24 percent increase from the previous year, raising the total value of softwood plywood and veneer exports to $ 392 million, the highest level in eight years. Exports to the United Kingdom, Canada, and Germany, the top three importers of U. S. softwood plywood and veneer, experienced strong gains in 1997. A healthy European market has increased the demand for softwood 2 51 plywood and veneer. In particular, the construction sector throughout Europe has seen an increase in activity. However, the recent strong performance of softwood plywood and veneer is not expected to continue due to an increasing international acceptance of OSB, and increasing competition from Canada, Brazil, and Indonesia ( U. S. Department of Commerce, International Trade Administration, 1999).

Reconstituted wood products accounted for about 9.75 percent of U. S. wood product exports in 1997. Both the value and volume of reconstituted wood product exports increased by 15 percent from the previous year. Canada, the United Kingdom, Mexico, and Japan are the largest export markets for U. S. reconstituted wood. The continuing increase in exports is mainly attributable to a growing international acceptance of OSB. Exports are expected to continue to grow in the upcoming years, but at a slower rate than they did in 1997 ( U. S. Department of Commerce, International Trade Administration, 1999).

2.5.3 Prices An index of the change in producer prices for lumber and wood products is shown below in Exhibit 2 28 This index was compiled by the Bureau of Labor Statistics.

Exhibit 2 28: Lumber and Wood Products Producer Price Index, 1988 1997 ( 1982 = 100)

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 88 97 Lumber and wood products ( SIC 24) 122.1 125.7 124.6 124.9 144.7 183.4 188.4 173.4 179.8 194.5 Change from Previous year 2.9%  0.9% 0.2% 15.9% 26.7% 2.7%  8.0% 3.7% 8.2% 59.3%

Source: U. S. Bureau of Labor Statistics ( 1999).

The biggest annual price increases for lumber and wood products occurred in 1992 and 1993 and the overall price increase between 1988 and 1997 was nearly 60 percent. Another source, the Forest Products Laboratory ( FPL), that is part of the U. S. Department of Agriculture, provides a statistical report with disaggregated price indices presented in Exhibit 2 29. Note that the base year of the BLS index is 1982 while the base year for the FPL data is 1992. 2 52 Exhibit 2 29: Producer Price Indices of Plywood and Composite Wood Products ( 1992 = 100)

Year 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 88 97 Softwood Plywood 74.2 84.5 81.4 82.2 100.0 115.4 120.3 128.0 118.3 119.3 Change from Previous year 0 0 0 0 0 0 0 0 0 1 Particleboard 103.4 106.0 96.7 96.5 100.0 114.8 128.5 128.4 123.3 117.6 Change from Previous year 0 0 0 0 0 0 0 0 0 0 Hardboard 100.8 100.9 98.6 96.7 100.0 106.5 109.1 113.2 115.8 119.0 Change from Previous year 0 0 0 0 0 0 0 0 0 0 Source: Howard ( 1999).

Softwood plywood experienced the biggest price increase, 61 percent over the 1988 to 1997 period, with volatile price changes within the period with the biggest annual increases came in 1992 and 1993. Overall prices for particleboard rose 14 percent, but the large price increases in 1993 and 1994 have been offset by price declines in the last three years presented. Hardboard prices grew by 18 percent, with mostly steady annual price increases from 1994 on.

The market conditions and the factors that affect softwood plywood prices, supply and demand are somewhat analogous to those that affect prices for softwood lumber. For example, the cost of timber and transportation, foreign supply and demand, inventory levels as well as construction driven demand are factors that affect market prices for softwood lumber, as well as softwood plywood and other structural panels.

A recent study produced by WEFA ( Wharton Economic Forecast Associates) on trends in the softwood lumber market provides some clues about the future of the three industries examined here. Softwood lumber prices have climbed steadily since November of 1998. This climb included some higher than expected price increases in the early summer of this year. The WEFA report cites strong domestic demand related to housing construction as one underlying cause of the price increases in softwood lumber. Current price conditions are partially explained by the expectation that housing demand has peaked while remaining strong, exports to Asia will increase as those economies recover, and imports from Canada will decrease.

For the most part, the WEFA report indicates that the construction industry has responded to climbing prices by switching to " just in time" buying of products. Buyers are hoping that prices will begin falling and are postponing inventory build up during this period of climbing prices. Another short run factor affecting prices during the second quarter of this year was a constraint on truck and rail transportation availability. WEFA concludes that the market has reached equilibrium for the moment, although this could change if inventories increase at the same time that construction driven demand levels off or falls ( WEFA, 1999).

Exhibit 2 30 presents the industry reported free on board ( f. o. b.) prices of southern plywood, OSB and particleboard from 1989 to 1996. These are the product prices prior to shipping costs and distributor mark ups. On an adjusted basis, these prices reflect the trends demonstrated in the previous exhibit, with large price increases during early 1992, falling back to or below 1989 levels by 1996. 2 53 Exhibit 2 30: F. O. B. Prices of Southern plywood, OSB, and Particleboard ($ per cubic meter)

Year Southern plywood OSB Particleboard As Reported Adjusted $ 1997 As Reported Adjusted $ 1997 As Reported Adjusted $ 1997 1989 184 229 166 206 129 160 1990 168 200 124 148 122 145 1991 175 201 144 165 120 138 1992 226 252 208 232 129 144 1993 257 279 227 247 152 165 1994 274 291 252 268 171 182 1995 267 277 242 251 173 180 1996 231 235 184 187 165 168 89 96 2.8%  10.1% 4.5%

Prices adjusted by the GDP deflator. Source: Spelter, et al. ( 1997).

Softwood Plywood Long term price trend data presented in the report " Review of the Wood Panel Sector in the U. S." showed a fairly stable price pattern for softwood plywood between 1977 and 1991. At that point, prices increased steadily from 1992 to their peak in 1994. Prices declined over 15 percent from 1994 to 1996. The report authors observe that with softwood plywood prices at their current high levels, producers will have a difficult time competing against the newer, more cost effective OSB producers. However, the authors note that softwood plywood producers may be able to hang on to market share and justify the higher prices by differentiating their product as a premium construction material ( Spelter et al., 1997).

Oriented Strand Board The " Review of the Wood Panel Sector in the U. S." report presents OSB price data over time that shows a 27 percent decline in price during 1995 and 1996, after a continuous trend of price increases since 1977. The report's authors attribute this weakening to a rapid increase in capacity that contributed to an increase in production, putting downward pressure on prices. Due to the ability of users to substitute plywood for OSB, these low OSB prices have only added to the growing market share enjoyed by OSB. Falling prices have cut into the net revenues of OSB producers, after a period from 1992 to 1995 where the industry enjoyed excellent cost/ price margins, drawing more investment to OSB production capacity ( Spelter et al., 1997).

Particleboard Particleboard price data from 1984 to 1992 presented in the report, " Review of the Wood Panel Sector in the U. S." show some variation within a relatively small range, with a substantial price increase in the years 1993 to 1995, declining slightly in 1996. The price trend for particleboard from 1977 to 1996 is very similar to that of plywood. One reason for this similarity is the close relationship of particleboard input costs to the plywood manufacturing industry. About 25 percent of industry production cost is for wood inputs, which are primarily made up of wastes from lumber and plywood production ( Spelter et al., 1997). 2 54 Medium Density Fiberboard ( MDF)

Producer reported MDF prices were $ 235 per ton in September of 1996 and declined by 15 percent to $ 205 per ton as of April, 1997. Despite this drop, there continues to be a price gap between MDF and less costly particleboard, although increasingly narrow. The price drop was attributed to MDF production capacity expansions that resulted in an increase in supply, putting pressure on the profits of MDF producers ( Spelter et al., 1997).

Structural Wood Members Producer reported prices for I joists reach a high in 1994 and have been declining since that time. Recent price conditions have made I joists more competitive with traditional 2" by 10" lumber on an installed cost basis, typically for floor framing applications. In particular, I joists are price competitive with lumber when lumber prices are high. However, precise estimates of market prices are difficult to obtain. The authors found that prices varied depending on whether the product was being sold under a brand name, on sale, or under a volume discount. Laminated veneer lumber, presented in the Review at $ 550/ m3 f. o. b., is generally more expensive than 2" by 10" lumber, and is used mostly for structural applications or as an input to I joists ( Spelter et al., 1997).

2.5.4 Market Forecasts Production and Consumption A study published by WEFA in the summer of 1999 examined housing starts and concluded that housing starts will decline throughout 1999, resulting in a decline in lumber demand ( WEFA, 1999). However, housing starts continue to remain strong well into 1999, keeping demand for lumber and other wood products for construction strong as well. The WEFA study also noted that another factor affecting demand for softwood lumber is interest rates and concluded that rising interest rates could have a dampening effect on demand. Higher interest rates will not only affect the affordability of new homes, but also will curtail purchases of existing homes and mortgage refinancing activity, both major sources of demand for materials used in home remodeling. Based on the relationship between housing starts, purchases of existing homes, and remodeling and renovation ( the construction based demand for plywood and other products examined in this profile), this decline in demand can be expected to affect the plywood and composite wood industries, as 60 to 70 percent of their output goes to the construction sector. WEFA expects the industry to experience most of this decline in 2000 ( WEFA, 1999).

The most recent wood products market outlook published by APA  The Engineered Wood Association ( APA) shows U. S. housing starts exceeding expectations in 1999 ( APA, 1999d). Similar to the WEFA study, the forecast expects higher interest rates in the future to play a role in reducing future housing demand in the period from 2000 to 2002. The report also forecasts the same trends for residential improvements and repairs, but notes the long term outlook for remodeling to be good as home ownership increases. Figure 2 12 below provides information from the APA on U. S. housing starts. The APA forecast also reports the industrial outlook is good for other wood consuming sectors. The APA expects demand for furniture and fixtures to remain healthy, but not at peak levels as existing home sales will be declining from the current peak rates. Nonresidential construction is forecasted to peak in 1999 and 2000 with declines in 2001 and 2002. Increased school construction will be a driving factor in the upward trend for nonresidential construction ( APA, 1999d). 8While the report does not specify whether the forecast is exclusively for softwood plywood or includes hardwood plywood, it is assumed to cover softwood plywood only, as hardwood plywood is typically not used for structural panels.

2 55 0 500 1000 1500 2000 1997 1998 1999 2000 2001 2002 US Single Family US Multi Family Figure 2 12: APA Projected Housing Starts ( 000s)

Source: APA ( 1999d).

In addition to providing overall forecasts for the market demand, the APA outlook includes detailed forecasts of the demand for and production of structural panels, specifically softwood plywood and OSB. 8 These forecasts, summarized in Exhibit 2 31, show the demand from each of the major markets for structural panels, in order of their share of market demand: new residential construction, remodeling, industrial uses including furniture and materials, nonresidential construction, and foreign demand. The industrial use category will have the largest domestic demand increase over the forecast period, 8 percent. Foreign demand shows significant increase of 78 percent. However, reductions in U. S. production as imports gain a large market share point to increased pressure from imports.

Exhibit 2 31: APA Forecasted Structural Panel Production and Demand ( million sq. ft. 3/ 8" basis)

1999 2000 2001 2002 % Change New Residential 18,415 17,715 17,585 18,435 0.00 Remodeling 7,440 7,440 7,475 7,550 1%

Industrial/ Other 6,575 6,720 6,875 7,085 8%

Nonresidential 3,800 3,800 3,735 3,670  3%

Domestic Demand 36,230 35,675 35,670 36,740 1%

Foreign Demand 990 1,275 1,705 1,760 78%

Total Demand 37,220.00 36,950.00 37,375.00 38,500.00 3%

Imports ( Canada only) ( 7,345) ( 7,400) ( 8,300) ( 9,330) 27%

Total Domestic Production 29,875.00 29,550.00 29,075.00 29,170.00  2%

Plywood 18,135 17,450 16,575 16,295  10%

OSB 11,740 12,100 12,500 12,875 10%

Source: APA ( 1999d). 2 56 The APA forecasts for panel capacity and production provide additional insight into substitution between softwood plywood and OSB. Exhibit 2 32 below shows these projected trends. Softwood plywood shows significant decreases in capacity ( down 24 percent) and production ( down 16 percent) from 1992 to 2002. Meanwhile, OSB has shown significant increases in capacity and production and is projected to continue to capture the market for structural panels. The relatively constant capacity utilization in the plywood sector with significant decreases in production supports the forecast of expected plant closures in the future, while the opposite is true for OSB with expected increases in the number of facilities.

Exhibit 2 32: APA Actual and Forecasted Structural Panel Capacity and Production ( million Sq Ft, 3/ 8" Basis)

Plywood OSB Capacity Production Utilization Capacity Production Utilization 1992 23,700 19,332 82% 7,040 6,653 95%

1993 23,300 19,315 83% 7,560 7,002 93%

1994 21,875 19,638 90% 7,920 7,486 95%

1995 22,070 19,367 88% 8,830 7,903 90%

1996 21,150 19,181 91% 11,285 9,314 83%

1997 19,275 17,965 93% 11,575 10,534 91%

1998 19,075 17,776 93% 12,050 11,227 93%

1999 19,275 18,135 94% 12,250 11,740 96%

2000 18,835 17,450 93% 13,120 12,100 92%

2001 18,260 16,575 91% 13,725 12,500 91%

2002 18,010 16,295 90% 14,380 12,875 90%

% Change  0.24  0.16 1.04 0.94 Shaded areas represent estimated values. Source: APA ( 1999d).

The spring edition of the APA's on line Engineered Wood Journal reports that the expectation of overall production of structural panels in 1999 would be roughly the same as it was in 1998 ( APA, 1999b). However, the long term prospects for the softwood plywood and veneer sector indicates that the industry is in for a difficult time. APA members are bracing for a battle to preserve market share, a particularly challenging goal in the face of expected declines in housing starts. Further, the APA's spring journal focuses on the multiple pressures on its market share. A primary source of pressure is from the expanding sentiment that wood products are not environmentally sensitive. They are concerned that environmental advocacy groups are becoming increasingly successful at convincing major corporations that the use of wood products should be curtailed in order to preserve trees and forested land ( APA, 1999b).

Shipments of reconstituted wood products are expected to increase 4 percent in 1998 and 1999 according to the U. S. Industry and Trade Outlook 1999. Strong demand in the furniture market has proved beneficial to particleboard, MDF, and hardboard producers. For reconstituted wood products, the 2 57 forecast predicts an increase in growth of 3.3 percent per year from 1998 to 2003 as furniture markets and residential construction remain healthy ( U. S. Department of Commerce, International Trade Administration, 1999).

In their article, " A Look at the Road Ahead for Structural Panels, " authors Spelter and McKeever compare the situation of the OSB industry in 1996 to that of the MDF industry in the 1970' s. The MDF industry experienced a major upheaval in the 1970' s when an economic slump hit the U. S. right when the industry had added a significant amount of capacity. In this article, Spelter looks at whether the OSB industry is in danger of experiencing the same process. While the OSB industry's capacity additions reflect those of the MDF industry, the economic conditions in the late 1990' s lead the author to conclude that the OSB industry conditions probably will not lead to closures like those experienced by the MDF sector in the seventies. However, Spelter does not expect that the OSB producers will continue to enjoy the gains in market share they have experienced over the last 10 to 15 years. He cites the near 100 percent market share held by OSB in the northeast and the Midwest as the peak of growth opportunity in those markets. Further, the market share split in the south and west may have stabilized due to the entrenchment of softwood plywood in those areas ( Spelter and McKeever, 1996).

At the same time, manufacturers of substitutes for wood based construction such as steel, cement and plastic, are aggressively pushing their products hard on the construction industry using the argument that their products are environmentally friendly, and have advantages in the areas of price stability, quality, and performance. In roads by these competing non wood substitutes are expected to continue as overall costs for wood based products continue to climb and the underlying price advantage that wood products have traditionally held is undermined. Other concerns expressed the Engineered Wood Journal include having adequate supply of timber in the long run to meet producers' needs ( APA, 1999b).

International Trade The hope for the plywood and composite wood products export markets is that declining domestic prices and economic recovery, particularly of the Asian economies, will boost the demand for U. S. produced wood based products. This is of particular importance to the softwood plywood industry, as they are currently exporting approximately 10 percent of their production. Another international driver of demand for domestically produced wood based building products is the effect of regulatory changes in countries such as Japan and Korea to promote wood based housing construction. WEFA attributes most of the increases in exports from North America during 1999 to the U. S. rather than Canada. Continued growth in this market is limited by expected falling housing starts in Japan ( WEFA, 1999). Any future changes in the U. S. Canadian exchange rate will likely have a positive effect on exports in the short term ( in the next 2 3 years), as will any modifications to tariff structures in place for U. S. exports.

The APA outlook includes an international forecast that projects a positive outlook for wood product exports from 2000 to 2002. This projection is based on expectation that the markets in Europe, Mexico, South America, and Japan will pick up in 2000, causing a weaker dollar and better overall climate for exports as ( APA, 1999d). The strength of the dollar in 1999 placed U. S. wood products at a disadvantage in world markets, but APA projects significant increases in exports from 2000 to 2002 ( see Exhibit 2 31 for structural panel export forecast). The 1999 fall edition of the APA's Engineered Wood Journal pointed to continuing pressures on U. S. exports coming from recent increases in European production capacity as posing a sizeable challenge to structural wood panel products in the U. S. ( APA, 1999c).

The U. S. Industry & Trade Outlook notes growth in European markets and removal of tariff barriers throughout the world as contributing to modest growth in the wood products industry. At the same time, the report cautions that economic conditions in Asia, especially Japan, may be of some concern. While 2 58 OSB is making significant strides in residential construction in Japan and elsewhere, an Asian recession could threaten this progress. Softwood plywood is still considered the material of choice in many markets unfamiliar with OSB. Nontraditional markets such as South America, eastern Europe, and China could provide significant opportunity for growth in the wood products industry, especially softwood plywood ( U. S. Department of Commerce, International Trade Administration, 1999).

Prices The recently published WEFA report on softwood lumber forecasts a 5 percent increase in the price index for those products during the third quarter of 1999 from the previous quarter. Because of the expected leveling off or decline in construction, prices are expected to decline during the year's fourth quarter. Based on WEFA's forecast, overall annual prices in 1999 are expected to be about 8 percent higher than they were in 1998. Year 2000 prices are forecast to rise only marginally over 1999.

The " Review of the Wood Panel Sector in the U. S. and Canada" presents a forecast for structural wood panels ( softwood plywood and OSB combined). In the 1997 report, Spelter and his co authors assume that the long run average annual growth in demand for softwood plywood and OSB combined will continue at the historical 3 percent rate. Using that assumption, these industries will have excess capacity until 2001, when capacity utilization reaches 95 percent ( Spelter et al., 1997).

This forecast concluded that current and planned production capacity will exceed demand until 2001. This excess capacity will continue to put downward pressure on prices, a trend that began in 1996. The report authors expect that this price pressure will result in a market correction, requiring both the plywood and the OSB sectors to adjust capacity through the closure of some high cost, low productivity plants. 2 59 2.6 References Abt Associates Inc. 1997. Market Profile of the Adhesive Industry. Prepared for Wendy Hoffman, Regulatory Impacts Branch, Office of Pollution Prevention and Toxics, U. S. Environmental Protection Agency, 401 M Street, SW, Washington, DC 20460.

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International Paper. 1998. " International Paper, Union Camp Corporation Announce Merger." Release, November 24. http:// www. internationalpaper. com/ ca/ page/ press_ releases. cgi? funcs= links& ID= 493957& back= archi ve Louisiana Pacific Corporation. 1999. " Headquarters: Product Lines Overview" http:// www. lpcorp. com/ hq/ products. html " Louisiana Pacific Corp. Successfully Completes Tender Offer for ABT Building Products Corp." Release No.: 112 2 9. February 24. http:// www. lpcorp. com/ pressrel/ 19990224_ gen_ pr. html " Louisiana Pacific to Acquire Evans Forest Products, Ltd." Release No.: 138 8 9. August 24. http:// www. lpcorp. com/ pressrel/ 19990824_ gen_ pr. html " Louisiana Pacific Corp. Successfully Completes Tender Offer for Le Groupe Forex." Release No.: 140 9 9. September 10. http:// www. lpcorp. com/ pressrel/ 19990910_ gen_ pr. html McKeever, Davis B. 1997. Engineered Wood Products: A Response to the Changing Timber Resource. Pacific Rim Wood Market Report, November.

Midwest Research Institute. 1999. Memorandum from Becky Nicholson and Melissa Icenhour to Mary Tom Kissell and Larry Sorrels, U. S. EPA: " Preliminary facility specific cost estimates for implementation of the plywood and composite wood products NESHAP." October 20. 2 61 Moody, Russell C. and J. Y. Liu. 1999. " Chapter 11: Glue Structural Members," Wood handbook Wood as an engineering material. Gen. Tech. Rep. FPL GTR 113. Madison, WI: U. S. Department of Agriculture, Forest Service, Forest Products Laboratory.

PR NewsWire. 1999a. " Boise Cascade to Acquire Furman." June 15. " Boise Cascade Reports Sharply Increased Second Quarter Earnings." July 15. http:// www. prnewswire. com/ gh/ cnoc/ comp/ 109525. html PR NewsWire. 1999b. " Georgia Pacific Group Reports Fourth Quarter and 1998 Results." January 26. " Georgia Pacific to Construct Oriented Strand Board Plant in Arkansas." February 23. " Georgia Pacific Group Reports Improved First Quarter Earnings and All Time Quarterly Record for Building Products." April 22. " Georgia Pacific Completes Merger with Unisource Worldwide, Appoints Key Leadership; Sets Target for Resumption of Share Repurchases." July 6. http:// www. prnewswire. com PR NewsWire. 1999c. " Willamette Industries Reports Fourth Quarter Earnings." January 20. " Willamette Industries Completes Darbo Acquisition." June 22. " Willamette Industries to Build Particleboard Plant; Name New CFO." August 5 http:// www. prnewswire. com/ comp/ 971763. html PR NewsWire. 1998. " Willamette Industries Finalizes Purchase of French Plant." March 4. http:// www. prnewswire. com/ gh/ cnoc/ comp/ 109525. html PR NewsWire. 1997. " Willamette Industries to Acquire Mexico City Box Plant." December 15. http:// www. prnewswire. com/ comp/ 971763. html Spelter, Henry. 1998. Substitution, Timber Processing, March.

Spelter, Henry, D. McKeever, and I. Durbak. 1997. Review of Wood Based Panel Sector in United States and Canada, General Technical Report FPL GTR 99. Madison, WI: U. S. Department of Agriculture, Forest Service, Forest Products Laboratory. 45p.

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U. S. Bureau of Labor Statistics. 1999. Web site. http:// stats. bls. gov/ ppihome. htm 2 62 U. S. Department of Commerce. 1999a. 1997 Census of Manufactures, Industry Series: Hardwood Veneer and Plywood, EC97M 3212A Softwood Veneer and Plywood, EC97M 3212B Engineered Wood Member ( Except Truss) Manufacturing, 1997 Economic Census, Manufacturing Industry Series, EC97M 3212C Truss Manufacturing, EC97M 3212D Reconstituted Wood Products Manufacturing, EC97M 3212E U. S. Department of Commerce. 1999b. 1997 Census of Manufactures, Industry Series: Adhesive Manufacturing, EC97M 3255B Wood Office Furniture Manufacturing, EC97M 3372A U. S. Department of Commerce. 1997. Current Industrial Reports, Survey of Plant Capacity, 1997.

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U. S. Department of Commerce. No date. Census of Manufactures: Industry 2435, Hardwood Veneer and Plywood Industry 2436, Softwood Veneer and Plywood Industry 2439, Structural Wood Members, N. E. C. Industry 2493, Reconstituted Wood Products U. S. Department of Commerce, International Trade Administration. 1999. U. S. Industry & Trade Outlook.

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WEFA. 1999. Informational Web site on softwood lumber. http:// www. wefa. com/ news/ stories/ 99/ lumber. cfm Weyerhaeuser. 1999a. " Weyerhaeuser Completes Acquisition of MacMillan Bloedel; Haskayne to Join Weyerhaeuser Board of Directors. Release. November 1. http:// www. weyerhaeuser. com/ news/ mb/ default. asp Weyerhaeuser. 1999b. " Facts About Weyerhaeuser." Tacoma, WA: Weyerhaeuser Company. http:// www. weyerhaeuser. com/ facts/ weyer. htm Willamette Industries, Inc. 1999. " Willamette Industries to Build $ 85 Million Facility in South Carolina." Release. http:// www. wii. com/ newsexp. htm Youngquist, John A. 1999. " Chapter 10: Wood Based Composite and Panel Products." Wood handbook Wood as an engineering material. Gen. Tech. Rep. FPL GTR 113. Madison, WI: U. S. Department of Agriculture, Forest Service, Forest Products Laboratory. 3 1 3 REGULATORY ALTERNATIVES, EMISSIONS, EMISSION REDUCTIONS, AND CONTROL AND ADMINISTRATIVE COSTS 3.1 Regulatory Alternatives 3.1.1 Background Section 112 of the Clean Air Act ( CAA) requires that EPA establish NESHAP for the control of hazardous air pollutants ( HAP) from both new and existing major sources. A major source of HAP is defined as any stationary source or group of stationary sources within a contiguous area and under common control that emits or has the potential to emit, considering controls, in the aggregate, 10 tons per year or more of any single HAP or 25 tons per year of combined HAP. The CAA requires the NESHAP to reflect the maximum degree of reduction in emissions of HAP that is achievable. This level of control is commonly referred to as the maximum achievable control technology, or MACT. The MACT floor is the minimum control level allowed for NESHAP and is defined in Section 112 ( d) ( 3) of the CAA.

The requirements for new sources are potentially more stringent than those for existing sources. For new sources, Section 112( d)( 3) of the CAA requires EPA to set standards for each category or subcategory that are at least as stringent as " the emission control that is achieved in practice by the best controlled similar source." For existing sources, Section 112( d)( 3) requires the HAP standards to be no less stringent than " the average emission limitation achieved by the best performing 12 percent of the existing sources" for source categories or subcategories with at least 30 sources and " the average emission limitation achieved by the best performing five sources" for source categories or subcategories with fewer than 30 sources. 1 In a previous rulemaking, the EPA promulgated a final rule ( 59 FR 29196) that presented the Agency's interpretation of the statutory language regarding the basis of the MACT floor. 2 The EPA's interpretation of the " average emission limitation" is that it means a measure of central tendency, such as the median. If the median is used when there are at least 30 sources, then the emission level achievable by the source and its control system that is at the bottom of the top 6 percent of the best performing sources ( i. e., the 94th percentile) then becomes the MACT floor. For example, assume that there are 100 sources, and HAP emissions from approximately 15 of these sources ( 15 percent nationwide) are controlled using thermal oxidizers and the HAP emissions from the remainder of the sources are uncontrolled. In this example, the 94th percentile is represented by the control system applied to the source ranked at number 6 ( 6/ 100 = 6 percent). However, in this example, the same type of add on control technology used by the source at the 94th percentile ( thermal oxidizer) is used by sources ranked below the 94th percentile. Assuming that there are no significant design or operational differences between the different thermal oxidizers that would affect their performance, all 15 sources equipped with thermal oxidizers would be considered representative of the MACT floor. Thus, when determining the performance level of the MACT floor technology, EPA would evaluate the available data for any and all of the sources equipped with thermal oxidizers. 3 2 When there are less than 30 sources, the emission level achievable by the source and its control system that is the median of the 5 sources represents the MACT floor. For example, if there are 10 sources nationwide and the emissions from 2 of these sources are controlled with thermal oxidizers and the emissions from the remaining 8 are uncontrolled, then the MACT floor is " no emission reduction" because the top 5 sources include the 2 that are controlled, plus 3 that are uncontrolled. In this example, the median source ( the source ranked " number 3") is uncontrolled.

3.1.2 Control Technologies and Practices in MACT Floor Determination Control systems in use in the plywood and composite wood products ( PCWP) industry include add on control systems and incineration of process exhaust in an onsite combustion unit. The potential for pollution prevention also exists in the PCWP industry; however, there are no known and demonstrated pollution prevention techniques that can be universally applied across the industry. The emissions from PCWP process units are associated with the wood and/ or resin processed. Thus, switching to alternative fuels ( e. g., switching from wood fuel to natural gas) would not significantly reduce emissions and would not be economical for many facilities that use their wood waste as fuel. Facilities cannot readily switch wood types ( e. g., from softwoods to hardwoods) for several reasons: ( 1) equipment at each facility is often designed for a particular wood type; ( 2) product characteristics would change; and ( 3) PCWP facilities are located near their wood source. Over the past decades, the PCWP industry and its resin suppliers have responded to pressure to reduce the HAP content of resins. It is expected that this trend will continue into the future ( e. g., resins with lower HAP content are likely to be developed). Resin reformulation is a slow, trial and error process that must be completed by individual facilities and their resin suppliers so that product quality is maintained. At this time, no information is available to determine the degree of emission reduction that can be achieved through resin reformulation. The achievable emission reduction would be very facility specific, and may not be comparable to the emission reduction achievable with add on control systems because emissions from the wood would remain. At the present time, few ( if any) facilities use pollution prevention measures to achieve an emission reduction comparable to that of add on incinerationbased control systems. Therefore, this analysis focuses on add on control devices.

Available data on control device performance were reviewed to determine which add on control systems are best at reducing HAP emissions. Because total hydrocarbons ( THC), formaldehyde, and methanol are the most prevalent pollutants emitted from the PCWP industry and represent the majority of the available data on control device performance, the control systems were analyzed based on their ability to reduce emissions of these three pollutants. Although THC is not a HAP, control systems that are effective in reducing THC emissions are generally effective in reducing HAP emissions.

The available control device performance data for the PCWP industry shows that only two types of add on air pollution control devices consistently and continuously reduce HAP emissions: incinerationbased controls ( including regenerative thermal oxidizers [ RTOs], regenerative catalytic oxidizers [ RCOs], and incineration of pollutants in onsite process combustion equipment [ process incineration]) and biofilters. For control systems that use onsite process combustion equipment ( e. g., power boilers or fuel cells) to reduce emissions, only those systems that route 100 percent of the process unit's exhaust to the combustion equipment are included in the " incineration based controls" category. Several of the process incineration systems are fully integrated systems that combine heat/ energy recovery with pollution control. Systems that only incinerate a portion of the process unit exhaust stream ( e. g., less than 75 percent) are referred to as " semi incineration" and are not included in the incineration based controls category. 3 3 Those PCWP facilities that practice semi incineration take a portion of the exhaust stream and then route these emissions to a burner for use as combustion air. In those situations, the HAP emissions in the slip stream are actually combusted. However, some facilities with direct fired dryers ( i. e., dryers that receive hot exhaust air directly from combustion source) that practice semi incineration may also use the dryer exhaust gas slip stream ( or fresh air) to cool the exhaust gas from the burners in " blend chambers." 3 When the exhaust gas is routed to the blend chamber, the HAP in the exhaust gas are not combusted in the dryer, and if the dryer emissions are uncontrolled, these HAP are ultimately emitted to the atmosphere. The amount of exhaust gas recycled either to the burner or to the blend chamber can vary over time. Decisions about how much of the recycled exhaust stream are used as combustion air and when and how much exhaust air is used in a blend chamber generally are made by the equipment operators and are affected by process conditions such as the moisture content of the incoming wood furnish ( which affects the target dryer operating temperature) and the desired amount of water removal. 4 Thus, semi incineration is used to maintain the heat balance in the drying system ( e. g., combustion unit and dryer). There is a lack of detailed information on how the semi incineration process works at each facility, and thus, the actual HAP emission reductions that are achieved at PCWP facilities that practice semi incineration cannot be determined/ verified. In addition, it may not be possible to retrofit semi incineration onto existing process units, and therefore, semi incineration may not be an option for process units that were not originally designed to incorporate semi incineration. For the reasons stated above and for the purpose of establishing MACT floors for the PCWP source category, semi incineration is not considered a verified control technique for reducing HAP emissions. However, as explained later in the technical support document for the cost analysis, there are only two process unit groups ( bagasse fiberboard mat dryers and hardwood veneer dryers) where semi incineration is the only available candidate for the MACT floor technology.

The available control device efficiency data show that control devices installed for particulate matter ( PM) abatement had no effect on gaseous HAP or THC emissions. 5 These control devices include cyclones, multiclones ( or multicyclones), baghouses ( or fabric filters), and electrified filter beds ( EFBs). The performance data for wet electrostatic precipitators ( WESPs) and wet scrubbers installed for PM control also showed no effect on HAP and THC emissions. These wet systems may achieve short term reductions in THC or gaseous HAP emissions, however, the HAP and THC control efficiency data, which range from slightly positive to negative values, indicate that the ability of these wet systems to absorb water soluble compounds ( such as formaldehyde) diminishes as the recirculating scrubbing liquid becomes saturated with these compounds. 5 One wet scrubbing system, a combination water tray tower/ high energy venturi scrubber that uses treated water and is designed to minimize emissions of both PM and odorous compounds from a hardboard press, did achieve notable HAP and THC emissions reductions. This system reduces formaldehyde and methanol emissions by 65 percent and 50 percent, respectively, and reduces THC emissions by 86 percent. 5 The THC, methanol, and formaldehyde control device performance data for incineration based control and biofilters are presented in the MACT floor memo included in the public docket. 6 The information in this memo was extracted from a separate memorandum which provides information on the available control device performance data for the various types of control devices applied to PCWP process units. The performance data for the incineration based controls and biofilters showed methanol and formaldehyde emission reductions equal to or greater than 90 percent, except in some cases where the pollutant loadings of the emission stream entering the control systems were very low. The performance data for THC showed that incineration based control systems could achieve THC emission reductions equal to or greater than 90 percent. The THC emission reductions achieved with biofilters varied somewhat, with THC reductions ranging from 73 percent to 90 percent. Although biofilters are effective in reducing the HAP compounds emitted from process units in the PCWP industry, they can be less effective 3 4 in reducing some of the less water soluble non HAP compounds, such as pinenes, that can make up a portion of the THC measurements.

The MACT floor technology for the process units was either determined to be no emission reduction or equivalent to the emission reduction achievable with incineration based control systems or biofilters. Although some process units are equipped with add on controls that perform at a level somewhere between zero ( no control) and the performance level achievable with incineration based controls and biofilters, none of these control systems were identified as MACT floor control technologies because they ( 1) do not reduce HAP emissions ( e. g., bag houses) or ( 2) do not reduce HAP emissions on a consistent basis ( e. g., wet electrostatic precipitators), or ( 3) achieve lower HAP emission reductions than biofilters and incineration based controls ( e. g., semi incineration). Therefore, the MACT floor analysis focused on incineration based controls and biofilters.

For the purpose of establishing the performance level of the MACT floor control systems, all available data on incineration based controls and biofilters were grouped together. This " group approach" was used because some of the control systems treat HAP emissions from multiple types of process units, such as primary tube dryers, reconstituted panel presses, and board coolers.

Determinations of the performance of the control system on emissions from each type of process unit were not possible. Also, for some process unit groups, limited data were available for the control systems applied to the process units in that group. By considering all of the performance data for incineration based controls and biofilters together, the amount of available data upon which the MACT floor level of performance was based was maximized.

The available data for incineration based controls and biofilters ( provided in the MACT floor memo) 6 shows variability in performance from process unit to process unit and over time. In some cases, it was not possible to directly compare the performance of different control systems because data were not available for the same pollutant ( i. e., not all test reports included data for THC, methanol, and formaldehyde). Comparison of the performance of the different types of incineration based control systems with other incineration based controls and with biofilters was also hampered by the fact that the uncontrolled emissions being treated by the different control systems varied with respect to pollutant loading ( inlet concentration) and pollutant type. Because the control device efficiency is somewhat dependent on the amount of HAP entering the device, the variability in the uncontrolled emissions from process units both within and among the different process groups meant that the control device efficiencies also varied. With a few exceptions, when the concentration of methanol, formaldehyde, or THC in the uncontrolled emission stream was greater than 10 parts per million dry volume ( ppmvd), the associated HAP emission reductions ranged from 90 to 99 percent. In general, lower control efficiencies were achieved when the inlet pollutant concentrations were below 10 ppmvd; however, in some cases, the control efficiency exceeded 90 percent even at the lower inlet concentrations.

To account for the variability in the type and amount of HAP in the uncontrolled emissions from the various process units and the effect of this variability on control system performance, it is recommended that the MACT floor performance level be based on all three of the pollutants analyzed and include maximum concentration levels in the outlet of the control systems as an alternative to emission reductions. The MACT floor performance level is a 90 percent reduction in THC or methanol or formaldehyde emissions. The maximum concentration level in the outlet of the MACT floor control system is 20 ppmvd for THC, or 1 ppmvd for methanol, or 1 ppmvd for formaldehyde. The 20 ppmvd is recommended as the alternative maximum concentration for THC because 20 ppmvd represents the practical limit of control for 3 5 THC. The 1 ppmvd is recommended as the maximum outlet concentration for both methanol and formaldehyde because this concentration is achievable by the MACT floor control systems and the method detection limits for these compounds using the National Council of the Paper Industry for Air and Stream Improvement ( NCASI) impinger/ canister emission test method ( NCASI Method IM/ CAN/ WP 99.01) are less than 1 ppmvd. 7 3.1.3 MACT Floor Options The six recommended options for representing the MACT floor are shown in Exhibit 3 1. These six options reflect the emission reductions and maximum outlet pollutant concentrations achievable at the MACT floor for all process units with a MACT floor technology represented by incineration based controls or biofilters. As shown in Exhibit 3 1, it is recommended that a restriction be placed on the use of the outlet concentration options for methanol and formaldehyde. The restriction would be that the concentration of the pollutant ( methanol or formaldehyde) entering the MACT control system must be at least 10 ppmvd for the facility to use the outlet concentration option. The purpose for this restriction is that some process units may have very low uncontrolled methanol or formaldehyde emissions, while still emitting significant quantities of HAP, and facilities with these process units could claim that they are achieving MACT floor levels of control without doing anything to reduce HAP emissions. All of the MACT floor control systems evaluated can meet at least one of the six control options for add on control devices, based on the available data. Only a few of the MACT floor control systems evaluated can meet all six options; in those cases, the control systems tend to be applied to process units with both moderately high HAP emissions and moderately high THC emissions, which would allow them to meet the outlet concentration based options for methanol and formaldehyde as well as the percent reduction options. Therefore, it is recommended that facilities be required to meet only one of the six emission options in Exhibit 3 1.

Exhibit 3 1. MACT FLOOR CONTROL OPTIONS Pollutant Reduce by OR achieve emissions

methanol 90 percent 1 ppma ... OR...

formaldehyde 90 percent 1 ppma ... OR...

THCb 90 percent 20 ppm a This option would only be applicable to units with uncontrolled emissions of that HAP that are

10 ppm. b Mills will be allowed to adjust THC measurements to subtract methane.

3.1.4 Summary of MACT for Existing and New Process Units Exhibit 3 2 summarizes MACT for each type of process unit at new and existing PCWP facilities. The MACT represents the level of control that would be required by the PCWP NESHAP. The technologies listed below achieve that control level. 3 6 Exhibit 3 2. SUMMARY OF MACT FOR PCWP PROCESS UNITS AT NEW AND EXISTING SOURCES Process unit MACT for process units at existing sources MACT for process units at new sources Tube dryers; Rotary strand dryers; Conveyor strand dryers; Green particle rotary dryers; Hardboard ovens; Softwood veneer dryers; Pressurized refiners emission reduction achievable with incineration based controla emission reduction achievable with incineration based controla Reconstituted wood product presses emission reduction achievable with incineration based controla or biofilter emission reduction achievable with incineration based controla or biofilter Fiberboard mat dryers ( wood); Hardboard press preheat ovens No emission reduction emission reduction achievable with incineration based controla Reconstituted wood product board coolers No emission reduction emission reduction achievable with incineration based controla or biofilter Rotary agricultural fiber dryers; Dry particle rotary dryers; Paddle type particle dryers; Hardboard humidifiers Fiberboard mat dryers ( bagasse); Veneer kilns; Radio frequency veneer redryers; Hardwood veneer dryers; Particleboard press molds; Particleboard extruders; Engineered wood products presses; Agriboard presses; Plywood presses; Standalone digesters; Atmospheric refiners; Blenders; Formers; Sanders Saws; Fiber washers; Chippers; Log vats; Lumber kilns No emission reduction No emission reduction a Incineration based control includes RTOs, RCOs, TCOs, TOs, and incineration of process exhaust in combustion unit.

3.1.5 Beyond the MACT Floor Options and Related Technologies Because the control devices that represent MACT levels of control are the same for all process units that have a controlled MACT floor for both new and existing units, the only beyond the floor options considered were for existing process unit groups that had MACT floors equal to " no emission reduction." The annual total HAP emissions from the following equipment are very low compared to the emissions from other process units used in the PCWP industry: 3 7  agriboard dryers  particleboard press molds  dry particle rotary dryers  particleboard extruders  paddle type particle dryers  engineered wood products presses  hardboard humidifiers  agriboard presses  bagasse fiber mat dryer  atmospheric refiners  veneer kilns  lumber kilns  RF veneer redryers  resin storage tanks  hardwood veneer dryers  other miscellaneous equipment ( formers, sanders, saws, fiber washers, chippers, and log vats)

No beyond the floor control options were considered for these equipment because emissions from these process units would not be cost effective to control. In addition, no beyond the floor analyses of wastewater operations, wastewater tanks, and miscellaneous coating operations were conducted because sufficient information is not available to make beyond the floor determinations and it is not known ( or expected) that emissions from these operations would justify control.

Based on a review of the HAP emissions data for process units with MACT floors of no emission reduction, blenders and stand alone digesters were selected for a beyond the MACT floor analysis because these equipment emit higher levels of HAP emissions relative to other process units. Beyond the floor analyses were also conducted for process units with a MACT floor of no emission reduction for existing units and a MACT floor represented by the emission reduction achievable with incineration based controls for new units. These process units include fiberboard mat dryers, press preheat ovens, and reconstituted wood products board coolers.

This analysis of beyond the floor options was based on the industry average exhaust flow for each process unit, the typical number of each process unit per plant, the industry average amount of HAP emitted from the process units, and assuming that an RTO would be used to control emissions from each process unit. The average exhaust flow rates and typical number of process units per plant were determined using the results from EPA's MACT survey. The average HAP emissions and emission reductions were determined using the methodology described in the baseline emissions memo. 9 The annualized RTO cost was calculated based on flow rate using the methodology described later in this chapter. The cost per ton values were calculated by dividing the total annualized cost ( TAC) for the RTO by the HAP reduction. This analysis assumes that facilities will not be able to route the emissions from process units to an existing control device or to a new control device installed to meet the PCWP standards ( i. e., that a separate RTO must be purchased to handle the additional flow from the process units). Exhibit 3 3 below presents the results of this analysis. 3 8 Exhibit 3 3. Cost Effectiveness Analysis Of Beyond The Floor Control Options Process Unit Average flow, dscfm Typical no. per plant RTO TAC Average HAP emitted, tpy Tons HAP reduced, tpy Cost effectiveness $/ ton ( 1998 dollars)

Fiberboard mat dryer at FB plant 49,389 1 $ 471,187 8 7.6 Fiberboard mat dryer at w/ d HB plant 19,491 1 $ 370,952 12 11 Fiberboard mat dryer s ( average) 34,440 1 $ 421,070 10 9.3 $ 30,076 Press preheat oven  w/ d HB plant 21,812 1 $ 377,904 15 14 $ 26,520 Board cooler  PB 41,423 1 $ 442,096 5 4.8 Board cooler  MDF 79,483 1 $ 599,447 3 2.9 Board cooler ( average) 60,453 1 $ 520,772 4 3.9 $ 133,531 Stand alone digester  FB 7,587 2 $ 358,359 14 13 Stand alone digester  HB 7,587 2 $ 358,359 14 13 Stand alone digester ( average) 7,587 2 $ 358,359 14 13 $ 26,944 Blender  PB 13,590 2 $ 394,486 45 43 Blender  OSB 13,590 2 $ 394,486 11 10 Blender ( average) 13,590 2 $ 394,486 28 27 $ 14,610 In all cases, the emission reductions that could be achieved from requiring controls for these existing units did not appear to be justified by the cost. Many of the existing control devices at wellcontrolled facilities would not have the additional capacity to treat the emissions from these process units, and thus, these facilities would have to install new controls.

For more information, refer to the MACT memo for this rule and the BID. 8 3 9 3.1.6 Considerations of Possible Risk Based Alternatives to Reduce Impacts to Sources The Agency has made every effort in developing this rule to minimize the cost to the regulated community and allow maximum flexibility in compliance options consistent with our statutory obligations. However, we recognize that the rule may still require some facilities to take costly steps to further control emissions even though their emissions may not result in exposures which could pose an excess individual lifetime cancer risk greater than one in one million or which exceed thresholds determined to provide an ample margin of safety for protecting public health and the environment from the effects of hazardous air pollutants. We are, therefore, on whether there are further ways to structure the rule to focus on the facilities which pose significant risks and avoid the imposition of high costs on facilities that pose little risk to public health and the environment.

Industry representatives provided EPA with descriptions of three mechanisms that they believed could be used to implement more cost effective reductions in risk. The docket for today's rule contains " white papers" prepared by industry that outline their proposed approaches ( see docket number A 98 44, Item # II D 525). The Agency has taken comment on these approaches. We believe that one of the three suggested approaches warrant consideration. We believe it could be used to focus regulatory controls on facilities with significant risks and avoid the imposition of high costs on facilities that pose little risk to public health or the environment. This approach, subcategorization and delisting, would be implemented under the authority of CAA sections 112( c)( 1) and 112( c)( 9). The maximum achievable control technology, or MACT, program outlined in CAA section 112( d) is intended to reduce emissions of HAP through the application of MACT to major sources of toxic air pollutants. Section 112( c)( 9) is intended to allow EPA to avoid setting MACT standards for categories or subcategories of sources that pose little risk to public health and the environment.

<IP_ADDRESS> Subcategory Delisting Under Section 112( c)( 9)( B) of the CAA EPA is authorized to establish categories and subcategories of sources, as appropriate, pursuant to CAA section 112( c)( 1), in order to facilitate the development of MACT standards consistent with section 112 of the CAA. Further, section 112( c)( 9)( B) allows EPA to delete a category ( or subcategory) from the list of major sources for which MACT standards are to be developed when the following can be demonstrated: 1) in the case of carcinogenic pollutants, that " no source in the category . . . emits [ carcinogenic] air pollutants in quantities which may cause a lifetime risk of cancer greater than one in one million to the individual in the population who is most exposed to emissions of such pollutants from the source"; 2) in the case of pollutants that cause adverse noncancer health effects, that " emissions from no source in the category or subcategory . . . exceed a level which is adequate to protect public health with an ample margin of safety"; and 3) in the case of pollutants that cause adverse environmental effects, that " no adverse environmental effect will result from emissions from any source."

Given these authorities and the suggestions from the white paper prepared by industry representatives ( see docket number A 98 44, Item # II D 525), EPA has considered whether it would be possible to establish a subcategory of facilities within the larger PCWP category that would meet the riskbased criteria for delisting. Since each facility in such a subcategory would be a low risk facility ( i. e., if each met these criteria), the subcategory could be delisted in accordance with section 112( c)( 9), thereby limiting the costs and impacts of the MACT rule to only those facilities that do not qualify for subcategorization and delisting. Facilities seeking to be included in the delisted subcategory would be 1" A Tiered Modeling Approach for Assessing the Risks due to Sources of Hazardous Air Pollutants." EPA 450/ 4 92 001. David E. Guinnup, Office of Air Quality Planning and Standards, USEPA, March 1992.

3 10 responsible for providing all data required to determine whether they are eligible for inclusion. Facilities that could not demonstrate that they are eligible to be included in the low risk subcategory would be subject to MACT and possible future residual risk standards.

Establishing that a facility qualifies for the low risk subcategory under section 112( c)( 9) will necessarily involve combining estimates of pollutant emissions with air dispersion modeling to predict exposures. The EPA envisions that we would promote a tiered analytical approach for these determinations. A tiered analysis involves making successive refinements in modeling methodologies and input data to derive successively less conservative, more realistic estimates of pollutant concentrations in air and estimates of risk.

As a first tier of analysis, EPA could develop a series of simple look up tables based on the results of air dispersion modeling conducted using conservative input assumptions. By specifying a limited number of input parameters, such as stack height, distance to property line, and emission rate, a facility could use these look up tables to determine easily whether the emissions from their sources might cause a hazard index limit to be exceeded.

A facility that does not pass this initial conservative screening analysis could implement increasingly more site specific but more resource intensive tiers of analysis using EPA approved modeling procedures, in an attempt to demonstrate that their facility does not exceed the hazard index limit. The EPA's guidance could provide the basis for conducting such a tiered analysis. 1 Another approach would be to define a subcategory of facilities within the PCWP source category based upon technological differences, such as differences in production rate, emission vent flow rates, overall facility size, emissions characteristics, processes, or air pollution control device viability. If it could then be determined that each source in this technologically defined subcategory presents a low risk to the surrounding community, the subcategory could then be delisted in accordance with 112( c)( 9).

One concern that EPA has with respect to the section 112( c)( 9) approach is the affect that it could have on the MACT floors. If all of the well controlled, low risk facilities are subcategorized, that could make the MACT floor less stringent for the remaining facilities. One approach that has been suggested to mitigate this effect would be to establish the MACT floor now based on controls in place for the category and to allow facilities to become part of the low risk category in the future, after the MACT standard is established. This would allow low risk facilities to use the 112( c)( 9) exemption without affecting the MACT floor calculation. EPA requests comment on this suggested approach.

If this section 112( c)( 9) approach were adopted, the rulemaking would likely indicate that the rule does not apply to any source that demonstrates, based on a tiered approach that includes EPA approved modeling of the affected source's emissions, that it belongs in a subcategory which has been delisted under section 112( c)( 9). 3 11 3.2 Emissions and Emission Reductions As mentioned in Chapter 1, the U. S. Environmental Protection Agency ( EPA) is developing national emission standards for hazardous air pollutants ( NESHAP) for the plywood and composite wood products source category. This part of the RIA presents emission reductions expected to occur from compliance with the final ( MACT floor) alternative.

3.2.1 Some Results in Brief The plywood and composite wood products NESHAP will reduce HAP emissions by about 11,000 tons in the third year after its issuance. 9 The major HAP reduced, as mentioned in the rule preamble, are acrolein, acetaldehyde, formaldehyde, phenol, propionaldehyde, and methanol. In addition, nearly 27,000 tons of VOC ( reported as total hydrocarbon) emissions will be reduced. Nearly 11,000 tons of CO emission reductions will occur, along with 13,000 tons of PM ( coarse) emission reductions. There will also be 2,400 tons of additional NOx emissions and 4,000 tons of SO2 emissions added to the atmosphere due to the additional incineration based controls that may be necessary for affected facilities to meet the MACT floor alternative.

3.2.2 General Approach The methodology used to estimate the HAP emission reductions associated with this rule is summarized in this section. Before the emissions reductions could be estimated, the baseline emissions level for each pollutant had to be determined. This was conducted by first estimating emissions without considering current air pollution controls, and then calculating the emissions levels with current controls applied. The first, uncontrolled emission estimates, are developed without consideration of air pollution controls currently in use at wood products plants. Baseline estimates reflect the level of pollution control that is presently used. The remainder of this section discusses the general methodology used to estimate uncontrolled and baseline emissions.

Estimating uncontrolled and baseline emissions involves the following four steps:

( 1) Identification of hazardous air pollutant ( HAP) emission sources,

( 2) Characterization of emission sources ( e. g., assignment of throughput and other characteristics),

( 3) Application of emission factors, and ( 4) Calculation of emissions.

<IP_ADDRESS> Identifying Emission Sources Emission sources were identified based on responses to the EPA's maximum achievable control technology ( MACT) surveys and available emissions test data. The EPA gathered plant specific information with three MACT surveys. The results of the three surveys are documented in separate memoranda. 10,11,12 Available emissions test data include data from nearly 100 test reports collected through EPA's MACT survey, data from EPA's Compilation of Air Pollutant Emission Factors, Volume I: 3 12 Stationary Point and Area Sources ( commonly referred to as AP 42), and extensive data from the industry sponsored test program performed by the National Council of the Paper Industry for Air and Stream Improvement ( NCASI). Emissions were estimated for sources that were identified in the EPA's MACT survey ( e. g., dryers, presses, board coolers) and for additional miscellaneous sources ( e. g., digesters, refiners, fiber washers) for which applicable emission test data were available. Process flow diagrams submitted with the MACT surveys provided information about the presence ( or absence) of miscellaneous sources at plants. The EPA's MACT survey also provided information on the control devices used for most unit operations.

Some plants have begun operation and other plants have added equipment and controls since EPA conducted the MACT survey. Such changes have been accounted for in the nationwide emission estimates. A separate memorandum summarizes the changes to plants that have occurred following the EPA's MACT survey. 13 <IP_ADDRESS> Characterizing Emission Sources After the emission sources were identified, each source was assigned a throughput and further characterized. In most cases, plant specific dryer and press throughput was provided in EPA's MACT survey. If the dryer or press throughput was claimed confidential or was not provided, then a default throughput was assigned. For dryers, the default throughput was the average throughput for the same type dryers for the product manufactured. 10,11,12 If available, plant production ( or capacity if production was unavailable) was used as the default throughput for presses; otherwise, presses were assigned the average press throughput for the product manufactured.

Throughput for miscellaneous equipment was based on either dryer or press throughput, depending on the units of measure for the applicable emission factor ( e. g., pounds per oven dry ton [ lb/ ODT] or pounds per thousand square feet [ lb/ MSF]). Collective throughputs for digesters, refiners, fiber washers, blenders, and formers were generally approximated as the total dryer throughput ( ODT/ yr) for the plant. Board cooler, sander, and saw throughput was generally approximated as the total press throughput ( MSF/ yr) for the plant. By assigning either the total dryer or press throughput to miscellaneous processes, no assumption about the number of miscellaneous operations ( e. g., number of refiners) at each plant was necessary.

Following assignment of throughput for each emission source, sources were further characterized ( as necessary for application of emission factors) based on wood species, resin type, or other characteristics. Further characterization of emission sources is discussed in the baseline emissions memo for this rule. If characterization of an emission source was not possible due to claims of confidentiality or missing information in the survey response, then default characterizations were applied based on practices most commonly observed at other plants.

<IP_ADDRESS> Applying Emission Factors As emission sources were characterized, the available emission factors were reviewed for applicability to each emission source. The emission factors used in developing the nationwide estimates are documented in a separate memorandum. 14 Emissions were generally estimated for total hydrocarbon as carbon ( THC as C , referred to as " THC" in this RIA) and the following HAP's as shown in the following table: 3 13 acetaldehyde methyl isobutyl ketone ( MIBK)

acrolein phenol benzene propionaldehyde cumene styrene formaldehyde toluene methanol m, p xylene methylene chloride o xylene methyl ethyl ketone ( MEK)

When used in this document, the terminology " complete set" refers to the set of emission factors for the above list of HAP's, THC, and any other additional HAP's that may have been measured at levels above a test method detection limit.

Total HAP was taken to be the sum of the individual HAP's. If all test data for a pollutant at a source were below the test method detection limit ( denoted as " BDL" in reference 5), then the emission factor was treated as zero. For a few specific sources, HAP's other than the ones listed above were tested for and detected. These HAP were included in the total HAP estimate for that source. Exhibit 3 4 illustrates how the total HAP emission factors were developed.

Exhibit 3 4. ILLUSTRATION OF TOTAL HAP CALCULATION FOR AN EMISSION SOURCE HAP Emission Factor ( from reference 5)

acetaldehyde 0.0012 acrolein BDLa benzene BDL cumene BDL formaldehyde 0.015 methanol 0.076 methylene chloride BDL MEK BDL MIBK BDL phenol 0.0047 propionaldehyde BDL styrene BDL toluene BDL m, p xylene BDL o xylene BDL 3 14 Total HAP 0.0012 + 0.015 + 0.076 + 0.0047 = 0.097 a BDL ( below detection limit); all test runs for this pollutant and this source were below the test method detection limit.

Test data were not available for all of the HAP's considered for some sources ( i. e., a complete set of emission factors was not available). In some cases, it was necessary to apply emission factors for one source to a similar source for which factors were not available. In other situations, it was necessary to group emission factors so that emissions of all the likely pollutants could be estimated for a particular emission source. Grouped emission factors were calculated from emission test averages using the methodology described in the emission factor memo that is in the public docket for this rule14. Specific application of the emission factors for each unit operation is discussed in the baseline emissions memo for this rule.

<IP_ADDRESS> Calculating Emissions Applicable emission factors were used to estimate uncontrolled emissions from each unit operation as follows:

E = EF x T / 2000 where: E = annual emissions ( ton/ yr) EF = emission factor ( lb/ ODT or lb/ MSF specified basis) T = process throughput ( ODT/ yr or MSF/ yr specified basis)

To estimate baseline emissions, the emission reduction achieved by air pollution control devices ( APCD's) in place on unit operations was taken into account. Control devices that achieve significant reduction of HAP and THC include biofilters and incineration based controls ( e. g., regenerative thermal oxidizers [ RTO's], regenerative catalytic oxidizers [ RCO's], thermal oxidizers [ TO's], and thermal catalytic oxidizers [ TCO's]). Emission factors were available for several, but not all, of the unit operations that are presently controlled with biofilters and incineration based controls. If a complete set of emission factors based on inlet and outlet test data for a single control device was available, the set of emission factors was used to estimate baseline emissions. Otherwise, the achievable percent reduction in emissions for the control device was used as follows:

E = EF x T / 2000 x ( 1 R)

where: R = percent reduction achievable with the control device ( see table below)

Control device HAP reduction THC reduction Biofilter 95% 80%

RTO, RCO, TO, & TCO 95% 95% 3 15 If only a portion of an exhaust stream was controlled ( e. g., as with semi incineration where only a portion of the exhaust is routed to a combustion unit), then controlled emissions were estimated for the controlled portion of the exhaust and uncontrolled emissions were estimated for the remaining exhaust. Because plant specific capture efficiency information is not readily available, presses and board coolers without a permanent total enclosure that are routed to an APCD were assumed to operate with 50 percent capture efficiency.

Following estimation of uncontrolled and baseline emissions for each unit operation, annual emissions for each facility were totaled. If there were facilities with no available information was available ( e. g., plants that claimed their entire MACT survey confidential or plants that never responded to the survey), then the average facility specific emissions for plants making the same product was used to approximate the emissions from plants with no available information. The emissions from all facilities were summed to obtain nationwide emission estimates.

3.2.3 Nationwide HAP Emission Estimates Exhibit 3 5 presents the total nationwide uncontrolled and baseline emission estimates for each product type. Uncontrolled emissions are the emissions that occur before the application of a HAP emission control device. Baseline emission estimates take into account the HAP emission controls currently in place on HAP sources in the industry. Exhibits 3 6 and 3 7 present the nationwide uncontrolled and baseline speciated HAP emission estimates for each product type.

To estimate the emissions and emission reductions associated with compliance with this proposed rule, it is necessary to determine the number of major sources that may be subject to the rule. Major sources are facilities with the potential to emit 10 or more tpy of any single HAP or 25 or more tpy of any combination of HAP. The number of major sources was approximated using the uncontrolled emission estimates ( scaled up to reflect potential to emit) for each facility.

The emission estimates presented in this chapter are based on equipment throughput at plant production levels. Plant capacity typically exceeds plant production. Thus, a facility's potential to emit may be greater than the emissions estimated for each facility at plant production levels. To account for this, an average ratio of plant production to plant capacity was determined based on the non CBI responses to EPA's MACT survey. On average, plywood ( hardwood and softwood) and reconstituted wood products plants were found to operate at around 75 percent of their plant capacity. Engineered wood products plants were found, on average, to operate at 60 percent of their capacity. For purposes of determining which facilities may be major sources based on potential to emit, the uncontrolled emission estimates for each facility were scaled up by 25 or 40 percent before comparison to the 10 or 25 tpy major source thresholds. Exhibit 3 8 presents the estimated number of major sources by product type.

Because of the uncertainty in the emission estimates and lack of knowledge about the specific operations at facilities the numbers of major sources presented in Exhibit 3 8 are merely estimates. Major source determinations depend on the types of operations at a facility and facility specific factors. There may be operations and HAP emission sources at wood products facilities that have not been accounted for in the emission estimates ( e. g., plants that manufacture furniture in addition to particleboard). Plants with additional onsite operations may be major sources regardless of their plywood and composite wood 3 16 products operations. Then again, there may be plants that were determined to be major sources in this analysis that are not major sources due to uncertainty in the emission estimates or potential to emit. The purpose of the analyses discussed in this document is to estimate   on a nationwide scale   emissions from plywood and composite wood products plants and the number of major sources. On a nationwide scale, it is unlikely that the uncertainties in the emission estimates or number of major sources will have a significant impact on the direction of the plywood and composite wood products rulemaking.

The reduction in emissions of total HAP and THC is the difference between baseline emissions and the emissions expected to remain following implementation of the MACT floor level of control identified for the PCWP standards. Baseline emissions reflect the level of air pollution control that is currently used at PCWP plants. The MACT floor control level reflects the level of control that will be used following implementation of the PCWP standards. The following assumptions were used when estimating emissions at the MACT floor control level: ( 1) plants will install RTO on all process units that require controls to meet the MACT floor; ( 2) presses at conventional particleboard, MDF, OSB, and hardboard plants will be fully enclosed by a PTE that captures and routes 100 percent of the emissions from the press area to an RTO; and ( 3) WESP will be installed upstream of RTO for new RTO installations on rotary strand dryers. The nationwide HAP and THC emission reduction was calculated by subtracting the emissions remaining at the MACT floor control level from the baseline emissions. Exhibit 3 9 presents the nationwide HAP and THC emissions reduction. 14 3.2.4 Nationwide Emission Estimates  Non HAP Species As mentioned earlier in this chapter, there are reductions in pollutants other than HAPs as a result of compliance with this rule. There are reductions of coarse particulate matter ( PM10), volatile organic compounds ( VOC), and carbon monoxide ( CO), and increases in nitrogen oxides ( NOx), and sulfur dioxide ( SO2). The reductions of PM10 are estimated at 13,000 tons, the reductions of VOC ( reported as total hydrocarbon) are estimated at 27,000 tons ( see Exhibit 3 9), and the reductions of CO are estimated at 11,000 tons. The increase of NOx emissions is estimated at 2,400 tons, and there are potentially as many as 4,000 tons of additional SO2 emissions. All emission estimates are estimated for the fifth year after the issuance of the rule. The methodology used to prepare these estimates is contained in the BID for this rule. 15 3 17 Exhibit 3 5. UNCONTROLLED AND BASELINE HAP EMISSIONS ESTIMATES No. of plantsa Uncontrolled emissions, ton/ yrb Baseline emissions, ton/ yrc Product Total HAP THC as C Total HAP THC as C MDF 24 4,000 8,200 2,400 4,800 Particleboardd 51 5,700 13,000 5,400 13,000 Hardboard 18 3,500 5,800 3,300 5,500 Fiberboard 7 78 400 78 400 OSB 37 7,100 19,000 3,500 5,400 Softwood plywood 105 4,000 24,000 3,700 20,000 Hardwood plywood 166 150 640 150 640 EWP 39 310 990 290 790 Nationwide totale 447 25,000 73,000 19,000 50,000 a Some plants make multiple products and are counted once for each product they make ( e. g., a particleboard and softwood plywood plant).

b Uncontrolled emissions represent the emissions that occur before the application of HAP emission control devices.

c Baseline emissions reflect the application of HAP emission controls in the industry as of April 2000.

d Includes conventional and molded particleboard.

e Nationwide emission totals may not exactly match sum due to rounding. 3 18 Exhibit 3 6. SPECIATED NATIONWIDE UNCONTROLLED HAP EMISSIONS BY PRODUCT TYPE Product Estimated HAP's emitted, ton/ yr Acetaldehyde Acrolein Formaldehyde Methanol Phenol Propionaldehyde Other HAPa Totalf MDF 48 1 1,700 2,200 93 1 27 4,000 Particleboardb 230 56 1,300 3,800 150 20 160c 5,700 Hardboard 320 76 580 2,100 99 250 52d 3,500 Fiberboard 9 1 17 45 1 0 6 78 OSB 1,500 540 890 3,500 340 88 280e 7,100 Softwood plywood 450 26 280 2,900 150 24 170 4,000 Hardwood plywood 20 0 11 81 15 0 22 150 EWP 53 4 36 140 46 8 19e 310 Totalf 2,600 700 4,800 15,000 890 390 730 25,000 a Other HAP's include benzene, cumene, methylene chloride, MEK, MIBK, styrene, toluene, m, p xylene, and o xylene.

b Includes conventional and molded particleboard.

c Includes HAPs listed in footnote " a" plus acetophenone, biphenyl, bis( 2 ethylhexyl phthalate), bromomethane, carbon disulfide, carbon tetrachloride,

chloroform, chloromethane, di n butyl phthalate, ethyl benzene, hydroquinone, n Hexane, 1,1,1 trichloroethane, and 4 methyl 2 pentanone.

d Includes HAPs listed in footnote " a" plus chloroethane, chloromethane, ethyl benzene, m. p cresol, and o cresol.

e Includes HAPs listed in footnote " a" plus MDI.

f Totals may not exactly match sum due to rounding. 3 19 Exhibit 3 7. SPECIATED NATIONWIDE BASELINE HAP EMISSIONS BY PRODUCT Product Estimated HAP's emitted, ton/ yr Acetaldehyde Acrolein Formaldehyde Methanol Phenol Propionaldehyde Other HAPa Totalf MDF 29 1 1,000 1,300 51 0 17 2,500 Particleboardb 200 50 1,200 3,700 140 18 150c 5,400 Hardboard 270 61 570 2,100 96 200 48d 3,300 Fiberboard 9 1 17 45 1 0 6 78 OSB 570 200 370 2,000 210 32 69e 3,500 Softwood plywood 390 20 230 2,700 130 17 150 3,700 Hardwood plywood 20 0 11 81 15 0 22 150 EWP 47 4 30 140 46 7 16e 290 Totalf 1,500 330 3,400 12,000 690 270 480 19,000 a Other HAP's include benzene, cumene, methylene chloride, MEK, MIBK, styrene, toluene, m, p xylene, and o xylene.

b Includes conventional and molded particleboard.

c Includes HAPs listed in footnote " a" plus acetophenone, biphenyl, bis( 2 ethylhexyl phthalate), bromomethane, carbon disulfide, carbon tetrachloride,

chloroform, chloromethane, di n butyl phthalate, ethyl benzene, hydroquinone, n Hexane, 1,1,1 trichloroethane, and 4 methyl 2 pentanone.

d Includes HAPs listed in footnote " a" plus chloroethane, chloromethane, ethyl benzene, m. p cresol, and o cresol.

e Includes HAPs listed in footnote " a" plus MDI.

f Totals may not exactly match sum due to rounding. 3 20 Exhibit 3 8. ESTIMATED NUMBER OF MAJOR SOURCES BY PRODUCT Product No. of plantsa No. of major sourcesb No. of potentially non major sourcesb MDF 24 24 0 Particleboardc 51 42 9 Hardboard 18 18 0 Fiberboard 7 3 4 OSB 37 37 0 Softwood plywood 105 87 18 Hardwood plywood 166 0 166 EWP 39 12 27 Total 447 223 224 a Some plants make multiple products and are counted once for each product they make ( e. g., a particleboard and softwood plywood plant).

b Major sources are defined as facilities with the potential to emit 10 or more tons per year ( tpy) of any single HAP or 25 or more tpy of any combination of HAP. Sources with HAP emissions estimated to be below the 10/ 25 thresholds in this analysis are labeled as potentially non major sources. The emission estimation methodology described in this document does not account for onsite operations ( e. g., furniture manufacture) not included in the plywood and composite wood products source category.

c Includes conventional and molded particleboard. Five of the potentially non major particleboard sources manufacture molded particleboard. 3 21 Exhibit 3 9. ESTIMATED NATIONWIDE REDUCTION IN TOTAL HAP AND THC Product type Total HAP ( ton/ yr) THC ( ton/ yr)

Baselinea MACT floor Reduction Baselinea MACT floor Reduction Softwood plywood/ veneer 3,700 3,043 657 19,631 9,709 9,922 Hardwood plywood/ veneer 161 161 0b 640 640 0b Medium density fiberboard 2,469 345 2,124 4,763 572 4,191 Oriented strandboard 3,513 753 2,760 5,362 1,755 3,607 Particleboardc 5,377 2,787 2,590 12,632 6,724 5,908 Hardboard 3,291 752 2,539 5,478 2,103 3,374 Fiberboard 78 78 0b 398 398 0b Engineered wood products 298 230 68 793 617 176 TOTAL 18,933 8,196 10,737 49,706 22,529 27,178 a The baseline emissions presented in this table may differ slightly from the values presented in Exhibits 3 4 through 3 6 because of slight differences in calculation procedures ( i. e., use of a total HAP emission factor instead of summing speciated HAP emissions) and rounding.

b There is no impact because no plants are impacted by the PCWP standards at the MACT floor control level.

c Includes conventional and molded particleboard. 3 22 3.3 Control Equipment and Costs Traditional add on pollution control devices are expected to be the types of control measures that firms will choose in order to comply with the proposed rule. Add on air pollution control devices that are most likely to be used to comply with the plywood and composite wood products rule include incinerationbased controls. Among these types of controls are regenerative thermal oxidizers ( RTO), regenerative catalytic oxidizers ( RCO), and process incineration. Biofilters is another add on control that may be applied. The control device most commonly used to control emissions from plywood and composite wood products plants is the RTO. Therefore, it was assumed that most plants would install RTO's to comply with the rule. A number of RCO's and biofilters are also presently used by plywood and composite wood products plants, and plants may choose to install these technologies to comply with the plywood and composite wood products rule. There may be cost advantages to using RCO's or biofilters instead of RTO's for some plants. However, the cost analyses focus on use of RTO's for simplicity ( e. g., to minimize the number of cost algorithms developed and to avoid judgements regarding which plants may choose a particular technology).

Several facilities with large capacity heat energy systems currently use process incineration as a method of emissions control. Facilities may elect to use process incineration to comply with the rule. However, the applicability of process incineration is limited to those plants that have or may later install large onsite heat energy systems. The capital and operating costs of process incineration are expected to be significantly lower than the costs of add on controls.

The plywood and composite wood products rule contains emissions averaging provisions and production based emission limits. It may be possible for some plants to reduce their control costs by complying with either the emissions averaging provisions or production based emission limits. However, because there is no way to predict which plants might use the emissions averaging provisions or production based emission limits, the cost estimates did not account for these options. Instead, the control cost estimates were developed assuming that all facilities would install RTO( s) to meet the 90 percent HAP reduction emission limit in the plywood and composite wood products rule.

Oriented strandboard plants typically install wet electrostatic precipitators ( WESP's) upstream of rotary dryer RTO's to protect the RTO media from plugging. Thus, the capital and annual costs associated with WESP's were modeled for rotary strand dryers.

Enclosures must be installed around presses in order to ensure capture of the press emissions that are routed to a control device. Thus, the capital costs of permanent total enclosures ( PTE's) were included in the costing analyses. Annual costs associated with PTE's ( if any) were assumed to be minimal and were not included in the cost analyses.

This chapter presents the estimated nationwide capital and annualized costs for compliance with the PCWP rule. Compliance costs include the costs of installing and operating air pollution control equipment and the costs associated with demonstrating ongoing compliance ( i. e., emissions testing, monitoring, reporting, and recordkeeping costs). Section 3.3.1 discusses the estimated air pollution control costs. Cost estimates associated with testing, monitoring, reporting, and recordkeeping are discussed in the Paperwork Reduction Act submission for the PCWP standards and are summarized in Section 3.4.

3.3.1 Basis For Control Costs 3 23 As discussed above, add on air pollution control devices most likely to be used to comply with the PCWP rule include incineration based controls ( e. g., RTO, RCO, and process incineration) or biofilters. The control device most commonly used to control emissions from PCWP plants is the RTO. Therefore, for costing purposes, it was assumed that most plants would install RTO's to comply with the rule. A number of RCO's and biofilters are also presently used by PCWP plants. In addition, several plants with large capacity heat energy systems currently use process incineration. However, the applicability of process incineration is limited to those plants that have, or may later install, large onsite heat energy systems. There may be cost advantages to using RCO's, biofilters, process incineration, other add on control devices, or pollution prevention measures instead of RTO's for some plants. Plants may elect to use any of these technologies to comply with the rule, provided the technology limits HAP emissions to the levels specified in the rule. However, the cost analyses described in this chapter focus on use of RTO's due to their prevalence in the industry and to minimize the number of cost algorithms developed and to avoid judgements regarding which plants may choose a particular technology.

Oriented strandboard plants typically install WESP's upstream of rotary dryer RTO's to protect the RTO media from plugging. Thus, the capital and annualized costs associated with WESP's were modeled for rotary strand dryers. Available information indicates that WESP's are not necessary for protecting RTO's installed of other types of dryers ( e. g., tube dryers) or on presses. 16 Therefore, with the noted exception of OSB dryers without WESP's, the existing particulate abatement equipment on process units was assumed to be sufficient for protecting the RTO media. 17 Enclosures must be installed around presses to ensure complete capture of the press emissions before routing these emissions to a control device. Thus, the capital costs of permanent total enclosures ( PTE's) were included in the costing analyses. Annualized costs associated with PTE's were assumed to be minimal and were not included in the cost analyses.

The following sections discuss the RTO, WESP, and PTE costs. Section <IP_ADDRESS> describes how plant by plant control costs were estimated, and Section <IP_ADDRESS> summarizes the nationwide control costs.

<IP_ADDRESS> RTO Costs An RTO cost algorithm was developed based on: ( 1) information from an RTO vendor with numerous RTO installations at PCWP plants, and ( 2) the costing methodology described in the EPA Air Pollution Control Cost Manual. 18,19 The RTO cost algorithm was used to determine RTO total capital investment ( TCI) and total annualized cost ( TAC) based on the exhaust flow to be controlled and annual operating hours. Development of the algorithm is discussed in Sections <IP_ADDRESS>.1 and <IP_ADDRESS>.2.

RTO Total Capital Investment. 18,19 Equipment costs ( including equipment, installation, and freight) were provided by the RTO vendor for four sizes of RTO's. The 1997 equipment costs were not escalated because the Vatavuk Air Pollution Control Cost Index ( VAPCCI) for 1997 ( 107.9) was slightly greater than the preliminary VAPCCI for RTO's in fourth quarter 1999 ( 107.8). 20 According to the EPA Air Pollution Control Cost Manual, instrumentation is typically 10 percent of equipment cost ( RTO and auxillary equipment); sales tax is typically 3 percent of the equipment cost; and freight is typically 5 percent of the equipment cost. Figure 3 1 presents the purchased equipment costs ( PEC) supplied by the RTO vendor ( minus freight), and shows that the equipment costs vary linearly with gas flow rate. The regression equation presented in Figure 3 1 was included in the RTO cost algorithm to calculate the equipment cost for the oxidizer and auxillary 3 24 y = 8.5101x + 499194 R2 = 0.991 0 500,000 1,000,000 1,500,000 2,000,000 2,500,000 0 50,000 100,000 150,000 200,000 250,000 Flow rate, dscfm Purchased Equipment Cost, $

Figure 3 1. Variation in RTO purchased equipment cost with flow rate. equipment for various gas flow rates. Instrumentation, sales tax, and freight were added to the calculated equipment costs to obtain the total PEC.

Direct installation costs for handling and erection, electrical, and piping were included in the equipment cost provided by the RTO vendor. Start up costs were also included in the equipment cost provided by the RTO vendor. These costs are typically 22 percent of the PEC. Thus, these costs were subtracted from the PEC before further calculations based on the PEC were performed. Direct installation costs including foundation and support, insulation for ductwork, and painting were estimated according to the procedures in the EPA Air Pollution Control Cost Manual. Because PTE's were costed separately, no enclosure building was costed in the RTO algorithm. Site preparation costs and indirect installation costs ( e. g., engineering, field expense, contractor fees, performance tests, and contengencies) were estimated according to the procedures in the EPA Air Pollution Control Cost Manual. The TCI was calculated by summing the PEC, direct and indirect installation costs, and site preparation cost.

RTO Total Annualized Cost Total annualized costs consist of operating and maintenance labor and material costs, utility costs, and indirect operating costs ( including capital recovery). Operating and maintenance labor and material costs were estimated based on the RTO vendor information because the RTO vendor assumptions led to higher costs than the EPA Air Pollution Control Cost Manual and were assumed to be more representative of the PCWP industry. The operator labor rate supplied by the RTO vendor was $ 19.50 per hour. 3 25 y = 0.1479e2E 05x R2 = 0.9981 0 2 4 6 8 0 50000 100000 150000 200000 250000 Flow rate, dscfm MMBTU/ HR Figure 3 3. Relationship between RTO natural gas consumption and flow rate. y = 0.0052x + 3.283 R 2 = 1 0 500 1000 1500 0 50000 100000 150000 200000 250000 Flow rate, dscfm kW Figure 3 2. Relationship between RTO electricity consumption and flow rate. The RTO electricity use and natural gas use was provided by the RTO vendor for the four RTO sizes. Figures 3 2 and 3 3 present the relationships between flow rate and electricity and flow rate and natural gas use, respectively. As shown in the figures, there is a linear relationship between RTO electricity consumption and flow rate, and an exponential relationship between RTO fuel consumption and flow rate. 3 26 Electricity costs were estimated by the RTO vendor at $ 0.045 per kilowatt hour ( kWh). The RTO vendor estimated natural gas costs at $ 3 per million British thermal units ( MMBtu). Both of these energy prices match closely with currently published nationwide average prices. 21,22 Thus, the electricity and natural gas prices supplied by the RTO vendor were used in the cost algorithm.

Indirect operating costs were estimated using the methodology described in the EPA Air Pollution Control Cost Manual. The capital recovery cost was estimating assuming an RTO equipment life of 15 years ( based on the RTO vendor information) and a 7 percent interest rate. The TAC was calculated by summing the direct and indirect annual operating costs.

Application of the RTO Cost Algorithm to Estimate Capital and Annualized Costs.

The complete RTO cost algorithm, which predicts RTO capital and annualized costs as a function of operating hours and flow rate, was run several times assuming 8,000 operating hours per year and various flow rates. The 8,000 hr operating time was selected based on the results of the EPA's MACT survey, which show industry average operating hours of slightly less than 8,000 hr/ yr. 10 Although several plants operate process lines more than 8,000 hr/ yr, their equipment and control devices may or may not be operated for more than 8,000 hr/ yr. Thus, 8,000 hr/ yr was selected as the control device operating time for purposes of costing.

The TCI and TAC values generated for each flow rate using the RTO cost algorithm are presented in the BID for this rule. A regression equation was developed based on the calculated TCI and TAC for each flow rate. Figures 3 4 and 3 5 present the relationships between flow rate and RTO capital costs and flow rate and annualized costs, respectively, and the associated regression equations.

<IP_ADDRESS> WESP Costs A WESP cost model was developed based on: ( 1) information from a WESP vendor with many WESP installations at wood products plants, and ( 2) the costing methodology described in the EPA Air Pollution Control Cost Manual for electrostatic precipitators ( ESP's). 19,23 The cost model was used to determine TCI and TAC for WESP's used to control particulate emissions from OSB rotary dryers. The WESP vendor provided cost information for a WESP sized to treat 27,650 dry standard cubic feet per minute ( dscfm) of OSB rotary dryer exhaust. This flow rate matches closely with the flow rates for 3 27 uncontrolled OSB. Thus, the model TCI and TAC could be applied for each dryer to be controlled ( i. e., the model need not calculate different costs for varying flow rates). The WESP cost model is presented in the BID for the rule. Development of the model is discussed below.

WESP Total Capital Investment.

The WESP and auxiliary equipment costs ( which makeup the PEC) were provided by the WESP vendor. These PEC include the cost of the WESP; pumps, piping, and tanks; ducting ( including the quench); fans; and a 1 gallon per minute ( gpm) blowdown solids removal system. Instrumentation costs were also provided by the WESP vendor. Sales tax and freight were added into the total PEC based on the methodology described in the EPA Air Pollution Control Cost Manual. 3 28 y = 317394e 8E 06x R 2 = 0.9887 0 500,000 1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 3,500,000  50,000 100,000 150,000 200,000 250,000 300,000 350,000 Flow rate, dscfm TAC ($)

Figure 3 5. Variation in RTO total annualized cost with flow. y = 13.797x + 809310 R2 = 1 0 1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000  50,000 100,000 150,000 200,000 250,000 300,000 350,000 Flow rate, dscfm TCI ($)