It is difficult to estimate the profitability of retail motor fuel stations because many are small and privately held and are not required to report profits publicly.  However, some evidence suggests that profit margins are below five percent, and data suggest that average after-tax profit margins reported to the IRS for gas stations are roughly 1.5 percent.  Holding all other things equal, an annual cost greater than 1.5 percent of gross sales (i.e., a cost greater than $1,500 for a firm earning $100,000 a year) would exceed average reported profits and would therefore cause a motor fuel retailer to operate at a loss.  If the facility cannot adjust its prices or lower costs, it will eventually exit the market.
Consistent with the assessment of small business impacts in Section 5.4 of this chapter, EPA considers the impact of the proposed rule on small facilities in order to identify the most likely facilities to exit the market.  Assuming that all motor retail facilities, regardless of income, have an "average" configuration of approximately three tanks, EPA calculates the average total cost per facility to be $892 under the Preferred Option (reflecting a cost of approximately $300 per UST system).[,]
Using data from the 2002 Economic Census and the regulatory flexibility screening analysis methodology, EPA concludes that a facility-level cost of $892 would exceed 1.5 percent of total reported revenues (i.e., be equal to or greater than total profits) for 561 firms, representing less than one percent of the universe of motor fuel retail facilities. In comparison, approximately 2,400 facilities per year closed over the period between 2005 and 2008.[,]  In some cases, any exits related to regulatory costs may coincide with exits that would have occurred in the baseline.  Furthermore, it is likely that many of the affected facilities will also have options to pass through at least a portion of costs, and many small facilities may have fewer than three UST systems.  Therefore, EPA concludes that the market impacts associated with this proposed rule are likely to be diffuse and minimal, assuming a relatively uniform distribution of costs nationwide.
Sensitivity Analysis
EPA's finding of minimal market impacts rests on an assessment of "average" facilities with "average" rule-related costs.  If the costs of the proposed rule are concentrated on certain facilities, it is possible that additional impacts (e.g., market exits) could occur.  EPA therefore employs several sensitivity analyses to consider alternative, "worst case" distributions of regulatory costs across facilities.
To examine the extent to which the distribution of regulatory costs can be "concentrated" on specific facilities, EPA constructs a "worst case distribution" in which regulatory costs are concentrated on a subset of facilities.  To obtain this distribution, we artificially assign costs to create the largest cost for the largest number of facilities, by assuming that the same facilities in the state make every regulatory change.  We further assume that the smallest facilities in the U.S. are the facilities that bear the highest cost.
Exhibit 5-1 displays the universe of retail motor fuel UST facilities in the United States when costs are allocated to concentrate impacts. This creates an allocation of costs that varies broadly, from as little as $30 to just over $3,400 per facility.

                                  Exhibit 5-1
      Distribution Of Retail Motor Fuel UST Facility Costs
Using "Worst Case" Distribution

One possible concern is whether facilities that are likely to face high costs are geographically concentrated in certain states or regions. To assess this, we examined the distribution of the five percent of facilities incurring the highest costs if costs were concentrated (specifically, 8,135 facilities incurring costs greater than $1,800). The proportion of highest-cost facilities does not vary substantially by state. The highest concentration of high-cost facilities would be 6.4 percent (in Guam); 53 of the remaining 56 states and territories (accounting for 91 percent of retail motor fuel facilities) have roughly 5.0 percent to 6.5 percent of their facilities with this cost (OR, CA, and MS have fewer than four percent high-cost facilities). Differential economic impacts across states are not likely to occur as a result of disproportionate state-level impacts from this rule, even in a scenario of maximum concentration of costs across the fewest firms.
To assess economic impacts in this worst case scenario, EPA pairs the distributions of facility size and costs to identify situations in which estimated costs would exceed 1.5 percent of gross sales (the average reported retail motor fuel facility profit).   Facilities with costs exceeding 1.5 percent of revenues may face a significant economic impact under worst case assumptions.
      Market Exits
Even under the adverse scenario presented above, economic impacts to affected entities are relatively small. The least compliant facilities in the least regulated states would incur costs of $3,415 in the worst case.  This represents less than 1.5 percent of revenues for facilities earning more than $228,000 per year.  To assess the worst-case potential impact, EPA assumed that the facilities with the highest costs (those in the right-hand tail of the distribution in Exhibit 5-1) are also the facilities with the lowest revenues and allocated costs to those facilities to maximize the number of potential exits. EPA estimates that 6,100 facilities earning less than $250,000 per year in the U.S. (in 2002 dollars) would be subject to costs exceeding 1.5 percent of revenues in the worst case scenario.   To the extent that those facilities could not increase prices to offset higher costs, it is likely that at least some of them would exit the market.  If all of these facilities exited the market, the closures would constitute roughly four percent of existing facilities.  Note that this scenario relies on a highly unlikely confluence of assumptions, including:
         * All facilities with income less than $250,000 have average configurations of three UST systems.  In fact, it is likely that small facilities have fewer than three tanks and would therefore not be subject to the facility-level costs estimated here It is likely that the smallest facilities also operate only a single UST system, which would reduce their compliance costs by approximately 67 percent.  Under such circumstances, most small operators would not be subject to a significant economic impact even in the worst-case scenario.
         * No facility has any option to increase prices on goods or services or to identify options for savings.    While gasoline prices are unlikely to rise in response to this proposed rule, consumers may be willing to pay marginal cost increases on other products and services.  Moreover, in remote rural areas, retailers may be able to directly pass costs on to consumers.
         * A profit margin of 1.5 percent is standard.  Companies have a clear incentive to minimize taxable profits when filing income taxes with the IRS.  Because net income (profit) is taxable, corporations that are not publicly traded typically take legitimate steps (e.g., year-end investments in equipment, employee bonuses) to reduce both net income and tax burdens. As a result, a 1.5 percent after-tax profit estimate based on IRS data is likely to understate average profitability.
Finally, this analysis does not adjust the Census data on facility revenues for inflation, though costs are presented in 2008 dollars.  Due to the variability of gasoline pricing, we adopt a conservative assumption that revenues have remained static in nominal terms since 2002.
While our sensitivity analysis suggests that just over 6,100 facilities may be at risk of significant economic impacts in a worst case scenario, it is unlikely that a significant number of actual market exits would result from the proposed regulation. A plausible exception to this finding exists in cases where a facility with high upgrade costs faces high levels of local competition.   Even in these cases, closures would likely be consistent with the recent rate of industry consolidation of 1.4 percent per year.
Price Impacts
The high sensitivity of local demand to changes in retail motor fuel prices makes it unlikely that firms will react to the proposed rule by raising gasoline prices, However, the cost of other goods and services could potentially increase as firms seek to offset regulatory costs through sales of other products. Retailers will likely increase the prices of goods that are relatively price inelastic, such as tobacco products, auto service charges, or snack food and other convenience items.
      Employment Impacts
The increased operating costs incurred by facilities to comply with this proposed rule may result in very slightly increased prices for their goods and services, as previously discussed.  These potential price increases may result in reduced demand and thus reduced output of the facilities' goods and services. This could translate into lower demand for labor, a result commonly referred to as the demand effect.  As discussed earlier, the price effect is expected to be small though, and given the relatively inelastic demand for gasoline, the demand effect is likely to be small as well.  There is also the potential for the proposed rule to result in a small number of facilities exiting the market, which could result in a temporary negative employment effect as these workers look for other positions.   However, as noted earlier and in the next section below, these exits may coincide with exits that would already occur in the baseline. In addition, given the competitive nature of the retail motor fuel sector and the similar regulatory costs faced by each facility, many of these facilities may be able to pass through at least a portion of these costs (see Price Impacts section above).  As a result, the potential employment effect of market exits from the proposed rule is likely small.
	Furthermore, some of the requirements of the proposed rule may have a positive impact on employment. For example, walkthrough inspections require labor as a primary input which may lead to small increases in employment at regulated facilities.  In addition, the increased demand for testing services and training under the proposed rule may also lead to increased demand for labor.  Since the proposed rule could potentially affect the demand for labor both positively and negatively, the overall direction of net employment impacts is unclear, but is most likely very small relative to the size of the industry.

Long-run Economic Impacts
The proposed rule is unlikely to generate substantial additional impacts in the long run, but in a worst-case scenario it could accelerate ongoing consolidation trends in the retail motor fuel sector if market exits result. NPN reports that 168,987 motor fuel stations operated in the United States in 2005. By 2008, this number had fallen to 161,768, a decrease of 4.3 percent compared with 2005, or approximately 1.4 percent per year. While broader market consolidation is related to ownership strategies among oil companies and general economic patterns, facilities facing significant periodic costs (e.g. UST system replacement) may be most likely to close. Similarly, facilities with higher operating costs as a result of the rule may opt to close. In such cases, exits caused by the rule are likely to affect the most marginal firms and would likely coincide to some extent with exits that would have occurred in the absence of the proposed rule. These closures will occur in the context of the national decline in the number of facilities, such that the rule is unlikely to cause a significant number of closures beyond those that will occur as part of the existing trend.
5.2.4	Assessment of Public Sector Cost Savings Related to Avoided Releases
      A significant positive effect of the proposed rule derives from its impact on state funds created for the purpose of providing a financial responsibility mechanism to UST owners and operators. Among 56 state and territory governments, 43 have an existing fund created for the purpose of remediating releases; of these, 36 are active and continue to accept claims. In many of these states, owners and operators are required to pay for a portion of remedial actions through deductibles that generally range from zero to $100,000. Given an average cost of remediation of $127,216 in 2009, however, state funds are frequently required to finance some portion of remediation costs. These state funds are created by state legislation and must be submitted to EPA for approval before they can be used as financial responsibility mechanisms. In most cases, states generate money for their funds by levying tank registration and petroleum fees, which are then used to provide payments for remediation of releases beyond the deductibles paid by responsible parties. In states where funds rely on gas taxes and accept claims related to releases, these expenditures represent subsidies from the public to owners or operators responsible for releases.
      The extent to which the proposed regulations reduce the occurrence of new releases produces two welcome effects:
   *       Assignment of costs. Fewer releases implies lower expenditures from state funds.  This represents a reduction in this public subsidy and a reassignment of costs from the public remediation costs to private entity prevention costs. This improves market signaling and efficiency by requiring owners and operators to focus on release prevention.
   *       Competitive effects. High-performing owners or operators are less likely to incur significant regulatory costs than low-performing owners or operators.  As a result, the regulatory costs and cost savings improve the alignment of incentives to focus on private-sector prevention costs and reduce public-sector remediation costs.
To illustrate the potential magnitude of the public expenditures that could be affected by the regulation (i.e., distributional effects), we examine states that have active state funds and categorize them into those that finance their funds via petroleum and tank fees ("Tier 1"), or via only a tank fee ("Tier 2").
      We assume that states that are required to comply with a larger number of the new requirements will experience a greater reduction of releases, all other things equal. To estimate the distribution of avoided releases, we calculate the average number of requirements with which the systems in each state will need to comply.  We assign avoided releases based on both the number of systems in a state and the average number of requirements on each system, and we value releases based on the national profile of avoided releases and avoided groundwater incidents. Using ASTSWMO data, we subtract from our estimate of the potential cost borne by the public the deductible that owners or operators would be expected to pay. See Appendix N for a discussion of the methodology used.
      Exhibit 5-2 presents the results of our screening-level assessment.  Among the 36 states with active state funds that fall into Tier 1 or Tier 2, we find that the potential reduction in public expenditures could reach $191 million to $431 under the Preferred Option, with $150 million to $338 million in Tier 1 and $41 million to $94 million in Tier 2.  Reductions in public expenditures would equal approximately $198 million to $457 million under Alternative 1 and $80 million to $340 million under Alternative 2.  These savings would be slightly lower in a scenario where deductibles are in the upper end of their ranges. We note that, to realize the savings in public expenditures, state government action would be required to lower petroleum fees. Alternatively, the extent that funds are not constrained in their use, a redistribution of funds (e.g., to backlog sites awaiting cleanup) could also represent a significant public benefit. The values presented in this table do not reflect discounting to account for regulatory compliance schedules.
Note that this screening-level analysis is intended only to identify the potential magnitude of impacts on state fund liabilities.  A more detailed analysis of specific state program costs and the likely distribution of avoided releases would be necessary to precisely measure potential savings. Overall, the values in Exhibit 5-2 suggest that requiring owners and operators to focus on prevention reduces costs to state financial assurance funds by over $150 million under the Preferred Option and Alternative 1 and upward of $50 million for Alternative 2.

                                  Exhibit 5-2

Summary Of State Financial Assurance Fund Distributional Effects
                            Fund Revenue Mechanisms
                         Preferred Option
($ millions)
                          Alternative 1
($ millions)
                          Alternative 2
($ millions)
Low deductible scenario (High distributional effects)

Tier 1 (petroleum & tank fee)
                                                                    $150 - $338
                                                                    $154 - $355
                                                                     $53 - $275
Tier 2 (tank fee only)
                                                                      $41 - $94
                                                                     $44 - $102
                                                                      $27 - $65
Total
                                                                    $191 - $432
                                                                    $198 - $457
                                                                      $80 -$340
High deductible scenario (Low distributional effects)
Tier 1 (petroleum & tank fee)
                                                                    $138 - $303
                                                                    $142 - $318
                                                                     $49 - $120
Tier 2 (tank fee only)
                                                                      $39 - $87
                                                                      $42 - $95
                                                                      $14 - $71
Total
                                                                    $177 - $390
                                                                    $184 - $413
                                                                     $63 - $191

5.2.5	Economic Impact Summary
This set of analyses shows that it is unlikely that the proposed rule will have substantial negative economic impacts on the regulated community, in part because the costs of the rule appear to be evenly distributed across a large population of facilities, and remain modest at the facility level. Even under a highly improbable worst case scenario in which the highest costs are incurred by the smallest facilities, roughly four percent of the universe of retail motor fuel facilities would potentially incur costs greater than publicly reported industry average profit margins.  Market exits of roughly 2,400 facilities annually represent the current market trend.  It is likely, therefore, that most or all market exits under this proposed rule would coincide with exits of specific out-of-date facilities that are on the brink of exiting, and would not create a significant additional contraction of the total market.
A more likely response by many affected firms will be to adapt by increasing prices on higher margin products and services.  While overall employment impacts are unclear, it is possible that there may be an increase in labor demand due to the additional requirements placed on owners and operators, and additional demand for third-party testing services.
In addition, it appears that the proposed rule could have a positive impact on state governments that currently fund a portion of UST-related remediation costs through gasoline taxes and fees.  A decrease in the number and severity of releases represents cost savings to states due to decreased demand on state financial assurance funds. Our initial screening assessment suggests that annual costs to states could be reduced by over $150 million.  This represents a reduction in a public subsidy and an improvement in market signaling.
5.3		Energy Impact Analysis
Executive Order 13211, "Actions Concerning Regulations that Affect Energy Supply, Distribution, or Use" (May 18, 2001), addresses the need for regulators to consider the potential energy impacts of the proposed rule and resulting actions.  Under Executive Order 13211, agencies are required to prepare a Statement of Energy Effects when a regulatory action may have significant adverse effects on energy supply, distribution, or use, including impacts on price and foreign supplies.  Additionally, the requirements obligate agencies to consider reasonable alternatives to regulatory actions with adverse effects and the impacts that such alternatives might have on energy supply, distribution, or use.
The proposed rule affects underground storage tanks used in the storage of motor fuel or emergency generator fuel.  However, it is not likely that this proposed rule will have significant impacts on energy supply, distribution, or use.  To assess the energy impacts of the proposed rule, EPA considers potential changes in energy supply and use associated with the total costs estimated in Chapter 3.  The following summarizes EPA's assessment of the energy impacts that the proposed rule will have in energy supply, distribution, and use.
Energy Supply and Distribution
The proposed rule consists of additional regulatory requirements that apply to the owners and operators of underground storage tanks.  To the extent that the proposed rule affects the motor fuel sector, it does so at the retail motor fuel sales level, rather than the level of refineries or distributors who supply the retail stations with motor fuel.  Correspondingly, we do not expect the proposed rule to have any impacts on energy supply or distribution.
In terms of local motor fuel availability, we believe two outcomes are possible. If a motor fuel station is located in an area where competition from other stations exists, we do not believe fuel prices will be affected. Rather, owners and operators will seek to recover the costs of the proposed rule by increasing the prices of convenience items. If a station does not also operate a convenience store through which it can recover these costs, it may become subject to a significant economic impact and exit the market. In such a case, however, supply will not be disrupted, as other competitors fill the void left by the former market participant.
We do not expect market exits to occur in low-competition environments due to the market power of stations and the marginal nature of the increase in cost. If a motor fuel station is located in an area where competition is not intense (e.g., a rural setting), it may opt to directly pass on higher costs through increases in fuel or convenience goods prices. As we discuss below, even if the entire cost of the rule is priced through to consumers, the change in fuel prices is not likely to be measurable.
      Energy Use
The additional regulatory requirements contained in the proposed rule may increase compliance costs for owners and operators of retail motor fuel stations.  If the owners and operators of retail motor fuel stations affected by the proposed rule can successfully pass through their increased compliance costs, energy use may be affected through higher energy prices caused by the proposed rule.  However, we do not expect a significant change in retail gasoline prices to result from this proposed rule for the follow reasons:
           *       Economic analyses of retail fuel prices have revealed that demand for gasoline is highly sensitive to price (elastic) within localized geographic areas.
           *       As a result, if one motor fuel retailer in an area passes through increases in compliance costs by increasing gasoline prices, while another does not, the one with higher prices is at a significant competitive disadvantage.
           *       Retail motor fuel stations often have associated stores and/or services, such as car washes, repair operations, and convenience outlets, on which they can more successfully pass through increases in compliance costs.
When considered in the context of total fuel consumption in the United States, the proposed rule would represent only a very small fraction of motor fuel prices even if it was fully passed through to consumers. According to the Bureau of Transportation Statistics, the United States consumed 170,765,000,000 gallons of motor fuel (including gasoline and diesel) in 2008 at an average price of $3.27.  This implies that U.S. consumers spent $558 billion in 2008 on motor fuel. The overall cost of the proposed rule is roughly $210 million, less than one-tenth of one percent of the amount spent by end-users on motor fuel in 2008. In comparison, an increase of $0.01 in the average price of motor fuel in 2008 would have increased the total cost to consumers by approximately $1.7 billion. Given these circumstances, the proposed rule should not have a measurable impact on retail prices.
5.4	Regulatory Flexibility Analysis
The Regulatory Flexibility Act (RFA) as amended by the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA), 5 USC 601 et seq., generally requires EPA to prepare a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements under the Administrative Procedure Act or any other statute.  This analysis must be completed unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. If a regulation is found to have a significant impact on a substantial number of small entities, further analysis must be performed to determine what can be done to lessen the impact.  Small entities include small businesses, small organizations, and small governmental jurisdictions.  EPA developed a screening analysis and supplemental analysis consistent with the requirements under RFA; this section presents a summary of these findings, and Appendix L provides the detailed screening analysis.
For purposes of assessing the impacts of this rule on small entities, a small entity is defined as: (1) a small business as defined by the Small Business Administration's (SBA) regulations at 13 CFR Part 121.201; (2) a small governmental jurisdiction that is a government of a city, county, town, school district or special district with a population of less than 50,000; and (3) a small organization that is any not-for-profit enterprise which is independently owned and operated and is not dominant in its field.  For the purposes of this analysis, EPA considered costs in excess of one percent and three percent of revenues as indications that the proposed rule may have a significant impact on a given small entity, and estimates of greater than 20 percent of total small firms or 1,000 total small firms affected as indications that a substantial number of small entities may be affected by the proposed rule.
5.4.1	Small Business Screening Analysis
      We estimate that there are approximately 83,900 firms operating 162,000 facilities in the U.S. retail motor fuel sales sector.  This analysis assumes that all retail motor fuels firms operate underground storage tanks (UST systems) at all of their facilities.  Based on the distribution of firms across revenue categories published by the 2002 Census, and SBA's revenue thresholds for NAICS 447110 and 447190, approximately 82,500 (98 percent) of these firms meet SBA's definition of a small entity.  Approximately 7,520 of these firms report revenues between $0 and $250,000 (the smallest revenue range published by the 2002 Census), with average sales of approximately $149,000.

      To determine whether firms reporting revenues within a given revenue range would incur costs exceeding one percent or three percent of total revenue, EPA compares the average total compliance cost per firm with the average revenue reported by firms in the revenue range. Based on a compliance cost per system of $300 (in 2008 dollars), and assuming that firms in the smallest revenue range own one facility with three UST systems, we estimate that the 7,520 small firms in the $0-$250,000 revenue range would face total compliance costs of $892 per firm (or $757 in 2002 dollars).  Any firm with annual revenues above approximately $75,700 (in 2002 dollars) (i.e., the revenue threshold at which compliance costs would exceed one percent of the firm's revenue) is not expected to experience a significant impact.  The average revenue for the 7,520 firms in the $0-$250,000 revenue bin is $149,000, suggesting that on average, firms in this category will not experience significant impacts due to estimated compliance costs.

      However, because the lowest range reported by the U.S. Census reflects a distribution of firms with revenues between $0 and $250,000, it is still possible that some of the 7,520 firms in this category may be significantly affected. As mentioned above, EPA also considered estimates of greater than 20 percent of total small firms or 1,000 total small firms affected as indications that a substantial number of small entities may be affected by the proposed rule. While the 7,520 small firms in the lowest revenue range represent only nine percent of all potentially affected small firms, EPA conducted a supplemental analysis that focuses on this group of small firms in an attempt to refine the estimated number of small firms potentially affected by the proposed rule.
5.4.2	Small Business Supplemental Analysis
	The purpose of this supplemental analysis is to refine the results of the small business screening analysis.  The Census Bureau provided additional data on firms in the lowest revenue bins for NAICS sectors 447110 (gasoline stations with convenience stores) and 447190 (other gasoline stations), identifying the percentage of firms with revenues in three ranges: (1) $0-$50,000; (2) $50,000-$150,000; and (3) $150,000-$250,000.  Based on this information, we estimate the number of firms in the retail motor fuel sales sector (i.e., NAICS 447) for these three revenue groups at approximately 550, 3,120, and 3,860, respectively and use these data to refine our estimate of the number of significantly affected facilities.
      Given compliance costs of $892 per firm ($757 in 2002 dollars), any firm making less than $75,700 and $30,000 would be considered significantly affected at the one percent and three percent revenue thresholds, respectively.  EPA estimates that 1,348 firms are affected at the one percent threshold, and no firms are affected at the three percent threshold.

      The number of firms that will be significantly affected at the one percent threshold exceeds the one thousand-firm substantial effect benchmark by 348 firms.  However, it is likely that this proposed rule will have no SISNOSE for three reasons.  First, 1,348 firms represent roughly one percent of potentially affected small firms, which is significantly lower than the 20 percent threshold (the other parameter considered in this analysis to determine a "substantial number").  Second, although the U.S. Census Bureau reports several hundred facilities with annual revenues less that $100,000, market economics suggest that it would be difficult for a firm that relies solely on gasoline sales to be viable if earning less than $100,000 in annual revenues, suggesting that some of these facilities may not be standalone entities.  Finally, at least some of the smallest facilities are likely to have fewer than the three tanks used as a basis for facility-level costs.  EPA thus finds that the proposed rule does not appear likely to have a significant economic impact on a substantial number of small businesses.
5.4.3	Impacts to Small Governments
      The 1992 Local Government Economic Impact Analysis provides the best readily-available data on the number of governments owning UST systems, total UST systems owned by governments, average UST systems per government, and UST systems per owning government.  The data include size and revenue for both general purpose (i.e., counties, municipalities, and townships) and special district governments (i.e., school districts and other special districts), dividing these governments into four size categories: very large, large, medium and small. The 1992 analysis defines a "very large" government as one that serves over 50,000 people; therefore, all other entities are considered to be small governmental jurisdictions according to the RFA/SBREFA definition. Using the data from the 1992 analysis, we estimate the number of small governments that own UST systems based on the total universe of UST systems today.  See Appendix L for additional detail.
      EPA assumes that local governments collectively own four percent of active tanks. This equates to 24,458 tanks, based on the fiscal year 2009 universe of 611,449 tanks. These 24,458 tanks are distributed among all local governments, based upon the percentage of tanks owned in 1992 by local governments in each size category (the average number of tanks owned by a government varies with the size of the government from one tank for small governments to 10 or more tanks for the largest governments).
      EPA then calculates, using the 1992 data on government ownership of UST systems, the average compliance cost per government entity. This is done by multiplying the cost per tank by the number of UST systems per government by size category. The average annual revenue for each size of general purpose government is calculated using 2002 Census Data and weighted-average contributions that depend on type of entity (i.e., towns, municipalities, and counties). EPA extrapolates Census data on revenues for 4,128 townships to the 16,504 townships in the country. These weighted averages are combined to obtain annual revenues in 2002 dollars for general purpose governments, then inflated to 2008 dollars. Detailed information at the special district level is not available for later years, so budget expenditures from the 1992 analysis were inflated into 2008 dollars.
      To calculate how many small governments face significant compliance costs exceeding one or three percent of their revenues, we compared the average compliance cost per government with the average annual revenues to determine how many exceed either threshold. At a cost of $300 (2008 dollars) per UST system, no small governments are affected under either the one percent or three percent revenue threshold (see Exhibit 5-3). Correspondingly, EPA does not find that the proposed rule has any significant impact on a substantial number of small governments.

                                  Exhibit 5-3

               Compliance Costs To Systems Owned By Governments
                                Type of Gov't
                              Size of Gov't[b]
                       UST Systems Per Owning Gov't[c]
                      Number of Gov'ts Owning Tanks[d]
                        2002 Est. Number of Gov'ts e
                            Average Annual Revenue
                                   ($2008) f
                        Average Cost Per Gov't ($)[g]
                       Gov'ts Exceeding 1% of Revenue
                       Gov'ts Exceeding 3% of Revenue
General Purpose[a]
Very Large
                                                                           10.2
                                                                            534
                                                                          1,461
                                                                  $316,129,836
                                                                        $2,597
                                                                              0
                                                                              0

Large
                                                                            2.5
                                                                          1,512
                                                                          4,040
                                                                   $35,687,794
                                                                          $637
                                                                              0
                                                                              0

Medium
                                                                            1.4
                                                                          1,444
                                                                          7,822
                                                                    $8,712,804
                                                                          $356
                                                                              0
                                                                              0

Small
                                                                            1.1
                                                                          1,048
                                                                         25,644
                                                                    $1,779,216
                                                                          $280
                                                                              0
                                                                              0

Subtotal
                                                                            2.7
                                                                          4,538
                                                                         38,967

Special Purpose
Very Large
                                                                            3.7
                                                                            336
                                                                           934
                                                                  $431,319,166
                                                                          $942
                                                                              0
                                                                              0

Large
                                                                            3.6
                                                                          1,902
                                                                         5,340
                                                                   $52,806,696
                                                                          $917
                                                                              0
                                                                              0

Medium
                                                                            1.4
                                                                          2,648
                                                                        13,602
                                                                    $2,533,231
                                                                          $356
                                                                              0
                                                                              0

Small
                                                                            1.0
                                                                            258
                                                                        28,682
                                                                      $128,013
                                                                          $255
                                                                              0
                                                                              0

Subtotal
                                                                            2.4
                                                                          5,144
                                                                         48,558

                                                                              0
                                                                              0
Overall
Total
                                                                            2.5
                                                                          9,682
                                                                         87,525

                                                                              0
                                                                              0
[a] General Purpose governments include counties, municipalities and townships. Special Purpose governments include public school systems and special districts.
[b] Very large governments are considered to serve more than 50,000 people. Large governments are considered to be those that serve between 10,000 and 50,000 people, medium governments as those that serve between 2,500 and 10,000 people, and small governments as those that serve 2,500 or fewer people. According to RFA/SBREFA, small governmental jurisdictions have populations under 50,000. Therefore, all sizes of governments except for "very large" are considered to be small.
c From 1992 Local Government Impact Analysis data.
[d] Calculated as number of tanks (adjusted 1992 distribution in each size category to reflect FY 2009 tank numbers) divided by UST systems per owning government (c).
[e] General purpose and Special Purpose total number of entities from 2002 Census of Governments, size distribution extrapolated from 1992 Local Government Impact Analysis data.
[f] General purpose estimates from 2002 Census of Governments; Special Purpose estimates inflated from 1992 Local Government Impact Analysis data.
[g]  Calculated as number of systems per government (c) * estimated cost per tank ($255 in 2002$; $300 in 2008$).
5.5	Screening Analysis to Inform Impacts on Minority and Low-Income Populations
      Executive Order 12898 (Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Populations) (59 FR 7629, Feb. 16, 1994) directs federal agencies, to the greatest extent practicable and permitted by law, to identify and address, as appropriate, disproportionately high and adverse human health or environmental effects of their programs, policies, and activities on minority populations and low-income populations in the United States.
	To inform us about the socioeconomic characteristics of communities potentially affected by the rule, EPA conducted a screening analysis to examine whether there is a statistically significant disparity between socioeconomic characteristics of populations located near UST facilities and those that are not.  The results indicate that minority and low-income populations are slightly more likely to be located near UST facilities.  An environmental justice analysis would then require an assessment of whether there would be disproportionate and adverse impacts on these populations.  However, because all regulatory options considered in this proposed rule would increase regulatory stringency and reduce the number and size of releases, EPA does not anticipate that the proposed rule will have any disproportionately high and adverse human health or environmental effects on these minority or low income communities, or on any community.
5.5.1	Risk Assessment Population Analysis
      To characterize the extent of human health risk reductions anticipated under the proposed regulation, EPA conducted a screening-level analysis of the likely impact of the rule on benzene-related cancer incidence.  This analysis used location data for nearly 60,000 U.S. gas stations with UST systems using an ESRI Business Analyst database, and examined populations within a buffer distance of 1,000 feet of facilities with UST systems.  The ESRI gas station location data are supplemented with 1,600 UST systems in Indian country, based on location information compiled from EPA regional Indian country databases. After elimination of duplicates, the data set contains 59,945 UST facilities (including 727 in Indian country) (see Exhibit 5-4).  The total data set represents over 25 percent of the roughly 220,000 active facilities with UST systems.
      To estimate populations near sample facilities, the analysis uses a "synthetic population" dataset developed by the Modeling of Infection Diseases Agents Study (MIDAS) to provide population estimates at a finer spatial resolution than Census blocks, while maintaining the accuracy of aggregate demographic data at the Census block group level.  For more detail on this method, see Appendix M.
      The modeled fate and transport of pollutants under a range of scenarios indicates that the contamination from UST releases do not typically exceed 1,000 feet.  The risk assessment considered population density within 1,000 feet of each UST, and incorporated estimates of the use of groundwater for drinking and bathing, along with typical exposure scenarios, to characterize the change in population risk likely to be associated with the reduction of 2,821 releases and groundwater incidents (i.e., the total estimated number of avoided releases and groundwater incidents resulting from the proposed regulations).  The risk assessment concluded that the proposed regulations will result in a very small reduction in population risk related to cancer from benzene exposure, based on the estimated number and volume of avoided releases and groundwater incidents.
                                  Exhibit 5-4
UST Location Data Used In Analysis. (See Appendix M for details on data sources.)

5.5.2	Demographic Analysis
      The demographic analysis expands on the population data near the 59,945 gas stations in the risk assessment by characterizing demographic features of populations at each site and comparing these populations to larger (county-level) reference populations.  Specifically, the analysis examines the following demographic variables: percent in poverty, percent minority, and, as a verification step, percent white alone (the percentage of the population that specified their race as "white" and did not specify "Hispanic").  The analysis also identifies percent under five years old, percent under 18 years old to support the analysis required under Executive Order 13045, "Protection of Children from Environmental Health Risks and Safety Risks" (see section 5.6 below).  The analysis considers the significance of the "difference in means" and "difference in median" values for each census parameter and each community.  That is, the analysis identifies the differences between mean and median concentrations of each demographic group for the affected and reference populations at each of the 59,945 sites, and examines whether the differences identified across all sites are statistically different from what would be expected in a random distribution.
      The analysis considers the differences in demographics in two ways:  unweighted (each site is given equal weight) and population weighted (results are weighted by affected persons, giving sites with larger populations more weight).  A statistically significant positive difference indicates a greater percentage of target demographic in the affected population than in the larger reference population.  A statistically significant negative difference indicates a smaller percentage of the target demographic in the affected population.   Exhibit 5-5 provides the unweighted results of the analysis and generally finds that minority and low-income demographics constitute a slightly larger proportion of the population surrounding UST facilities. For example, poor populations account for 13.3 percent of the population near an UST, compared with 12.2 percent of the reference (county) population.  As Exhibit 5-6 shows, although the difference is small, it is also highly statistically significant (with a p-value below .001), which suggests that the difference between the values is not a random occurrence. Exhibits 5-7 and 5-8 summarize the results of the population-weighted analysis, and generally find slightly larger (but still small) effects.
Exhibit 5-5
Summary Results For Census Parameters  -  Unweighted
                               Census Parameter
                        1000 ft Buffer around Facility
                       County where Facility is Located
                                  Difference

                                     Mean
                                    Median
                                     Mean
                                    Median
                                     Mean
                                    Median
                           95% Confidence Interval
                              of Mean Difference

                                  Lower Bound
Upper Bound
Percent White Alone
                                     70.3
                                     81.3
                                     70.8
                                     74.8
                                     -0.44
                                     1.29
                                     -0.61
                                     -0.27
Percent Under Age 5
                                      6.7
                                      6.5
                                      6.7
                                      6.7
                                     -0.05
                                     -0.12
                                    -0.068
                                    -0.032
Percent Under Age 18
                                     24.7
                                     24.9
                                     25.6
                                     25.5
                                     -0.84
                                     -0.54
                                     -0.99
                                     -0.68
Percent in Poverty
                                     13.3
                                     10.3
                                     12.2
                                     11.5
                                      1.1
                                     -0.64
                                     0.99
                                     1.13
Percent Minority
                                     24.0
                                     14.6
                                     23.8
                                     20.9
                                     0.21
                                     -1.48
                                     0.06
                                     0.36
Note: Difference summary statistics (mean and median) were calculated from the distribution of difference values (i.e., one result per facility, yielding a distribution of about 60,000 results). Mean values reflect the entire distribution, whereas the median values are based only on the 50[th] percentile result. For this reason, the mean difference results could also be calculated simply by subtracting the reference community mean from the potentially affected community mean (e.g., for mean percent poverty 13.3  -  12.2 = 1.1). In contrast, the median difference values do not necessarily match values derived by subtracting the median values from the underlying distributions (e.g., for median percent poverty 10.3  -  11.5 != -.64). Although the primary results of the analysis are based on mean values, median results are provided for completeness and as an alternative indicator of the distributions' central tendency.
Exhibit 5-6
Standard Error, T Test, And Risk Ratio Results  -  Unweighted

                        1000 ft Buffer around Facility
                       County where Facility is Located
                                  Difference

                                  SE of Mean
                                  SE of Mean
                                  SE of Mean
                                  T Statistic
                                    p-value
                                     Ratio
                                  SE of Ratio
Percent White Alone
                                     0.120
                                     0.088
                                     0.085
                                     -5.23
                                   <0.001
                                     0.99
                                     0.001
Percent Under Age 5
                                     0.010
                                     0.004
                                     0.009
                                     -5.18
                                   <0.001
                                     0.99
                                     0.001
Percent Under Age 18
                                     0.104
                                     0.071
                                     0.079
                                    -10.59
                                   <0.001
                                     0.97
                                     0.001
Percent in Poverty
                                     0.045
                                     0.023
                                     0.038
                                     27.66
                                   <0.001
                                     1.09
                                     0.003
Percent Minority
                                     0.104
                                     0.071
                                     0.079
                                     2.71
                                    0.0067
                                     1.01
                                     0.003
Note: There are >56,033 degrees of freedom for this test (i.e. number of facilities). Note that the total number of facilities in the dataset (59,945) differs from the degrees of freedom, because a fraction of facilities have no people living within the 1000 foot buffer.

                                  Exhibit 5-7

       Summary Results For Census Parameters  -  Weighted By Population

                               Census Parameter
                        1000 ft Buffer around Facility
                       County where Facility is Located
                                  Difference

                                     Mean
                                    Median
                                     Mean
                                    Median
                                     Mean
                                    Median
                           95% Confidence Interval
                              of Mean Difference

                                  Lower Bound
Upper Bound
Percent White Alone
                                     53.88
                                     59.63
                                     58.79
                                     57.70
                                     -4.61
                                     -2.55
                                     -5.0
                                     -4.2
Percent Under Age 5
                                     6.91
                                     6.78
                                     6.80
                                     6.85
                                     0.11
                                     0.04
                                     0.073
                                     0.14
Percent Under Age 18
                                     24.74
                                     24.91
                                     25.36
                                     25.53
                                     -0.62
                                     -1.57
                                     -0.73
                                     -0.50
Percent in Poverty
                                     16.22
                                     13.34
                                     13.33
                                     12.83
                                     2.89
                                     0.96
                                      2.7
                                      3.1
Percent Minority
                                     36.61
                                     29.54
                                     33.16
                                     31.92
                                     3.45
                                     0.58
                                      3.1
                                      3.8
Note: Difference summary statistics (mean and median) were calculated from the distribution of difference values (i.e., one result per facility, yielding a distribution of about 60,000 results). Mean values reflect the entire distribution, whereas the median values are based only on the 50[th] percentile result. For this reason, the mean difference results could also be calculated simply by subtracting the reference community mean from the potentially affected community mean (e.g., for mean percent poverty 16.2  -  13.3 = 2.9). In contrast, the median difference values do not necessarily match values derived by subtracting the median values from the underlying distributions (e.g., for median percent poverty 13.3  -  12.8 != -0.96). Although the primary results of the analysis are based on mean values, median results are provided for completeness and as an alternative indicator of the distributions' central tendency.
Exhibit 5-8
Standard Error, T Test, And Risk Ratio Results  -  Weighted By Population

                        1000 ft Buffer around Facility
                       County where Facility is Located
                                  Difference

                                  SE of Mean
                                  SE of Mean
                                  SE of Mean
                                  T Statistic
                                    p-value
                                     Ratio
                                  SE of Ratio
Percent White Alone
                                     0.288
                                     0.193
                                     0.205
                                    -22.48
                                   <0.001
                                     0.92
                                    0.0035
Percent Under Age 5
                                     0.020
                                     0.008
                                     0.017
                                     6.24
                                   <0.001
                                     1.02
                                    0.0026
Percent Under Age 18
                                     0.065
                                     0.033
                                     0.058
                                    -10.62
                                   <0.001
                                     0.98
                                    0.0023
Percent in Poverty
                                     0.108
                                     0.063
                                     0.085
                                     34.02
                                   <0.001
                                     1.22
                                    0.0064
Percent Minority
                                     0.255
                                     0.165
                                     0.191
                                     18.05
                                   <0.001
                                     1.10
                                    0.0058
Note: There are >56,033 degrees of freedom for this test (i.e. number of facilities). Note that the total number of facilities in the dataset (59,945) differs from the degrees of freedom, because a fraction of facilities have no people living within the 1000 foot buffer.

      Overall, the demographic analysis identifies a small but statistically significant difference between minority and low-income populations near UST systems and in the reference communities.   Minority and poverty-level demographics are present at greater percentages in the vicinity of UST facilities.  In contrast, a small negative relationship suggests that "white alone" populations are less likely to be near UST systems, i.e., minority populations are marginally more likely to reside near UST facilities.  Moreover, while the unweighted analysis does not find clear patterns related to children under 18 and children under five, the population-weighted analysis finds that the distribution of all target demographics around UST facilities reflects small but significant differences from county-level populations. The population-weighted results show greater differences, suggesting that facilities in higher population areas tend to have more pronounced disparities between local, potentially affected communities and reference (county-level) communities. These differences, while small, are statistically significant with p-values less than 0.01 in all cases.   This result implies that any risk reductions associated with the proposed rule will occur in the context of a baseline condition in which minority and low-income populations are disproportionately located near USTs.

5.5.3   Summary and Limitations of the Analysis
      This section summarizes a screening assessment and does not present a complete environmental justice analysis.  The assessment is limited by the fact that demographic data from the U.S. Census are at the block group level, and are not as precise as the spatial distribution of population.  As a result, if the demographic distribution of populations within block groups is uneven, the block group-level data may not accurately characterize populations living nearest to UST locations.  The large sample of 59,945 sites, however, reduces the potential that this uncertainty could skew the results of the analysis.
      Given the results of the screening analysis, because all regulatory options considered in this proposed rule would increase regulatory stringency and reduce the number and size of releases, EPA does not anticipate the proposed rule to have any disproportionately high and adverse human health or environmental effects on these minority or low income communities, or on any community.  Since the proposed rule is not anticipated to create any new adverse human health or environmental impacts, EPA did not conduct a complete environmental justice analysis.
5.6	Children's Health Protection Analysis
Executive Order 13045, "Protection of Children from Environmental Health Risks and Safety Risks" (62 FR 19885, April 23, 1997), applies to any rule that: (1) is determined to be "economically significant" as defined under E.O. 12866, and (2) concerns an environmental health or safety risk that EPA has reason to believe may have a disproportionate effect on children. If the regulatory action meets both criteria, the Agency must evaluate the environmental health or safety effects of the planned rule on children, and explain why the planned regulation is preferable to other potentially effective and reasonably feasible alternatives considered by the Agency.
This action may be subject to Executive Order 13045 because it is economically significant as defined in Executive Order 12866.  EPA's screening-level risk assessment examines potential impacts to groundwater and subsequent chemical transport, exposure and risk. While the risk assessment did not specifically measure exposure to children, the general exposure scenarios reflect four exposure pathways that have the most significant potential for human health impacts.  These are:
         * ingestion of chemicals in groundwater that have migrated from the source area to residential drinking water wells
         * inhalation of volatile chemicals when showering with contaminated groundwater
         * dermal contact with chemicals while bathing or showering with contaminated groundwater
         * inhalation of vapors that may migrate upward from contaminated groundwater into overlying buildings
Adults and children can potentially be exposed through all four exposure pathways considered.   For adults, inhalation of vapors while showering is the most significant adult exposure pathway; for children, ingestion is the most significant pathway, because children are assumed to take baths and are therefore not exposed via shower vapor inhalation.  As a result of the longer exposure from showering, adults are the more sensitive receptor for cancer effects compared to children, particularly those under five who are assumed to take more baths and fewer showers.
While the screening level risk assessment is limited in that it only examines benzene impacts, the proposed rule would likely reduce other contaminant exposures to children in a similar pattern, and would not create significant adverse impacts on children's health.
The screening-level demographic analysis described in section 5.5 finds a statistically significant result that children under the age of 18 and children under the age of five are slightly less likely to be found in the vicinity of UST facilities. This suggests that the impacts of the proposed rule will not have a disproportionate impact on children's health. Moreover, because all regulatory options proposed today would increase regulatory stringency and reduce the number and size of releases, EPA does not expect the proposed rule to have any disproportionate adverse impact on children.

   Chapter 6.		Other Statutory and Executive Order Analyses

      As required by applicable statutes and executive orders, this chapter summarizes our analysis of equity considerations and other regulatory concerns associated with the proposed rule. This chapter assesses potential impacts, with respect to the following issues:

            *       Regulatory planning and review: requires examination and quantification of costs and benefits of regulating with and without the proposed rule.

            *       Unfunded mandates: examines the implications of the proposed rule with respect to unfunded mandates.

            *       Federalism: considers potential issues related to state sovereignty.

            *       Tribal governments: extends the discussion of federal unfunded mandates to include impacts on Native American tribal governments and their communities.

            *       Joint impacts of rules: discusses how other rules, together with the proposed rule, will likely affect the universe of facilities regulated by the proposed rule.
6.1		Regulatory Planning and Review
Under Executive Order 12866 [58 FR 51735 (October 4, 1993)], EPA, in conjunction with the Office of Management and Budget's (OMB's) Office of Information and Regulatory Affairs (OIRA), must determine whether a regulatory action is "significant" and therefore subject to OMB review and the full requirements of the Executive Order. The Order defines "significant regulatory action" as one that is likely to result in a rule that may:
      (1) 	Have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities;
      (2) 	Create a serious inconsistency or otherwise interfere with an action taken or planned by another agency;
      (3) 	Materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of recipients thereof; or
      (4) 	Raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in the Executive Order.
Pursuant to the terms of Executive Order 12866, the Agency has determined that this proposed rule is an economically significant regulatory action because it may have an annual effect on the economy of $100 million or more, as defined under part 3(f)(1) of the Order.  Findings of the regulatory cost analysis (Chapter 3) indicate that the rule, as proposed, is projected to result in aggregate annual social costs of approximately $210 million under the Preferred Option, $520 million under Alternative 1, and $130 million under Alternative 2.  Separately, this analysis concludes that the proposed rule is expected to have cost savings related to avoided costs of $300 million to $740 million under the Preferred Option, $310 million to $770 million under Alternative 1, and $110 million to $590 million under Alternative 2, but for the purposes of addressing Executive Order 12866, these cost savings are considered to be separate impacts rather than direct reductions in the total cost of the rule.
6.2	Unfunded Mandates Analysis
Signed into law on March 22, 1995, the Unfunded Mandates Reform Act (UMRA) calls on all federal agencies to provide a statement supporting the need to issue any regulation containing an unfunded federal mandate and describing prior consultation with representatives of affected state, local, and tribal governments.
The proposed rule is subject to the requirements of sections 202 and 205 of UMRA.  In general, a rule is subject to the requirements of these sections if it contains "Federal mandates" that may result in the expenditure by State, local, and tribal governments, in the aggregate, or by the private sector, of $100 million or more in any one year. The proposed rule results in approximately $180 million of costs to the private sector under the Preferred Option, $350 million under Alternative 1, and $120 million under Alternative 2  in expenditures for the private sector and is thus subject to the following requirements of these sections.
   *       An identification of the provision of Federal law under which the proposed rule is being promulgated.

   *       A qualitative and quantitative assessment of the anticipated costs and benefits of the Federal mandate;

         o             Costs and benefits to State, local, and tribal governments and the private sector
         o             Effect on health, safety, and the natural environment
         o             Analysis of extent to which such costs may be paid with Federal financial assistance (or otherwise paid for by the Federal government)
         o             Analysis of the extent to which there are available Federal resources to carry out this mandate

   *       Estimates of future compliance costs with the mandate.

   *       Estimates of disproportionate budgetary effects on any type of government or segment of the private sector.

   *       Estimates of the effect on the national economy (if relevant and possible).

Exhibit 6-1 provides references for the analyses that EPA has performed that respond to these requirements.
                                  Exhibit 6-1
             Location Of Analyses Responding To UMRA Requirements
                                  Requirement
                                   Location
Identification of provision of Federal law under which proposed rule is being promulgated
Chapter 1 of this document
Assessment of costs and benefits to State, local, and tribal governments and the private sector
Chapters 3 and 4 of this document
Assessment of the effect on health, safety, and the natural environment
Chapter 4 of this document
Assessment of the extent to which such costs may be paid with Federal financial assistance
Chapter 3 of this document; no Federal assistance is anticipated
Assessment of the extent to which there are available Federal resources to carry out this mandate
Chapter 3 of this document; no Federal resources are anticipated
Estimates of future compliance costs
Chapter 3 of this document
Estimates of disproportionate budgetary effects on any type of government or private sector segment
Chapter 5 of this document
Estimates of the effect on the national economy
Chapters 3 and 5 of this document

6.3	Federalism Analysis
Executive Order 13132, entitled "Federalism" (64 FR 43255, August 10, 1999), requires EPA to develop an accountable process to ensure "meaningful and timely input by state and local officials in the development of regulatory policies that have federalism implications."  "Policies that have federalism implications" is defined in the Executive Order to include regulations that have "substantial direct effects on the states, on the relationship between the national government and the states, or on the distribution of power and responsibilities among the various levels of government."  EPA typically considers a policy to have federalism implications if it results in the expenditure by State and/or local governments in the aggregate of $25 million or more in any one year.
Under Executive Order 13132, EPA may not issue a regulation that has federalism implications, that imposes substantial direct compliance costs, and that is not required by statute, unless the Federal government provides the funds necessary to pay the direct compliance costs incurred by State and local governments, or EPA consults with State and local officials early in the process of developing the regulation.
      Exhibit 6-2 summarizes annual government costs. Direct compliance costs for local and State governments reflect average costs per UST system; the analysis assumes that states collectively own one percent of total UST systems (6,114), and local governments own 24,458 UST systems (four percent).
      In addition, under the proposed rule, each state will incur labor costs for reading the new regulations, applying for State Program Approval (SPA), and processing one-time notification of existence for EGTs, AHFDSs, and FCTs.  States that do not already require notification of UST ownership change will also incur costs to process and review all ownership change notifications of UST system ownership change.
      In this scenario, total costs to all affected state and local governments (including direct compliance costs, notification costs, and state program costs) are approximately $9.3 million under the Preferred Option, $19 million under Alternative 1, and $6.5 million under Alternative 2 in 2008 dollars; this is not considered to be a substantial compliance cost under federalism requirements.
Exhibit 6-2

Summary Of Annual State And Local Government Costs[b]
                                    Element
                         Preferred Option
($ millions)
                          Alternative 1
($ millions)
                          Alternative 2
($ millions)
Local Compliance Costs[a]
                                                                          $7.3
                                                                         $15.0
                                                                          $5.0
State Compliance Costs[a]
                                                                          $1.8
                                                                          $3.7
                                                                          $1.3
State Government Administrative Costs
                                                                          $0.2
                                                                          $0.2
                                                                          $0.2
Total State and Local Governments Costs
                                                                          $9.3
                                                                         $19.0
                                                                          $6.5
[a] State and local government compliance costs are included in the total compliance costs presented in Exhibit 3-9.
[b] Cost estimates were derived using a seven percent discount rate.

6.4	Tribal Governments Analysis
	Executive Order 13175, entitled "Consultation and Coordination with Indian Tribal Governments" (65 FR 67249, November 9, 2000), requires EPA to develop an accountable process to ensure "meaningful and timely input by tribal officials in the development of regulatory policies that have tribal implications."  EPA has concluded that this action will have tribal implications to the extent that tribally-owned entities with UST systems on Indian country would be affected.  However, it will neither impose substantial direct compliance costs on tribal governments, nor preempt Tribal law.
	The data sources for the Indian country analysis are the same as those used in the small business analysis.  Based on a review of information available about the types of business entities in Indian country, it is assumed that UST systems in Indian country represent a subset of the rest of the universe and are distributed similarly across the same sectors. The total number of UST systems in Indian country is distributed proportionally among the NAICS sectors.
	The cost per UST system is higher in Indian country, as the universe is smaller, and all UST systems are assumed to incur costs associated with all the requirements of the proposed rule.  At a 2008 cost of $795 per UST system, the total cost for UST systems in Indian country is approximately $2.1 million. EPA data indicates that 35 percent of all UST systems in Indian country are tribally-owned; correspondingly, the total cost to owners and operators of tribally-owned UST systems is $0.7 million.
	EPA consulted with tribal officials early in the process of developing this regulation to permit them to have meaningful and timely input into its development.  EPA began its consultation with tribes on possible changes to the UST regulations shortly after the passage of the Energy Policy Act of 2005 (EPAct).  EPAct directed EPA to coordinate with tribes to develop and implement an UST program strategy in Indian country to supplement the program's existing approach.  EPA and the tribes worked collaboratively to develop this tribal strategy.
	EPAct also included key provisions that apply to states receiving federal funding but the Act did not specify Indian country. Nonetheless, EPA's goal is to implement the objectives of these provisions in Indian country as an important step in achieving more consistent program results in release prevention. Both EPA and tribes recognize the importance of having policies that can help to ensure parity in program implementation between states and in Indian country.  EPA committed to the tribes that we would fully implement the new provisions of the EPAct, and the proposed regulations will realize that commitment.
	In addition to our early consultation with the tribes, EPA also reached out again to the tribes as we started the official regulatory process and throughout the development of these proposed regulations.  EPA sent letters to leaders of over 500 tribes as well as to tribal regulatory staff to invite their participation in the development of the regulations.  EPA heard from both tribal officials who work as regulators as well as representatives of owners and operators of UST systems in Indian country.  The tribal regulators raised concerns about ensuring parity of environmental protection between states and Indian country.
		The proposed changes to the UST regulations are needed to ensure parity between sites in states and in Indian country.  These regulations are also needed to ensure equipment is not just installed but is working properly to protect the environment from potential releases.
6.5	Joint Impacts of Rules
	Executive Order 12866 requires that the Agency review whether the proposed rule creates "a serious inconsistency" or otherwise interferes "with an action taken or planned by another agency."  We do not believe that the proposed rule creates a serious inconsistency or interferes with any other actions planned or undertaken by other agencies.  The following are the existing regulations that currently affect UST systems:

            *       State UST Regulations:  A number of states have existing UST regulations that are more demanding than existing regulations under 40 CFR Part 280.  To the extent that these policies are at least as demanding as the regulations under consideration, the systems in these states may already be in partial or full compliance with portions of the proposed rule.   Chapter 2 identifies the number of UST systems in states with existing (baseline) regulations; cost estimates in Chapter 3 reflect the state regulatory programs that exist in the baseline.

            *       SPCC Regulations:  Currently, a subset of UST systems in the universe is regulated by Spill Prevention, Control, and Countermeasure rules (SPCC); these include emergency generator tanks, airport hydrant fuel distribution systems and UST systems with field-constructed tanks. Specifically, SPCC rules in 40 CFR Part 112 apply to above-ground containers and completely buried tanks that are not otherwise covered by the regulations of 40 CFR Part 280. SPCC rules do not specify particular leak detection protocols, but require that plans conform to industry standards, which can often be consistent with the requirements of the proposed rule.  To the extent that the requirements imposed on these UST systems via the proposed rule are more or less stringent than the SPCC rules currently governing them, the proposed rule may cause an increase or a reduction in overall inspection and monitoring requirements (and costs) for these UST systems.  To account for this, EPA has generated baseline assumptions for these systems using information from the Department of Defense (the owner of the majority of all FCTs and AHFDSs).  EGTs are assumed to incur all incremental costs beyond state regulatory baseline costs; to the extent that these systems are regulated under SPCC, this may overstate costs.

   Chapter 7.		Comparison of Costs, Benefits, and Other Impacts
      This chapter provides several analyses that compare the costs and beneficial impacts of the proposed rule.  Cost-benefit analysis is a central feature of virtually all economic assessments and evaluates the economic efficiency of environmental policies by measuring their costs and benefits, and hence their net impacts on society.  From an economic viewpoint, the proposed rule would enhance economic efficiency if beneficial impacts exceed costs.
      A traditional cost-benefit comparison weighs society's willingness to pay for the benefits of a regulation against the opportunity costs of the rule. Analyses of this type typically do not consider distributional issues, although they can be adapted to do so. Adherence to a strict benefit-cost approach provides an incomplete assessment of the effects of this proposed rule for two reasons:
         * The majority of positive effects from new requirements occur as avoided remediation costs, not social benefits such as improved water quality.  Monetizable social benefits occur only in the form of avoided cancer cases and constitute only a very small part of overall effects. Nevertheless, as discussed in Chapter 4, avoided costs provide a reasonable measure of the positive effects of the proposed rule.
         * A key effect of the proposed rule is to reallocate costs from the public to responsible parties. This is likely to improve behavioral incentives, as the parties most likely to cause releases will also be responsible for preventing them. As we discussed in Chapter 5, savings to state financial assurance funds could exceed $150 million per year.
	While this chapter presents a comparison of costs and benefits, the principal comparison is between avoided remediation costs and the cost of the proposed rule. This chapter uses two approaches to assess the effectiveness of the proposed requirements.  First, we compare the social costs of the proposed rule with its total monetized avoided costs and benefits.  We then consider cost-effectiveness measures which provide estimates of expenditures per unit reduction of releases and estimates of the cost per unit of benefit achieved by the proposed rule.
      Cost-benefit and cost-effectiveness analyses, however, should not be the only tools used in the establishment of any final regulatory action.  The proposed rule is expected to provide other benefits that are not expressed in monetary terms.  When these benefits are taken into account, along with equity-enhancing effects such as reduction in demand for publicly-funded remediation, the benefit-cost comparison becomes more complex.  Consequently, the final regulatory decision becomes a policy judgment that takes into account efficiency as well as equity concerns.
      In addition, the selection of a discount rate for estimating the present value of future costs and benefits is a complex issue.  To reflect a range of possible future costs and benefits, we present two estimates of discounted costs and benefits; one based on a seven percent discount rate, and one based on a three percent discount rate.
7.1 	Cost Benefit Comparison
In this section, we compare the total costs of the rule with its total monetized and non-monetized benefits and avoided costs.  The total costs and monetized avoided costs of the proposed rule are summarized in Exhibit 7-1.  The costs in the exhibit represent the social costs of the proposed rule, including state government administrative costs.
The exhibit also shows the social benefits of the proposed requirements that are not captured in avoided costs. Monetized social benefits are calculated only for avoided cancer risks related to benzene due to the difficulty in measuring other types of benefits. Avoided cancer risks are estimated to be minimal, as they address only the uncontrolled human health risks that occur before discovery and remediation of a release under existing programs. EPA estimates less than $5,000 in measurable, monetized social benefits per year, regardless of the option. However, as Exhibit 7-1 notes and discussed in Chapter 4, a number of benefits could not be monetized, including groundwater protection, mitigation and avoidance of acute events, ecological benefits, and non-benzene human health risks.
Exhibit 7-1 demonstrates that the proposed rule may avoid more costs than it creates, potentially generating cost savings to society. EPA estimates that the Preferred Option could generate $90 million to $530 million per year in savings to society. Alternative 1 could have a net social benefit of $250 million to a net social cost of $210 million, while Alternative 2 could generate savings of $460 million to costs of $20 million.

Exhibit 7-1

Comparison Of Social Costs, Cost Savings And Monetized Benefits[f]

                       Preferred Option
(2008$ millions)
                        Alternative 1
(2008$ millions)
                        Alternative 2
(2008$ millions)
Annual Monetized Benefits

Avoided cancer risks[a][,d]
                                                                $0.001 - $0.005
                                                                $0.002 - $0.005
                                                                $0.001 - $0.003
Annual Avoided Costs[d]

Releases and groundwater incidents
                                                                    $300 - $700
                                                                    $300 - $740
                                                                    $110 - $570
Vapor intrusion
                                                                     $0.4 - $26
                                                                     $0.5 - $28
                                                                     $0.2 - $19
Product loss
                                                                    $2.0 - $7.2
                                                                    $2.6 - $7.6
                                                                    $0.4 - $5.3
Annual Social Costs

Conventional UST systems[b]
                                                                          $180
                                                                          $360
                                                                          $120
Emergency generator tanks (EGTs)
                                                                            $2
                                                                            $2
                                                                            $2
Airport hydrant fuels distribution systems (AHFDSs)
                                                                           $18
                                                                          $120
                                                                            N/A
UST systems with field-constructed tanks (FCTs)
                                                                            $5
                                                                           $33
                                                                            N/A
Cost to owners/operators to read regulations
                                                                            $5
                                                                            $5
                                                                            $5
State government administrative costs[c]
                                                                          $0.2
                                                                          $0.2
                                                                          $0.2
Total Annual Benefits and Avoided Costs
                                                                    $300 - $740
                                                                    $310 - $770
                                                                    $110 - $590
Total Annual Social Costs
                                                                          $210
                                                                          $520
                                                                          $130
Net Cost (Savings) to Society
[Total Social Costs less
Total Benefits and Avoided Costs]
                                                                 ($530) - ($90)
                                                                 ($250) - $210
                                                                   ($460) - $20
Nonmonetized Benefits[e]

Groundwater protected (billion gallons)
                                                                      110 - 350
                                                                      120 - 370
                                                                       41 - 250
Acute events and large-scale releases
(e.g., releases from AHFDSs and FCTs)
                                                                  Not estimated
                                                                  Not estimated
                                                                  Not estimated
Ecological benefits
                                                                  Not estimated
                                                                  Not estimated
                                                                  Not estimated
Non-benzene human health risks
                                                                  Not estimated
                                                                  Not estimated
                                                                  Not estimated
[a]  The pathway assessed to evaluate avoided cancer risk is benzene exposure through contaminated groundwater.
[b] Conventional UST systems include all systems that are not AHFDSs, FCTs, or EGTs.
[c] The costs for UST systems directly owned or operated by local, state, and federal government entities are included in the estimates of compliance costs within the other categories.  Costs shown here reflect the administrative costs for state governments to read the regulation, apply for state program approval, process notifications of ownership changes, and process one-time notifications of EGT, AHFDS, and FCT existence.
[d] Avoided cancer risks and avoided costs are separate and additive (i.e., these estimates do not overlap).  Avoided cancer risks are the benefits associated with reducing cancer cases prior to discovery of the release. Avoided remediation costs from releases and groundwater incidents are the costs related to site remediation. Avoided vapor intrusion costs include additional avoided costs associated with the remediation of vapor intrusion cases; the RIA does not address human health risk associated with vapor intrusion.  Avoided product loss costs are also separate and additive.
[e] Due to data and resource constraints, EPA is unable to monetize some of the positive impacts of the proposed rule.  Chapter 4 of this document provides a qualitative discussion of these benefits.
[f] Totals may not add up due to rounding. Cost estimates were derived using a seven percent discount rate.
7.1.1	Cost-Benefit Comparison under the Alternative Baseline Scenario
Exhibit 7-2 depicts the comparison of costs and benefits of the proposed rule in the alternative baseline scenario, where the universes of releases and UST systems decline over time in accordance with historical trends. In this alternative baseline, the universe of releases is smaller relative to the original baseline than the universe of UST systems; however, Exhibit 7-2 demonstrates that even in this case, the proposed rule may avoid more costs than it creates, potentially generating cost savings to society. EPA estimates that the Preferred Option in the alternative baseline could generate between $240 million per year in savings to $20 million per year in costs to society. Alternative 1 could have a net social cost of $50 million to $330 million, while Alternative 2 could generate savings of $240 million to costs of $56 million.
Exhibit 7-2

Comparison Of Social Costs, Cost Savings And Monetized Benefits, Considering an Alternative Baseline[f]

                       Preferred Option
(2008$ millions)
                        Alternative 1
(2008$ millions)
                        Alternative 2
(2008$ millions)
Annual Monetized Benefits

Avoided cancer risks[a][,d]
                                                                $0.001 - $0.003
                                                                $0.001 - $0.003
                                                               $0.0003 - $0.002
Annual Avoided Costs[d]

Releases and groundwater incidents
                                                                    $180 - $420
                                                                    $180 - $440
                                                                     $64 - $340
Vapor intrusion
                                                                     $0.3 - $16
                                                                     $0.3 - $17
                                                                     $0.1 - $11
Product loss
                                                                    $1.2 - $4.3
                                                                    $1.6 - $4.6
                                                                    $0.2 - $3.2
Annual Social Costs

Conventional UST systems[b]
                                                                          $170
                                                                          $350
                                                                          $110
Emergency generator tanks (EGT)
                                                                          $2.2
                                                                          $2.2
                                                                          $2.1
Airport hydrant fuels distribution systems (AHFDSs)
                                                                           $18
                                                                          $120
                                                                            N/A
UST systems with field-constructed tanks (FCTs)
                                                                          $4.6
                                                                           $33
                                                                            N/A
Cost to owners/operators to read regulations
                                                                          $5.1
                                                                          $5.1
                                                                          $5.1
State government administrative costs[c]
                                                                          $0.2
                                                                          $0.2
                                                                          $0.2
Total Annual Benefits and Avoided Costs
                                                                    $180 - $440
                                                                    $180 - $460
                                                                     $64 - $360
Total Annual Social Costs
                                                                          $200
                                                                          $510
                                                                          $120
Net Cost (Savings) to Society
[Total Social Costs less
Total Benefits and Avoided Costs]
                                                                   ($240) - $20
                                                                    $50 - $330
                                                                   ($240) - $56
Nonmonetized Benefits[e]

Groundwater protected (billion gallons)
                                                                       65 - 210
                                                                       71 - 220
                                                                       25 - 150
Acute events and large-scale releases
(e.g., releases from AHFDSs and FCTs)
                                                                  Not estimated
                                                                  Not estimated
                                                                  Not estimated
Ecological benefits
                                                                  Not estimated
                                                                  Not estimated
                                                                  Not estimated
Non-benzene human health risks
                                                                  Not estimated
                                                                  Not estimated
                                                                  Not estimated
[a]  The pathway assessed to evaluate avoided cancer risk is benzene exposure through contaminated groundwater.
[b] Conventional UST systems include all systems that are not AHFDSs, FCTs, or EGTs.
[c] The costs for UST systems directly owned or operated by local, state, and federal government entities are included in the estimates of compliance costs within the other categories.  Costs shown here reflect the administrative costs for state governments to read the regulation, apply for state program approval, process notifications of ownership changes, and process one-time notifications of EGT, AHFDS, and FCT existence.
[d] Avoided cancer risks and avoided costs are separate and additive (i.e., these estimates do not overlap).  Avoided cancer risks are the benefits associated with reducing cancer cases prior to discovery of the release. Avoided remediation costs from releases and groundwater incidents are the costs related to site remediation. Avoided vapor intrusion costs include additional avoided costs associated with the remediation of vapor intrusion cases; the RIA does not address human health risk associated with vapor intrusion.  Avoided product loss costs are also separate and additive.
[e] Due to data and resource constraints, EPA is unable to monetize some of the positive impacts of the proposed rule.  Chapter 4 of this document provides a qualitative discussion of these benefits.
[f] Totals may not add up due to rounding. Cost estimates were derived using a seven percent discount rate.

7.2	Cost-Effectiveness Analysis
We measure cost-effectiveness by considering the expected cost per release avoided.  This cost-effectiveness measure is useful for comparing the resources required to eliminate a single release under each alternative. For the purpose of this analysis, we consider avoided releases to be both releases altogether avoided and groundwater incidents averted due to the proposed rule. As presented in Exhibit 7-3, we find that the cost per release avoided is approximately $38,000 to $120,000 under the Preferred Option, compared with $90,000 to $290,000 under Alternative 1 and $33,000 to $200,000 under Alternative 2. This compares favorably with average release remediation costs presented in Exhibit 4-2 in Chapter 4, which range between $92,000 and $194,000. This regulatory impact analysis suggests that, in addition to improving the alignment of incentives, release prevention is likely to be less costly than release remediation under the Preferred Option and Alternative 2 and in some instances under Alternative 1.
Exhibit 7-3

   Cost-Effectiveness:  Number Of Avoided Releases And Groundwater Incidents

                               Preferred Option
                                 Alternative 1
                                 Alternative 2
Avoided releases and groundwater incidents
                                                                  1,680 - 5,370
                                                                  1,820 - 5,780
                                                                    630 - 3,860
Social Cost ($ million)
                                                                           $210
                                                                           $520
                                                                           $130
Cost per release avoided ($ million)
                                                                 $0.038 - $0.12
                                                                  $0.09 - $0.29
                                                                 $0.033 - $0.20
Note: Cost estimates were derived using a seven percent discount rate.

7.3	Costs and Beneficial Effects Under Alternative Discount Rates
The selection of the rate at which to discount future costs and benefits is complex. To assess the sensitivity of our results to our choice of discount rate, Exhibit 7-4 presents a summary of total social costs and avoided remediation costs considering alternate discount rates of three percent and zero percent (i.e., no discounting).  Costs change little because a reduction in interest rates both reduces time value of money (TVM) costs and increases costs that have a delay before implementation.[,]  The net result of a change from a discount rate of seven percent to a discount rate of zero percent is an overall increase in the cost of the rule of less than $10 million per year, indicating that TVM and delayed-implementation cost effects essentially offset each other.
Discount rates are also involved in our estimate of annual avoided costs. In particular, we use them only to obtain constant annual avoided costs for those requirements in which the affected universe grows over time and calculate the delay until positive impacts accrue. Here, the effect of lowering interest rate is more significant, as all requirements are discounted by at least one period. As Exhibit 7-4 shows, a change in the rate of discount from seven percent to zero percent increases avoided costs from a range of $300 million - $740 million to $340 million - $810 million. This increase is largely due to the fact that we discount all avoided costs by at least one year, as outlined in Exhibit 1-2.
We conclude that, while a reduction in the discount rate leaves annual social costs essentially unchanged at $210 million, avoided costs increase from by $40 million to $70 million per year. As such, annual savings to society would increase from a range of $90 million - $530 million to $130 million - $600 million if EPA relies on a zero rate of discount.
Exhibit 7-
4

Social Costs And Beneficial Impacts Under Alternative Discount Rates[d]
Avoided Cost
             Preferred Option
7 percent discount rate ($ millions)
             Preferred Option
3 percent discount rate ($ millions)
                        Preferred Option
Undiscounted
                                 ($ millions)
Annual Monetized Benefits

Avoided cancer risks[a]
                                                                $0.001 - $0.005
                                                               $0.001 - $0.005
                                                                $0.002 - $0.005
Annual Positive Impacts (Avoided Costs)

Releases and groundwater incidents
                                                                    $300 - $700
                                                                    $320 - $740
                                                                    $340 - $770
Vapor intrusion
                                                                     $0.4 - $26
                                                                     $0.4 - $27
                                                                     $0.5 - $28
Product loss
                                                                    $2.0 - $7.2
                                                                    $2.0 - $7.4
                                                                    $2.1 - $7.7
Annual Social Costs

Conventional UST systems[b]
                                                                          $180
                                                                          $180
                                                                          $180
Emergency generator tanks (EGT)
                                                                          $2.2
                                                                          $2.2
                                                                          $2.2
Airport hydrant fuels distribution systems (AHFDSs)
                                                                           $18
                                                                           $21
                                                                           $22
UST systems with field-constructed tanks (FCTs)
                                                                          $4.6
                                                                          $5.2
                                                                          $5.6
Cost to owners/operators to read regulations
                                                                          $5.1
                                                                          $3.7
                                                                          $2.7
State government administrative costs[c]
                                                                          $0.2
                                                                          $0.2
                                                                          $0.2
Total Annual Avoided Costs
                                                                    $300 - $740
                                                                    $330 - $770
                                                                    $340 - $810
Total Annual Social Costs
                                                                          $210
                                                                          $210
                                                                          $210
Net Cost (Savings) to Society
[Total Social Costs less Total Avoided Costs]
                                                                 ($530) - ($90)
                                                                ($560) - ($120)
                                                                ($130) - ($600)
[a]  The pathway assessed to evaluate avoided cancer risk is benzene exposure through contaminated groundwater.
[b] Conventional UST systems include all systems that are not AHFDSs, FCTs, or EGTs.
[c] The costs for UST systems directly owned or operated by local, state, and federal government entities are included in the estimates of compliance costs within the other categories.  Costs shown here reflect the administrative costs for state governments to read the regulation, apply for state program approval, process notifications of ownership changes, and process one-time notifications of EGT, AHFDS, and FCT existence.
[d] Totals may not add up due to rounding.

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