characteristics discussed in Section VII.A.2. The estimated hardware
costs of retrofitting existing U.S.-flagged vessels that may require
additional hardware to accommodate the use of lower sulfur fuel is
estimated to be $10.4 million in 2015.
---------------------------------------------------------------------------

    \141\ The values presented in Table VII-3 are provided only to
show what the estimated costs would be for a range of vessel types
given average characteristics (such as DWT, total main, and total
auxiliary power) for both SSD and MSD engine types. Not all vessels
will require all of these technologies; for example, it is estimated
that only 30 percent of MSD will get common-rail fuel injection
systems for Tier II.

              Table VII-3--Estimated Variable Costs of Emission Control Technology on a Per-Ship Basis--by Ship Type and Engine Type \141\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Lower sulfur
                                                          Average      MFI to common   EFI to common    Tier 3 (SCR   fuel hardware--  Lower Sulfur fuel
             Ship type                 Engine speed     propulsion         rail            rail         and engine      new vessels   hardware--existing
                                                        power (kW)                                    modifications)                        vessels
--------------------------------------------------------------------------------------------------------------------------------------------------------
Auto Carrier.......................  MSD                        9640         $80,500          30,400        $566,000          42,300           $56,400
Bulk Carrier.......................  MSD                        6360          67,200          24,600         479,000          36,900            48,500
Container..........................  MSD                       13878          92,300          35,400         678,000          49,200            66,600
General Cargo......................  MSD                        5159          60,400          21,700         448,000          34,900            45,600
Passenger..........................  MSD                       23762         109,600          42,800         939,000          65,400            90,400
Reefer.............................  MSD                        7360          71,900          26,600         506,000          38,500            50,900
RoRo...............................  MSD                        8561          76,700          28,700         538,000          40,500            53,800
Tanker.............................  MSD                        6697          68,800          25,300         488,000          37,400            49,300
Misc...............................  MSD                        9405          79,800          30,000         560,000          41,900            55,800
Auto Carrier.......................  SSD                       11298         152,400          55,500         819,000          48,000            64,800
Bulk Carrier.......................  SSD                        8434         132,900          48,400         669,000          42,700            57,700
Container..........................  SSD                       27454         211,600          77,200       1,521,000          63,900            86,700
General Cargo......................  SSD                        7718         127,000          46,200         630,000          41,100            55,500
Passenger..........................  SSD                       23595         201,500          73,500       1,374,000          61,200            83,000
Reefer.............................  SSD                       10449         147,200          53,600         776,000          46,500            62,900
RoRo...............................  SSD                       15702         174,300          63,500       1,034,000          53,900            72,900
Tanker.............................  SSD                        9755         142,600          51,900         739,000          45,300            61,200
Misc...............................  SSD                        4659          93,300          33,900          50,000          32,000            43,100
--------------------------------------------------------------------------------------------------------------------------------------------------------

(6) Total Costs Associated With the Coordinated Strategy
    The total hardware costs associated with the coordinated strategy
were estimated using the number of new ships by ship type and engine
type entering the fleet each year. Table VII-4 presents the total
hardware costs to U.S.-flagged vessels associated with the coordinated
strategy. These costs consist of the variable and fixed hardware costs
associated with the Annex VI existing engine program, Tier 2 and Tier 3
standards, and additional components that may be required to
accommodate the use of lower sulfur fuel on both new and existing
vessels. This table also presents the total estimated operational costs
associated with the coordinated strategy. These costs consist of the 2
percent fuel consumption penalty associated with Tier 2 (Annex VI Tier
II), the use of urea on vessels equipped with SCR systems, and the
differential cost of using lower sulfur fuel; these costs are incurred
by both U.S.- and foreign-flagged vessels. The total estimated cost of
the coordinated strategy is $3.41 billion in 2030. The total costs from
2010 through 2040 are estimated to be $42.9 billion at a 3 percent
discount rate or $22.1 at a 7 percent discount rate.

                               Table VII-4--Total Hardware and Operational Costs Associated With the Coordinated Strategy
                                                                    [Thousands of $]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Total operating costs        Total costs
                                                          Total hardware     Total new                   --------------------------------   associated
                          Year                               costs for        engine       Total vessel                                      with the
                                                             existing     hardware costs  hardware costs     U.S. flag     Foreign flag     coordinated
                                                              engines                                                                        strategy
--------------------------------------------------------------------------------------------------------------------------------------------------------
2010....................................................          $9,400            $319            $166              $0              $0            $485
2011....................................................         161,000           3,580             173             173           1,130           5,060

2012....................................................         153,000           3,700             179             841           5,590          10,300
2013....................................................         145,000           3,830             186          32,400         213,000         249,000
2014....................................................         137,000           3,960             192          34,400         226,000         265,000
2015....................................................         131,000           4,100          11,100         180,000       1,190,000       1,390,000
2016....................................................               0          27,300             691         189,000       1,250,000       1,470,000
2017....................................................               0          28,500             717         199,000       1,330,000       1,560,000
2018....................................................               0          29,600             745         210,000       1,410,000       1,650,000
2019....................................................               0          30,700             773         221,000       1,500,000       1,750,000
2020....................................................               0          31,900             803         233,000       1,590,000       1,860,000
2021....................................................               0          33,200             834         246,000       1,680,000       1,960,000
2022....................................................               0          34,600             866         258,000       1,770,000       2,060,000
2023....................................................               0          35,900             899         272,000       1,880,000       2,190,000
2024....................................................               0          37,400             934         286,000       1,980,000       2,300,000
2025....................................................               0          38,800             970         300,000       2,090,000       2,430,000
2026....................................................               0          40,400           1,010         315,000       2,200,000       2,560,000
2027....................................................               0          42,100           1,050         330,000       2,310,000       2,680,000
2028....................................................               0          43,700           1,090         345,000       2,430,000       2,820,000
2029....................................................               0          45,500           1,130         362,000       2,550,000       2,960,000
2030....................................................               0          47,400           1,180         378,000       2,680,000       3,110,000
2031....................................................               0          49,300           1,220         395,000       2,810,000       3,260,000
2032....................................................               0          51,300           1,270         413,000       2,950,000       3,420,000
2033....................................................               0          53,400           1,320         431,000       3,080,000       3,570,000
2034....................................................               0          55,500           1,370         451,000       3,240,000       3,750,000
2035....................................................               0          57,900           1,430         471,000       3,390,000       3,920,000
2036....................................................               0          60,200           1,490         494,000       3,560,000       4,120,000
2037....................................................               0          62,800           1,540         517,000       3,740,000       4,320,000
2038....................................................               0          65,300           1,610         541,000       3,930,000       4,540,000
2039....................................................               0          68,000           1,670         566,000       4,110,000       4,750,000
2040....................................................               0          70,800           1,740         591,000       4,310,000       4,970,000
                                                         -----------------------------------------------------------------------------------------------
    NPV @ 3%............................................         677,000         663,000          26,500       5,260,000      36,900,000      42,900,000
    NPV @ 7%............................................         610,000         346,000          16,900       2,730,000      19,000,000      22,100,000
--------------------------------------------------------------------------------------------------------------------------------------------------------

C. Cost Effectiveness

    One tool that can be used to assess the value of the coordinated
strategy is the engineering costs incurred per ton of emissions
reduced. This analysis involves a comparison of our proposed program to
other measures that have been or could be implemented. As summarized in
this section, the coordinated strategy represents a highly cost
effective mobile source control program for reducing NOX, PM
and SOX emissions.
    We have estimated the cost per ton based on the net present value
of 3 percent and 7 percent of all hardware costs incurred by U.S.-
flagged vessels, all operational costs incurred by both U.S. and
foreign-flagged vessels, and all emission reductions generated from the
year 2010 through the year 2040. The baseline case for these estimated
reductions is the existing set of engine standards for C3 marine diesel
engines and fuel sulfur limits. Table VII-5 shows the annual emissions
reductions associated with the coordinated strategy; these annual tons
are undiscounted. A description of the methodology used to estimate
these annual reductions can be found in Section II of this preamble and
Chapter 3 of the draft RIA.

        Table VII-5--Estimated Emissions Reductions Associated With the Coordinated Strategy (Short Tons)
----------------------------------------------------------------------------------------------------------------
                                                                                Reductions (tons)
                          Calendar year                          -----------------------------------------------
                                                                        NOX             SOX             PM
----------------------------------------------------------------------------------------------------------------
2010............................................................          47,000               0               0
2011............................................................          54,000               0               0
2012............................................................          70,000               0               0
2013............................................................          88,000         390,000          48,400
2014............................................................         105,000         406,000          50,400
2015............................................................         123,000         641,000          68,000
2016............................................................         150,000         668,000          70,800
2017............................................................         209,000         695,000          73,700
2018............................................................         279,000         724,000          76,800
2019............................................................         349,000         755,000          80,000
2020............................................................         409,000         877,000          94,100
2021............................................................         488,000         916,000          98,200

2022............................................................         547,000         954,000         102,000
2023............................................................         634,000         995,000         107,000
2024............................................................         714,000       1,040,000         111,000
2025............................................................         790,000       1,080,000         116,000
2026............................................................         866,000       1,130,000         121,000
2027............................................................         938,000       1,170,000         126,000
2028............................................................       1,020,000       1,220,000         131,000
2029............................................................       1,100,000       1,280,000         137,000
2030............................................................       1,180,000       1,330,000         143,000
2031............................................................       1,260,000       1,390,000         149,000
2032............................................................       1,330,000       1,450,000         155,000
2033............................................................       1,410,000       1,510,000         162,000
2034............................................................       1,500,000       1,580,000         169,000
2035............................................................       1,590,000       1,650,000         177,000
2036............................................................       1,690,000       1,720,000         184,000
2037............................................................       1,810,000       1,800,000         193,000
2038............................................................       1,920,000       1,880,000         201,000
2039............................................................       2,020,000       1,970,000         210,000
2040............................................................       2,130,000       2,050,000         220,000
                                                                 -----------------------------------------------
    NPV at 3%...................................................      14,400,000      19,100,000       2,100,000
    NPV at 7%...................................................       6,920,000      10,100,000       1,090,000
----------------------------------------------------------------------------------------------------------------

    The net estimated reductions by pollutant, using a net present
value of 3 percent from 2010 through 2040 are 14.4 million tons of
NOX, 19.1 million tons of SOX, and 2.1 million
tons of PM (6.9 million, 10.1 million, and 1.1 million tons of
NOX, SOX, and PM, respectively, at a net present
value of 7 percent over the same period.)
    Using the above cost and emission reduction estimates, we estimated
the lifetime (2010 through 2040) cost per ton of pollutant reduced. For
this analysis, all of the hardware costs associated with the Annex VI
existing engine program and Tier 2 and Tier 3 NOX standards
as well as the operational costs associated with the global Tier II and
Tier III standards were attributed to NOX reductions. The
costs associated with lower sulfur fuel operational costs as applied to
all vessels visiting U.S. ports and the hardware costs associated with
accommodating the use of lower sulfur fuel on U.S.-flagged vessels were
associated with SOX and PM reductions. In this analysis,
half of the costs associated with the use of lower sulfur fuel were
allocated to PM reductions and half to SOX reductions,
because the costs incurred to reduce SOX emissions directly
reduce emissions of PM as well. Using this allocation of costs and the
emission reductions shown in Table VII-5, we can estimate the lifetime
cost per ton reduced associated with each pollutant. These results are
shown in Table VII-6. Using a net present value of 3 percent, the
discounted lifetime cost per ton of pollutant reduced is $510 for
NOX, $930 for SOX, and $7,950 for PM ($500, $920,
and $7,850 per ton of NOX, SOX, and PM,
respectively, at a net present value of 7 percent.) As shown in Table
VII-6, these estimated discounted lifetime costs are similar to the
annual long-term (2030) cost per ton of pollutant reduced.
---------------------------------------------------------------------------

    \142\ The $/ton numbers presented here vary from those presented
in the ECA proposal due to the net present value of the annualized
reductions being applied from 2015-2020, and the use of metric
tonnes rather than of short tons.

 Table VII-6 Coordinated Strategy Estimated Aggregate Discounted Lifetime Cost per Ton (2010-2040) and Long-Term
                                        Annual Cost per Ton (2030) \142\
----------------------------------------------------------------------------------------------------------------
                                                             2010 thru 2040    2010 thru 2040
                                                               discounted        discounted      Long-term cost
                         Pollutant                            lifetime cost     lifetime cost     per ton (for
                                                              per ton at 3%     per ton at 7%         2030)
----------------------------------------------------------------------------------------------------------------
NOx.......................................................              $510              $500              $520
SOx.......................................................               930               920               940
PM........................................................             7,950             7,850             8,760
----------------------------------------------------------------------------------------------------------------
Note: These costs are in 2006 U.S. dollars.

    These results for the coordinated strategy compare favorably to
other air emissions control programs. Table VII-7 compares the
coordinated strategy to other air programs. This comparison shows that
the coordinated strategy will provide a cost-effective strategy for
generating substantial NOX, SOX, and PM
reductions from ocean-going vessels. The results presented in Table
VII-7 are lifetime costs per ton discounted at a net present value of 3
percent, with the exception of the stationary source program and
locomotive/marine retrofits, for which annualized costs are presented.
While results at a net present value of 7 percent are not presented,
the results

would be similar. Specifically, the coordinated strategy falls within
the range of values for other recent programs.

 Table VII-7--Estimated $/Ton for the Coordinated Strategy Compared to Previous Mobile Source Programs for NOX,
                                                  SOX, and PM10
----------------------------------------------------------------------------------------------------------------
                                           Implementation
           Source category \A\                  date          NOX cost/ton      SOX cost/ton      PM10 cost/ton
----------------------------------------------------------------------------------------------------------------
Coordinated Strategy NPRM, 2009.........              2011               510               930             7,950
Nonroad Small Spark-Ignition Engines....              2010   \B,C\ 330-1,200  ................  ................
73 FR 59034, October 8, 2008
Stationary Diesel (CI) Engines..........              2006        580-20,000  ................      3,500-42,000
71 FR 39154, July 11, 2006
Locomotives and C1/C2 Marine (Both New                2015           \B\ 730  ................   \D\ 8,400 (New)
 and Retrofits).........................                                                              \E\ 45,000
                                                                                (Retrofit)
73 FR 25097, May 6, 2008
Heavy Duty Nonroad Diesel Engines.......              2015         \B\ 1,100               780            13,000
69 FR 38957, June 29, 2004
Heavy Duty Onroad Diesel Engines........              2010         \B\ 2,200             5,800            14,000
66 FR 5001, January 18, 2001
----------------------------------------------------------------------------------------------------------------
Notes:
\A\ Table presents aggregate program-wide cost/ton over 30 years, discounted at a 3 percent NPV, except for
  Stationary CI Engines and Locomotive/Marine retrofits, for which annualized costs of control for individual
  sources are presented. All figures are in 2006 U.S. dollars per short ton.
\B\ Includes NOX plus non-methane hydrocarbons (NMHC). NMHC are also ozone precursors, thus some rules set
  combined NOX + NMHC emissions standards. NMHC are a small fraction of NOX so aggregate cost/ton comparisons
  are still reasonable.
\C\ Low end of range represents costs for marine engines with credit for fuel savings, high end of range
  represents costs for other nonroad SI engines without credit for fuel savings.

D. Economic Impact Analysis

    This section contains our analysis of the expected economic impacts
of our coordinated strategy on the markets for Category 3 marine diesel
engines, ocean-going vessels, and the U.S. marine transportation
service sector. We briefly describe our methodology and present our
estimated expected economic impacts.
    As described below and in more detail in the draft RIA, our
economic impact analysis uses a competitive model approach for all
affected markets. We request comment on this approach, or whether an
alternative modeling approach should be used for these markets.
    The total estimated social costs of the coordinated strategy in
2030 are equivalent to the estimated compliance costs of the
coordinated strategy, at approximately $3.1 billion.\143\ These costs
are expected to accrue initially to the owners and operators of
affected vessels. These owners and operators are expected to pass their
increased costs on to the entities that purchase international marine
transportation services, in the form of higher freight rates.
Ultimately, these costs will be borne by the final consumers of goods
transported by ocean-going vessels in the form of slightly higher
prices for those goods.
---------------------------------------------------------------------------

    \143\ The costs totals reported in this NPRM are slightly
different than those reported in the ECA proposal. This is because
the ECA proposal did not include costs associated with the Annex VI
existing engine program, Tier II, or the costs associated with
existing vessel modifications that may be required to accommodate
the use of lower sulfur fuel. Further, the cost totals presented in
the ECA package included Canadian cost estimates.
---------------------------------------------------------------------------

    We estimate that compliance with the coordinated strategy would
increase the price of a new vessel by 0.5 to 2 percent. The impact of
the coordinated strategy, including the ECA controls, on the price of
ocean marine transportation services would vary, depending on the route
and the amount of time spent in the proposed U.S. ECA. For example, we
estimate that the cost of operating a ship in liner service between
Singapore, Seattle, and Los Angeles/Long Beach, which includes about
1,700 nm of operation in the proposed ECA, would increase by about 3
percent. For a container ship, this represents a price increase of
about $18 per container, assuming the total increase in operating costs
is passed on to the purchaser of the marine transportation services.
This would be about a 3 percent price increase. The per passenger price
of a seven-day Alaska cruise operating entirely within the ECA is
expected to increase by about $7 per day. For ships that spend less
time in the ECA, the expected increase in total operating costs, and
therefore the impacts on freight prices, would be smaller.
    It should be noted that this economic analysis holds all other
aspects of the market constant except for the elements of the
coordinated strategy. It does not attempt to predict future market
equilibrium conditions, particularly with respect to how excess
capacity in today's market due to the current economic downturn will be
absorbed. This approach is appropriate because the goal of an economic
impact analysis is to explore the impacts of a specific program;
allowing changes in other market conditions would confuse the impacts
due to the proposed regulatory program.
    The remainder of this section provides detailed information on the
methodology we used to estimate these economic impacts and the results
of our analysis.
(1) What Is the Purpose of an Economic Impact Analysis?
    In general, the purpose of an Economic Impact Analysis (EIA) is to
provide information about the potential economic consequences of a
regulatory action, such as the proposed coordinated strategy to reduce
emissions from ocean-going vessels. Such an analysis consists of
estimating the social costs of a regulatory program and the
distribution of these costs across stakeholders.
    In an economic impact analysis, social costs are the value of the
goods and services lost by society resulting from (a) the use of
resources to comply with and implement a regulation and (b) reductions
in output. There are two parts to the analysis.
    In the market analysis, we estimate how prices and quantities of
goods directly affected by the emission control program can be expected
to change once

the program goes into effect. In the economic welfare analysis, we look
at the total social costs associated with the program and their
distribution across key stakeholders.
(2) How Did We Estimate the Economic Impacts of the Coordinated
Strategy?
    Our analysis of the economic impacts of the coordinated strategy is
based on the application of basic microeconomic theory. We use a
competitive market model approach in which the interaction between
supply and demand determines equilibrium market prices and quantities.
For markets in which there are many producers, such as the vessel
building and transportation services markets, this approach is
reasonable.\144\ For the Category 3 engine market, the market structure
and therefore the choice of model is more complicated. This market
consists of a small number of manufacturers (2 companies comprising
about 60 percent of the market, with two others having a notable
share), which suggests that an oligopolistic modeling approach may be
more appropriate. In markets with a small number of producers, it is
not uncommon for manufacturers to exercise market power to obtain
prices above the competitive market clearing price, thereby securing
greater profits. In such markets, market prices would increase more
than the compliance costs of the regulatory program. However, an
oligopoly market structure does not necessarily mean that the firms
behave non-competitively. According to the Bertrand competition model,
price competition among even a few manufacturers achieves socially
optimal results similar to a competitive market.\145\ The Bertrand
competition model relies on price competition between the firms; price
competition among the firms may be reduced when the manufacturers face
sharply rising marginal costs, when they compete repeatedly, or when
their products are differentiated. We request comment on whether
Category 3 engine manufacturers behave competitively, competing on
price, or whether some other modeling approach should be used for this
market.
---------------------------------------------------------------------------

    \144\ Stopford describes these markets as competitive. See
Stopford, Martin. Maritime Economics, 3rd Edition (Routledge, 2009),
Chapter 4.
    \145\ Tirole, Jean. The Theory of Industrial Organization
(1989). MIT Press. See pages 223-224.
---------------------------------------------------------------------------

    In a competitive structure model, we use the relationships between
supply and demand to simulate how markets can be expected to respond to
increases in production costs that occur as a result of the new
emission control program. We use the laws of supply and demand to
construct a model to estimate the social costs of the program and
identify how those costs will be shared across the markets and, thus,
across stakeholders. The relevant concepts are summarized below and are
presented in greater detail in Chapter 7 of the draft RIA.
    Before the implementation of a control program, a market is assumed
to be in equilibrium, with producers producing the amount of a good
that consumers desire to purchase at the market price. The
implementation of a control program results in an increase in
production costs by the amount of the compliance costs. This generates
a ``shock'' to the initial equilibrium market conditions (a change in
supply). Producers of affected products will try to pass some or all of
the increased production costs on to the consumers of these goods
through price increases, without changing the quantity produced. In
response to the price increases, consumers will decrease the quantity
they buy of the affected good (a change in the quantity demanded). This
creates surplus production at the new price. Producers will react to
the decrease in quantity demanded by reducing the quantity they
produce, and they will be willing to sell the remaining production at a
lower price that does not cover the full amount of the compliance
costs. Consumers will then react to this new price. These interactions
continue until the surplus is removed and a new market equilibrium
price and quantity combination is achieved.
    The amount of the compliance costs that will be borne by
stakeholders is ultimately limited by the price sensitivity of
consumers and producers in the relevant markets, represented by the
price elasticities of demand and supply for each market. An
``inelastic'' price elasticity (less than one) means that supply or
demand is not very responsive to price changes (a one percent change in
price leads to less than one percent change in quantity). An
``elastic'' price elasticity (more than one) means that supply or
demand is sensitive to price changes (a one percent change in price
leads to more than one percent change in quantity). A price elasticity
of one is unit elastic, meaning there is a one-to-one correspondence
between a percent change in price and percent change in quantity.
    On the production side, price elasticity of supply depends on the
time available to adjust production in response to a change in price,
how easy it is to store goods, and the cost of increasing (or
decreasing) output. In this analysis, we assume the supply for engines,
vessels, and marine transportation services is elastic: an increase in
the market price of an engine, vessel or freight rates will lead
producers to want to produce more, while a decrease will lead them to
produce less (this is the classic upward-sloping supply curve). It
would be difficult to estimate the slope of the supply curve for each
of these markets given the global nature of the sector. However, it is
reasonable to assume that the supply elasticity for the ocean marine
transportation services market is likely to be greater than one. This
is because output can more easily be adjusted due to a change in price.
For the same reason, the supply elasticity for the new Category 3
engine market is also likely to be greater than one, especially since
these engines are often used in other land-based industries, notably in
power plants. The supply elasticity for the vessel construction market,
on the other hand, may be less than or equal to one depending on the
vessel type, since it may be harder to adjust production and/or store
output if the price drops, or rapidly increase production if the price
increases. Because of the nature of this industry, it would not be
possible to easily switch production to other goods, or to stop or
start production of new vessels.
    On the consumption side, we assume that the demand for engines is a
function of the demand for vessels, which is a function of the demand
for international shipping (demand for engines and vessels is derived
from the demand for marine transportation services). This makes
intuitive sense: Category 3 engine and ocean-going vessel manufacturers
would not be expected to build an engine or vessel unless there is a
purchaser, and purchasers will want a new vessel/engine only if there
is a need for one to supply marine transportation services. Deriving
the price elasticity of demand for the vessel and engine markets from
the international shipping market is an important feature of this
analysis because it provides a link between the product markets.
    In this analysis, the price elasticity of demand for marine
transportation services, and therefore for vessels and Category 3
engines, is nearly perfectly inelastic. This stems from the fact that
for most goods, there are no reasonable alternative shipping modes. In
most cases, transportation by rail or truck is not feasible, and
transportation by aircraft is too expensive. Approximately 90 percent
of world trade by tonnage is moved by ship, and ships provide the most
efficient method to transport these

goods on a tonne-mile basis.\146\ Stopford notes that ``shippers need
the cargo and, until they have time to make alternative arrangements,
must ship it regardless of cost * * * The fact that freight generally
accounts for only a small portion of material costs reinforces this
argument.'' \147\ A nearly perfectly inelastic price elasticity of
demand for marine transportation services means that virtually all of
the compliance costs can be expected to be passed on to the consumers
of marine transportation services, with no change in output for engine
producers, ship builders, or owners and operators of ships engaged in
international trade.
---------------------------------------------------------------------------

    \146\ Harrould-Koleib, Ellycia. Shipping Impacts on Climate: A
Source with Solutions. Oceana, July 2008. A copy of this report can
be found at http://www.oceana.org/fileadmin/oceana/uploads/Climate_
Change/Oceana_Shipping_Report.pdf
    \147\ Stopford, Martin. Maritime Economics, 3rd Edition.
Routledge, 2009. p. 163.
---------------------------------------------------------------------------

    The economic impacts of the coordinated strategy presented in this
section rely on the estimated engineering compliance costs described in
Sections VII.A (fuels) and VII.B (engines) above. These costs include
hardware costs for new U.S. vessels to comply with the Tier 2 and Tier
3 engine standards, and for existing U.S. vessels to comply with the
MARPOL Annex VI requirements for existing engines. There are also
hardware costs for fuel switching equipment on new and existing U.S.
vessels to comply with the 1,000 ppm fuel sulfur limit; the cost
analysis assumes that 32 percent of all vessels require fuel switching
equipment to be added (new vessels) or retrofit (existing vessels).
Also included are expected increases in operating costs for U.S. and
foreign vessels operating in the inventory modeling domain, including
the proposed ECA. These increased operating costs include changes in
fuel consumption rates, increases in fuel costs, and the use of urea
for engines equipped with SCR.\148\
---------------------------------------------------------------------------

    \148\ The MARPOL amendments include Tier II and Tier III
NOX standards that apply to all vessels, including
foreign vessels. While the analysis does not include hardware costs
for the MARPOL Tier II and Tier III standards for foreign vessels
because foreign vessels operate anywhere in the world, it is
appropriate to include the operating costs for these foreign vessels
while they are operating in our inventory modeling domain. This is
because foreign vessels complying with the Tier II and Tier III
standards will have a direct beneficial impact on U.S. air quality,
and if we consider the benefits of these standards we should also
consider their costs.
---------------------------------------------------------------------------

(3) What Are the Estimated Market Impacts of the Coordinated Strategy?
(a) What Are the Estimated Engine and Vessel Market Impacts of the
Coordinated Strategy?
    The estimated market impacts for engines and vessels are based on
the variable costs associated with the engine and vessel compliance
programs; fixed costs are not included in the market analysis. This is
appropriate because in a competitive market the industry supply curve
is generally based on the market's marginal cost curve; fixed costs do
not influence production decisions at the margin. Therefore, the market
analysis for a competitive market is based on variable costs only.
    The assumption of nearly perfectly inelastic demand for marine
transportation services means that the quantity of these services
purchased is not expected to change as a result of costs of complying
with the ECA requirements. As a result, the demand for vessels and
engines would also not change compared to the no-control scenario, and
the quantities produced would remain the same.
    The assumption of nearly perfectly inelastic demand for marine
transportation services also means the price impacts of the coordinated
strategy on new engines and vessels would be equivalent to the variable
engineering compliance costs. Estimated price impacts for a sample of
engine-vessel combinations are set out in Table VII-8 for medium speed
engines, and Table VII-9 for slow speed engines. These are the
estimated price impacts associated with the Tier 3 engine standards on
a vessel that will switch fuels to comply with the fuel sulfur
requirements in the ECA. Because the standards do not phase in, the
estimated price impacts are the same for all years, beginning in 2016.

            Table VII--8 Summary of Estimated Market Impacts--Medium Speed Tier 3 Engines and Vessels
                                                   [$2006] \a\
----------------------------------------------------------------------------------------------------------------
                                                               New vessel
                                                              engine price     New vessel fuel
                Ship type                      Average      impact (new tier      switching     New vessel total
                                          propulsion power   3 engine price    equipment price    price impact
                                                               impact) \b\       impact \c\
----------------------------------------------------------------------------------------------------------------
Auto Carrier............................             9,600          $573,200           $42,300          $615,500
Bulk Carrier............................             6,400           483,500            36,900           520,400
Container...............................            13,900           687,800            49,200           736,000
General Cargo...........................             5,200           450,300            34,900           475,200
Passenger...............................            23,800           952,500            65,400         1,107,900
Reefer..................................             7,400           511,000            38,500           549,500
RoRo....................................             8,600           543,800            40,500           584,300
Tanker..................................             6,700           492,800            37,400           530,200
Misc....................................             9,400           566,800            41,900           608,700
----------------------------------------------------------------------------------------------------------------
Notes:
\a\ The new vessel engine price impacts listed here do not include a per engine cost of $10,000 for engines
  installed on U.S. vessels to comply with the proposed production testing requirement (Sec.   1042.302)
\b\ Medium speed engine price impacts are estimated from the cost information presented in Chapter 5 using the
  following formula: (10%*($/SHIP--MECH[rarr]CR))+(30%*($/SHIP--ELEC[rarr]CR))+(T3 ENGINE MODS)+(T3SCR))
\c\ Assumes 32 percent of new vessels would require the fuel switching equipment.

             Table VII--9 Summary of Estimated Market Impacts--Slow Speed Tier 3 Engines and Vessels
                                                   [$2006] \a\
----------------------------------------------------------------------------------------------------------------
                                                               New vessel
                                               Average        engine price     New vessel fuel
                Ship type                    Propulsion     impact (new tier      switching     New vessel total
                                                Power        3 engine price    equipment price    price impact
                                                               impact) \b\       impact \c\
----------------------------------------------------------------------------------------------------------------
Auto Carrier............................            11,300          $825,000           $48,000          $873,000
Bulk Carrier............................             8,400           672,600            42,700           715,300
Container...............................            27,500         1,533,100            63,900         1,597,000
General Cargo...........................             7,700           632,900            41,000           673,900
Passenger...............................            23,600         1,385,300            61,200         1,446,500
Reefer..................................            10,400           781,000            46,500           827,500
RoRo....................................            15,700         1,042,100            53,900         1,096,000
Tanker..................................             9,800           744,200            45,300           789,500
Misc....................................             4,700           453,600            32,000           485,600
----------------------------------------------------------------------------------------------------------------
Notes:
\a\ The new vessel engine price impacts listed here do not include a per engine cost of $10,000 for engines
  installed on U.S. vessels to comply with the proposed production testing requirement (Sec.   1042.302)
\b\ Slow speed engine price impacts are estimated from the cost information presented in Chapter 5 using the
  following formula: (5%*($/SHIP--MECH[rarr]CR))+(15%*($/SHIP--ELEC[rarr]CR))+(T3 ENGINE MODS)+(T3 SCR))
\c\ Assumes 32 percent of new vessels would require the fuel switching equipment.

    The estimated price impacts for Tier 2 vessels would be
substantially lower, given the technology that will be used to meet the
Tier 2 standards is much less expensive. The cost of complying with the
Tier 2 standards ranges from about $56,000 to $100,000 for a medium
speed engine, and from about $130,000 to $250,000 for a slow speed
engine. Again, because the standards do not phase in, the estimated
price impacts are the same for all years the Tier 2 standards are
required, 2011 through 2015.
    These estimated price impacts for Tier 2 and Tier 3 vessels are
small when compared to the price of a new vessel. A selection of new
vessel prices is provided in Table VII-10; these range from about $40
million to $480 million. The program price increases range from about
$600,000 to $1.5 million. A price increase of $600,000 to comply with
the Tier 3 standards and fuel switching requirements would be an
increase of approximately 2 percent for a $40 million vessel. The
largest vessel price increase noted above for a Tier 3 passenger vessel
is about $1.5 million; this is a price increase of less than 1 percent
for a $478 million passenger vessel. Independent of the nearly-perfect
inelasticity of demand, price increases of this magnitude would be
expected to have little, if any, effect on the sales of new vessels,
all other economic conditions held constant.

                                       Table VII-10--Newbuild Vessel Price by Ship Type and Size, Selected Vessels
                                                                    [Millions, $2008]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                 Vessel type                        Vessel size category                        Size range (mean) (DWT)                      Newbuild
--------------------------------------------------------------------------------------------------------------------------------------------------------
Bulk carrier................................  Handy..........................                                    10,095-39,990 (27,593)           $56.00
                                              Handymax.......................                                    40,009-54,881 (47,616)            79.00
                                              Panamax........................                                    55,000-78,932 (69,691)            97.00
                                              Capesize.......................                                  80,000-364,767 (157,804)           175.00
Container...................................  Feeder.........................                                      1,000-13,966 (9,053)            38.00
                                              Intermediate...................                                    14,003-36,937 (24,775)            70.00
                                              Panamax........................                                    37,042-54,700 (45,104)           130.00
                                              Post Panamax...................                                    55,238-84,900 (67,216)           165.00
Gas carrier.................................  Midsize........................                                      1,001-34,800 (7,048)            79.70
                                              LGC............................                                    35,760-59,421 (50,796)            37.50
                                              VLGC...........................                                   62,510-122,079 (77,898)           207.70
General cargo...............................  Coastal Small..................                                       1,000-9,999 (3,789)            33.00
                                              Coastal Large..................                                    10,000-24,912 (15,673)            43.00
                                              Handy..........................                                    25,082-37,865 (29,869)            52.00
                                              Panamax........................                                    41,600-49,370 (44,511)            58.00
Passenger...................................  All............................                                      1,000-19,189 (6,010)           478.40
Reefer......................................  All............................                                      1,000-19,126 (6,561)            17.30
Ro-Ro.......................................  All............................                                      1,000-19,126 (7,819)            41.20
Tanker......................................  Coastal........................                                      1,000-23,853 (7,118)            20.80
                                              Handymax.......................                                    25,000-39,999 (34,422)            59.00
                                              Panamax........................                                    40,000-75,992 (52,300)            63.00
                                              AFRAmax........................                                  76,000-117,153 (103,112)            77.00
                                              Suezmax........................                                 121,109-167,294 (153,445)            95.00
                                              VLCC...........................                                 180,377-319,994 (294,475)           154.00
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sources: Lloyd's Shipping Economist (2008), Informa (2008), Lloyd's Sea-Web (2008).

(b) What Are the Estimated Fuel Market Impacts of the Coordinated
Strategy?
    The market impacts for the fuel markets were estimated through the
modeling performed to estimate the fuel compliance costs for the
coordinated strategy. In the WORLD model, the total quantity of fuel
used is held constant, which is consistent with the assumption that the
demand for international shipping transportation would not be expected
to change due to the lack of transportation alternatives.
    The expected price impacts of the coordinated strategy are set out
in Table VII-11. Note that on a mass basis, less distillate than
residual fuel is needed to go the same distance (5 percent less). The
prices in Table VII-11 are adjusted for this impact.
    Table VII-11 shows that the coordinated strategy is expected to
result in a small increase in the price of marine distillate fuel,
about 1.3 percent. The price of residual fuel is expected to decrease
slightly, by less than one percent, due to a reduction in demand for
that fuel.

                         Table VII-11--Summary of Estimated Market Impacts--Fuel Markets
----------------------------------------------------------------------------------------------------------------
                                                                                Adjusted for
             Fuel                     Units       Baseline price   Control price  energy density     % change
----------------------------------------------------------------------------------------------------------------
Distillate....................  $/tonne.........             462             468             N/A            +1.3
Residual......................  $/tonne.........             322             321             N/A            -0.3
Fuel Switching................  $/tonne.........             322             468             444           +38.9
----------------------------------------------------------------------------------------------------------------

    Because of the need to shift from residual fuel to distillate fuel
in the ECA, ship owners are expected to see an increase in their total
cost of fuel. This increase is because distillate fuel is more
expensive than residual fuel. Factoring in the higher energy content of
distillate fuel relative to residual fuel, the fuel cost increase would
be about 39 percent.
(c) What Are the Estimated Marine Transportation Market Impacts of the
Coordinated Strategy?
    We used the above information to estimate the impacts on the prices
of marine transportation services. This analysis, which is presented in
Chapter 7 of the draft RIA, is limited to the impacts of increases in
operating costs due to the fuel and emission requirements of the
coordinated strategy. Operating costs would increase due to the
increase in the price of fuel, the need to switch to fuel with a sulfur
content not to exceed 1,000 ppm while operating in the ECA, and due to
the need to dose the aftertreatment system with urea to meet the Tier 3
standards. Table VII-12 summarizes these price impacts for selected
transportation markets. Table VII-12 also lists the vessel and engine
parameters that were used in the calculations.

                    Table VII-12--Summary of Impacts of Operational Fuel/Urea Cost Increases
----------------------------------------------------------------------------------------------------------------
                                           Vessel and engine
             Vessel type                      parameters                   Operational price increases
----------------------------------------------------------------------------------------------------------------
Container--North Pacific Circle Route  36,540 kW, 50,814 DWT...  $17.53/TEU.
Bulk Carrier--North Pacific Circle     3,825 kW, 16,600 DWT....  $0.56/tonne.
 Route.
Cruise Liner--(Alaska)...............  31,500 kW, 226,000 DWT,   $6.60/per passenger per day
                                        1,886 passengers..
----------------------------------------------------------------------------------------------------------------

    This information suggests that the increase in marine
transportation service prices would be small, both absolutely and when
compared to the price charged by the ship owner per unit transported.
For example, Stopford notes that the price of transporting a 20 foot
container between the UK and Canada is estimated to be about $1,500; of
that, $700 is the cost of the ocean freight; the rest is for port,
terminal, and other charges.\149\ An increase of about $18 represents
an increase of less than 3 percent of ocean freight cost, and about one
percent of transportation cost. Similarly, the price of a 7-day Alaska
cruise varies from $100 to $400 per night or more. In that case, this
price increase would range from 1.5 percent to about 6 percent.
---------------------------------------------------------------------------

    \149\ Stopford, Martin, Maritime Economics, 3rd Edition.
Routledge, 2009. Page 519.
---------------------------------------------------------------------------

(4) What Are the Estimated Social Costs of the Coordinated Strategy and
How Are They Expected To Be Distributed Across Stakeholders?
    The total social costs of the coordinated strategy are based on
both fixed and variable costs. This is because fixed costs are a cost
to society: they displace other product development activities that may
improve the quality or performance of engines and vessels. In this
economic impact analysis, fixed costs are accounted for in the year in
which they occur, with the fixed costs associated with the Tier 2
engine standards accounted for in 2010 and the fixed costs associated
with the Tier 3 engine standards and the ECA controls accounted for in
the five-year period beginning prior to their effective dates.
    The social costs of the coordinated strategy are estimated to be
the same as the total engineering compliance costs. These costs for all
years are presented in Table VII-4. For 2030, the social costs are
estimated to be about $3.1 billion.\150\ For the reasons described
above and explained more fully in the draft RIA, these costs are
expected to be borne fully by consumers of marine transportation
services.
---------------------------------------------------------------------------

    \150\ The costs totals reported in this NPRM are slightly
different than those reported in the ECA proposal. This is because
the ECA proposal did not include costs associated with the Annex VI
existing engine program, Tier II, or the costs associated with
existing vessel modifications that may be required to accommodate
the use of lower sulfur fuel. Further, the cost totals presented in
the ECA package included Canadian cost estimates.
---------------------------------------------------------------------------

    These social costs are small when compared to the total value of
U.S. waterborne foreign trade. In 2007, waterborne trade for government
and non-government shipments by vessel into and out of U.S. foreign
trade zones, the 50 states, the District of Columbia, and Puerto Rico
was about $1.4 trillion. Of that, about $1 trillion was for
imports.\151\
---------------------------------------------------------------------------

    \151\ Census Bureau's Foreign Trade Division, U.S. Waterborne
Foreign Trade by U.S. Custom Districts, as reported by the Maritime
Administration at http://www.marad.dot.gov/library_landing_page/
data_and_statistics/Data_and_Statistics.htm, accessed April 9,
2009.

---------------------------------------------------------------------------

    If only U.S. vessels are considered, the social costs of the
coordinated strategy in 2030 would be about $427.5 million. Again,
these social costs are small when compared to the annual revenue for
this sector. In 2002, the annual revenue for this sector was about
$19.8 billion.\152\
---------------------------------------------------------------------------

    \152\ U.S. Census Bureau, Industry Statistics Sampler, NAICS
48311, Deep sea, coastal, and Great Lakes transportation, at http://
www.census.gov/econ/census02/data/industry/E48311.HTM, assessed on
April 9, 2009.
---------------------------------------------------------------------------

(5) Alternative Analysis
    The above analysis is based on the assumption of near-perfectly
inelastic demand for ocean marine transportation services. In this
section, we discuss the implications of relaxing this assumption to
consider the impacts of the coordinated strategy if consumers of marine
transportation services were able to react to an increase in prices by
reducing their demand for these services.
    The marine transportation services market is a global market, which
makes it complicated to estimate the price sensitivity of demand. In
addition, that sensitivity would likely vary depending on the types of
goods transported and the type of vessel used. For example, the demand
elasticity for bulk cargo transportation services would likely vary
depending on the type of bulk (e.g., food, oil, electronic goods) and
the type of vessel (bulk/tramp or liner). Instead of estimating these
price elasticities, this alternative analysis relies on the price
elasticities we developed for our 2008 rulemaking that set technology-
forcing standards for Category 1 and Category 2 engines (73 FR 25098,
May 6, 2008). Although these price elasticities of demand and supply
were developed using data for United States markets only, they reflect
behavioral reactions to price changes if alternative modes of
transportation were available. The values used for the behavioral
parameters for the Category 1 and 2 markets are provided in Table VII-
13.

                                   Table VII-13--Behavioral Parameters Used in Locomotive/Marine Economic Impact Model
--------------------------------------------------------------------------------------------------------------------------------------------------------
               Sector                        Market             Demand elasticity            Source           Supply elasticity            Source
--------------------------------------------------------------------------------------------------------------------------------------------------------
Marine.............................  Marine Transportation   -0.5 (inelastic)......  Literature Estimate..  0.6 (inelastic)......  Literature
                                      Services.                                                                                Estimate.
                                     Commercial Vessels \a\  Derived...............  N/A..................  2.3 (elastic)........  Econometric
                                                                                Estimate.
                                     Engines...............  Derived...............  N/A..................  3.8 (elastic)........  Econometric
                                                                                Estimate.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes:
\a\ Commercial vessels include tug/tow/pushboats, ferries, cargo vessels, crew/supply boats, and other commercial vessels.

    The alternative price elasticity of demand for marine
transportation services is inelastic, at -0.5. This means a one percent
increase in price will result in a 0.5 percent decrease in demand. This
inelastic demand elasticity will yield inelastic demand elasticities
for both engines and vessels. The estimates of the price elasticity of
supply are elastic, consistent with the primary analysis described
above.
    Rather than create a computer model to estimate the economic
impacts of the coordinated strategy using this revised set of
assumptions, we examine their impact qualitatively. In general,
relaxing the condition of nearly perfectly inelastic demand elasticity
would result in the compliance costs of the coordinated strategy being
shared by consumers and suppliers. In the engine and vessel markets,
the share borne by producers would nevertheless be expected to be
small, given the elastic supply elasticity compared to the inelastic
demand elasticity. Because suppliers would bear part of the compliance
costs, the price increase for engines and vessels would be smaller than
the per-unit engineering compliance costs. In the marine transportation
market, the price impacts would be shared more equally between
producers (vessel owners) and consumers (firms that purchase marine
transportation services), due to the nearly identical price elasticity
of supply (0.6) and demand (-0.5). However, given the relatively small
per unit engineering costs, the total impacts on prices and quantities
in these markets would still be expected to be modest.
    In addition, there would be a small change in demand since
consumers would react to an increase in price by reducing their
consumption of marine transportation services. Again, because the
relative price impact is small, the impact on quantity would also be
small.
    The distribution of compliance costs from our earlier rule are
presented in Table VII-14. While the emission control requirements and
the compliance cost structure of the coordinated strategy are somewhat
different, these results give an idea of how costs would be shared if
the assumption of nearly perfectly inelastic price elasticity of demand
for the transportation services market in the ocean-going marine sector
were relaxed.

  Table VII-14--Distribution of Social Costs Among Stakeholder Groups--
                Category 1 and Category 2 Engine Program
------------------------------------------------------------------------
            Stakeholder Group             2020 (percent)  2030 (percent)
------------------------------------------------------------------------
Marine engine producers.................             0.8             0.5
Marine vessel producers.................            10.7             3.8
Recreational and fishing vessel                      8.4             4.1
 consumers..............................
Marine transportation service providers.            36.4            41.5
Marine transportation service consumers.            43.8            50.0
                                         -------------------------------

    Total...............................           100.0           100.0
------------------------------------------------------------------------

VIII. Benefits

    This section presents our analysis of the health and environmental
benefits that are estimated to occur as a result of EPA's coordinated
strategy to address emissions from Category 3 engines and ocean-going
vessels throughout the period from initial implementation through 2030.
We provide estimated benefits for the entire coordinated strategy,
including the Annex VI Tier 2 NOX requirements and the ECA
controls that will be mandatory for U.S. and foreign vessels through
the Act to Prevent Pollution from Ships. However, unlike the cost
analysis, this benefits analysis does not allocate benefits between the
components of the program (the requirements in this rule and the
requirements that would apply through MARPOL Annex VI and ECA
implementation). This is because the benefits of the coordinated
strategy will be fully realized only when the U.S. ECA is in place and
both U.S. and foreign vessel are required to use lower sulfur fuel and
operate their Tier 3 NOX controls while in the designated
area, and therefore it makes more sense to consider the benefits of the
coordinated strategy as a whole.
    The components of the coordinated strategy would apply stringent
NOX and SOX standards to virtually all vessels
that affect U.S. air quality, and impacts on human health and welfare
would be substantial. As presented in Section II, the coordinated is
expected to provide very large reductions in direct PM, NOX,
SOX, and toxic compounds, both in the near term and in the
long term. Emissions of NOX (a precursor to ozone formation
and secondarily-formed PM2.5), SOX (a precursor
to secondarily-formed PM2.5) and directly-emitted
PM2.5 contribute to ambient concentrations of
PM2.5 and ozone. Exposure to ozone and PM2.5 is
linked to adverse human health impacts such as premature deaths as well
as other important public health and environmental effects.
    Using the most conservative premature mortality estimates (Pope et
al., 2002 for PM2.5 and Bell et al., 2004 for ozone),\153\\,\ \154\ we
estimate that implementation of the coordinated strategy would reduce
approximately 13,000 premature mortalities in 2030 and yield
approximately $110 billion in total benefits. The upper end of the
premature mortality estimates (Laden et al., 2006 for PM2.5 and Levy et
al., 2005 for ozone) \155\\,\ \156\ increases avoided premature
mortalities to approximately 32,000 in 2030 and yields approximately
$280 billion in total benefits. Thus, even taking the most conservative
premature mortality assumptions, the health impacts of the coordinated
strategy presented in this proposal are clearly substantial.
---------------------------------------------------------------------------

    \153\ Pope, C.A., III, R.T. Burnett, M.J. Thun, E.E. Calle, D.
Krewski, K. Ito, and G.D. Thurston. (2002). Lung Cancer,
Cardiopulmonary Mortality, and Long-term Exposure to Fine
Particulate Air Pollution. Journal of the American Medical
Association, 287, 1132-1141.
    \154\ Bell, M.L., et al. (2004). Ozone and short-term mortality
in 95 US urban communities, 1987-2000. Journal of the American
Medical Association, 292(19), 2372-2378.
    \155\ Laden, F., J. Schwartz, F.E. Speizer, and D.W. Dockery.
(2006). Reduction in Fine Particulate Air Pollution and Mortality.
American Journal of Respiratory and Critical Care Medicine. 173,
667-672.
    \156\ Levy, J.I., S.M. Chemerynski, and J.A. Sarnat. (2005).
Ozone exposure and mortality: an empiric bayes metaregression
analysis. Epidemiology. 16(4), 458-68.
---------------------------------------------------------------------------

A. Overview

    We base our analysis on peer-reviewed studies of air quality and
human health effects (see U.S. EPA, 2006 and U.S. EPA, 2008).\157\\,
\\158\ These methods are described in more detail in the draft RIA that
accompanies this proposal. To model the ozone and PM air quality
impacts of the proposed CAA standards and requirements and the ECA
designation, we used the Community Multiscale Air Quality (CMAQ) model
(see Section II). The modeled ambient air quality data serves as an
input to the Environmental Benefits Mapping and Analysis Program
(BenMAP).\159\ BenMAP is a computer program developed by the U.S. EPA
that integrates a number of the modeling elements used in previous
analyses (e.g., interpolation functions, population projections, health
impact functions, valuation functions, analysis and pooling methods) to
translate modeled air concentration estimates into health effects
incidence estimates and monetized benefits estimates.
---------------------------------------------------------------------------

    \157\ U.S. Environmental Protection Agency. (2006). Final
Regulatory Impact Analysis (RIA) for the Proposed National Ambient
Air Quality Standards for Particulate Matter. Prepared by: Office of
Air and Radiation. Retrieved March, 26, 2009 at http: //www.epa.gov/
ttn/ecas/ria.html.
    \158\ U.S. Environmental Protection Agency. (2008). Final Ozone
NAAQS Regulatory Impact Analysis. Prepared by: Office of Air and
Radiation, Office of Air Quality Planning and Standards. Retrieved
March, 26, 2009 at http://www.epa.gov/ttn/ecas/ria.html.
    \159\ Information on BenMAP, including downloads of the
software, can be found at http://www.epa.gov/ttn/ecas/
benmodels.html.
---------------------------------------------------------------------------

    The range of total ozone- and PM-related benefits associated with
the coordinated strategy to control ship emissions is presented in
Table VIII-1. We present total benefits based on the PM- and ozone-
related premature mortality function used. The benefits ranges
therefore reflect the addition of each estimate of ozone-related
premature mortality (each with its own row in Table VIII-1) to
estimates of PM-related premature mortality. These estimates represent
EPA's preferred approach to characterizing the best estimate of
benefits associated with the coordinated strategy. As is the nature of
Regulatory Impact Analyses (RIAs), the assumptions and methods used to
estimate air quality benefits evolve to reflect the Agency's most
current interpretation of the scientific and economic literature. This
analysis, therefore, incorporates four important changes from recent
RIAs released by the Office of Transportation and Air Quality (OTAQ):
     As is the nature of Regulatory Impact Analyses (RIAs), the
assumptions and methods used to estimate air quality benefits evolve
over time to reflect the Agency's most current interpretation of the
scientific and economic literature. For a period of time (2004-2008),
the Office of Air and Radiation (OAR) valued mortality risk reductions
using a value of statistical life (VSL) estimate derived from a limited
analysis of some of the available studies. OAR arrived at a VSL using a

range of $1 million to $10 million (2000$) consistent with two meta-
analyses of the wage-risk literature. The $1 million value represented
the lower end of the interquartile range from the Mrozek and Taylor
(2002) \160\ meta-analysis of 33 studies and $10 million represented
the upper end of the interquartile range from the Viscusi and Aldy
(2003) \161\ meta-analysis of 46 studies. The mean estimate of $5.5
million (2000$) \162\ was also consistent with the mean VSL of $5.4
million estimated in the Kochi et al. (2006) \163\ meta-analysis.
However, the Agency neither changed its official guidance on the use of
VSL in rule-makings nor subjected the interim estimate to a scientific
peer-review process through the Science Advisory Board (SAB) or other
peer-review group.
---------------------------------------------------------------------------

    \160\ Mrozek, J.R., and L.O. Taylor. (2002). What Determines the
Value of Life? A Meta-Analysis. Journal of Policy Analysis and
Management 21(2):253-270.
    \161\ Viscusi, V.K., and J.E. Aldy. (2003). The Value of a
Statistical Life: A Critical Review of Market Estimates Throughout
the World. Journal of Risk and Uncertainty 27(1):5-76.
    \162\ In this analysis, we adjust the VSL to account for a
different currency year (2006$) and to account for income growth to
2020 and 2030. After applying these adjustments to the $5.5 million
value, the VSL is $7.7m in 2020 and $7.9 in 2030.
    \163\ Kochi, I., B. Hubbell, and R. Kramer. 2006. An Empirical
Bayes Approach to Combining Estimates of the Value of Statistical
Life for Environmental Policy Analysis. Environmental and Resource
Economics. 34: 385-406.
---------------------------------------------------------------------------

    During this time, the Agency continued work to update its guidance
on valuing mortality risk reductions, including commissioning a report
from meta-analytic experts to evaluate methodological questions raised
by EPA and the SAB on combining estimates from the various data
sources. In addition, the Agency consulted several times with the
Science Advisory Board Environmental Economics Advisory Committee (SAB-
EEAC) on the issue. With input from the meta-analytic experts, the SAB-
EEAC advised the Agency to update its guidance using specific,
appropriate meta-analytic techniques to combine estimates from unique
data sources and different studies, including those using different
methodologies (i.e., wage-risk and stated preference) (U.S. EPA-SAB,
2007).\164\
---------------------------------------------------------------------------

    \164\ U.S. Environmental Protection Agency (U.S. EPA). 2007. SAB
Advisory on EPA's Issues in Valuing Mortality Risk Reduction.http://
yosemite.epa.gov/sab/sabproduct.nsf/
4128007E7876B8F0852573760058A978/$File/sab-08-001.pdf.
---------------------------------------------------------------------------

    Until updated guidance is available, the Agency determined that a
single, peer-reviewed estimate applied consistently best reflects the
SAB-EEAC advice it has received. Therefore, the Agency has decided to
apply the VSL that was vetted and endorsed by the SAB in the Guidelines
for Preparing Economic Analyses (U.S. EPA, 2000) while the Agency
continues its efforts to update its guidance on this issue.\165\ This
approach calculates a mean value across VSL estimates derived from 26
labor market and contingent valuation studies published between 1974
and 1991. The mean VSL across these studies is $6.3 million
(2000$).\166\
---------------------------------------------------------------------------

    \165\ In the (draft) update of the Economic Guidelines, EPA
retained the VSL endorsed by the SAB with the understanding that
further updates to the mortality risk valuation guidance would be
forthcoming in the near future. Therefore, this report does not
represent final agency policy. The 2000 guidelines can be downloaded
here: http://yosemite.epa.gov/ee/epa/eed.nsf/webpages/
Guidelines.html, and the draft updated version (2008) of the
guidelines can be downloaded here: http://yosemite.epa.gov/ee/epa/
eerm.nsf/vwRepNumLookup/EE-0516?OpenDocument.
    \166\ In this analysis, we adjust the VSL to account for a
different currency year (2006$) and to account for income growth to
2020 and 2030. After applying these adjustments to the $6.3 million
value, the VSL is $8.9m in 2020 and $9.1m in 2030.
---------------------------------------------------------------------------

    The Agency is committed to using scientifically sound,
appropriately reviewed evidence in valuing mortality risk reductions
and has made significant progress in responding to the SAB-EEAC's
specific recommendations. The Agency anticipates presenting results
from this effort to the SAB-EEAC in the Fall 2009 and that draft
guidance will be available shortly thereafter.
     In recent analyses, OTAQ has estimated PM2.5-
related benefits assuming that a threshold exists in the PM-related
concentration-response functions (at 10 [micro]g/m\3\) below which
there are no associations between exposure to PM2.5 and
health impacts. EPA strives to use the best available science to
support our benefits analyses, and we recognize that interpretation of
the science regarding air pollution and health is dynamic and evolving.
Based on our review of the body of scientific literature, EPA applied
the no-threshold model in this analysis. Removing the threshold
assumption is consistent with the approach taken in the recently
published Portland Cement MACT RIA.\167\ EPA's draft Integrated Science
Assessment (2008g), which was recently reviewed by EPA's Clean Air
Scientific Advisory Committee (CASAC),168, 169 concluded
that the scientific literature consistently finds that a no-threshold
log-linear model most adequately portrays the PM-mortality
concentration-response relationship while recognizing potential
uncertainty about the exact shape of the concentration-response
function. Although this document does not represent final agency policy
that has undergone the full agency scientific review process, it
provides a basis for reconsidering the application of thresholds in
PM2.5 concentration-response functions used in EPA's RIAs.
It is important to note that while CASAC provides advice regarding the
science associated with setting the National Ambient Air Quality
Standards, typically other scientific advisory bodies provide specific
advice regarding benefits analysis. Because the Portland Cement RIA was
completed while CASAC was reviewing the PM ISA, we solicited comment on
the use of the no-threshold model for benefits analysis within the
preamble of that proposed rule. The comment period for the Portland
Cement proposed NESHAP has been extended until September 4, 2009.\170\
Please see Section <IP_ADDRESS> of the RIA that accompanies this preamble
for more discussion of the treatment of thresholds in this analysis.
---------------------------------------------------------------------------

    \167\ U.S. Environmental Protection Agency. (2009). Regulatory
Impact Analysis: National Emission Standards for Hazardous Air
Pollutants from the Portland Cement Manufacturing Industry. Office
of Air and Radiation. Retrieved on May 4, 2009, from http://
www.epa.gov/ttn/ecas/regdata/RIAs/portlandcementria_4-20-09.pdf
    \168\ U.S. Environmental Protection Agency--Science Advisory
Board (U.S. EPA-SAB). 2009. Review of EPA's Integrated Science
Assessment for Particulate Matter (First External Review Draft,
December 2008). EPA-COUNCIL-09-008. May. Available on the Internet
at http://yosemite.epa.gov/sab/SABPRODUCT.NSF/
81e39f4c09954fcb85256ead006be86e/73ACCA834AB44A10852575BD0064346B/
$File/EPA-CASAC-09-008-unsigned.pdf.
    \169\ U.S. Environmental Protection Agency--Science Advisory
Board (U.S. EPA-SAB). 2009b. Consultation on EPA's Particulate
Matter National Ambient Air Quality Standards: Scope and Methods
Plan for Health Risk and Exposure Assessment. EPA-COUNCIL-09-009.
May. Available on the Internet at http://yosemite.epa.gov/sab/
SABPRODUCT.NSF/81e39f4c09954fcb85256ead006be86e/
723FE644C5D758DF852575BD00763A32/$File/EPA-CASAC-09-009-
unsigned.pdf.
    \170\ Readers interested in commenting on the use of the no-
threshold model for benefits analysis should direct their comments
to Docket ID No. EPA-HQ-OAR-2002-0051 (available at http://
www.regulations.gov) before the comment period closes.
---------------------------------------------------------------------------

     For the coordinated strategy, we rely on two empirical
(epidemiological) studies of the relationship between ambient
PM2.5 and premature mortality (the extended analyses of the
Harvard Six Cities study by Laden et al (2006) and the American Cancer
Society (ACS) cohort by Pope et al (2002)) to anchor our benefits
analysis, though we also present the PM2.5-related premature
mortality benefits associated with the estimates supplied by the expert
elicitation as a sensitivity analysis. This approach was recently
adopted in the Portland Cement MACT RIA. Since 2006, EPA has calculated
benefits based on these two empirical studies and derived the range of
benefits, including the minimum and maximum results, from an expert
elicitation of the

relationship between exposure to PM2.5 and premature
mortality (Roman et al., 2008).\171\ Using alternate relationships
between PM2.5 and premature mortality supplied by experts,
higher and lower benefits estimates are plausible, but most of the
expert-based estimates have fallen between the two epidemiology-based
estimates (Roman et al., 2008). Assuming no threshold in the
empirically-derived premature mortality concentration response
functions used in the analysis of the coordinated strategy, only one
expert falls below the empirically-derived range while two of the
experts are above this range (see Tables 6-5 and 6-6 in the draft RIA
that accompanies this preamble). Please refer to the Portland Cement
MACT RIA for more information about the preferred approach and the
evolution of the treatment of threshold assumptions within EPA's
regulatory analyses.
---------------------------------------------------------------------------

    \171\ Roman, Henry A., Walker, Katherine D., Walsh, Tyra L.,
Conner, Lisa, Richmond, Harvey M., Hubbell, Bryan J., and Kinney,
Patrick L. (2008). Expert Judgment Assessment of the Mortality
Impact of Changes in Ambient Fine Particulate Matter in the U.S.
Environ. Sci. Technol., 42, 7, 2268--2274.
---------------------------------------------------------------------------

     The range of ozone benefits associated with the
coordinated strategy is estimated based on risk reductions derived from
several sources of ozone-related mortality effect estimates. This
analysis presents six alternative estimates for the association based
upon different functions reported in the scientific literature. We use
three multi-city studies,172, 173, 174 including the Bell,
2004 National Morbidity, Mortality, and Air Pollution Study (NMMAPS)
that was used as the primary basis for the risk analysis in the ozone
Staff Paper\175\ and reviewed by the Clean Air Science Advisory
Committee (CASAC).\176\ We also use three studies that synthesize ozone
mortality data across a large number of individual
studies.177, 178, 179 This approach is consistent with
recommendations provided by the NRC in their ozone mortality report
(NRC, 2008),\180\ ``The committee recommends that the greatest emphasis
be placed on estimates from new systematic multicity analyses that use
national databases of air pollution and mortality, such as in the
NMMAPS, without excluding consideration of meta-analyses of previously
published studies.'' The NRC goes on to note that there are
uncertainties within each study that are not fully captured by this
range of estimates.
---------------------------------------------------------------------------

    \172\ Bell, M.L., et al. (2004). Ozone and short-term mortality
in 95 US urban communities, 1987-2000. Jama, 2004. 292(19): p. 2372-
8.
    \173\ Huang, Y.; Dominici, F.; Bell, M. L. (2005) Bayesian
hierarchical distributed lag models for summer ozone exposure and
cardio-respiratory mortality. Environmetrics 16: 547-562.
    \174\ Schwartz, J. (2005) How sensitive is the association
between ozone and daily deaths to control for temperature? Am. J.
Respir. Crit. Care Med. 171: 627-631.
    \175\ U.S. EPA (2007) Review of the National Ambient Air Quality
Standards for Ozone, Policy Assessment of Scientific and Technical
Information. OAQPS Staff Paper.EPA-452/R-07-003. This document is
available in Docket EPA-HQ-OAR-2003-0190. Retrieved on April 10,
2009, from http:www.epa.gov/ttn/naaqs/standards/ozone/s_o3_cr_
sp.html
    \176\ CASAC (2007). Clean Air Scientific Advisory Committee's
(CASAC) Review of the Agency's Final Ozone Staff Paper. EPA-CASAC-
07-002. March 26.
    \177\ Bell, M.L., F. Dominici, and J.M. Samet. (2005). A meta-
analysis of time-series studies of ozone and mortality with
comparison to the national morbidity, mortality, and air pollution
study. Epidemiology, 16(4): p. 436-45.
    \178\ Ito, K., S.F. De Leon, and M. Lippmann. (2005).
Associations between ozone and daily mortality: analysis and meta-
analysis. Epidemiology. 16(4): p. 446-57.
    \179\ Levy, J.I., S.M. Chemerynski, and J.A. Sarnat. (2005).
Ozone exposure and mortality: an empiric bayes metaregression
analysis. Epidemiology. 16(4): p. 458-68.
    \180\ National Research Council (NRC), 2008. Estimating
Mortality Risk Reduction and Economic Benefits from Controlling
Ozone Air Pollution. The National Academies Press: Washington, DC.

  Table VIII-1--Estimated 2030 Monetized PM-and Ozone-Related Health Benefits of a Coordinated U.S. Strategy To
                                            Control Ship Emissions\a\
----------------------------------------------------------------------------------------------------------------
   2030 Total Ozone and PM Benefits--PM Mortality Derived from American Cancer Society Analysis and Six-Cities
                                                   Analysis\a\
-----------------------------------------------------------------------------------------------------------------
                                                                              Total Benefits     Total Benefits
                                                                            (Billions, 2006$,  (Billions, 2006$,
     Premature Ozone Mortality Function                Reference               3% Discount        7% Discount
                                                                                Rate)c,d           Rate)c,d
----------------------------------------------------------------------------------------------------------------
Multi-city analyses........................  Bell et al., 2004............         $110--$280         $100--$250
                                             Huang et al., 2005...........           120--280           110--250
                                             Schwartz, 2005...............           120--280           110--250
Meta-analyses..............................  Bell et al., 2005............           120--280           110--250
                                             Ito et al., 2005.............           120--280           110--260
                                             Levy et al., 2005............           120--280           110--260
----------------------------------------------------------------------------------------------------------------
Notes:
\a\ Total includes premature mortality-related and morbidity-related ozone and PM2.5 benefits. Range was
  developed by adding the estimate from the ozone premature mortality function to the estimate of PM2.5-related
  premature mortality derived from either the ACS study (Pope et al., 2002) or the Six-Cities study (Laden et
  al., 2006).
\b\ Note that total benefits presented here do not include a number of unquantified benefits categories. A
  detailed listing of unquantified health and welfare effects is provided in Table VIII-2.
\c\ Results reflect the use of both a 3 and 7 percent discount rate, as recommended by EPA's Guidelines for
  Preparing Economic Analyses and OMB Circular A-4. Results are rounded to two significant digits for ease of
  presentation and computation.

    The benefits in Table VIII-1 include all of the human health
impacts we are able to quantify and monetize at this time. However, the
full complement of human health and welfare effects associated with PM
and ozone remain unquantified because of current limitations in methods
or available data. We have not quantified a number of known or
suspected health effects linked with ozone and PM for which appropriate
health impact functions are not available or which do not provide
easily interpretable outcomes (i.e., changes in heart rate
variability). Additionally, we are unable to quantify a number of known
welfare effects, including reduced acid and particulate deposition
damage to cultural monuments and other materials, and environmental
benefits due to reductions of impacts of eutrophication in coastal
areas. These are listed in Table VIII-2. As a result, the health
benefits quantified in this section are likely underestimates of the
total benefits attributable to the

implementation of the coordinated strategy to control ship emissions.

   Table VIII-2--Unquantified and Non-Monetized Potential Effects of a
           Coordinated U.S. Strategy to Control Ship Emissions
------------------------------------------------------------------------
                                             Effects not included in
           Pollutant/Effects                  analysis--changes in:
------------------------------------------------------------------------
Ozone Health\a\........................  Chronic respiratory damage.\b\
                                         Premature aging of the
                                          lungs.\b\
                                         Non-asthma respiratory
                                          emergency room visits.
                                         Exposure to UVb (+/-).\e\
Ozone Welfare..........................  Yields for:
                                            --commercial forests,
                                            --some fruits and
                                             vegetables,
                                            --non-commercial crops.
                                         Damage to urban ornamental
                                          plants.
                                         Impacts on recreational demand
                                          from damaged forest
                                          aesthetics.
                                         Ecosystem functions.
                                         Exposure to UVb (+/-).\e\
PM Health\c\...........................  Premature mortality--short term
                                          exposures.\d\
                                         Low birth weight.
                                         Pulmonary function.
                                         Chronic respiratory diseases
                                          other than chronic bronchitis.
                                         Non-asthma respiratory
                                          emergency room visits.
                                         Exposure to UVb (+/-).\e\
PM Welfare.............................  Residential and recreational
                                          visibility in non-Class I
                                          areas.
                                         Soiling and materials damage.
                                         Damage to ecosystem functions.
                                         Exposure to UVb (+/-).\e\
Nitrogen and Sulfate Deposition Welfare  Commercial forests due to
                                          acidic sulfate and nitrate
                                          deposition.
                                         Commercial freshwater fishing
                                          due to acidic deposition.
                                         Recreation in terrestrial
                                          ecosystems due to acidic
                                          deposition.
                                         Existence values for currently
                                          healthy ecosystems.
                                         Commercial fishing,
                                          agriculture, and forests due
                                          to nitrogen deposition.
                                         Recreation in estuarine
                                          ecosystems due to nitrogen
                                          deposition.
                                         Ecosystem functions
                                         Passive fertilization
CO Health..............................  Behavioral effects
HC/Toxics Health\f\....................  Cancer (benzene, 1,3-butadiene,
                                          formaldehyde, acetaldehyde).
                                         Anemia (benzene).
                                         Disruption of production of
                                          blood components (benzene).
                                         Reduction in the number of
                                          blood platelets (benzene).
                                         Excessive bone marrow formation
                                          (benzene).
                                         Depression of lymphocyte counts
                                          (benzene).
                                         Reproductive and developmental
                                          effects (1,3-butadiene).
                                         Irritation of eyes and mucus
                                          membranes (formaldehyde).
                                         Respiratory irritation
                                          (formaldehyde).
                                         Asthma attacks in asthmatics
                                          (formaldehyde).
                                         Asthma-like symptoms in non-
                                          asthmatics (formaldehyde).
                                         Irritation of the eyes, skin,
                                          and respiratory tract
                                          (acetaldehyde).
                                         Upper respiratory tract
                                          irritation and congestion
                                          (acrolein)
HC/Toxics Welfare......................  Direct toxic effects to
                                          animals.
                                         Bioaccumulation in the food
                                          chain.
                                         Damage to ecosystem function.
                                         Odor.
------------------------------------------------------------------------
Notes:
\a\ The public health impact of biological responses such as increased
  airway responsiveness to stimuli, inflammation in the lung, acute
  inflammation and respiratory cell damage, and increased susceptibility
  to respiratory infection are likely partially represented by our
  quantified endpoints.
\b\ The public health impact of effects such as chronic respiratory
  damage and premature aging of the lungs may be partially represented
  by quantified endpoints such as hospital admissions or premature
  mortality, but a number of other related health impacts, such as
  doctor visits and decreased athletic performance, remain unquantified.
\c\ In addition to primary economic endpoints, there are a number of
  biological responses that have been associated with PM health effects
  including morphological changes and altered host defense mechanisms.
  The public health impact of these biological responses may be partly
  represented by our quantified endpoints.
\d\ While some of the effects of short-term exposures are likely to be
  captured in the estimates, there may be premature mortality due to
  short-term exposure to PM not captured in the cohort studies used in
  this analysis. However, the PM mortality results derived from the
  expert elicitation do take into account premature mortality effects of
  short term exposures.
\e\ May result in benefits or disbenefits.
\f\ Many of the key hydrocarbons related to this rule are also hazardous
  air pollutants listed in the CAA.

B. Quantified Human Health Impacts

    Tables VIII-3 and VIII-4 present the annual PM2.5 and
ozone health impacts in the 48 contiguous U.S. states associated with
the coordinated strategy for both 2020 and 2030. For each endpoint
presented in Tables VIII-3 and VIII-4, we provide both the mean
estimate and the 90% confidence interval.
    Using EPA's preferred estimates, based on the ACS and Six-Cities
studies and no threshold assumption in the model of mortality, we
estimate that the coordinated strategy would result in between 5,300
and 14,000 cases of avoided PM2.5-related premature deaths
annually in 2020 and between 13,000 and 32,000 avoided premature deaths
annually in 2030. As a sensitivity analysis, when the range of expert
opinion is used, we estimate between 1,900 and 18,000 fewer premature
mortalities in 2020 and between 4,500 and 42,000 fewer premature
mortalities in 2030 (see Tables 6-5 and 6-6 in the draft RIA that
accompanies this proposal).
    For ozone-related premature mortality, we estimate a range of
between 61 to 280 fewer premature mortalities as a result of the
coordinated strategy in 2020 and between 220 to 980 in 2030. The
increase in annual benefits from 2020 to 2030 reflects additional
emission reductions from coordinated strategy, as well as increases in
total population and the average age (and thus baseline mortality risk)
of the population.

Table VIII-3--Estimated PM2.5-Related Health Impacts Associated With a Coordinated U.S. Strategy To Control Ship
                                                  Emissions \a\
----------------------------------------------------------------------------------------------------------------
                                                              2020 Annual reduction in  2030 Annual reduction in
                        Health effect                          ship-related incidence    ship-related incidence
                                                                   (5th%-95th%ile)           (5th%-95th%ile)
----------------------------------------------------------------------------------------------------------------
Premature Mortality--Derived from epidemiology literature:
 \b\
    Adult, age 30+, ACS Cohort Study (Pope et al., 2002)....                    5,300                    13,000
                                                                         (2,100-8,500)            (5,000-20,000)
    Adult, age 25+, Six-Cities Study (Laden et al., 2006)...                   14,000                    32,000
                                                                        (7,400-20,000)           (18,000-47,000)
    Infant, age <1 year (Woodruff et al., 1997).............                       20                        37
                                                                                (0-55)                   (0-100)
Chronic bronchitis (adult, age 26 and over).................                    3,800                     8,500
                                                                           (700-6,900)            (1,600-15,000)
Non-fatal myocardial infarction (adult, age 18 and over)....                    8,800                    22,000
                                                                        (3,200-14,000)            (8,100-35,000)
Hospital admissions-respiratory (all ages) \c\..............                    1,200                     2,900
                                                                           (590-1,800)              1,400-4,200)
Hospital admissions-cardiovascular (adults, age >18) \d\....                    2,700                     7,100
                                                                         (2,000-3,200)             (5,000-8,300)
Emergency room visits for asthma (age 18 years and younger).                    3,500                     8,100
                                                                         (2,000-4,900)            (4,800-11,000)
Acute bronchitis, (children, age 8-12)......................                    8,500                    19,000
                                                                            (0-17,000)                (0-37,000)
Lower respiratory symptoms (children, age 7-14).............                  100,000                   220,000
                                                                      (49,000-150,000)         (110,000-330,000)
Upper respiratory symptoms (asthmatic children, age 9-18)...                   77,000                   170,000
                                                                      (24,000-130,000)          (54,000-290,000)
Asthma exacerbation (asthmatic children, age 6-18)..........                   95,000                   210,000
                                                                      (10,000-260,000)          (23,000-580,000)
Work loss days..............................................                  720,000                 1,500,000
                                                                     (630,000-810,000)     (1,300,000-1,700,000)
Minor restricted activity days (adults age 18-65)...........                4,300,000                 9,000,000
                                                                 (3,600,000-4,900,000)    (7,600,000-10,000,000)
----------------------------------------------------------------------------------------------------------------
Notes:
\a\ Incidence is rounded to two significant digits. Estimates represent incidence within the 48 contiguous
  United States.
\b\ PM-related adult mortality based upon the American Cancer Society (ACS) Cohort Study (Pope et al., 2002) and
  the Six-Cities Study (Laden et al., 2006). Note that these are two alternative estimates of adult mortality
  and should not be summed. PM-related infant mortality based upon a study by Woodruff, Grillo, and Schoendorf,
  (1997).\181\
\c\ Respiratory hospital admissions for PM include admissions for chronic obstructive pulmonary disease (COPD),
  pneumonia and asthma.
\d\ Cardiovascular hospital admissions for PM include total cardiovascular and subcategories for ischemic heart
  disease, dysrhythmias, and heart failure.

---------------------------------------------------------------------------

    \181\ Woodruff, T.J., J. Grillo, and K.C. Schoendorf. 1997.
``The Relationship Between Selected Causes of Postneonatal Infant
Mortality and Particulate Air Pollution in the United States.''
Environmental Health Perspectives 105(6):608-612.

Table VIII-4--Estimated Ozone-Related Health Impacts Associated With a Coordinated U.S. Strategy To Control Ship
                                                  Emissions\a\
----------------------------------------------------------------------------------------------------------------
                                                              2020 Annual reduction in  2030 Annual reduction in
                        Health effect                          ship-related incidence    ship-related incidence
                                                                   (5th%-95th%ile)           (5th%-95th%ile)
----------------------------------------------------------------------------------------------------------------
Premature Mortality, All ages \b\

Multi-City Analyses:
    Bell et al. (2004)--Non-accidental......................                       61                       220
                                                                               (23-98)                  (71-370)
    Huang et al. (2005)-Cardiopulmonary.....................                      100                       370
                                                                              (43-160)                 (140-610)
    Schwartz (2005)--Non-accidental.........................                       93                       340
                                                                              (34-150)                 (100-570)
Meta-analyses:
    Bell et al. (2005)--All cause...........................                      200                       690
                                                                             (100-290)               (330-1,100)
    Ito et al. (2005)--Non-accidental.......................                      270                       980
                                                                             (170-370)               (580-1,400)
    Levy et al. (2005)--All cause...........................                      280                       980
                                                                             (200-360)               (670-1,300)
Hospital admissions--respiratory causes (adult, 65 and                            470                     2,000
 older) \c\.................................................                  (46-830)                (97-3,600)
Hospital admissions--respiratory causes (children, under 2).                      380                     1,200
                                                                             (180-590)               (500-2,000)
Emergency room visit for asthma (all ages)..................                      210                       740
                                                                               (0-550)                 (0-1,900)
Minor restricted activity days (adults, age 18-65)..........                  360,000                 1,200,000
                                                                     (160,000-570,000)       (440,000-1,900,000)
School absence days.........................................                  130,000                   450,000
                                                                      (51,000-190,000)         (150,000-680,000)
----------------------------------------------------------------------------------------------------------------
Notes:
\a\ Incidence is rounded to two significant digits. Estimates represent incidence within the 48 contiguous U.S.
\b\ Estimates of ozone-related premature mortality are based upon incidence estimates derived from several
  alternative studies: Bell et al. (2004); Huang et al. (2005); Schwartz (2005) ; Bell et al. (2005); Ito et al.
  (2005); Levy et al. (2005). The estimates of ozone-related premature mortality should therefore not be summed.
\c\ Respiratory hospital admissions for ozone include admissions for all respiratory causes and subcategories
  for COPD and pneumonia.

C. Monetized Benefits

    Table VIII-5 presents the estimated monetary value of reductions in
the incidence of ozone and PM2.5-related health effects. All
monetized estimates are stated in 2006$. These estimates account for
growth in real gross domestic product (GDP) per capita between the
present and the years 2020 and 2030. As the tables indicate, total
benefits are driven primarily by the reduction in premature fatalities
each year.
    Our estimate of total monetized benefits in 2020 for the
coordinated strategy, using the ACS and Six-Cities PM mortality studies
and the range of ozone mortality assumptions, is between $47 billion
and $110 billion, assuming a 3 percent discount rate, or between $42
billion and $100 billion, assuming a 7 percent discount rate. In 2030,
we estimate the monetized benefits to be between $110 billion and $280
billion, assuming a 3 percent discount rate, or between $100 billion
and $260 billion, assuming a 7 percent discount rate. The monetized
benefit associated with reductions in the risk of both ozone- and
PM2.5-related premature mortality ranges between 90 to 98
percent of total monetized health benefits, in part because we are
unable to quantify a number of benefits categories (see Table VIII-2).
These unquantified benefits may be substantial, although their
magnitude is highly uncertain.

[GRAPHIC] [TIFF OMITTED] TP28AU09.002

[GRAPHIC] [TIFF OMITTED] TP28AU09.003

D. What Are the Limitations of the Benefits Analysis?

    Every benefit-cost analysis examining the potential effects of a
change in environmental protection requirements is limited to some
extent by data gaps, limitations in model capabilities (such as
geographic coverage), and uncertainties in the underlying scientific
and economic studies used to configure the benefit and cost models.
Limitations of the scientific literature often result in the inability
to estimate quantitative changes in health and environmental effects,
such as potential increases in premature mortality associated with
increased exposure to carbon monoxide. Deficiencies in the economics
literature often result in the inability to assign economic values even
to those health and environmental outcomes which can be quantified.
These general uncertainties in the underlying scientific and economics
literature, which can lead to valuations that are higher or lower, are
discussed in detail in the draft RIA and its supporting references. Key
uncertainties that have a bearing on the results of the benefit-cost
analysis of the coordinated strategy include the following:
     The exclusion of potentially significant and unquantified
benefit categories (such as health, odor, and ecological benefits of
reduction in air toxics, ozone, and PM);
     Errors in measurement and projection for variables such as
population growth;
     Uncertainties in the estimation of future year emissions
inventories and air quality;
     Uncertainty in the estimated relationships of health and
welfare effects to changes in pollutant concentrations including the
shape of the C-R function, the size of the effect estimates, and the
relative toxicity of the many components of the PM mixture;
     Uncertainties in exposure estimation; and
     Uncertainties associated with the effect of potential
future actions to limit emissions.
    As Table VIII-5 indicates, total benefits are driven primarily by
the reduction in premature mortalities each year. Some key assumptions
underlying the premature mortality estimates include the following,
which may also contribute to uncertainty:
     Inhalation of fine particles is causally associated with
premature death at concentrations near those experienced by most
Americans on a daily basis. Although biological mechanisms for this
effect have not yet been completely established, the weight of the
available epidemiological, toxicological, and experimental evidence
supports an assumption of causality. The impacts of including a
probabilistic representation of causality were explored in the expert
elicitation-based results of the PM NAAQS RIA.
     All fine particles, regardless of their chemical
composition, are equally potent in causing premature mortality. This is
an important assumption, because PM produced via transported precursors
emitted from marine engines may differ significantly from PM precursors
released from electric generating units and other industrial sources.
However, no clear scientific grounds exist for supporting differential
effects estimates by particle type.
     The C-R function for fine particles is approximately
linear within the range of ambient concentrations under consideration.
Thus, the estimates include health benefits from reducing fine
particles in areas with varied concentrations of PM, including both
regions that may be in attainment with PM2.5 standards and
those that are at risk of not meeting the standards.
     There is uncertainty in the magnitude of the association
between ozone and premature mortality. The range of ozone benefits
associated with the proposed strategy is estimated based on the risk of
several sources of ozone-related mortality effect estimates. In a
recent report on the estimation of ozone-related premature mortality
published by the National Research Council, a panel of experts and
reviewers concluded that short-term exposure to ambient ozone is likely
to contribute to premature deaths and that ozone-related mortality
should be included in estimates of the health benefits of reducing
ozone exposure.\182\ EPA has

requested advice from the National Academy of Sciences on how best to
quantify uncertainty in the relationship between ozone exposure and
premature mortality in the context of quantifying benefits.
---------------------------------------------------------------------------

    \182\ National Research Council (NRC), 2008. Estimating
Mortality Risk Reduction and Economic Benefits from Controlling
Ozone Air Pollution. The National Academies Press: Washington, DC.
---------------------------------------------------------------------------

    Emissions and air quality modeling decisions are made early in the
analytical process. For this reason, the emission control scenarios
used in the air quality and benefits modeling are slightly different
than the coordinated strategy. The discrepancies impact the benefits
analysis in three ways:
     The air quality modeling used for the 2020 scenarios is
based on inventory estimates that were modeled using incorrect boundary
information. We believe the impact of this difference, while modest,
likely leads to a small underestimate of the benefits that are
presented in this section. Please refer to the Chapter 3 of the draft
RIA for more information on the emissions excluded from the health
impacts analysis.
     The 2020 air quality modeling scenarios do not include
emission reductions associated with the implementation of global
controls (set through IMO) beyond the assumed ECA boundary of 200
nautical miles (nm). Again, while we expect the impact of this
difference is modest, the omission of these additional emission
reductions likely leads to a small underestimate of the 2020 benefits
presented in this section.
     As described in Section II, the air quality modeling for
the 2030 scenario reflects air quality impacts associated with an
assumed ECA distance of 100 nm with global controls (set through IMO)
beyond the ECA boundary. To estimate the 2030 benefits associated with
a 200 nm ECA boundary, we transferred the relationship between modeled
impacts between 100 nm and 200 nm ECA boundaries observed in 2020. For
each health endpoint and associated valuation, we calculated a ratio
based on the national-level estimate for the 200 nm and 100 nm scenario
and applied that to the related 2030 100 nm estimate. For the final
rulemaking, we plan to model the 2030 coordinated strategy to control
ship emissions with a 200 nm boundary and global controls beyond.
    Despite the uncertainties described above, we believe this analysis
provides a conservative estimate of the estimated economic benefits of
the standards in future years because of the exclusion of potentially
significant benefit categories that are not quantifiable at this time.
Acknowledging benefits omissions and uncertainties, we present a best
estimate of the total benefits based on our interpretation of the best
available scientific literature and methods supported by EPA's
technical peer review panel, the Science Advisory Board's Health
Effects Subcommittee (SAB-HES). The National Academies of Science (NRC,
2002) has also reviewed EPA's methodology for analyzing the health
benefits of measures taken to reduce air pollution. EPA addressed many
of these comments in the analysis of the final PM NAAQS.\183\ \184\
This analysis incorporates this most recent work to the extent
possible.
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    \183\ National Research Council (NRC). 2002. Estimating the
Public Health Benefits of Proposed Air Pollution Regulations. The
National Academies Press: Washington, DC.
    \184\ U.S. Environmental Protection Agency. October 2006. Final
Regulatory Impact Analysis (RIA) for the Proposed National Ambient
Air Quality Standards for Particulate Matter. Prepared by: Office of
Air and Radiation. Available at http://www.epa.gov/ttn/ecas/
ria.html.
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E. Comparison of Costs and Benefits

    This section presents the cost-benefit comparison related to the
expected impacts of our coordinated strategy for ocean-going vessels.
In estimating the net benefits of the coordinated strategy, the
appropriate cost measure is `social costs.' Social costs represent the
welfare costs of a rule to society and do not consider transfer
payments (such as taxes) that are simply redistributions of wealth. For
this analysis, we estimate that the social costs of the coordinated
program are equivalent to the estimated compliance costs of the
program. While vessel owners and operators will see their costs
increase by the amount of those compliance costs, they are expected to
pass them on in their entirety to consumers of marine transportation
services in the form of increased freight rates. Ultimately, these
costs will be borne by the final consumers of goods transported by
ocean-going vessels in the form of higher prices for those goods. The
social benefits of the coordinated strategy are represented by the
monetized value of health and welfare improvements experienced by the
U.S. population. Table VIII-6 contains the estimated social costs and
the estimated monetized benefits of the coordinated strategy.
    The results in Table VIII-6 suggest that the 2020 monetized
benefits of the coordinated strategy are greater than the expected
costs. Specifically, the annual benefits of the total program will
range between $47 to $110 billion annually in 2020 using a three
percent discount rate, or between $42 to $100 billion assuming a 7
percent discount rate, compared to estimated social costs of
approximately $1.9 billion in that same year. These benefits are
expected to increase to between $110 and $280 billion annually in 2030
using a three percent discount rate, or between $100 and $260 billion
assuming a 7 percent discount rate, while the social costs are
estimated to be approximately $3.1 billion. Though there are a number
of health and environmental effects associated with the coordinated
strategy that we are unable to quantify or monetize (see Table VIII-2),
the benefits of the coordinated strategy far outweigh the projected
costs.
    Using a conservative benefits estimate, the 2020 benefits outweigh
the costs by a factor of 22. Using the upper end of the benefits range,
the benefits could outweigh the costs by a factor of 58. Likewise, in
2030 benefits outweigh the costs by at least a factor of 32 and could
be as much as a factor of 90. Thus, even taking the most conservative
benefits assumptions, benefits of the coordinated strategy clearly
outweigh the costs.

  Table VIII-6--Summary of Annual Benefits and Costs Associated with a
         Coordinated U.S. Strategy To Control Ship Emissions \a\
                       [Millions of 2006 dollars]
------------------------------------------------------------------------
           Description                   2020                2030
------------------------------------------------------------------------
Total Estimated Costs \b\.......  $1,900............  $3,100.
Total Estimated Health Benefits
 c, d, e, f
    3 percent discount rate.....  $47,000 to          $110,000 to
                                   $110,000.           $280,000.
    7 percent discount rate.....  $42,000 to          $100,000 to
                                   $100,000.           $260,000.
Annual Net Benefits (Total
 Benefits--Total Costs)
    3 percent discount rate.....  $45,000 to          $110,000 to
                                   $110,000.           $280,000.

    7 percent discount rate.....  $40,000 to $98,000  $97,000 to
                                                       $260,000.
------------------------------------------------------------------------
Notes:
\a\ All estimates represent annual benefits and costs anticipated for
  the years 2020 and 2030. Totals are rounded to two significant digits
  and may not sum due to rounding.
\b\ The calculation of annual costs does not require amortization of
  costs over time. Therefore, the estimates of annual cost do not
  include a discount rate or rate of return assumption (see Chapter 7 of
  the draft RIA). In Chapter 7, however, we use both a 3 percent and 7
  percent social discount rate to calculate the net present value of
  total social costs consistent with EPA and OMB guidelines for
  preparing economic analyses.
\c\ Total includes ozone and PM2.5 benefits. Range was developed by
  adding the estimate from the Bell et al., 2005 ozone premature
  mortality function to PM2.5-related premature mortality derived from
  the ACS (Pope et al., 2002) and Six-Cities (Laden et al., 2006)
  studies.
\d\ Annual benefits analysis results reflect the use of a 3 percent and
  7 percent discount rate in the valuation of premature mortality and
  nonfatal myocardial infarctions, consistent with EPA and OMB
  guidelines for preparing economic analyses.
\e\ Valuation of premature mortality based on long-term PM exposure
  assumes discounting over the SAB recommended 20-year segmented lag
  structure described in the Regulatory Impact Analysis for the Final
  Clean Air Interstate Rule (March, 2005).
\f\ Not all possible benefits or disbenefits are quantified and
  monetized in this analysis. Potential benefit categories that have not
  been quantified and monetized are listed in Table VIII-2.

IX. Alternative Program Options

    EPA's coordinated strategy to control emissions from ocean-going
vessels consists of a number of components including Clean Air Act
standards for Category 3 engines and designation of an ECA for U.S.
coasts through amendment to MARPOL Annex VI. The coordinated strategy
will ensure that all ships operating within 200 nautical miles of U.S.
coasts meet the most stringent NOX standards and fuel sulfur
limits by 2015 (fuel sulfur) and 2016 (engine NOX).
    The air quality and benefits analysis we performed for the
coordinated strategy suggests that substantial human health and
environmental benefits can be obtained from additional reductions in
emissions from ocean-going vessels, and many stakeholders have
expressed a desire for additional NOX reductions from OGV in
earlier years, prior to the effective dates for the Tier 2 and Tier 3
NOX limits. As described in Section I, above, EPA has a
number of port initiatives under our National Clean Diesel Campaign to
reduce emissions from this sector. These include recognition for
efforts by port authorities and their customers to reduce emissions
from OGV through a variety of efforts, grants under the Energy Policy
Act of 2005 Diesel Emissions Reduction Program to electrify piers and
repower C1 and C2 marine vessels, and grants under the Clean Air Act to
demonstrate sea water scrubbers and to provide incentives to ship
operators to use lower sulfur fuels.\185\ EPA has also sponsored a
number of workshops and conferences focused on exchanging technical
information about emissions reduction techniques for ships (Clean Ships
Conference in San Diego in 2007, Faster Freight meetings on East and
West coasts, and up-coming workshop with MARAD). EPA welcomes comment
on ways in which the NCDC can be improved through ideas such as
incentives (including financing schemes) to facilitate faster
introduction of cleaner fuels and engine technologies, eco-speed
programs, and adoption of other emission reduction methods that can be
used on a vessel-specific or port-specific basis.
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