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53 FR 37082-37247 Friday, Sept. 23, 1988 40 CFR Parts 280 and 281, Underground Storage Tanks; Technical Requirements and State Program Approval; Final Rules--Preamble Section VII. Economic and Regulatory Impacts

PREAMBLE
(37190-37194)

 


VII. Economic and Regulatory Impacts

A. Regulatory Impact Analysis

1. Executive Order 12291

2. Costs

3. Benefits

4. Cost Effectiveness of the Final Rule

5. Economic Impacts on Existing Facilities

6. Integration of Technical Standards and Financial Responsibility Rules

B. Regulatory Flexibility Act

1. Small Entities Potentially Affected by the Rule

C. Paperwork Reduction Act


VII. ECONOMIC AND REGULATORY IMPACTS

Section VII.A. discusses the Regulatory Impact Analysis of the final rule required by Executive Order 12291. Section VII.B. discusses the analysis of the effects of the final rule on small businesses required by the Regulatory Flexibility Act. Section VII.C. addresses requirements under the Paperwork Reduction Act. (A full draft of the Regulatory Impact Analysis for the final rule is available as part of the background documents supporting this rulemaking.)

A. Regulatory Impact Analysis

1. Executive Order 12291

Executive Order 12291 (46 CFR 13193, February 19, 1981) requires regulatory agencies to conduct a Regulatory Impact Analysis (RIA) for any major rule. EPA has conducted an RIA to assess the regulatory impacts of the technical standards rule for USTs based on the guidelines contained in the Office of Management and Budget's "Interim Regulatory Impact Analysis Guidance" and EPA's "Guidelines for Performing Regulatory Impact Analysis." The objective of the analysis is to examine the anticipated costs, benefits, and impacts of the final rule rather than to select a regulatory option. Based on the results of the analysis, the Agency has concluded that the technical standards regulations being promulgated today represent a major rule that produces significant net benefits to society.

As described in today's preamble, these technical standards pertain to tank system design, construction, and installation, leak detection, recordkeeping, reporting, closure, and corrective action. For the proposed rule (52 FR 12761-12769), EPA conducted an RIA to compare several regulatory alternatives. Each of these alternatives is discussed in detail in the "Regulatory Impact Analysis for Proposed Technical Standards for Underground Storage Tanks" (April 1987). (This RIA for the proposed rule is contained in Appendix B of the RIA for the final rule.) The RIA for the final rule does not consider various options. Instead, it concentrates on the impacts of the provisions of the final rule (see sections III. and IV. of today's preamble for a full description of the requirements of the final rule.)

The final rule refines the proposed rule (April 17, 1987) by phasing in requirements for release detection over a period of 5 years for existing tanks (based on the age of the tank) and by establishing more stringent requirements for pressurized piping. Most of the other requirements in the final rule pertaining to corrosion protection and release detection are the same as in the proposed rule.

2. Costs

Compliance with the rule's requirements for release detection, system inspections and upgrading, and corrective action will require large expenditures by most UST owners and operators. In addition, the large population of USTs means that the total costs for all USTs will be substantial from the standpoint of the economy as a whole.

Table 3, column 2, displays the costs of the final rule for the entire UST population, by category of costs. These cost estimates represent costs calculated using the UST Model, a model developed by the Agency to simulate the release and transport of petroleum products. These estimates assume a total of 1.7 million USTs and a total of 30 years of costs after promulgation of the rule, discounted at a rate of 3 percent annually. Based on EPA's analysis and assumptions, the estimated cost of the final rule is expected to be approximately $69 billion over a period of 30 years, or $3.6 billion per year (discounted at a rate of 3 percent).

Table 3. Costs Under the Base Case and Final Rule

Cost component

Total cost, all USTs

Increment cost

Base case (millions)

Final rule (millions)

Total (millions)

Per UST

Component repair replacement, upgrade.

$19,890

$32,300

$12,410

$7,300

Leak detection and testing.

440

4,980

4,540

2,670

Corrective action in response to releases.

01

31,970

31,970

18,800

Total

20,330

69,250

48,920

28,770

Source: UST Model runs, April 1988.

1No cost is ascribed here because no corrective action is required in the base case.

In order to evaluate the incremental costs of the final rule, EPA estimated the costs that would be incurred by UST owners and operators in the absence of any further regulations. These costs are presented in column 1 of Table 3 as base case cost. Subtracting the base case costs from the costs under the final rule yields the incremental cost of the final rule, shown by cost category in Table 3, column 3. This incremental cost is expected to be approximately $48 billion over 30 years, or $2.5 billion on an annual basis (discounted at an annual rate of 3 percent). The administrative costs of implementing the final rule are not included in this analysis.

3. Benefits

The final rule's requirements for leak detection and prevention and corrective action will provide society with a variety of benefits. The benefits are defined as reductions in damages under the rule in comparison to the base case. Two kinds of damages are considered in the RIA: those that occur before a release is detected, such as contamination of private and public wells; and those that occur after a release is detected, such as contamination of soil and ground water.

The pre-detection damages are $2.1 billion under the final rule, and $4.8 billion in the base case. The incremental benefits of regulation resulting from this decrease in pre-detection damages are therefore $2.7 billion. The post-detection damages are estimated to be $52.8 billion under the base case, and negligible under the final rule. (Under the final rule, corrective actions must be performed as soon as a release is detected which accounts for this drastic reduction in post-detection costs.) The incremental benefits of regulation resulting from a decrease in post-detection damages are therefore $52.8 billion. The total incremental benefits of the rule, including the benefits from reduction in both pre- and post-detection damages, are $55.5 billion ($2.7 billion due to reduction of pre-detection damages and $52.8 billion due to reduction of post-detection damages). The yield in benefit for each UST is about $31,000.

EPA believes that, in addition to the benefits summarized above, many additional benefits of release detection and prevention cannot be expressed quantitatively or in purely monetary terms. Examples of these important benefits include the prevention of added risks to human health, the value of preventing damage to the ability of streams to support life, and the basic value of preventing contamination of ground-water resources whether or not they are currently being used.

In an attempt to provide some measure of these benefits, EPA has quantified the health benefits of the release detection, prevention, and corrective action portion of the final rule, but has expressed the benefits in terms of cancer cases avoided and the reduction in numbers of USTs posing cancer risks in excess of a specified threshold (Table 4). Of the two scenarios shown in Table 4, one scenario assumes that people will not use water that smells or tastes badly. The other scenario assumes that people will use water whether it seems contaminated or not.

Table 4. Reduction in Health Risks Due to Release Prevention and Detection in the Final Rule

Type of benefit

Assuming taste and odor threshold limits exposure

Assuming no exposure limitation

Reduction in population risk (total cases of cancer avoided).

20 cases.

87 cases.

Reduction in numbers of USTs posing risks of cancer as high as one chance in 10,000. 8,371 USTs. 13,300 USTs.

Source: UST Model runs, April 1988.

4. Cost Effectiveness of the Final Rule

A comparison of the incremental costs of the final rule to its incremental benefits is shown in Figure 6. The figure shows the incremental costs of the final rule to be $48.9 billion, which include repair, system upgrading and replacement, release detection, and corrective action for the entire population of 1.7 million USTs. In contrast, the incremental benefits of the rule are estimated to be $55.5 billion. These benefits consist largely of reductions in damages occurring after releases are detected, but also include reductions in well and vapor damages and lost product occurring before the detection of releases. By subtracting costs from benefits, the net dollar benefits of the final rule over the next 30 years are estimated to have a present value of $6.6 billion, or $4,000 per UST. In addition to the benefits measured in dollar terms, the rule also significantly reduces damages to human health and the environment.

BILLING CODE 6560-50-M

5. Economic Impacts on Existing Facilities

An economic impact analysis was performed for the general industry and retail marketing sectors having petroleum USTs and for firms having hazardous substance USTs. The results of this analysis indicate that firms in the retail motor fuel marketing sector would be most adversely affected, for several reasons: they have a greater number of small firms that are more vulnerable to significant regulatory expenditures; regulatory expenditures in this sector are likely to be greater because motor fuel retail outlets generally have the greatest number of USTs per outlet; and firms in the retail motor fuel marketing sector do not have the option of closing their USTs and using alternative storage methods. The RIA reaches the following conclusions:

o By year ten, 43 percent more small firms are projected to close under the final rule than in the base case.

o Most economic impacts of the final rule occur in the first 5 years after its imposition.

o Most closures of existing outlets are caused by corrective action expenses.

o Were corrective action to be performed in the base case as well as under the final rule, the model predicts that a higher percentage of outlets would survive under the final rule than in the base case.

6. Integration of Technical Standards and Financial Responsibility Rules

EPA prepared separate RIAs for the proposed technical standards and financial responsibility rules in order to estimate the costs and economic impacts of each proposed rule. As many commenters pointed out, a major weakness of this approach was that the two RIAs could not easily be used to assess the combined impacts of the proposed technical standards and financial responsibility rules to construct an "after regulation" picture of the regulated community. Commenters also noted that certain indirect costs that would be imposed on the regulated community were not included in either RIA. They explained that in order to buy insurance to satisfy the financial responsibility requirements, UST owners and operators would have to upgrade their USTs by installing release detection systems sooner than required by the technical standards rule.

In response to these comments, EPA has revised its approach in preparing the RIAs for the final rules, so that the two RIAs now perform the following functions:

o Account for the indirect costs of having to upgrade tank systems sooner to procure financial assurance; and

o Estimate the combined costs and economic impacts of both sets of requirements.

The RIA for the financial responsibility rule assumes the technical standards rule in its base case in order to estimate its costs and economic impacts. The costs incurred in upgrading, replacing, retrofitting, and corrective action are attributed to the technical standards rule. Costs incurred to upgrade sooner than required by the technical standards rule in order to obtain financial assurance are attributed to the financial responsibility rule. By using the technical standards rule as the base case and computing the incremental costs of the financial responsibility rule, the overall costs to the regulated community can be estimated properly.

B. Regulatory Flexibility Act

Under the Regulatory Flexibility Act of 1980 (5 U.S.C. 601 et seq.), agencies publishing a proposed or final rule must prepare and make available for comment a Regulatory Flexibility Analysis that describes the potential impact of the rule on small entities (i.e., small business, small organizations, and small government jurisdictions). The purpose of the Regulatory Flexibility Act is to ensure that regulations do not impose unnecessary costs or other burdens on such entities. As part of its RIA, EPA has examined the potential impact of today's rule on small entities and has concluded that the rule will have a significant impact on a substantial number of small entities, as described below:

1. Small Entities Potentially Affected by the Rule

The Agency divided the businesses potentially affected by the rule into three categories: firms engaged in retail motor fuel marketing (e.g., gasoline service stations), firms engaged in other businesses (general industry category), and local government entities. EPA focused the emphasis of the Regulatory Flexibility Analysis on the retail motor fuel marketing sector because (1) all firms in this sector must store their product in underground storage tanks; (2) about three-quarters of all retail motor fuel outlets are owned or operated by small businesses; and (3) the data base for this sector is reasonably accurate and will capture the most severe small-business impacts likely to occur as a result of the rule.

a. Small Businesses in the Retail Motor Fuel Marketing Sector. For this Regulatory Flexibility Analysis, small businesses in the retail motor fuel marketing segment are defined as firms with less than $4.6 million in annual sales and include all firms with only one or two outlets. Firms with $4.6 million in sales will typically have approximately $500,000 in assets and a net worth of about $250,000. EPA estimates that in 1984, small businesses either owned or operated 72 percent of the 193,000 retail motor fuel outlets in the United States.

To examine the rule's potential economic impact on small businesses, EPA estimated the rates at which existing firms in the retail motor fuel marketing sector would leave the industry with and without regulations. For the purposes of this analysis, EPA estimates that these outlets have historically tended to exit the industry at a rate of 3 to 4 percent per year. If releases occur at the level estimated by the RIA and no revenue increases are possible for small businesses, this rate would increase to 6.2 percent per year, assuming average corrective action costs.

b. Small Businesses in the General Industry Sector. An estimated 24 to 41 percent of all USTs in the general industry sector are owned by firms with less than $1 million in assets. A typical small firm in this segment was assumed to have $300,000 in assets and net profits of $21,000 a year. Overall, these firms represent about 12 percent of all UST-owning firms in the general industry sector.

The cost of corrective action for non-plume release (i.e., no ground-water contamination) would leave a small general industry firm in severe financial distress, and the cost of corrective action for a plume release (i.e., contamination of ground water) would lead to the failure of the firm. Replacing a tank would cause a small general industry firm a temporary financial hardship; however, this hardship would not seriously threaten the survival of the firm.

c. Small Local Government Entities. Local government entities of all sizes own USTs. In 1982, the typical municipality with a population less than 50,000 had general revenues of $1.7 million. The costs of replacing even a single UST would represent 2 percent of the revenue of such a municipality, a significant expenditure that would have to be taken into account when planning. A corrective action that required cleaning up a dispersed plume would represent more than 13 percent of the general revenues of such a community, a sum that would probably cause severe financial distress.

In 1982, of the 38,886 local governments classified as counties, municipalities, and townships, 37,581 (approximately 97 percent) had populations of 50,000 or less. Almost all UST-owning local governments would, therefore, be subject to potentially substantial economic impacts under the technical standards rule if an UST release occurred.

C. Paperwork Reduction Act

The information collection requirements in this rule have been approved by the Office of Management and Budget (OMB) under the Paperwork Reduction Act, (44 USC 3501 et seq.) and have been assigned OMB Control Number 2050-0068. Reporting and recordkeeping burden on the public for this collection is estimated at 8,265,220 hours for the 1,750,000 respondents, with an average of 4 hours per response. These burden estimates include all aspects of the collection effort and may include time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information.

If you wish to submit comments regarding any aspect of this collection of information, including suggestions for reducing the burden, or if you would like to a copy of the information collection request (please reference ICR #1360), contact Rick Westlund, Information Policy Branch, PM-223, U.S. Environmental Protection Agency, 401 M Street, S.W., Washington, D.C. 20460 (202-382-2745); and Marcus Peacock, Office of Information and Regulatory Affairs, Office of Management and Budget, Washington, D.C. 20503.

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