The U.S. Practice of Regulatory Review Practical Exercise: Formaldehyde Standards for Composite Wood Products Act Shannon Joyce and Christine Kymn White House Office of Information and Regulatory Affairs U.S./Colombia RIA and GRP Workshop Bogota, Colombia April 13, 2018 Any views expressed here are solely those of the presenter, and do not necessarily reflect the position of the Office of Management and Budget or the Executive Office of the President.

Formaldehyde Standards for Composite Wood Products Act Composite Wood Products – found in manufactured homes, furniture, cabinets, other architectural components Formaldehyde – colorless, flammable gas that has a strong odor at room temperature. Found in resins used in the manufacture of composite wood products, as well as other household products (soap, carpet, fabric softener, plastics and paper coatings), cigarette smoke and is also a natural by-product of human metabolism (endogenous levels in the body).

Formaldehyde Standards for Composite Wood Products Act Half-life of Formaldehyde – 1.5 years Health impacts of Formaldehyde Emissions – subject to exposure and concentrations, can be a human carcinogen; irritant of eyes, nose, throat. Possible fertility and respiratory effects.

Identify need to Regulate What is the market failure? Negative externalities from formaldehyde emissions Information asymmetries – knowledge of risks from formaldehyde emissions What is the justification for regulating at a federal level? Interstate commerce Lack of property rights for externalities

What is in the baseline? Hurricane Katrina (2005), Manufactured Homes inspires Airborne Toxics Control Measure to reduce formaldehyde emissions in composite products (California Air Resources Board (CARB) 2008). Other? Consider other sources of formaldehyde emissions.

Potential Regulated Entities Stock Panel Producers – manufacturers of hardwood plywood (CARB ATCM) Wood Veneer Laminated Producers – glue wood veneer to particle board (CARB ATCM labeling but not emissions or certifications) Fabricators – use composite wood to produce parts or finished goods such as furniture (must use CARB ACTM certified parts and labeling) Wholesalers and Retailers – sellers of composite wood products (CARB ACTM labeling only) Construction Firms – (CARB ACTM fabricators and retailers) Third Party Certifiers (TPCs) – audit and review emissions tests and quality (CARB ACTM)

Regulated Entities

Consideration of Alternatives Legislatively required: Title VI of the Toxic Substances Control Act (TSCA), also known as the Formaldehyde Standards for Composite Wood Products Act, established emissions standards mirroring the CARB ACTM. (SBREFA panel rec) Policy discretion: Title VI also provided the Environmental Protection Agency (EPA) with the discretion to add additional requirements.

Consideration of Alternatives

Consideration of Alternatives and Trade Offs At the proposed rule stage, EPA considered significantly exceeding the requirements under CARB ACTM. More stringent recordkeeping requirements (3 yrs v. 2yrs). Recall 1.5 yr half-life Increased requirements for laminates (adds 7k-14k firms, mostly small businesses) No De Minimis Exceptions for custom pieces, finished products, raised panels Include construction as fabricators SBREFA Panel recommended: De Minimis exemptions based on volume or percent Performance standards met with low emission resins Other alternatives? The following were adopted in final rule Delay compliance for certain groups or overall (e.g. 7 yrs for laminators) Change scope of definitions to exclude laminates, construction

Costs Familiarization with regulations Recordkeeping Incorporate and set up labeling of products Changes to raw materials and production Product testing and certification Cost to change resins

Data for Costs Affected entities – US Census data for industries (industry, product lines, firm size); industry surveys Certification fees – industry associations (Composite Panel Associates (CPA); Hardwood Plywood and Veneer Association (HPVA) Other compliance costs – agency technical papers, wage rates by industry (BLS)

Assessing Costs Determine which costs are incremental to this regulation. Entities already in compliance with CARB ACTM will be in the baseline. Generally determine per entity costs and the number of entities with new compliance requirements as a result of the EPA rule. Multiply and aggregate In other instances, cost calculation can involve more complicated modeling (e.g. EPA air rules)

Costs

Benefits Reduced Mortality Risk/Cancer Risk – changes and variations in exposure over a 30 yr period Reduced/Avoided Eye Irritation – in home exposure (30-60min) Reduced/Avoided Respiratory Effects – including lung irritation, asthma Increased Female Fertility

Data for Benefits Cancer Risk – several studies (National Academies of Science, EPA IRIS program) provide risk and exposure data; EPA VSL methodology for monetizing reduced mortality Eye Irritation – questionnaire including WTP responses Respiratory Effects – “suggestive evidence” occupational exposure data Female Fertility – occupational data but mode of action in reproductive outcome unknown and insufficient information on the relationship to fertility

Benefits Which benefits should be quantified and monetized? Cancer Risk Eye Irritation Which benefits should be unquantified (left to qualitative description)? Respiratory Effects Female Fertility

How would you estimate the reduction in fatal cancer risk in this RIA? What information do you need? Average daily concentration and associated risks Lifetime average concentration and associated risks Population How do you calculate statistical lives saved? Need to be able to calculate and compare occurances in baseline and under the proposed regulatory option. How would you monetize the benefits of avoided cancer fatality? Value of a Statistical Life –way to monetize the lives saved What do you do if you are missing key data on the risks? Consider qualitative description

Role of Value of a Statistical Life (VSL) in Benefits In general, for benefits calculations, small reductions in risks are aggregated across a population to derive the number of statistical lives saved. A “value of a statistical life” (VSL) is then applied to monetize these benefits. EPA uses the same VSL estimate in most of it’s RIAs when monetizing reductions in mortality risk. This estimate is established in EPA white papers, based on a meta-analysis of the literature (stated preference, hedonic wage) and in consultation with its Science Advisory Board (SAB). Other agencies follow a similar approach. This RIA used EPA’s (2014) recommended value for a statistical life (VSL): $4.8 million ($1990), inflation and income elasticity (.4) adjusted to $9.7 million ($2013).

Assessing change in cancer risk Inhalation Unit Risk (IUR) = the upper-bound excess lifetime cancer risk estimated to result from continuous exposure to 1 ug/m3. Upper bound estimate of excess cancer risk under different regulatory options applied to the lifetime average daily concentration (LADC) and age-dependent adjustment factor (ADAF). E.g. aggregation of average daily concentrations based on circumstances in different age brackets, such as moving to a new house at age 0 and living in the same house at age 2 after 2 years of off-gassing, and so on over lifetime Next, calculate the expected number of excess cancer cases for the baseline and the policy scenario/regulatory option by multiplying each by the relevant population. Annual approach, change in lifetime cancer risk for an individual with one year of reduced cancer exposure. Number of avoided cases = Number of cancer casesbaseline – Number of cancer casespolicy scenario

Monetizing Change in Cancer Risk Value of avoided cancer cases = V*Number of cases avoided, where V = the value of an avoided case Value of a Micro Risk Reduction for Fatal Cancer based on the value of mortality risk (VMR) = value of avoiding a risk of premature death. EPA used a VMR of $9.77 per micro-risk reduction (1/1,000,000 reduction in risk of mortality), which is estimated using EPA’s (2014) recommended value for a statistical life (VSL). The benefit is assumed to be accrued in t he year in which a cancer death was avoided and are discounted accordingly to year of diagnosis in modeling. VMR is assumed to represent a willingness to pay (WTP) for immediate death and therefore could be viewed as underestimating the benefits of avoiding cancer fatalities as it may not capture costs born by others, such as via health insurance. EPA’s benefits estimates include monetized valuations for reductions in fatal cancer as well as WTP estimates of avoiding non-fatal cancer.

Benefits

Summary of Net Benefits

Summary of Net Benefits

Summary of Net Benefits

Summary Table Summary table in published final rule. 81 FR 8977 (December 12, 2016).

Thank you! Questions? christine.j.kymn@omb.eop.gov