1. 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.

2. 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).

3. 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.

4. 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

5. 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.

6. 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)

7. Regulated Entities

8. 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.

9. Consideration of Alternatives

10. 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

11. 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

12. 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)

13. 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)

14. Costs

15. 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

16. 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

17. 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

19. 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

20. 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).

21. 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

22. 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.

23. Benefits

24. Summary of Net Benefits

25. Summary of Net Benefits

26. Summary of Net Benefits

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

28. Thank you!
Questions?