A. Basis of the Regulation
Section 183(e) of the Act directs the EPA to regulate products using best available controls (BAC), and defines BAC as:

the degree of emissions reduction the Administrator determines, on the basis of technological and economic feasibility, health, environmental, and energy impacts, is achievable through the application of the most effective equipment, measures, processes, methods, systems or techniques, including chemical reformulation, product or feedstock substitution, repackaging, and directions for use, consumption, storage, or disposal.  

The statute thus empowers the EPA to examine a variety of considerations to use in determining the best means of obtaining VOC emission reductions from a given consumer or commercial product category. As discussed in the preamble to the proposed rule (61 FR 32737, June 25, 1996), the primary factors the EPA considered in determining BAC for architectural coatings were technological and economic feasibility, and environmental impacts. 

Non-air environmental impacts (solid waste and water) and energy impacts are expected to be minimal and, therefore, do not vary significantly among various VOC control levels. With regard to health impacts, the EPA has concluded that reductions in VOC emissions and concomitant reductions in ozone will reduce health impacts of exposure to ozone.

For architectural coatings, the EPA determined that BAC is the degree of emission reduction achievable through a system of regulation that encourages product reformulation to meet the VOC content limits in Table 1 of this subpart, provides an economic incentive (the exceedance fee option) to lower VOC content of coatings, and allows for limited exemption of coatings (the VOC tonnage exemption). The EPA concluded that for this product category, pollution prevention is the most effective means of achieving VOC emission reductions.

In working to comply with State VOC rules over the past several years, the architectural coatings industry has established product reformulation as the most technologically and economically feasible strategy for reducing VOC emissions. Reformulation can consist of minor adjustments in coating VOC contents or larger adjustments involving a change in resin technology. The EPA considered many factors in evaluating the economic and technological feasibility of different VOC content levels and different degrees of reformulation. These factors included existing State and local VOC emission standards, coating VOC content and sales information, analysis of coating technologies, performance considerations, cost considerations, market impacts, and stakeholder input. In addition, the EPA considered the relative contribution of different coating types to overall VOC emissions from architectural coatings.

At proposal, the EPA requested comment on alternatives to the proposed VOC content limits that would provide flexibility, if additional time were needed or it was not cost-effective to develop a low-VOC formulation. Based on comments received, the EPA included in the final rule an exceedance fee (discussed in sections II.C and V.I) and an exemption for a certain tonnage of VOC content (discussed in sections II.D and V.G).

The final VOC content limits in conjunction with the exceedance fee and tonnage exemption reflect the EPA's determination of BAC and are based primarily on the 1990 VOC Emissions Inventory Survey, analysis of existing State rules for architectural coatings, data obtained from participants in the regulatory negotiation, and information submitted by coating manufacturers and other interested parties during the course of the rule development and public comment period.

B. Stakeholder and Public Participation
The EPA proposed the architectural coatings rule and published the preamble in the Federal Register on June 25, 1996 (61 FR 32729). The EPA placed the proposed regulatory text, BID, and Economic Impact Analysis (EIA) in a docket open to the public at that time and made them available to interested parties. The EPA solicited comments at the time of the proposal. To provide easier access by the public, the EPA subsequently published the proposed regulatory text in the Federal Register on September 3, 1996 and extended the comment period from August 30 to September 30, 1996. The EPA again extended the comment period to November 4, 1996.

A separate document in today's Federal Register contains a summary of public comments and the EPA's responses regarding the section 183(e) study, the Report to Congress, the list of consumer and commercial product categories selected for regulation, and the schedule for regulation.

A. Environmental Impacts
1. VOC Reductions
The standards will reduce nationwide emissions of VOC from architectural coating products by an estimated 103,000 Mg/yr (113,500 tpy). These reductions are compared to the 1990 baseline emissions estimate of 510,000 Mg/yr (561,000 tpy). This reduction equates to a 20-percent reduction, compared to the emissions that would have resulted in the absence of these standards.

2. Health Effects
Because VOC are precursors to ozone formation, the VOC reductions from architectural coatings will contribute to a decrease in adverse health effects that result from exposure to ground-level ozone. These health effects result from short-term or prolonged exposure to ground-level ozone and include respiratory symptoms, effects on exercise performance, increased airway responsiveness, increased susceptibility to respiratory infection, increased hospital admissions and emergency room visits, and pulmonary inflammation. Available information also suggests that long-term exposures to ozone may cause chronic health effects (e.g., structural damage to lung tissue and accelerated decline in baseline lung function).

3. Secondary Air, Water, and Solid Waste Impacts
No significant adverse secondary air, water, or solid waste impacts are anticipated from compliance with these standards. Generally, coating reformulation, a pollution prevention technique, will be used to comply with these standards. In cases where conversion from solventborne to waterborne coatings is the method used to achieve compliance, an increase in wastewater discharge may occur if waste from the manufacture of waterborne coatings is discharged by manufacturers to publicly owned treatment works. The provisions for recycling of coatings in the rule may potentially reduce the amount of coating discarded as solid waste.

The regulations do not impact existing product inventories.  Products manufactured before the compliance deadline are not affected.  Excluding existing product inventories from the regulations will eliminate any incremental solid waste increase due to discarded, unsold products. The new products are not expected to require any more packaging than existing products, and thus the volume of discarded packaging should not increase.

B. Energy Impacts
The EPA anticipates that there will be no increase in national annual energy usage as a result of this rule. The standards do not require the use of air pollution control devices, which can affect  energy use.

C. Cost and Economic Impacts
Sixty-four percent of the products included in the 1990 industry survey meet the VOC content limits in this rule and, therefore, there will be no costs to reformulate these products. The manufacturer of an architectural coating that does not meet the VOC content limits in Table 1 of this subpart, will be required to reformulate the product if it will continue to be marketed, unless the manufacturer chooses to use an alternative compliance mechanism such as the exceedance fee or tonnage exemption provisions. The EPA presumes that manufacturers will choose the option that is most advantageous to them, but each option imposes costs, some of which will be passed on to consumers in the form of moderately higher prices and some of which will be borne directly by the manufacturers.

The cost for reformulating noncompliant products depends on the level of effort required to develop a new product (e.g., research and development and market testing expenditures) and how these expenditures are incurred over time. Based on comments received at proposal and the original data presented at proposal, the EPA revised its estimate of the cost to reformulate a product from a lump-sum initial investment of $250,000 to $87,000 (in 1991 dollars), which is annualized to an upper bound value of $14,570 per reformulation (see Section V. M of this preamble for further discussion). Although variations are likely to exist, for purposes of this analysis, this reformulation cost estimate is assumed to be the same for all product types and variations, so the value is independent of VOC content and the annual sales volume of the product. Other costs and cost savings associated with reformulation are likely, but could not be quantified. These costs are discussed qualitatively in the EIA.

Based on the information above, implementation of this regulation is estimated to result in national annualized costs of approximately $25.6 million (in 1991 dollars). (For the benefit of readers, this value is equivalent to approximately $29 million in 1996 dollars.) This estimate includes $0.6 million in costs for manufacturers and importers that the EPA anticipates will take advantage of the alternative exceedance fee compliance provision. The rule does not impose monitoring requirements (and associated costs), but ensures compliance through recordkeeping, reporting, and labeling requirements. The annual cost for these requirements is expected to be approximately $2.5 million. Therefore, the EPA estimates the total cost associated with the rule to be $28 million per year (1991 dollars) (or $32 million in 1996 dollars). In comparison, the 1991 value of shipments for this industry was $6.3 billion. Thus, the estimated costs amount to roughly 0.4 percent of the baseline revenues for this industry.

The estimated cost-effectiveness of the rule is $270 per megagram ($250 per ton) of VOC emission reduction. This cost per megagram of VOC emission reduction makes the architectural coatings rule an economically efficient means of obtaining VOC emission reductions, when compared to the cost per megagram of reduction potentially available through other control measures. As a result of the costs discussed above, the EPA anticipates that the average change in market prices and output across all market segments are minimal, with an average estimated impact of less than one-tenth of 1 percent of baseline values.

The EPA believes the estimates of total cost and associated economic impacts are conservatively high. Since the best available data on VOC content of architectural coatings is from 1990, and the final rule has VOC content requirements similar to State rules which have been enforced since 1990, the EPA believes the estimated number of reformulations and/or their reformulation cost that result from this action may be overstated in that the compliant products developed by manufacturers to comply with various State rules can be used to meet the requirements of the Federal rule. The EIA also takes a conservative approach to several assumptions to produce an upper bound estimate of social cost.

V. Significant Comments and Changes to Proposed Standards
A complete summary of public comments on the architectural coatings rule and the EPA's responses are presented in the Architectural Coatings BID. The EPA received many comments addressing a wide variety of issues in the proposed rule for architectural coatings. After careful consideration of these comments, the EPA has made a number of changes to the proposed rule. The major changes made to the rule since proposal include: (1) clarification of the definitions of "architectural coating," "coating," "importer," "manufacturer," and "paint exchange,"; (2) addition of definitions for "imported" and "manufactured,"; (3) clarification of which standards apply to overlapping coating categories; (4) changes to the definitions and VOC content limits for certain categories; (5) addition of certain new coating categories; (6) addition of the exceedance fee provision; (7) deletion of the variance provisions; (8) addition of an exemption for prescribed quantities of coatings (tonnage exemption); (9)  addition of administrative provisions; and (10) reorganization and reformatting of the rule for clarity.

The following sections of the preamble discuss the most significant issues raised by commenters and the EPA's responses to them.

A. National Rule Versus Control Techniques Guidelines
The EPA requested comment on whether and how a CTG approach would be as effective as a national rule in reducing VOC emissions from architectural coatings in ozone nonattainment areas. Section 183(e) of the Act authorizes the Administrator to issue a CTG in lieu of a national rule if the CTG will be substantially as effective in reducing VOC emissions in ozone nonattainment areas.

Seven commenters stated that they support a CTG in lieu of a national rule. Commenters favoring a CTG generally contended that section 183(e) targets VOC emissions in nonattainment areas, and that a national rule is not warranted. The commenters stated that a CTG would be more appropriate since issuance of a CTG requires States to implement standards only in nonattainment areas.  According to these commenters, allowing coatings manufactured or imported in attainment areas to remain unregulated would provide market niches for small manufacturers and importers. Some commenters also argued that consumers in attainment areas should not have to forego the alleged benefits of higher VOC content coatings.

Several commenters noted that, even with implementation of a national rule, States can promulgate more stringent standards.  Therefore, even a national rule does not ensure uniform nationwide VOC standards. Some commenters urged cooperation and discussion between the EPA and States that consider implementing standards more stringent than the national rule.

The EPA has concluded that a national rule is the more effective approach for reducing emissions from architectural coatings for the following reasons. First, the EPA believes that a national rule is an appropriate means to reduce emissions from products that are, by their nature, easily transported across area boundaries, and many are widely distributed and are used by widely varied types of end-users. For many such products, the end-user may use them in different locations from day-to-day. Because the products themselves are easily transportable, a national rule would preempt opportunities for end-users to purchase such consumer and commercial products in attainment areas and then use them in nonattainment areas, thereby circumventing the regulations and undermining the decrease in VOC emissions in nonattainment areas. The EPA, therefore, believes that a national rule with applicability to products, regardless of where they are marketed, is a reasonable means to ensure that the regulations result in the requisite degree of VOC emission reduction.

Second, the EPA believes that national rules with nationwide applicability may help to mitigate the impact of ozone and ozone precursor transport across some area boundaries. Recent modeling performed by the OTAG and others suggests that in some circumstances VOC emitted outside nonattainment area boundaries can contribute to ozone pollution in nonattainment areas, for example, by traveling into neighboring nonattainment areas. The EPA has recognized the potential for VOC transport in the December 29, 1997, "Guidance for Implementing the 1-hour Ozone and Pre-Existing NAAQS" concerning credit for VOC emission reductions towards rate-of-progress requirements.

Based on these considerations, and considerations of the effectiveness and enforceability of emission controls, the EPA has determined that a CTG for architectural coatings would not be substantially as effective as a national rule in reducing VOC emissions in ozone nonattainment areas.

A major trade association representing many architectural coating manufacturers provided comments supporting a national rule that applies to all areas as the most efficient regulatory mechanism from the perspective of marketing and distribution of products. In addition, comments from a number of small and large manufacturers favored a national rule to encourage uniformity in regulation from State to State, and thereby minimize significant costs and burdens associated with understanding and meeting differing State and local requirements.  The EPA also received some comments suggesting that a national rule apply only in nonattainment areas. The EPA believes that rules applicable only in nonattainment areas would be unnecessarily complex and burdensome for many regulated entities to comply with and for the EPA to administer. The potentially regulated entities under section 183(e) are the manufacturers, processors, wholesale distributors, or importers of consumer and commercial products.

For these three product categories, EPA believes that regulations that would differentiate between products destined for attainment and nonattainment areas should adequately insure that only compliant products go to nonattainment areas. For such a rule to be effective, EPA believes that this would necessitate requiring regulated entities to track their products and control their distribution, sale, and ultimate destination for use to insure that only compliant products go to nonattainment areas. The EPA notes that for architectural coatings, regulated entities do not currently track or control distribution of their products once they sell them to retail distributors.

Although the EPA recognizes that some product lines in some product categories may only be distributed regionally in areas that are already in attainment, the large majority of the product lines will be distributed nationally. Regulations targeted only at nonattainment areas could, thus, impose significant additional burdens upon regulated entities to achieve the goals of section 183(e). 

By comparison, existing State regulations in some instances apply to a broader range of entities, including retail distributors and end-users. Given the limitations of section 183(e) as to regulated entities, the EPA believes that regulations applicable to both attainment areas and nonattainment areas is a reasonable means to ensure use of complying products where necessary, while avoiding potentially burdensome impacts and less reliable mechanisms to achieve the goals of section 183(e).

The EPA expects a national VOC rule for architectural coatings to encourage uniformity in requirements across the country. Many States may choose to rely on the EPA rule rather than adopt their own requirements. The EPA's consideration of this factor, however, is not meant to imply that it would be inappropriate for States to develop more stringent levels of controls where necessary to attain the ozone standard.

The consultation provisions of section 183(e)(9) of the Act are designed to promote uniformity in such cases where States or local areas need to adopt requirements other than those promulgated by the EPA. Section 183(e)(9) requires the EPA to provide relevant information and studies requested by any State. The EPA expects such consultation and cooperation to result in States developing options for regulation that will be compatible with other States and with the national standards. The EPA considers a national VOC rule an important element in promoting consistency among architectural coating standards.  

1. Subject Coatings
The EPA received several comments requesting clarification regarding the definition of "coating" and what particular coatings are subject to the architectural coatings rule. The EPA has modified the definition of "coating" so that it no longer defines a coating as an application that creates a film when applied. The revised definition states that a coating is a "material applied onto or impregnated into" a substrate. The EPA did not intend to limit rule applicability to film-building products.

Commenters questioned whether coatings recommended for both architectural uses and non-architectural uses would be subject to the rule. The commenters also questioned whether shop-applied and factory-applied coatings would be subject. Additional commenters requested clarification as to whether adhesives are subject to the rule.

The architectural coatings rule applies to coatings "recommended for field application to stationary structures and their appurtenances, to portable buildings, to pavements, or to curbs." Therefore, the rule does not apply to coatings that are marketed solely for shop application, such as in a manufacturing setting, or coatings marketed solely for application to non-stationary structures, such as aircraft and ships. However, a coating that is recommended by the manufacturer or importer for use as an architectural coating is subject to the architectural coatings rule even if the coating is also recommended for non-architectural uses. The fact that a coating regulated by the architectural coatings rule may also be subject to other rules with different requirements does not alter the manufacturer's or importer's obligation to meet the requirements of the architectural coatings rule.

The EPA did not intend to regulate adhesives of any kind in the architectural coatings rule. The EPA intends to regulate industrial adhesives as a separate product category under section 183(e) authority.

To clarify the EPA's intent regarding what products are covered by this final rule, the definition of architectural coating has been revised to exclude adhesives and coatings recommended solely for shop application or for application to non-stationary structures. For additional clarity, definitions of "adhesive" and "shop application" have also been added to the final rule.

The EPA has added definitions of "imported" and "manufactured" to the final rule to clarify the point at which an architectural coating becomes subject to the requirements in the rule. The final rule also includes additional language in the definitions of "importer" and "manufacturer" to clarify that all divisions of a company, subsidiaries, and parent companies are considered to be a single importer or manufacturer for the purpose of this rule.

2. Regulation of Processors
Section 183(e)(1)(C) of the Act allows the regulation of processors of consumer and commercial products. For the proposed architectural coatings rule, the EPA considered regulating processors as well as manufacturers and importers. "Processors" would be defined as individuals who add organic thinner to coatings in a commercial or industrial setting at the point of application. The EPA's concern was to provide a means to enforce against thinning of coatings beyond manufacturers' recommendations. Thus, the EPA considered a provision to prohibit an applicator from using organic solvents to thin a coating beyond the manufacturer's recommendation.

In the proposal preamble the EPA requested comment on the possible regulation of processors under the architectural coatings rule. Commenters generally opposed the regulation of applicators, arguing that: (1) over-thinning is not likely to occur since the proposed VOC content limits are reasonable; (2) rules promulgated under section 183(e) of the Act are not intended to apply to end-users or applicators; and (3) restrictions on thinning at the point of application would be difficult to enforce. The commenters stated that the term "processors" was intended to mean entities that repackage coating materials or further enhance finished products before they are offered for sale to end-users.

The final rule does not include processors as a regulated entity.  The EPA believes that end-users' compliance with thinning restrictions for architectural coatings would be difficult to enforce in practice.  Instead, the EPA has determined that it will be more effective to guard against excessive VOC emissions from thinning by taking into account the amount of thinning in advance. Thus, the final limits are expressed as VOC content of coating "thinned to the manufacturer's maximum recommendation." The EPA believes that these limits provide adequate assurance that compliant coatings will be manufactured to perform optimally with recommended thinning. Regulation of processors would not add significantly to the effectiveness of the rule.   

C. General Comments on Determination of Best Available Controls
Many commenters provided general comments on the overall stringency of the VOC content limits in the proposed rule. One group of commenters, composed mainly of manufacturers and trade organizations representing coating users and manufacturers, stated that the VOC content limits in the proposed rule represent BAC and are technologically and economically achievable. One of these commenters, representing a national association of coating manufacturers, stated that the proposal recognized the need for solventborne coatings in certain specialty areas, as well as in some more general usage categories, and adequately addressed the fact that the same coating must be able to perform in all regions and climates of the United States. Another commenter, representing a national association of coating users, stated that the proposed limits fit squarely within current technologies and are consistent with various existing State regulations. And finally, a commenter representing another national trade association of coating users, stated that the proposed table of VOC content limits will not significantly increase construction costs and will not appreciably reduce coating performance.

A second group of commenters, mainly composed of individual State regulatory agencies, organizations of State and regional regulatory agencies, and environmental groups, stated that they did not support the VOC content limits in the rule because they believe they are too lenient. Two of the commenters, representing environmental groups, contended that the EPA's BAC determination did not include consideration of lower VOC coatings that have been developed since 1990. Several of the commenters cited the existence of more stringent State and local architectural coating regulations that have been in place for many years as evidence that the proposed limits do not represent BAC. Several of the commenters added that the proposed rule falls short of State VOC reduction goals and may result in the States adopting more stringent control measures for this source category and for other source categories. The majority of the commenters in this group supported an alternative, more stringent, table of VOC content limits submitted by one of the commenters. (The commenter also suggested a second phase of limits that would take effect in the future.) The alternative table contains more stringent limits for several categories and would achieve a 30-percent emission reduction (calculated on a solids basis). The more stringent VOC content limits in the table are based on the 1989 California Air Resources Board Suggested Control Measure.

Finally, a third group of commenters, composed mainly of coating manufacturers, did not support the limits in the rule because they believe they are too stringent. These commenters stated that low-VOC products (i.e., products meeting the proposed standards) do not perform as well as higher-VOC (non-compliant) products. These commenters claimed that low-VOC coatings are too thick and require considerable thinning to apply, are less durable and require more frequent repainting, and exhibit poor gloss properties. Two of the commenters explained that these performance problems could result in more emissions, rather than less. Two of the commenters stated that available paint raw materials are not adequate to reformulate every non-compliant coating the paint industry offers and still meet customer performance requirements. One commenter stated that the proposed rule will require a massive reformulation of products in the paint and coating industry. The commenter claimed that some organizations were supporting lower limits based on improper data or based on environmental conditions that do not represent circumstances in other areas.

The EPA believes that the final rule represents BAC. Best available control is "the degree of emissions reduction that the Administrator determines on the basis of technological and economic feasibility, health, and energy impacts, is achievable." In developing the rule, the EPA considered many factors in evaluating the economic and technological feasibility of different VOC content levels and different degrees of product reformulation. These factors included: (1) limits in State/local regulations; (2) coating VOC content and sales information; (3) performance considerations; (4) cost considerations; and (5) market impacts.

The sources of information for these factors included: (1) pre-proposal letters; (2) the 1992 industry survey (collected 1990 data); (3) public comments on the proposed rule; (4) follow-up discussions with commenters to gather additional technical information; (5) State/local regulations and pre-proposal discussions with State/local regulators; (6) input from coating manufacturers and other stakeholders; and (7) EPA expertise. Considering all these factors, the EPA concluded that the VOC content limits in Table 1 of the rule, along with the exceedance fee provisions and the tonnage exemption, represent BAC for architectural coatings.

Technical Feasibility and Coating Performance Issues
Throughout development of this rule, there has been debate among stakeholders over the degree to which the VOC content in architectural coatings can be reduced and on the performance characteristics of low-VOC coatings. The term "performance" refers to the coating qualities that are acceptable to consumers and that maximize the interval required between repainting. Performance is particularly difficult to assess. As discussed in the preamble to the proposed rule these acceptable qualities can vary significantly depending on the consumer and the coating category. There is no consensus within the architectural coatings industry on standards by which to evaluate acceptable coating performance. Therefore, the EPA requested comment on the technological feasibility of the limits in the proposed table of standards and on performance issues. The proposal requested documentation, tests, and factual evidence to support or refute  claims about performance and the technological feasibility of low-VOC systems.

The EPA evaluated all data that were submitted by commenters pertaining to the feasibility of the rule and sought additional information that was reasonably available. In evaluating the degree of emission reduction that represents BAC, the EPA took into consideration that these requirements would apply to all areas of the country and to all manufacturers and importers of architectural coatings within a specific time frame (i.e., approximately 1 year from promulgation).  Based on the public comments received, a number of changes were made to the proposed rule. These changes are discussed in section 2.2.4 of the BID (Coating Categories and VOC Content Limits). In some cases, commenters claimed that the rule is not feasible or does not represent BAC, but provided no data to support the general claim. In such cases, the EPA sought additional information that was reasonably available and considered the comments in the context of the overall BAC decision, but often found no basis for making substantive changes to the proposed rule.

Relationship of BAC to State and Local Regulations
State and local regulations were one of the primary factors used by the EPA to develop BAC. As stated in the proposal preamble, State and local architectural coating requirements were used prior to proposal as a starting point in determining "what categories and associated VOC limits might constitute the degree of emissions reduction that represents BAC." After proposal, the EPA used State and local architectural coating requirements as a primary factor in the evaluation of public comments on the proposed VOC content limits.

However, the EPA does not agree with commenters who believe that, at a minimum, BAC for the national rule should be equivalent to or more stringent than the lowest emission limits that exist in any State regulation (as presented in a table of standards by one commenter). In the development of a national rule under section 183(e), the EPA has the obligation to determine that the emission limits are technologically and economically feasible on a national scale. State and local VOC limits are based on coating performance under the local meteorological conditions and patterns of coating demand, some of which may be very different than in other locations. Moreover, based on local air quality and existing regulatory programs, a State or local agency may set rules based on a balancing of technological, economic, and environmental factors that might differ from the balance appropriate for a national rule.

Therefore, the EPA departed from the State and local requirements where other factors, such as information on VOC content and sales, performance, costs, and market effects indicated that the limits were not technologically or economically feasible on a national scale.

The Role of the Exceedance Fee and Tonnage Exemption in BAC
While the EPA believes that the technology exists to meet the limits in Table 1 of this subpart, some manufacturers may need more time beyond the compliance deadline to obtain the necessary technology.  Still other manufacturers may find that reformulation of some of their specialty products that are produced in low volume is not cost-effective. The exceedance fee and tonnage exemption provisions were included in the final rule to minimize impacts on the supply of coating products and to avoid unnecessary impacts upon small manufacturers. The exceedance fee (discussed in section 2.4 of the BID) is intended to allow manufacturers and importers additional time to develop low-VOC formulations while providing an appropriate economic incentive to encourage reformulation. The tonnage exemption (see section 2.2.1.2 of the BID) is intended to allow manufacturers and importers the flexibility to continue to market certain low-volume product lines where reformulation of a specialty product used for unique applications may not be cost-effective.

Consideration of New Low-VOC Coatings
The EPA recognizes that the 1992 industry survey that the EPA used as one of the factors for developing BAC collected 1990 data. Although the data in this survey are now 7 years old, they still represent the most complete set of data for the architectural coatings industry (the survey captured approximately 75 percent of the coating volume). In addition, the industry survey was only one of the many factors used in determining BAC. Information on advances since 1990 were obtained from over 300 pre-proposal letters, over 200 public comment letters, over 40 follow-up telephone calls, and information obtained from State regulatory agencies. The EPA believes that the final rule represents BAC based on the survey database and other data available to the EPA.

The EPA acknowledges that there are coating technologies in existence with VOC contents lower than those listed in table 1. However, section 183(e) of the Act does not require the EPA to set BAC at the level of the lowest-VOC product. It requires that the EPA determine BAC based on "the degree of emissions reduction that the Administrator determines on the basis of technological and economic feasibility, health, and energy impacts, is achievable." To determine whether a more stringent rule would meet the criteria for BAC, the EPA would need to undertake additional study of the recent technological developments for the architectural coatings category. As discussed in section 2.6 of the Architectural Coatings BID such an additional study is under consideration. However, the EPA does not believe it would be appropriate to delay issuing this rule to await the results of that additional study.

D. Changes in Proposed Coating Categories
Several commenters addressed the selection of the coating categories to which the rule applies and the VOC content limits for specific categories. In response to these comments, the EPA has modified the definitions of several of the proposed categories and has added seven new coating categories. In addition, the EPA has modified the proposed VOC content limits for several categories based on information provided by commenters. This section of the preamble discusses the changes made to the requirements for the proposed coating categories.  (The new categories are described in section V.E below.) A detailed discussion of all of the comments and responses pertaining to the proposed coating categories and their VOC content limits is contained in section 2.2.4.3 of the Architectural Coatings BID.

Some commenters suggested changes and clarifications to the proposed category definitions. In response to these comments, the EPA has changed the definitions of a number of the coating categories. The purpose of these changes is to clarify which particular coatings are included in these categories.

There were also many requests to revise the VOC content limits in the proposed rule. The EPA contacted many of the commenters, most of whom were coating manufacturers, to obtain additional information in order to evaluate these requests more fully. Based upon consideration of the public comments and additional information obtained since proposal, the EPA has changed the VOC content limits where deemed appropriate. In addition, the final rule provides a tonnage exemption and an exceedance fee option. These provisions provide flexible compliance options that accommodate the need for higher VOC contents in unique or niche products, and in limited-use products. The significant comments and changes made with regard to the VOC content limits are discussed in the following paragraphs. The EPA's rationale for each of these issues is explained more fully in the Architectural Coatings BID.

Roof Coatings and Bituminous Coatings and Mastics
One commenter, a national trade association of roof coating manufacturers, supported the proposed VOC content limits for roof coatings (250 grams per liter (g/l)) and for bituminous coatings and mastics (500 g/l), and the inclusion of all bituminous coatings in the bituminous coatings and mastics category. Another commenter suggested reducing the VOC content limit for bituminous coatings and mastics from 500 g/l to 350 g/l. A third commenter suggested adopting one roof coating category that includes bituminous materials at a VOC content limit of 300 g/l, consistent with State architectural coating rules.   This commenter argued that the proposed rule permitted bituminous roofing materials to comply with a less stringent limit (500 g/l) than other roofing materials (250 g/l) and that this discrepancy afforded an unfair competitive advantage to the bituminous roofing products.

The EPA reviewed its basis for establishing the proposed category for bituminous coatings and mastics and VOC content limit of 500 g/l and has decided to retain this category and limit in the final rule.  The EPA reviewed information submitted by a national trade association comprised of 60 bituminous and nonbituminous coatings manufacturers and suppliers, before proposal, regarding the composition, specialized manufacture, performance, and use limitations of these coatings. According to this information, a significant portion of these coatings are needed for repair and maintenance of existing roofs as well as for installing new roofing systems. The trade association pointed out that waterborne bituminous coatings and mastics are not practical in almost all of the applications where solventborne bituminous coatings and mastics are used and that coating performance comparisons between waterborne and solventborne bituminous coatings and mastics range from good to very poor, depending on conditions. Another national trade association for roofing contractors, which has over 3,000 members represented in all 50 States, argued that there is no viable alternative to solventborne bituminous coatings in many circumstances and pointed to bituminous primers as an example of this.  According to this trade association, if the VOC content limit were reduced by any significant amount in these primers, the adhesion properties, the application process, and the life of the roof would suffer dramatically. Therefore, in order to satisfy performance requirements of bituminous coatings and mastics nationwide, the EPA has retained this category with a VOC content limit of 500 g/l in the final rule.

With respect to the comments on the separate category for roof coatings, the EPA has decided to retain the category as proposed. Although there are several State architectural coating rules that have a VOC content limit of 300 g/l for roof coatings, the EPA believes that the national Roof Coatings Manufacturers Association's support of the proposed VOC content limit for roof coatings at 250 g/l provides persuasive evidence that this limit is achievable nationwide. Therefore, the EPA has retained the VOC content limit of 250 g/l for roof coatings in the final rule.

Concrete Curing Compounds
Several commenters commented on the proposed VOC content limit of 350 g/l for concrete curing compounds, which are used predominantly in highway construction. Seven commenters stated that the proposed limit for concrete curing compounds is achievable based on existing technology, and one of these commenters maintained that the limit could be lowered to 300 g/l. On the other hand, one commenter took issue with the achievability and performance at the proposed limit of 350 g/l.  The latter commenter suggested a VOC content limit of 625 g/l for this category, arguing that the proposed limit would eliminate most concrete curing membranes from the market, and that many companies do not sell curing compounds in States that have the 350 g/l limit.

In addition to consideration of these comments, the EPA reviewed the VOC content limits for this category in State rules. Several States, including Arizona, California, Massachusetts, New Jersey, and New York have had a VOC content limit of 350 g/l for concrete curing compounds for several years. The availability of compliant products in these States suggests that the limits are achievable, notwithstanding that not all manufacturers have chosen to market in those States. Based on the information provided by the commenters in favor of the proposed limits and upon the existing State rules, the EPA has concluded that the proposed VOC content limit of 350 g/l for concrete curing compounds is technologically achievable and has retained this limit in the final rule.

Graphic Arts Coatings
Two commenters indicated concern about the performance of shop-applied graphic arts coatings at the proposed VOC content limit of 500 g/l. One commenter's specific concerns with coatings at this level included difficulty in achieving variation in gloss levels, variation in the required drying times in the drying room (implying shop-applied coatings), need for greater application amounts, and higher costs.  Graphic arts coatings recommended by the manufacturer solely for shop applications are not required to meet the 500 g/l VOC content limit. As discussed earlier, the EPA has revised the definition of architectural coating to clarify that coatings recommended by the manufacturer solely for shop application are not subject to the rule. In addition, the definition of graphic arts coatings has been modified by removing the reference to in-shop coatings, and a definition of "shop application" has been added to the rule.

Based on a review of the 1990 VOC emission inventory survey and State architectural coating rules, the EPA determined that the 500 g/l VOC content limit for field-applied graphic arts coatings should not be changed.

Shellac--Clear
Two commenters requested that the EPA raise the VOC content limit for clear shellac from the proposed level of 650 g/l to 730 g/l.  The commenters requested the higher level to accommodate the degree of thinning required for certain uses of shellac to meet performance specifications. According to information provided by one commenter, the elevated cost and limited availability of shellac (referring to secretions of the lac beetle) minimize the potential use of this product.

Based on a review of State architectural coating rules, which limit clear shellac VOC content to 730 g/l, and the information provided by the commenters, the EPA has raised the VOC content limit for clear shellac from 650 g/l to 730 g/l.

Nuclear Coatings
Four commenters objected to the proposed 420 g/l VOC content limit for nuclear coatings, in light of the 450 g/l limit for industrial maintenance coatings. The commenters pointed out that nuclear coatings must meet more exacting performance specifications (set by the Nuclear Regulatory Commission) than industrial maintenance coatings and, therefore, should not be subject to a more stringent VOC content limit.  One commenter was also concerned that the proposed limit offered no flexibility for cold weather thinning as provided in the Shipbuilding and Ship Repair (Surface Coating) National Emission Standards for Hazardous Air Pollutants (NESHAP) for this category.

The EPA agrees that the nuclear coatings category VOC content limit should not be more stringent than the VOC content limit for industrial maintenance coatings since nuclear coatings are subject to some of the same extreme environmental conditions as industrial maintenance coatings, and must also meet further specifications and rigorous requirements of the Nuclear Regulatory Commission. The nuclear coatings category is intended to include coatings manufactured for use at nuclear facilities to ensure operational safety, and the definition requires that these coatings meet various testing requirements. The EPA expects that a limited amount of coatings will be affected by this change due to the various testing requirements to qualify for classification in this category and the limited number of nuclear facilities where such coatings are used. Also, as pointed out in the proposal preamble, this is one of 17 specialty coating categories that did not appear in existing State architectural coating rules, and no data were collected in the 1990 VOC emissions inventory survey. In consideration of performance specifications for this category and the need to allow for thinning, the EPA has raised the VOC content limit for the nuclear coatings category to 450 g/l. This limit is the same as the limit for industrial maintenance coatings.

Antifouling Coatings
Two commenters requested a higher VOC content limit for the antifouling coating category (400 g/l proposed), and one of these commenters specifically requested that the EPA increase the level to 450 g/l. One of the commenters indicated that antifouling architectural coatings are generally not applied at fixed installations where painting conditions are more easily controlled, and that a thinning allowance should be included to accommodate application of the coating in cold weather.

The EPA agrees with the commenters that the limit for antifouling coatings should be raised to allow for cold weather thinning. Also, similar to nuclear coatings, these coatings are subject to some of the same extreme environmental conditions as industrial maintenance coatings and must meet other rigorous requirements, such as those under the FIFRA. Moreover, this is one of 17 specialty coating categories that did not appear in existing State architectural coating rules, and no data were collected in the 1990 VOC emissions inventory survey.  Therefore, the EPA believes a low volume of coatings will be affected by a change to the proposed limit. The final rule specifies a VOC content limit of 450 g/l for this category.

Floor Coatings
One commenter suggested that the EPA either add an exemption paragraph to clarify that floor coatings that meet the definition for industrial maintenance coatings are subject to the industrial maintenance coating VOC content limit of 450 g/l or specify that the floor coating category applies to floor coatings intended for residential use. The commenter believed that high performance floor coatings cannot achieve the 400 g/l VOC level proposed for floor coatings. Although the commenter reportedly has developed lower-performing systems that meet the 400 g/l level, the commenter stated that they are not acceptable for all applications.

Two commenters recommended that opaque floor paint be regulated at a 400 g/l VOC level. However, one of these commenters requested clarification of whether the floor coating category included clear floor finishes, such as varnishes.

The EPA has retained the floor coatings category, with a modified definition, and VOC content limit of 400 g/l as proposed. The floor coatings category includes opaque coatings that have a high degree of abrasion resistance that are formulated for application to flooring, including but not limited to decks, porches, and steps in a residential setting. The EPA did not intend to include floor coatings that meet the definition of industrial maintenance coatings under the floor coating category. The definition of floor coating has been changed to specify that it applies to floor coatings intended for use in a residential setting. Thus, floor coatings that meet the definition of industrial maintenance coatings are subject to only the industrial maintenance coating category limit of 450 g/l.

Based on information from commenters, the EPA agrees that opaque floor coatings should be subject to the 400 g/l limit as proposed.  However, clear varnishes that may be recommended for use as floor coatings are subject to the VOC content limit of 450 g/l for clear varnishes. An exception paragraph has been included in Sec. 59.402 of the rule to clarify this category overlap.

Waterproofing Sealers and Treatments
Eight commenters provided assessments of the achievability of the proposed VOC content limit for waterproofing sealers and treatments.  Five commenters suggested that the EPA raise the VOC content limit, and two commenters suggested that the EPA lower it. One commenter maintained that there is no need to distinguish between clear and opaque waterproofing sealers and treatments (600 g/l and 400 g/l, respectively) in the rule since many opaque sealers penetrate the substrate and perform the same function as clear sealers. This manufacturer requested a VOC content limit of 700 g/l for all waterproofing sealers and treatments and explained that this level would still require reformulation of existing technologies. Another manufacturer has reported that it has not been successful in reformulating to meet the 600 g/l level for clear waterproofing sealers and treatments. On the other hand, one manufacturer strongly encouraged the EPA to adopt a lower VOC content limit of 350 g/l applicable to both clear and opaque waterproofing sealers and treatments based on the VOC content of its products, which are available now in the marketplace. Another commenter agreed that the proposed levels for waterproofing sealers are technologically and economically feasible.

Based on evaluation of the comments and a review of survey data and State architectural coating regulations, the EPA has combined the clear and opaque waterproofing treatment sealer categories into one category with a VOC content limit of 600 g/l. The EPA agrees that there is no need to distinguish between clear and opaque waterproofing sealers and treatments since many opaque sealers penetrate the substrate and perform the same function as clear sealers. The EPA believes that, based on information provided by these commenters/manufacturers, the appropriate limit for this combined category is 600 g/l. Before proposal, industry representatives argued that multipurpose waterproofing sealers at 400 g/l do not meet minimum performance criteria for clear waterproofing sealers (that is, 60-percent water repellency for wood and 1 percent or less water absorption for brick). The representatives stated that 400 g/l products are high-solids products that may leave an oily residue or cause darkening of the surfaces to which they are applied and, thus, product performance may not meet industry standards. Combining clear and opaque waterproofing treatment sealers into one category is consistent with all existing State rules, which do not divide the category into clear and opaque waterproofing sealers and treatments. The State architectural coating VOC content limits for waterproofing sealers and treatments are either 400 g/l (for example, Arizona and California) or 600 g/l (Massachusetts, New Jersey, and New York).

E. Addition of New Coating Categories
The EPA received requests to establish 20 new coating categories in the final rule. In response to these comments, the EPA has established seven new categories: (1) calcimine recoaters; (2) concrete surface retarders; (3) concrete curing and sealing compounds; (4) conversion varnishes; (5) zone markings; (6) faux finishing/glazing; and (7) stain controllers. The EPA also evaluated requests, but did not establish new categories, for the following coatings: (1) adhesion promoters; (2) asbestos and lead-based paint encapsulation; (3) concrete/masonry conditioners; (4) porcelain repair coatings; (5) marine/architectural coatings; (6) alkali-resistant primers; (7) tung oil finishes; (8) lacquer stains; (9) elastomeric high performance industrial finishes; (10) low solids coatings; (11) oil-modified urethanes; (12) thermoplastic (treatment) sealers; and (13) zinc-rich coatings. In general, new categories were not established for these coatings because the EPA determined that it is technologically and economically feasible for coating manufacturers and importers to achieve compliance with the rule. Further discussion of the rationale for the EPA's decisions on the new categories is contained in section 2.2.4.2 of the Architectural Coatings BID.

In general, the EPA considered creation of new categories if commenters submitted information supporting higher VOC content limits for such products than the otherwise applicable limits. The EPA considered the data submitted by commenters and obtained all reasonably available additional data to evaluate these requests. In cases where the EPA concluded that the proposed emission limits were not achievable, the EPA established a separate category with an appropriate emission limit. The following is a discussion of the rationale for each of the new coating categories and its VOC content limit.

Calcimine Recoaters
Under the proposed standards, calcimine recoaters would have been subject to the VOC content limit for interior flat coatings (250 g/l).  However, several commenters stated that calcimine recoaters have a higher VOC content of 475 g/l, cannot be reformulated, are low-volume coatings, and serve a unique function of recoating water soluble calcimine paints. These paints are used in Victorian and Early American homes, especially on ceilings. Due to their low density, calcimine recoaters do not disbond the existing calcimine ceiling coatings, as conventional (250 g/l VOC) high-solids flat alkyd paints would tend to do. If a calcimine recoater is not used, the only alternative is to remove the existing coating, which is labor-intensive and expensive.  Because these low-volume coatings reportedly cannot be reformulated, their composition is unique, and there is no substitute for these products, the EPA has added a separate category for calcimine recoater products to the rule with a VOC content limit of 475 g/l.

Concrete Curing and Sealing Compounds
Under the proposed rule, these coatings would be subject to the 350 g/l VOC content limit for concrete curing compounds. However, commenters presented information not previously considered by the EPA demonstrating that compounds designed for curing and sealing, as opposed to those designed for curing only, have different technical specifications that make it difficult to achieve the 350 g/l level.  Concrete curing and sealing compounds function as longer term sealers that provide protection, aesthetic benefits, and durability in addition to curing. Commenters pointed out that there are separate American Society for Testing and Materials (ASTM) methods available for each of these categories and that ASTM Committee experts and at least two government agencies consider them distinct categories with different performance requirements.

Concrete Surface Retarders
Concrete surface retarders do not fall within any of the proposed categories except the general category for interior flat coatings with a VOC content limit of 250 g/l. These products are generally used in a manufacturing setting at a precast facility, but a small volume of products are field-applied. Commenters argued that these products cannot meet the 250 g/l level and, furthermore, that they are not coatings and should not be subject to the rule. However, they requested a VOC content limit of 780 g/l if the EPA regulated these products.

The EPA has concluded that concrete surface retarders meet the rule's definition of a "coating." Concrete surface retarders that are recommended by the manufacturer for use in the field at job sites are, therefore, subject to the rule. When retarders are recommended by the manufacturer solely for use in a manufacturing setting, such as at a precast facility, which is the typical situation, they are not subject to the rule. The EPA determined that concrete surface retarders that are used in the field at the actual job location are specialized, low-volume coatings used in limited circumstances, and there is no lower VOC content substitute for the function of these products. Therefore, the EPA has included a separate category for these products in the final rule, with a VOC content limit of 780 g/l as requested by the commenters.

Zone Marking Coatings
Under the proposed rule, zone marking coatings were subject to the 150 g/l VOC content limit for traffic marking coatings. Zone marking coatings are those used to mark surfaces such as parking lots, driveways, sidewalks, and airport runways; they are generally applied by small commercial applicators. In contrast, traffic marking coatings are applied to streets and highways and are usually applied by large contractors or State Departments of Transportation. The commenters noted two issues associated with meeting the 150 g/l content limit for zone marking coatings. First, the 150 g/l content limit could only be met with waterborne coatings, which require different application equipment than solventborne coatings. Small applicators would be disproportionately impacted by the cost of acquiring the new equipment that is compatible with waterborne zone marking coatings. Secondly, the commenters asserted that waterborne zone marking coatings do not dry or cure properly during high humidity or low temperatures, conditions under which they must sometimes be applied.

After consideration of these comments, the EPA has added a separate category for zone marking coatings and has established the VOC content limit at 450 g/l. This level allows the use of solventborne coatings. However, the new category applies only to zone marking coatings sold in containers of 5 gallons or less. Available information reveals that State Departments of Transportation buy traffic marking coatings in larger than 5 gallon containers. Thus, this size restriction should limit the use of zone marking coatings to applications smaller than those of general traffic marking coatings intended for use on public roads and highways. Zone marking coatings sold in larger containers fall within the traffic marking coatings category and are subject to the 150 g/l limit. The establishment of this category allows the use of solventborne coatings by small applicators and under adverse drying and curing conditions.

Conversion Varnishes
Conversion varnishes are specialty products used by contractors for wood floor finishing. Under the proposed rule, these coatings would have been subject to the 450 g/l VOC content limit for varnishes.  Commenters argued that conversion varnishes cannot be reformulated to meet the 450 g/l level, and that they have unique chemical formulation and performance specifications, compared to other varnishes, (i.e., appearance and proven durability). Furthermore, the commenters noted that only three companies manufacture conversion varnishes and that they market them only to licensed wood flooring contractors, thereby implying that these are specialty coatings deserving different standards.

In response to these comments, the final rule includes a new category for conversion varnishes with a VOC content limit of 725 g/l.  Due to the chemical make-up of these products, manufacturers reportedly have been unable to reformulate to meet the 450 g/l level for varnishes. The EPA believes that the category comprises a well-defined coating technology that is limited, due to its chemical formulation, to the applications for which it is intended. Several wood flooring contractors' comments support the performance arguments made by the manufacturers. The EPA determined that the VOC content limit of 725 g/l is the lowest level achievable based on analysis of currently available products.

The EPA has added a definition for this category to the rule. The category definition was developed from information provided by two of the manufacturers.

Faux Finishing/Glazing
Under the proposed rule, faux finishing/glazing coatings were subject to the VOC content limit of 380 g/l for nonflat interior coatings. Faux finishing/glazing coatings include waterborne acrylic finishes and other waterborne products with miscible VOC that are designed to retard drying time. One commenter stated that these products provide open time required for wet-in-wet techniques, such as faux wood grain, faux marble, and simulated aging, which require the finish to remain wet for an extended period of time.

The commenter stated that, based on formulation including water, the calculated VOC content of these coatings can range up to 340 g/l.  However, because the products are waterborne, the VOC "less water" calculation results in a range up to 700 g/l. The commenter stated that the VOC content limit for a similar category (Japan/faux finishing coatings) has been proposed by California's South Coast Air Quality Management District (SCAQMD) at 700 g/l. The commenter stated that, to date, there has not been an identifiable way to reformulate these products to achieve a lower VOC while maintaining the characteristics required for acceptable use.

Upon review and evaluation of available information, the EPA has determined that creating a separate category for faux finishing/glazing with a VOC content limit of 700 g/l is warranted. According to the commenter, there are no competing compliant products on the market.  Despite 2 years of reported reformulation efforts, this coating cannot meet the proposed VOC content limit of 380 g/l for nonflat interior coatings. The EPA notes that this specialty coating category is low volume and that the foregone VOC emission reductions that may result from setting a higher limit for this category should be limited.

Stain Controllers
Under the proposed rule, stain controllers were subject to the VOC content limit of 400g/l for sealers. "Stain controllers" (also called "wood conditioners" or "prestains") are products that are applied to soft woods before applying a stain to prevent uneven penetration or blotching of the stain by filling those pores where excess penetration would occur. One commenter asserted that these products cannot achieve the 400 g/l level for sealers. According to the commenter, after 3 years of reformulation efforts, they have concluded that it is technologically infeasible to reformulate stain controllers to the proposed 400 g/l VOC content limit. The current VOC content of the commenter's products is 714 g/l. According to the commenter, the 400 g/l level for sealers would force a very high solids content, which would make these products unfit for use as prestains. The commenter asserted that, in order to be effective, stain controllers must have a very low solids content because excessive solids will overload the texture of the substrate so that the wood will not properly accept the stain.  Water cannot be added to these products because they are used almost exclusively to treat interior fine wood and contact with water would produce an undesirable grain-raising effect in the wood. Stain controllers are low-volume, specialized products that are important to the consumer and have a minimal effect on air quality. The commenter asserted that about 97 percent of total sales for these products are already exempt under the small container exemptions in regulated areas.

After review and evaluation of these comments and follow-up information provided by the commenter, the EPA has determined that a new category for stain controllers with a VOC content limit of 720 g/l is warranted. This is a specialized, limited use product that is important to consumers, and the EPA believes that the additional emissions from this low-volume coating would be negligible. According to the commenter, reformulation attempts during the last 3 years have been unsuccessful, and the commenter considers it technologically infeasible to reformulate stain controllers to achieve the proposed VOC content limit of 400 g/l for sealers (the category the commenter's coating would be subject to under the proposed rule). According to the commenter, there are competing waterbased products meeting the proposed limit on the market, but there are performance problems with these coatings. The EPA believes that this is an example of a low-volume, specialty niche coating for which it may not be cost-effective for the manufacturer to continue reformulation attempts. Therefore, the final rule contains a separate category for stain controllers.

F. Category Overlap
Many commenters expressed concern about the VOC content limit that applies to coatings that fall into more than one category. The proposed rule stated that if a manufacturer made the representation that a coating was suitable for use in more than one category, then the coating must comply with the VOC limit for the category with the most restrictive limit. Commenters objected that a coating may be "suitable" for many uses, even though not intended by the manufacturer for those uses. Coatings could potentially be used in ways for which they were never intended and, thus, be subject to unduly restrictive VOC content limits.

The EPA agrees with the commenters and has reworded the provisions as suggested by the commenters. In the final rule, if the manufacturer or importer makes any representation that indicates that the coating "meets the definition" of more than one coating category, then the most restrictive limit applies. The EPA has removed the phrase "may be suitable for use" from the rule so that the manufacturer or importer is not responsible to meet the limits of other categories if consumers choose to use them for purposes not recommended by the manufacturer or importer. However, if a manufacturer or importer indicates that a coating may be suitable for uses like coatings in other categories, the EPA will consider this a representation that requires the coating to meet the most restrictive applicable limit. Thus, determination of the applicable category and VOC content limit is based on a comparison between the technical criteria in the rule's definitions and the coating manufacturer's or importer's representations.

The proposed rule also included exceptions for seven types of coatings to the requirement that the most restrictive limit always applies. The EPA recognizes that these seven coatings potentially meet the definition of more than one category of coating, but cannot meet the more restrictive limit. For these exceptions, the rule explicitly specifies that the less restrictive limit applies. Commenters suggested additional instances of overlap that might also warrant special exceptions. After considering the information presented by these commenters, the EPA has included further exceptions, in addition to the proposed exceptions, to the most restrictive limit provision. The EPA has added the following exceptions: (1) anti-graffiti coatings, high temperature coatings, impacted immersion coatings, thermoplastic rubber coatings and mastics, repair and maintenance thermoplastic coatings, pretreatment wash primers, and flow coatings are not required to meet the VOC content limit for industrial maintenance coatings; (2) industrial maintenance coatings are not required to meet the VOC content limit for primers and undercoaters, sealers, or mastic texture coatings; (3) varnishes and conversion varnishes used as floor coatings are not required to meet the VOC content limit for floor coatings; (4) sanding sealers are not required to meet the VOC content limit for quick-dry sealers; (5) waterproofing sealers and treatment coatings are not required to meet the VOC content limit for quick-dry sealers; (6) quick-dry primers, sealers, and undercoaters are not required to meet the VOC content limit for primers and undercoaters; (7) nonferrous ornamental metal lacquers and surface protectants are not required to meet the VOC content limit for lacquers; and (8) antenna coatings are not required to meet the VOC content limit for industrial maintenance coatings or primers. These exceptions are discussed more fully in section 2.2.3.14 of the Architectural Coatings BID.

G. Low Volume/Tonnage Exemption
In the preamble to the proposed rule, the EPA presented the concept of an exemption for coatings produced in low volumes and requested comment on this potential provision. The EPA described this exemption as a compliance option under which, "any manufacturer or importer may request an exemption from the VOC levels in Table 1 of this subpart for specialized coating products that are manufactured or imported in quantities less than a specified number of gallons per year." Twenty-one commenters provided comments on an exemption for coatings produced in low volumes.

In general, commenters in favor of the exemption pointed out that it would mitigate the impact of the rule on small manufacturers for which costs of reformulation would be more significant, and would prevent the elimination of specialty products for niche markets that could not easily be reformulated. Commenters opposed to the concept of a low-volume exemption generally argued that it would create a loophole allowing continued manufacture of noncompliant coatings and that in the aggregate such emissions would be significant.

The EPA considered these comments and concluded that some type of exemption is needed to help ensure the continued availability of niche products, to mitigate potential impacts on small manufacturers, and to enhance the economic feasibility of the rule. The exemption in the final rule is based on VOC tonnage rather than on production volume, the concept presented at proposal. This approach continues to accommodate the needs of small manufacturers, niche markets, and specialty products, as did the proposed low-volume exemptions, but it more effectively limits the VOC emissions resulting from the exemption in response to comments received on the proposal.

Under the tonnage exemption, each manufacturer can exempt a volume of coatings that contains no more than a specified total mass of VOC for all coatings included in the exemption (see Table 2 in section II.B, Summary of Standards). The EPA has designed the tonnage limits to exempt no more than 1.5 to 2 percent of the total expected emission reductions from all architectural coatings. In addition, the EPA has structured the tonnage exemption to decrease over time, thereby decreasing the aggregate VOC emissions in a staggered fashion to provide additional compliance flexibility. The EPA believes that it is appropriate to provide the exemption in this manner for the dual purpose of preserving niche products and of providing greater initial assistance to manufacturers as they reformulate their products. The EPA believes that limiting the exemption in this fashion will address the concerns of commenters who viewed the low-volume exemption as a potential loophole that would allow significant aggregate excess VOC emissions. The EPA expects that the 9 Mg/yr (10 tpy) exemption that goes into effect in the third year will help to preserve niche products and to provide adequate flexibility for unforeseen future needs while effectively limiting emissions due to the exemption. In addition, the EPA expects that the initial tonnage exemption of 23 Mg (25 tons) for the time period from September 13, 1999 through December 31, 2000, will allow manufacturers to exempt one to three 27,000 liter (7,100 gallon) product lines, depending on the VOC content, thereby meeting the functional intent of the originally proposed low-volume exemption.

The rule provides that the manufacturer or importer will calculate emissions from exempt coatings by multiplying the total sales volume in liters by the "in the can" VOC content of the coating in grams of VOC per liter of coating, including any water or exempt compounds. The "in the can" VOC content must include consideration of the maximum thinning recommended by the manufacturer. The manufacturer or importer may exempt any combination of different coatings as long as the total VOC tonnage from these coatings does not exceed the limit for the tonnage exemption. In addition, the manufacturer or importer may choose to combine the exceedance fee provision and the VOC tonnage exemption for one or more coatings.

For example, under this exemption, in the time period from September 13, 1999 through December 31, 2000, a manufacturer could exempt 38,300 liters (10,000 gallons) of a 600 g/l [5 pounds per gallon (lb/gal)] coating.

Alternatively, a manufacturer could exempt 18,939 liters (5,000 gallons) of an 800 g/l (6.67 lb/gal) coating plus 13,731 liters (3,625 gallons) of a 550 g/l (4.58 lb/gal) coating.

This exemption differs from the low-volume exemption in the proposal preamble in three ways. First, the exemption is on a "per manufacturer" basis rather than a "per product" basis. This change was necessary due to the difficulty in defining a "product" and the potential for abuse in designating products for exemption. Second, the exemption level is based on megagrams of VOC rather than liters of coating. Using VOC tonnage as the basis for the exemption places an upper bound on the emission reductions that are lost through this exemption while still accommodating the needs for which it was intended. Third, the total quantity of the exemption reduces over time.   The EPA intends for the ratcheting down of the tonnage exemption over time to encourage regulated entities using the exemption to continue to reduce the VOC content of their coatings.

The EPA has concluded that the exemption, as structured in the final rule, provides benefits in terms of flexibility, mitigation of impacts for small manufacturers, and continuation of specialized niche products that justify the EPA in foregoing the small percentage of overall potential VOC reduction lost through the exemption.   Furthermore, the EPA has concluded that the creation of the tonnage exemption is consistent with the EPA's explicit discretion and authority to create the appropriate system or systems of regulation in accordance with section 183(e)(4) of the Act.

H. Compliance Variance Provisions
In the proposed rule, the EPA included a variance provision allowing manufacturers and importers of architectural coatings to obtain additional time to comply. To obtain a variance, applicants would have had to demonstrate that, for reasons beyond their reasonable control, they could not comply with the requirements of the rule. The EPA envisioned the proposed variance provision as a benefit primarily for small businesses that might need extra time to develop new technologies.

Several commenters addressed the variance provisions. Those who supported the provisions noted that a variance would provide the needed extra time to come into compliance. Those opposed to the variance generally argued that it was not sufficiently protective of the environment. In addition, even the commenters in favor of the variance provision stated that the requirements for applying for a variance were too burdensome, and that small businesses would be particularly impacted by the burden associated with the application process. Many of these commenters stated that exceedance fee provisions are a more effective way to accommodate the need for compliance flexibility yet still encourage reductions of VOC emissions.

Based upon the comments received, the EPA has not included the variance provision in the final rule. It is evident to the EPA that a variance process may not provide the intended compliance flexibility, especially for small manufacturers. Even though the EPA intended the proposed variance requirements to be the minimum necessary to justify and approve a coating variance, the EPA recognizes that the requirements may have been burdensome, particularly for small manufacturers with limited or no regulatory compliance staff. It is also possible that the variance provision could create an uneven playing field because small businesses would not have the resources needed to pursue this option, thereby putting small businesses at a  disadvantage compared to large businesses.

Moreover, with the tonnage exemption and exceedance fee provisions included in the final rule, the EPA has concluded that a compliance date variance is not necessary. The EPA believes that these alternative provisions provide even greater flexibility than the variance provision and are less burdensome to regulated entities. Both of these compliance options are automatically available to all regulated entities and, therefore, do not involve complex application and approval processes.  These compliance options require only the limited recordkeeping and reporting necessary for the EPA to ensure compliance.

The EPA anticipates that regulated entities will use the tonnage reformulate, or for extremely low-volume products that cannot be reformulated in the foreseeable future. The exceedance fee option, described more fully below, is also designed to give manufacturers additional time to develop lower VOC technologies, which are already used for similar coatings by other manufacturers, where necessary. This compliance option allows regulated entities to continue to sell coatings that exceed the VOC content limits, provided that they pay an exceedance fee.

Need for Long-term, Universal Variance Procedure
Several commenters, including a national trade association, recommended a provision in the rule for a long-term variance procedure for new products. The commenters expressed concern that new and innovative products may not fit into the coating categories that define particular coating technologies, and will therefore, by default, be subject to the VOC content limits for the general flat or nonflat categories. Since the VOC content limits for these default categories are among the most stringent, the commenters suggested provisions that would allow manufacturers up to 5 years to develop and commercialize innovative coating technologies under an extended variance. The commenters argued that a long-term variance would protect manufacturers who operate mainly in unique or niche markets and whose access to newer technologies may be limited.

The EPA has determined that such a variance procedure is not warranted, given the other provisions in the final architectural coatings rule. The EPA has included compliance provisions in the final rule that it believes will allow for the development of new technology.  The tonnage exemption and exceedance fee option in the final rule create such additional compliance flexibility. In the event that coatings manufacturers in the future develop specialized categories of coatings for uses not now foreseeable, they could notify the EPA if they believe a new coating category is needed. The EPA could then assess the appropriateness of such a category. 

I. Exceedance Fee Option
The EPA received a total of 27 comments on the exceedance fee provision presented in the proposal preamble. About half of the commenters supported this option and half opposed it. Under this provision, manufacturers and importers have the option of paying a fee, based on the extent to which a coating's VOC content exceeds the applicable VOC content limit instead of meeting the limit listed in Table 1 of this subpart. The fee is calculated by: (1) determining the difference between the coating's actual VOC content and the allowed VOC content (in grams of VOC per liter of coating), (2) multiplying this difference by the fee rate of $0.0028 per gram of excess VOC per liter of coating, and (3) multiplying the resulting product by the volume of the coating manufactured or imported during the reporting period. The resulting dollar amount is owed by the manufacturer or importer as a fee.

After careful evaluation of all of the comments and discussions with the Small Business Administration, the Administrator has decided to include this compliance option in the final rule for several reasons. First, the exceedance fee provision will provide transition time over and above the tonnage exemption provision for those manufacturers that may need additional time to obtain or develop lower VOC technologies. The exceedance fee provision is significantly less burdensome than the proposed compliance variance provision, which the EPA has not retained in the final rule (see discussion in section V.H of this preamble). Second, the exceedance fee provides long-term flexibility and a less costly compliance option for manufacturers who sell very low volume, specialty coatings where the cost of reformulation may be prohibitive compared to the potential profit on low volume products. Thus, these important specialty products will continue to be available to consumers. Third, contrary to some comments received, the EPA believes that the higher costs resulting from the exceedance fees can encourage the development of innovative technology, such as high-performance products with lower VOC content, thus reducing VOC content to the limits in Table 1 for many coatings.

With regard to some commenters' concerns about enforcement of the exceedance fee, the recordkeeping and reporting requirements in the rule will ensure compliance with this option. The final rule requires manufacturers and importers to maintain records and submit annual reports to the EPA if they wish to exercise their option to use the exceedance fee. Any violations of the recordkeeping and reporting or any other requirements of the rule could result in enforcement actions and the possibility of penalties.

There were various questions and opinions from several commenters regarding the level of the fee. The EPA considered several factors in setting the fee level. Specifically, the EPA has set the fee level so that it would not be advantageous for most manufacturers and importers merely to opt for the fee in lieu of reformulating large volume products, which generate a disproportionately large share of emissions.  At the same time, the EPA has sought to set the fee at a level that will provide flexibility for producers of small volume or specialty products to keep products on the market. Clearly, these are competing considerations, but they are not mutually exclusive. In fact, the EIA conducted by the EPA suggests that manufacturers of a large number of coatings may opt for the fee (as a lower-cost compliance option to reformulation or product withdrawal). However, the total sales volumes of these products are uniformly small and, thus, their contribution to total market output (and emission reductions) is relatively small. The fee level also provides incentive for fee-paying firms to reduce VOC content on the margin, as this will reduce the amount of fee they must pay. The EPA has concluded that imposition of the fee is an appropriate mechanism to encourage development of lower-VOC content products while at the same time preserving specialty niche products and mitigating the impact on small regulated entities. The level of the fee reflects the EPA's attempt to balance the intent to encourage reformulation without mandating that products be priced out of the market. The EPA believes that this is consistent with its authority to use economic incentives as part of the system of regulation as contemplated by section 183(e)(4) of the Act.

J. Labeling, Recordkeeping, and Reporting
A number of commenters requested more flexible labeling requirements to reduce the compliance burden. After consideration of these comments, the EPA has determined that several labeling requirements can be adjusted to provide more flexibility without adversely affecting their usefulness. First, the EPA has provided greater flexibility by allowing the date of manufacture or date code to appear either on the bottom of cans or on the labels or lids. Second, the EPA has clarified the VOC content labeling requirement. These provisions allow manufacturers two options; they may label the coating with either: (1) the VOC content of the coating, including recommended thinning and considering fluctuations in VOC content that may occur in the manufacturing process, or (2) the applicable VOC content limit for the type coating as listed in Table 1 of the rule. The second option is allowed only if the VOC content of the coating does not exceed the applicable VOC content limit (i.e., it is not available for coatings complying by exercise of the exceedance fee or tonnage exemption provisions). Third, the final rule includes a more flexible labeling requirement for industrial maintenance coatings.   Manufacturers may choose from the following phrases for labeling industrial maintenance coatings:
(1) For industrial use only;
(2) For professional use only;
(3) Not for residential use;
(4) Not intended for residential use; or
(5) This product is intended for use under the following condition(s): (list of each condition from the definition of industrial maintenance coating that applies.)

The proposal preamble requested comment on the inclusion of labeling requirements for coating coverage information and an educational statement about the role of VOC emissions from coatings in ozone formation. Based on comments received concerning coverage information, the EPA determined that coating coverage is so variable, depending on the coating and the substrate being coated, that the information would be of minimal benefit. Upon consideration of comments regarding the educational statement, the EPA concluded that an outreach program would just as effectively educate consumers on the role of VOC emissions in the formation of ozone and on the reasons why ground-level ozone is undesirable. Thus, the final rule does not require the proposed coverage information and educational statements.

K. Determination of Volatile Organic Compound Content
Four commenters expressed concern that Method 24 (40 CFR part 60, appendix A) would not provide reliable results in certain circumstances, such as for waterborne coatings, and requested that the EPA allow the use of alternative tests in lieu of Method 24. The requests included methods to test for acetone content, acid content, water content, and for testing coatings that cure via chemical reactions that are quenched by the dilution solvent used in Method 24.  Two commenters also requested that the EPA accept compliance demonstrations based on theoretical formula calculations or formula batch card loading information and documentation.

The EPA believes that Method 24 provides consistent, reliable results when determining the VOC content of architectural coatings.  Specifically regarding concerns about Method 24's reliability for determining the VOC content of waterborne coatings, the EPA believes that Method 24 is the best currently available compliance method for low-VOC solvent content (high water content or waterborne) coatings.  For waterborne coatings, VOC content is determined indirectly using methods that determine nonvolatile matter content and water content.  The VOC content is assumed to be what is unaccounted for by these two fractions. The EPA acknowledges that the inherent imprecision of indirectly determining the VOC content of such coatings by this method necessitates an adjustment of the analytical results. Such adjustments must be based on confidence limits calculated from the precision statement established for Method 24. The precision adjustment procedure is incorporated in Method 24. Therefore, the final rule specifies that Method 24 is to be used for determining the VOC content of coatings subject to the rule.

However, in response to comments received and consistent with other coating regulations established by the EPA in the past, the final rule does provide that other means may be used to determine VOC content. Nevertheless, the rule also provides that the Administrator may request at any time that the coating manufacturer or importer conduct a Method 24 test for the purpose of demonstrating compliance with the rule. If there are any inconsistencies between Method 24 test results and other means of determining VOC content, the Method 24 results will govern. The rule also provides an option for the Administrator to approve, on a case-by-case basis, alternative methods of determining the VOC content of coatings if they are demonstrated to the Administrator's satisfaction to provide results satisfactory for determining compliance. Such alternative methods could include procedures for testing for acetone, acid content, and water content, procedures for coatings that are chemically-cured, and procedures for using formulations and batch processing data for adjusting or determining VOC content.

L. Compliance Date
At proposal, the EPA requested comment on the appropriate compliance deadline for the rule. Commenters expressed a range of opinions regarding the appropriate compliance date. Commenters who supported a compliance period of up to 12 months stated that this amount of time was necessary to adjust formulations, reprint labels, adjust inventories, use up existing label stock, and conduct research and development. Some commenters stated that the compliance period should be greater than 1 year to allow adequate time for developing, performance testing, and marketing new products. Some State Agencies requested no further delay in the compliance date, since States are depending upon the architectural coatings rule for VOC reduction credit under their SIP. The latter commenters stated that extending the compliance date would have an adverse impact on the environment, would lead to additional State regulations, and is unnecessary given the current state of technology.

The EPA supports making the architectural coatings rule effective and applicable as quickly as possible, but in a time frame within which regulated entities may reasonably comply. The EPA believes that the 12-month compliance period in the final rule allows the industry appropriate time to achieve compliance with the rule. The EPA believes that coating technologies currently exist to meet all of the rule's VOC content limits. In limited cases where manufacturers or importers need additional time to comply, the tonnage exemption and the exceedance fee option already provide additional compliance flexibility and offset any need for additional compliance time.

At proposal, the EPA requested comment on whether the final rule should include a compliance extension for small manufacturers. Three-quarters of the commenters providing comments on this provision were against special treatment for small manufacturers. After careful evaluation of the comments, the EPA has decided not to include a compliance extension specifically restricted to small manufacturers.  Instead, the EPA has extended the compliance period for all Manufacturers and importers to 12 months. The EPA has concluded that the information provided by commenters demonstrates that the 12-month compliance period allows adequate time for all regulated entities to comply. The EPA believes that other mechanisms such as the tonnage exemption and the exceedance fee will also help alleviate concerns regarding the compliance period for small entities.

M. Cost/Economic Impacts
At proposal, the EPA solicited comment regarding the size and nature of reformulation costs to gauge the reasonableness of the estimate used in the EPA's EIA. The estimate the EPA used at proposal ($250,000 per product reformulation) was based on an estimate presented to the Regulatory Negotiation Committee in 1993. The EPA received several public comments in response to this request and categorized the estimates provided based on the following dimensions: technical staff training, prioritization of products needing reformulation, survey of available materials, reformulation to desired properties, performance tests, field tests, marketing costs, production costs (labels), sales training, and executive expenses. Eleven of the comments received provided comparable information for gauging reformulation costs per product. Other comments provided less complete information that the EPA has taken into account, but did not include the specific information necessary to assess the reasonableness of the EPA's estimate. The EPA combined the estimates from these eleven comments with the original cost estimate and found that reformulation cost per product ranged in value from $576 to $272,000 (1991 dollars), with a mean value of approximately $87,000. This gives an indication that the EPA's estimate at proposal significantly overstated the average cost to reformulate a product. Because the mean value from these comments represents a wide variety of conditions for reformulation (in comparison to the one scenario described to the Regulatory Negotiation Committee), the EPA revised the EIA using $87,000 as the average cost to reformulate a product. Appendix B of the EIA and the architectural coatings BID provides a full discussion of the review of these cost estimates.

Several commenters indicated that they thought that the estimate of total social cost was too low because the EPA underestimated or omitted several cost factors. Some of the factors cited by commenters that costs are underestimated are listed below:

(1) The estimate did not consider every reformulation such as the recalibration and reformulation of every color in a tint base system when the base is reformulated,
(2) The survey used to estimate costs excluded 400 small paint manufacturing companies,
(3) Only the costs of laboratory personnel are included in the estimate,
(4) The estimate did not consider the cost of foregone new product development when expending scarce technical effort to reformulate existing products, and
(5) Aggregation of 50 product categories into 13 market segments reduces the impact presented.

Commenters also cited several cost categories that potentially were omitted from the total cost estimate, including:

(6) Costs for preparing product literature, including material safety data sheets, sales aids, color brochures, and technical data bulletins;
(7) Costs for manufacturer education;
(8) Costs to consumers from increased surface preparation,application, and drying time;
(9) Costs associated with warranty claims and complaints about poor performance of compliant coatings;
(10) Litigation costs due to increased safety hazards from using acetone formulations;
(11) Increased costs to retailers, contractors, and other consumers;
(12) Additional job losses in the paint industry and the socioeconomic impact on low income workers; and
(13) Impacts of product bans on the nation.

Two of these commenters (a manufacturer and its legal counsel) stated that if the EPA included all cost factors in the total cost estimate, then the impacts of the rule would exceed $100 million and would necessitate additional analyses under Executive Order 12866 and the Unfunded Mandates Reform Act. Some commenters also believed that the method of calculating the national cost was flawed in that costs are calculated on an annualized basis. A commenter also stated that expressing the cost in 1991 dollars did not represent real costs today and that assuming an interest rate of 7 percent was not a valid assumption for small businesses.

The EPA has carefully considered the comments regarding the economic impact of the rule, especially in light of the EPA's overestimate of the costs of reformulation in the proposal. The EPA believes the total social cost estimate provided at proposal was significantly above the actual cost of the regulation because of several conservative assumptions that were adopted in the analysis, and the evidence that the per-product reformulation cost was nearly three times greater than the average estimate obtained by public comments.

The method of calculating national cost for the final rule adheres to the EPA policy and Office of Management and Budget (OMB) guidance (OMB Circular A-94). It is a well-established tenet of benefit-cost analysis and cost-effectiveness analysis that benefits and costs need to be placed on a time-consistent basis for direct comparison.   Therefore, the costs of the action must be computed on an annualized basis through discounting to be time consistent with the annual stream of emission reductions achieved. For the architectural coatings rule, the costs of reformulation and its VOC reduction benefits occur in different time periods. The reformulation of current noncompliant products is a "one-time event," but the emission reductions of the new formula and the knowledge gained from developing the reformulation continue over the life of the product, which is an infinite period of time unless the product is permanently removed from the market. In other words, once a formulation is developed to comply with the regulation, manufacturers will have some knowledge to carry forward to all future modifications of the product (i.e., if they adjust the formula to improve certain attributes or characteristics of the product). However, the EPA recognizes that a case can be made for treating each product formula as having a finite service life, requiring periodic reformulation. Under this alternative assumption, the regulation is viewed as accelerating each product's next round of reformulation, an event that would have occurred anyway. For example, if a product is usually reformulated every 8 years, the rule's implementation may cause a manufacturer to investigate the reformulation 4 years earlier, thus accelerating the reformulation schedule for all future years. In response to this issue, the EIA for the final rule presents a calculation of annualized costs for both a finite and an infinite product life. Because the finite product life results in a higher annualized value, the EPA uses this estimate for the economic analysis of the final rule to produce a conservative estimate of impacts associated with the rule.

Also, because the survey of architectural coating producers was conducted in 1992 with information on products through the end of 1991, the EPA has set 1991 as the baseline year for the analysis. All market data are in 1991 dollars, and so for the purpose of modeling, the costs are expressed in 1991 dollars. However, in response to comments, values for the final rule are expressed in both 1991 (the base year of analysis) and 1996 dollars. The EPA's conclusions regarding the impacts of the final rule are the same, whether expressed in 1991 or 1996 dollars.

In addition, OMB (OMB Circular A-94) stipulates that the discount rate used for economic analyses of Federal regulations is 7 percent.  This is based on an assessment of a wide range of private and public investment returns. The 7-percent rate is a real discount rate (adjusting out inflation). In contrast, the market interest rates paid by firms are in nominal terms (i.e., they include a component for inflation). If inflation is 3 percent, then a real rate of 7 percent is equivalent to a nominal rate of 10 percent. All dollar values in the economic analysis are expressed in real terms, thus the discount rate used is a real discount rate.

Using the stated method for calculating the per-product costs of reformulation, the EPA conducted an in-depth analysis of national cost and economic impact to support both the proposed and final rules. More specifically, the estimate of net social cost is based on the average cost to reformulate products that exceed the limits set by the standard. These costs are applied to specific products identified by the survey. For these products, costs are applied to two-thirds of the population of non-compliant products because one-third of these products are similar enough in characteristics to other "over-the-limit" products that a separate reformulation effort is not likely to be necessary. Although the survey was unable to capture all products produced by small businesses as one commenter states, the EPA assumed (for an upper bound estimate) that all product volume in the non-survey population was produced by small businesses. Thus, costs are extrapolated to the nation using conservative assumptions of the total number of products requiring reformulation nationally. The analysis then considers influences in a competitive market on product price and output, along with the consideration of lower-cost compliance options such as the exceedance fee provision or product withdrawal from the market. The analysis not only measures the cost to producers that must comply with the regulation, but also to all consumers impacted by the changes in the market resulting from the regulation. The analysis also identifies gains in revenues to producers that are not constrained by the rule (thus, not incurring costs), but who gain an advantage of higher market prices for their products. Thus, the EPA believes that the analysis reasonably captures all capital and social costs for surveyed as well as non-surveyed products.

The original product reformulation cost estimate included several components beyond the cost of the laboratory personnel, which are itemized in the EIA. Although some of the items listed by commenters as improperly omitted may not have been included in the per-product reformulation cost estimate at proposal, several of the estimates from public comments that were used for the final rule included these components, and therefore, they are included in the estimate used for the final rule. The EPA also considered the influence (positive and negative) of other factors that are not possible to quantify, and presented these biases in a table of the EIA at proposal and for the final rule. Most of the biases are variable and case specific. For example, product quality changes were found to have both positive and negative effects on cost depending on the product. The EPA found no link between product quality and VOC content since quality, high-performing products are available in a wide range of VOC content levels in many product categories. Given this finding, the EPA does not consider warranty claims and complaints for poor performance to be typical or quantifiable for a reformulated product. The EPA also found examples of increased and decreased time utilized for surface preparation, application, and drying of compliant coatings. The use of acetone formulations is also not considered a necessity to comply with the rule since there are other raw material substitutes available to manufacturers. Thus, incurring increased safety hazards by choosing an acetone formulation is a decision that should be made by a manufacturer based on benefit/cost considerations, rather than as a result of  the rule. Other categories of influence on the cost estimate are also discussed qualitatively in the EIA.

The cost of foregone new product development is an aspect of opportunity cost that is implicitly included in the EPA's estimate of economic impacts. The amortized cost of reformulation reflects both the payment of principal and the cost of capital. The cost of capital directly reflects the value of opportunities foregone by investing funds in a particular activity, in this case, reformulation. Thus, if investing in reformulation diverts funds from investing in other product enhancements, the foregone value of those investments is captured in the discount rate used in the analysis.

The aggregation of 50 categories into 13 market segments is the result of cross-referencing the emissions inventory data from the industry survey with the coding system set by the Census of Manufacturers, a large source of economic data. The methodology to link survey categories with the Census data is described in an appendix to the EIA. The EPA's objective was to specify as many market categories as the data would allow. Using this method, the largest possible number of meaningful market categories was 13. The aggregation process presents an appropriate way to analyze the cost and economic impacts and does not in any way diminish the estimates of the absolute impact of the regulation. However, the aggregation process may make it difficult to detect relatively large impacts within one subgroup of a market category, if these impacts are offset by relatively small impacts in other subgroups of that market. In other words, a product may be more likely to be withdrawn from the market than is indicated in the 13 market segments of the analysis since multiple product niches would be lumped within the same market segment. On the other hand, this aggregation may increase the estimated effect on manufacturers by over-stating the degree to which products within the market segment can substitute for products affected by the regulation.

While the EPA did not directly measure impacts on the retailing sector, contractors, and other consumers, the indirect impacts to these entities and other users of coatings products are captured in the market analysis by the estimated change in "consumer surplus," along with all other downstream effects beyond the manufacturer. Consumer surplus measures the distribution of the burden of the regulation to all consumers. Since the impact on consumers calculated for proposal was less than one-third of the manufacturers' burden, and contractors and retailers are a small subset of this effect, the EPA saw no indication of a need for an in-depth analysis of secondary (indirect) impacts.

It should be recognized that retail outlets have the ability to substitute between compliant and noncompliant coatings offered for sale. While the EPA projects the number of withdrawn products to be small, if a manufacturer does choose to discontinue a product, retailers will presumably replace this product with other compliant products in that category. Thus, although foregone profits are "lost" for the manufacturer withdrawing a product, the retailer offsets any lost profits from selling the withdrawn product with profits obtained by selling substitutes within that category. As indicated above, the number and volume of product withdrawals is projected to be quite small (less than 1-percent nationally), thus suggesting retailing effects, if they exist at all, are also likely to be quite small.

The job loss and other substantial economic impacts that are referred to by a commenter are the result of assuming that every reformulation required by the standards is not feasible, thus the products would be removed from the market causing manufacturers, contractors, retailers, and other consumers to be economically impacted. Because there are a very limited number of products that are expected to be withdrawn from the market, most products will be reformulated or produced with current formulations (with manufacturers using the tonnage exemption provision or paying a fee for emissions in excess of the standards).

Likewise, this regulatory action cannot be considered a "product ban" because the EPA believes that it is technologically feasible to reformulate all product categories to meet the standards. The expected level of product withdrawal is calculated based upon the aggregate impact on numerous varieties of products across 13 different market segments, so it is unlikely to eliminate (or ban) an entire product category. In addition, the rule contains limits for 61 categories of products, many of which were created to preserve specialty, niche market sectors within the industry. Also, the tonnage exemption and exceedance fee provisions in the rule are expected to provide further compliance flexibility which will allow manufacturers to maintain product lines with VOC contents that exceed the applicable VOC content limits in appropriate circumstances.

In conclusion, based on the data and information provided to the EPA prior to proposal and through public comments, the revised national annualized cost estimate of the final rule of $25.6 million in 1991 dollars (or $29 million in 1996 dollars) is representative of all costs to producers and consumers. This cost and its effect on the industry do not meet the minimum criteria set forth by Executive Order 12866 or the Unfunded Mandates Reform Act to require additional analyses, as some commenters have suggested.

N. Small Business Issues
The EPA received several comments that small businesses would be disproportionately impacted by the regulation because: (1) they manufacture products with higher VOC content in comparison to the large companies; (2) due to the lack of resources, it would take longer for small firms to reformulate all affected products; and (3) the rule would discourage niche market products that support many regional and local manufacturers. Some commenters also claimed that the proposed regulation provided a competitive advantage to large national and international companies because a uniform national rule simplifies marketing, production, and compliance activities of these firms.

During development of the rule, the EPA was aware of the above concerns of small manufacturers and designed the architectural coatings rule to minimize any potential adverse impacts on small manufacturers.  In fact, special consideration was given to economic feasibility of VOC levels for coating categories where small manufacturers have a disproportionate presence. The small entity analysis confirmed that small producers that were included in the survey of manufacturers do tend to produce higher VOC content products (75 percent higher than the average of all surveyed manufacturers), partly because of a specialization of products and partly because of choice of technology.   They produced 20 percent of the number of products in the survey, but only account for 4 percent of total volume of coatings produced, and 4 percent of total revenue of surveyed manufacturers. Thus, the revenues and production levels are generally lower than the average of all manufacturers. Because the costs to reformulate are fixed for all levels of production, the costs to reformulate the products that exceed the VOC content limits have the potential to comprise a greater share of baseline costs and revenues for small producers, which gives some indication that a disproportionate impact on small businesses could occur if reformulation were the only compliance option available. The EPA considered this finding and has taken several steps in the final rule to mitigate this impact, provide flexibility and additional compliance time, and preserve niche markets, including:
The creation of new product categories where warranted,
An increased compliance time (12 months),
A tonnage exemption provision, and
An exceedance fee provision.

All of these provisions were considered in part to address niche markets and small business burdens; however, the provisions will be available to all producers regardless of size. The EPA's analysis of the impacts of the final rule shows that small businesses are likely to utilize these provisions and that the impact on a typical small firm is reduced without significant deterioration of the rule's effectiveness (i.e., the foregone emission reductions are limited). See section VI.E of this preamble for a summary of findings from the analysis.

The EPA disagrees that the proposed architectural coatings rule favors larger businesses to the detriment of smaller businesses. As the EIA indicates, estimated market effects from the architectural coatings rule are relatively slight. Approximately one-tenth of 1 percent of industry product volume is projected to withdraw from the market, and price effects