On January 10, 1997, the Occupational Safety and Health Administration (OSHA) lowered the limit on worker exposure to methylene chloride (MC) in order to reduce the chance of developing health problems associated with working in businesses that use MC. A 25 ppm permissible exposure limit (PEL) and a 125 ppm short-term exposure limit (STEL) were set. This study addresses the suitability of this performance-based standard and in comparing it to other policy instruments ultimately defends its choice as the most effective and efficient way of achieving the necessary goals within the given constraints.

Because company privacy is protected by law, current policy can not require indoor emissions reporting. As a result, a cost analysis of policy implementation strategies is complex and capital intensive. Indoor levels were proxies for outdoor emissions of MC so that estimates of costs to industry could be calculated and numbers of businesses in application groups could be determined. At the national level, annualized costs of compliance amounted to 0.18 percent of estimated sales and to 3.79 percent of profits for all but three application groups. For these three groups service is believed to be price inelastic (Fed. Reg., 1997). Indiana industry costs are assumed to be similar to national estimates. With implementation in Indiana, the plastics industry, pharmaceutical companies and metal cleaning application groups will experience compliance costs of 9.23, 0.35 and 0.181 as a percent of profit respectively (Appendix 6). The Indiana plastics industry will be hardest hit by regulation.

Despite regulations of MC emissions across multiple government agencies, namely, EPA, IDEM, OSHA, and IOSHA, as of yet there is little cooperation between them. In particular, a link exists regarding MC pollution prevention technology, control practices, and the location of MC emissions: employment of such technologies and control practices may simultaneously reduce both indoor and outdoor MC emissions. This link between outdoor and indoor emissions is not adequately understood, or at least not reflected, in legislation at either the state or federal levels.

Through our analysis we determined that market-based policy instruments were not applicable to MC emissions reductions due to the propensity of most regulators and legislators to opt for overprotection rather than risk human health. Since these instrument types may still permit overexposure, they could not be accepted. Voluntary agreements could aid in improving compliance, but could not serve as primary instruments for the similar reasons. Of the two command and control options, performance-based controls were chosen over technology-based controls. Ultimately, the efficiency of the standard is dependent on the science behind the mandated level. In so far as the standard accurately portrays the true health risks associated with overexposure, the costs to industry will be more acceptable.

Originally presented with the hypothetical scenario of reducing MC emissions by 50% for the state of Indiana, this paper details an alternative— and more specific— challenge: limiting indoor MC emissions to 50% of current levels. The rationale for this approach is two-fold. First, MC rapidly ‘dissociates’ in outdoor environments and has a very short half-life in both terrestrial and aquatic media (Fed. Reg., 1998). Thus, the health impact is assumed to be a relatively inconsequential compared to indoor emissions. Second, the development of indoor emissions regulations for MC has been difficult due to the wide range of monitoring and enforcement costs across industries, and due to imperfect information in terms of industry handling and use.

Indeed, indoor and outdoor MC emissions are closely related. Bruce Beck, an Environmental Quality, Health & Safety Manager of Eli Lilly Co., stated, "When discussing the control and management of MC at Clinton (Laboratories), it is imperative that both the environmental controls and health exposure controls be discussed in context together." Further, indoor MC emissions levels are directly correlated to outdoor emissions, as total emissions indicate a level of control capability of a facility-- even if they do not indicate actual employee exposure levels. Thus, an analysis of Indiana’s MC-using industrial sectors was conducted in part by examining SARA Section 313 total outdoor MC emissions as a correlate of indoor MC emissions. Using this approach, the impact of the current and pending MC standards on industry could be determined indirectly and analyzed qualitatively.

Accordingly, this paper attempts to recognize and suggest solutions to the challenges of MC regulation in lieu of current and pending federal standards. In doing so, various environmental policy instruments were examined and compared. The majority of the suggested policy instruments were dismissed based on economic inefficiency, industry distribution imbalances, and poor political and/or legal feasibility.

2. BACKGROUND

In 1971, under Title 29 of the Code of Federal Regulations (CFR), the Occupational Safety and Health Administration (OSHA) adopted standards for MC workplace emissions (Appendix 1). The permissible exposure limit (PEL) was 500 ppm of air for the 8-hour time-weighted average and the short-term exposure limit (STEL) was 2000 ppm for five minutes in any two-hour period. As more information became available about the true dangers of MC exposure, OSHA decided to reduce worker exposure even further due to its harmful health effects. At the same time, some sectors of industry were already voluntarily overregulating themselves using a PEL of 50 ppm (B. Beck, 1998). Currently, MC is regulated by short- and long-term performance standards: the new standards, representing an overall emissions reduction of greater than 50%, have been set at a PEL of 25 ppm and a STEL of 125 ppm, averaged over 15 minutes (Fed. Reg., 1997, p119).

Those government agencies responsible for developing, monitoring, and enforcing MC regulations for Indiana have jurisdiction based on emission location. Outdoor emissions are the responsibility of the Environmental Protection Agency (EPA; federal), and the Indiana Department of Environmental Management (IDEM; state). Indoor emissions regulations are controlled by OSHA (federal) and by the Indiana OSHA (IOSHA; a state entity which receives both state and federal funding).

Historically, OSHA has developed explicit performance-based regulations to ensure worker safety and health protection. Executive Order 12612, 52 FR 41685 requires that federal agencies "…refrain from limiting State policy options, consult with States prior to taking any actions that would restrict State policy options, and take such actions only when there is a clear constitutional authority and the presence of a problem of national scope." However, it is stated in Section 18 of the Occupational Safety Act (OSH Act) that "…the federal government can preempt State jurisdiction of worker safety unless the State submits a plan for the development of standards and an enforcement policy." The State of Indiana has submitted plans in the past, administering through IOSHA.

As IOSHA has to adopt a comparable standard, the agency is interested in investigating options that reduce worker exposure to MC that are acceptable across all sectors of industry, as well as being economically efficient. Further, the state plan must be "at least as effective in providing safe and healthful employment and places of employment" as the current federal standards (Fed.Reg., 1997). Since the federal standards are performance-oriented, they allow states and particular employers to determine their most efficient means of compliance. In addition to considering direct controls, IOSHA wants to look at other market-based options to determine if they are feasible not only economically, but also legally and politically.

Methylene Chloride is an industrial chemical used in many processes including paint stripping, metal cleaning (degreasing, semiconductors, printed circuit boards), pharmaceutical manufacturing, polyurethane foam production, construction, aerosol packaging, plastics and adhesives manufacturing, ink solvent manufacturing, and pesticide manufacturing and formulation. In addition, it has been used to extract unwanted material from foods or beverages, such as coffee (Fed. Reg., 1997).

Multiple studies have shown MC to be a volatile, colorless liquid that has harmful health effects on humans if they are exposed via inhalation or skin contact. According to OSHA (1997): "Inhaling the vapor causes mental confusion, light-headedness, nausea, vomiting, and headache. With acute (short-term) exposure, MC acts as an anesthetic; continued exposure may cause staggering, unconsciousness, and even death. High concentrations of the vapors may cause irritation of the eyes and respiratory tract and aggravate the symptoms of angina. Skin contact with liquid MC causes irritation and burns. Studies on laboratory animals indicate that long-term (chronic) exposure causes cancer."

At present, MC is regulated widely in government agencies or under government rulings (list from OPPT, 1992; Fed. Reg., 1997):

The impetus for government MC regulation is, in part, based on market failure. The primary market failure is based on a lack of information regarding the true risks of working with MC. Adverse health effects due to MC exposure are negative externalities for employees, who may not be informed of the estimated risks associated with MC. One result may be that companies are not paying the true shadow price (full cost) of MC use. The question arises, "Are people being compensated appropriately when working with or near a potentially harmful VOC?" Companies, therefore, may be paying a market price for MC use, rather than the additional social cost associated with that use.

Regulation is implemented to coerce companies into paying the actual cost of worker exposure and to ensure safe work environments. This could manifest itself in a variety of ways: limiting MC use so workers are exposed less; providing engineering controls; implementing education programs; and monitoring and training methods to protect workers.

There are a variety of policy instrument options available for MC regulation. The outline listed below explains these briefly. A full analysis of the instrument options follows.

I. Command and Control (Direct Controls)

II. Market-Based

III. Voluntary Environmental Agreements

In determining the optimal policy instrument a number of issues must be considered. It is assumed, with regulations of any kind, that minimal interference with market dynamics is preferred. Following that, characteristics of good policy instruments ideally consider: dependability, permanence, equity, political attractiveness, scope and diversity of participants, efficient resource use, and incentives for maximum effort.

1. Command and Control (Direct Controls)

1. Performance-Based Controls (Emissions Standards)

OSHA has chosen this option for the current MC regulation and has set standards as described previously in this document. Performance-based controls may not be the most economically efficient for all industries in Indiana since all firms are not faced with equal marginal cost curves of compliance (see Appendix 3 for cost of compliance as % of profit by industry type). However, when compared to market-based policy options, it succeeds in addressing permanence issues, the number and diversity of participants, and incentives for innovation. In particular, it has the advantage of being an historical method of regulation; although it may or may not be politically attractive to industry, it could be defended on precedent.

Further, subsidiary costs such as documentation and proof of compliance arising from the regulation are internalized by industry. The burden of record keeping falls on the company, not the regulating agency. Companies must keep the paperwork for everything from the medical surveillance of employees, to exposure measurement records that demonstrate the technologies implemented have the intended effect of reducing worker exposure.

2. Technology-Based (Reducing MC Emissions Using New or Existing Technology)

1. Carbon adsorption techniques (personal communication, OSHA personnel, March, 1998).
2. Gas chromatographs with alarms connected to operator-manned consoles (Eli Lilly, 1995).
3. The use of more efficient detection and containment equipment at building exhaust sites, and at solvent transfer stations (Eli Lilly, 1995).
4. Leak Detection and Repair (LDAR). "All potential leak locations, such as flanges, threaded connectors, and valves are ‘sniffed’ with a device that can detect levels as low as one part per million. Whenever an emission is discovered, the leak is repaired immediately." This technology has been used by Eli Lilly since 1987. (Eli Lilly, 1995).
5. Regenerative thermal storage oxidizers, used for capturing vapors escaping from storage systems. (Eli Lilly, 1998).

1. Outdoor Emissions Tax as a Proxy for Indoor Emissions

Performance-based regulations are the most efficient when considering the breadth of industries that use MC in terms of costs to industry, employees exposed to MC, and the relevant regulating agencies. Due to the diversity of industry in Indiana, it is conceivably very difficult for IOSHA to require specific ‘best available technologies’ for all the industries that use MC in their production processes, and hence it would be better to allow the individual industries to discover their own reductions. A potential problem when using a performance-based standard is that the threat of enforcement action may subject companies to incur more costs than the regulation intended. The occurrence of fines, litigation, criminal prosecution, interruption of business, and poor public perceptions are not conducive to good business. The potential for these occurrences under strict standards can be significant. However, these concerns are less serious than those that might arise due to shortcomings of other instrument types.

Ultimately the efficiency of the standard is dependent on the science behind the mandated level (25 ppm PEL and 125 ppm STEL). Does the standard accurately portray the health risks to employees or does it impose unnecessary costs on the industry? Moreover, what are the risks associated with overestimating or underestimating a safety level? In deciding whether to deal with a Type I versus a Type II error and the implications for worker health, most regulators would rather err on the side of overprotection rather than putting people’s health at risk. This argument also explains why an incentive-based regulation would not work. If companies simply opt to pay the tax, or buy the extra permits, or wait to participate until the subsidies are particularly high, they continue to expose their employees to higher levels of MC. Ideally these instruments would be set at the correct levels and would work, but the cost of setting incorrect values is potentially very great and companies would then not be dealing with the correct price of employee overexposure.

At the national level, annualized costs of compliance amounted only to 0.18 percent of estimated sales and 3.79 percent of profits for all but three application groups. Polyurethane foam blowing, furniture stripping, and construction compliance costs are less than 3 percent of profits. For all but one application group—furniture stripping—annualized compliance costs are less than 0.5 percent of the value of sales. In all three cases, price increases of 2.1 percent or less would fully restore profits (Appendix 3).

In addition, OSHA assumes that most firms will be able to increase prices to offset regulatory costs. For example, in furniture stripping, a substantial portion of the market is for antique refinishing using MC. This service is believed to be price inelastic; furniture refinishing holds a market niche that is unlikely to be sensitive to a 2.0 percent change in price. Further, flexible foam derived from MC use is an essential material in the construction of cushions of all types, and MC-based paint stripping and foam blowing are essential operations of many of the jobs in which they are used (Fed Reg., 1997).

The national cost estimates are assumed to be qualitatively similar for Indiana industries. In other words, the foam blowing industry in Indiana will experience the same economic effects. Using 1997 estimates (Fed. Reg., 1997), the plastics industry in Indiana will experience a compliance cost of 9.23 percent of profit. There are 9 major plastics businesses that use at least 10,000 lbs. of MC each year. Pharmaceutical companies, on the other hand, will experience a compliance cost of 0.35 as a percentage of profit, of which there are 8. The metal cleaning application group, consisting of 9 major firms, will experience compliance costs of 0.181 as a percent of profit. Finally, the 8 foam-blowing companies will experience a compliance cost of 0.11 as a percent of profit (Appendix 6).

One effected industry in Indiana is Eli Lilly. The following represents an estimate of the financial impact in meeting the new OSHA exposure limits at Lilly’s Clinton Laboratories, provided as a case study to indicate possible compliance costs for a major MC-using firm (Eli Lilly, 1998):

Initial Monitoring

FTE – 0.1 Expense $10,000

Initial Analytical Cost Expense $10,000

Equipment Purchase Capital $12,000

Periodic Monitoring

FTE – 0.1 (annually) Expense $10,000

Equipment Cost (annually) Expense $2,000

Analytical Cost (annually) Expense $2,500

Engineering Controls

Estimated Capital Capital $50,000

Medical Surveillance

Physicals & Test (annually) Expense $15,000

First, switching to substitute chemicals is an option in many applications. For example, MC can be replaced by terpene-based solutions and aqueous cleaners in metal cleaning procedures. Paint stripping can be done by blasting with plastic media, carbon dioxide pellets, sodium bicarbonate, wheat starch, and high pressure water spray (OPPT, 1992) and N-methyl-pyrrolidone, methanol, acetone, and toluene can also be used in removing finishes and paints (OSHA, 1997). It is always important to keep in mind that some substitutes are just as dangerous as MC and require similar or more stringent regulatory compliance.

Production procedures are another means of reduction that is specific to each industry. In chemical manufacturing, some processes have been modified to incorporate internal recycling of MC. (OPPT, 1992). Further, the employment of carbon adsorption generic technology can reduce indoor MC concentrations. Because MC adsorbs or ‘beads’ onto a carbon surface, it can be extracted or pulled off of the surface for reuse. (Absorbing MC is not as effective a removal technique since absorption into a substrate will necessitate disposing of the MC—and the substrate which holds it—as a hazardous waste).

All industries can employ engineering controls, employee training, administrative controls and worker practices, in order to reduce worker exposure. Engineering controls might include monitoring technologies, ventilation systems, and respirators. Administrative measures use scheduling and employee rotation to reduce worker exposure. Worker practices involve the storage of chemicals, avoidance of vapor inhalation and direct skin contact and other personal precautions. Training would address issues like minimizing chance spills and leaks and emergency response procedures.

While assessing the magnitude of the costs and benefits of the current standard, a thorough study must also consider the parties to whom these costs and benefits accrue. This must include not only the firms and employees affected by emission reduction efforts, but also the public and multiple government agencies that must dedicate time, money, and resources.

In arriving at the current standards for MC, OSHA has delineated alternative implementation strategies that attempt to minimize significant economic impacts on both small and large businesses (Appendix 5). More specifically, before implementing the current 25 ppm and 125 ppm standards, analyses were completed which indicated the potential for distributional imbalances across industry and business type. In particular, small businesses (those employing 20 people or less) were predicted to suffer upon implementation of the standard.

This potential distribution imbalance was acknowledged by OSHA during both the research and development stages, and in the actual specifications outlined in the final regulations. In order to avoid underestimating costs, the methodology of the economic analysis did not include chemical or product switching from MC. Furthermore, OSHA did not "account for many simple work practices and housekeeping methods that companies could easily implement to meet with regulatory standards and not incur large costs" (Fed Reg., 1997).

There are potential unforeseen benefits associated with the current regulations. These may include worker protection from other potentially harmful chemicals due to improved engineering and administrative controls, as well as worker practices. Worker training may inspire company loyalty and pride because the firm will have shown an interest in worker safety and education. Lastly, improved managerial and capital investment in pollution prevention measures may result in benefits (or a reduction in costs) for future business ventures.

The present study was conducted under the following assumptions and limitations. First, all health data used to support the 25 ppm PEL and the 125 STEL are assumed to be accurate and not a conservative estimate of health risks. Because indoor emissions are private industry information, and are not required by law to be disclosed to the public, MC emissions levels were obtained indirectly. More specifically, Indiana indoor compliance cost data had to be extrapolated using 1995 outdoor emissions information received from IDEM (Appendix 7). Further, cost data was obtained using national data. Hence, Appendix 7 contains rough estimates of compliance costs and outdoor emissions levels by application. This approach decreases the robustness of our estimations. In addition, this data only represents major MC users. The prevalence of small business (<20 employees) in Indiana may represent a significant contingent of businesses effected by the new standard. Thus, our analysis fails to appropriately address the impact on businesses that purchase less than 10,000 lbs. of MC annually. It is possible that small businesses may experience a significant impact of the current MC standard in terms of compliance and monitoring costs. Finally, in the advent of voluntary indoor emissions data reporting by Indiana industries, future cost analyses may be improved.

The current MC standard is a reasonable and dependable one that will achieve the goal of worker protection. The impact of the standards on large MC-dependent businesses in Indiana appears to be minimal, most dramatically effecting the plastics industry. The costs associated with the new regulations for many MC-using industries can be recovered with small price increases of intermediate or final products. The demand for such products is price inelastic and it is believed that price changes won’t significantly impact sales.

At first glance the standards and suggested implementation guidelines appears to achieve equity. However, because this study correlated indoor emissions control costs with outdoor emissions data, and because small-scale users are not required to report outdoor emissions, the economic impact on such businesses was inconclusive.

It is suggested that future MC legislation more appropriately address the interrelationships between indoor and outdoor emissions. It is clear that technologies and related control practices reduce both indoor and outdoor emissions. Furthermore, overlapping regulatory objectives of the EPA, IDEM, OSHA, and IOSHA should be recognized in order to reduce industry compliance burdens.

• OSHA sets PEL at 500 ppm 1971
• ACGIH Threshold limit value (TLV) set at 100 ppm 1975
• National Toxicology Program Cancer Study 1985
• EPA Risk Assessment concludes "probable human carcinogen 1985
• UAW Petitions for Emergency Temporary Standard

• OSHA issues Proposed Rule for Methylene Chloride 1991
• Methylene Chloride Proposed Rule "dies" in OMB 1992
• Interest in Methylene Chloride rekindled at OSHA 1996
• Final Rule published in "Federal Register" January 10, 1997

• Effective data was 90 days after Final Standard was published. 4/9/97
• Initial monitoring was to be completed within 120 days* 8/4/97
• All program requirements to be implemented within 180 days* 10/2/97
• Engineering controls-Specified and implemented w/I 1 year* 4/9/98

*After effective date

Source: CONSAD, HSIA, PRMA, Office of Regulatory Analysis

Source: CONSAD; Dun & Bradstreet; Office of Regulatory Analysis, OSHA, Department of Labor

Source: Office of Regulatory Analysis; OSHA; Department of Labor

Source: Federal Register, 1998

Source: IDEM, 1995; CONSAD; Dun & Bradstreet; Office of Regulatory Analysis, OSHA, Department of Labor (from Federal Register, 1997).

Source: IDEM, 1995

ATSDR 1989-1994. Agency for Toxic Substances and Disease Registry. Toxicological profiles Chambler, GA. ATSDR.

Bruce Beck. 1998. Personal Communication. Manager of Environmental Quality and Health and Safety at Clinton Laboratories. 3/11/98.

IDEM. 1995. Indiana 1995 Dichloromethane Releases and Wastes Totals. Fax received 3/30/98.

Eli Lilly. 1995. Indiana. http://www.lilly.com/company/citizenship/environment/1995/global7.html.

2/13/98.

Eli Lilly: Clinton Laboratories. 1998. Background material on Clinton Laboratories and emission reduction efforts. Fax received 3/30/98.

EPA. 1996. EPA’s 33/50 Program Success Story: Eli Lilly and Company: Reduction of Methylene Chloride Emissions. Received in Fax from Eli Lilly, 3/30/98.

Mannsville. 1993. Chemical Products Synopsis: Methylene Chloride. Mannsville Chemical Products Corporation, January, 1993.

Matz, Kristin. 1997. Nitrates Put Lilly Back on Top Polluter List. Lafayette Business Digest. Nexis/Lexis. 2/13/98.

Records of Decision—Indiana: South Bend to Zionsville. 1995.