[Federal Register Volume 66, Number 225 (Wednesday, November 21, 2001)]
[Proposed Rules]
[Pages 58556-58607]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-28738]
[[Page 58555]]
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Part II
Environmental Protection Agency
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40 CFR Parts 122 and 412
Notice of Data Availability; Proposed Rule
Federal Register / Vol. 66 , No. 225 / Wednesday, November 21, 2001 /
Proposed Rules
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ENVIRONMENTAL PROTECTION AGENCY
40 CFR Parts 122 and 412
[FRL-7104-7]
RIN 2040-AD19
Notice of Data Availability; National Pollutant Discharge
Elimination System Permit Regulation and Effluent Limitations
Guidelines and Standards for Concentrated Animal Feeding Operations
AGENCY: Environmental Protection Agency (EPA).
ACTION: Proposed rule; Notice of data availability.
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SUMMARY: On January 12, 2001 (66 FR 2959), EPA published a proposal to
revise and update two regulations that ensure manure, wastewater, and
other process waters generated by concentrated animal feeding
operations (CAFOs) do not impair water quality. These two regulations
include the National Pollutant Discharge Elimination System (NPDES)
provisions that define which operations are CAFOs and establish permit
requirements, and the Effluent Limitations Guidelines (ELG), or
effluent guidelines, for feedlots (beef, dairy, swine and poultry
subcategories), which establish the technology-based effluent discharge
standards for CAFOs. EPA proposed revisions to these regulations to
address changes that have occurred in the animal industry sectors over
the last 25 years, to clarify and improve implementation of CAFO permit
requirements, and to improve the environmental protection achieved
under these rules.
In the proposal, EPA specifically solicited comment on 28 issues
(66 FR 3133), in addition to a general comment solicitation on all
aspects of the proposed regulations. EPA received comments from various
stakeholders, including State, Tribal and Federal regulatory
authorities, environmental groups, industry groups, land grant
university researchers, and private citizens. This document presents a
summary of certain data received in comments since the proposal and
describes how these data may be used by EPA in developing its final
CAFO regulations.
Due to the comments and data received, EPA is considering changes
to certain aspects of the proposed CAFO rule, including changes to the
technology options considered for regulation, as well as changes to the
underlying data and methodology that EPA uses to estimate the costs and
financial impacts associated with the regulation. Today, EPA is making
these data and comments available for public review and comment. EPA
solicits public comment on any of the issues or information presented
in this notice of data availability and in the administrative record
supporting this document.
DATES: You must submit comments by January 15, 2002.
ADDRESSES: Public comments regarding this document should be submitted
electronically to [email protected]. Electronic comments must
specify docket number W-00-27 and must be submitted as an ASCII, Word,
or WordPerfect file avoiding the use of special characters and any form
of encryption. Electronic comments on this action may be filed online
at many Federal Depository Libraries. No confidential business
information (CBI) should be sent via e-mail.
You also may submit comments by mail to: Concentrated Animal
Feeding Operation Proposed Rule, Office of Water, Engineering and
Analysis Division (4303), USEPA, 1200 Pennsylvania Avenue, NW.,
Washington, DC 20460. Hand deliveries (including overnight mail) should
be submitted to the Concentrated Animal Feeding Operation Proposed
Rule, USEPA, Waterside Mall, West Tower, Room 611, 401 M Street, SW.,
Washington, DC 20460. Please submit an original and three copies of
your written comments and enclosures, as well as any references cited
in your comments. Commenters who want EPA to acknowledge receipt of
their comments should enclose a self-addressed, stamped envelope. No
facsimiles (faxes) will be accepted.
The public record for this action and the proposed rulemaking has
been established under docket number W-00-27 and is located in the
Water Docket East Tower Basement, Room EB57, 401 M Street SW.,
Washington, DC 20460. The record is available for inspection from 9:00
a.m. to 4:00 p.m., Monday through Friday, excluding legal holidays. For
access to the docket materials, call (202) 260-3027 to schedule an
appointment. A reasonable fee may be charged for copying.
FOR FURTHER INFORMATION CONTACT: Renee Selinsky Johnson, Paul Shriner,
or Karen Metchis at (202) 564-0766. You may also e-mail the above
contacts at [email protected], [email protected], and
[email protected].
SUPPLEMENTARY INFORMATION:
Contents of This Document
I. Purpose of this Document
II. Public Outreach and Data Gathering
A. Overview of Pre-Proposal Outreach
B. Post-Proposal Activities
1. Public Meetings
2. Stakeholder Meetings
3. USDA-EPA Workgroup Meetings
4. Review of EPA's Economic Analysis by the Food and
Agricultural Policy Research Institute (FAPRI)
5. Other Outreach and Data Gathering
III. Summary of the Proposed ELG and NPDES Rules
A. Proposed Effluent Limitations Guidelines and Standards (ELG)
B. Proposed NPDES Regulations
IV. New Information Related to the Proposed Revisions to the
Effluent Limitations Guidelines and Standards
A. Effluent Limitations Guidelines and Standards Terminology
1. Definition of Proper Agricultural Practices
2. Chronic Storm Event
3. Alternative Approach to Nutrient Management Planning
B. Proposed Performance Standards
1. Ground Water Controls
2. Alternatives to Proposed 100-foot Setback
3. Manure Application Rates Based on Limiting Nutrients
4. Alternative Requirements for Soil Sampling
5. Alternative Requirements for Manure Sampling
6. Feasibility of Zero Discharge Standard
V. Changes EPA is Considering to its Cost and Economic Impact Models
A. Industry Profile
1. Estimates of the Total Number of AFOs and Regulated CAFOs
2. Estimates of the Amount of Manure Nutrients Covered at
Different Regulatory Thresholds
3. Changes in SBA's Small Business Definition and EPA's
Estimates of the Total Number of Small Businesses Affected by the
Proposed Regulations
B. Data and Analytical Approach to Estimate Compliance Costs to
CAFOs
1. Alternate Analytical Approaches for Estimating Compliance
Costs
a. EPA's assumptions of full compliance with existing
regulations for CAFOs with more than 1,000 AU
b. EPA's cost model assumptions and use of ``frequency factors''
c. Engineering cost test to determine appropriate technology
systems
d. Changes to costs for land application of lagoon liquids for
beef and dairy operations
e. Cost offsets and savings
2. Alternate Data and Information for Estimating Compliance
Costs
a. Alternative costs and information to EPA's ground water
assessment
b. Gas collection systems and cover materials for proposed
technology Option 5
c. Engineering costs for nutrient management planning costs
d. Correction to EPA's compliance costs and economic analysis
due to omitted costs for a subset of hog operations
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e. Correction to EPA's summary of the range of estimated
compliance costs across all proposed technology options
C. Data and Analytical Approach to Estimate Financial Impacts to
CAFOs
1. Alternate Analytical Methodology for Determining Economic
Achievability
a. Inclusion of new assessment criteria to measure changes in
profitability
b. Evaluation of assessment criteria at multiple business levels
c. Revision of threshold values on a debt-to-asset test (some
sectors only)
d. Consideration of debt feasibility
e. Consideration of tax savings
f. Consideration of various cost offsets
2. Alternate Data for Determining Baseline Financial Conditions
at CAFOs
a. Alternative financial data for cattle feeding operations
b. Alternative financial data for hog operations
c. Alternative financial data for dairy and broiler operations
d. Alternative data to supplement available financial data for a
single year
e. Alternative data to project out financial data over the 10-
year analysis period
VI. Changes to EPA's Environmental Assessment
A. Estimates of ``Edge-of-Field'' Pollutant Loadings
B. Surface Water Modeling
C. Pathogens, Antibiotics, and Hormones
D. CAFO Air Emissions
1. Estimating air emissions from CAFOs
a. Revised emission factors
b. Revised methane methodology for anaerobic lagoons
c. Revision of boundary conditions
2. Quantifying the benefits of reduced air emissions
VII. New Information Related to the Proposed NPDES Regulations
A. Ducks and Horses
1. Ducks
2. Horses
B. Cow/Calf Operations
C. State Flexibility and Innovation
1. State Non-NPDES Programs
a. State Flexibility Alternative 1: Flexibilities Under NPDES
for Middle Tier
b. State Flexibility Alternative 2: Opt-out from NPDES for State
programs covering facilities below the CAFO threshold
c. EMS as a basis for State flexibility
d. Process for granting flexibility
e. State program assessment criteria
D. Environmental Management Systems
1. EMS-Based Regulatory Options
a. EMS Option 1: Modified permit requirements for facilities >
1,000 AU
b. EMS Option 2: EMS as a basis for excluding operations from
the CAFO definition for facilities with 300 AU--1,000 AU
c. EMS Option 3: State flexibility for 300 AU--1,000 AU
d. EMS Option 4: Co-Permitting
2. Potential Evaluation Process and Standards
3. Potential Elements of an AFO EMS
4. Further Criteria for an Adequate EMS-Based Program
5. Potential Components of Third-Party Auditing Program
E. Three-tier Alternative
F. Technical Correction
VIII. Request for Comments
A. Specific Solicitation of New Information and Clarification on
the Proposed ELG Requirements
B. Specific Solicitation of New Data and Information EPA is
Considering for its Cost and Economics Model
C. Specific Solicitation of New Information EPA is Considering
for its Nutrient Loading and Benefits Model
D. Specific Solicitation of New Information and Clarification on
the Proposed NPDES Requirements
I. Purpose of This Document
In today's document, EPA presents a summary of new data and
information submitted to EPA during the public comment period on the
proposed CAFO regulations, including data received from the U.S.
Department of Agriculture (USDA). There are four main components to
this notice: (1) Discussion of new data and changes EPA is considering
to refine its cost and economics model, (2) discussion of new data and
changes EPA is considering to refine its nutrient loading and benefits
analysis, (3) new data and changes EPA is considering to the proposed
NPDES permit program regulations, and (4) new data and changes EPA is
considering to the proposed ELG regulations. This notice addresses
these and other issues related to the proposed CAFO regulations. To the
extent possible, today's notice describes new analyses that may be
performed by EPA and describes revisions that EPA is considering to its
financial and engineering models, as well as new data or methodologies
that EPA is considering.
This notice also discusses ways that EPA is considering to enhance
flexibility for the use of State NPDES and non-NPDES CAFO programs,
including options to encourage implementation of environmental
management systems (EMS). The notice also describes regulatory
thresholds that are being considered for operations that raise ducks
and horses, and addresses how cow/calf pairs could be counted. The
notice also describes new information received by EPA on the proposed
CAFO performance standards.
New data that EPA is considering for use in its cost and economic
models include estimates of technology adoption across a range of
livestock and poultry operations, financial data specified at the
livestock enterprise level only, and new information pertaining to
various modeling assumptions used by EPA. Among the specific issues
addressed in the discussion of how the Agency is considering to refine
its cost and economic models are: expansion of the range of cost
estimates per representative farm to account for variability across
operations; addition of alternative assessment criteria to measure
changes in profitability (post-compliance); new financial data to
supplement available data at the farm level with data at the enterprise
level; revision of the criteria threshold on a debt-asset test and
other considerations of debt feasibility; and consideration of
approaches to account for various cost offsets. Specific issues
addressed in the discussion of how the Agency is considering to refine
its nutrient loading and benefits analysis include: expansion of the
number of representative farms to measure changes in nutrient loadings;
and the addition of monetized benefit estimates from changes in air
emissions. Other new data submitted to EPA include: estimates of the
number of animal feeding operations and CAFOs; new information
pertaining to the number of CAFOs that are small businesses; estimates
of manure nutrient loadings and crop uptake needs; and USDA estimates
of the amount of manure addressed by the regulations at different
regulatory thresholds.
Through this notice of data availability, EPA is seeking further
public comment on any and all aspects of the specific data and issues
identified in this notice. However, EPA is seeking public comment only
on these specific data and issues. Nothing in today's notice is
intended to reopen any other issues discussed in the CAFO proposal or
to reopen the proposal in general for additional public comments. EPA
is continuing to review the comments already submitted on the proposed
rule and will address those comments, along with comments submitted on
the data and issues identified in today's notice, in the final
rulemaking.
II. Public Outreach and Data Gathering
A. Overview of Pre-Proposal Outreach
During the development of the proposed regulations for CAFOs, EPA
met with various members of the stakeholder community through meetings,
conferences, and site visits. EPA convened a Small Business Advocacy
Review Panel to address small entity concerns, provided outreach
materials to and met with several national organizations representing
State and local governments, and conducted approximately 110 site
visits to collect information on waste management practices at
livestock and poultry operations. EPA also established a
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workgroup that included representatives from USDA, seven states, EPA
regions, and EPA headquarters.
More detailed information on EPA's public outreach were published
in Section XII of the Federal Register notice for the proposed rule (66
FR 3120, January 12, 2001).
B. Post-Proposal Activities
Following proposal of the rule, EPA has encouraged public
participation through a series of public meetings, meetings with
stakeholders and USDA representatives, and other activities described
below.
1. Public Meetings
EPA conducted nine public meetings on the proposed CAFO
regulations. Public meetings were held in: Baltimore, Maryland; Ames,
Iowa; Riverside, California; Fort Wayne, Indiana; Dallas, Texas;
Chattanooga, Tennessee; Denver, Colorado; Boise, Idaho; and Casper,
Wyoming. The purpose of the meetings was to enhance public
understanding of the proposed regulations for CAFOs and provide an
opportunity for EPA to answer questions on the rule directly and to
obtain informal feedback on the proposed requirements. The meetings
consisted of a brief presentation by EPA officials on the proposed
regulation followed by a question and answer session. Additional
information on EPA's public meetings is available in the record and
also at EPA's website at: http://www.epa.gov/npdes/afo. This website
provides summaries of these public meetings and a copy of the
presentation materials used at these public meetings, along with
additional information on EPA's outreach activities following proposal.
2. Stakeholder Meetings
Since the proposal, EPA has met with representatives of various
stakeholder groups, including representatives from various industry
trade associations, environmental groups, as well as researchers from
select land grant universities and research organizations, including
Food and Agricultural Policy Research Institute. Throughout regulatory
development, EPA worked with representatives from the national trade
groups, including: National Cattlemen's Beef Association; American Veal
Association; National Milk Producers Federation; Professional Dairy
Heifers Growers Association; Western United Dairymen; National Pork
Producers Council; United Egg Producers and United Egg Association;
National Turkey Federation; the National Chicken Council; the American
Horse Council; and representatives of the duck industry.
EPA has also consulted with State and local governments and also
several national associations representing State governments. These
include the National Governors' Association, the National League of
Cities and the National Association of Conservation Districts and the
Association of State and Interstate Water Pollution Control Agencies.
Other state level organizations that the Agency has consulted with
include the Delaware Nutrient Management Commission, Quad State Poultry
Dialogue, National Association of State Departments of Agriculture, and
the National Association of State Conservation Agencies. The purpose of
these meetings was to provide clarification of the proposed regulations
and the analyses supporting the development of these proposed
regulations, as well as to discuss new information that stakeholders
may have available for further analyses of the costs, impacts, and
benefits of the proposed rules. These meetings typically focused on a
specific regulatory or technical topic (e.g., permit nutrient plans,
EPA's cost analysis supporting the proposal) or a specific animal
sector (e.g., dairies). Additional documentation of these stakeholder
meetings is available in the rulemaking record.
3. USDA-EPA Workgroup Meetings
In April 2001, USDA initiated a process to review the proposed
revisions to EPA's CAFO rule and identify issues and concerns posed by
the rule. USDA identified 15 specific areas of concern and a number of
overarching issues. As a follow-up to this process, USDA and EPA's
Office of Water initiated monthly meetings on issues of significance
for agriculture and the environment, specifically water quality. The
goal was to improve communication between the two agencies to provide
better information to the public and policy makers on areas of mutual
concern related to agriculture and water quality, and to facilitate
informed decisions on approaches and needs to address the key
agriculture and environment issues. In July 2001, EPA and USDA convened
a joint workgroup to address the issues identified by the USDA
workgroup and begin to develop options for EPA leadership to consider
in developing the final rule. The collaboration is intended to
strengthen the agricultural systems view in the analysis used to
finalize the proposed CAFO rule.
The USDA-EPA workgroup is charged with developing an approach to
pursue discussions between the two agencies. The focus of this dialogue
is on the issues identified through USDA's review of the proposed
revision to the CAFO rule, including identifying additional data or
information needs to support analyses and identifying potential options
that could be considered by EPA for consideration in its decision-
making process. Four major broad topic areas were discussed by the
USDA-EPA workgroup, including (1) EPA's proposed scope of the CAFO
regulations, (2) EPA's cost and economic analysis supporting the
proposed regulations, (3) EPA's proposed technology options, and (4)
EPA's proposals for building State program flexibility into the
regulations.
USDA's participation in these discussions is to identify issues,
suggest strategies or approaches to resolve issues, and provide data
and information to support additional analysis. EPA's participation in
these discussions is to clarify the intent of sections giving rise to
issues, identify additional data or information needed, and
thoughtfully assess the information provided by USDA for use in
finalizing the CAFO rule. As part of this process, USDA recognizes that
the authority to develop the final CAFO regulations rests solely with
EPA, as does the final responsibility for the content of the rule.
4. Review of EPA's Economic Analysis by the Food and Agricultural
Policy Research Institute (FAPRI)
Researchers at the Food and Agricultural Policy Research Institute
(FAPRI) at University of Missouri conducted a review of EPA's economic
analysis at the request of the Committee on Agriculture, United States
House of Representatives. To respond to this Congressional request, the
FAPRI staff worked with other members of its consortium, including
researchers at Iowa State University and the Agriculture and Food
Policy Center (AFPC) at Texas A&M University.
The stated focus of FAPRI's review is to provide EPA with an
alternative methodology for determining the financial impacts of the
proposed CAFO regulations on the livestock industry. FAPRI's review did
not specifically address technical aspects of the proposed requirements
or EPA's data and methodology to estimate compliance costs associated
with the management of animal effluents. To that end, FAPRI assembled
agricultural and land grant university experts to help conduct an
independent economic analysis and construct alternative models of
animal feeding operations for use in this analysis. Once alternative
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financial information was compiled, FAPRI designed an alternative
economic model to first construct a financial baseline for each
operation and then analyze the impact of the proposed CAFO regulations.
FAPRI's study also predicted the aggregate level impacts in each of the
livestock sectors due to implementation of the proposed CAFO
regulations. For this study, FAPRI used cost estimates directly
computed by EPA, with some exceptions made by FAPRI to improve the
accuracy of these cost estimates.
FAPRI's reports on EPA's cost and economic analysis, ``FAPRI's
Analysis of the EPA's Proposed CAFO Regulation'' and also ``Financial
Impact of Proposed CAFO Regulations on Representative Broiler Farms''
are available in the record and at FAPRI's website at: http://www.fapri.missouri.edu/FAPRI_;Publications.htm. Additional detailed
information about FAPRI's baseline model is available at http://www.fapri.missouri.edu.
5. Other Outreach and Data Gathering
EPA initiated several other means of providing outreach to
stakeholders. Most notably, EPA manages a number of web sites that post
information related to these regulations. Supporting documents for the
rule include the Technical Development Document, Economic Analysis,
Environmental Assessment, Environmental and Economic Benefit Analysis
of the proposed CAFO regulations, and cost methodology reports and
guidance related to Permit Nutrient Plans. These are located at http://www.epa.gov/waterscience/cafo/. Other outreach materials are located at
http://www.epa.gov/npdes/afo/ and include a copy of the public meeting
presentation materials, a fact sheet describing the proposed CAFO
regulations, a compendium of AFO-related State program information, and
various materials related to permitting issues.
In response to the public meetings, EPA developed a document
entitled ``Frequently Asked Questions About the Proposed Revisions to
CAFO Regulations'' published on June 27, 2001 and available on the
outreach web site. This document identifies the major issues raised
during the public meetings and provides brief answers for each
question. EPA also developed a Public Commenter's Guide to the Proposed
New CAFO Regulations, published on May 31, 2001. The Guide identifies
the major issues in the proposal and summarizes how EPA has proposed to
treat each issue in the revised regulations. The Guide also provides a
cross reference list of the proposed regulatory language and the
location of associated discussion in the preamble. This information is
available at: http://www.epa.gov/npdes/afo/.
III. Summary of the Proposed ELG and NPDES Rules
The proposed rule, published on January 12, 2001 (66 FR 2959),
identified potential revisions to existing NPDES permit provisions and
effluent guidelines for CAFOs. The NPDES permit program for CAFOs
defines which animal feeding operations are CAFOs and need to obtain a
NPDES permit, and establishes the specific compliance requirements
under a permit. Effluent guidelines and standards for CAFOs establish
the technology-based effluent discharge and performance standards for
both existing and new facilities for each of the beef, dairy, veal,
swine and poultry subcategories.
In developing its proposed CAFO regulations, EPA considered various
technology options and also different options in terms of the number of
regulated operations. A summary overview of the ELG options and NPDES
scenarios is provided in Table 3-1. For more detailed information, see
Sections VII and VIII of the EPA's proposed rulemaking preamble (66 FR
2993-3061).
Table 3-1.--Summary Description of Options/Scenarios Considered by EPA
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Technology Options
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Option 1: N-based land application controls and inspection and
recordkeeping requirements for the production area.
Option 2: Same as Option 1, but restricts the rate of manure application
to a P-based rate where necessary (depending on specific soil
conditions at the CAFO).
Option 3: Adds to Option 2 by requiring the operation to perform ground
water monitoring and controls, unless it can show that the ground water
beneath manure storage areas or stockpiles does not have a direct
hydrologic connection to surface water.
Option 4: Adds to Option 3 by requiring sampling of surface waters
adjacent to production area and/or land under control of the CAFO to
which manure is applied.
Option 5: Adds to Option 2 by establishing a zero discharge requirement
from the production area that does not allow for an overflow under any
circumstances.
Option 6: Adds to Option 2 by requiring that large hog and dairy
operations install and implement anaerobic digestion and gas combustion
to treat their manure.
Option 7: Adds to Option 2 by prohibiting manure application to frozen,
snow covered or saturated ground.
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Regulatory Scope Options
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Scenario 1: Retains existing 3-tier framework and establishes additional
requirements.
Scenario 2: Same as Scenario 1; except that operations with 300-1,000 AU
would be subject to the regulations based on a revised set of
conditions at the feedlot site.
Scenario 3: Same as Scenario 2, but allows operations with 300-1,000 AU
to either apply for a NPDES permit or to certify to the permit
authority that they do not meet any of the conditions and thus are not
required to obtain a permit.
Scenario 4a: Establishes 2-tier framework and applies ELG standard to
all operations with more than 500 AU.
Scenario 4b: Establishes 2-tier framework and applies ELG standard to
all operations with more than 300 AU.
Scenario 5: Establishes 2-tier framework and applies ELG standard to all
operations with more than 750 AU.
Scenario 6: Retains existing 3-tier framework and establishes a
simplified certification process.
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A. Proposed Effluent Limitations Guidelines and Standards (ELG)
Under the current regulations, CAFOs are already prohibited from
discharging process wastewater, except when rainfall events cause an
overflow from a facility designed, constructed, and operated to contain
all process-generated wastewater plus the runoff from a 25-year, 24-
hour rainfall event. Under Option 1, CAFOs would also be required to
implement certain best management practices and inspection and
monitoring requirements for the production area. Option 1 would also
require that land application of manure and wastewater be performed in
accordance with a permit nutrient plan that establishes application
rates based on crop nitrogen requirements. Option 2 is equal to Option
1, with the exception that application rates would be restricted to
phosphorus-based rates where necessary.
Option 3 includes all requirements of Option 2, and would require
ground water monitoring and controls unless the CAFO has demonstrated
that there is not a direct hydrologic connection between the ground
water beneath the production area and surface water. Option 4 includes
all requirements of Option 3, with an additional requirement to monitor
surface waters adjacent to feedlots and to CAFO cropland to which
manure may be
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applied that is under control of the CAFO. Option 5 includes all
requirements of Option 2, and prohibits overflow from the CAFO
production area under any circumstances. Option 6 includes all
requirements of Option 2 and requires that large hog and dairy
operations install and implement anaerobic digestion to treat manure
and capture methane gas for energy or heat generation. Option 7
includes all requirements of Option 2 and prohibits manure application
to frozen, snow covered, or saturated ground.
In developing the proposed regulations, EPA assembled information
and data on each of the seven technology options considered. This
information was used to identify the preferred technology option for
each industry subcategory.
For existing operations, EPA proposed to require nitrogen-based
and, where necessary, phosphorus-based land application controls of all
livestock and poultry CAFOs (Option 2), with the additional requirement
that all cattle and dairy operations must conduct ground water
monitoring and implement controls, unless they demonstrate that the
ground water beneath the production area does not have a direct
hydrologic connection to surface water (Option 3), and with the
additional requirement that all hog, veal, and poultry CAFOs must also
achieve zero discharge from the animal production area with no
exception for storm events (Option 5).
For new operations, EPA proposed that operations meet the same
requirements that would apply to existing operations based on BAT
(Option 3 and Option 5), with the additional requirement that all new
hog, veal and poultry operations also would need to implement ground
water controls unless they demonstrate that there is no direct
hydrologic connection to surface water (Option 3).
In addition, EPA's proposed regulations would make the ELG
applicable to all operations defined as a CAFO under the NPDES
regulation (not including operations that are designated as a CAFO), as
well as to establish a new subcategory for veal production. EPA
proposed substantial changes to the applicability for chickens, mixed
animal operations, and immature animals. EPA also proposed to rename
the effluent guidelines regulation from Feedlots Point Source Category
to CAFOs Point Source Category.
For more detailed information on these proposed technology options,
see Section VIII of the EPA's proposed rulemaking preamble (66 FR 3050-
3061).
B. Proposed NPDES Regulations
At proposal, EPA presented seven potential scenarios that differ in
the number of operations that would be affected by the proposed
regulations (see Table 3-1). Under the existing regulations for CAFOs,
animal feeding operations with more than 1,000 animal units (AU) are
defined as CAFOs and must obtain a NPDES permit. In addition,
operations with between 300 AU and 1,000 AU may be defined as CAFOs, if
they meet certain criteria (see 40 CFR 122.23 and Part 122, Appendix
B).
Under the proposed revisions, EPA considered a number of
alternatives to the existing CAFO definition. The ``two-tier''
structure would define as CAFOs all animal feeding operations with more
than a specified number of animals. Operations with fewer animals would
become a CAFO only if designated by EPA or the permit authority.
Various two-tier alternatives considered by EPA included defining as
CAFOs all animal feeding operations with more than 300 AU, 500 AU, 750
AU or 1,000 AU. The ``three-tier'' structure would define as CAFOs all
animal feeding operations with more than 1,000 AU and any operation
with more than 300 AU if they meet certain conditions at the feedlot
site--and, under one alternative, would require all operations with
between 300 and 1,000 AU to either apply for a NPDES permit or to
certify to the permit authority that they do not meet certain
conditions and thus are not required to obtain a permit. These
alternatives are presented in Table 3-1.
EPA co-proposed two structures for defining which animal feeding
operations (AFOs) are CAFOs. In the first alternative, EPA proposed to
replace the existing three-tier structure with a simplified two-tier
structure that defines a CAFO based on size alone. For this approach,
EPA proposed to set the size threshold for CAFOs at 500 AU (see Table
3-1, Scenario 4a); EPA also requested comment on establishing the
threshold at 750 AU (Scenario 5). In the second alternative, EPA
proposed to retain the existing three-tier structure, but to revise the
conditions that define a CAFO in the middle tier, and to require all
middle-tier operations to either apply for a NPDES permit or to certify
that they do not meet the conditions for being considered a CAFO
(Scenario 3). EPA also requested comment on a three-tier structure with
simplified conditions.
In addition, EPA proposed to revise the definition of a CAFO to
include poultry operations, stand-alone swine nurseries, and stand-
alone heifer operations. The definition of a CAFO would also
specifically encompass both the production area and land application
area. The definition of an AFO would be revised to clarify that animals
are not ``stabled or confined'' when they are in areas such as pasture
or rangeland. EPA also proposed that NPDES permits would be required
for all CAFOs, even if they only discharge in the event of a 25-year,
24-hour storm. This would include all CAFOs that discharge or have the
potential to discharge CAFO wastes to navigable waters via ground water
with a direct hydrologic connection.
EPA proposed two alternatives for information reporting in
connection with the off-site transfer of excess manure. EPA also
proposed that integrators be ``co-permitted'' where they exercise
``substantial operational control'' over the CAFO. As an alternative,
EPA proposed waiving co-permitting where the State already has an
adequate program to address excess manure or where the processor
implements an adequate environmental management system.
EPA proposed that operations that cease to be CAFOs must retain
NPDES permits until the facilities are properly closed. That is, the
operation must remain permitted until all CAFO wastes no longer have
the potential to reach waters of the United States.
For more detailed information on these proposed regulatory scope
alternatives, see Section VII of the EPA's proposed rulemaking preamble
(66 FR 2993-3050).
IV. New Information Related to the Proposed Revisions to the
Effluent Limitations Guidelines and Standards
Since proposal, EPA has obtained additional data and information
from the industry, USDA, State and local governments, other
stakeholders, and the Agency's continued data collection activities.
The Agency has included these data, information, and the preliminary
results of EPA's evaluation in sections 14 through 23 of the rulemaking
record, available for review in the Water Docket (Docket W-00-27; see
Addresses section of this notice). The information includes data
received by the Agency during the extended comment period on the CAFO
proposal from the above sources, materials submitted by vendors, and
materials collected by EPA during outreach and conferences. The
specific technical data, information, and comments provided to EPA with
respect to various specific issues are discussed throughout the
following sections of this document.
[[Page 58561]]
A. Effluent Limitations Guidelines and Standards Terminology
As part of EPA's effort to develop national manure management
standards, EPA has reviewed comments received on the proposal and
worked closely with USDA in refining definitions of some terms
contained in EPA's proposed regulatory language (see Section II.B.3).
These refinements and alternatives along with comments received on this
notice will be considered as the Agency develops the final rules. EPA
solicits comments on the appropriateness of the following alternatives,
the extent to which they need to become formalized definitions, and
data sources used to support these terms.
1. Definition of Proper Agricultural Practices
In the proposal, EPA defined the term ``agricultural stormwater
discharge'' with respect to land application of manure and wastewater
from animal feeding operations. Under EPA's proposal, an ``agricultural
stormwater discharge'' was defined as ``a discharge composed entirely
of storm water, as defined in 40 CFR 122.26(a)(13), from a land area
upon which manure and/or wastewater from an animal feeding operation or
concentrated animal feeding operation has been applied in accordance
with proper agricultural practices, including land application of
manure or waste water in accordance with either a nitrogen-based or, as
required, a phosphorus -based application rate'' (66 FR 3029). Within
this definition, EPA used the term ``proper agricultural practices'' as
part of defining what qualifies as an agricultural storm water
discharge. EPA also used the phrase ``proper agricultural practices''
as part of an alternative proposal for the permit conditions for off-
site transfer of manure for the purpose of land application (see 122.23
(a)(3)(ii)(B)(6)). It should be noted that under the proposal, the
definitions of ``agricultural stormwater discharge'' and ``proper
agricultural practices'' do not provide an exemption for a facility's
duty to apply for a permit (see Section VII).
Several comments indicated manure could be used for conditioning of
soils to promote soil structure and health, and can be so used for
numerous land reclamation practices that some may not consider strictly
agricultural. An example is using manure as a resource for reclamation
of disturbed or spent lands. Some comments suggest this practice may
have some distinct environmental benefits even if it is not strictly
``agricultural.'' EPA solicits comment on the application of manure to
disturbed or spent lands, and the extent to which such practices result
in discharges to surface waters.
To clarify the term as well as to ensure consistency within the
rule, several stakeholders suggested ``proper agricultural practices''
should be formally defined in such a manner as to encompass necessary
local practices to protect receiving streams from storm water runoff.
EPA did not propose a regulatory definition of proper agricultural
practices, but in accordance with these comments, is considering
adopting the following definition of ``proper agricultural practices'':
A ``proper agricultural practice'' is one of any number of
conservation practices, production measures, or management techniques
that the CAFO operator or manure recipient can use to improve the
efficiency, economy, or environmental condition of the site and
surrounding land areas and waterbodies.
Examples of proper agricultural practices for control of CAFO-
generated animal manures and wastewaters include, but are not limited
to: adequate and proper storage for manures and wastewaters that
facilitates timely and efficient land application practices; chemical/
physical treatment of manures and wastewaters to stabilize nutrients in
a manner that reduces loss to water and air; manure analysis; soil and
plant testing to monitor soil nutrient levels and determine crop
nutrient needs; calibration of manure spreaders and irrigation
equipment; timely and efficient application of manures relative to
nutrient uptake patterns and realistic yield goals of crops; crop
management practices that optimize yields and plant nutrient uptake
while minimizing nutrient losses to ground and surface waters; and
tillage practices and other soil conservation measures that prevent
soil erosion and nutrient leaching and runoff. What constitutes proper
agricultural practices is a case-by-case decision that depends on the
circumstances at each site and may necessitate a combination of one or
more of the practices listed above or other practices not listed here.
EPA solicits comment on the proposed definition of ``proper
agricultural practices'' and the extent to which the suggested
definition reduces ambiguity.
2. Chronic Storm Event
The current effluent guidelines for CAFOs require zero discharge of
process waste water pollutants to navigable waters, except that process
waste pollutants in the overflow may be discharged to navigable waters
whenever rainfall events, either chronic or catastrophic, cause an
overflow of process waste water from a facility designed, constructed
and operated to contain all process generated waste waters plus the
runoff from a 25 year, 24 hour rainfall event for the location of the
point source (see 40 CFR 412.13). EPA does not define chronic or
catastrophic storm events in the current rule (see 40 CFR 412.11).
In EPA's proposed revisions to the effluent guidelines for the
production areas for the beef and dairy subcategories, EPA proposed to
retain this design standard. EPA did not, however, propose to define
chronic or catastrophic storm events. EPA also proposed to remove the
terms chronic and catastrophic from the regulations. In the proposal,
EPA noted persistent rainfall over a period longer than 24 hours can
occasionally overwhelm a system designed for the 25 year 24 hour storm
event even though such persistent rainfalls may be expected to occur
more frequently than every 25 years (see 66 FR 3042). In EPA's
proposal, EPA solicited comment on whether EPA should define chronic
events, and whether EPA should develop additional design specifications
for handling chronic rainfall events.
Some stakeholders agreed chronic rainfall events could cause a
discharge from a system that has been designed, constructed, maintained
and operated to contain all process waste waters plus the runoff from a
25 year, 24 hour rainfall event. One analysis performed by the Texas
Institute for Applied Environmental Research shows the return interval
of the equivalent volume of the 25 year, 24 hour storm event from
consecutive wet days occurs every 6 years. Despite the occurrence of
such chronic events, none of the stakeholders indicated the volume of
any resulting discharges, the extent to which such discharges reached
surface waters, or whether such discharges were indeed occurring. EPA
solicits comment on the extent to which chronic events cause discharges
from the production areas that subsequently reach surface waters.
Some stakeholders requested EPA evaluate a technology option using
larger storm events as the design standard, especially in systems that
collect runoff in addition to direct precipitation. For example, under
one suggested approach, surface impoundments would need to provide
storage for 10 year chronic events, or a combination of chronic events
plus the 25 year 24 hour storm event. EPA is soliciting comment on the
consequences
[[Page 58562]]
of establishing design standards based on chronic events, such as
standards that would significantly increase the size of manure storage
systems, significant increases in costs to expand existing storage
capacity, and potentially increased environmental risks of creating
larger liquid impoundments. EPA also solicits comment on the extent to
which potential CAFOs already have sufficient storage to accommodate
chronic events. EPA further solicits comment on an approach for
clarifying when a discharge is considered to be caused by ``chronic
rainfall;'' whether clarification is needed to enable the operator and
the permit authority to be assured that the lagoon is being properly
constructed and managed; whether existing state requirements adequately
capture chronic storm events while leaving capacity for the 25 year, 24
hour storm events; and whether technology guidelines or permitting
regulations are necessary in either Section 412 or 122 to address
discharges due to chronic rainfall.
3. Alternative Approach to Nutrient Management Planning
EPA proposed to specify which components of a Comprehensive
Nutrient Management Plans (CNMP) would be required under the name
``Permit Nutrient Plan'' (66 FR 3065). Many stakeholders believe the
term Permit Nutrient Plan, or ``PNP,'' may cause confusion despite
EPA's efforts to clarify that it is not a new or additional plan, but
rather the enforceable portions of a CNMP. In light of feedback EPA has
already received, EPA is now considering a change in terminology under
which the effluent guidelines would specify that, instead of a PNP,
each CAFO must have a CNMP that includes, at a minimum, a number of
specific components. By eliminating the term ``PNP'', EPA would hope to
quell the confusion over terminology. This would be a change in
terminology only, since EPA would specify as ``minimum measures of a
CNMP'' the same components that EPA described in the proposal as
required elements of a PNP.
B. Proposed Performance Standards
1. Ground Water Controls
EPA proposed that in the absence of a certification that there is
no direct hydrologic link between ground water below the production
area and surface waters, facilities must take ground water samples to
demonstrate compliance with the no discharge requirement from the
manure storage areas. Some stakeholders incorrectly interpret the
ground water controls to apply to the entire production area, or to the
land application areas. EPA is clarifying that the proposed performance
standard for ground water in Sec. 412.33 is intended to apply to any
liquid manure storage areas (e.g., ponds, lagoons, pits) or uncovered
solid manure storage areas (e.g. stockpiles). EPA did not intend for
this requirement to apply to the temporary mounding of manure in cattle
dry lots. EPA also reiterates it did not propose that the requirement
of zero discharge to ground water that has a direct hydrologic
connection to surface waters would apply to discharges at the land
application areas. Several stakeholders stated that ensuring zero
discharge to ground water is not technologically feasible with the
technologies identified by EPA as best available technologies, i.e.,
synthetic and clay double liners. These stakeholders assert all
lagoons, including those lined with clay and some synthetic materials,
leak to some degree. EPA continues to believe that the information in
the record supports the Agency's determination that the technology we
identified as BAT (synthetic/clay double liners) will achieve a
standard of zero discharge to ground water. At proposal, EPA also
identified additional technologies that the Agency believes would
achieve a zero discharge standard, including glass-lined steel tanks,
above ground tanks, and new liquid-impermeable synthetic liners.
Because these technologies are more expensive than synthetic/clay
double liners, EPA did not identify them as BAT or analyze their
economic impacts.
Nevertheless, in light of the comments and information received,
EPA intends to reexamine whether synthetic/clay double liners are truly
capable of achieving zero discharge to ground water, based on the
information in the record, including any new information received since
the proposal. If EPA concludes that this technology is not available to
achieve zero discharge, EPA is considering two further ways to proceed.
First, EPA may examine whether it can identify the alternative
technologies described above (glass-lined tanks, above ground tanks and
liquid-impermeable liners) as BAT technologies, after evaluating their
economic impacts. (The proposal already contained information on their
costs.) Based on this analysis, EPA could retain the zero discharge
standard based on identifying these alternative technologies as BAT
technologies.
Second, if EPA cannot identify any alternative technologies as best
available technologies economically achievable, EPA may reevaluate the
performance achievable using synthetic/clay double liners. If these
materials cannot achieve zero discharge, EPA may consider adopting a
performance standard based on their permeability. Literature
information in the record, as reflected in regulations adopted by
several States, indicates that these materials can, at the very least,
minimize discharges and achieve a leakage rate of no more than
10-\7\ cm per second. EPA would generally reevaluate the
technological availability and economic achievability of adopting this
numeric standard as a BAT standard based on the performance and costs
and economic impacts associated with this technology. EPA solicits
additional comment on these issues. EPA is also considering a variation
on the above alternative standard. If EPA adopts a numeric BAT standard
such as 10-\7\ cm per second, EPA is considering an option
where a facility could demonstrate compliance with this standard by
demonstrating that when it was first constructed or last modified, it
was built to NRCS conservation practice standards, including criteria
and considerations for design, used in conjunction with the
Agricultural Waste Field Handbook and other technical references. This
option would be based on a determination that meeting the NRCS practice
standards will ensure that the 10-\7\ cm per second standard
will be met. Information on the NRCS practice standards is contained in
the record. EPA solicits comment on this alternative approach as a
performance standard applicable to all CAFOs. EPA further solicits
comments on the extent to which the alternative approaches under
consideration may reduce costs, remove burden, reduce uncertainty
associated with assessments of hydrologic connections, and possibly
reduce monitoring and reporting requirements.
At proposal, EPA solicited comment on an approach that would narrow
the ground water sampling requirements to only those facilities located
in areas with topographical characteristics that indicate the presence
of ground water that is likely to have a direct hydrologic connection
to surface waters (e.g., sandy soils, karst topography, and shallow
water tables). Despite its narrowed focus, this approach would retain
the proposal's presumption of a direct hydrologic connection, but only
for those operations located in sensitive areas; operations not located
in sensitive areas could still be subject to ground water sampling
requirements if the permitting authority deemed it appropriate. EPA is
clarifying that an alternative approach would be to
[[Page 58563]]
include ground water sampling provisions in the effluent guidelines but
not to presume that there is a direct hydrologic connection for any
facility. Thus, the need for ground water sampling or an assessment
would not be specified in the effluent guidelines but would be left to
the discretion of the permitting authority in all cases. EPA solicits
comment on this approach. Should ground water requirements be included
in the final rule, EPA further solicits comment on the level of
discretion that is appropriate in the application of such requirements.
2. Alternatives to Proposed 100-foot Setback
EPA proposed a manure application setback of 100 feet from surface
waters, open tile drain inlets, sinkholes, and agricultural drainage
wells (see proposed rule Sec. 412.37). EPA intended such setbacks would
provide an additional barrier for pollutants in the runoff from land
applied manure. EPA also determined the setback would provide an
additional measure to prevent trace amounts of metals, pathogens, and
antibiotics in the manure from leaving the field with runoff. In the
proposal, EPA acknowledged and continues to believe the most effective
combination of setbacks and vegetated buffers will be site specific.
EPA believes the appropriate site specific combination will depend,
among other things, the type of vegetation present, the use of soil
conservation practices in or adjacent to the setback, the consideration
of slope in determining the potential risk to water courses, and the
method and timing of manure and wastewater applications in the setback
zone. EPA further solicited comment on EPA's concern that a setback
from these select features might preclude manure based fertilization of
large areas of crop land in certain geographic locations.
To evaluate the costs of this proposed requirement, EPA assumed
facilities would establish vegetated buffers with a width of 100 feet
on each side of any streams. EPA assumed the net loss of tillable land
for facilities to establish these buffers as 3.5 percent of total crop
land. EPA believed this approach could overstate the costs of requiring
a setback, but would encourage vegetated buffers and other practices to
supplement the setback. EPA solicited comment on the use of vegetated
buffers or other management practices to minimize pollutants in the
runoff from land application. EPA also solicited comment on how it
might revise the setback requirement and still adequately protect water
quality. Many stakeholders agreed the determination should be site
specific, but most stakeholders did not provide any information to
indicate that there are any other practices that would perform equal to
or better than EPA's proposed setback requirement. Therefore, EPA
continues to solicit comments on the proposed 100 foot setback
requirement; specifically, as to whether any such superior practices
exist. EPA reiterates that nothing in today's notice, including this
section, is intended to reopen the proposal in general for further
comment. EPA is seeking additional public comment only on the discrete
issues identified in this notice. In this case, EPA is interested in
further comments on this specific issue to see whether there is any
additional information of which we are unaware. EPA solicits comment on
whether there are any specific practices that could be established on a
site specific basis that would perform as well as or better than EPA's
proposed setbacks or buffers.
3. Manure Application Rates Based on Limiting Nutrients
EPA proposed the determination of manure application rates to crop
land must, at a minimum, consider the limiting nutrient phosphorus (See
proposed rule at Sec. 412.31). Where phosphorus levels pose a low to
medium risk, the limiting nutrient is typically nitrogen, although in
certain cases other factors, such as salt concentrations, could limit
manure application rates. EPA proposed the criteria for phosphorus-
based management for CAFOs be those that are specified in each state's
Nutrient Management Standard (NRCS Conservation Practice 590) so that
the decision on the most effective approach(es) and the exact criteria
and definitions (either agronomic soil test P levels, soil P
thresholds, or the P Site Index) would be state specific.
At the time of proposal, EPA noted that several States already
required animal feeding operations to develop nutrient management that
consider phosphorus. Several stakeholders stated the nutrient
management standards, especially the P-index, were not sufficiently
developed to allow their implementation with EPA's final rule. Since
proposal, most states have developed their P-index or a nutrient
standard based on the P-index, as indicated in additional information
that EPA has received from NRCS and is making available today. Since
the proposal, 45 States have updated their Nutrient Management
Standard; 44 States are using the P-index and one State is opting to
use soil test P values. The remaining 5 States have been granted an
extension by USDA to revise their Nutrient Management Standards. EPA
solicits specific comment on this new information, on whether there is
any other information indicating the extent to which States are already
mandating phosphorus-based management of manure, and on the extent to
which States are implementing their recently revised Nutrient
Management Standards in newly written nutrient management plans. EPA
intends to use the information received, and any new information, to
reevaluate the existing or ``baseline'' requirements for P-based
application under State law and the costs of complying with those
requirements. Any change to the baseline costs and economic impacts
could affect EPA's analysis of the overall economic impacts of the
revised regulations.
Several stakeholders expressed concern that EPA was mandating
phosphorus application rates for land application under all
circumstances. Quite to the contrary, EPA's proposed use of NRCS''
recommended nutrient risk assessment tools contained in the Nutrient
Management Standards (NRCS Conservation Practice 590) such as the P-
index would allow application rates to be managed differently for each
field. The phosphorus index considers many circumstances that affect
nutrient transport from the field, and rates each field's potential for
nutrient losses accordingly. For States using soil test levels as a
screening tool, only fields with excessively high phosphorus levels
would be required to undergo the development of a more rigorous
phosphorus-based strategy. While EPA's approach may limit land
application to phosphorus-based rates on some fields, particularly
those fields that have received manure every year for decades, other
fields could continue to receive manure at a nitrogen rate.
Some comments suggest EPA's proposal is too prescriptive by
requiring one of three methods for phosphorus-based management. Indeed
many stakeholders in academia feel nutrient management is continuously
evolving in each State. These stakeholders felt EPA should allow for
other State-approved nutrient management standards based on the
Nutrient Management Standard, such as the PLAT (phosphorus loss
assessment tool) under development in North Carolina. PLAT is intended
for application on a field-by-field basis as part of the nutrient
management planning process. This tool will rate each site as low,
medium, high, or very high. Based on this site-specific assessment,
phosphorus may be
[[Page 58564]]
identified as the ``limiting'' nutrient in the development of the
specified nutrient application rate being developed by North Carolina.
EPA continues to consider other nutrient management approaches
developed by States while maintaining EPA's need for enforceable
standards. Based on comments, EPA is now considering an approach that
bases the determination of application rates on the Nutrient Management
Standards (NRCS Conservation Practice 590) without mandating the use of
one of the three methods described in EPA's proposal. EPA solicits
comment on this possible approach.
EPA believes there are regions where crop removal rates of
nutrients are unusually low, or where manure is typically stored in a
concentrated form such as poultry litter or under house slurry storage.
Some application equipment may not be able to evenly distribute this
form of manure nutrients at very low application rates. EPA determined
this could prevent some facilities from applying manure to land on a
phosphorus-based rate. Therefore EPA proposed poultry litter could be
applied to fields above the phosphorus rate, but no additional manure
or litter could be spread until the phosphorus applied has been removed
by harvest. This type of application of phosphorus in excess of the
current year's crop requirements is often referred to as ``banking''.
Some comments expressed the need for more flexibility in multi-year
phosphorus application rates, because of the limitations imposed by
current manure application equipment on the ability to apply manure at
single-year crop removal rates. Some stakeholders also stated the need
to apply commercial fertilizer to fields that receive manure on a
phosphorus-based rate would increase soil compaction and reduce crop
yields. EPA believes the agricultural industry will continue to develop
new modifications for application equipment that, in combination with
GIS based monitoring systems, will make precision applications feasible
and affordable. EPA also believes the combination of feed management
(precision feeding, feed additives), improved animal genetics, and
manure handling practices that minimize nitrogen losses will result in
land applied manure that more closely meets the needs of the crops.
Nevertheless, EPA is considering alternative nutrient management
strategies that balance the nutrient needs of the crop plus the
``banking'' of phosphorus in the soil, if necessary, so the facility
can realistically land apply manure on the acreage available, or find
alternatives if necessary. For those fields that require manure be
applied at a phosphorus-based rate, EPA is considering an approach that
would continue to allow manure application up to the nitrogen-based
rate. Under this approach, no additional manure application to these
same fields could occur until all phosphorus applied has been removed
through plant uptake and or crop removal.
The Agency is considering determining that this practice would be
acceptable as part of what constitutes ``proper agricultural
practices.'' EPA believes such an approach would result in from 2 to 8
years ``phosphorus banking'' for most manure, but more than 10 years
``phosphorus banking'' in the more concentrated manure. EPA envisions
commercial fertilizers would continue to be used to meet the nitrogen
requirements of the crops in subsequent years. EPA is concerned some
levels of phosphorus banking would no more prevent discharges to the
waters than would unrestricted application rates or application of
manure on a nitrogen basis, especially after prolonged storage.
Therefore EPA solicits comment on reasonable amounts of phosphorus
banking that could be considered an acceptable nutrient management
practice. EPA also solicits comment on whether banking practices should
be limited to solids and slurries, or whether banking should be
considered for all manure applications. EPA specifically solicits data
comparing runoff from fields receiving manure on a phosphorus based
rate and runoff from fields where phosphorus has been ``banked.''
4. Alternative Requirements for Soil Sampling
EPA proposed the CAFO must take soil phosphorus samples every three
years if the manure is applied to crop or pasture land under the
control of the CAFO. EPA proposed samples should be collected in
accordance with accepted State agricultural extension protocols and the
analyses must be conducted in accordance with the state nutrient
standards. Records of the sampling methods and sampling results should
be maintained by the CAFO for five years.
EPA has obtained new data indicating local protocols may already
consider the site-specific nature of soils. Consequently, EPA is
considering allowing relatively less frequent sampling of those soils
slow to accumulate nutrients, but requiring multiple soil phosphorus
samples each year in mobile soils and high risk areas. EPA solicits
comment on the appropriate frequency for soil sampling under such
conditions.
After reviewing comments, EPA discussed sampling frequencies and
protocols with USDA, and is considering an approach where soil sampling
should be done at a frequency as specified by state protocols, but at
least once per five years to allow at least one sample to be conducted
per field unit per NPDES permit cycle. EPA believes sampling methods
and analyses still need to be conducted locally to allow for meaningful
information to be gathered from the sampling. EPA also believes the
documentation of soil sampling is an important tool for managing
phosphorus buildup in soils, but is interested in ways to minimize the
recordkeeping burden, especially for small businesses. EPA solicits
comment on the approach of allowing States to determine appropriate
sampling frequencies and protocols.
5. Alternative Requirements for Manure Sampling
EPA proposed annual minimum sampling frequencies for nitrogen,
phosphorus, and potassium in manure (Sec. 412.37). EPA believes an
essential component to sampling is ensuring the manure sampled is
``representative.'' Therefore, under the proposal, such samples were to
be collected from all manure storage areas and wastewater storage areas
to provide representative samples of each waste stream at the CAFO.
Manure transported off site would need to be sampled at least once a
year for nitrogen, phosphorus, and potassium. EPA proposed samples must
be collected in accordance with accepted Extension protocols, and the
analyses must be conducted in accordance with the state nutrient
standards. Records of the sampling methods and sampling results would
need to be maintained by the CAFO for five years.
Some stakeholders expressed concerns over the burden of annual
manure sampling all waste streams, particular if nothing has changed at
the farm that would affect the results of manure analysis. For example,
after a ``history'' or profile of manure analyses has been documented,
these stakeholders assert less frequent analysis may be sufficient as
long as production practices remain constant. EPA solicits comment on
allowing less frequent manure sampling after such a profile has been
established by the CAFO. Similar to the approach described for soil
sampling, EPA is considering an approach where manure sampling
periodicity can be set to follow state protocols, with a minimal
[[Page 58565]]
sampling rate of once per year per waste stream. EPA also believes the
documentation of manure sampling is very important, but is interested
in ways to minimize the recordkeeping burden, especially for small
businesses. EPA solicits comment on the approach of allowing States to
determine appropriate sampling frequencies and protocols, and whether
EPA should establish a minimum sampling requirement and testing
frequency.
6. Feasibility of Zero Discharge Standard
EPA proposed a zero-discharge performance standard for the
production area (technology option 5) for the swine, veal, and poultry
subcategories without allowance for discharges from chronic or
catastrophic storms (see Sec. 412.43). EPA's proposed technology option
5 assumes outside liquid manure storage (lagoons) that do not collect
open lot runoff could be designed and maintained to handle
precipitation from virtually any storm through the use of liquid-
impermeable covers. Some facilities could choose to close out their
lagoons and construct smaller covered liquid storage or new slurry
storage. As described in the preamble, manure stored under the
confinement housing (such as swine deep pits or layers in high-rise
houses) could meet the performance standard at generally little or no
additional cost. Dry manure systems (most broilers, pullets, and
turkeys) where litter is stored under cover (storage sheds or stored in
bermed areas with tarps) could also meet the standard.
Some stakeholders felt impermeable lagoon covers in particular
posed a number of operational challenges: freezing, biogas collection,
clean storm water management, wind shear, cover repair, and disposal of
spent covers. For these reasons, these stakeholders concluded the zero
discharge standard was technologically unfeasible.
EPA believes the record information on the demonstration status of
impermeable lagoon covers, including those in use in other industries,
adequately addresses these feasibility concerns. EPA has data from
several vendors; one such vendor has developed over a dozen such
systems ranging in size from 3 acres to almost 20 acres. Covered lagoon
systems have been successfully implemented in colder climates such as
northern Illinois, South Dakota, and Wisconsin, and in high rainfall
areas such as South Carolina, North Carolina, and Georgia. These
systems are routinely exposed to and resist freezing, high winds, and
other extreme weather events. Furthermore, the systems are typically
retrofit to existing lagoon applications, and EPA believes the
technology is further established in the municipal and food processing
sectors. To date, EPA has not received any additional information
demonstrating cover susceptibility to extreme weather events.
Since proposal, EPA has received additional information on one type
of lagoon cover technology used in other industries (food processing,
municipal wastewater treatment) that uses a heavy HDPE floating cover.
The cover, including additional slack to compensate for changing liquid
levels, is anchored in a trench filled with concrete. The cover system
also has ballast pipes to keep the cover in place during high winds and
peak methane production periods. Current membrane technologies include
heavier synthetic materials approaching a 25-year useful life. The
systems utilize supports under the cover for buoyancy, and a sump
collection system is fabricated into the cover to remove storm water
during periods of rain and snow melt. One series of plumbing allows
liquid to be pulled from the top of the lagoons under the cover. A
second series of piping allows sludge to be periodically removed with a
vacuum truck, eliminating the need to move the cover. In addition to
eliminating all discharges in dozens of lagoon applications, the
technology has demonstrated an ability to reduce air emissions, to
mitigate odors, and in some limited cases to provide cost offsets in
the form of alternative energy. EPA believes this is useful additional
information in indicating the feasibility and availability of this type
of technology. The Agency believes this technology would be equally
available for use in the animal feeding operations industry. EPA
solicits comment on the use of these demonstrated technologies for
application in the animal feeding operations industries.
EPA also has extensive experience in the use of impermeable lagoon
covers in the AgStar program. While these systems were not designed for
the purpose of preventing discharges under any storm event, these
systems have routinely demonstrated zero discharge is attainable.
Digesters such as heated tanks further incorporate features to contain
possible discharges that can occur from pipe penetration points in the
tank. Additional experiences of those farms participating in EPA's
AgStar program demonstrate gas generation and collection is crucial to
the profitability of anaerobic digesters. Despite the potential for
energy generation and other cost offsets, EPA does not believe
anaerobic digesters are necessarily suitable for all locations and
conditions. EPA believes the sizable capital expenditure coupled with
today's low energy costs make it difficult for many anaerobic digesters
to be cost effective. EPA also noted digesters need to be properly
managed, which can pose challenges for smaller facilities because they
have fewer resources available to control a digester. Material vendors
and digester consultants also point to the gas collection system as a
critical component. A properly sized and managed collection system does
not experience foaming, freezing, and cover bubbling. The covers are
designed to support weights such as workers during routine inspection
or repair and maintenance, and as noted the covers are routinely and
safely installed as a retrofit. Therefore EPA's costs for the proposed
performance standards assume all such biogas is flared to simplify
management and time constraints of operating a covered lagoon system.
EPA will continue to evaluate the feasibility of the proposed
technology option 5, especially for smaller facilities that are more
likely to employ open lot or partially housed confinement practices
(see section V.B.2 for additional discussion of EPA's extension of its
model farm approach). To reiterate, EPA is not reopening the proposal
in general for further comment, however EPA solicits additional comment
and information on the identification of impermeable lagoon covers as
BAT technologies to meet a zero discharge performance standard.
Specifically, EPA solicits additional information on CAFOs (or other
facilities with similar liquid impoundments) where impermeable covers
are in use, including detailed information describing the system
design, construction, cost, and operation. As EPA stated above in this
section, some commenters speculate that impermeable covers pose certain
operational challenges that would lead to the zero discharge standard
being technologically infeasible. To further investigate the
commenters' concerns about technological feasibility, EPA also solicits
data that would support a determination that the technologies serving
as a basis for the proposed BAT and NSPS are infeasible. Examples of
such data include detailed information on specific locations where the
technologies were attempted but failed, data regarding the design and
size of the system employed (both physical
[[Page 58566]]
dimensions and wastewater throughput), construction materials and
methods employed, and detailed descriptions of the manner in which the
technology failed and the reasons for the failure.
V. Changes EPA Is Considering to its Cost and Economic Impact
Models
EPA received a number of comments questioning the approach EPA used
to assess costs and financial impacts to regulated CAFOs. In general,
commenters expressed concern that EPA had underestimated the costs
associated with the proposed rule and also overestimated the CAFO's
ability to absorb expected compliance costs. In particular, commenters
question the accuracy of EPA's estimated average compliance costs
associated with the proposed requirements as well as the
appropriateness of EPA's financial model to evaluate financial impacts
from these expected costs. For these reasons, many comments received by
EPA challenge the Agency's proposal that the proposed revisions to the
CAFO regulations are ``economically achievable.'' Some commenters
provided EPA with alternative data and suggestions on ways that EPA
could improve its analyses supporting the rule. Today EPA presents
these data and describes modifications to its existing cost and
economic models that the Agency is considering in order to address
commenter's concerns.
EPA received additional cost and financial data from USDA, FAPRI
(Food and Agricultural Policy Research Institute), some industry trade
associations, and researchers at some land grant universities. In
addition, since proposal, EPA has considered ways to refine its cost
and financial models and has received many suggestions on how to modify
its modeling approach by these major stakeholder groups. A summary of
these additional data and information are summarized in this section.
A summary of the principal concerns about EPA's cost and economic
analyses that were raised during the public comment period include: (1)
EPA's assumption that CAFOs are already in full compliance with
existing Federal and State regulations for operations with more than
1,000 AU, (2) EPA's approach for estimating expected incremental
compliance costs that would be incurred by CAFOs, (3) financial data
used as inputs to EPA's economic models to depict baseline financial
conditions, particularly for certain sectors, (4) EPA's failure to
assess the feasibility of an operation to incur new debt associated
with additional capital investments required under the proposed
requirements, and (5) EPA's suggested criteria and overall analytical
approach to evaluate post-regulatory changes and to determine economic
achievability.
Following a discussion of the alternate data and information
obtained by EPA to update its industry profile of the individual CAFO
sectors (Section V.A), this section describes alternative data and
information obtained by EPA that the Agency is considering to use to
further refine the analytical models that it will use to develop and
evaluate the final CAFO regulations. Section V.B describes alternative
data and approaches that EPA is considering to address comments about
its cost models to estimate compliance costs; Section V.C describes
alternative data and approaches that EPA is considering to address
comments about its economic model to evaluate financial impacts to
regulated CAFOs.
All record materials cited in today's notice are available for
public review in the rulemaking record located at EPA's docket office.
A. Industry Profile
1. Estimates of the Total Number of AFOs and Regulated CAFOs
For the proposal, EPA used publicly available data from the 1997
Census of Agriculture, supplemented by other data sources, to estimate
the number of AFOs and potential CAFOs nationwide that would be
required to obtain a permit. EPA used this information to assess the
costs and evaluate the financial impacts to CAFOs under the proposed
regulations. Today EPA is presenting alternative data provided by USDA
on total number of AFOs and regulated CAFOs. EPA is soliciting comment
on these revised USDA AFO-CAFO estimates for use in EPA's cost and
economic impact analyses.
Following proposal, USDA evaluated available information from the
1997 Census of Agriculture to estimate the number of animal feeding
operations at different size thresholds. USDA estimates the number of
operations with confined animals by focusing on those operations that
meet certain minimum characteristics based on USDA-assumptions in terms
of the number of animals and the amount of revenue generated at an
operation. This approach does not specifically focus on characteristics
that meet the regulatory definition of an animal feeding operation, as
codified at 40 CFR 122, in terms of the number of days animals are
confined or the amount of vegetative cover at the production area.
For this analysis, USDA assumed that operations that confine
animals consist of commercial operations only, excluding: (1)
operations with less than $5,000 in annual sales of specialty livestock
products, and (2) operations with few animals, defined by USDA as farms
with less than 7 animal units of any combination of fattened cattle,
milk cows, swine, chickens and turkeys (as well as farms with less than
10 animal units of cattle other than fattened cattle and milk cows,
farms with less than 15 horses, ponies, mules, burros, or donkeys, and
farms with less than 40 sheep, lambs, or goats). In USDA's analysis,
the use of animal units to establish the 7 AU cutoff is based on the
USDA definitions of 1,000 pounds of liveweight and not EPA's regulatory
definitions which are expressed in terms of the number of animals on-
site (codified in 40 CFR 122). However, USDA estimates of the number of
confinement operations at different AU thresholds is based on EPA's
regulatory definitions.
Table 5-1 reflects revised estimates by USDA on the number of AFOs
that confine livestock and poultry and the number of potential CAFOs.
These estimates are preliminary and may be subject to further revision
by USDA. The table compares these numbers against those used by EPA for
the proposed rulemaking. Detailed information on USDA's estimated AFO
and CAFO counts are provided in the record (see USDA/NRCS ``Profile of
Farms with Livestock in the United States: A Statistical Summary,''
most recent draft available).
As shown in the table, there is a substantial difference between
USDA's and EPA's estimates of the total number of AFOs. For the
proposal, EPA estimated that there were a total of 376,000 AFOs
nationwide in 1997. In contrast, USDA estimates indicate that there are
about 218,000 AFOs during that year. One reason for this discrepancy is
that EPA used publicly available data from the 1997 Census of
Agriculture, supplemented by other data sources, to estimate the number
of AFOs for its proposed rule. In some cases, EPA estimates were
extrapolated from available information. Since EPA did not have access
to the underlying farm level census data it was unable to fully
evaluate the data and exclude certain operations that are likely not
AFOs that may be included in EPA's estimates, such as some operations
that raise animals for on-farm consumption only as well as grazing or
pasture-based operations that are not AFOs. Instead EPA assumed that
all operations listed in the published census data, with
[[Page 58567]]
limited exceptions, were potential AFOs. As shown in Table 5-1, EPA's
estimate of the total number of AFOs greatly exceeds that estimated by
USDA across all sectors: EPA estimated more than 420,000 AFOs with
fewer than 300 AU; USDA estimates that there are less than 170,000 AFOs
with fewer than 300 AU.
Another reason for the difference between EPA and USDA estimates of
the total number of AFOs is that USDA excludes certain operations based
on the size of the operation (number of animals or annual revenue
generated), regardless of whether they would otherwise fall within the
regulatory definition of an animal feeding operation, as codified in 40
CFR 122. This information is a regulatory definition and generally not
reflected in any available data sets of the number of livestock and
poultry operations. Nevertheless, EPA believes USDA estimates that
exclude these smaller sized operations provide a reasonable
approximation of the total number of animal feeding operations from
which to determine the relevant regulated universe because it is
unlikely that many of the smaller, non-commercial operations would meet
EPA's definition of an AFO. EPA solicits comment on this assumption.
There is less of a difference between USDA's and EPA's estimates of
the total number of potentially regulated CAFOs at the varying size
thresholds (operations with more than 1,000 AU and, at select
increments, operations with fewer than 1,000 AU but with more than 300
AU). However, USDA estimates that there are more than 6,000 additional
operations with between 300 AU and 1,000 AU (see Table 5-1 where EPA
estimates indicate about 26,500 operations and USDA estimates are about
32,800 operations for that size group). This difference could raise the
number of potential CAFOs, depending on how the Agency defines a CAFO.
The principal reason for this difference between EPA and USDA estimates
is attributable to EPA's use of a simple correction factor to account
for the number of operations with more than a single animal type
(described further below). Table 5-2 presents data that delineate the
number of facilities in each sector by broad size grouping that are
expected to be affected by the proposed regulations.
For the purposes of developing and evaluating the final CAFO
regulations, EPA is considering using revised estimates provided by
USDA. Tables 5-1 through Table 5-3 present preliminary estimates of
these data. These estimates are subject to further revision by USDA.
More information on these data and how they were developed are included
in EPA's record.
Preliminary estimates presented in Table 5-1 would supplement data
previously presented by EPA in Table 6-1, also published in the
proposal (66 FR 2984). Data presented in Table 5-2 would supplement
data previously presented by EPA in Table 6-2, published in the Federal
Register notice of the proposed rulemaking (66 FR 2985). Where USDA
estimates are provided at a higher level of aggregation than that
needed by EPA to conduct its analyses, EPA will extrapolate from
available USDA estimates. For example, USDA estimates shown in Table 5-
2 does not distinguish between the number of operations with chickens
that are broiler and egg laying operations, as well as the number of
hog operations that are grow-finish and farrow-finish.
Table 5-3 presents preliminary estimates that delineate the number
of facilities in each State and each EPA Region that are expected to be
affected by the proposed regulations. Data presented in this table
replaces data previously presented in Tables 9-1 and 9-2 of the
proposal (66 FR 3074-3077). Where USDA estimates are provided at a
higher level of aggregation than that needed by EPA to conduct its
analyses, EPA will extrapolate from available USDA estimates. For
example, USDA data does not distinguish between the number of
operations within some individual States, including Alaska, Arizona,
Connecticut, Hawaii, Nevada, New Hampshire, New Jersey, New Mexico,
North Dakota, Maine, Massachusetts, Montana, Oregon, Rhode Island,
Utah, Vermont, and Wyoming (see Table 5-3). These base data would also
need to be further distributed out onto a county level basis for use in
EPA's analysis of the estimated reduction in nutrient loadings that is
expected under the proposed regulations.
EPA's use of these data will affect underlying assumptions of the
number of operations reflected in various analyses supporting the CAFO
proposal, including EPA's estimate of the number of regulated CAFOs for
the purposes of estimating costs and financial impacts to regulated
CAFOs and estimating benefits in terms of reduced nutrient loadings,
and EPA's estimate of the number of permits required under the proposed
regulation to estimate the costs to the State and Federal permitting
authority.
EPA is also interested in obtaining preliminary data and
information on general trends in the U.S. livestock and poultry sectors
in terms of changes in the number of operations since 1997--the last
available Census of Agriculture year used by USDA to estimate the
number of potential CAFOs. EPA is requesting this information to
determine whether there has been a substantial increase in the number
of larger sized operations since 1997 and to consider whether the
Agency should revise available USDA estimates of the number of
potential CAFOs. Specifically, EPA requests recent sector level data on
the number of operations with more than 1,000 AU and also the number of
operations with between 300 AU and 1,000 AU. To ensure uniformity
within a sector, these data should be national in scope and reflect
trends across all producing States. EPA will consider using these data
to update USDA estimates of the number potential CAFOs for some
sectors, to the extent that these new data allow.
An advantage of using these alternate data is that the USDA data
reflect the number of operations based on dominant production type at
the facility and do not need to be corrected to account for ``mixed''
operations that have more than one animal type. For the proposed
rulemaking, EPA adjusted the sum total number of operations from the
published data to eliminate double counting of operations with mixed
animal types. The factors EPA used were based on data from the 1992
Census of Agriculture indicating that operations with mixed animal
types account for roughly 200 operations with more than 1,000 AU and
about 25 percent of all operations with less than 1,000 AU. (This
latter correction factor is likely more representative of smaller
operations; information was not available to better identify the number
of operations with mixed animals with between 300 and 1,000 AU.) Use of
USDA's revised estimates of the number of operations avoids the need to
correct the data using a simple adjustment factor. This will ultimately
contribute to more accurate cost analyses by minimizing the chance of
error associated with deriving an estimate of the number of potential
CAFOs that require a permit.
Under the USDA-EPA Unified National Strategy for Animal Feeding
Operations, EPA predicted that approximately 20,000 animal feeding
operations would be subject to regulation, estimated at that time to
comprise roughly 5 percent of the estimated 450,000 AFOs. Estimates of
the number of AFOs reported in the Strategy were based on the published
data from the 1992 Census of Agriculture and so include smaller, non-
commercial operations. The data presented here provide updated
[[Page 58568]]
estimates of the AFO base population and have been substantially
revised to eliminate smaller, non-commercial operations. However, EPA's
expected number of potentially regulated CAFOs remains unchanged and
consistent with the goals of the Strategy--estimated at about 20,000
regulated entities or CAFOs.
Table 5-1.--Comparison of Estimates by EPA and USDA of the Number of AFOs by Size Group
--------------------------------------------------------------------------------------------------------------------------------------------------------
EPA estimates at proposal USDA's revised estimates
Sector/size category -------------------------------------------------------------------------------------------------------
All AFOs >1000 AU 300-1000 AU 300 AU All AFOs >1000 AU 300-1000 AU 300 AU
--------------------------------------------------------------------------------------------------------------------------------------------------------
(Number of operations grouped by AU \1\)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Cattle.......................................... 106,080 2,080 2,000 102,000 43,560 1,970 3,130 38,460
Veal............................................ 850 10 200 640 30 90
4,250 3,550
Heifers......................................... 1,250 300 750 200 310 270
Dairy........................................... 116,870 1,450 5,680 109,740 92,610 1,470 5,670 85,480
Hogs............................................ 117,880 4,090 10,280 103,510 48,180 4,080 10,150 33,950
Broilers........................................ 34,860 3,940 10,200 20,720 17,740
3,720 12,380 8,020
Layers.......................................... 75,170 640 1,410 73,120 6,380
Turkeys......................................... 13,720 370 1,330 12,020 3,290 450 1,600 1,240
-------------------------------------------------------------------------------------------------------
Sum Total................................... 466,680 12,880 31,850 421,950 216,010 12,020 33,290 170,700
-------------------------------------------------------------------------------------------------------
Total AFOs \2\.............................. 375,700 12,660 26,450 336,590 218,320 11,380 32,820 NA
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ As defined for the proposed CAFO regulations, one AU is equivalent to: One slaughter or feeder cattle, calf or heifer; 0.7 mature dairy cattle; 2.5
hogs (over 55 pounds) or 5 nursery pigs; 55 turkeys; and 100 chickens regardless of the animal waste system used.
\2\ For EPA data, ``Total'' eliminates double counting of operations with mixed animal types based on 1992 Census of Agriculture data (operations with
mixed animal types account for roughly 25 percent of total AFOs). USDA data reflect number of operations based on dominant production type. The
difference between the sum total and total AFOs is about 2,000 operations (reflect operations that are difficult to classify including dairies that
have gone out of business, farms with only feeder pigs, and egg-hatching operations).
Source: EPA estimates, see proposed CAFO regulations (Section 6 of 66 FR 2959). USDA estimates, see NRCS ``Profile of Farms with Livestock in the
United States: A Statistical Summary'' most recent draft available. Rounded to nearest tenth.
Table 5-2.--Estimated Number of CAFOs by Sector and Size
----------------------------------------------------------------------------------------------------------------
Potential CAFOs Potential CAFOs Potential CAFOs Potential CAFOs
Sector >1,000 AU 750-1,000 AU 500-750 AU 300-500 AU
----------------------------------------------------------------------------------------------------------------
(Number of Operations grouped by AU)
----------------------------------------------------------------------------------------------------------------
Cattle...................................... 1,970 500 940 1,690
Heifers..................................... 310 40 90 150
Veal........................................ 30 10 20 60
Dairy....................................... 1,470 600 1,360 3,710
Hogs........................................ 4,080 1,570 2,920 5,670
Chickens.................................... 3,720 2,660 4,440 5,280
Turkeys..................................... 450 260 470 870
-------------------------------------------------------------------
Sum over all............................ 12,020 5,630 10,240 17,420
Adjustment.................................. 640 140 180 150
-------------------------------------------------------------------
Total CAFOs............................. 11,380 5,490 10,060 17,280
----------------------------------------------------------------------------------------------------------------
Source: USDA/NRCS (``Profile of Farms with Livestock in the United States: A Statistical Summary'' most recent
draft available). Rounded to nearest tenth. AU groupings defined in Table 5-1.
Table 5-3.--Estimated Number of Potential CAFOs by Region, State and Size \1\
----------------------------------------------------------------------------------------------------------------
Potential CAFOs Potential CAFOs Potential CAFOs Potential CAFOs
State/EPA region >1000 AU >750 AU >500 AU >300 AU
----------------------------------------------------------------------------------------------------------------
(Number of Operations grouped by AU)
----------------------------------------------------------------------------------------------------------------
Alabama..................................... 410 760 1,390 2,200
Arkansas.................................... 510 920 1,730 2,970
California.................................. 950 1,240 1,660 2,150
Colorado.................................... 190 230 300 410
Delaware.................................... 70 140 310 580
Florida..................................... 140 220 330 450
Georgia..................................... 660 1,060 1,640 2,350
Idaho....................................... 140 170 240 380
Illinois.................................... 360 550 910 1,680
[[Page 58569]]
Indiana..................................... 370 520 830 1,450
Iowa........................................ 1,080 1,670 2,900 5,300
Kansas...................................... 350 420 570 840
Kentucky.................................... 110 160 270 440
Louisiana................................... 70 150 250 350
Maryland.................................... 90 200 430 740
Michigan.................................... 170 230 340 670
Minnesota................................... 590 850 1,370 2,380
Mississippi................................. 340 630 990 1,290
Missouri.................................... 290 430 660 1,270
N. Carolina................................. 1,310 1,760 2,450 3,470
Nebraska.................................... 700 860 1,220 1,960
New York.................................... 70 120 250 650
Ohio........................................ 180 280 450 930
Oklahoma.................................... 130 220 420 700
Pennsylvania................................ 240 380 680 1,250
S. Carolina................................. 180 280 400 570
South Dakota................................ 190 250 360 630
Tennessee................................... 60 110 230 490
Texas....................................... 610 790 1,170 1,680
Virginia.................................... 160 310 560 940
Washington.................................. 140 190 290 500
West Virginia............................... 60 90 150 200
Wisconsin................................... 100 160 380 960
UT, MT, WY, ND, NV.......................... 140 190 290 540
OR, AK, HI.................................. 50 80 140 250
AZ, NM...................................... 190 220 260 280
ME, VT, NH, MA, RI, CT, and NJ.............. 30 60 120 300
-------------------------------------------------------------------
All states.............................. 11,380 16,870 26,920 44,200
----------------------------------------------------------------------------------------------------------------
Source: USDA/NRCS (``Profile of Farms with Livestock in the United States: A Statistical Summary'' most recent
draft available). Rounded to nearest tenth. AU groupings defined in Table 5-1.
2. Estimates of the Amount of Manure Nutrients Covered at Different
Regulatory Thresholds
For the proposal, EPA estimated the amount of manure nutrients
covered under the different regulatory scenarios. These estimates were
based on publicly available data from the 1997 Census of Agriculture
supplemented by other data sources. EPA used this information, among
other factors, to determine the proposed regulatory thresholds based on
the number of animals on-site (inventory basis). As cited in the
Agency's proposal, EPA estimated that about 50 percent to 64 percent of
manure nutrients generated (nitrogen and phosphorous) would be
addressed by the proposed regulations at the 1,000 AU threshold and
proposed 500 AU threshold, respectively. Today EPA presents new
information on the manure nutrient coverage under the different
regulatory scenarios based on a supplemental analysis conducted by
USDA. EPA is soliciting comment on this analysis for consideration in
the final rulemaking.
In its analysis that re-estimates the number of AFOs and CAFOs
nationwide using data from the 1997 Census of Agriculture (presented in
Section V.A.1 of this notice), USDA also conducted an analysis of the
expected amount of manure nutrients addressed at each regulatory
threshold. These results are presented in this notice both in terms of
the amount of manure nutrients generated at potential CAFOs and also
the estimated amount of nutrients in excess of crop needs through land
application. (USDA defines farm level ``excess'' of manure nutrients on
a confined livestock farm as manure nutrient production less crop
assimilative capacity. USDA has estimated manure nutrient production
using the number of animals by species, standard manure production per
animal unit, and nutrient composition of each type of manure.
Recoverable manure is the amount that can be collected and disposed by
spreading on fields or transporting off the producing farm.)
Table 5-4 presents USDA's estimates of the amount of manure
nutrients addressed by the proposed regulations and compared against
the expected number of potential permits that would be required at
different threshold levels. USDA submitted these data to EPA for
consideration in establishing its regulatory threshold for defining a
CAFO as part of the Agency's final rulemaking. The information
presented today would replace and supplement previous estimates by EPA,
which was presented in Table 6-3 of in the Federal Register notice of
the proposed rule (66 FR 2986-2987). USDA estimates of the amount of
coverage of manure nutrients generated are more or less consistent with
EPA's estimates for the proposed regulations. (See 66 FR 2986-2987.)
For proposal, EPA was not able to estimate the amount of excess manure
nutrients because of data limitations.
USDA's analysis supplements EPA estimates by assessing the amount
of excess manure nutrients addressed by the regulations using 1997
Census of Agriculture data. This analysis is available at USDA's
website at: http://www.ers.usda.gov/briefing/ConservationAndEnvironment/. Information on USDA's approach for
conducting this analysis is documented in two published USDA reports,
including ``Manure Nutrients Relative to the Capacity of Cropland and
Pastureland to Assimilate Nutrients: Spatial and Temporal Trends for
the United States'' available at http://www.nhq.nrcs.usda.gov/land/pubs/manntr.html and also ``Confined Animal
[[Page 58570]]
Production and Manure Nutrients'' available at http://www.ers.usda.gov/publications/aib771/. These documents are also available in EPA's
record for the proposed rule.
Some commenters endorse USDA's analysis and cite these results to
highlight the perceived lower environmental gain relative to the
increase in the number of operations affected as the regulatory
threshold is lowered. EPA will consider this information when re-
evaluating the range of proposed CAFO threshold definitions for the
final CAFO regulations. EPA solicits comment on the use of these USDA
estimates for the development of EPA's final regulations.
Table 5-4.--Potential CAFOs, Animal Units, and Manure Nutrients, 1997 Census of Agriculture
----------------------------------------------------------------------------------------------------------------
AFOs defined as CAFOs, by threshold
Item Units Total for -------------------------------------------------------
Item 1000AU 750AU 500AU 300AU
----------------------------------------------------------------------------------------------------------------
Percent of Total
----------------------------------------------------------------------------------------------------------------
Farms/AFOs.................. number 218,000 5.4 8.0 12.8 21.1
Animal Units................ million 36.3 51.8 56.9 64.0 72.9
Recoverable Nutrients:
Nitrogen................ 1000 tons 1,260 48.6 56.3 66.3 76.6
Phosphorus.............. 1000 tons 689 52.2 59.4 68.8 78.9
Excess Nutrients:
Nitrogen................ 1000 tons 743 64.4 73.4 84.1 92.8
Phosphorus.............. 1000 tons 467 67.3 75.1 84.5 92.7
----------------------------------------------------------------------------------------------------------------
Source: USDA. Includes operations with feedlot beef, dairy (including confined heifer and veal), swine, and
poultry (including layers, broilers, pullets, and turkeys). For AU definitions, see Table 5-1
3. Changes in SBA's Small Business Definition and EPA's Estimates of
the Total Number of Small Businesses Affected by the Proposed
Regulations
For the proposal, EPA estimated the number of small businesses that
are CAFOs that would be subject to the proposed regulations. Today EPA
presents revised estimates of the number of affected small business
using new small business definitions as revised by the Small Business
Administration (SBA) in June, 2001. EPA is soliciting comment on these
estimates for consideration in the final rulemaking.
The Regulatory Flexibility Act (RFA), as amended by the Small
Business Regulatory Enforcement Fairness Act of 1996 (SBREFA),
generally requires EPA to define small businesses according to size
standards as defined by the Small Business Administration (SBA). For
these regulated industries, SBA sets size standards for defining small
businesses by the amount of annual revenue generated, representing
total facility revenue at the farm level (i.e., includes revenue from
all sources, including livestock, crop and other farm-related income at
a livestock or poultry operation) and expressed as an average over a 3-
year period. These size standards vary by North American Industry
Classification System (NAICS) code; CAFOs are listed under NAICS 11
(Agriculture, Forestry, and Fishing).
Prior to 2001, SBA defined a ``small business'' for most
agriculture enterprises as operations with annual sales of less than
$0.5 million per year, averaged over the most recent three fiscal
years. For the proposed rulemaking, SBA standards used by EPA to define
a ``small business'' in the hog, dairy, broiler, and turkey sectors
assumed a threshold of less than $0.5 million in annual sales. In the
beef feedlot sector, SBA defines small businesses as those with less
than $1.5 million in annual sales. EPA assumed an alternative
definition for small businesses in the egg laying sector of operations
with less than $1.5 million in annual revenue and did not use SBA's
definition of $9 million in annual sales. The rationale for this
decision is discussed in detail in EPA's record and in the Economic
Analysis that supports this rulemaking. A summary of EPA's rationale
for using an alternative definition is provided in the Federal Register
notice of the proposed rulemaking (66 FR 3099).
On June 7, 2001, SBA increased the size standards used to define
small businesses for most agriculture sectors listed under NAICS 11.
These size standards were raised from $0.5 million to $0.75 million in
average annual receipts (see 66 FR 30646). This change affects EPA's
assumptions of small business in the hog, dairy, broiler, and turkey
sectors and effectively raises EPA's estimate of the number of small
businesses that are animal feeding operations and are potentially
defined as CAFOs and subject to the proposed requirements. (This change
does not affect EPA's assumptions of small business in the beef feedlot
and egg laying sectors.)
For the proposed regulations, EPA estimated that 11,000 to 15,000
confinement operations that will be subject to the proposed
requirements are small businesses (depending on the proposed regulatory
alternative). As a result of this change in SBA's small business
definition, preliminary estimates by EPA now indicate that roughly
19,000 to 25,000 of the affected operations are small businesses.
Although these estimates may be subject to further revision, data
presented in Table 5-5 would replace information previously presented
by EPA in Table 10-17 of the Federal Register notice of the proposed
rulemaking (66 FR 3100). EPA solicits comment on these preliminary
estimates of the number of small businesses affected by the proposed
regulations.
[[Page 58571]]
Table 5-5.--Number of Small CAFOs That May Be Affected by the Proposed Regulations
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total Annual ($million) No. of Animals (Avg. U.S.) Number of ``Small'' CAFOs
Revenue 1 (a) Total Farm (c=a/b) Affected by Proposed Regulations
Sector ---------------------------- Revenue per -------------------------------------------------------------
Old New Head 2 (b) Old New Old New
--------------------------------------------------------------------------------------------------------------------------------------------------------
Cattle 3........................................ $1.5 NC $1,060 1,400 NC 2,280-2,600 NC
Dairy........................................... 0.5 $0.75 2,573 200 300 50 1,000-2,000
Hogs............................................ 0.5 0.75 363 1,400 2,100 300 4,000-5,000
Broilers........................................ 0.5 0.75 2 260,000 375,000 9,470-13,410 10,000-14,000
Egg Layers...................................... 9.0 NC 25 365,000 ND ND ND
1.5 NC 61,000 NC 200-590 NC
Turkeys......................................... 0.5 0.75 20 25,000 37,500 0 500-1,000
-------------------------------------------------------------------------------------------------------
All AFOs.................................... NA NA NA NA NA 10,550-14,360 19,000-25,000
--------------------------------------------------------------------------------------------------------------------------------------------------------
NA=Not Applicable. ND = Not Determined. NC = No Change from original proposal. ``AFOs'' have confined animals on-site. ``Old'' refers to SBA size
definitions prior to June, 2001. ``New'' refers to revised SBA size definitions published on June 7, 2001.
1 SBA Size Standards by NAICS industry (13 CFR Part 121). EPA assumes an alternative definition of $1.5 million in annual revenues for egg layers.
2 Average total farm revenue (i.e., including livestock, crop and other farm-related income at a livestock or poultry operation) expressed on a per
animal basis across all operations for each sector. Per-animal (inventory) calculations as derived by EPA using aggregated farm level data from USDA's
1997 ARMS database.
3 Includes fed cattle, veal and heifers.
B. Data and Analytical Approach to Estimate Compliance Costs to CAFOs
This section describes alternative data and approaches that EPA is
considering to address commenters' concerns about the methodology to
estimate compliance costs.
1. Alternate Analytical Approaches for Estimating Compliance Costs
This section describes alternative approaches that EPA is
considering to address concerns about the methodology used to estimate
compliance costs.
a. EPA's Assumptions of Full Compliance With Existing Regulations for
CAFOs With More Than 1,000 AU
In the proposal, EPA assumed that all operations with more than
1,000 AU that are defined as CAFOs by the existing regulations are
currently in compliance with the existing regulatory program. This
includes the NPDES regulations and the effluent limitations guidelines
and standards for feedlots, and existing State laws and regulations.
For those operations with less than 1,000 AU, EPA used available data
regarding current waste treatment practices at these operations to
estimate the incremental cost they would incur to comply with the
requirements of the proposed regulations.
A number of commenters disagree with this approach, claiming that
many CAFOs do not have the necessary waste management components in
place to comply with the existing CAFO regulations promulgated in the
early 1970s. Despite the fact that the existing regulations were issued
over 25 years ago, these commenters claim that many operations with
more than 1,000 AU are not currently in compliance with these baseline
requirements and would therefore incur substantial costs just to meet
the 1970s requirements, in addition to any additional costs that would
be incurred to comply with the new requirements of the proposed rule.
The commenters thus assert that EPA's failure to acknowledge this
widespread noncompliance has the effect of underestimating the full
costs that CAFOs will ultimately pay. The commenters further assert
that by underestimating costs in this manner, EPA understates the
financial impacts to CAFOs.
It is EPA's longstanding practice to assume compliance with current
regulatory requirements when revising existing regulations. This
assumption is consistent with EPA's guidance for conducting regulatory
analysis, outlined in EPA's ``Guidelines for Preparing Economic
Analyses.'' EPA's guidance is available online at http://www.epa.gov/economics/. In accordance with EPA practice and guidance, EPA assumes
that operations with more than 1,000 AU are in compliance with existing
requirements promulgated in the 1970s; these operations are assumed to
have already incurred whatever costs were necessary to achieve
compliance with these existing requirements. Guidance from the Office
of Management and Budget (OMB), as outlined in ``Economic Analysis of
Federal Regulations Under Executive Order 12866,'' recommends that the
baseline for assessing the costs and benefits of a regulation be, ``* *
* the best assessment of the way the world would look absent the
proposed regulation.'' OMB's guidance goes on to discuss various
factors that may be considered in choosing an appropriate baseline,
including existing regulations and the likely degree of compliance with
these regulations, and recommends that, ``when more than one baseline
appears reasonable or the baseline is very uncertain, and when the
estimated benefits and costs of proposed rules are likely to vary
significantly with the baseline selected, the agency may choose to
measure benefits and costs against multiple alternative baselines as a
form of sensitivity analysis.'' OMB's guidance is available online at
http://www.whitehouse.gov/omb/inforeg/riaguide.html.
Because of the possibility that there may be widespread
noncompliance with the existing regulations and because the potential
costs associated with the existing regulations might be substantial,
particularly when added to EPA's estimated incremental cost associated
with the proposed revisions, EPA is considering ways to evaluate these
additional potential costs as a supplement to its cost and economic
analyses.
To evaluate the cost of the existing regulations, EPA is requesting
additional data and information on current rates of non-compliance.
Specifically, information is needed on the number or share of
operations with more than 1,000 AU that are not in compliance with the
existing regulations. During the development of the proposed CAFO
rulemaking, EPA requested additional data and information to
substantiate industry claims of widespread non-compliance with the
existing regulations. As part of
[[Page 58572]]
today's notice, EPA is again requesting any information on current
rates of non-compliance with the existing regulation, differentiated to
the extent possible by production type or facility size for each of the
major livestock and poultry sectors. This information would need to
account for animal waste management systems and practices that are
already being implemented at the CAFO to manage manure and wastewater,
including practices associated with various voluntary programs as well
as practices to assist with basic day-to-day production needs at the
facility.
EPA is considering to use this information to conduct an evaluation
of the combined additional cost to comply with the existing regulations
plus the incremental costs of the proposed regulations. EPA is
soliciting comment on an approach that would be conducted in two
stages, which is outlined as follows. The first stage of this analysis
would assess the cost to CAFOs to comply with current requirements--
specified for the production area--promulgated under the existing 1970s
regulations and further evaluate the expected financial impacts of
these costs. Using a representative farm approach, where the Agency
determines that compliance with the existing regulations would have
resulted in financial stress and potential closure of a representative
facility, this operation would be removed from the analysis under the
assumptions that this operation would not have remained in business.
This representative facility would now constitute a baseline closure
for purposes of evaluating the proposed revisions to the existing rule.
This approach by which baseline closures are removed from any
subsequent analyses is consistent with longstanding Agency practice to
assess only the incremental costs associated with a specific regulatory
action.
The second stage of this analysis would evaluate costs and
financial impacts to comply with the proposed new requirements. These
costs and impacts would be assessed for operations within the assumed
remaining CAFO universe based on the number of operations assumed to
have remained in business while complying with the existing regulations
(i.e., excluding assumed baseline closures determined to close under
the existing regulations in the first stage of this analysis). EPA
solicits comment on this approach and requests data and information in
order to conduct this supplemental analysis.
b. EPA's Cost Model Assumptions and Use of ``Frequency Factors''
For the proposal, EPA estimated compliance costs for a model CAFO
facility by first estimating the total cost to an individual facility
to employ a given technology and then calculating the average facility
level cost by adjusting this total cost to account for current use of
the technology or management practice nationwide. Average costs were
obtained by multiplying the total cost of a particular technology or
practice by the percent of operations that are believed to use this
particular technology or practice in order to derive the average
expected cost that could be incurred by a model CAFO. EPA refers to
this adjustment factor as the ``frequency factor'' and has developed
such a factor for each individual cost (i.e. each technology) and cost
component (i.e. capital and annual costs) in each of its CAFO models.
More detailed information on the methodology used by EPA to estimate
compliance costs and the actual frequency factors assumed by EPA for
this analysis are provided in the Development Document for the Proposed
Revisions to the National Pollutant Discharge Elimination System
Regulation and the Effluent Guidelines for Concentrated Animal Feeding
Operations (referred to as the ``Development Document'').
Comments about EPA's cost and economic analysis express concerns
about EPA's use of frequency factors to generate a set of single
average compliance costs to further evaluate financial impacts to CAFOs
as well as to assess larger-scale market impacts. The overarching
concern with EPA's use of this approach is that the weighted average
costs might either understate costs or overstate costs, depending on
the range of production practices at a facility. Use of these estimated
costs to assess financial impacts might, therefore, either understate
or overstate economic impacts to CAFOs in EPA's analysis. To address
this concern, EPA is considering alternative ways to characterize the
variability of costs that may be incurred by increasing the number of
representative models EPA uses to assess compliance costs.
Today EPA presents data and information on an alternative approach
that would refine its existing cost models to account for greater
variability among producers by calculating costs across a broader range
of potential scenarios, including costs to operations that have
implemented a wider array of technology controls and management
practices and also costs to operations that have little or no
management practices in place. This alternative approach would generate
three sets of compliance costs per representative model CAFO, instead
of a single average cost per representative model. EPA attempted to
develop such a approach for its proposal, but was unable to obtain the
data necessary to support this approach.
This notice presents the availability of new data and information
that would allow EPA to adopt such an approach, including data received
from USDA. This approach would build upon an approach that is being
developed by USDA to assess costs and economic impacts at livestock
facilities as part of USDA's Report to Congress on the USDA-EPA Unified
Strategy that seeks to estimate the costs to animal feeding operation
to implement Comprehensive Nutrient Management Plans (CNMP)
(forthcoming: ``Cost and Capability Assessment of the Unified Strategy
for Animal Feeding Operations''). Details on the approach that is being
developed to support this forthcoming study is provided in USDA's
ongoing work in progress titled ``Estimated Private and Public Costs
Associated with Comprehensive Nutrient Management Plan Implementation:
A Documentation.'' Preliminary versions of this latter report are
provided in EPA's rulemaking record.
In these reports, USDA outlines an approach that, first, defines a
set of representative CAFOs that represent typical or dominant
production practices; second, identifies the expected compliance costs
associated with the proposed CAFO rule requirements; and, third,
adjusts these costs according to how many CAFOs are expected to need
upgrades to their facility or practices to meet requirements. This
approach is consistent with that used by EPA for the proposal. The
difference is the third step in USDA's analysis further breaks out
these costs into three categories of farms based on the ``average''
operation and also operations with ``least needs'' and ``most needs.''
USDA's simplifying assumption for this approach is that 50 percent of
all operations within each representative farm group represents the
average while each representative group representing operations outside
the average accounts for 25 percent each of all operations.
For USDA's analysis, it compiled data representing the percent of
facilities needing upgrades to meet CNMP requirements. For example, a
value of 80 percent indicates that 20 percent of the operations in that
category meet the requirements and 80 percent of the
[[Page 58573]]
operations need to install or adopt the required controls or practices.
USDA's estimates reflect five broad cost components: manure and
wastewater handling and storage, nutrient management, record keeping,
feed management, and off-farm export. These estimates are contained in
USDA's Appendix to its ongoing work in progress (see, ``Estimated
Private and Public Costs Associated with Comprehensive Nutrient
Management Plan Implementation'').
For EPA's analysis, the Agency is considering using USDA's data and
approach, with some modifications to supplement USDA's information and
approach where necessary to fit within EPA's existing analytical
framework. These additional cost scenarios include costs to operations
that have implemented a wider array of technology controls and
management practices, as well as costs to operations that have little
or no management practices in place. To do this, EPA is considering
breaking out its estimated average compliance costs across three
different performance group scenarios: below average performers,
average performers, and above average performers. For the purpose of
this analysis, average performers would represent 50 percent of all
operations that employ an average mix of waste management practices and
technology controls. These costs would be roughly equivalent to the
average costs assumed by EPA for the proposal, with some refinements to
incorporate new data and information as necessary. Costs incurred by
operations assumed to be above (below) this average would reflect 25
percent of all operations with a higher (lower) mix of practices and
controls in place. Stated differently, operations with little or no
environmental controls on-site to manage manure would be considered a
below average performer, whereas operations that already have
substantial manure management practices and controls in place would be
considered to perform above average.
Table 5-6 presents an example of this proposed approach for an
operation that compares the approach used by EPA for proposal and the
alternative approach that EPA is considering using for its analysis to
support the final regulations. As shown with this simple example, EPA
would develop revised compliance cost estimates arrayed onto three
different cost categories for each representative CAFO model, resulting
in greater refinement of its estimated costs. These three sets of costs
would each be used to assess financial impacts to CAFOs, instead of the
single weighted-average cost used by EPA to assess impacts for the
proposal. As discussed previously, for proposal, EPA developed its own
estimates of the average percent of operations needing upgrade to
adjust estimated total costs assumed across all operations. For the
analysis supporting the final analysis, EPA is considering using
estimates of the average percent of operations needing upgrade across
three groups of operations--operations categorized as ``average
needs,'' ``least needs,'' and ``most needs'' operations. Financial
impacts would therefore be measured against these three sets of average
costs per representative model facility, rather than a single average
cost. Preliminary estimates that USDA has developed depicting the
percent of operations needing upgrade across these three groups of
operations that EPA is considering to use for the final analysis are
provided in the EPA's record.
Table 5-6.--Example of Alternative Approach to EPA's Model Farms Being Considered for the Final Rule
--------------------------------------------------------------------------------------------------------------------------------------------------------
Approach used for proposal Alternative approach considered
--------------------------------------------------------------------------------------------------------------------
Cost component Least needs (25%)
Frequency factor Avg. weighted cost Average Average (50%) Most needs (25%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Cost component #1.................. Average percent of Average cost across Average percent of Average percent of Average percent of
Cost Component #2.................. operations needing all operations (each ``least needs'' ``average needs'' ``most needs''
Cost Component #................... upgrade (each cost cost component). operations needing operations needing operations needing
component). upgrade (each cost upgrade (each cost upgrade (each cost
component). component). component)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total Costs.................... ...................... Average Costs all Average Costs ``least Average Costs Average Costs ``most
operations (per Model needs'' operations ``average needs'' needs'' operations
CAFO). (per Model CAFO). operations (per (per Model CAFO)
Model CAFO).
--------------------------------------------------------------------------------------------------------------------------------------------------------
In order to adopt this approach EPA needs additional information on
the adoption and use of various types of management practices and
technology controls employed at different types of livestock and
poultry operations. In part, USDA is in the process of compiling such
estimates that EPA will consider using for the purpose of refining its
compliance cost models. These data are based on existing published data
and USDA surveys conducted by the Animal and Plant Health Information
Service (APHIS) and other State level or industry supplied data and
information. This data set covers each of the key sectors (including:
Fattened cattle, dairies, confined heifers and veal, swine, broilers,
layers, chicken pullets, and turkeys) differentiated by select
production regions, facility size, and dominant production type.
Additional information on these data and USDA's supporting
documentation on how these data were obtained are available for public
review in the rulemaking record located at EPA's docket office. The
record also contains various supplemental information collected by EPA
using this general modeling framework. EPA solicits comment on these
data and the alternative approach described here to refine EPA's
compliance cost models.
c. Engineering Cost Test To Determine Appropriate Technology Systems
EPA's engineering costs models incorporated an engineering cost
test to determine the least expensive combination of technologies that
could be used to meet EPA's proposed performance standards. EPA used
this cost test to compare the costs of various technology trains that
could be used to meet a specific performance standard (a technology
train is the combination of linked technologies or BMPs that could be
used as part of a manure management system). For example, the
engineering cost test was used to compare the overall system cost of
various land application methods, nutrient management strategies,
capital expenses
[[Page 58574]]
for improvements at the production area, and other technologies (see
the Development Document).
The engineering costs test was performed by addition of the start-
up costs, the fixed costs, and the annual costs, plus a percentage of
the capital expenditures to determine the total costs incurred in year
one. The percent of capital costs included in this equation depended on
the interest rate, period of payback, and down payment consistent with
those criteria used in the economic analysis. EPA used 14 percent of
the capital expenses to reflect a 10-year depreciation at 7 percent
interest (see Economic Analysis). Table 5-7 provides an example of the
engineering cost test used for proposal.
Table 5-7.--Example of EPA's Engineering Cost Test Used for Proposal
----------------------------------------------------------------------------------------------------------------
Technology train A
--------------------------------------------------
Cost component Total for
Technology A BMP A technology
train A
----------------------------------------------------------------------------------------------------------------
(1) Start-up Costs........................................... $200 $10 $210
(2) Other Fixed Costs........................................ 300 50 350
(3) Annual Costs (O&M)....................................... 40 400 440
(4) Capital Costs............................................ 5,000 0 -
(5) 14 Percent of Capital Costs.............................. 700 0 700
��������������������������������������������������������������
Total Cost for Technology Train A Incurred in Year (1+2+3+5)............................. $1,700
----------------------------------------------------------------------------------------------------------------
EPA is considering alternative payback terms and lending
arrangements, as discussed in Section V.C. EPA intends to modify the
engineering cost test to be consistent with the alternative loan terms
under consideration in this notice. For example, if the economic
analysis methodology assumes 30 percent of capital would be incurred in
year one as a result of down payments, closing costs, and other fees,
for consistency the engineering costs test would add 30 percent of the
capital to the total start-up costs, fixed costs, and recurring costs
in the engineering costs test. Table 5-8 provides an example of the
modified engineering cost test applied to the same technology train
presented in Table 5-7.
Table 5-8.--Example of EPA's Modified Engineering Cost Test
----------------------------------------------------------------------------------------------------------------
Technology Train A
--------------------------------------------------
Cost component Total for
Technology A BMP A Technology
Train A
----------------------------------------------------------------------------------------------------------------
(1) Start-up Costs........................................... $200 $10 $210
(2) Other Fixed Costs........................................ 300 50 350
(3) Annual Costs (O&M)....................................... 40 400 440
(4) Capital Costs............................................ 5,000 0 -
(5) 30 Percent of Capital Costs.............................. 1,500 0 1,500
(6) Remaining Capital Costs (4-5)............................ 3,500 0 -
(7) 14 Percent of Remaining Capital Costs.................... 490 0 490
��������������������������������������������������������������
Total Cost for Technology Train A Incurred in Year (1+2+3+5+7)........................... $2,990
----------------------------------------------------------------------------------------------------------------
The cost incurred for development and implementation of technology
train A in the first year is $1,700 using EPA's engineering cost test
used for proposal. The total cost for Technology Train A incurred in
year 1 would be $2,990 using EPA's modified cost test. EPA solicits
comment on the use of the engineering cost test, and the changes to the
cost test under consideration.
d. Changes to Costs for Land Application of Lagoon Liquids for Beef and
Dairy Operations
The purchase of new or additional land application equipment is
often a primary contributor to the overall costs in the beef and dairy
cost models. EPA's cost model estimates the costs to purchase
irrigation equipment to apply liquid from ponds and lagoons to the crop
fields; the model assumed facilities already had access to equipment
for solid manure applications. The poultry models assumed dry manure/
litter equipment was already available. The swine models considered
certain cases where new or different application equipment would be
needed, especially under technology option 5 which could change the
composition of land applied manures. EPA selected center pivot
irrigation for costing land application of liquids from runoff ponds.
EPA is considering three additional areas pertaining to the costs for
land application; alternative irrigation and land application
equipment; additional sludge removal; and limits to land application
based on hydraulic loadings (hydraulic loading is used to measure how
much water can be applied before the ground approaches saturation and
pooling on the surface occurs).
For proposal, EPA costed facilities to spread manure over all acres
owned or rented. EPA costed many of these facilities for new or
additional land application and irrigation equipment to land apply
liquid manure. EPA calculated these costs of irrigation equipment based
on all acres owned, even when the facility owned more acres than was
needed to utilize all manure as a fertilizer based on nitrogen or
phosphorus rates, as appropriate. EPA believes as a practical matter,
facilities will irrigate closest fields first, saving solids hauling
for the fields farther away from the liquid storage areas. EPA is
considering adjusting the model farms to reflect this practice,
[[Page 58575]]
which would reduce a facility's overall compliance costs.
For proposal, EPA assumed excess nutrients (excess nutrients are
those nutrients beyond the farm's total annual crop requirements) would
be hauled off site each year. In the case of liquid storage, EPA costed
solids separation for facilities with a large nutrient excess. For
other facilities with minimal nutrient excess, EPA costed hauling of
liquid assuming the lagoon was mixed prior to pumping. EPA is
evaluating an approach where excess nutrients, particularly the excess
phosphorus that tends to settle on the bottom of the liquid storage
area, would be assumed to accumulate for a period of approximately 3
years. The top liquid fraction would continue to be land applied
locally each season, but without mixing of the bottom sludge. The
bottom sludge would be removed every three years to maintain capacity
of the lagoon, but also to facilitate hauling of a more concentrated
slurry. EPA believes this will reduce the volume to be hauled, the
number of trips needed, and therefore reduce costs. EPA data suggests
facilities are not likely to haul liquid manures more than one mile.
EPA believes one mile is approximately the distance the manure can be
hauled based on the nutrient value of the manure as compared to the
costs of hauling. EPA believes these facilities are more likely to haul
a concentrated slurry longer distances and still maintain a net
positive value for the transported nutrients.
EPA acknowledged in the proposal that in some cases factors other
than nutrients could limit the application rates of manure to crop
land. EPA is evaluating those areas where the water holding capacity of
the soil could result in a manure application rate more limiting than
the phosphorus based rate. For these areas, EPA intends to perform a
sensitivity analysis of application rates that considers the hydraulic
loading limitations of the crop land. EPA believes facilities currently
applying manure on a nitrogen based rate and that need to go to a
phosphorus based rate will be mostly unaffected by hydraulic
limitations. EPA solicits comments and information on the extent to
which hydraulic loading limitations may affect the costs of applying
manure.
EPA also assumed that all manures would be distributed evenly on
all land available to the animal feeding operation. EPA is considering
revisions to the cost estimates for hauling manure to the closest
fields first, particularly under a scenario that would allow phosphorus
banking. Under such a scenario, additional commercial nitrogen
fertilizer would not be needed the year the manure was ``banked''. EPA
solicits comments on these modeling assumptions, as well as the
baseline model changes under consideration.
e. Cost Offsets and Savings
For proposal, EPA's incremental costs of compliance were
potentially overstated because EPA did not include all cost offsets and
savings associated with animal production. For example, in the proposal
EPA acknowledged some facilities give away manure, and some must pay
for the transport of excess manure. To the extent EPA's proposal would
require additional transport, EPA has included this expense in its cost
models. EPA also accounted for the costs of commercial fertilizer when
facilities apply manure on a phosphorus basis, but did not account for
the nutrient value of the manure. In EPA's cost reports, EPA estimated
an incremental value of $1.70 per ton of for composted manure for
Option 5 for beef and dairy. This nutrient value is equal to the
difference between the nutrient value of manure versus the nutrient
value of compost. EPA is considering an approach that places a nutrient
value on manure when it is used on the farm as a resource, especially
as a fertilizer replacement. EPA also intends to consider the 1997
(EPA's baseline year) Commercial Fertilizer Institute values of
nitrogen and phosphorus for purposes of estimating the nutrient value
of manure. EPA solicits comment on the value of the nutrients in manure
when used as a fertilizer replacement.
EPA has further estimated that sales of dry poultry litter could
offset the costs of meeting the regulatory requirements on the order of
more than 50 percent. Some stakeholders have confirmed manure sales, in
some cases, can exceed the value of livestock sales. U.S. Poultry
conducted a producer survey, the results of which indicate that the
producer directly sells 34 percent of litter, and an additional 17
percent is ``traded out'' with a broker, normally for fresh bedding
material. EPA analysis and data further indicate concentration of
manure nutrients through changes in the moisture and form of the manure
allow longer economical hauling distances, particularly with the
current increases in fuel prices and increasing costs of diesel-based
commercial fertilizers. Similarly wetter manures have increased value
after composting or treatment, on the order of $17 per ton for
composted dairy and steer manure.
EPA believes its current approach to account for the cost of
hauling excess manure off-site is further overstated, as EPA did not
consider alternative uses and destinations of manure in its cost
analysis. For example, EPA has documented an increasing trend in
centralized manure treatment and value-added processing, as well as
increased integrator involvement in manure marketing. Poultry litter in
particular is considered more valuable than most other animal manures
due to its low moisture content and relatively high nutrient value. EPA
conservatively estimates litter sales generates an average of $8 per
ton. In some circumstances, wetter manures, such as layer manures, are
successfully transported and sold at a profit. Market opportunities are
further increased by providing a value added or composted product, or
by offering custom application services. Bagged compost can be bought
at local garden centers for $4 per 40 pound bag, or $200 per ton.
Therefore, EPA is considering limited amounts of litter and manure
sales with those model farms corresponding to the geographic regions
where the data indicates manure is sold. EPA solicits comment on the
costs and data used with this approach, and solicits comment on EPA's
calculated value of $8 per ton for litter. EPA notes it does not intend
to use retail values for value added manure, but will use the
information in support of considering cost offsets due to manure value.
EPA solicits comment on these data and assumptions.
2. Alternate Data and Information for Estimating Compliance Costs
This section describes additional cost data and information
obtained by EPA to address concerns about its cost methodology to
estimate compliance costs. This section also presents corrections to
EPA's estimated compliance costs as well as clarification on cost
information presented in the preamble to the proposed rulemaking.
a. Alternative Costs and Information to EPA's Ground Water Assessment
EPA proposed all new sources and existing beef and dairy farms must
provide a certification that the ground water in their area is not
hydrologically connected to surface water. Without a certification,
facilities must monitor the ground water surrounding the manure storage
areas and take necessary measures to ensure no discharge to ground
water that is hydrologically connected to surface waters. Some
stakeholders stated EPA's cost estimate for obtaining the assessment
[[Page 58576]]
(approximately $3,000) is reasonable only if the statement is based on
a site visit and records review with no intrusive sampling. However ,
these stakeholders believe even if there is no hydrologically connected
ground water on a site, it will be difficult for a permit applicant to
obtain a hydrologist's statement to this effect that is acceptable to
the permitting agency. Several vendors indicated such an assessment
would require additional soil core sampling and monitoring data, and a
certified statement that proves the absence of a direct hydrological
connection to ground water to the satisfaction of the permitting agency
would probably cost two or three times as much as EPA proposed. EPA
solicits additional comment on the costs of obtaining a hydrologist's
certification.
EPA is considering alternatives to the assessment that might reduce
costs and burden. Under one alternative, EPA would require ground water
controls at a given site based on certain high risk geographical
criteria. EPA would consider sandy soils, karst topographies, and
shallow ground water tables, among other factors, in its determination
of high risk criteria. As described in Section IV, EPA solicits comment
on an option that would define the high risk criteria that would
automatically trigger the requirement for additional ground water
controls, replacing the cost of an assessment.
b. Gas Collection Systems and Cover Materials for Proposed Technology
Option 5
As part of proposed technology option 5, EPA estimated the cost of
flares for covered lagoon systems for all swine facilities. EPA has
solicited additional comment on the feasibility of technology option 5,
and will continue to evaluate the costs and affordability of such
technologies. In particular EPA will consider its estimate of costs
associated with the gas collection systems and the installation costs
of the cover materials. EPA will also reconsider the gas collection
system costs for certain veal operations that employ open lagoons for
storage. EPA solicits additional data on the component costs for
covered lagoon systems, such as cover materials, additional berm
development for anchoring the cover, flotation and ballast systems, and
sump pump systems. EPA also solicits additional data and information on
the operation and management of gas collection systems, such as
automated flares.
c. Engineering Costs for Nutrient Management Planning Costs
EPA intends to use the USDA Cost and Capability Study to update the
costs of nutrient management planning. In particular, EPA will add a
one-time fixed cost for engineering assessments associated with the
development of a Comprehensive Nutrient Management Plan. EPA will also
reevaluate the costs of hiring a certified consultant to write or
approve the plan. Data provided by the University of Tennessee suggests
the cost for a certified planner ranges from $50 per hour to $125 per
hour. Other comparable data sources in the record include state
assessments of nutrient management costs, watershed level experiences
with comprehensive nutrient management plan implementation, and vendor
supplied costing information. EPA solicits additional comment on the
component costs of nutrient management planning such as engineering
assessments, mapping and planning activities, and the annual record
keeping costs associated with nutrient management.
d. Correction to EPA's Compliance Costs and Economic Analysis Due to
Omitted Costs for a Subset of Hog Operations
In the cost analysis supporting the proposed CAFO regulations, EPA
inadvertently omitted the cost of impermeable lagoon covers for a
subset of hog operations under the proposed BAT Option 5 (refers to
EPA's proposal to require nitrogen-based and, where necessary,
phosphorus-based land application controls of all livestock and poultry
CAFOs, with the additional requirement that all hog, veal, and poultry
CAFOs must also achieve zero discharge from the animal production area
with no exception for storm events). The subset of operations that were
not correctly costed in the analysis included hog operations classified
as ``Category 3'' operations, which are assumed to represent CAFOs
without adequate landbase for application of manure on cropland;
Category 3 CAFOs are those operations that would likely need to
transport manure offsite for alternative use or to be spread as
fertilizer. This cost omission in EPA's analysis does not affect any
other livestock or poultry sectors or other land-use categories
(Category 1 and Category 2 CAFOs) in EPA's cost analysis.
The number of hog operations with understated costs due to the
omission of lagoon cover costs includes 210 hog operations, or about 1
percent of the total number of 14,370 hog facilities assumed in EPA's
analysis. By broad facility size grouping, an estimated 81 hog
operations with more than 1,000 AU and 129 hog operations with fewer
than 1,000 AU were undercosted.
EPA estimates that the effects of these omitted costs understates
EPA's estimated total compliance costs for the hog sector as follows.
These omitted costs would result in additional capital costs to hog
facilities of $33 million to $68 million over a 10-year period (1997
dollars). On an annual basis, additional costs to the hog sector would
total $5 million to $10 million, or a 2 percent to 3 percent increase
in estimated industry costs (based on EPA's original cost analysis that
estimated costs to the hog sector at $294 million to $306 million per
year). Expressed on a per-hog basis for this subgroup of hog
operations, the additional annual cost to hog facilities could be as
much as $3 to $5 per marketed hog. This represents a 75 percent
increase in estimated per-head costs compared to EPA's original
estimate at $4 to $7 per head (post-tax) for Category 3 CAFOs in the
hog sector.
If these omitted costs were considered in EPA's analysis that
evaluates financial impacts to the hog sector, this would raise the
estimated total number of hog operations that would be considered to
experience financial stress and be vulnerable to facility closure as a
result of the proposed regulations. Assuming a worst-case scenario, all
of the 129 hog operations with fewer than 1000 AU without landbase for
manure application might close. (All 81 hog operations with more than
1,000 AU without landbase for application were already projected to
close in EPA's original economic analysis.) This would raise the total
number of hog operations that would be vulnerable to facility closure
to 1,550 hog operations, up from EPA's original estimate of 1,420 hog
CAFOs projected closures. As a percentage of all hog CAFOs, hog
operations projected to close would total more than 22 percent of all
CAFOs in the hog sector, up from EPA's original estimate of 17 percent
of hog CAFOs projected to close as a result of the proposed
regulations. EPA has not yet evaluated this change in financial impacts
under a cost passthrough scenario. (EPA's original analysis showed that
all 1,420 hog CAFOs would be able to afford EPA's estimated compliance
costs under a scenario of long-run market adjustment and cost
passthrough.)
EPA will consider these costs and projected economic impacts when
reviewing alternative technology options for the final rulemaking.
[[Page 58577]]
e. Correction to EPA's Summary of the Range of Estimated Compliance
Costs Across All Proposed Technology Options
In the preamble to the proposed rulemaking, EPA provided a summary
table listing the range of annualized compliance costs developed for
EPA's analysis. This table presented the range of estimated costs
across all the technology options considered by EPA but inadvertently
failed to reflect the full range of costs estimated by EPA across all
of the proposed technology options. Even though EPA is in the process
of revising all its cost estimates based on new information and is
incorporating changes to its cost models in preparation to develop the
final CAFO regulations, today's notice presents corrections to this
table to clarify omissions to information presented previously for the
proposed rulemaking.
Costs presented in the preamble to the proposed rule (Table 10-1,
see 66 FR 3083) listed annualized costs for each sector, summarized
across the estimated range of minimum and maximum costs across all
facility sizes, production regions and land use category. Prior to
publication in the Federal Register, this table was not updated to
reflect EPA's final cost estimates, as well as expected higher
compliance costs, to some facilities under the proposed BAT Option 3
(refers to EPA's proposal to require nitrogen-based and, where
necessary, phosphorus-based land application controls of all livestock
and poultry CAFOs, with the additional requirement that all cattle and
dairy operations must conduct ground water monitoring and implement
controls, if the ground water beneath the production area has a direct
hydrologic connection to surface water). However, these costs were
correctly documented in EPA's Economic Analysis of the Proposed
Revisions to the National Pollutant Discharge Elimination System
Regulation and the Effluent Guidelines for Concentrated Animal Feeding
Operations (referred to as ``Economic Analysis''). In addition, all the
costs and financial impact results presented in subsequent sections of
the preamble (66 FR 3084-3103) were correctly evaluated based on EPA's
final compliance cost estimates for the proposal.
Corrections to these estimated annualized costs are presented in
Table 5-9 (1999 dollars, post-tax). In this table, upper bound costs
for the cattle sectors reflect higher costs associated with operations
where there is a hydrologic connection from ground water to surface
waters at the CAFO. These higher costs reflect the need for ground
water controls and monitoring at some operations (referred to in EPA's
supporting analyses as Option 3A costs). The previous table shown in
the preamble only presented average cost conditions across all
operations--both operations with and without a hydrologic link
(referred to as Option 3 costs). Compared to the original estimates
previously presented by EPA, these costs are in some cases much higher,
especially in the beef and dairy sectors. Data presented in Table 5-9
would replace information previously presented by EPA in Table 10-1,
published in the Federal Register notice of the proposed rulemaking (66
FR 3083). EPA's Economic Analysis for the proposed rule provides more
detailed cost information, including annualized costs broken out by
production region, land use category, and broad facility size
groupings, as well as costs expressed on a per-head inventory basis.
As part of EPA's ongoing efforts to develop final regulations for
CAFOs, EPA is reviewing the data, methodology and assumptions that were
used to its develop estimated compliance costs assumed for the proposed
rulemaking and, in some cases, might use alternative data and
information to develop its compliance cost estimates for the final CAFO
regulations. Consequently, EPA's final cost estimates will likely
undergo further refinement and revision and might vary from those
presented in this notice.
Table 5-9.--Range of Annualized Model CAFO Compliance Costs ($1999, Post-tax)
----------------------------------------------------------------------------------------------------------------
Category 1 Category 2 Category 3
Sector -----------------------------------------------------------------------------------
Minimum Maximum Minimum Maximum Minimum Maximum
----------------------------------------------------------------------------------------------------------------
(1999 dollars per model CAFO across all size groups)
----------------------------------------------------------------------------------------------------------------
Beef........................ $2,100 $984,500 $7,300 $1,217,900 $1,000 $895,400
Veal........................ 1,500 7,800 1,100 6,100 1,000 6,000
Heifers..................... 1,500 37,300 1,600 42,300 1,000 34,700
Dairy....................... 3,600 148,100 4,100 179,300 2,600 143,600
Hogs: GF.................... 300 52,300 1,400 63,500 7,000 81,400
Hogs: FF.................... 300 83,800 1,300 100,500 5,900 115,300
Broilers.................... 3,600 36,300 3,400 25,800 2,900 21,300
Layers: wet................. 300 24,800 2,100 29,300 1,500 18,000
Layers: dry................. 900 59,000 900 31,600 700 27,600
Turkeys..................... 2,500 111,700 2,500 29,400 1,700 20,800
----------------------------------------------------------------------------------------------------------------
Source: EPA. Category 1 CAFOs have sufficient cropland for all on-farm nutrients generated; Category 2 CAFOs
have insufficient cropland; and Category 3 CAFOs have no cropland. ``Hogs: FF'' are farrow-finish (includes
breeder and nursery pigs); ``Hogs: GF'' are grower-finish only. ``Layers: wet'' are operations with liquid
manure systems; ``Layers: dry'' are operations with dry systems.
C. Data and Analytical Approach To Estimate Financial Impacts to CAFOs
This section describes alternative data and approaches that EPA is
considering to address commenters' concerns about its economic model
and associated input data and assumptions to evaluate financial impacts
to regulated CAFOs.
1. Alternate Analytical Methodology for Determining Economic
Achievability
For the proposal, EPA developed an economic model to assess
financial impacts to regulated CAFOs based on predicted changes to
select financial criteria. As introduced in Section II.B.4 of today's
notice, researchers at FAPRI have conducted a review of EPA's economic
analysis at the request of the Committee on Agriculture, United States
House of Representatives. The results of this study were submitted to
EPA for its consideration. The stated purpose of FAPRI's study was to
provide EPA with an alternative methodology of calculating the expected
financial impacts to CAFOs under the proposed regulations. Although the
results of FAPRI's analysis are not
[[Page 58578]]
directly comparable to EPA's own analysis because the underlying model
and input data are different, FAPRI's results do indicate some degree
of sensitivity in the conclusions of EPA's economic analysis using
different input data and modeling assumptions. FAPRI's study also
provides EPA with additional information and suggested approaches for
further refining and improving its economic model to assess financial
impacts to regulated CAFOs. Today, EPA presents two alternative
approaches that the Agency is considering to modify and refine its
existing model.
The economic model that EPA used to evaluate financial impacts to
CAFOs under the proposed regulations uses a representative farm
approach. Such an approach is consistent with research conducted by
other industry experts, including FAPRI. This approach provides a means
to assess average impacts across numerous facilities by grouping
facilities into broader categories to account for the multitude of
differences among animal confinement operations. Under this general
framework, EPA constructed a series of model facilities (``model
CAFOs'') that reflect the EPA's estimated compliance costs and
available financial data. EPA uses these model CAFOs to develop an
average characterization for a group of operations based on certain
distinguishing characteristics for each sector, such as facility size
and production region, that may be shared across a broad range of
facilities.
For the proposal, EPA evaluated the economic achievability of the
proposed regulatory options at existing animal feeding operations based
on changes in representative financial conditions across three
criteria. These criteria include: a comparison of incremental costs to
total gross revenue (sales test), projected post-compliance cash flow
over a 10-year period, and an assessment of an operation's debt-to-
asset ratio under a post-compliance scenario. EPA used the financial
criteria to divide the impacts of the proposed regulations into three
impact categories: affordable, moderate, and financial stress.
Operations experiencing affordable or moderate impacts are considered
to have some financial impact on operations at the affected CAFOs, but
EPA does not consider these operations to be vulnerable to closure as a
result of compliance. Operations experiencing financial stress impacts
are considered to be vulnerable to closure post-compliance. More
information on these criteria is provided in the proposal (66 FR 3088).
Additional information on EPA's economic models is available in EPA's
Economic Analysis; EPA's cost models are described in EPA's Development
Document.
Specific recommendations on how EPA might improve its modeling
framework include an expansion of the types of financial criteria that
EPA examines and incorporation of uncertainty into the analysis, along
with other suggestions on the use of various modeling assumptions and
input data to depict financial conditions at the facility. For example,
many commenters recommend that EPA evaluate impacts in terms of
additional profitability criteria, such as return on assets or equity,
internal rate of return, profit margins, or returns to labor and
overhead before taxes. Many commenters also point to FAPRI's baseline
model which generates results that place probability distributions
around each of the point estimates of the baseline. By comparison,
EPA's economic model used for the proposal, utilizes a point estimate
deterministic approach--an approach that is consistent with recent
regulatory analyses of financial impacts of many EPA regulations. Many
representatives of the major trade associations and researchers at USDA
publicly endorse FAPRI's suggested modeling approach and the results of
its analyses.
FAPRI's comments to EPA's CAFO rule generally focus on the process
EPA adopted to develop cost and economic analyses to support the
proposed rulemaking rather than to address specific policies in the
proposed CAFO regulations. To review EPA's economic analysis, FAPRI
assembled industry experts to help construct alternative CAFO models
and designed spreadsheets to, first, construct a financial baseline for
each operation and, second, to analyze the impact of the proposed CAFO
regulations. (FAPRI did not develop alternative compliance cost
estimates but instead used EPA's estimated costs for the proposal.) The
underlying model that FAPRI uses for its study is its 2001 long-term
agriculture baseline model that is used to analyze agriculture policy
requests from the U.S. Congress. This model consists of a large scale
econometric model of both U.S. and world agriculture containing roughly
5,000 behavioral equations and identities. Additional detailed
information about FAPRI's baseline model is available at http://www.fapri.missouri.edu. FAPRI's reports on EPA's cost and economic
analysis are available in the record and at FAPRI's website: http://www.fapri.missouri.edu/FAPRI_Publications.htm.
At the market level, FAPRI's analysis is largely in agreement with
EPA's economic analysis in terms of the magnitude of market price
increases associated with production shifts due higher production costs
from complying with the regulation. However, at the representative CAFO
level, FAPRI's analysis generates a different set of results with
respect to financial impacts based on its use of alternative input
data, assessment criteria, and methodology for determining impacts. As
a result of this review, FAPRI identified several areas of concern
associated with EPA's analysis that assesses the financial impact to
CAFOs. These range from the way in which EPA tracked the cost
components to the basic approach used by EPA related to the financial
viability of the respective CAFO operations. Other concerns highlighted
by FAPRI's report are recommendations that EPA conduct its analysis on
an enterprise basis only and also consider an operation's ability to
incur new debt, among other analytical issues.
Based on these comments, EPA is considering ways to further refine
the analytical models and assessment criteria that it uses to determine
financial impacts to regulated CAFOs, as well as consider the use of
alternative input data for conducting this analysis. This section
describes the approaches that EPA is considering to refine its
financial impact models. As discussed below, EPA would potentially add
modules to its existing economic model and incorporate changes to
various assumptions as well as additional financial data, but would
retain the basic internal structure of EPA's existing economic model.
These model refinements are described in the following subsections and
include: addition of new assessment criteria to evaluate changes in
profitability (Section V.C.1(a)); examination of impacts at both the
farm and enterprise level (Section V.C.1(b)); revision of threshold
levels on a debt-to-asset test for some sectors (Section V.C.1(c));
considerations of debt feasibility (Section V.C.1(d)); and
consideration of various assumptions by EPA in its analysis for the
proposal, including whether to use post-tax costs and other cost
offsets that may be available to producers, such as cost share
assistance and income from manure and litter sales (Sections V.C.1(e)
and V.C.1(f)). EPA solicits comment on these approaches to further
refine its economic impact analysis and, where indicated, EPA requests
additional information to
[[Page 58579]]
follow through on these suggested modifications.
Section V.C.2 of this notice describes additional sources of data
to depict baseline financial conditions that the Agency is considering
to supplement available financial data provided by USDA that was used
for the proposal.
At this time EPA is not proposing an alternative, more
comprehensive overhaul of EPA's existing model based on recommendations
by some commenters that the Agency instead design an entirely new
modeling framework. Nevertheless, Section V.C.1(g) concludes with a
brief discussion of a possible alternative approach for further
refining EPA's model by incorporating an extensive sensitivity analysis
within its baseline process and providing a fuller treatment of the
range of expected outcomes than would be the case with only a point
estimate deterministic approach, as used by EPA for the proposal. EPA
also solicits comment on the use of such an alternative approach.
a. Inclusion of New Assessment Criteria to Measure Changes in
Profitability
As described in more detail in the preceding introduction, for the
proposal, EPA evaluated the potential financial impacts of the proposed
regulatory options based on changes in representative financial
conditions across select criteria. Among these criteria were a
comparison of incremental costs to total gross revenue (sales test),
intended to broadly measure changes in a regulated facility's
profitability under a post-compliance scenario. This test was largely
considered as a screening test for further analysis and assessment
using discounted cash flow analysis and an assessment of an operation's
debt-to-asset ratio.
Several commenters claim that the sales test is not a useful
measure of whether producers can afford the regulations. They suggested
that it should be replaced with a rate of return measure, such as
return on assets, equity, or investment. One commenter suggested a
criterion based on cost as a percent of profit margin (measured as
revenue less cost of goods sold) or gross margin (measured as returns
to labor and overhead before taxes). Another commenter recommended
evaluating profits measured as earnings before interest, taxes,
depreciation, and amortization (EBITDA). Others indicated that the
sales test, if retained, should be measured against a lower threshold
value due to the lower profit margins on sales in agriculture. In
general, commenters state that potential impacts, even at lower cost-
sales ratios, can result in proportionately large reductions in net
returns and erode the attractiveness of reinvestment in animal
agriculture.
To address these concerns, EPA is considering adding additional
assessment criteria that would measure changes in an operation's
profitability from complying with the regulations. One potential
criterion would assess compliance costs as a share of profit margin or,
alternatively, EBITDA (``profit test''). EPA is considering a 20
percent to 30 percent threshold value on a profit test, for profits
measured as revenue less cost of goods sold, but not including returns
to unpaid labor and overhead. Using this threshold value, if compliance
costs as a share of profit margin is less than 20 percent this would be
considered affordable; compliance costs as a share of profits greater
than 30 percent could indicate potentially significant impacts. This
proposed threshold range is consistent with past analyses supporting
regulatory actions by EPA, including standards for pesticide
containment structures under the Federal Insecticide, Fungicide and
Rodenticide Act (FIFRA), arsenic residue standards for preserved wood,
and also regulations under the Resource Conservation and Recovery Act
(RCRA). Additional supporting information for this proposed threshold
value is provided in EPA's record. EPA solicits comment on the use of
this additional criterion and the range of suggested threshold values
to evaluate this criterion. EPA will consider adding this criterion to
the extent that the available financial data for each of the affected
regulated sectors allow.
EPA requests comment on alternate profitability thresholds and the
basis for them. EPA also solicits comment and requests information on
the use of a profit test and applicable threshold values for this test
should EPA use available USDA financial data that defines ``net farm
income'' to include depreciation and interest, as well as other
nonmoney expenses and returns to unpaid farm labor.
EPA did consider evaluating regulatory impacts to CAFOs using
profitability measures for the proposal, but decided not to include
such criteria because of limitations in the financial data available to
EPA to conduct its regulatory analysis. Specifically, given boom and
bust conditions that are common in the agricultural sectors, these
financial data often show negative returns to risk, management, and
unpaid labor. Consequently, the only way for EPA to conduct its
analysis using these data is either to assume it is a baseline
enterprise closure (i.e., it should not be considered in the regulatory
analysis since the operation would be discontinued even without
considering the impact of the regulations) or to determine that the
operation cannot be analyzed at this level (i.e., the operation is
remaining in business because of certain mitigating factors). EPA often
encounters such problems when analyzing certain multi-facility
manufacturing or service firms in other EPA regulations using actual
facility level data; in such cases the facility is removed from the
analysis since it cannot be analyzed and is considered a baseline
closure.
However, in the case of the analysis supporting the CAFO
regulations, EPA is using a representative farm approach since it did
not conduct a survey of all CAFOs nationwide. Using aggregated
published data, this approach analyzes impacts across select groupings
of livestock and poultry operations based on certain shared
characteristics (e.g., animal production, region, facility size, etc.).
Therefore, if the financial data for a certain representative group
show negative returns under EPA's traditional approach, EPA would need
to consider all operations within a group as a baseline closure.
Financial data presented in Tables 5-10 through 5-12 provide an
indication of which sectors would likely show large numbers of baseline
closures given available data using a profit test with USDA's
definitions of net farm income (which includes depreciation and
nonmoney expenses). For example, as shown in Table 5-11, if EPA were to
use alternate 1998 hog data from USDA, EPA's traditional approach would
assume that all operations within each of the representative groups are
baseline closures. However, EPA recognizes that when available data
show large numbers of baseline closures (including even whole sectors),
this may indicate limitations with the underlying data and/or
methodologies rather than a realistic picture of the industry. EPA is
further aware that facilities identified as baseline closures under
EPA's traditional approach may be the very facilities likely to
experience stress as a result of additional compliance costs, and that
it is therefore important to account for these facilities in the
analysis.
For proposal, EPA evaluated impacts using a sales test and not
other profit measures. If EPA decides to adopt a profit test as part of
its final analysis, EPA will need to consider ways to address concerns
regarding the potential number of large baseline closures using
available data for operations that show
[[Page 58580]]
negative returns. A possible approach that might avoid this concern
would be to consider compliance costs as a share of net income
excluding depreciation and nonmoney expenses as part of the profit test
(e.g., profits defined as profit margin or EBITDA). However, available
financial data may be limited to allow for this level of
differentiation among individual accounting line items. EPA solicits
additional comment on these concerns.
Because of these concerns, EPA is also considering other
profitability criteria, including return-on-assets (ROA) and return-on-
equity (ROE). ROA is measured as the percent profit before taxes as a
share of total assets in the RMA data. ROE is measured as the percent
profit before taxes as a share of tangible net worth. EPA has evaluated
changes to ROA as a measure of impact in previous effluent guidelines
analyses, including analyses for the pharmaceutical manufacturing
industry and the pesticide formulating, packaging and repackaging
industry. The benchmark that has been used for these criteria are based
on data reported by Robert Morris Associates (RMA). Each year, RMA
surveys a number of operations in most sectors of economy, including
agriculture, to gather basic financial data on which to report various
balance sheet and income statement items, as well as key financial
ratios. In previous analyses by EPA, it was assumed that operations
that are at risk of closure or bankruptcy under a post-compliance
scenario are those with, for example, estimated ROA higher than the
lowest quartile of value in the baseline that are determined to have
ROA below the lowest quartile value reported by RMA after complying
with the regulations. Because of issues related to data indicating
negative returns within some of these sectors (as discussed
previously), the proposed benchmark values using this approach are
negative. Accordingly, for the CAFO analysis, EPA has determined that
the following relevant ROA and ROE lowest quartile benchmarks would
apply based on RMA for 1994-1997: lowest quartile ROA ranges from -0.4
percent for hog operations to -4.3 percent for egg operations; lowest
quartile ROE ranged from -0.4 percent for dairy operations to -10.7
percent for egg operations. These benchmarks are preliminary and
subject to modification using additional data to ensure a
representative ROA or ROE benchmark has been identified. Additional
supporting information for these proposed threshold values is provided
in EPA's record. EPA solicits comment on the use of these alternative
criteria and also the range of suggested threshold values to evaluate
these criteria. EPA will consider adding these criteria to the extent
that the available financial data for each of the affected regulated
sectors allow.
b. Evaluation of Assessment Criteria at Multiple Business Levels
In the proposal, EPA evaluated financial impacts using USDA
Agricultural Resource Management Study (ARMS) data that were aggregated
at the farm level. EPA's basis for determining economic achievability
among regulated CAFOs was therefore measured in terms of the potential
for closure of the facility and not as a potential product line
closure. Among the principal concerns raised in the FAPRI study as well
as by researchers at the land grant universities and also USDA is that
EPA should evaluate financial impacts to regulated CAFOs for the single
regulated livestock or poultry enterprise only.
Many commenters claim that EPA's use of farm-level financial data
raises questions as to whether a CAFO would willingly subsidize one
enterprise with dollars from other farm enterprises. These commenters
question whether producers at more diversified operations would choose
to cross-subsidize an unprofitable enterprise for long periods or
whether they would instead shift assets towards other, more profitable
enterprises at their operation; these producers might not quit farming
but would only remove the non-productive enterprise from their farming
mix. Moreover, some commenters point out that larger operations are
normally enterprise specific and tend to specialize and focus on a
single enterprise and, therefore, an enterprise approach is considered
more appropriate for EPA's analysis. Other commenters also note that
the use of enterprise level data in the form of ``enterprise budgets''
is more consistent with a representative farm approach, which was the
general approach adopted by EPA for evaluating financial impacts for
the proposal. FAPRI also noted that while an evaluation of impacts at
the farm level has merit, it is also prone to confounded results
because enterprise specific costs are spread over a larger share of the
business (e.g., non-livestock enterprises bear the cost of livestock
regulatory costs).
EPA recognizes the importance of considering financial impacts at
multiple levels within a business since this is consistent with
economic theory and a more technically sound approach. EPA typically
conducts its analyses of regulated entities using data for a business
as a whole as opposed to an individual product line at a firm. The main
reason for this is that data are often not available at the enterprise
or product line level. Similarly, data limitations restricted the types
of analyses EPA was able to conduct to support the proposed CAFO
regulations; because the available ARMS data obtained by USDA did not
provide usable data and information for an individual enterprise at a
model facility, EPA was not able to evaluate impacts at the enterprise
level. Instead, the ARMS data available to EPA were expressed for an
operation's entire business, which includes revenue and cost
information across all enterprises at a facility. Although the ARMS
data's revenue information is roughly distinguishable between gross
income from total livestock production and revenue from other farm
source (including crops, government payments, and other farm-related
income), the operating cost data are not differentiated by an
operation's livestock enterprise but are reported as total cost and
reflect joint production and labor costs across all the different
enterprises at a facility.
Today, EPA presents options that the Agency is considering to
modify its economic analysis to take into consideration new financial
data received by EPA in order to assess financial impacts at multiple
businesses levels within a representative facility. This addresses
recommendations received through public comment in conjunction with new
financial data that has been provided to or compiled by EPA at the
enterprise level for some sectors (presented in Section V.C.2 of this
notice). EPA is considering whether to use these enterprise data to
supplement the farm level data used by EPA for the proposal.
Given the availability of these new data for some sectors, EPA is
considering an approach that would supplement available data at the
farm level with data at the enterprise level. EPA has adopted such an
approach for previous regulations where data are available (e.g.,
regulations related to the Pesticide Formulating, Packaging and
Repackaging industry which were evaluated according to product-line
closures, see 61 FR 57518). For this analysis, EPA is considering using
available financial data to assess changes in a representative
facility's profitability based on changes at both the farm and
enterprise level. EPA proposes to continue to evaluate changes in
solvency using a debt-to-asset test at the farm level. Any additional
considerations of a debt
[[Page 58581]]
down payment requirement, as discussed later in Section V.C.1(d), would
also be assessed at the total farm level. EPA's discounted cash flow
analysis will continue to be conducted using farm level data. Using
this approach, EPA is considering ways to evaluate the financial
impacts of the proposed regulations that consider impacts at these
multiple business levels (e.g., both the farm and enterprise sector) to
differentiate circumstances under which an enterprise or product line
may be discontinued but the farm or larger business entity remains in
operation. While closure of the farm business is the focus of EPA's
analysis, several commenters have expressed concern about enterprise
closure for reasons of risk diversification and industry concentration.
EPA solicits comment on the use of this approach and also requests
additional input from the public on how to reconcile these issues for
purposes of assessing financial impacts to regulated CAFOs for the
final rulemaking.
EPA is not considering evaluating financial impacts at the
enterprise level only, as some commenters have recommended. One reason
for this is that usable enterprise level data are not available across
all sectors in order to be able to complete such an analysis. In
addition, some components of EPA's analysis are simply only appropriate
when conducted at the farm level, such as EPA's standard discounted
cash flow analysis or an assessment of an operation's debt. Moreover,
EPA is unlikely to ignore available farm level data for some aspects of
its analysis. For example, it is a long-standing practice and
consistent with Agency guidance to assess impacts to small businesses
at the broader business level, as part of EPA's obligation to conduct a
regulatory analysis of the impacts to small businesses under the RFA.
Furthermore, previously published academic research by both the land
grant universities and USDA have typically evaluated impacts using data
and methods specified at the farm level or have, at least, taken into
consideration information for the larger business concern.
EPA's alternate proposal to supplement available farm level data
with new enterprise level data also addresses concerns that EPA has
about evaluating impacts at the enterprise level only. These are
summarized briefly as follows. As a practical matter, EPA recognizes
that often the individual enterprises at an operation are highly
interdependent, such as in the case of integrated production systems
where there may be considerable cost savings due to shared production
and labor costs among multiple enterprises at a farm or as in the case
of where one enterprise, e.g., grain crop production, serves as an
input to another, e.g., livestock production. In addition, an analysis
using enterprise level data may fail to account for the range of
assistance to the farming operation through various government
programs, which are often noted as a separate source of farm level
income in USDA's data compendiums. Also, as pointed out by one lender
questioned by EPA, lenders usually look at the debt carrying capacity
of the farm operation as a whole, except in the unusual instance when
their lien is only on the enterprise. Finally, farms are commonly noted
to be motivated by non-economic factors that may influence an
operation's decision to weather the boom and bust cycles that are
commonplace in agricultural markets. These issues raise questions about
whether a decision to conduct EPA's analysis strictly at the enterprise
level is simple and straightforward. EPA requests information on how to
reconcile these concerns in the context of its analysis.
As part of this approach, however, EPA is not considering modifying
its existing economic models to take into consideration financial data
for processing firms. Such an approach has been suggested because of
the affiliation between some CAFOs (e.g., contract growers) and
processing firms through various contractual arrangements in some
sectors. Data are not available to conduct such an analysis: EPA does
not have market information on which processors and CAFOs participate
in such contract agreements; financial data for processing firms that
contract out the raising of animals to CAFOs is also not available.
Consistent with how EPA conducted its analysis for the proposal, EPA
will continue to assume that an assessment of the regulatory impacts of
the proposed regulations is more accurately conducted for the regulated
CAFO since the CAFO is the operation that would incur the cost of the
proposed requirements. EPA solicits comment on this assumption and
overall approach. Although EPA is not considering evaluating the
financial impacts of the proposed regulations at the processor or
integrator level, EPA will continue to evaluate expected broader market
level changes using the assumptions of cost passthrough that were
developed for the proposal as a surrogate for more complex market level
models that would appropriately take into account structural adjustment
among farmers as well as market adjustment in the long run.
At this time, EPA has not re-evaluated its analysis using the
approach presented in this notice that would determine regulatory
impacts based on both farm and enterprise level financial data.
However, EPA did evaluate available enterprise level as part of its
sensitivity analysis of its study results for the proposal. The results
of this sensitivity analysis provide an indication of the potential
changes that might occur if enterprise level data are evaluated in
conjunction with farm level data used as discussed in this notice. For
this assessment, EPA evaluated changes to its sales test criterion
using USDA data for total livestock revenue only (i.e., excluding
revenue from all other sources, including crops, government payments,
and other farm-related income). This approach differed from EPA's main
analysis where cost-to-sales ratios were evaluated using financial data
for the farm operation as a whole and does not differentiate between an
operation's livestock and other business enterprises. EPA was not able
to evaluate changes in other financial criteria because enterprise
level data was not available with respect to an operation's operating
costs. This analysis is provided in Appendix D of EPA's Economic
Analysis that supports the proposed rulemaking.
Table 5-9 presents the results of this analysis as well as a
comparison of gross revenue at both the enterprise and farm business
levels assumed in this sensitivity analysis, expressed on a per-animal
basis. Overall, consideration of enterprise level data only could
result in these operation's being depicted as having lower ability to
pay for additional compliance costs, as compared to consideration of
broader farm level data. EPA's analysis using only enterprise level
data resulted in an increase in the assessed number of enterprise and
potentially farm closures. As shown in the table, the reported USDA
data show that livestock revenues comprise roughly one-half of a farm's
total operating revenue for most sectors. In the broiler sector,
enterprise revenue is about 10 percent of that reported for the entire
operation: business revenue is $1.10 to $1.50 per bird when expressed
at the farm level, as compared to $0.10 to $0.20 per bird when
expressed at the broiler enterprise level only. As is also shown in the
table, if cost-to-sales ratios at the enterprise level are assumed to
be the sole basis for determining whether the proposed regulations are
affordable, the number of potential product line failures would
increase significantly as compared to an assessment using farm
[[Page 58582]]
level data only. These results do not take into consideration the
potential offsetting effects of cost passthrough and longer term market
adjustment. In addition, EPA considers the results of this analysis for
some operations, particularly broiler operations, to be overstated
since this simple test does not take into consideration lower
production costs at contract grower operations where production inputs
are often provided by the affiliated processor firm under various
contractual agreements.
EPA solicits comment on EPA's intention to supplement available
farm level financial data with new data received at the enterprise
level, and to use these data to determine economic impacts to regulated
CAFOs.
Table 5-9.--Comparison of Input Data and Results Using Entity (Main) and Enterprise (Sensitivity) Data
----------------------------------------------------------------------------------------------------------------
Input revenue data EPA's analysis result
------------------------------------------------------------------
Sensitivity
Number of Sensitivity Main analysis analysis
Sector CAFOs Main analysis analysis number of number of
entity level enterprise CAFOs CAFOs
revenue/head level revenue/ financial financial
head stress stress
----------------------------------------------------------------------------------------------------------------
Beef......................... 5,330 $502-$862....... $340-$512...... 90 660
Dairy........................ 7,140 $2,343-$2,620... $2,166-$2,650.. 700 700
Hog.......................... 14,370 $84-$606........ $47-$307....... 1,420 3,020
Broiler...................... 14,140 $1.10-$1.40..... $0.10-$0.20.... 320 14,140
Layer........................ 2,060 $25.00.......... $17.00......... 0 0
Turkey....................... 2,100 $11.0-$20.0..... $6.0-$17.0..... 0 100
----------------------------------------------------------------------------------
Total.................... 45,140 n/a n/a 2,520 18,610
----------------------------------------------------------------------------------------------------------------
Source: Input data are from USDA's 1997 ARMS data, derived on a per-animal basis. Data used for sensitivity
analysis are derived from the data in the main analysis, based on USDA-reported livestock portion of total
farm revenue only and disregards revenue from other farm-related sources, including crops.
EPA's analysis compares results in terms of the number of operations that might experience financial stress
between the main (entity) and sensitivity (enterprise) analysis (shown for the proposed technology options all
operations with more than 300 AU).
c. Revision of Threshold Values on a Debt-to-Asset Test (Some Sectors
Only)
For the proposal, data on a representative operation's debt-to-
asset ratio were obtained from USDA. These data were used along with
other financial criteria to assess an operation's debt-to-asset ratio
under a post-compliance scenario and constitute one of the tests used
by EPA to assess financial impacts to CAFOs. For the debt-to-asset
test, EPA assumed a threshold value of 40 percent, such that if an
operation's debt-to-assets measured more than 40 percent after
incurring the compliance costs, then EPA might consider this operation
to experience financial stress associated with the proposed
regulations, subject to other considerations. The basis for EPA's 40
percent test was USDA's financial classification of U.S. farms that
identifies an operation with negative net farm income and a debt-asset
ratio in excess of 40 percent as ``vulnerable.'' An operation with
positive net income and a debt-asset ratio of less than 40 percent is
considered ``favorable.'' EPA adopted this classification scheme as
part of its economic achievability criteria in assessing the change in
debt relative to asset at a regulated CAFO.
Commenters generally approve of using a debt-to-asset ratio in the
economic analysis, but criticize the baseline assumptions, how the
post-compliance ratio was computed, and the criteria chosen for the
threshold. However, some commenters claim that USDA's 40 percent
threshold value used by EPA in its baseline model to assess post-
regulatory debt-to-asset ratios does not reflect the financial reality
of today's livestock or poultry industry. Many commenters also note
that debt-to-asset ratios from USDA's ARMS data set do not represent
the current state of borrowing in many of these sectors. Specifically,
they assert that the ARMS data reflect a current debt position that is
too low, given that most operations face higher debt levels; also,
these data reflect an assumed equity position of more than 60 percent
that is considered too high to be representative of the livestock and
poultry industry. Commenters indicate that some operations typically
are highly leveraged, especially those operations that finance a large
portion of their livestock.
Several commenters noted that EPA's use of average debt-to-asset
ratios using the ARMS data fail to account for the wide range of
variability among farm operators, based on a variety of factors
including facility size and the age of the farm operators. One
commenter cited survey data for the hog sector indicating that although
average debt-to-asset ratios may fall within a range roughly at the 40
percent threshold, individual operations may operate below or above 40
percent depending on size of operation: generally, the majority of
smaller sized operations tended to have debt-to-asset ratios less than
40 percent (roughly 60 percent of operations in that size class)
whereas larger operations tended to have debt-to-asset ratios greater
than 40 percent (roughly 50-60 percent of operations in that size
class). Another commenter noted that operators seeking to expand their
operations to better compete may face a higher debt load.
Some commenters support the use of alternate data and assumptions
that reflect higher debt-to-asset ratios in the baseline model,
approaching 70 percent. Some indicate that a baseline of more than 60
percent is not unusual, with some operations with levels of 70 percent
to 80 percent. These comments are generally consistent with new
financial data received by EPA that indicates that baseline debt-to-
asset levels at some representative facilities in this industry exceeds
40 percent and tends toward 50 percent to 60 percent (see Section V.C.2
for more information).
Because of these comments, EPA is considering revising its debt-to-
asset threshold and will look into alternatives to USDA's 40 percent
value for those sector where alternative data support this approach
(i.e., if EPA uses alternate and/or supplemental data based on
submissions by NCBA for cattle feeding operations and FAPRI for hog and
dairy operations, as described in Section V.C.2). Most commenters
stated that financial stress would occur at operations facing debt-to-
assets ratios of roughly 60 percent to 80 percent. One commenter
suggested that a ratio of
[[Page 58583]]
more than 60 percent would be indicative of stress and that a ratio of
more than 70 percent would result in bankruptcy. The basis for this
recommendation cites farm credit information from the American Bankers
Association's Farm Financial Standards Task Force suggesting that debt-
to-asset levels in excess of 60 percent act as ``red light'' indicators
to lenders. EPA's own discussions with farm lenders also indicate a 60
percent debt level for ``typical'' operations. Most lenders require an
operation to retain a 40 percent equity base in the operation, although
lower bases may be acceptable, particularly where the majority of debt
is in short-term livestock loans or at very large operations.
Therefore, the 70 percent debt-to-asset ratios (reflecting a 30 percent
equity stake) at the very large operations represented in the NCBA
survey may reflect both of these factors. Another commenter suggested
assessing impacts based on the probability that an operation will
experience two consecutive years of negative cash balances, in
conjunction with a debt-to-asset ratio of greater than 70 percent in
the second year of incurring new debt associated with the regulations.
EPA requests additional information that further supports these and
similar suggestions for modifying the threshold values assumed for
purposes of conducting a debt-to-asset test.
Given these recommendations, EPA is considering revising the
existing assessment criteria threshold on a debt-to-asset test from a
40 percent level assumed in the proposal, unless EPA obtains
substantiated data to the contrary in comments to today's notice. At
this time, EPA is considering a threshold value on this test of 60
percent for small and medium operations, and 70 percent to 80 percent
for large operations--in certain sectors only. This revised threshold
value will be applied as a test within those sectors where available
data supports such an approach. At this time, based on available data
that EPA has obtained, these revised thresholds will likely be applied
within the beef, dairy, and hog sectors only. The basis for this
revised threshold value in these sectors is new data obtained by EPA
from FAPRI and NCBA indicating that operations in these sectors already
carry much higher debt loads than average data reported by USDA. EPA is
not considering revisions to the 40 percent threshold value for the
debt-to-asset test for the the poultry sectors because available data
does not support such an approach. Although a lender survey conducted
by EPA indicates that debt levels may also be high within these other
sectors, EPA did not receive data or information contrary to that
reported by USDA during the comment period. Which applicable threshold
level to apply for EPA's analysis will also depend, in part, on which
alternate or supplemental data EPA chooses for the purposes of its
analysis (for example, if EPA were to use available USDA data then the
higher threshold values would not apply). As part of this notice, EPA
also requests additional debt and asset data for these sectors, if
available.
d. Consideration of Debt Feasibility
For proposal, EPA did not directly assess a representative
operation's ability to service new debt. Many commenters criticize EPA
for not considering impacts in a way that takes into account all of the
cash outlays for an operation, including principal payments on loans to
purchase the required technology. These commenters feel that cash
outlays in the first year associated with a down payment might be
substantial and could critically deplete equity and make second year
cash flow requirements difficult. Today EPA presents how it is
considering to respond to this comment and solicits comment on this
approach.
Many commenters support a general assumption of 40 percent down
payment on new debt. The general basis cited for this recommendation is
the presumption that capital expenditures associated with compliance
are viewed as non-productive investments that are usually sized to a
particular operation's needs, therefore they not fungible or saleable
as a secondary or tertiary source of repayment for that note and may
even have negative value due to costs of removal and disposal. Given
these types of single-purpose livestock facility investments, some
commenters claim that banks would be reluctant to lend over 60 percent
to 65 percent of the total costs. Another commenter made the general
claim that a 40 percent down payment assumption is consistent with the
typical lender demand that the farm have 40 percent equity in the
operation after the loan is made. Few commenters provided documentation
from lenders to support a general recommendation of a 40 percent down
payment assumption.
Following the close of the comment period, EPA contacted many of
the commenters that made this recommendation to solicit additional
information on the necessary documentation to support this assumption.
In return, EPA received contact information of farm credit specialists
and additional information on recommended equity requirements. Because
the Agency recognizes the value of taking debt feasibility into
consideration, EPA has initiated its own review of what such an
assumption would entail, based on information about a typical down
payment. As part of this effort, EPA also conducted further evaluation
of how lenders assess the ability of an operation to service new debt
to determine whether such test is necessary and, if so, how such a test
would be incorporated into the Agency's analysis. This section provides
a summary of EPA's review. More detailed information is provided in the
record.
To review public comments received on this topic, EPA conducted a
wider review of documentation on farm lending practices and guidance
manuals, as well as contacted each of the farm lender contacts
submitted to EPA following the comment period and also other industry
credit specialists.
Initially EPA set out to determine a appropriate level of down
payment to assume as part of EPA's analysis. Based on EPA's preliminary
review of available farm credit information, EPA believes that a 40
percent down payment is not supported by a review of agricultural loan
requirements from several agencies. Instead, information collected by
EPA supports a down payment assumption of 20 percent to 30 percent.
This information is available for review in EPA's record. However, as
EPA was reviewing possible down payment assumptions to assume as part
of its analysis, it further became clear that the necessary financial
data to do such an analysis are limited. Few enterprise budgets report
cash reserves, and USDA data do not report cash reserves or cash
balances as a line item. As part of its data submission, new data from
FAPRI does include ending cash reserves, but these data are available
for a limited number of sectors. Without this information, it is not
clear whether EPA could evaluate if an operation would be able to
provide the necessary cash to make up a shortfall in borrowing. In
other words, even if EPA were to determine that it should consider a
down payment requirement as part of its analysis, it might not be able
to do this because of limitations in the available financial data. EPA
requests additional information on first year net cash and/or cash
reserves specified at the farm level for these sectors in order to
properly apply this recommended debt feasibility test uniformly across
each of the sectors. EPA also solicits comment on how EPA would conduct
such an analysis given the data limitations and also requests
[[Page 58584]]
new information backed by supporting documentation as part of today's
notice. Moreover, EPA solicits comment on whether such a test is even
necessary, for reasons outlined as follows.
As part of this effort to obtain addition farm credit information
to further supplement the Agency's economic models, EPA also
investigated how lenders assess the ability of an operation to service
new debt. In this process, EPA determined that if an operation has a
sufficient equity base, a down payment might be a misleading concept.
If a borrower were to take out a fixed term loan for an environmental
improvement, a lender would be likely to finance 60 percent of the
amount needed, similar to what many commenters pointed out. But the
borrower has other choices than cash reserves for the additional funds
needed. According to one lender, most farmers have access to other
sources of lending limited only by cash flow and equity considerations.
For these types of loans lenders are primarily concerned with cash flow
and equity base. Operations may typically use their fixed assets as
collateral and have access to borrowing (much like a homeowner might
have to a home improvement loan) that is limited generally to a point
at which their equity base would fall below 35 to 40 percent for a
typical operation. This translates to a 60 to 65 percent debt-to-asset
ratio on average. Two specialists contacted by EPA indicated that
lenders typically demand that the farm have 40 percent equity in the
operation after the loan is made. According to one of EPA's contacts,
however, borrowers with high levels of equity could borrow up to 100
percent of the necessary funds (and presumably could borrow any
necessary down payment under a fixed term loan). Thus as long as their
equity base remains sufficient (i.e., they do not exceed their credit
line), then obtaining additional funds should not be an insurmountable
problem for farms. Stated differently, as long as an operation meets
the threshold requirements of a debt-to-asset ratio, the operation
should be able to obtain the money needed to meet the requirements of
the CAFO regulations as long as cash flow remains sufficient to cover
the payments. This would mean that additional tests to account for a
down payment requirement as part of EPA's economic analysis are not
necessary given the types of analyses (debt-to-asset assessment and
cash flow analysis) already in place.
For its analysis supporting the proposed regulations, EPA assumed
that operations where the debt-to-asset ratio under a post-compliance
scenario exceeded a particular threshold might experience financial
stress. These operations are likely those that would have to find ways
to finance less than the full amount of the capital expenditure (i.e.,
make some sort of down payment, in effect, that might entail using any
cash reserves, liquidating assets, or undertaking other difficult
financial maneuvers). As a practical matter, these operations would be
exceeding what might be estimated to be their available credit line.
Assuming that these operations are automatically facing financial
stress is simpler than trying to determine whether they could somehow
manage a 40 percent down payment. Even if EPA was able to determine
whether such marginal operations could manage to borrow only a portion
of the necessary funds and pay for the rest out of pocket, the data to
do such an analysis are limited (as previously noted).
Additionally, at proposal, operations where the equity base is
sufficient prior to the regulations, but where the cash flow analysis
indicates that they may not be able to cover the annualized costs of
the regulations (which include both interest and principal payments, as
well as operating costs) are also considered to experience financial
stress. This may be considered as equivalent to assuming that lenders
would not offer them a credit line sufficient to cover this level of
expenditure. Lenders would also have determined that cash flow would
not cover this level of debt and consequently would have provided a
more limited credit line. EPA thus believes that the analysis performed
at proposal that takes into account both the equity base (in the form
of the debt-to-asset ratio) and the ability of cash flow to cover
annual costs functions in the same way and reflects many of the same
decisions used by lenders in granting access to credit.
For reasons presented here, EPA solicits comment on the assumption
that a down payment assumption is not necessary given the analysis
already in place, including EPA's joint analysis of debt-to-asset
ratios and also cash flow. If an operation does not exceed a debt level
considered problematic and if the analysis does not indicate cash flow
difficulties, EPA would assume that the operation would not face
financial stress as a result of the proposed requirements.
Consequently, the inclusion of a debt feasibility test that assumes a
certain percent down payment in addition to this analysis would not be
needed. EPA solicits comment on this assumption and requests that any
new information and recommendations as part of today's notice.
e. Consideration of Tax Savings
For the proposal, EPA calculated compliance costs to CAFOs both
under pre-tax and post-tax scenarios. The pre-tax costs reflect the
estimated total social cost of the proposed regulations, including lost
tax revenue to governments. Pre-tax dollars are used when comparing
estimated costs to monetized benefits that are estimated to accrue
under the proposed regulations. The post-tax costs reflect the fact
that a CAFO would be able to depreciate or expense these costs, thus
generating a tax savings. Post-tax costs thus are the actual costs the
CAFO would face. For this reason, EPA evaluated financial impacts to
CAFOs taking into account the tax savings to facilities (i.e.,
according to estimated post-tax costs) using available Federal and
State tax information to compute the expected tax shield for a
representative facility. More detail on this approach is provided in
Appendix A of EPA's Economic Analysis that supports the proposed
rulemaking.
Some commenters oppose EPA's use of post-tax costs to assess
financial impacts on the grounds that it is not appropriate to factor
tax savings into the cost of compliance for producers. They recommend
that EPA base its financial tests without the expected tax offset since
operations whose survival is in question would have no positive income
against which to offset these ``tax benefits'' but would be forced to
bear the full ``pre-tax'' costs of implementation. Related comments
recommend that EPA evaluate costs as a share of gross income (``sales
test'') using pre-tax and not post-tax costs. In addition, overall
commenters have expressed a preference that EPA evaluate compliance
cost impacts using various income and profitability measures based on
effects prior to consideration of tax offsets (such as net income
before taxes).
Previous regulatory impact analyses conducted by EPA have evaluated
compliance costs impacts on a post-tax basis using a standard cash flow
model, incorporating an annualization approach that accounts for tax
savings as well as depreciation at a business since these are more
reflective of the costs that are actually incurred by that business.
Given this longstanding practice that follows standard business and
accounting practices, at this time EPA is not considering revising its
approach to assess business impacts as part of the Agency's cash flow
analysis.
However, EPA is considering evaluating financial impacts for some
financial criteria using both post-tax and
[[Page 58585]]
pre-tax costs and will consider whether to jointly include these
analyses as part of its overall impact assessment. For example, for
proposal, EPA evaluates the ratio of costs to sales using post-tax cost
estimates. If EPA retains the sales test as a measure of the impact of
compliance, it will consider whether to instead evaluate pre-tax costs
of compliance as part of its sales test. If EPA decides to evaluate
compliance costs as a share of net farm income, it will consider the
use of pre-tax costs for this test as well. EPA solicits comment on
this approach.
f. Consideration of Various Cost Offsets
For the proposal, EPA did not consider the range of potential cost
offsets available to most farms. One source of cost offset is manure
sales, particularly of relatively higher value dry poultry litter. For
example, EPA has estimated that sales of dry poultry litter could
offset the costs of meeting the regulatory requirements on the order of
more than 50 percent; however, EPA did not formally consider this
analysis for the proposal. Another source of potential cost offset is
cost share and technical assistance available to farmers for on-farm
improvements from various State and Federal programs, such as the
Environmental Quality Incentives Program (EQIP) administered by USDA.
For example, cost sharing for eligible producers under EQIP may cover
up to 75 percent of the costs of certain conservation practices, such
as grassed waterways, filter strips, manure management facilities,
capping abandoned wells, and other practices important to improving and
maintaining the health of natural resources in the area. Technical
assistance is also available for formulating conservation plans. EPA
also did not formally consider these offsets as part of its analysis
for the proposal.
Comments by some State representatives have suggested that EPA
should account for the availability of cost share and technical
assistance in the Agency's cost and economic analysis, including, for
example, how producers might use these program dollars to help secure
loans for capital investment associated with regulatory compliance. To
address these comments, EPA may consider ways to evaluate the potential
cost savings to an operation in terms of available cost-share and
technical assistance. Such an approach is consistent with various
academic studies of economic impact analyses that have been conducted
in the past, which often take into account government assistance to a
facility as part of an overall assessment. A review of the available
literature demonstrating the use of such assumptions is provided in the
record. To conduct this analysis, EPA may estimate these cost offsets
using an approach similar to that previously conducted for other EPA
regulations affecting agricultural producers. For example, available
cost share program funding was considered as part of previous analyses
of management control measures for CAFOs under the Coastal Zone
Management Act, and was estimated at an average rate of $3,500 per
facility. EPA anticipates that these estimates will reflect cost share
assistance for new capital investments for each representative CAFO
model, annualized over the time period of the analysis (and subject to
certain program restrictions including program eligibility requirements
and other restrictions such as the types of investments covered, as
well as overall program funding limitations and availability of program
staff to provide assistance.)
In addition, EPA may also consider ways to evaluate the potential
income generated and/or cost savings to an operation from the sale or
use of manure by the CAFO as a fertilizer substitute. This analysis may
be based on the volume of manure nutrients estimated for each
representative CAFO model adjusted by the average reported value for
these nutrients (according to, for example, market prices for nitrogen,
phosphates, and potassium). The use of such an approach is also
consistent with much of the academic research conducted by the land
grant universities, as summarized in literature review conducted by EPA
of previous economic impact analyses to derive an average annual
offset.
EPA solicits comment on these approaches to consider various cost
offsets to incurred compliance costs, as described in this notice.
Also, as part of today's notice EPA requests information from States
and others on various conservation and assistance programs,
particularly in terms of the amount of program dollars available to
livestock and poultry producers through their State level cost-share
and technical assistance programs.
2. Alternate Data for Determining Baseline Financial Conditions at
CAFOs
For the proposal, EPA did not conduct a survey of all CAFOs to
obtain financial budgets for use in its analysis. Instead, EPA relied
on financial data from USDA's 1997 ARMS data to evaluate financial
impacts at regulated CAFOs. Data for representative farms were obtained
by USDA through special tabulations of the 1997 ARMS data, conducted by
USDA's Economic Research Service (ERS). These data differentiate
financial conditions among operations by commodity sector, facility
size (number of animals on site), and major farm producing region. Data
that EPA received from USDA were expressed for an operation's entire
business and included revenue from an operation's livestock business as
well as other enterprises at the facility, e.g., including crops,
government payments and other farm-related revenue (but excluding off-
farm revenue). Many commenters question the appropriateness of these
ARMS data to evaluate financial impacts to CAFOs particularly for
certain sectors. Most notably, USDA contends that its ARMS data are not
suitable for evaluating impacts to cattle feeding and hog sectors.
Other related issues about the ARMS financial input data include
concerns about the fact that these data are specified at the farm level
and are for a single year only (1997).
Today EPA presents additional data collected by EPA and also data
received for the cattle feeding and hog sectors from USDA, National
Cattlemen's Beef Association (NCBA), FAPRI, and other sources (Sections
V.C.2(a) through (c)). Following a description of the alternate and
supplemental financial data received or obtained by EPA is further
discussion of sources of alternate data for other sectors that EPA will
consider for use in its analysis to address concerns about the use of a
single year of data (Section V.C.2(d)) and also how to forecast out
data in EPA's financial models over the 10-year analysis period
((Section V.C.2(e)).
a. Alternative Financial Data for Cattle Feeding Operations
During the development of the proposed rulemaking, EPA received
alternative enterprise level data for the cattle feeding sector from
National Cattlemen's Beef Association (NCBA). These data provided
aggregated summary information on financial conditions at cattle
feeding operations based on responses to a survey questionnaire of its
membership. After a review of these data, however, EPA decided--for
reasons discussed below--not to base its economic analysis using NCBA's
data for the proposal. Instead, given the lack of other statistically
validated survey data for this sector, EPA used USDA's 1997 ARMS data
for beef operations despite recognition of the limitations of these
data for assessing cattle feeding operations. Both prior to EPA's
proposal and during the comment period, NCBA expressed concern that the
ARMS data are more
[[Page 58586]]
reflective of cow-calf operations and represent few feedlots and,
therefore, might not be representative of operations in this sector. In
addition, USDA has indicated to EPA that the available ARMS data are
more reflective of cow-calf operations and might not suitable for
evaluating impacts to cattle feeding operations. Iowa State University
also notes the inappropriateness of ARMS financial data to represent
beef feedlots.
EPA decided not to use NCBA's survey data for the proposal because
of questions about these data, including statistical representativeness
given a low survey response rate, lack of information on the
statistical methodology used to compute averages, inconsistencies with
other reported data by USDA, and other factors. EPA's assessment of the
NCBA survey data is contained in EPA's record for the proposed
rulemaking. Also, EPA determined that the NCBA survey data, if used,
might lead to difficulties in estimating impacts given questions about
NCBA's reported high debt-to-asset ratios in the baseline data that
appeared inconsistent with other data, including that from USDA. Use of
these data would have resulted in most cattle feedlots being assumed as
``baseline closures'' based on the criteria developed for EPA's
analysis; these operations would be excluded from analysis since they
would be assumed to close in the pre-regulatory baseline.
As part of EPA's public comment period, NCBA has submitted
additional financial data and information for cattle feeding
operations. This new data submission addresses many of EPA's initial
concerns about NCBA's previously submitted survey data by providing
additional information about how these data were collected and by
including additional diagnostic information that allows EPA to more
fully evaluate these survey data. And, based on information provided by
NCBA and other commenters, EPA has received additional information
indicating that the Agency's initial concerns about NCBA's reported
debt-to-asset ratios are largely unfounded (also see discussion in
Section V.C.1(c)).
Today EPA presents summary information on alternative financial
data for cattle feeding operations provided by NCBA as well as FAPRI
and Iowa State University. NCBA provided data developed on the basis of
a survey of their members. FAPRI provided enterprise budgets developed
by a panel of industry experts. Iowa State University provided
information on beef feedlots in Iowa that might be representative of a
``typical'' (roughly 300-500 head) enterprise in Iowa. The data
provided by these commenters are summarized briefly below and assessed
for their usefulness to EPA's analysis.
NCBA provided the results of a survey of their members. A total of
66 surveys with 1997 financial data, 72 surveys with 1998 data, and 73
surveys with 1999 data were returned by respondents, of which 54, 60,
and 58, respectively, were used by NCBA to characterize the finances of
the beef feedlots these surveys represent. These data are enterprise
level but include information on both company owned cattle and cattle
not owned by the feedlot but that are fed on-site (e.g., custom
operations). If EPA were to use these data, EPA would consider these
representative of both the enterprise and farm since these data are
more inclusive of a range of revenue sources. NCBA organized the survey
data to present average line items associated with three feedlot size
groups (0-10,000 head, 10,001-30,000 head and 30,000+ head). Regional
breakouts were not provided. NCBA presented gross receipts, total
operating costs, interest payments and receipts, net cash income,
depreciation, pretax net income, current assets, total assets, current
liabilities, total liabilities, and total equity. NCBA also provided a
variety of ratios, including debt-to-assets. These key parameters
represent an average over a 3-year period from 1997 to 1999.
FAPRI provided data that might also be used to characterize beef
feedlots. For its study, FAPRI convened a panel of experts ``to provide
a snapshot of each enterprise at a given point in time.'' These experts
developed information on the financial characteristics of each model
farm at the enterprise level for 2000. Data submitted are in the form
of full financial statements and include other information such as
beginning cash reserves, productivity measures, and feed efficiency.
The statements represent three sizes and two regions: A 500-head
Midwest operation, a 5,000-head Midwest operation, and a 30,000-head
Southern Plains operation. Although data are single year, other
information provided by FAPRI allow for a more extensive analysis of
expected changes over a 10-year period (2001-2011) based on FAPRI's
projections that take into account various pricing cycles. FAPRI did
not provide corresponding revenue and cost data at the farm level which
would allow EPA to appropriately conduct its discounted cash flow
analysis at the farm level (see Section V.C.1(b)).
Iowa State University also provided data on average feedlot
operations based on actual financial data for feedlots in Iowa.
Financial data collected by the university were averaged for 1991-2000
and broken out by type of animal (calf feeder versus yearling feeder).
Table 5-10 shows a summary overview of these alternate data. EPA is
considering using these data to characterize financial conditions at
beef feedlots and EPA solicits comment on the use of these alternate
financial data. EPA is considering using these data in a way that would
best match up EPA's estimated representative cost models that are being
developed for the final rulemaking (i.e., based on region and facility
size characteristics). More detailed information on these data are
provided in the record, along with a more thorough assessment and
comparison of these data against other available data is provided in
the record. This summary also describes publicly available enterprise
budget data for this sector that EPA has collected since proposal from
various land grant universities. For additional information on how the
results of EPA's analysis may change as a result of the use of these
alternate enterprise level data, as compared to the farm level data
used by EPA for the proposal, see the discussion provided in Section
V.C.1(b) of this notice.
Table 5-10.--Summary of Alternate Financial Data for Beef Feedlots
--------------------------------------------------------------------------------------------------------------------------------------------------------
Fixed/
Operating overhead Net D-A ratios
State/region date Sector/assumptions Revenue costs costs (incl. operating Net returns (In
depreciation) income percent)
--------------------------------------------------------------------------------------------------------------------------------------------------------
NCBA 1997-99 \1\.......................... 0-10,000 head............... $749 $721 $29 $15 ($14) 65
NCBA 1997-99 \1\.......................... 10,001-30,000 head.......... 853 818 13 26 14 69
NCBA 1997-99 \1\.......................... 30,000+ head................ 1,301 1,267 10 21 10 68
FAPRI 2000................................ beef 500 head (Midwest)..... 875 844 33 30 (3) 68
[[Page 58587]]
FAPRI 2000................................ beef 5,000 head (Midwest)... 875 850 36 25 (12) 72
FAPRI 2000................................ beef 30,000 head (Southern 875 851 35 24 (11) 73
Plains).
ISU 1991-00............................... Calves...................... 787 783 NA NA 5 \2\ 39
ISU 1991-00............................... Yearlings................... 856 844 NA NA 12 \2\ 39
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sources vary. For more information on the source of these data see EPA's record.
\1\ Net operating costs are actually net cash; fixed costs include only depreciation. All values are calculated on a per average occupancy basis, not on
a per-marketed head basis.
\2\ Average 1997-1999 over all farms.
b. Alternative Financial Data for Hog Operations
For the proposal, EPA used available USDA ARMS data for hog
operations to assess financial impacts to this sector. The principal
concern among commenters centered around the fact that the data used
represented a single year only (1997), a year that happened to be
relatively favorable to pork producers. In addition, as recognized by
EPA in the proposal, the available 1997 ARMS data used by EPA do not
reflect differences in financial conditions associated with differing
production and facility types in the hog sector. Specifically, the data
are for an average farm and do not distinguish between hog farrow-
finish and hog grow-finish operations, as well as independent owner-
operator and contract growers. Given potential differences in financial
conditions across these types of hog operations and the fact that the
prevalence of type varies by factors such as production region and
facility size, EPA acknowledged that use of these average data might be
problematic in terms of representing specific types of operations
within this sector. However, EPA did not have other readily available
financial data from which to base its analysis.
Today EPA presents summary information on alternative data provided
USDA and FAPRI. EPA is considering use of these data to supplement
available data from the 1997 ARMS database used by EPA for the
proposal. The USDA data are from a special ARMS survey conducted by
USDA in 1998 of the hog sector. FAPRI provided enterprise budgets
developed by a panel of industry experts. EPA is considering using
these data to characterize financial conditions at hog operations and
solicits comment on the use of these alternate financial data. More
detailed information on these data are provided in the record, along
with a more thorough assessment and comparison of these data against
other available data is provided in the record. This summary also
describes publicly available enterprise budget data for this sector
that EPA has collected since proposal from various land grant
universities.
The alternative hog data provided by USDA are based on hog cost and
return estimates for 1998 from information collected as part of a
special version of USDA's annual ARMS data. The survey obtained more
than 1,600 responses from 21 States. The survey target population was
farms with 25 or more hogs on the operation at any time during 1998 in
order to screen out farms with only a few hogs for on-farm consumption
or club project. Each surveyed farm represents a number of similar
farms in the population as indicated by its expansion factor. The
expansion factor, or survey weight, was determined from the selection
probability of each farm and thereby expands the sample to represent
the target population. The hog sample expands to represent about 95
percent of the U.S. hog inventory in 1998.
These data have been aggregated by USDA on an enterprise basis and
are broken out the four main production groups: Farrow-finish and grow-
finish operations, and independent owner-operator and contract grower
operations. The main advantage of these data is that they are broken
out by production type and reflect varying financial conditions for
different types of operations, particularly among contract grower
versus independent owner-operators where operating conditions can be
very different. However, in order for EPA to properly utilize these
data, the Agency needs information on the number of operations
nationwide and/or regionally within each of these four production
groups. Specifically, EPA does not have information needed in order to
estimate the number of contract grower operations in the hog sector. As
part of this notice, EPA requests additional data and information on
the number of operations within each of these four production hog
groups for use in EPA's final analysis of this sector.
These alternative hog data from USDA represent financial conditions
for all operations nationwide and do not differentiate by the
production region. The data are, however, differentiated by two major
size groups, including operations with more than 1,000 AU and
operations with between 300 and 1,000 AU. Among the key parameters
provided in USDA's aggregation include gross receipts, total operating
costs, net cash income, depreciation, pretax net farm income (the
latter are measured as USDA's definitions of net farm income, which
includes depreciation and nonmoney expenses and, for these data,
exclude off-farm income). Data provided to EPA do not include full
income statement and balance sheets for representative facilities,
which would allow EPA to evaluate other financial variables. The data
also include and total assets and liabilities specified at the farm
level only, and not the enterprise level. These alternative USDA data
do not include information on beginning cash reserves. The data
represent financial conditions for a single year (1998) only. All data
are expressed on a per animal (inventory) basis.
This initial submission by USDA does not include corresponding data
at the farm level. At this time, USDA is considering whether it is
possible to provide these data on a farm level basis in order for EPA
to conduct its discounted cash flow analysis (which is more
appropriately evaluated at the farm level, as discussed in Section
V.C.1(d)). If alternative data are not provided at the farm level, EPA
will continue to use available 1997 ARMS farm level data used by EPA
for the proposal. An alternative approach would be to use available
published ARMS farm level data for farrow-finish and grow-finish
operations that are expressed on a per animal
[[Page 58588]]
(hundredweight gain) basis, adjusted by EPA onto a per animal
(inventory) basis. USDA published farm level data is available at
http://www.ers.usda.gov/data/arms/Results99/drctab.htm.
FAPRI also provided data that might be used to characterize hog
operations. FAPRI provided enterprise budgets that reflect farrow-
finish operations in the Midwest and Mid-Atlantic regions. No
considerations have been made for differences between contractor and
independent operations. For its study, FAPRI convened a panel of
experts ``to provide a snapshot of each enterprise at a given point in
time.'' These data reflect information on the financial characteristics
of each model farm at the enterprise level for 2000. Although data are
single year, other information provided by FAPRI allow for a more
extensive analysis of expected changes over a 10-year period (2001-
2011) based on FAPRI's projections that takes into account various
pricing cycles. Data submitted are in the form of full financial
statements and include other information such as beginning cash
reserves, productivity measures, and feed efficiency. FAPRI did not
provide corresponding revenue and cost data at the farm level which
would allow EPA to appropriately conduct its discounted cash flow
analysis at the farm level (see Section V.C.1(b)).
Table 5-11 shows a summary overview of these alternate data. EPA is
considering using these data to characterize financial conditions at
hog operations and EPA solicits comment on the use of these alternate
financial data. EPA is considering using these data in a way that would
best match up EPA's estimated representative cost models that are being
developed for the final rulemaking (i.e., based on region and facility
size characteristics). More detailed information on these data are
provided in the record, along with a more thorough assessment and
comparison of these data against other available data is provided in
the record. This summary also describes publicly available enterprise
budget data for this sector that EPA has collected since proposal from
various land grant universities. For additional information on how the
results of EPA's analysis may change as a result of the use of these
alternate enterprise level data, as compared to the farm level data
used by EPA for the proposal, see the discussion provided in Section
V.C.1(b) of this notice.
Table 5-11.--Summary of Alternate Financial Data for Hog Operations
--------------------------------------------------------------------------------------------------------------------------------------------------------
Fixed/
Operating overhead Net
State/region date Sector/assumptions Revenue costs costs (incl. operating Net returns D-A ratios
depreciation) income
--------------------------------------------------------------------------------------------------------------------------------------------------------
FAPRI 2000................................ Hogs 2,400 sows (Midwest)... $46 $37 $6 $9 $3 66
FAPRI 2000................................ Hogs 2,400 sows (Mid- 46 37 6 8 2 67
Atlantic).
FAPRI 2000................................ Hogs 150 sows (Midwest)..... 46 39 5 7 3 56
FAPRI 2000................................ Hogs 500 sow (Midwest)...... 46 37 7 9 4 60
FAPRI 2000................................ Hogs 500 sow (Mid-Atlantic). 46 37 6 8 460
FAPRI 2000................................ Hogs (Pacific).............. 46 38 5 8 2 56
USDA 1998................................. Hog contract GF 300-1,000 92 88 32 5 (27) 25
head.
USDA 1998................................. Hog contract GF 1,000 head.. 92 87 17 8 (19) 36
USDA 1998................................. Hog indep. FF 300-1,000 head 71 67 61 4 (57) 20
USDA 1998................................. Hog indep. FF 1,000 head.... 80 61 38 19 (19) 24
USDA 1998................................. Hog indep. GF 300-1,000 head 80 86 39 (6) (45) 23
USDA 1998................................. Hog indep. GF 1,000 head.... 100 95 27 5 (21) 42
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sources vary. For more information on the source of these data see EPA's record.
c. Alternative Financial Data for Dairy and Broiler Operations
For some other sectors where enterprise data are not available or
have not been submitted--including the dairy, heifer and poultry
sectors--EPA is considering use of available enterprise budget data for
these sectors to supplement available data from the 1997 ARMS database
used in the proposal. Today EPA solicits comment on these data and
requests information on any additional sources of similar or alternate
data for the key livestock sectors. At this time, EPA has not received
or obtained any enterprise level data for the turkey and egg laying
sectors. As part of this notice, EPA is requesting any available data
for these two sectors. As part of this notice, EPA requests similar
enterprise budget information for the turkey and egg laying sectors.
Since the publication of the proposed CAFO regulations, EPA has
collected published ``enterprise budget'' data from various land grant
university sources in order to further evaluate the availability of
usable enterprise level data and information. Enterprise budgets show
some ``typical'' operations able to cover their variable expenses, and
in many cases to cover fixed expenses and provide the operator with
some return. However, many budgets indicate that--as a stand-alone
operation--the enterprise would not generate positive operating
earnings (that is, the operator is unable to cover operating expenses).
This may be explained by savings due to shared production costs among
multiple enterprises at a farm or due to integrated production
practices (such as the use of one enterprise, e.g., grain crops, as an
input to another, e.g., livestock operation), as well as support
through government subsidies.
As part of this effort, EPA has compiled enterprise budgets for
beef feedlots (14 budgets), farrow-finish hog operations (10 budgets),
grow-finish hog operations (5 budgets), dairy operations (7 budgets),
heifer operations (4 budgets), and broiler operations (3 budgets). The
range of sources included University of Idaho, Ohio State University,
Oklahoma State University,
[[Page 58589]]
Kansas State University, North Carolina State University, Ohio State
University, Clemson University, and University of Arkansas. The
enterprise budgets span a wide range of assumptions, including size and
type of operation, the type, age, or sex of animal raised, and also
feed and operating efficiency. The budgets varied greatly with respect
to line items, which items were considered variable or fixed, whether
depreciation and interest were reported separately, or whether a
capital recovery item or building and equipment charge was reported.
The year for which data in these budgets represents varies, tending to
be within the period from 1997 to 2000, with some exceptions. More
detailed information on these enterprise budgets are provided in the
record, along with a more thorough assessment and comparison of these
data against other available data is provided in the record.
For the dairy sector, among the sources of alternative financial
data that EPA is considering to supplement available data used for the
proposal is available enterprise budget data for dairy and heifer
operations compiled by EPA. A second source of alternative data for
dairy operations is from FAPRI, submitted to EPA as part of FAPRI's
analysis of this sector. These data consist of expert panel data for
six representative operations at the enterprise level, and are similar
in format to those described for beef feedlots and hog operations in
Sections V.C.2(a) and (b). A third source of alternate data for diaries
is USDA, who is intending to submit alternate financial data for 2000
from information collected as part of a special version of USDA's
annual ARMS data. This survey consist of information obtained from
about 900 responses from dairy producers in 22 States. If these
alternative ARMS data are provided to EPA, they will reflect enterprise
and/or farm level financial conditions similar to that provided by USDA
for the hog sector (as described in Section V.C.2(b)). Since data will
only be provided for a single year only (2000), EPA is considering ways
to derive these data onto a more representative basis by linking these
single year data up with other market and financial data for multiple
years (as discussed in Section V.C.2(e)). Table 5-11 shows a summary
overview of each of these alternate data. EPA is considering using
these data to characterize financial conditions at dairy operations and
would use these data in a way that would best match up EPA's estimated
representative cost models that are being developed for the final
rulemaking (i.e., based on region and facility size characteristics).
More detailed information on these data are provided in the record. For
additional information on how the results of EPA's analysis may change
as a result of the use of these alternate enterprise level data, as
compared to the farm level data used by EPA for the proposal, see the
discussion provided in Section V.C.1(b) of this notice.
For the broiler sector, EPA has collected enterprise budgets that
it is considering to use as a supplement to available 1997 ARMS data
used by EPA for the proposal. For this sector, three representative
broiler operations are available from the University of Arkansas (2000
data), Oklahoma State University (1997 data), and North Carolina State
University (1993 data). Table 5-12 shows a summary overview of these
alternate enterprise budget data. Given limited financial data at the
enterprise level for broiler operations, EPA is considering using these
data as a supplement to the 1997 ARMS data used for the proposal for
this sector. EPA solicits comment on the use of these alternate
financial data. More detailed information on these data is provided in
the record.
Table 5-12.--Summary of Alternate Financial Data for Dairy, Heifer and Broiler Operations
--------------------------------------------------------------------------------------------------------------------------------------------------------
Fixed/
Operating overhead Net
State/region date Sector/assumptions Revenues costs costs (incl. operating Net returns D-A ratios
depreciation) income
--------------------------------------------------------------------------------------------------------------------------------------------------------
KS 2000................................... 600 lactating cows, 19,000 $2491 $2739 $321 ($248) ($569) NA
lbs./cow.
KS 2000................................... 600 lactating cows, 24,000 3085 2956 321 129 (192) NA
lbs/cow.
KS 2000................................... 2,400 lactating cows, 19,000 2539 2621 287 (82) (369) NA
lbs/cow.
KS 2000................................... 2,400 lactating cows, 24,000 3145 2838 287 307 20 NA
lbs/cow.
ID 1998................................... Jerseys, 120 cows, 15,000 lb/ 2452 1830 359 622 263 NA
cow.
ID 1998................................... Holsteins, 210 cows, 20,000 2775 2258 224 518 294 NA
lbs/cow.
ID 1998................................... Holsteins, 210 cows, 22,000 3026 2365 350 660 310 NA
lbs/cow.
FAPRI 2000................................ 250-cow (Mid-Atlantic)...... 3115 2605 292 510 218 0.41
FAPRI 2000................................ 500-cow (Mid-Atlantic)...... 3115 2474 291 641 350 0.41
FAPRI 2000................................ 1,000-cow (Southern)........ 3168 2527 288 641 352 0.45
FAPRI 2000................................ 250-cow (Midwest)........... 3094 2584 292 510 218 0.41
FAPRI 2000................................ 500-cow (Central)........... 3072 2510 291 562 271 0.46
FAPRI 2000................................ 1,000-cow (Pacific)......... 3254 2533 288 721 432 0.40
OH 1999................................... Small Breed Heifer.......... 1150 1154 123 (4) \1\ (127) NA
OH 1999................................... Large Breed Heifer.......... 1200 1381 123 (181) \1\ (304) NA
ID 1998................................... Holstein, 210 head heifer... 1268 1053 117 215 98 NA
ID 1998................................... Jersey, 127 head heifer..... 942 754 141 189 48 NA
OK 1997................................... 134,300 birds sold per year. 0.275 0.090 0.088 0.184 \1\ 0.096 NA
NC 1993................................... 105,320 birds sold per year. 0.255 0.077 0.077 0.178 0.102 NA
AR 2000................................... 313,500 birds sold per year. 0.298 0.098 0.159 0.200 0.041 NA
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sources vary. For more information on the source of these data see EPA's record.
[[Page 58590]]
\1\ Property taxes and interest not included or not broken out in this budget.
d. Alternative Data To Supplement Available Financial Data for a Single
Year
For the proposal, EPA used available USDA's ARMS data for each of
the livestock and poultry operations affected by the proposed
regulations to assess financial impacts to these sectors under post-
compliance scenarios. The available data for these sectors was 1997.
Although data were only available for a single year, for most sectors,
financial data for 1997 was fairly representative of average market
conditions in recent years. For some sectors, such as for the hog
sector, the available 1997 data was less representative of average
conditions in recent years since 1997 happened to relatively favorable
to pork producers. By comparison market conditions for the hog sector
were particularly poor for this sector during 1998-1999, given large
decreases in producer prices. These concerns about the use of 1997 ARMS
data to assess facility impacts in the hog sector was acknowledged by
EPA to be problematic; however, EPA did not have additional alternate
financial data from which to base its analysis.
As discussed in earlier in Section V.C.2, EPA has received
alternate data for some sectors, including hog and cattle feeding
operations, that it is considering using for its analysis, if convinced
of the superiority of that data to the data used for the proposal. To
address concerns about the use of a single year of data for the
purposes of EPA's analysis, the Agency is considering an approach to
link up available financial data to other market and financial data for
preceding and subsequent years. The type of data that may be used for
this purpose would include, but not be limited to, commodity price and
income information to represent changes for a representative facility's
revenue, as well as feed costs or corn and/or soybean prices to
represent changes for a representative facility's operating costs. This
approach would provide an attempt to level out financial conditions
over a three- or five-year period to derive data that are more
representative of average conditions within a particular sector--for
example, providing better characterization of year-to-year changes and
pricing cycles--and avoid potential misrepresentation due to use of a
single year of available data.
An example of how this approach would be utilized for the purpose
of this analysis is as follows using available financial data for the
hog sector. This sector is used for this example because financial data
used by EPA for the proposal as well as alternate data being considered
for EPA's final analysis may be regarded as less than representative or
average conditions, since 1997 ARMS data reflect conditions when hog
prices were relatively high and 1998 ARMS data reflect conditions when
hog prices were relatively low. Because of concerns about
misrepresentation, EPA is considering ways to derive more average,
representative data across a few years (say, 1997-1999) based on an
extrapolation from other available market and financial data to
represent a longer-term average representation of revenues, costs and
returns.
There are two possible approaches that EPA is considering. The
first approach involves using price indices representing hog prices and
feed prices, as well as cost indices representing other cost of
production factors (Commodities, Services, Interest, Taxes, and Farm
Wage Rates). The second approach that EPA is considering would use USDA
estimates of hogs costs and returns, which are from the same ARMS
survey, to establish a set of indices based on these data. Using
available financial data for 1998, on an enterprise specific basis,
these indices can be applied to approximate financial returns for other
years (e.g., 1996-2000). Given potential data limitations and unforseen
difficulties in adopting such an approach, the only other alternative
would be to use a single year of data since publicly available data is
not available to characterize these sectors over a multiple year
period. EPA solicits comment on the preferred approach that the Agency
should use--either single year or EPA-derived multiple year data based
on available data and information.
e. Alternative Data To Project Out Financial Data Over the 10-Year
Analysis Period
For the proposal, EPA projected future earnings from the 1997 ARMS
baseline data based on USDA's Agricultural Baseline Projections to
2009. USDA projections are expressed on a per-unit basis (i.e., cash
returns per animal or per-unit output). These projected values were
linked to USDA's 1997 ARMS data by first translating the USDA-projected
changes onto a per-animal basis, using available market information,
such as average per-animal yields reported by USDA and/or annual
marketing cycles based on industry data. Once USDA's projections were
expressed on a per-animal basis, future earnings are approximated by
applying the incremental national average change (dollars per animal)
between each year during the forecast period to the 1997 baseline data
for each representative model CAFO. These revised cash streams over the
forecast period are presented in EPA's Economic Analysis.
Many commenters express concerns about EPA's use of the USDA's
forecasts, primarily because they fail to account for variability of
returns year-to-year. Commenters point out that the methods used by
USDA to derive these forecasts do not account for supply and demand
shocks in the baseline that may dampen pricing cycles common in many of
these sectors. Since USDA's price forecasts may not account for the
real and emerging price risks faced by producers from exogenous and
random shocks, this may understate financial stress with respect to
cash flow over the forecast period. Also, according to commenters, the
USDA forecasts and methods fail to capture dynamic, secondary effects
of interspecies shifts, and the dynamic interaction between an
individual operation's year-to-year financial performance and the
overall change in supply and demand for the entire meat industry.
To address this concern EPA is considering using other available
timeline data by FAPRI that accounts for these types of price shocks in
order to develop its long-term agricultural baseline estimates. These
data are available for review in FAPRI's ``2001 U.S. Baseline Briefing
Book'' available at FAPRI's website. These data may also be used in
conjunction with other baseline results generated by FAPRI's model,
including upcoming updates to FAPRI's baseline as well as additional
work conducted by FAPRI in connection with its review of EPA's proposed
CAFO regulation (see, ``FAPRI's Analysis of the EPA's Proposed CAFO
Regulation'' and also ``Financial Impact of Proposed CAFO Regulations
on Representative Broiler Farms''). These reports are provided in EPA's
record and are also available at FAPRI's website at: http://www.fapri.missouri.edu/FAPRI_Publications.htm.
EPA solicits comment on the use of these data for depicting
expected price changes over EPA's 10-year analysis period (1997-2006).
A potential necessary adjustment that EPA may need to make prior to
using FAPRI's data is to remove the effects of inflation in these
values by backing out the
[[Page 58591]]
assumed inflationary rates. This is consistent with EPA's longstanding
practice whereby only the effects of a new regulatory action is
evaluated without the effects of inflation. This approach is also
consistent with OMB and EPA guidance. EPA solicits comment on this
approach for the purposes of using FAPRI's data for its analysis.
VI. Changes to EPA's Environmental Assessment
EPA received comments on the methodologies and data used to
estimate CAFO pollutant loadings and air emissions associated with the
proposed regulatory options, as well as data and methodologies used to
perform surface water modeling and to evaluate the presence of
pathogens, antibiotics, and hormones in CAFO wastes. Some commenters
provided EPA with alternative suggestions for these analyses and
estimates. Today's notice presents the suggestions currently under
consideration by EPA for use in the environmental assessment.
A. Estimates of ``Edge-of-Field'' Pollutant Loadings
For proposal, EPA modeled ``edge-of-field'' pollutant releases (or
``loadings'') from the application of manure, manure storage
structures, and feedlots. The loadings were estimated for several
sample farms for baseline conditions and each proposed regulatory
option. The Groundwater Loading Effects of Agricultural Management
Systems (GLEAMS) model was used to estimate the loadings from land
application areas receiving manure and/or commercial fertilizer.
GLEAMS is a field-scale model that simulates hydrologic transport,
erosion, and biochemical processes such as chemical transformation and
plant uptake. The model uses information on soil characteristics and
climate, along with characteristics of the applied manure and
commercial fertilizer, to model losses of nutrients, metals, pathogens,
and sediment in surface runoff, sediment, and ground water leachate.
EPA solicited input from USDA to refine the loadings analysis using the
GLEAMS model. Based on these discussions, EPA is considering increasing
the number of sample farms to better characterize runoff from CAFOs, in
particular to better account for varying climate and soils and to
incorporate revised data on crop rotations and nutrient uptake.
More specifically, at proposal, EPA modeled five sample farms for
each animal type representing various regions of the country (Central,
Mid-Atlantic, Midwest, Pacific, and South). EPA is now considering
defining additional sample farms by sector, size, and land availability
class using USDA data from the 1997 Census of Agriculture, as well as
the 1997 National Resources Inventory. This methodology is consistent
with the original proposal. Alternatively, EPA may use data derived
from USDA's published reports, such as ``Confined Animal Production and
Manure Nutrients'', the draft report ``Profile of Farms with Livestock
in the United States: A Statistical Summary'', and ``Confined Animal
Manure Nutrient Data System,'' for additional sample farm development.
These aggregated data modeled from the 1997 Census of Agriculture and
the 1997 National Resources Inventory, are available in the record.
This aggregated state level data provides farm counts, manure
application rates based on crop nutrient requirements, and total acres
by crop type. EPA would use this aggregated data to develop additional
sample farms, representing different farm sizes and soil types. EPA
would then disaggregate results from GLEAMS to estimate loadings by
size of operation, animal sector, and land availability class based on
the distribution of collectible manure described in USDA's report
``Manure Nutrients Relative to the Capacity of Cropland and Pastureland
to Assimilate Nutrients'', and subsequent reports.
Improved characterization of cropping rotations and potential
nutrient uptake on sample farms may be developed from the 1997 Census
of Agriculture and the 1997 National Resources Inventory. EPA is also
considering increasing the number of soils modeled for each sample farm
from one to three to better represent the diversity of soil types at
CAFOs. Data summaries from the 1997 Census of Agriculture and the 1997
National Resources Inventory are available in the record.
EPA recognizes the potential for subsurface drainage effects on
``edge-of-field'' loadings but data are currently inadequate to model
these effects. EPA also recognizes that improved animal genetics and
feeding strategies may alter manure nutrient characteristics. Due to a
lack of new data and the difficulties of characterizing those changes,
EPA anticipates continuing to use manure characteristics used in the
original model analysis unless sufficient alternative data become
available.
EPA is continuing to evaluate the use of the Better Assessment
Science Integrating Point and Nonpoint Sources (BASINS) model
(described in Section VI.B) to provide additional information for
modeling pathogen loads, loads from the production area, and manure
storage lagoon effects.
B. Surface Water Modeling
For proposal, EPA used the estimates of pollutant loadings and a
distribution of AFOs and CAFOs in the National Water Pollution Control
Assessment Model (NWPCAM) to develop estimates of changes in surface
water quality. Based on new data and suggested methodologies, EPA is
evaluating whether the Better Assessment Science Integrating Point and
Nonpoint Sources (BASINS) model can be used to provide additional
analysis of surface water impacts.
The BASINS model supports the analysis of point and nonpoint source
management alternatives and can support the analysis of a variety of
pollutants at multiple scales. BASINS contains five categories of
components: (1) National databases; (2) assessment tools for evaluating
water quality and point source loadings at a variety of scales; (3)
utilities including local data import, land-use and DEM
reclassification, watershed delineation, and management of water
quality observation data; (4) watershed and water quality models; and
(5) post processing output tools for interpreting model results.
BASINS includes integration of the Soil and Water Assessment Tool
(SWAT) model, developed by the USDA's Agricultural Research Service
(ARS). SWAT is a watershed-scale model developed to predict the impact
of land management practices on water, sediment, and agricultural
chemical yields in large complex watersheds with varying soils, land
use, and management conditions over long periods of time.
Using BASINS, EPA developed a case study to model environmental
impacts and potential improvements associated with the proposed
regulations. EPA modeled the Middle Neuse River (HUC# 03020202) in
North Carolina for swine farms. The input data sets used include: (1)
Farm locations; (2) crop types, cropping dates, and crop rotation from
the December 1997 USDA report entitled ``Usual Planting and Harvesting
Dates for U.S. Field Crops''; (3) 100-year weather data; (4) manure
application rates and timing; and (5) frequency of manure storage type.
As part of the case study, EPA estimated baseline loadings to surface
waters at specific locations using a yearly average of a 100-year run
for nitrogen, phosphorus, sediment, and metals; where feasible,
baseline loadings for pathogens, hormones, and antibiotics were also
estimated. Relative changes in water quality as a result of
[[Page 58592]]
pollutant load changes were assessed for nitrogen, phosphorus,
sediment, and metals, and, where feasible, for pathogens, hormones, and
antibiotics. EPA is considering expanding this case study method to the
dairy, beef, broiler, turkey, and layer sectors. EPA solicits comments
on this approach. This case study is available in the record for
today's notice.
C. Pathogens, Antibiotics, and Hormones
During the comment period, EPA received new data on the presence of
pathogens, antibiotics, or hormones in fresh animal manure, storage
lagoons, ground water, and surface water. For example, a review of
literature by Mulla et al. (1999) found there were no significant
differences in fecal bacteria levels in surface runoff from manured
versus unmanured or grazed versus ungrazed lands. Furthermore, rate,
method, or timing (spring versus fall) of manure application had little
effect on fecal bacteria counts in surface runoff. Much of the new data
received by EPA pertains to antibiotic resistance. EPA is considering
ways to incorporate these new data into its analyses. These new data
are available in the record.
EPA also received data on the effectiveness of certain treatment
technologies in reducing the level of pathogens in animal waste and
associated effluents. These technologies include anaerobic lagoons,
aerobic lagoons, digesters, constructed wetlands, overland flow, solids
separation, and alkaline treatment. Many of these technologies have the
potential to achieve substantial pathogen reductions, depending on
their mode of operation, but several factors may greatly impact the
efficiency of these technologies. Most of these technologies are time
dependant (some requiring months of residence time) and pathogen
reduction may be lower with reduced residence time. Continuous addition
of manure also reduces the efficiency of pathogen removal or
destruction for some technologies. Other technologies operate best when
treating waste with specific solids content (e.g., constructed wetlands
and composting), or when operating under specific temperature ranges
(e.g., anaerobic thermophilic digesters, constructed wetlands, and
thermal processes). EPA is considering ways to incorporate these new
data into its analyses. These new data are available in the record.
D. CAFO Air Emissions
Based on additional data and comments received, EPA is considering
revising some of the methodologies for estimating air emissions from
CAFOs, as well as the quantification of benefits associated with
reduced air emissions. EPA solicits comment on these potential
revisions, which are discussed below.
1. Estimating Air Emissions from CAFOs
Since proposal, EPA has continued to gather additional data on the
type and quantity of air emissions from CAFOs (``Air Emissions from
Animal Feeding Operations'', Draft, available in the record). EPA has
requested the National Academy of Science (NAS) review the scientific
issues and make recommendations related to characterizing the swine,
beef, dairy, and poultry AFO industry; measuring and estimating
emissions; and analyzing potential best management practices, including
costs and technological feasibility. The NAS review is expected to
focus on emissions of PM10, PM2.5, hydrogen sulfide, ammonia, odor,
VOC, methane, and nitrous oxide. NAS will recommend approaches for
characterizing emission profiles and identifying emission mitigation
techniques, including: (1) The use of process characterization at model
farms to estimate emissions from individual farms, (2) modeling
approaches for estimating emissions, (3) monitoring or measurement
methods of emissions, (4) modeling approaches for determining off-site
impacts, (5) modeling approaches for determining ammonia deposition
patterns, (6) emission mitigation technologies and management
practices, including capital and operating costs, and methods for
validating the effectiveness once installed, and (7) critical research
needs with appropriate methodological approaches.
EPA has evaluated the new data presented today to determine whether
changes in air emission methodologies are warranted for the non-water
quality impacts assessment. Based on these data, EPA has identified
three areas for possible revision: alternative emission factors,
revised methane methodology for anaerobic lagoons, and revised boundary
conditions. Today's record includes a memorandum discussing these
potential changes.
a. Revised Emission Factors
EPA has identified the following revisions to emission factors for
certain pollutants or animal operations based on values found in the
peer reviewed literature: (1) More recent emission factors for
transportation emissions of VOC, NOX, CO, and PM are
available from the Mobile 6 model, maintained by the Office of
Transportation and Air Quality, (2) additional emission factors for
ammonia and hydrogen sulfide emissions from swine deep pit operations,
(3) additional emission factors for ammonia emissions from dairy
drylots, broiler and turkey cake and litter storage, and land
application, (4) an emission factor for hydrogen sulfide emissions from
land application of swine manure, and (5) a correction to the emission
factor used for nitrous oxide emissions from poultry housing without
bedding.
In addition, for proposal, the emission rates for ammonia and
hydrogen sulfide from lagoons and ponds were dependent on the size of
the impoundment. EPA used this approach to reflect expected increases
in emissions that would occur with Option 7, which required larger
storage lagoons and ponds. However, EPA now believes the available flux
factors may significantly overestimate the increased emissions.
Therefore, EPA is considering revising this methodology to use emission
factors that do not vary based on the size of the lagoon or pond.
b. Revised Methane Methodology for Anaerobic Lagoons
For proposal, estimates of methane emissions were based on guidance
developed for international reporting of greenhouse gas emissions (IPCC
2000) and used by EPA to develop the annual inventory of greenhouse gas
emissions. The basic methodology, which bases methane emissions on the
mass of volatile solids excreted, the maximum methane production
potential per unit mass of volatile solids excreted (which is animal-
type specific), and a management-specific methane conversion factor
(MCF), has not changed. Since November 2000, EPA refined the
methodology to calculate MCFs for anaerobic lagoon systems to better
account for long-term storage of manure in these systems.
At proposal, anaerobic lagoon MCFs were calculated using the Van't
Hoff-Arrhenius equation and annual average regional temperatures to
estimate the effect of temperature on volatile solids degradation and
methane generation under anaerobic conditions. The MCFs were then
adjusted using a factor of 1.35 for regions with annual average
temperatures exceeding 20 deg.C and a factor of 1.75 for regions with
annual average temperatures below 20 deg.C. These factors accounted for
the relatively long hydraulic and solids retention times associated
with these systems, which allows organic matter to break down over
time. EPA has, since proposal, refined this methodology to specifically
calculate the monthly generation of
[[Page 58593]]
methane and the expected retention of volatile solids in the lagoon
from month to month. The refined methodology is documented in the
``Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-1999''
(EPA 236-R-01-001, April 2001).
c. Revision of Boundary Conditions
At proposal, EPA estimated non-water quality impacts for changes in
air emissions that occurred only at the feedlot's production and land
application areas, as well as those transportation-related emissions
from hauling manure off site. EPA did not include changes in emissions
occurring at the off-site land application area. For example, EPA
estimated the loss of nitrogen as ammonia when manure is applied to
cropland at the CAFO; however, EPA did not include similar ammonia
emissions that occur when CAFO-generated manure is land applied off
site. EPA is considering expanding the non-water quality impacts to
include off-site releases associated with land application.
2. Quantifying the Benefits of Reduced Air Emissions
At proposal, EPA presented a qualitative discussion of the health
and environmental impacts of air emissions from CAFOs in the
Environmental Assessment for the proposed rulemaking. EPA also
quantified certain air emissions as part of the non-water quality
analysis of the proposal, but did not quantify or monetize any of the
human health or ecological benefits from any changes in air emissions
attributable to the proposed rule. In the analysis for the proposed
rule, EPA quantified changes in emissions for methane, carbon dioxide,
nitrogen oxides, volatile organic compounds, particulate matter (PM),
and carbon monoxide. EPA is now considering the feasibility of
developing quantified and monetized estimates of the benefits of
changes in health effects resulting from changes in air emissions from
CAFOs, if data are available.
PM represents a broad class of chemically and physically diverse
substances. It can be principally characterized as discrete particles
that exist in the condensed (liquid or solid) phase spanning several
orders of magnitude in size. All particles equal to and less than 10
microns are called PM10. Fine particles can be generally defined as
those particles with a diameter of 2.5 microns or less (also known as
PM2.5). The health and environmental effects of PM are strongly related
to the size of the particles; fine particles are considered to be more
harmful to human health because their small size enables them to
penetrate more deeply into the lungs.
Particulate matter has been linked to a range of serious
respiratory health problems. Scientific studies suggest ambient
particulate matter likely contributes to a series of health effects.
The key health effects categories associated with ambient particulate
matter include premature mortality; aggravation of respiratory and
cardiovascular disease (as indicated by increased hospital admissions
and emergency room visits, school absences, work loss days, and
restricted activity days); aggravated asthma; acute respiratory
symptoms, including aggravated coughing and difficult or painful
breathing; chronic bronchitis; and decreased lung function that can be
experienced as shortness of breath. PM also causes damage to materials,
soiling of commonly used building materials and culturally important
items such as statues and works of art, and is a major cause of
substantial visibility impairment in many parts of the U.S.
Livestock production is one of the major sources of air emissions
of ammonia which, in turn, leads to PM production when the ammonia
volatilizes. Volatilized ammonia can contribute to the formation of
both ammonium sulfate and ammonium nitrate, which are two of the main
components of fine PM. In some areas of the country, ammonia is
believed to be the limiting factor in the formation of ammonium sulfate
and ammonium nitrate. In these areas, reductions in ammonia emissions
would result in reductions of both ammonium sulfate and ammonium
nitrate, with a possible corresponding reduction in fine PM and the
associated adverse health effects. Increases in ammonia emissions
could, in turn, result in increased adverse health effects. The
atmospheric reactions involving PM fine formation are very complex and
the changes in health effects would be highly dependent on the
formation of other particles in the absence of ammonia, some of which
could be more hazardous. Modeling these changes is highly dependent on
the accuracy of ammonia emission estimates.
Additional detail and background on this process is contained in
the record for today's notice. EPA solicits comment generally on the
feasibility of these approaches and requests information on data and
studies not included in the record that could be used for these
analyses.
VII. New Information Related to the Proposed NPDES Regulations
A. Ducks and Horses
Following publication of the proposed rulemaking, EPA received
additional information that is leading the Agency to consider other
size thresholds for determining whether duck and horse operations are
CAFOs and subject to NPDES permitting. Specifically, EPA is considering
two alternative thresholds for ``dry lot'' duck operations. EPA is also
presenting for consideration two options for revising the horse
threshold that could be used in whatever approach is adopted in the
final rulemaking, whether two-tier or three-tier.
The preamble to the proposed rulemaking discusses the relevance of
the proposed regulation for the duck, horse and sheep sectors. While
the effluent guideline for these sectors is not being revised, the
changes to the NPDES regulation would affect them. Operations that are
defined as CAFOs that have greater than 1,000 AU would continue to be
subject to the existing effluent guidelines and standards (as they are
in the existing regulation), while those with 1,000 AU or fewer would
be issued permits with technology-based requirements determined by the
permit writer based on best professional judgment.
As discussed in the proposed rulemaking, EPA limited its economic
analysis to those animal types that produce the greatest amount of
manure and wastewater in the aggregate while in confinement and,
therefore, did not analyze the horse, sheep/lamb or duck sectors. EPA
stated its belief that most horse and sheep/lamb operations are not
confined and, therefore, are not subject to permitting; thus, the
impacts in these sectors are expected to be minimal. Most duck
operations, on the other hand, probably are confined. EPA requested
comment on the effect of the proposed regulation on the horse, sheep/
lamb, and duck sectors.
EPA used the size thresholds under the existing regulation as a
basis for adjustments to be consistent with the general restructuring
of the NPDES regulation. Consequently, the size of operations under the
different threshold options of the co-proposed two-tier and three-tier
alternatives would have been as depicted in Table 7-1.
[[Page 58594]]
Table 7-1.--Size of Operations Under Different Threshold Options
------------------------------------------------------------------------
Sector 1,000 AU 500 AU 300 AU
------------------------------------------------------------------------
Ducks.................................. 5,000 2,500 1,500
Horses................................. 500 250 150
Sheep/Lambs............................ 10,000 5,000 3,000
------------------------------------------------------------------------
Once defined as CAFOs, operations in these sectors would be
affected by all the other general changes that were proposed, such as
elimination of the 25-year, 24-hour storm permit exemption; the duty to
apply for an NPDES permit; land application and Permit Nutrient Plan
requirements; and other miscellaneous permit conditions described in
the proposed rulemaking.
The horse and duck communities raised a variety of concerns with
the proposed regulation. Both sets of commenters specifically
questioned the reasonableness of the original threshold values that
were used to realign these sectors under the new structure.
As described in the proposed rulemaking (66 FR 3013, January 12,
2001), the legislative history indicates that the threshold numbers
initially established by the Agency were based generally on a statement
by Senator Muskie when the Clean Water Act was enacted. Senator Muskie,
floor manager of the legislation, stated that: ``Guidance with respect
to the identification of `point sources' and `nonpoint sources,'
especially with respect to agriculture, will be provided in regulations
and guidelines of the Administrator.'' 2 Legislative History of the
Water Pollution Control Act Amendments of 1972 at 1299, 93d Cong, 1st
Sess. (January 1973). Senator Muskie then identified the existing
policy with respect to identification of agricultural point sources as
generally that ``runoff from confined livestock and poultry operations
are not considered a ``point source'' unless the following
concentrations of animals are exceeded: 1000 beef cattle; 700 dairy
cows; 290,000 broiler chickens; 180,000 laying hens; 55,000 turkeys;
4,500 slaughter hogs; 35,000 feeder pigs; 12,000 sheep or lambs;
145,000 ducks.'' Id. In the original CAFO regulations, the Agency and
commenters agreed that, while Senator Muskie's statement provided
useful general guidance, particularly in support of the idea of
defining CAFOs based on specified numbers of animals present, it was
not a definitive statement of the criteria for defining a CAFO. 41 FR
11458 (Mar. 18, 1976). The Agency thus looked to data with respect to
the amount of manure generated by facilities above the threshold, the
operating characteristics in each sector, and the number of facilities
potentially covered by the regulation.
1. Ducks
EPA is considering retaining the size thresholds contained in the
existing regulation for ``wet lot'' duck operations, but is considering
two alternative methods for establishing new, separate threshold
equivalents for ``dry lot'' duck operations.
Table 7-2.--Alternative Thresholds for Duck Operations
----------------------------------------------------------------------------------------------------------------
1,000 AU
number of 500 AU number 300 AU number
ducks of ducks of ducks
----------------------------------------------------------------------------------------------------------------
Proposed Rule: All Confined Ducks............................... 5,000 2,500 1,500
NODA Option: Wet Lot Systems.................................... 5,000 5,000 1,500
NODA Options: Dry Lot Systems--NODA Option A.................... 30,000 15,000 10,000
NODA Option B................................................... 100,000 50,000 30,000
----------------------------------------------------------------------------------------------------------------
The Technical Development Document for the 1974 effluent guideline
indicates that there were 13 million ducks raised in 1969, primarily in
New York, Indiana, Wisconsin, California and Illinois. At that time wet
lots comprised 80 percent of duck operations, predominantly in the
eastern U.S., and 45 percent of all ducks were raised on eastern Long
Island, New York. Ninety-five percent of ducks were market ducks, and
five percent were breeder ducks.
In its analyses for the original rulemaking in 1974, EPA initially
evaluated two subcategories for ducks: wet lots and dry lots. Wet lots
have sloped edges leading to a swimming area; dry lots are buildings
usually with flushing troughs placed under the wire floor. EPA's
selection of the 5,000 head threshold for ducks was based largely on
the predominance of wet lot systems and the birds' direct contact with
water. The effluent guideline applies to both wet lot and dry lot
operations.
Information provided by commenters on the demographics of duck
operations and the characteristics of duck manure and wastewater argues
for reevaluating the number of ``dry lot'' ducks that would meet the
thresholds for being defined as CAFOs under either a two-tier or three-
tier structure. EPA notes that using the existing threshold under
either structure would cause most duck operations to be subject to
NPDES regulation.
Today, almost all duck operations are dry lot operations.
Commenters provided information to the Agency that indicates that most
duck operations now use confinement methods that are similar to those
used in the chicken sector, where the animals do not come into contact
with water. Therefore, they suggest, the thresholds should be similar
to those EPA is considering for poultry (30,000 birds, 50,000 birds,
and 100,000 birds, respectively, for the 300 AU, 500 AU and 1,000 AU
equivalents). Other commenters suggest setting a threshold (rounded off
by EPA) of 10,000 birds (300 AU), 15,000 birds (500 AU) or 30,000 birds
(1,000 AU). The latter threshold values would represent a more moderate
change from the regulatory threshold of 5,000 ducks, and would take
into account the larger quantity of manure that ducks generate compared
to chickens. EPA is considering whether to adopt either of these
suggested thresholds.
Concomitant with selecting either of these alternatives for dry lot
duck operations in the final rulemaking, EPA is considering retaining
the existing threshold of 5,000 ducks for wet lot operations. Very few
duck operations in
[[Page 58595]]
the U.S. use wet lots, and may not warrant increased regulation by
lowering the threshold to, say, 2,500 ducks should a two-tier structure
at 500 AU be selected. By retaining the current thresholds, operations
covered under the existing regulation would remain subject to the
revised regulation, but an unnecessary expansion to smaller operations
would be avoided.
According to the 1997 Agricultural Census (United States Department
of Agriculture, National Agricultural Statistics Service, 1997 Census
of Agriculture) there are 30,452 farms with ducks and 8,918 farms with
duck sales. Information provided by the duck industry indicates that
approximately 24 million ducks are produced in the United States by
approximately 7 processors as of 2001. Three-fourths of all ducks are
raised by one processor. Approximately 10 million birds are raised at
operations located in Indiana, 7 million in Wisconsin, 3 million in
California, and the remaining 4 million primarily in New York and
Pennsylvania.
An operation with grower ducks would typically have 13 turns per
year, although a few operations have as many as 19 turns per year. As
shown in Table 7-3, a count of operations from five of the seven major
duck processors indicates that most facilities have fewer than 30,000
ducks at a time, and very few have greater than 100,000. Almost all are
dry lot operations. Forty-nine percent of duck manure is produced by
the largest ten percent of operations.
Table 7-3 summarizes the distribution of duck facilities and manure
generated derived from these data.
Table 7-3.--Dry Lot Ducks: Facility Counts and Manure Generated
----------------------------------------------------------------------------------------------------------------
Cumulative
Number of percentage Manure Percentage Cumulative
Bird count facilities of (tons/yr) of manure percentage
facilities of manure
----------------------------------------------------------------------------------------------------------------
2,500-3,000.................................... 48 100 132,000 3.6 100.0
4,000-10,000................................... 65 77 455,000 12.5 96.4
11,000-15,000.................................. 33 45 429,000 11.8 83.8
16,000-25,000.................................. 31 29 635,500 17.5 72.0
26,000-30,000.................................. 7 14 196,000 5.4 54.5
31,000-50,000.................................. 11 10 445,500 12.3 49.1
90,000......................................... 2 5 180,000 5.0 36.9
117,000........................................ 3 4 351,000 9.7 31.9
144,000........................................ 2 3 288,000 7.9 22.2
165,000........................................ 2 1 330,000 9.1 14.3
190,000........................................ 1 1 190,000 5.2 5.2
----------------------------------------------------------------
205 ........... 3,632,000 100.0 ...........
----------------------------------------------------------------------------------------------------------------
Setting the 1,000 AU threshold equivalent at 30,000 birds for dry
lot operations would result in an estimated 20 or so facilities subject
to NPDES permitting, with another 70 or so potentially subject to
provisions of the middle tier (300-1,000 birds) under a three-tier
structure. This would account for about 45 percent of all duck
operations and provide coverage for 84 percent of duck manure. Under a
two-tier structure with a 500 AU threshold, about 60 facilities, or 29
percent of all operations, would be CAFOs subject to permitting, and
about 72 percent of duck manure would be covered.
Alternatively, if EPA sets the 1,000 AU threshold for dry lot
operations at sizes equivalent to the chicken sectors, 8 facilities
would be defined as CAFOs and subject to permitting under the three-
tier structure, with another 13 facilities potentially subject to the
middle tier provisions (ten percent of operations covering 49 percent
of manure). Under a two-tier structure at a 500 AU threshold,
approximately 10 facilities, or five percent, would be defined as
CAFOs, covering 37 percent of duck manure.
All of these possible alternative thresholds would represent an
equivalent or, in most cases, higher threshold than is in the existing
regulations and, therefore, would result in fewer duck operations being
defined as CAFOs. Accordingly, EPA concludes that the costs and
economic impacts that would be associated with the alternatives
presented today would be lower than the costs associated with both the
existing and proposed regulations regarding duck operations.
Permits for dry lot as well as wet lot duck operations would
continue to be based on the existing effluent guideline, which is
applicable to all duck operations with greater than 5,000 ducks.
EPA requests comment on whether to adopt either of these
alternative options for dry lot and wet lot duck operations. EPA is
also soliciting more complete data concerning the number and size of
duck operations in the U.S.
2. Horses
EPA is considering revising the threshold for the number of horses
that would determine whether or not a facility is a CAFO and subject to
NPDES permitting. EPA is presenting for consideration two alternative
options for revising the horse threshold that would be used in whatever
approach is adopted in the final rulemaking (i.e., whether the Agency
decides to adopt a two-tier or three-tier structure).
According to the Technical Development Document supporting the 1974
effluent guideline, the existing guideline applies only to commercial
horse operations, defined as racetracks, resort ranches and riding
stables, with more than 500 horses. It does not apply to horses kept
for commercial farm use or for pleasure uses. Any commercial horse
operation that meets the definition of a CAFO, and that has more than
500 horses in confinement, will continue to be subject to the existing
effluent guideline as the effluent guideline for horse feedlots is not
being revised in this rulemaking. The revised NPDES regulation, on the
other hand, could apply to any type of confined horse operation; any
permit issued to a horse operation not covered by the existing effluent
guideline would contain the technology-based requirements established
in the permit based on the best professional judgment of the permit
writer, consistent with 40 CFR 122.44(a) and 125.3(c).
Many public commenters requested that EPA classify horses by body
weight, with the assumption that one horse weighs 1,000 pounds. The
existing regulations establish the animal unit
[[Page 58596]]
(AU) equivalent for horses as 2 AU per horse. As a result, 500 horses
represent 1,000 AU under the existing regulation. A review of the 1976
Technical Development Document indicates this was based on biochemical
oxygen demand (BOD) of manure from thoroughbreds, in comparison to
other animal sectors. However, information EPA is making available
today on manure content suggests that BOD and phosphorus content of
manure from a typical 1,000 pound horse may be more similar to manure
from a 1,000 pound beef cow, and that the nitrogen content of manure
from horses and beef cattle may be similar. Based on this information,
it may not be appropriate to adopt the reduced thresholds considered in
the proposed regulation. However, the facilities most likely to be
permitted are racetracks, where horses are fed a high carbohydrate diet
and manure nutrient content is potentially different from that of
typical horses. EPA is still analyzing data submitted to evaluate how
nutrient content of race horse manure with specialized diets compares
with that of horses with average diets.
Commenters also point out that, in 1976, when the original rule was
written, the horse industry numbered approximately 7.5 million horses,
of which one percent, or approximately 75,000, were actively involved
in racing at any given time--race tracks being the type of horse
facility most likely to be permitted. In 2001, there are an estimated
6.9 million horses, with one to two percent involved in racing, and are
spread across the nation. Such data indicates that this industry is not
growing or consolidating in the same dramatic manner that is seen in
other sectors, and, combined with the relatively modest numbers of
horses in confinement, poses less risk to the environment than do other
animal sectors listed in the NPDES regulations.
Data submitted by industry suggest that there are 225 facilities
that offer pari-mutuel horse racing in the U.S. These range from small,
fair-type facilities with few stalls which operate for only a few days
a year, to large commercial tracks with hundreds of stalls, operating
for many months. These facilities involve Thoroughbred, Standardbred,
Quarter Horse and Arabian racing. Preliminary data submitted by
industry suggests that approximately 90 facilities meet the 45-day-in-
confinement criterion, but the stall capacity of all of these is
unclear. EPA is interested in receiving more complete information on
the racetrack industry, as well as information on the number and size
of non-racetrack facilities.
In order to fully evaluate additional regulatory options for horse
operations, EPA would need to examine further both the manure content
of racetrack horses compared to typical horses, and the extent of the
potential impact of the revised thresholds on non-racetrack horse
facilities. If the proposed rulemaking primarily affected racetracks,
it would be reasonable to change the threshold if racehorses qualify
for a change in the threshold. Therefore, EPA needs to examine whether,
in fact, race horse manure is similar to beef cattle manure in quantity
or content. Conversely, if the altered permitting thresholds would
impact a large number of non-racetracks, it could support an upward
revision of the thresholds.
Table 7-4.--Relative Pollutant Characteristics of Beef Cow and Horse
Manure
------------------------------------------------------------------------
Size of BOD Nitrogen
Animal animal (lbs/ (lb/ Phosphorus
(lbs.) day) day) (lb/day)
------------------------------------------------------------------------
Beef Cow........................ 1,000 1.6 0.34 0.092
Horse........................... 1,000 1.7 0.30 0.071
------------------------------------------------------------------------
Source: ASAE Standards 2000, ASAE D384.1 Dec99, Manure Production and
Characteristics.
As summarized on Table 7-5, EPA is considering two alternative
means for addressing the horse sector under the revised regulation.
Table 7-5.--Alternative Horse Thresholds
------------------------------------------------------------------------
3-Tier (1,000 2-Tier
AU/300 AU) (assuming 500
(horses) AU) (horses)
------------------------------------------------------------------------
Proposed Rule........................... 500/150 250
NODA Option A........................... 500/150 500
NODA Option B........................... 1,000/300 500
------------------------------------------------------------------------
In the proposed rulemaking, EPA proposed to use the existing
thresholds as the basis to proportionately scale the thresholds under a
two-tier structure. Thus, since 500 horses equal 1,000 AU, 250 horses
would equal 500 AU.
Under the first alternative option for horses (NODA Option A), EPA
would retain 500 horses as the regulatory threshold regardless of
whether a two-tier or three-tier structure were selected. In other
words, 500 horses would be the equivalent of 500 AU in the proposed
two-tier structure, and 1,000 AU in the proposed three-tier structure.
Thus, EPA would not change the horse thresholds either higher or lower,
but would retain the existing thresholds in whatever structure is
adopted in the final regulation. Such a decision would be premised on
the recognition that this sector is relatively small and increased
regulation is unnecessary. Facilities subject to the existing
regulation would continue to be covered. Under the second alternative
option for horses (NODA Option B), EPA would adopt commenters'
suggestion to modify the threshold such that one horse would be
equivalent to one AU under both the three-tier and two-tier scenarios.
EPA requests comment on the two new options, and requests that
commenters supply the following additional data to assist EPA in
evaluating these options: data comparing nutrient content of race horse
manure to that of non-race horses; complete data on the number of
confined horse operations, differentiating those at racetracks from
those that are not racetracks; and the number of horses confined at
each.
B. Cow/Calf Operations
EPA is considering revising how cow/calf pairs are counted in
temporary confinement areas such as birthing areas of pasture-based
cow/calf operations. It has not been EPA's intention to regulate
(through the existing or proposed CAFO rules) pasture-based or
rangeland operations. However, a farm or facility that utilizes
pastures or rangeland may also have pens, lots, barns, or stables where
animals are ``stabled or confined'' for portions of their lives.
Provided that these areas meet the other AFO definition requirements,
these confinement areas would meet the definition of AFO under either
the existing rule or the proposed rule. For example, a beef operation
that uses rangeland to support most of its herd may have a number of
pens where animals are kept for short periods of time for birthing,
veterinary care, or other purposes. Provided that these pens confine
animals for 45 days or more in a 12-month period and meet the AFO
definition's vegetation criteria, the pens themselves are AFOs.
Further, if these pens confine the requisite number of animals and meet
other conditions, the AFO would then be considered a CAFO. For purposes
of determining whether the facility is a CAFO, only animals in
confinement are counted.
EPA received many comments expressing concern over the impact of
this regulation on small beef operations. The commenters expressed
concern over a wide range of issues potentially
[[Page 58597]]
affecting their operations, that in the aggregate assumes EPA proposed
to regulate pasture-based operations. While the final rulemaking will
address the many different issues raised, EPA wishes to stress that the
regulations apply only to animals in confinement. Thus, for example, a
1,000 head rangeland-based beef operation with 200 head in confinement
at any given time would only count the 200 head to determine whether
the confinement area meets the conditions for being considered a CAFO.
The current regulations do not distinguish between beef cattle of
different size or weight. Thus, immature beef cattle have always been
counted as one animal and, therefore, a cow/calf pair in confinement
would be counted as two animals under both the existing and proposed
regulation. As a result of public comment, however, EPA is now
considering revising how cow/calf pairs are counted in temporary
confinement areas such as birthing areas of pasture-based cow/calf
operations. A cow/calf pair potentially would be counted as one animal,
which would be consistent with how EPA treats immature animals in other
sectors, e.g., dairy and swine. Such a change could alleviate concern
expressed by commenters about the effects of the proposed rulemaking on
small, pasture-based beef operations with temporary confinement areas.
One possible definition of a cow/calf pair would count the pair as
one animal, but would count them as two animals where weaned offspring
are kept longer than 120 days. EPA requests comment on whether to count
cow/calf pairs as one animal in the beef sector and, if so, for what
period of time offspring should be considered part of the cow/calf pair
rather than counted independently.
C. State Flexibility and Innovation
1. State Non-NPDES Programs
EPA received many comments from the regulated community and from
State agencies saying that many States have active and effective non-
NPDES programs that, in many cases, are as effective as or more
comprehensive than EPA's NPDES program, although they may differ in
certain respects. Commenters felt that requiring States to implement
what they view as the inflexible requirements of NPDES would drain
State resources and impede effectiveness of their own programs. In
particular, many State commenters asserted that facilities with less
than 1,000 animal units are often best managed through these existing
state programs. Some States requested complete recognition of their
non-NPDES programs as ``functionally equivalent'' to NPDES, in order to
exempt them from operating an NPDES program for CAFOs. Others requested
flexibility to rely on State non-NPDES programs and focus NPDES efforts
only where needed, particularly with respect to regulating facilities
with fewer than 1,000 AU.
The Clean Water Act specifically defines point sources as including
CAFOs, and authorizes EPA to issue NPDES permits to point sources. EPA
may approve State programs to implement NPDES, and EPA regulations list
the elements that all NPDES programs must contain. Those elements, for
example, include (1) federal enforceability; (2) public participation;
(3) citizen suits; (4) 5-year permit terms, and (5) permit conditions
and limitations designed to limit the discharge of pollutants and
protect water quality. Facilities required to be covered by an NPDES
permit must obtain a permit from an agency authorized to issue NPDES
permits. Thus, in order for a program to be ``functionally
equivalent,'' it would have to issue permits that meet all these
elements.
The requirements for State NPDES program authorization are
specified under Sec. 402(b) of the CWA and within the NPDES regulations
(40 CFR part 123). These provisions set out specific requirements for
State authorization applicable to the entire NPDES program.
EPA believes, however, that flexibility could be provided to State
programs within the design of those portions of the NPDES program
relating to CAFOs. For example, although the CWA requires CAFOs, as
point sources, to be covered by an NPDES permit, it leaves the
definition of CAFO to EPA. While EPA believes that the current and
proposed CAFO NPDES program provides a reasonable degree of flexibility
consistent with CWA requirements, we are today soliciting comment on
alternatives that could more explicitly allow States to continue their
non-NPDES programs while still incorporating a degree of federal
oversight to ensure public accountability for protection of water
quality.
EPA received many comments on whether to adopt either the two-tier
or three-tier structure of the NPDES rule. Today's notice is not
addressing these comments (including specific elements of the middle
tier conditions in the three-tier structure, the proposed certification
process, and other elements). Those issues will be addressed in the
final rulemaking.
EPA through today's notice is seeking comment on ways to provide
additional flexibility for recognizing the value of well-developed non-
NPDES State programs. EPA believes the proposed regulation includes
several options to provide flexibility under both a two-tier and a
three-tier approach. Today's notice discusses two additional ways to
provide flexibility for middle-tier facilities under a three-tier
approach. In both these new options, EPA would still require permits of
the largest CAFOs that meet the regulatory threshold, such as those
with greater than 1,000 AU, but States could seek flexibility to
address smaller operations (i.e., middle-tier operations with 300 AU to
1,000 AU and those with less than 300 AU) using non-NPDES programs.
Under these two options, for the middle-tier operations, EPA would
set forth a definition of CAFO that could vary depending on whether the
State had a non-NPDES program that adequately addressed manure
management for operations of this size. If the State does have an
adequate program, it would be entitled to greater flexibility in how it
manages CAFOs under the NPDES program. As discussed below, this
flexibility could take two basic forms. First, an NPDES-authorized
State could alter its CAFO definition for middle-tier operations to
contain a tailored set of conditions different from what would be in
the federal regulations defining which operations of this size are
CAFOs. Second, the State could adopt a simpler regulatory structure
than would otherwise be required (i.e., two-tier versus three-tier).
This flexibility in the CAFO definition would recognize that the
appropriate management of middle-tier operations under the non-NPDES
State programs minimize water quality impacts from these facilities to
such a degree that EPA is justified in altering the definition of who
needs to be permitted in this category of facilities.
a. State Flexibility Alternative 1: Flexibility Under NPDES for Middle
Tier
The first State flexibility alternative would apply in the case
where EPA would adopt a three-tier structure in the final rule. All
CAFOs with greater than 1,000 AU would be required to obtain an NPDES
permit; for those with fewer than 1,000 AU (or whatever regulatory
threshold is selected in the final regulation), EPA would in this
alternative grant specific negotiated flexibility to a State for a
portion or portions of the NPDES program in order to facilitate
effective State non-NPDES programs that assist smaller operations
[[Page 58598]]
to avoid meeting the middle tier conditions for being defined as a CAFO
under NPDES. In this manner, States would be able to utilize their
existing non-NPDES programs to minimize the number of AFOs that would
otherwise become subject to NPDES permitting. EPA would grant the
flexibility through the existing NPDES program modification process,
discussed below. EPA would use the relevant program assessment criteria
discussed in following sections to evaluate the adequacy of the State
program in the areas of the requested flexibility.
One type of flexibility EPA might provide for middle-tier
operations is negotiation of the time frame for when the revised CAFO
definition would take effect within the State. The intent would be to
give States sufficient time to implement their non-NPDES programs,
provided that the State has a plan for active enforcement and
compliance for middle-tier facilities under the existing regulation
during the negotiated period. By allowing the State time to carry out
appropriate management of animal feeding operations under its non-NPDES
program, the effect could be that fewer operations in the State would
meet the conditions for being defined as a CAFO once the revised
regulations go into effect. During the phase-in period, the middle-tier
conditions under the existing CAFO definition would remain in force
(direct discharge, water of the U.S. running through the facility).
After the negotiated phase-in period, the revised middle tier
conditions would take effect.
Another type of flexibility EPA is now considering in order to
recognize an adequate State non-NPDES program is to allow the State to
adopt a CAFO definition that has a different set of conditions for
being defined as a CAFO for the middle tier operations. EPA would work
with a State to determine how to modify the CAFO middle tier
conditions. For example, if the State has an alternative method for
addressing excess manure statewide, a tailored condition could be
devised to replace middle-tier conditions that would otherwise apply in
the final rule to address excess manure. Finally, if the State has a
program for targeting watersheds at risk, specific conditions or
requirements could be developed to target CAFOs in those watersheds.
EPA might also offer this flexibility on an interim basis. As a
variation on this alternative, a State could implement for a limited
period an alternative set of middle tier conditions based on those in
the current regulation in order to allow the State to focus resources
on high risk facilities.
This alternative could include a good faith flexibility option for
first time discharges at middle-tier AFOs that are not CAFOs. The
State's regulations could provide that if the State program succeeds in
correcting the deficiencies at a middle-tier facility that led to the
one-time discharge, the facility remains outside the definition of a
CAFO if there is just that one time occurrence. Failure to correct the
deficiencies in a timely way, or recurrence of a discharge, would cause
the facility to be defined as a CAFO, to require a permit, and to be
subject to enforcement under NPDES. Even for first-time discharges,
however, owners or operators would have a duty to notify the permit
authority and to seek assistance in correcting the problem. Failure to
do so would result in a reporting violation under Section 308 of the
CWA.
EPA seeks comment on this flexibility and on other possible
specific means of granting flexibility that States may be interested in
to facilitate implementation of their non-NPDES programs for middle-
tier facilities. EPA also seeks comment on ways the State could
demonstrate an assurance that the program will continue to meet the
criteria used to obtain approval for the State program, described
below.
b. State Flexibility Alternative 2: Opt-Out From NPDES for State
Programs Covering Facilities Below the CAFO Threshold
In the second State flexibility alternative, EPA would recognize
effective State non-NPDES programs by allowing States with such
programs to define CAFOs under a two-tier NPDES structure, while other
States would be required to continue to define CAFOs under a three-tier
structure. In this alternative, under the two-tier structure,
facilities over 1,000 AU (or the final regulatory threshold) in States
with approved non-NPDES programs would be CAFOs and would be required
to obtain an NPDES permit while facilities with fewer than 1,000 AU
would not be CAFOs, unless designated by EPA or the permit authority.
In this alternative, when States amend their NPDES programs to
incorporate the requirements of the final revised regulation, they
would submit a description of their non-NPDES program for smaller AFOs,
those under 1,000 AU. EPA would evaluate, as part of the modification
review process, whether the State non-NPDES program provides enough
assurance such that EPA could determine that the AFOs in the middle
tier posed sufficiently lowered risk of discharging as to make them
unlikely to be considered a point source. Upon approval by EPA, the
State would be allowed to operate under a two-tier NPDES structure, in
which permits would be required only of large CAFOs (e.g., those over
1,000 AU) or those that are designated. States that do not apply for
this alternative, or States that fail to obtain approval of their
alternative program, would be required to implement the middle tier
requirements of the three-tier structure, assuming it is adopted in the
final regulation.
In this case, although States would not be operating an NPDES
permitting program for the middle tier, federal accountability would
still be retained since the State would be expected to pursue NPDES
permitting and enforcement actions against facilities that continue to
fail to adopt the controls called for under the State AFO program.
States would still have the authority to designate AFOs below the
regulatory threshold as CAFOs and, under the proposed rule, EPA itself
could also designate facilities of this size as CAFOs if the State has
not done so.
EPA is soliciting comment on the flexibility options described
above, and is also seeking additional comments on other approaches to
provide States with greater flexibility, in recognition of effective
State non-NPDES programs for manure management.
c. EMS as a Basis for State Flexibility
States would be encouraged to consider the use of Environmental
Management Systems (EMSs) as a tool in either of the flexibility
options described above to enhance their State programs, particularly
in areas such as manure management, identifying and tracking AFOs,
providing systems of accountability, and public participation. EMSs can
be a key aspect of a permitting and/or voluntary program in achieving
environmental goals and addressing a full range of significant
environmental impacts. EMSs currently are being used in certain
portions of the AFO industry. As discussed more fully in the section
below entitled ``Environmental Management Systems,'' EPA is considering
several additional options for including flexibility in the regulations
to recognize the value of EMSs as a tool for helping operators to
achieve performance goals.
d. Process for Granting Flexibility
EPA envisions that under the alternatives described above, a State
would be required to apply for the flexibility it is interested in when
it submits an NPDES program modification in order to implement the
final CAFO rule. (A State could also do
[[Page 58599]]
so at a later date, but would be required to adopt EPA's approach for
regulating middle-tier facilities until an alternative State program
was approved.) EPA could require public review of the proposed
modification by designating the modification as a ``substantial
modification'' under 40 CFR 123.62. The NPDES program modification
process is described in 40 CFR 123.62 and in guidance issued in 1986
(National Pollutant Discharge Elimination System State Program Guidance
for Development and Review of State Program Applications and Evaluation
of State Legal Authorities, at 40 CFR parts 122-125 and 403, Volume
One, July 29, 1986). The regulations provide that EPA can make a case-
by-case determination for each modification as to whether it is
``substantial'' and, therefore, must undergo public notice and comment
prior to approving the modification. The basis for making this
determination as described in the guidance is (1) the degree of public
interest and (2) the magnitude of change to the State's program.
EPA seeks comment on this approach and on the advisability and need
to seek public comment prior to granting any flexibility.
e. State Program Assessment Criteria
EPA would establish performance criteria for any alternative non-
NPDES State program that is a candidate for NPDES CAFO program
flexibility to assure national consistency in facility standards and
environmental outcomes. Presented below are a set of performance
criteria EPA is considering for making this evaluation. These criteria
would enable EPA and the public to assess a State's readiness to
operate part or all of its non-NPDES program in lieu of the final
rule's requirements for the middle tier. EPA seeks comment on the
criteria and their ability to serve as the basis for an assessment of
non-NPDES State programs.
The most revealing measure of a State program's effectiveness at
reducing the risk of a discharge from AFOs would ultimately be water
quality monitoring data and attainment of state water quality
standards. EPA is considering whether and to what extent this type of
information could be useful in evaluating the effectiveness of the
State program. Among the challenges to be addressed would be a need to
understand how existing water quality data, including whether the State
is achieving water quality standards, could predict the effectiveness
of State programs in preventing future discharges and/or maintaining
water quality standards in the future. EPA requests comment on these
issues.
In addition to actual water quality monitoring, EPA believes
certain programmatic performance measures can serve as criteria for
assessing the effectiveness of a State program. While favorable answers
to questions posed under each criterion in and of themselves do not
guarantee program effectiveness, collectively they can serve as
indicators of environmental performance and are generally viewed as
characteristic of State programs that exhibit leadership in feedlot
management. Therefore, to be considered effective, EPA is considering
requiring through the regulations that any alternative State program
would need to meet some or all of the following criteria, which are
discussed in more detail below: (1) Identify and track AFOs in a
systematic manner; (2) adopt facility standards for development of
technically sound CNMPs for all AFOs and zero discharge from the
production area; (3) establish performance measures that provide
feedback on the efficacy of CNMPs; (4) implement a system of
accountability (e.g., inspection, compliance, enforcement); (5)
demonstrate resources are adequate to meet program objectives,
including delivery and management mechanisms for technical assistance
and funding; and (6) contain provisions for public participation that
meet or exceed CWA objectives for participation.
Through today's notice, EPA seeks comment on these criteria as a
valid basis for assessing whether a State non-NPDES program is
sufficient for allowing the flexibility in the CAFO definition
described in this section. EPA also seeks comment on any burden
associated with meeting these criteria and whether there is an
alternative set of criteria (including some or all of these or other
criteria), which would increase flexibility for State non-NPDES
programs while ensuring adequate protection of water quality from CAFO
discharges.
Identify and track AFOs. EPA has observed in the past that a
State's ability to track its AFOs is highly correlated with a program's
effectiveness. To assess a State's ability to meet this criterion, EPA
would need to determine that the State's program adequately and
reasonably addresses the following elements: (1) How does the State
identify and track AFOs? (2) Is there a State permitting or
registration program for smaller AFOs? (3) What thresholds are used for
permits, registration, or other tracking mechanism? (4) What terms and
conditions are used for permits or registration? (5) How many
facilities are covered by State permit(s)/registration compared to
absolute numbers of AFOs? (6) In which cases does the State use non-
NPDES general permits and individual permits?
As an example of a effective tracking program, EPA is aware of one
State that has a comprehensive registration component that serves as a
basis for referring facilities for technical and financial assistance.
To identify the target universe of AFOs, the State works with local
conservation districts to inventory the facilities. This information is
then entered into a tracking system, and serves as the basis for
scheduling site visits to the AFOs.
EPA requests comment as to what extent AFOs should be identified
and tracked to assure environmental performance of non-NPDES State
programs. EPA further solicits examples of how this is done in
effective State programs.
Facility standards for development of CNMPs and for zero discharge
from the production area. The goal of the NPDES provisions in the CAFO
rule is to minimize environmental impacts either directly from a
facility's animal production areas or through the use and application
of the nutrients generated at the facility. Therefore, EPA would need
to find that an alternative State program at a minimum provides for
adequate development of CNMPs and ensures that facilities will meet
zero discharge standards. To evaluate a State's ability to meet this
criterion, EPA would need to evaluate the following: (1) How will the
State work with AFOs to help them develop CNMPs? (2) How are overflows
from manure storage areas prevented? (3) What lagoon seepage rate is
allowed? (4) What other controls does the State promote?
The goal of the USDA/EPA Unified Strategy for Animal Feeding
Operations is to promote development of CNMPs for all AFOs. A CNMP
incorporates conservation practice standards that go beyond basic
nutrient management planning, and incorporates a variety of practices
to preserve water quality. In addition, the EPA proposed regulation
includes a zero discharge standard, requiring beef and dairy facilities
to be designed, operated and maintained to prevent discharge in less
than a 25-year, 24-hour storm, and limiting swine and poultry
facilities from discharging in any non-catastrophic storm. EPA would
evaluate whether the State program adequately addresses both the CNMP
and zero discharge goals. EPA solicits comment on whether and to what
extent requirements for CNMPs and zero discharge from the production
areas for
[[Page 58600]]
AFOs in the middle tier could be met through State Non-NPDES programs.
In general, EPA would take into account all aspects of the State
program that demonstrate control of pollutants from AFOs. To that end,
EPA would also take into account features of the program that go beyond
direct NPDES requirements, such as bans on new construction, phase-out
of lagoons, or controls on air, odor or ground water. An example of a
program that goes beyond the proposed NPDES requirements is a State
that requires AFO operators to seek and obtain construction permits
based on design standards that are more stringent than NPDES standards.
Other examples may exist as well, and EPA would welcome such
information.
Establish performance measures. An effective State program would
need to have in place measures that provide feedback on the program's
ability to control water quality impacts from nutrients, sediment, and
other conventional and nonconventional pollutants associated with
CAFOs. Despite the challenges often inherent in collecting and
analyzing these data, EPA believes that a State's activities in
establishing environmental baselines and measuring trends (e.g., trends
for nutrient loading) can help demonstrate the program's intent and
maturity. In assessing a State's performance measures to control water
quality impacts, EPA would consider whether the State has undertaken
efforts to understand sources, fate, and transport of pathogens and
antibiotics since this is an emerging water quality issue. EPA requests
comment on what kind of performance measures, if any, EPA should
consider requiring.
Implement a system of accountability. Facility standards, however
rigorous, are without value if there is no corresponding effort to
ensure adherence to the standards. Consequently EPA believes that an
important indicator of an effective State program is how the State
works with facilities once they are identified as AFOs. EPA would
evaluate whether the State's program provides adequate accountability
based on the following criteria: (1) What is the frequency of
inspections or site visits? (2) What happens once a complaint is
received? (3) What is the relationship with EPA? (4) How is EPA kept
informed of actions at facilities? (5) At what point are federal
enforcement authorities applied? (6) What steps are taken if a problem
or potential problem is detected at a facility (e.g., referral to local
industry group, agricultural agency, or other organization for
technical assistance services; regulatory agency compliance/
enforcement procedures; fines; etc.)? (7) What voluntary efforts are
underway to aid facilities in achieving facility standards? (8) Does
the State regularly track and evaluate the magnitude and resolution of
problem/discharge reports?
States currently have a variety of approaches for ensuring that
AFOs adhere to standards. One obvious indicator of effective follow-
through would be the vigor of the AFO program's inspection, compliance
and follow-up component. These measures must however be analyzed
carefully to determine their true correlation with program efficacy.
For example, one State AFO program inspects facilities twice a year, as
part of its non-NPDES program. However, critics of this particular
program note that the State takes little subsequent action to follow up
with facilities once a problem is detected. Another example of a
program that might be viewed critically is a case where the State has
permitted all AFOs down to a very low threshold, but rarely inspects or
performs site visits to assess compliance at individual facilities.
AFO programs for smaller facilities could still be judged as
providing appropriate oversight regardless of whether the State makes
extensive use of permits and enforcement orders. For the majority of
AFOs, voluntary programs are often the most appropriate means for
guiding the facility to achieving any design or operating standards.
For example, one State with an active program uses a graduated system
of referrals under which operators who fail to address problems in a
timely manner are first referred to technical assistance groups, then
State support programs, and then State regulatory programs. If the
facility still is deemed to present a problem, it may ultimately be
``designated'' as a CAFO and be required to apply for a permit.
Other States offer varying degrees of technical assistance, and may
promote or fund environmental assessment programs such as the America's
Clean Water Foundation On-Farm Assessment and Environmental Review
(OFAER). For example, one State has an AFO program that provides more
funding for AFOs in that State than does EPA and USDA combined. With
this in mind, the Agency would plan to give due weight to a State's
technical assistance program, including elements that offer education,
training, technical or financial assistance.
Demonstrate adequate resources. To be considered effective, a State
would also need to demonstrate that it possesses adequate resources to
meet the program's objectives. Beyond obvious concerns for staffing and
program budgets, EPA would also be interested in State efforts to
deliver program resources to particular environmental problems. For
example, EPA would evaluate: (1) Is there a State-wide manure
management program? (2) How does it work? (3) What mechanisms does the
State use for targeting or prioritizing actions on specific AFOs or
groups of AFOs (e.g., targeting based on sector of concern, watersheds
at risk, citizens complaints). (4) How does the State use non-point
source information to guide actions on AFOs?
A State-wide manure management program, for example, could help
target geographic areas where nutrient production exceeds demand, and
could assist in locating other jurisdictions where a shortfall exists.
Another example of environmental targeting occurs in a State whose AFO
program uses a watershed-based approach to prioritize actions on
facilities. Even though this particular State issues permits on a 10-
year cycle (rather than the 5-year cycle called for under NPDES), the
program is widely respected for its ability to control AFO impacts in
at-risk watersheds. Other States have programs that target inspections
and technical assistance to AFOs based on geographic concentration of
facilities.
EPA seeks comment on these measures to evaluate whether States
possess adequate resources for program objectives and whether
alternative measures would be appropriate.
Provisions for public participation. EPA does not believe that a
State with a non-NPDES program should receive flexibility without
assurance of adequate public participation in its development and
implementation. To evaluate State efforts in this area, EPA would
assess the adequacy of all of the following factors: (1) Stakeholder
involvement in program development and implementation; (2) opportunity
for public input on permit issuance; (3) opportunity for the public to
request hearings on permits; (4) public availability of permit/
registration information; (5) method of tracking and responding to
citizen complaints; and (6) provisions for appeals and citizen suits.
EPA requests comment on the appropriate level of public
participation in non-NPDES programs and whether these or an alternative
set of factors would be more appropriate for States, to ensure adequate
public participation.
EPA seeks comment on which of these would be critical factors in
making
[[Page 58601]]
its determination concerning program adequacy.
EPA in general requests comment on the various ideas for
flexibility discussed today, and on how any aspect of them might be
used in combination to achieve the goals of providing enhanced
flexibility for State non-NPDES programs while ensuring appropriate
assurances to the public for protection of water quality from CAFO
discharges.
D. Environmental Management Systems
EPA is soliciting comment on three new options concerning the use
of environmental management systems (EMS). In the preamble for the
proposal (at 66 FR 3027), EPA described an option under which a
processor would not be required to be co-permitted with its producer(s)
if the processor developed an EMS that met certain conditions.
Reactions to this specific option and to EMSs in general were mixed. In
light of discussions with stakeholders and further information on the
use of EMSs in other industries, EPA is continuing to consider how best
to incorporate EMS-based alternatives into the final rulemaking.
Today's notice outlines additional ways in which EPA is considering
incorporating EMS-based alternatives into the final regulations as a
way of providing States with flexibility in managing their CAFO
programs.
EPA is also setting forth an EMS protocol, or framework for an
acceptable EMS, that it is considering incorporating into the
regulations. EPA might require States to adopt such a protocol if they
want to offer these EMS-based options. EPA is soliciting comments on
this protocol.
The four potential EMS options that EPA is now considering, as
discussed below, are: (1) EMS Option 1: Modified Permit Requirements
for Facilities > 1,000 AU; (2) EMS Option 2: EMS as a Basis for
Excluding Operations from the CAFO Definition for facilities with 300
AU to 1,000 AU; (3) EMS Option 3: EMS as a Basis for State Flexibility
in Defining Who is a CAFO for 300 AU--1,000 AU; and (4) EMS Option 4:
Co-permitting.
EPA recognizes that developing an EMS, including successful
completion of third-party audits, would cause a facility to incur
certain costs. Therefore, in addition to soliciting overall comments on
these EMS-based alternatives, EPA would like to get any information on
the existing costs of EMS implementation for animal feeding operations,
both on a per-facility and organization-wide basis. Types of costs that
could be relevant include staff and consultant costs, costs of
upgrading operations to make them conform to the EMS elements contained
in this notice, and costs of completing third-party audits. EPA will
consider this information carefully as it determines whether EMS-based
alternatives should be included in the final rule. EPA is also
requesting any available information on the performance of EMSs in
addressing regulated and unregulated environmental impacts.
A simple definition of an EMS is a continual cycle of planning,
implementing, reviewing, and improving the actions an organization
takes to meet its environmental obligations. These obligations include,
but need not be limited to, regulated activities. First adopted by
manufacturing industries, EMSs are now being increasingly used in the
U.S. and throughout the world by various industry sectors, including
animal agriculture, and by a growing number of public agencies. EMSs
provide organizations with powerful tools to assess environmental
impacts systematically from a wide variety of activities, many of which
are not regulated, and to reduce these impacts over time. Common
examples of activities typically not subject to federal regulation that
can be addressed through an EMS include odor, noise, and energy
consumption. Benefits may include cost savings, increased operational
efficiency, risk reduction, improved internal communication, and
improved relations with external parties. EMSs typically incorporate a
feedback mechanism that supports measurement of performance against a
set of measurable objectives and provides a mechanism for correction or
preventive action. Implementing an EMS provides an organization with a
broad-based yet flexible way of managing a full range of environmental
issues. Best management practices (BMPs) can, and often do, provide the
substantive underpinning of an effective EMS, but BMPs alone cannot
substitute for a dynamic management system that reduces current risks
and provides a way of anticipating future risks, and addressing these
risks, before they cause a significant environmental impact.
The EMS, by its nature, is designed to address multiple pollutants
and pathways. While potentially less prescriptive and more flexible
than regulatory requirements for a particular pollutant or pathway, an
EMS would offer compensating, and potentially offsetting, environmental
gains from other measures such as air pollution control, dust control,
and having an emergency response plan in place. An EMS provides the
operator of the animal feeding operation with an efficient and
effective means of analyzing the sources and pathways of pollution at
the facility, identifying appropriate controls, and assessing progress
against identified goals. An EMS alternative in the regulations would
need to take into account all forms and sources of pollution and would
describe a facility's commitment to implement strategies, identify
needed investments in structures and changes in practices, and develop
emergency response plans to minimize all forms of pollution that could
reach the waters of the U.S.
The basic elements of an EMS, whether they are based on the ISO
14001 International Standard or a more industry-specific model, are not
new and have proven they have the potential to be effective in a
variety of settings. To make effective use of EMSs in the CAFO
regulations, EPA believes it is important that relevant stakeholders be
given an opportunity to provide input to the facility as the EMS is
developed, that information on the performance of the EMS be readily
available to regulators and the public, and that some form of
independent third party verification be included as means of ensuring
public confidence. A May 2001 National Academy of Public Administrators
(NAPA) report on third party auditing of EMSs under ISO 14001 noted
that given the public policy implications, it is important to ensure
credible and consistent results so that all who rely on an EMS,
including the public, have appropriate expectations of what it
represents. The options described below contain these important
features.
EPA has been involved in strategically promoting the voluntary
adoption of EMS for several years, and described its policy in its 1999
report ``Aiming for Excellence--Actions to Encourage Stewardship and
Accelerate Environmental Progress.'' This report states that ``we will
encourage organizations to use EMSs that improve compliance, pollution
prevention, and other measures of environmental performance.'' Copies
of this report are available at www.epa.gov/reinvent/taskforce/report99. EPA has also developed an action plan that identifies a wide
range of activities the Agency will undertake to follow up on the
recommendations of the Report.
Some of the key EMS-based programs EPA is supporting, in
partnership with industry and others, are the National Environmental
Performance Track, the United Egg Producers XL Project, and the
National Biosolids Partnership EMS program. More recently, the Agency
has begun to work with selected meat
[[Page 58602]]
processing facilities in the Midwest to help them adopt EMSs, using an
EMS guide tailored to these types of facilities. In addition, certain
companies in the animal feeding operations industry, such as Smithfield
and Premium Standard Farms, have adopted formal EMSs under the ISO
14001 International Standard for their operations to help improve their
compliance records. While EPA does not specifically endorse the efforts
of these companies, we note the existence of their EMS programs simply
to point out that the EMS concept is not new in the AFO industry.
1. EMS-Based Regulatory Options
Today, as a result of information received since the proposed rule
was published, EPA is soliciting comment on three additional potential
approaches for incorporating EMS-based options in the CAFO regulations.
In the proposed rule, EPA solicited comment on EMS as an option for co-
permitting. The three additional options that EPA is now considering
would make the EMS-based flexibility more generally available to both
large and medium size CAFOs.
In general, these EMS-based approaches would be based on a
recognition that a comprehensive EMS program made available by the
State and implemented by the facility would have the effect of reducing
the facility's point source-like attributes--more specifically,
reducing its potential for a discharge to the waters from a discrete,
identifiable and controllable source. Accordingly, because these
facilities would have fewer attributes of a point source, and given
EPA's discretion to define who is a CAFO point source under the Clean
Water Act, EPA would conclude that it is appropriate to scale back or
eliminate certain middle-tier operations that employ the EMS approach
from being defined as CAFOs. In the case of Option 1 below, EPA would
not exclude large operations from the CAFO definition where they
implement EMSs but would simply find it appropriate to curtail some of
the technology-based requirements that would otherwise apply,
recognizing that the EMS activities would make those requirements
unnecessary.
a. EMS Option 1: Modified Permit Requirements for Facilities > 1,000 AU
Under the original CAFO proposal, all facilities over 1,000 AU
would be required to obtain an NPDES permit, with limited exceptions.
In Option 1, the permit authority could develop an EMS program
consistent with EPA's framework that would grant certain flexibility to
permittees such as coverage under a general permit, modification of
selected requirements in the effluent guideline, or reduced reporting
requirements. EPA could define certain elements of the effluent
guideline that could be modified for facilities that adopt an EMS. EPA
is soliciting comment on which types of permit requirements it may be
appropriate to amend if a facility of this size implements an EMS
program.
b. EMS Option 2: EMS as a Basis for Excluding Operations From the CAFO
Definition for Facilities With 300 AU-1,000 AU
Under the second potential approach, EMSs could also be used by
those animal feeding operations in the middle tier of the three-tier
structure (those between 300 AU and 1,000 AU). Under the proposed
regulation, owners or operators of middle tier facilities would be
defined as CAFOs unless they certify that they do not meet certain
criteria (that are adopted in the final regulation) that indicate a
risk of discharge to the waters. Specifically, in the proposed
rulemaking, the facilities in the middle tier would be required to
demonstrate the following to not be defined as a CAFO: (1) Waters of
the United States do not come into direct contact with the animals
confined in the operation; (2) there is sufficient storage and
containment to prevent all pollutants from the production area from
entering the waters of the United States; (3) there has not been a
discharge from the production area within the last five years; (4) no
part of the production area is located within 100 feet of waters of the
United States; (5) in cases where manure or process-generated
wastewater are land applied, they will be land applied in accordance
with a Permit Nutrient Plan.
Under this EMS option, a State could adopt an alternative condition
that would exclude a middle-tier facility from being defined as a CAFO
if the facility demonstrates that it is carrying out an appropriate
EMS. The operation would need to show that it has successfully
completed an independent third party audit of its EMS. Among other
things, the EMS would need to ensure that the operation achieves zero
discharge from the production area, and that it has a CNMP in place
that ensures that manure is land applied in accordance with proper
agricultural practices.
A determination of the adequacy of the EMS would be made during the
initial third-party EMS audit, described in more detail later in this
notice. Any facility that failed to properly implement its approved EMS
would become a CAFO and be required to obtain a permit. More discussion
of potential implementation issues follows later in this section.
c. EMS Option 3: State Flexibility for 300 AU-1,000 AU
Under the third approach, an NPDES authorized State could seek to
rely on its EMS program as a basis for requesting flexibility in how it
defines which AFOs in the middle-tier become CAFOs. Once it found that
the State had an adequate EMS program, EPA could approve State CAFO
regulations that contain a modified set of conditions for defining who
is a CAFO, or could approve State regulations that define CAFOs under a
two-tier rather than a three-tier structure. Please see the above
section on State Flexibility for a complete discussion.
d. EMS Option 4: Co-Permitting
Please see the discussion in the proposed rule (66 FR 3027) of the
use of EMS to waive the requirement for co-permitting. In this option,
the permit authority could waive the requirement for co-permitting
entities that exercise substantial operational control over a CAFO if
the entity adopts and implements an EMS for its contract producers. The
EMS could include elements to effectively manage excess manure.
2. Potential Evaluation Process and Standards
Under each of the four EMS options, a State would first need to
develop an EMS program under one of the alternatives listed below, and
would need to obtain EPA's approval. As described earlier in the
discussion of State Flexibility, the State EMS program would need to be
evaluated and approved by EPA as part of the NPDES program modification
process. EPA is considering providing in the regulations that a State
EMS program would be acceptable where it meets one of the following:
Alternative 1: State program requires the operation to adopt an EMS
that meets the ISO 14001 International EMS standard and certain other
EMS requirements specified below;
Alternative 2: An authorized State could develop its own EMS
program standards, and require the operation to adopt an EMS that meets
these standards. To be approved by EPA, the State EMS program would
need to be consistent with the EMS elements described below. EPA would
develop guidelines for an acceptable EMS program for use by States.
EPA would find that a State had an adequate EMS program only if the
[[Page 58603]]
program required an operation to certify that it meets the standards of
ISO 14001. Alternatively, the program could allow operations to certify
to a different set of standards as long as EPA found that they were no
less stringent than ISO 14001. As further criteria that EPA is
considering for an adequate EMS program, the program would need to
require each operation to demonstrate that it had (1) provided
interested community members with a reasonable opportunity to provide
input to the facility as its EMS was developed; (2) demonstrated how it
had responded to this input; (3) maintained ongoing communications with
community members and other stakeholders as the EMS was implemented and
addressed relevant issues raised by these stakeholders; (4) made the
results of successful third party audits publicly available, either at
the facility or through the regulatory agency; and (5) developed and
was implementing a CNMP in accordance with NRCS 590 guidelines. EPA
specifically requests comment on these criteria.
EPA believes that all operations that seek to be excluded from
being defined as a CAFO on the basis of implementing an EMS would need
to meet the State program criteria, as determined by passing a third
party audit. EPA believes that independent third party audits provide a
high degree of confidence that the EMS is in place and is being
implemented in a consistent and credible manner, including helping to
assure compliance. However, EPA realizes that these audits may pose a
significant cost burden to certain small facilities. Therefore, EPA is
also seeking comment on alternatives to requiring each facility to
complete the audit, including approaches like self-certification of the
EMS, risk-based auditing, and random auditing, and the way in which
these alternatives would provide the appropriate level of confidence
for regulatory agencies and the public, as EPA believes requiring third
party audits for all facilities would provide.
A facility deciding to make use of the EMS option would have until
the effective date of the new NPDES CAFO regulation (approximately
January 2006) to get an approved EMS in place. At that time, consistent
with the proposed rule, all facilities that meet the definition of a
CAFO would be required to either obtain an NPDES permit or have an
approved EMS in place which would entitle them to be excluded from the
definition. The State program could also allow facilities that had
already applied for or obtained permits as CAFOs and that later
developed an EMS to be excluded from the definition at that time.
EPA is requesting comment on the standards the State EMS program
must meet, and on how States would obtain approval from EPA for
implementing such a program.
3. Potential Elements of an AFO EMS
EPA believes that an EMS has the ability to enhance environmental
protection, especially if it includes the evaluation and abatement of
all forms of pollution. This includes pollutants that may not currently
be regulated in some areas, such as air deposition of nitrogen from hog
lagoons, which has been found to be a major contributor to nitrogen
loadings in streams and rivers. The ability to control multiple
pollutants and pathways in a holistic manner could foster greater
control of agriculture's negative impact on the environment,
potentially at lower cost to producers.
Accordingly, EPA is considering that, in order to deem the AFO EMS
sufficient, the State program would require a facility to develop and
carry out a plan to evaluate and effectively address the environmental
impacts of the facility across multiple media and pathways. The
pathways that the facility would need to address, for example, could
include air deposition of contaminants to the waters and odor and pest
control. It is within EPA's discretion to define which operations are
CAFOs. EPA believes that under this regulatory alternative, multiple
pathways of contamination should be addressed by an EMS in order for a
middle-tier operation not to be considered a ``concentrated'' animal
feeding operation under the regulations. EMSs, by their very nature,
allow organizations to decide the relative degree of emphasis and
attention that needs to be given to a particular environmental issue.
For example, if the facility's own assessment and input from community
members and other stakeholders indicated that odor was not a
significant issue, the facility could continue to manage odor issues as
it had been doing. However, the facility would need to maintain ongoing
communications with the community and be in a position to take
additional steps to deal with odor issues, as part of its EMS, if odor
were to become a significant issue in the future.
Additionally, EPA is considering specifying in the regulations
that, in order for an AFO EMS to be deemed sufficient, it would need to
ensure, among other things, zero discharge from the production area.
Also, an acceptable AFO EMS would need to require the facility to have
a CNMP. The CNMP, to be sufficient, would need to assure land
application of manure at proper agricultural rates and require
employment of BMPs to minimize discharges to waters of the U.S. from
the production area and the land application area. These requirements
would need to be established as specific objectives in the EMSs against
which the facility's performance would be evaluated and its EMS
conformance audited.
A critical element for EPA to approve of an EMS would be the third
party audit process and local public participation. Local participation
is essential as it is local residents that will be impacted most
directly by discharges from the operation.
As described earlier, a State would be required to submit a
description of its overall EMS program to EPA for approval. The program
description would need to contain a description of how the adequacy and
effectiveness of each element would be determined through independent
third party EMS audits conducted at each facility seeking the
regulatory relief under one of the options described above. The program
description would also need to include other program elements that
would be determined in the final rule. EPA is considering the set of
program elements outlined below and solicits comment on them.
When EPA evaluates a State's EMS program under Alternative 1, it
would assess whether the program adequately addresses the following
elements. It would also be EPA's intention to address these items in
national AFO EMS guidance discussed in Alternative 2 above:
Environmental Policy--A written statement of policy committing to
ensure compliance with all applicable regulatory requirements,
pollution prevention, ongoing improvement of environmental performance,
including areas not subject to regulation, in order to reduce negative
impacts on the environment over time, and sharing information with
stakeholders on environmental performance against EMS objectives and
targets;
Environmental Planning--A process to: (1) Identify all
environmental impacts of the facility, assess significant impacts, and
prioritize them by significance across all media and all pathways; (2)
document all applicable federal, State, and local environmental legal
requirements (e.g., pesticide storage and handling, odor control, air
emissions, oil and grease) and the facility's compliance with those
requirements; (3) set objectives and
[[Page 58604]]
measurable targets consistent with the impact assessment and
commitments described in the policy statement which, at a minimum,
should include the following: (a) zero discharge from production area;
(b) development and implementation of a CNMP; and (c) under the CNMP,
provisions to ensure land application will be performed in accordance
with proper agricultural practices.
Implementation of Policy and Plan--Adoption of appropriate USDA-or
State-endorsed conservation practice standards to help meet the EMS
objectives and targets (using USDA handbook or other relevant
guidance), including: (1) Implementation of a CNMP; (2) adoption of
necessary operational controls and procedures to ensure that the EMS is
effectively implemented; (3) proper employee training and clear
employee roles and responsibilities that address implementation of the
EMS at the facility; (4) CNMP certification; (5) implementation of
conservation practice standards (including documentation that necessary
practices have been installed, their operation has been verified
periodically, and any performance deficiencies have been identified and
that the facility has outlined and implemented steps to correct the
deficiencies); (6) documentation of procedures for an emergency action
plan; and (7) appropriate conservation practice standards required for
pest control, odor management, dead animal disposal, and preventative
maintenance.
Community Involvement/External Communications--A process to allow
interested community members and other stakeholders to provide input to
the facility as its EMS is developed. The State should show that its
program calls for facilities to demonstrate how they responded to this
input as part of the third-party audit. Under this element, each
facility should be required to maintain regular communications with
these stakeholders on the performance of the EMS as it implemented and
address relevant issues raised by these stakeholders. In addition,
information on the results of third party audits must be publicly
available. EPA seeks comment on the most appropriate method of sharing
this information, and the appropriate level of detail that should be
included for any information that is shared. EPA seeks comment on the
most appropriate method of sharing the audit results, including web
site publication. EPA is also seeking comment on the content, frequency
and level of detail of audit results and whether there are confidential
business information concerns that need to be addressed.
Checking Progress and Success of EMS--The State should have a
process that causes facilities to: monitor conformance with the EMS and
compliance with applicable laws; maintain records that document EMS
implementation and compliance; and conduct internal EMS audits and
internal reviews by facility management of the overall performance of
the EMS on an ongoing basis.
Independent Third Party Audits--As described earlier, EPA is
soliciting comment on an approach that would require all facilities to
successfully complete an independent audit of the EMS by a qualified
third party organization before becoming eligible for the EMS
alternative, but is seeking comments on other approaches such as random
auditing, risk-based auditing, and/or self-certification of the EMS.
The Agency is requesting comment on the appropriate frequency for
independent follow-up audits (e.g., annual or less frequent basis).
Such follow-up audits would not have to be full audits but rather could
be targeted to audit certain components of the environmental management
system such as record keeping, communication, or others. The
independent third-party auditing program, including qualifications of
auditors, would need to follow auditing guidelines developed by the
State and approved by EPA as part of the State's EMS program. Results
of all third party audits would need to be submitted to the regulatory
authority in a timely manner and available to the public upon request.
Examples of third party auditors that EPA is considering finding to
be qualified under the regulations include certified CNMP specialists,
OFAER-trained assessors/auditors (On-Farm Assessment and Review), and
ISO 14001 certified auditors with appropriate animal agriculture
background.
EPA seeks comment on the appropriate elements of a State EMS
program.
4. Further Criteria for an Adequate EMS-Based Program
This potential EMS framework raises implementation issues that EPA
would need to address in the final rule should we go forward with the
approach. EPA solicits comments on the six EMS elements discussed above
as well as each issue area described below and the options for
addressing the issues.
Facility operator qualifications/eligibility criteria. EPA seeks
comment on eligibility criteria for determining whether AFOs should be
allowed to implement EMSs in lieu of applying for permits. The purpose
of the criteria would be to screen the AFOs to ensure they can
demonstrate an appropriate compliance history and commitment. For
example, EPA could specify in the final rule that if the AFO has had a
violation (i.e., a discharge to a water of the U.S.) within a certain
number of years, e.g., five, the owner/operator would have to
demonstrate that the violation was corrected and steps taken to prevent
recurrence. EPA may also wish to specify that persons whose compliance
history includes certain types of serious violations, e.g., criminal
violations, must always apply for permits. The permitting authority may
be in the best position to determine at the outset whether an AFO's
compliance history should exclude it from participation. Other
screening factors may come into play only during the initial third-
party EMS audit, described in more detail later in this notice. EPA
also seeks comment on the timing of the screening.
Frequency of self and third-party auditing. Once a facility has an
approved EMS in place, to ensure it is being implemented appropriately,
periodic follow-up through self and third-party auditing and
certification will be needed. EPA solicits comment on how frequently
the follow-up auditing should be specified in the regulations. For
example, EPA is considering requiring facilities with EMSs to conduct
follow up self-audits every six months, and third party audits every
one to five years.
Correction of EMS nonconformances/return to CAFO status. Despite
best efforts, some facilities will experience EMS nonconformances,
potentially including noncompliance with key EMS conditions such as the
requirement for zero discharges. Such EMS nonconformances can range
from minor problems with no significant environmental impacts that can
be easily corrected and are unlikely to be repeated, to serious or even
criminal problems which lead to imminent and substantial endangerments,
significant environmental impacts, or continuing discharges.
EPA solicits comment on the best approach, or combination of
approaches, for reacting to and addressing EMS nonconformance under an
EMS program. EPA's intent is to balance the need to provide AFOs with
incentives to participate in the EMS program, including certainty as to
their NPDES status and how their nonconformances will be handled, with
the need to ensure that permitting
[[Page 58605]]
authorities can react promptly and effectively to serious problems,
including, if warranted, issuing CWA administrative orders with
compliance schedules or injunctive provisions.
There are a range of options that EPA is considering to address
this issue. They are not mutually exclusive. For example, EPA could
distinguish between facilities with significant and insignificant
problems. The final rule could provide for the former to return to the
NPDES permitting program, while allowing the latter to correct their
nonconformance problems under their EMSs with no change in AFO status.
Some approaches EPA could employ in this regard include the
following: (1) The final rule could provide for AFOs with significant
discharges to revert automatically to CAFO/ NPDES status upon discharge
and be required to apply for NPDES permits; (2) Rather than operate
automatically, the rule could authorize the permitting authorities to
designate AFOs with significant discharges as CAFOs, if determined to
be appropriate; (3) AFOs which revert to CAFO status could be required
to apply for NPDES permits immediately, or CAFO status could be
deferred, allowing the permitting authorities the discretion to require
permit applications when deemed necessary; (4) AFOs could correct
noncompliance problems which are not significant under the EMS program,
without any effect on their status as non-CAFOs (unless they do not
correct the problem), pursuant to established guidelines and time
lines.
Time line for obtaining EMS or permit. EPA believes it would be
appropriate to implement the EMS option in the same time frame as the
proposed regulation, i.e., States and facilities would have three years
following promulgation of the final rulemaking to develop and implement
EMS programs and plans. EPA solicits comment on an appropriate time
line for implementing the EMS-in-lieu-of-permitting requirements for
participating facilities. For example, a facility deciding to opt out
of a permit under this option could be given until 2006 to get an
approved EMS in place. At that time, all facilities that meet the CAFO
criteria would have either obtained a NPDES permit or developed and
implemented an approved EMS.
EPA seeks comment on any further criteria that it may be
appropriate to specify as necessary for an adequate State EMS program.
5. Potential Components of Third-Party Auditing Program
An effective third-party auditing program is essential to the
credibility of any EMS, including the EMS options described in today's
notice. The auditing program would need to provide States, EPA,
participating facilities, and the public the essential information to
determine if the EMS is being implemented in a manner consistent with
the guidelines outlined above. At the time a State submits its overall
EMS program to EPA for approval, it would be required to also describe
how the third-party auditing system will work by describing the
following features of the program: (1) The process by which a facility
may apply to the State for participation in the EMS program; (2) The
written EMS guidance or other guidelines that will be used by auditors
when auditing each facility, consistent with the EMS elements described
above; (3) The specific EMS auditing qualifications for auditors, and
other relevant qualifications, including minimum educational, training
and/or hands-on experience requirements, such as expertise in
agricultural engineering, nutrient management and field management; (4)
The content, frequency and level of detail of audit reports and the
mechanism for making this information available to the public (audit
reports must include all the elements listed above); (5) The frequency
and scope of follow up audits that will take place to confirm that the
facility is continuing to adequately implement its EMS; (6) The
oversight mechanism that will be used to ensure overall program
integrity as well as auditor objectivity and consistency; (7) The
criteria in addition to the program elements that will be used to
determine when a facility is failing to adequately implement its EMS,
and the timing of corrective actions that must be taken (see Further
Criteria for an Adequate EMS-Based Program above); and (8) The process
by which a facility that has failed to take necessary corrective action
will then be subject to applicable regulatory requirements and the time
frame for accomplishing this based on the requirements listed above.
States that choose to use ISO 14001 certification as the basis for
evaluating a facility's EMS could use relevant ISO guidelines to
address certain of these features.
EPA requests comments on the auditing program components described
herein, as well as on the use of EMS in general in the CAFO program.
E. Three-Tier Alternative
In the proposed rulemaking, EPA proposed and discussed several
alternative scenarios for structuring the NPDES regulation (66 FR 2996-
3004). USDA has suggested that EPA consider an additional alternative
that is a variant of the three-tier structure in which the middle-tier
would include operations with 500 AU to 1,000 AU (rather than 300 AU to
1,000 AU). Thus, all facilities over 1,000 AU would be CAFOs based on
size alone, those with 500 AU to 1,000 AU would be CAFOs if they met
certain conditions, and those with fewer than 500 AU would be CAFOs
only if so designated by the permit authority.
Table 5-4 from Section 5 of today's NODA compares the percent of
CAFOs to the percent of recoverable nutrients under various thresholds.
USDA data indicate that approximately 85 percent of excess recoverable
nutrients are located at CAFOs with 500 AU or greater, representing
almost 13 percent of AFOs. An additional 8 percent of excess
recoverable manure nutrients are located at facilities with 300 AU to
500 AU, representing an additional 8 percent of facilities. USDA
suggests that adopting a middle-tier category of 500 AU to 1,000 AU
would focus regulatory efforts in areas where excess manure is more
prevalent while avoiding imposing regulatory burden on large numbers of
smaller facilities. EPA believes that economic analyses for this
alternative are subsumed in the array of analyses that were conducted
for the various thresholds, scenarios, and options in the proposed
rulemaking.
EPA is requesting comment on whether to adopt this alternative
three-tier structure.
F. Technical Correction
EPA is correcting a typographic error at 66 FR 2999, second column,
first full paragraph. At the end of this paragraph, in the clause that
reads ``unless the recipient has complied with the requirements for
off-site shipment of manure,'' the term ``recipient'' is incorrect and
should be replaced with the term ``CAFO owner or operator.'' The
corrected paragraph reads as follows:
The revised conditions for the middle tier would require the owner
or operator to apply for an NPDES permit if the operation meets any of
the following conditions and is therefore a CAFO: (1) There is direct
contact of animals with waters of the U.S. at the facility; (2) there
is insufficient storage and containment at the production area to
prevent discharges from reaching waters of the U.S.; (3) there is
evidence of a discharge from the production area in the last five
years; (4) the production area is located within 100 feet of waters of
the U.S.; (5) the operator does not have, or is not implementing, a
Permit Nutrient Plan that meets EPA's minimum requirements; or (6) more
[[Page 58606]]
than twelve tons of manure is transported off-site to a single
recipient annually, unless the CAFO owner or operator has complied with
the requirements for off-site shipment of manure.
VIII. Request for Comments
A. Specific Solicitation of New Information and Clarification on the
Proposed ELG Requirements
1. EPA solicits comment on the extent to which EPA needs to
establish additional performance or design criteria in the effluent
guidelines to address chronic events, as described in section IV.A of
this notice.
2. EPA solicits comment on the alternative ground water
assessments, performance standards for liners, and new cost data for
the ground water option described in sections IV.B.1 and V.B.2.a of
this notice.
3. EPA solicits comment on reasonable amounts of phosphorus banking
that could be considered an acceptable nutrient management practice.
EPA also solicits comment on whether banking practices should be
limited to solids and slurries, or whether banking should be considered
for all manure applications.
4. EPA further solicits additional data and information on the
technical feasibility, costs, and benefits of its proposed zero
discharge standards for the swine and poultry sectors.
B. Specific Solicitation of New Data and Information EPA Is Considering
for Its Cost and Economics Model
1. EPA is soliciting comment on its intention to use USDA's revised
estimates of the number of potential CAFOs and the total number of
AFOs, as described in section V.A.1 of this notice. EPA is also
requesting information on suggested approaches to evaluate recent
industry trends and changes in the number of larger-sized operations
since 1997.
2. EPA is soliciting comment on revised estimates by USDA on the
amount of manure nutrient coverage by the different regulatory
scenarios in the proposed CAFO regulation, as described in section
V.A.2 of this notice.
3. EPA is soliciting comment on revised estimates of the number of
small businesses that are CAFOs that would be subject to the proposed
regulations, as described in section V.A.3 of this notice. These
revised estimates reflect changes in the small business definitions for
these sectors, as established by the Small Business Administration
(SBA).
4. EPA solicits comment on an approach to conduct a supplemental
analysis that would assess the combined additional cost to comply with
the existing regulations in addition to the incremental costs of the
proposed regulations. EPA also requests data and information in order
to conduct this supplemental analysis, as described in section V.B.1(a)
of this notice. This analysis would serve as a separate ancillary
analysis to the Agency's rulemaking package.
5. EPA solicits comment on suggested data and an alternative
approach to refine EPA's engineering cost models to estimate compliance
costs to regulated CAFOs, as described in section V.A.1(b) of this
notice. This approach is based on additional data and information
received by USDA and an approach that is currently under development by
USDA to estimate the costs to animal feeding operations to implement
Comprehensive Nutrient Management Plans (CNMP). EPA's alternative
approach would be based on the alternative approach to frequency
factors that evaluates three different performance group scenarios:
below average performers, average performers, and above average
performers.
6. EPA solicits comment on alternative approaches that EPA is
considering to refine its economic models to estimate financial impacts
to regulated CAFOs, as described in section V.C.1 of this notice. The
changes EPA is considering include: addition of assessment criteria to
measure changes in profitability; evaluation of financial impacts using
data specified at multiple businesses levels within a representative
facility (both the farm and the enterprise level, where data are
available); revision to the debt-to-asset test threshold value;
inclusion of a debt feasibility test; and addition of supplemental
analyses that take into consideration various cost-offsets, such as tax
savings, income from manure sales, and cost share assistance.
7. EPA solicits comment on alternate data that the Agency received
and/or obtained during the comment period for use in its analysis for
the final rulemaking package, as described in section V.C.2 of this
notice. These data include alternative financial data to depict
conditions at cattle feeding and hog operations that were provided to
EPA through public comment, as well as other available alternative
financial data for some other sectors that EPA has obtained since
proposal. Other data that EPA is considering include available market
and financial data in order to extrapolate available financial data for
a single year and obtain longer-term average representation of
financial conditions, as well as available projections by FAPRI for use
in depicting financial conditions over the 10-year analysis period.
C. Specific Solicitation of New Data and Information EPA Is Considering
for Its Nutrient Loading and Benefits Model
1. EPA solicits comment on a proposal to utilize the BASINS case
study method for the swine, dairy, beef, broiler, turkey, and layer
sectors in addition to the GLEAMS analysis to provide additional
information on modeling of pathogen loads, production area, and manure
storage lagoon effects.
2. EPA solicits comment on approaches it is considering for the
quantification and monetization of changes in air emissions resulting
from the regulation, the appropriateness of these steps for the
pollutants it is considering, and requests information on data and
studies not included in the record that could be used for these
analyses.
D. Specific Solicitation of New Information and Clarification for the
Proposed NPDES Requirements
1. EPA requests comment on alternative size thresholds for ``dry
lot'' duck operations. EPA is also soliciting more complete data
concerning the number and size of wet lot and dry lot duck operations
nationwide.
2. EPA requests comment on two new options for determining whether
a horse operation is a CAFO and subject to NPDES permitting. To support
evaluation of these options, the Agency requests that commenters supply
data comparing the nutrient content of race horse manure with that of
non-race horses. EPA also seeks complete data on the number of confined
horse operations--including the number of horses confined--
differentiating racetrack operations from non-racetrack operations.
3. EPA requests comment on whether to count cow/calf pairs in the
beef sector as one animal, and if so, for what period of time offspring
should be considered part of the cow/calf pair.
4. EPA seeks comment on alternatives--either those discussed in
this notice or others--that could more explicitly allow states to
implement well-developed non-NPDES state programs for middle-tier
facilities. In particular, EPA seeks comment on: the appropriate level
of federal oversight for such programs to provide assurance of
protection of water quality; how a State could provide assurance that
its program would continue to meet the criteria used to obtain program
approval; the need for public comment prior to granting such
flexibilities; the
[[Page 58607]]
validity of the criteria discussed in this notice for assessing whether
a State non-NPDES program is sufficient for allowing flexibility; and
what kind of performance measures, if any, EPA should consider
requiring.
5. EPA solicits comment on the use of environmental management
systems (EMS) in the CAFO regulations as a way to enhance state
flexibility. In particular, EPA seeks comment on the following issues:
comments on the three additional potential approaches discussed in this
notice for incorporating EMS-based options in the CAFO regulations; for
the first potential approach (modified permit requirements for
facilities with more than 1,000 AU), which types of permit requirements
it may be appropriate to amend; which standards a state EMS program
would be required to meet to obtain EPA approval, and the process for
obtaining EPA approval; the appropriate elements of a state EMS
program, including the six elements discussed in this notice; screening
criteria for determining an AFO's eligibility to implement an EMS in
lieu of applying for a permit, as well as the timing of the screening;
the frequency of follow-up self-auditing and third-party auditing of a
facility's EMS; requiring independent third party audits for all
facilities or alternative approaches such as random auditing, risk-
based auditing, and/or self-certification of the EMS; the most
appropriate method of sharing third-party audit results (including web
site publication), the content of results shared, and the frequency
with which results should be shared; the best approach, or combination
of approaches, for reacting to and addressing EMS nonconformance; an
appropriate time line for implementing the EMS-in-lieu-of-permitting
requirements for participating facilities; and the existing costs of
EMS implementation for AFOs, both per-facility and organization-wide;
and requests any available information on the performance of EMSs in
addressing regulated and unregulated environmental impacts.
6. EPA is requesting comment on an alternative three-tier
structure, setting the middle-tier at 500 AU to 1,000 AU.
Dated: November 9, 2001.
G. Tracy Mehan III,
Assistant Administrator for Water.
[FR Doc. 01-28738 Filed 11-20-01; 8:45 am]
BILLING CODE 6560-50-P