Growth in the municipal waste combustion industry slowed dramatically during the 1990s after very rapid growth during the 1980s.⁽¹⁾ This leveling of growth is attributed to three primary factors: (1) the Tax Reform Act of 1986, which made capital-intensive projects such as municipal waste combustion facilities more expensive relative to less capital-intensive waste disposal alternative such as landfills; (2) the landmark 1994 Supreme Court decision (C&A Carbone, Inc. v. Town of Clarkstown⁽²⁾), which struck down local flow control ordinances that required waste to be delivered to specific municipal waste combustion facilities rather than landfills that may have had lower tipping fees; and (3) increasingly stringent environmental regulations that increased the capital cost necessary to construct and maintain municipal waste combustion facilities. The Energy Information Administration (EIA) has already published articles pertaining to the first two factors.⁽³⁾ This paper focuses on the third factor and attempts to quantify and isolate the variables affecting the cost of constructing and retrofitting municipal waste combustion facilities.

Background

Between 1960 and 1998, Federal regulations governing plant operations changed considerably. This paper divides the 38-year time frame into three different regulatory periods. The first period, 1960 to 1981, was a time when relatively low-level regulatory attention was paid to waste incineration facilities. Yet during this period the groundwork for future regulatory approaches was established. In 1963 the Clean Air Act was passed, and during the 1960s, particulate standards for all incinerators were promulgated under the law. In 1970, the U. S. Environmental Protection Agency (EPA) was formed. Despite EPA's growing attention to airborne pollutants, it and other governmental bodies perceived municipal waste combustion favorably. As many substandard local landfills were closing, municipal waste combustion was considered a technologically advanced method of reducing the volume of waste. In addition, after the Arab oil embargoes in the 1970s, the concept of generating energy from waste was given impetus by favorable tax and utility regulations. Thus, in sum, this period saw the birth of the environmental movement in the United States and the attendant focus on air and water pollution control. EPA's regulatory approach and framework was established during this period. However, given the facts that the municipal waste combustion industry was in its infancy and that it was seen as an improved waste disposal alternative to landfilling, few regulatory barriers stood in its path. Actually, tax and utility regulatory policy provided incentives to build such facilities.

The second period, 1982-1990, marked the growth phase of the municipal waste combustion industry, due primarily to the existence of various tax and investment subsidies, as well as acceptance of the technology by Federal and local governments. EPA continued to focus its regulatory attention on the air emissions of these plants. Of particular concern were the carcinogenic effects of dioxins and furans⁽⁴⁾ produced by the combustion process, the toxicity of incinerator ash, and ash disposal methodology and testing. By 1987, EPA proposed new source performance standards (NSPS) for waste incinerators. Best available control technology (BACT) was upgraded through the use of acid gas scrubber/baghouse combinations as well as the installation of controls on nitrous oxide production. As air pollution control technology improved, EPA implemented more stringent standards, forcing municipal waste combustion facilities to upgrade or install new air pollution control systems.

As a concurrent development during this period, in 1986 Congress passed the Tax Reform Act. Prior to 1986, Federal financial incentives for the municipal waste combustion industry included grants for feasibility studies and pilot projects, investment tax credits, favorable tax treatment for equipment depreciation, and the ability to qualify for public financing. The Tax Reform Act of 1986 removed or curtailed most of these incentives for prospective facilities, creating a negative impact on the industry by constraining the availability of low-cost capital and limiting the favorable tax treatment afforded to the industry. In essence, with the removal of tax protection, municipal waste combustion facilities had to rely more heavily on tip fees and revenues generated from energy sales. With both of these revenue sources facing downward pressure in the 1990s, the financial viability of many projects has been under stress.⁽⁵⁾ Coupled with the increased regulatory costs associated with meeting BACT, these changes in the tax law affected the financial viability of many plants.

The last period, from 1991 to 1998, represents a time of intense regulatory activity by EPA, focusing on air emissions of municipal waste combustion projects and the toxicity of ash produced as a residue of incineration. In addition, with the decline in revenues from energy sales and tipping fees, the adoption of waste recycling, and the growth of modern code compliant large landfills, municipal waste combustion no longer fulfilled its earlier function as a viable disposal technology and a source of alternative energy. By 1989, EPA began the process of upgrading its NSPS for municipal waste combustors (MWCs), as municipal waste combustion facilities came to be called. In its final rule of 1991, EPA proposed standards for air emissions control. Later rulings also incorporated requirements for a ban on the combustion of lead acid batteries and for materials separation and recovery of municipal waste streams prior to combustion.

Furthermore, in November 1990, Congress enacted the Clean Air Act Amendments of 1990 to the Clean Air Act of 1977. These amendments directed EPA to develop new emission guidelines for existing MWCs and NSPS for new MWC facilities. Five years later, after much discussion, the EPA published air emission guidelines for existing MWCs. The new guidelines covered not only large facilities (plants with capacities greater than 248 tons per day), but also contained requirements for smaller facilities. While the requirements applying to smaller facilities were under challenge, they have been modified and were implemented in 1999.

The new regulations require an aggressive approach to the reduction of toxic emissions through a combination of air pollution control systems, improved monitoring of emissions, application of tested combustion methods, personnel training, and front-end materials separation programs. These regulations set numerical limits for sulfur dioxide, hydrogen chloride, cadmium, lead, and mercury emissions. Additionally, more stringent limits were set for dioxins and furans as well as for nitrogen oxides, fugitive fly, and bottom ash. Facilities were required to adopt maximum achievable control technology (MACT) to reach acceptable levels of air emissions and install continuous emission monitoring (CEM) systems to track and report emissions on a periodic basis. MACT includes scrubber/baghouses, as well as mercury and nitrous oxide control systems. The implementation deadline for large facilities to meet these criteria was December 2000.

The result of this renewed emphasis on air emissions control has been twofold. First, a number of small, aging projects have shut down, possibly as a result of calculating that it was no longer economically feasible to operate, given the large capital investment necessary to comply with new Federal regulations. Second, existing projects are undergoing or are planning significant upgrades to their air pollution control and combustion systems.

Prior to a discussion of the methodology and findings, several points relevant to this analysis must be noted. First, no standard annual reporting mechanism exists by which municipal waste combustion projects report capital or operating costs and additional capital investments made over time. Second, no sufficient measure of intensity or change in the Federal regulatory environment exists. Indeed, even attempting to categorize regulatory periods is fraught with difficulty. No foolproof method exists to distinguish where one regulatory regime begins and another ends, as final rules by the EPA may be challenged in court, modified, or overturned. Even when dates are published, the determination of when a given regulatory policy will take effect is judgmental. Plant owners respond in different ways. Some will act in advance of implementation, making changes to their facilities prior to the date; others will seek exemptions or attempt to obtain time extensions. Underlying most of the analysis presented in this paper is the notion that time will be a substitute (albeit an imprecise one) for regulatory period.

Methodology

To assess the regulatory impact on capital costs of municipal waste combustion facilities, a viable database was constructed from data on municipal waste combustion facilities. These data were abstracted from the Governmental Advisory Associates' Resource Recovery Yearbook series. While information pertaining to 1982 through 1998 was available from all Yearbooks, the data were reformatted to be compatible over the 16-year observation period. There have been seven survey periods between 1982 and 1998. For a plant coming on line in 1982 and still operating as of 1998, there are seven possible observations for any given variable. While certain data remain constant, such as original capital cost or year operations commenced, other characteristics are dynamic, changing periodically. These variables include actual tons processed, gross and net electricity output, additional capital investment, operation and maintenance costs, owner, and operator.

Any project in operation as of 1980 is included in the data set. Appendix A lists the projects in the study, and includes basic information about each facility. Once a project closes down, it "falls out" of the database. Thus, at any period of time, the database consists of projects of mixed vintages--some recent and others near the end of their operational life. A capital profile for each project was then constructed; profiles contain both initial and additional capital costs. Appendix B outlines the definition and construction of the capital cost profile in detail. Capital costs were divided by design tons per day for the given year to control for size of facility. To create this profile, the Engineering News Record (ENR) industrial building index was used to inflate both initial capital costs and additional capital costs to 1999 dollars, thereby removing the effects of inflationary price increases over time.⁽⁶⁾ A depreciation factor was added to more accurately represent the value of capital stock at any given point in time. For the purposes of this study, a straight-line 25-year depreciation was used, which is an industry standard. The depreciation factor was applied both to the original capital costs as well as to the additional capital expenditures made during the relevant time periods.

Upon the creation of this profile, the behavior of capital costs of municipal waste combustion projects can be viewed over time, both in aggregate and separated by technology type or other variables. As technology type was shown to have an impact on capital costs, the first breakdown was done by technology.

Technology Used for Waste Combustion

All municipal waste combustors incinerate the waste and use the resultant heat to generate steam, hot water, or electricity. Projects rely on three basic types of technologies: mass burn, modular, and refuse-derived fuel (RDF). Pyrolysis and anaerobic digestion represent waste disposal processes that have yet to be commercially developed in the United States. Although a number of such facilities have been built (Table 1), none of them remain operational or commercially viable.

Mass burning technologies are most commonly used in the United States. This group of technologies process raw municipal solid waste (MSW) "as is," with little or no sizing, shredding, or separation prior to combustion. At most plants, large bulky items such as "white goods," e.g., large appliances, batteries and/or hazardous materials are either prohibited or removed from waste receiving areas by crane operators and other personnel. Waste materials are typically deposited in a pit or on a "tipping floor" and the refuse is fed into individual furnaces by overhead cranes (or front-end loaders in the case of smaller facilities). The wastes are burned in one or more furnaces of differing designs, and heat produced by the combustion process is used to create steam for use as an energy product. The steam can be sold directly to industrial or institutional customers and/or used to power a turbine for the generation of electricity, which is typically sold to an investor-owned or municipal utility.

Modular facilities employ one or more small-scale combustion units to process lesser quantities of wastes than mass burn refractory⁽⁷⁾ or mass burn waterwall combustors.⁽⁸⁾ This type of plant is usually pre-fabricated and can be shipped fully assembled or in modules. Steam is most commonly generated from the combustion process, and many modular plants utilize a two-chamber design to accomplish this task. Flue gases, which contain incompletely burned materials, are then channeled into a secondary chamber where final combustion takes place. The steam can be sold and/or used to generate electricity, not unlike other mass burning designs.

The refuse-derived fuel (RDF) technologies employ a two-stage production-incineration system. Wastes are pre-processed to produce a more homogeneous fuel product (RDF), than raw MSW. The RDF is either sold to outside customers or burned on-site in a "dedicated" furnace. The refuse is usually shredded to reduce particle size for burning in semi-suspension or suspension-fired furnaces. Ferrous metals can be recovered using magnetic separators. Glass, grit, and sand may be removed by screening. In some RDF plants, air classifiers, trommel screens, or rotary drums are employed to further process the fuel products, by eliminating additional non-combustible materials.

All waste combustion systems, to greater or lesser degrees, generate an ash residue that is buried in landfills. The ash residue is composed of two basic components: bottom ash and fly ash. Bottom ash refers to that portion of the unburned waste that fall to the bottom of the grate or furnace. Fly ash, on the other hand, represents the small particles that rise from the furnace during the combustion process; they are generally removed from flue-gases using air pollution control equipment such as fabric filters and scrubbers. Most research has implicated fly ash as the major environmental hazard with respect to ash residue, given that heavy metals and organic compounds tend to be concentrated in the fly ash, rather than in the bottom ash. In recent years, lined ash monofills have been developed to better isolate this potentially harmful residue from groundwater supplies.

1. This article comes from an unpublished report: Eileen B. Berenyi, “The Impact of Federal Regulation on Capital Costs of Municipal Waste Combustion Facilities: 1980-1998,” Governmental Advisory Associates, Inc., prepared for the Energy Information Administration, U.S. Department of Energy.

2. C&A Carbone, Inc. v. Town of Clarkstown, New York, No. 114, S. Ct. 1677 (1994).

3. Two of the factors are discussed in the following documents and the third is the focus of this paper: J. Carlin, "The Impact of Flow Control and Tax Reform on Ownership and Growth in the U.S. Waste-to-Energy Industry," in Energy Information Administration, Monthly Energy Review, DOE/EIA-0535(94/09) (Washington, DC, September 1994), and "Public Policy Affecting the Waste-to-Energy Industry" and "Flow Control and the Interstate Movement of Waste: Post-Carbone," in Energy Information Administration, Renewable Energy Annual 1996, DOE/EIA-0603(96) (Washington, DC, March 1997).

4. Furans and dioxins are trace emissions from the combustion of commonly used materials such as paper and plastics.

5. Data from the Energy Information Administration survey Form EIA-860B, "Annual Electric Generator Report - Nonutility," and nonpublished analysis from the Office of Coal, Nuclear, Electric and Alternate Fuels indicate the weighted average capacity factor of the municipal waste combustion facilities in three of the four regions (South, West, and North Central) has dropped below the 85-percent norm (to almost as low as 70 percent in the North Central Region) for the industry during 1998.

6. "Building Cost Index History (1916-1999)," Engineering News Record, Vol. 242, No. 12 (March22/March29,1999), p. 99.