Comment Log Display

To the Board of California Air Resources Board (CARB)
Thank you for the opportunity to share some of our concerns
regarding the proposed CARB measure.  Sauder fully supports CARB’s
efforts to ensure that participants in the furniture and composite
panel industry are responsible stewards of the environment. 
However, the keys are to do so in a way that maintains a level
playing field for all competitors, and in a way that does not
materially damage the overall furniture industry.  With these
goals in mind, we are asking CARB to consider a number of
significant concerns regarding the proposed formaldehyde emission
regulations.

Testing:

Our first concern is in the area of testing.  Furniture Emission
Testing in laboratories has shown high error rates in measuring
low emissions of formaldehyde.  In fact studies have shown a 30%
error rate within a single lab, and around 45% between labs
(Howard-Reed & Nabinger ASTM report 2006; Zhang BIFMA 2007 see
attached documents).  Given these error rates, an enforcement
action based on a single test result would be meaningless and
arbitrary.  Realistically, the only way to have any level of
confidence that a component is in compliance with the regulation
would be to run a series of tests on the same component and look
for a correlation within the results.  These error rates highlight
the difficulty in detecting and measuring low levels of
formaldehyde.  

The measurement issue is further complicated by the fact that
formaldehyde can be found in many finishes for engineered wood
panels.  When the composite panel acts as a “sink” and absorbs
formaldehyde from the finish, it becomes virtually impossible to
determine whether a non-compliant test result was due to the board
or the finish.  It concerns us that no correlation work has been
done on removing various finishes from a panel and comparing that
to the raw substrate.  The scientific foundation for determining
whether a non-compliant finding is due to the composite panel or
due to any of a number of other sources of formaldehyde has not
been firmly established.

Enforcement:

Although we recognize that CARB has tried to maintain a level
playing field, we have grave concerns about the measurement and
enforcement of the proposed regulation.  The sheer volume of
products and increasingly global nature of the furniture industry
creates daunting challenges for enforcement.  
Producers and users of composite panels represent a multi-billion
dollar, global industry with literally tens of thousands of
participants.  Even if reliable test methods were available, the
sheer volume of products and sources would make effective auditing
and enforcement extremely difficult.  Without effective test
methods, enforcement becomes an insurmountable challenge.  

This challenge is further complicated by the fact that most
furniture manufacturers use a variety of board specifications from
a variety of sources.  In Sauder’s case, it is not uncommon for a
single furniture item to have material from five or more mills. 
It is entirely possible that a piece of furniture that is
compliant as a whole could have individual components that are
non-compliant.  Full compliance testing would require testing each
individual component on each piece of furniture. 

In addition, creating a piece of furniture often requires a
complex mix of technologies.  It is common, especially in Asian
companies, to employ a network of sub-suppliers each producing
certain components that are then assembled into the finished
product.  Trying to police and certify such a vast network of
industry participants does not seem feasible given the test
methods and associated costs.

Compliance Cost:

When regulations can be met through cost neutral methods, testing
and enforcement concerns are dramatically reduced.  Essentially,
when the cost of compliance is minimal, there is no incentive to
“get around the system”.  The ethical companies who strive for
full compliance are not at a competitive disadvantage to those who
“game” the system for their personal advantage.  Unfortunately, the
proposed CARB regulations have a significant cost impact for the
furniture industry.
Phase I:  Although more stringent than the current Composite Panel
Association’s Environmentally Preferred Product (EPP) standards,
the Phase I emission limits appear reasonable.  In all likelihood
these levels can be reached with known technology and without a
meaningful impact on prices or overall competitiveness of the U.S.
furniture industry.
Implementing Phase I regulations will, however, entail a range of
hidden costs including lot traceability, testing, and third party
certification.  Fortunately, due to the largely cost-neutral
nature of achieving the Phase I emissions, we believe that most
competitors will voluntarily comply with this regulation.  Phase
II, however, is a different story.
Phase II:  Meeting Phase II emission levels will require radically
different resin systems and processing methods.  Unfortunately, all
known processes for achieving Phase II emission levels are
significantly more expensive than current processes, and some will
require large capital investments to retrofit mills.

CARB acknowledged that there would be a cost increase at the panel
manufacturing level as well as the product manufacturing, and
retail levels as a result of the proposed regulations.  However,
CARB did not accurately reflect the cost build-up and ultimate
impact on the increased cost at the consumer or retail level.  

In order to fully appreciate the impact of the anticipated cost
increases, allow us to illustrate the cost build-up from the cost
of panels to the ultimate retail sales price.  The following
example uses a conservative 25% increase in manufacturer’s panel
costs.  It also includes typical margin percentages at the various
levels of the supply chain.

Phase II Cost Multiplier Effect 25% Increase in board cost:
                                      Current  Phase II Cost 
Supply Chain Element:	Assumptions	Cost	Cost	Increase
Panel Raw Material Cost	25% PII cost 	$20.00	$25.00	$5.00
Invoice to Sauder	30% board mill	$28.57	$35.71	$7.14
Total Unit Cost	        50% board cost	$57.14	$64.28	$7.14
Net Selling Price	35% Sauder	$87.91	$98.89	$10.98
Customer Invoice	10% program 	$97.68	$109.88	$12.20
Consumer Retail Price	45% retailer 	$177.60	$199.78	$22.18

The fact is that the manufacturer's increased cost is not just
added on the top as the CARB staff report suggests.  In reality,
there is a multiplier effect.  As you can see from the table
above, a 25% or $5.00 increase in the cost of the composite panel
becomes roughly a $22.18 (13 %) increase to the consumer at
retail.  The cost increase of 30% for particleboard and 40% for
MDF, as projected by CARB, would lead to a proportionately higher
cost to the consumer. 

Even if all industry participants comply with the proposed
regulation and CARB is somehow able to create a level playing
field, the proposed regulation would have a dramatic impact on the
furniture industry.  Basic economics tells us that when prices go
up, demand goes down.  While it is impossible to accurately
predict the price elasticity of consumers, there is no doubt that
there will be a negative impact on sales volume.  The result of
higher retail prices will be a contraction within the industry and
a significant net loss of jobs.  And, let’s not forget about the
consumer.  He or she will pay a significant price to reduce the
trace emissions of this naturally occurring substance.

While the economic impact of effectively enforced formaldehyde
emissions regulation is dramatic, the impact of ineffective
enforcement is devastating.  Problematic testing and ineffective
enforcement will significantly tilt the playing field.  Companies
that comply voluntarily will be at a significant disadvantage to
those who are able to “get around the system”.  In an industry
where successful sales can hinge on pennies, much less dollars,
this all-too-likely outcome would have devastating implications
for the already struggling domestic furniture industry.

Conclusion:

The preceding factors – test error, the effect of surface
finishes, industry size, mixed sources of supply, third party
certification, etc. – combine to make the proposed CARB
formaldehyde emissions regulation virtually unenforceable.  While
well intentioned, this regulation will fail to create the
environmentally responsible, level playing field that CARB
intended.  Unfortunately, whether enforceable or not, the cost
penalty for Phase II compliance creates an adverse industry
outcome. 

Sincerely,

Michael Zimmerman
Senior R&D Chemist
Sauder Woodworking Co.
mzimmerman@sauder.com