EFFECT OF INVESTMENT IN AIR POLLUTION CONTROLS ON FINANCIAL PERFORMANCE OF TEXAS COTTON GINS: A SIMULATION ANALYSIS

The Federal Clean Air Act (FCAA) amendments of 1990 strengthened air pollution regulation as it affects stationary sources such as cotton gins. Because investments in air pollution systems are sometimes substantial, a financial burden may be placed on gin plant firms that results in insolvency or failure. The primary objective of this study is to determine likely success/failure rates for Texas gin plants that would result from introducing various levels of air pollution control. Analysis focuses on five representative gin plant firms and three air pollution control systems that offer differing control technology and particulate emission rates. Simulation analysis is carried out with financial models that represent each of the five gin plant firms. The analysis projects many of the small and mid-size gin plant firms in Texas that operate at relatively low volume levels to be financially unsuccessful during the ten year time period ex ante investment in air pollution controls. This suggests continuation of an on-going trend that has involved a one-third reduction in Texas gin plants during the past decade. As expected, the introduction of air pollution control lowers the likelihood of firm success, but, the analysis shows the unfavorable affect of these required investments to be less pronounced among larger gin plant firms and plants that operate at high capacity levels. Results suggest the introduction of air pollution controls will accelerate the trend toward fewer and larger gin plant firms and in order to survive, many Texas firms will find it necessary to merge/consolidate.