[Federal Register Volume 80, Number 23 (Wednesday, February 4, 2015)]
[Proposed Rules]
[Pages 6182-6233]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-01415]
[[Page 6181]]
Vol. 80
Wednesday,
No. 23
February 4, 2015
Part II
Department of Energy
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10 CFR Part 431
Energy Conservation Program for Certain Industrial Equipment: Energy
Conservation Standards for Commercial Warm Air Furnaces; Proposed Rule
Federal Register / Vol. 80, No. 23 / Wednesday, February 4, 2015 /
Proposed Rules
[[Page 6182]]
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DEPARTMENT OF ENERGY
10 CFR Part 431
[Docket Number EERE-2013-BT-STD-0021]
RIN 1904-AD11
Energy Conservation Program for Certain Industrial Equipment:
Energy Conservation Standards for Commercial Warm Air Furnaces
AGENCY: Office of Energy Efficiency and Renewable Energy, Department of
Energy.
ACTION: Notice of proposed rulemaking and public meeting.
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SUMMARY: The Energy Policy and Conservation Act of 1975 (EPCA), as
amended, prescribes energy conservation standards for various consumer
products and certain commercial and industrial equipment, including
commercial warm air furnaces (CWAF). EPCA also requires that every six
years, the U.S. Department of Energy (DOE) must consider amending its
standards for specified types of commercial heating, air-conditioning,
and water-heating equipment in order to determine whether more-
stringent, amended standards would be technologically feasible and
economically justified, and would save a significant additional amount
of energy. DOE has tentatively concluded that there is sufficient
record evidence to support more-stringent standards, so DOE is
proposing to amend the current energy conservation standards for CWAF.
DOE also announces a public meeting to receive comment on these
proposed standards and associated analyses and results.
DATES: Comments: DOE will accept comments, data, and information
regarding this notice of proposed rulemaking (NOPR) before and after
the public meeting, but no later than April 6, 2015. See section VII,
``Public Participation,'' for details.
Meeting: DOE will hold a public meeting on Monday, March 2, 2015,
from 9:00 a.m. to 4:00 p.m., in Washington, DC. The meeting will also
be broadcast as a webinar. See section VII, ``Public Participation,''
for webinar registration information, participant instructions, and
information about the capabilities available to webinar participants.
ADDRESSES: The public meeting will be held at the U.S. Department of
Energy, Forrestal Building, Room 8E-089, 1000 Independence Avenue SW.,
Washington, DC 20585. To attend, please notify Ms. Brenda Edwards at
(202) 586-2945. For more information, refer to section VII, ``Public
Participation,'' near the end of this notice.
Instructions: Any comments submitted must identify the NOPR for
Energy Conservation Standards for Commercial Warm Air Furnaces, and
provide docket number EE-2013-BT-STD-00021 and/or regulatory
information number (RIN) number 1904-AD11. Comments may be submitted
using any of the following methods:
1. Federal eRulemaking Portal: www.regulations.gov. Follow the
instructions for submitting comments.
2. Email: [email protected]. Include the docket
number and/or RIN in the subject line of the message. Submit electronic
comments in WordPerfect, Microsoft Word, PDF, or ASCII file format, and
avoid the use of special characters or any form of encryption.
3. Postal Mail: Ms. Brenda Edwards, U.S. Department of Energy,
Building Technologies Office, Mailstop EE-2J, 1000 Independence Avenue
SW., Washington, DC, 20585-0121. If possible, please submit all items
on a compact disc (CD), in which case it is not necessary to include
printed copies.
4. Hand Delivery/Courier: Ms. Brenda Edwards, U.S. Department of
Energy, Building Technologies Office, 950 L'Enfant Plaza SW., Suite
600, Washington, DC, 20024. Telephone: (202) 586-2945. If possible,
please submit all items on a CD, in which case it is not necessary to
include printed copies.
Written comments regarding the burden-hour estimates or other
aspects of the collection-of-information requirements contained in this
proposed rule may be submitted to Office of Energy Efficiency and
Renewable Energy through the methods listed above and by email to
[email protected].
No telefacsimiles (faxes) will be accepted. For detailed
instructions on submitting comments and additional information on the
rulemaking process, see section VII of this document (Public
Participation).
Docket: The docket is available for review at www.regulations.gov.
All documents in the docket are listed in the www.regulations.gov
index. A link to the docket Web page can be found at: http://www1.eere.energy.gov/buildings/appliance_standards/rulemaking.aspx?ruleid=70. This Web page contains a link to the docket
for this notice on the http://www.regulations.gov site. The
www.regulations.gov Web page contains simple instructions on how to
access all documents, including public comments, in the docket.
For further information on how to submit a comment, review other
public comments and the docket, or participate in the public meeting,
contact Ms. Brenda Edwards at (202) 586-2945 or by email:
[email protected].
FOR FURTHER INFORMATION CONTACT: Mr. John Cymbalsky, U.S. Department of
Energy, Office of Energy Efficiency and Renewable Energy, Building
Technologies, EE-5B, 1000 Independence Avenue SW., Washington, DC
20585-0121. Telephone: (202) 286-1692. Email:
[email protected].
Mr. Eric Stas, U.S. Department of Energy, Office of the General
Counsel, GC-71, 1000 Independence Avenue SW., Washington, DC 20585-
0121. Telephone: (202) 586-9507. Email: [email protected].
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Summary of the Proposed Rule
A. Benefits and Costs to Commercial Consumers
B. Impact on Manufacturers
C. National Benefits
II. Introduction
A. Authority
B. Background
1. Current Standards
2. History of Standards Rulemaking for CWAF
III. General Discussion
A. Compliance Date
B. Technological Feasibility
1. General
2. Maximum Technologically Feasible Levels
C. Energy Savings
1. Determination of Savings
2. Significance of Savings
D. Economic Justification
1. Specific Criteria
a. Economic Impact on Manufacturers and Consumers
b. Life-Cycle Costs
c. Energy Savings
d. Lessening of Utility or Performance of Equipment
e. Impact of Any Lessening of Competition
f. Need for National Energy Conservation
g. Other Factors
2. Rebuttable Presumption
IV. Methodology and Discussion of Related Comments
A. Market and Technology Assessment
1. General
2. Scope of Coverage and Equipment Classes
3. Technology Options
B. Screening Analysis
C. Engineering Analysis
1. Methodology
2. Efficiency Levels
a. Baseline Efficiency Levels
b. Incremental and Max-Tech Efficiency Levels
3. Equipment Testing and Reverse Engineering
[[Page 6183]]
4. Cost Model
5. Manufacturing Production Costs
6. Manufacturer Markup
7. Shipping Costs
D. Markups Analysis
E. Energy Use Analysis
F. Life-Cycle Cost and Payback Period Analysis
1. Inputs to Installed Cost
2. Inputs to Operating Costs
a. Energy Consumption
b. Energy Prices
c. Maintenance and Repair Costs
d. Other Inputs
G. Shipments Analysis
H. National Impact Analysis
I. Consumer Subgroup Analysis
J. Manufacturer Impact Analysis
1. Overview
2. Government Regulatory Impact Model
a. Government Regulatory Impact Model Key Inputs
b. Government Regulatory Impact Model Scenarios
c. Manufacturer Interviews
K. Emissions Analysis
L. Monetizing Carbon Dioxide and Other Emissions Impacts
1. Social Cost of Carbon
a. Monetizing Carbon Dioxide Emissions
b. Development of Social Cost of Carbon Values
c. Current Approach and Key Assumptions
2. Valuation of Other Emissions Reductions
M. Utility Impact Analysis
N. Employment Impact Analysis
V. Analytical Results and Conclusions
A. Trial Standard Levels
B. Economic Justification and Energy Savings
1. Economic Impacts on Individual Commercial Consumers
a. Life-Cycle Cost and Payback Period
b. Consumer Subgroup Analysis
c. Rebuttable Presumption Payback
2. Economic Impacts on Manufacturers
a. Industry Cash-Flow Analysis Results
b. Impacts on Direct Employment
c. Impacts on Manufacturing Capacity
d. Impacts on Subgroups of Manufacturers
e. Cumulative Regulatory Burden
3. National Impact Analysis
a. Significance of Energy Savings
b. Net Present Value of Commercial Consumer Costs and Benefits
c. Indirect Impacts on Employment
4. Impact on Utility or Performance of Equipment
5. Impact of Any Lessening of Competition
6. Need of the Nation to Conserve Energy
7. Other Factors
8. Summary of Other National Economic Impacts
C. Proposed Standards
1. Benefits and Burdens of Trial Standard Levels Considered for
CWAF
2. Summary of Benefits and Costs (Annualized) of the Proposed
Standards
VI. Procedural Issues and Regulatory Review
A. Review Under Executive Orders 12866 and 13563
B. Review Under the Regulatory Flexibility Act
C. Review Under the Paperwork Reduction Act of 1995
D. Review Under the National Environmental Policy Act of 1969
E. Review Under Executive Order 13132
F. Review Under Executive Order 12988
G. Review Under the Unfunded Mandates Reform Act of 1995
H. Review Under the Treasury and General Government
Appropriations Act, 1999
I. Review Under Executive Order 12630
J. Review Under the Treasury and General Government
Appropriations Act, 2001
K. Review Under Executive Order 13211
L. Review Under the Information Quality Bulletin for Peer Review
VII. Public Participation
A. Attendance at the Public Meeting
B. Procedure for Submitting Requests to Speak and Prepared
General Statements For Distribution
C. Conduct of the Public Meeting
D. Submission of Comments
E. Issues on Which DOE Seeks Comment
VIII. Approval of the Office of the Secretary
I. Summary of the Proposed Rule
Title III, Part C \1\ of the Energy Policy and Conservation Act of
1975 (EPCA or the Act), Public Law 94-163 (42 U.S.C. 6311-6317, as
codified), added by Public Law 95-619, Title IV, Sec. 441(a),
established the Energy Conservation Program for Certain Industrial
Equipment, which includes the commercial warm air furnaces that are the
subject of this rulemaking. CWAF are a type of equipment also covered
under the American Society of Heating, Refrigerating, and Air-
Conditioning Engineers (ASHRAE) Standard 90.1 (ASHRAE Standard 90.1),
``Energy Standard for Buildings Except Low-Rise Residential
Buildings.'' \2\ Pursuant to recent statutory amendments to EPCA, DOE
must conduct an evaluation of its standards for CWAF every six years
and publish either a notice of determination that such standards do not
need to be amended or a notice of proposed rulemaking including
proposed amended standards. (42 U.S.C. 6313(a)(6)(C)(i)) EPCA further
requires that any new or amended energy conservation standard that DOE
prescribes for covered equipment, such as CWAF, shall be designed to
achieve the maximum improvement in energy efficiency that is
technologically feasible and economically justified. (42 U.S.C.
6313(a)(6)(A)(ii)(II)) Furthermore, the new or amended standard must
result in a significant additional conservation of energy. Id. Under
the applicable statutory provisions, DOE must determine that there is
clear and convincing evidence supporting the adoption of more-stringent
energy conservation standards than the ASHRAE level. Id. Once complete,
this rulemaking will satisfy DOE's statutory obligation under 42 U.S.C.
6313(a)(6)(C).
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\1\ For editorial reasons, upon codification in the U.S. Code,
Part C was re-designated Part A-1.
\2\ ASHRAE Standard 90.1-2013 (i.e., the most recent version of
ASHRAE Standard 90.1) did not amend the efficiency levels for CWAF.
Thus, DOE was not triggered by the statutory provision for ASHRAE
equipment. For more information on DOE's review of ASHRAE Standard
90.1-2013, see: http://www1.eere.energy.gov/buildings/appliance_standards/rulemaking.aspx?ruleid=108.
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In accordance with these and other statutory provisions discussed
in this notice, DOE has examined all of the CWAF equipment classes and
has tentatively concluded that there is clear and convincing evidence
to support more-stringent standards for both gas-fired and oil-fired
CWAF. Accordingly, DOE is proposing amended energy conservation
standards for both gas-fired and oil-fired CWAF. The proposed
standards, which prescribe the minimum allowable thermal efficiency
(TE), are shown in Table I.1. These proposed standards, if adopted,
would apply to all equipment listed in Table I.1 and manufactured in,
or imported into, the United States on and after the date three years
after the publication of the final rule for this rulemaking.
Table I.1--Proposed Energy Conservation Standards for Commercial Warm
Air Furnaces
------------------------------------------------------------------------
Input capacity * Thermal
Equipment class (Btu/h) efficiency **
------------------------------------------------------------------------
Gas-Fired Furnaces................... >=225,000 Btu/h 82%
Oil-Fired Furnaces................... >=225,000 Btu/h 82%
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* In addition to being defined by input capacity, a CWAF is ``a self-
contained oil- or gas-fired furnace designed to supply heated air
through ducts to spaces that require it and includes combination warm
air furnace/electric air conditioning units but does not include unit
heaters and duct furnaces.'' CWAF coverage is further discussed in
section IV.A.2, ``Scope of Coverage and Equipment Classes.''
** Thermal efficiency is at the maximum rated capacity (rated maximum
input), and is determined using the DOE test procedure specified at 10
CFR 431.76.
[[Page 6184]]
A. Benefits and Costs to Commercial Consumers
Table I.2 presents DOE's evaluation of the economic impacts of the
proposed energy conservation standards on commercial consumers of CWAF,
as measured by the average life-cycle cost (LCC) savings and the median
payback period (PBP). The average LCC savings are positive for both
equipment classes, and the PBP is less than the average lifetime of the
equipment, which is estimated to be 19 years for gas-fired CWAF and 26
years for oil-fired CWAF.
Table I.2--Impacts of Proposed Energy Conservation Standards on
Commercial Consumers of Commercial Warm Air Furnaces
------------------------------------------------------------------------
Average LCC
Equipment class savings Median payback
(2013$) period (years)
------------------------------------------------------------------------
Gas-Fired Furnaces...................... 426 0.7
Oil-Fired Furnaces...................... 164 2.8
------------------------------------------------------------------------
DOE's analysis of the impacts of the proposed standards on
consumers is described in section IV.F of this notice and in chapter 8
of the NOPR TSD.
B. Impact on Manufacturers
The industry net present value (INPV) is the sum of the discounted
cash flows to the industry from the base year through the end of the
analysis period (2014 to 2047). Using a real discount rate of 8.9
percent, DOE estimates that the INPV for manufacturers of CWAF is $74.7
million in 2013$. Under the proposed standards, DOE expects that INPV
may be reduced by approximately $43.3 to $11.1 million, which is -58.0
percent to -14.9 percent.
DOE's analysis of the impacts of the proposed standards on
manufacturers is described in section IV.J of this notice.
C. National Benefits \3\
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\3\ All monetary values in this NOPR are expressed in 2013
dollars and are discounted to 2014.
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DOE's analyses indicate that the proposed energy conservation
standards for CWAF would save a significant amount of energy. The
energy savings over the entire lifetime of CWAF equipment installed
during the 30-year period that begins in the year of compliance with
amended standards (2018-2047), relative to the base case without
amended standards, amount to 0.52 quadrillion Btus (quads) of full-
fuel-cycle energy.\4\ This represents a savings of 1.0 percent relative
to the energy use of this equipment in the base case.
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\4\ These results include impacts on commercial consumers which
accrue after 2048 from the products purchased in 2018-2047.
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The cumulative net present value (NPV) of total consumer costs and
savings of the proposed standards for CWAF ranges from $1.0 billion to
$2.7 billion at 7-percent and 3-percent discount rates, respectively.
This NPV expresses the estimated total value of future operating-cost
savings minus the estimated increased product costs for CWAF purchased
in 2018-2047.
In addition, the proposed standards would have significant
environmental benefits.\5\ The energy savings would result in
cumulative emission reductions of 27.9 million metric tons (Mt) \6\ of
carbon dioxide (CO2), 319.8 thousand tons of methane
(CH4), 0.1 thousand tons of nitrous oxide (N2O),
2.2 thousand tons of sulfur dioxide (SO2), 66.84 thousand
tons of nitrogen oxides (NOX) and 0.003 tons of mercury
(Hg). The cumulative reduction in CO2 emissions through 2030
amounts to 4.4 Mt.
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\5\ DOE calculated emissions reductions relative to the Annual
Energy Outlook 2013 (AEO 2013) Reference case, which generally
represents current legislation and environmental regulations for
which implementing regulations were available as of December 31,
2012.
\6\ A metric ton is equivalent to 1.1 short tons. Results for
emissions other than CO2 are presented in short tons.
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The value of the CO2 reductions is calculated using a
range of values per metric ton of CO2 (otherwise known as
the Social Cost of Carbon, or SCC) developed by an interagency
process.\7\ The derivation of the SCC values is discussed in section
IV.L. Using discount rates appropriate for each set of SCC values, DOE
estimates the present monetary value of the CO2 emissions
reduction to be between $0.2 billion and $2.6 billion, with a value of
$0.8 billion using the central SCC case represented by $40.5/t in
2015.\8\ Additionally, DOE estimates the present monetary value of the
NOX emissions reduction to be $34.2 million to $82.0 million
at 7-percent and 3-percent discount rates, respectively.\9\
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\7\ Technical Update of the Social Cost of Carbon for Regulatory
Impact Analysis Under Executive Order 12866, Interagency Working
Group on Social Cost of Carbon, United States Government (May 2013;
revised November 2013) (Available at: http://www.whitehouse.gov/sites/default/files/omb/assets/inforeg/technical-update-social-cost-of-carbon-for-regulator-impact-analysis.pdf).
\8\ The values only include CO2 emissions;
CO2 equivalent emissions from other greenhouse gases are
not included.
\9\ DOE is investigating monetization of reductions in
SO2 and Hg emissions.
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Table I.3 summarizes the national economic costs and benefits
expected to result from the proposed standards for CWAF.
Table I.3--Summary of National Economic Benefits and Costs of Proposed
Energy Conservation Standards for Commercial Warm Air Furnaces
------------------------------------------------------------------------
Present value
Category Billion 2013$ Discount rate
------------------------------------------------------------------------
Benefits
------------------------------------------------------------------------
Operating Cost Savings.................. 1.052 7%
2.721 3
CO2 Reduction Monetized Value ($12.0/t 0.175 5
case) **...............................
CO2 Reduction Monetized Value ($40.5/t 0.841 3
case) **...............................
CO2 Reduction Monetized Value ($62.4/t 1.347 2.5
case) **...............................
[[Page 6185]]
CO2 Reduction Monetized Value $119/t 2.606 3
case) **...............................
NOX Reduction Monetized Value (at $2,684/ 0.034 7
ton) **................................
0.082 3
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Total Benefits [dagger]............. 1.928 7
-------------------------------
3.645 3
------------------------------------------------------------------------
Costs
------------------------------------------------------------------------
Incremental Installed Costs............. 0.036 7
0.062 3
------------------------------------------------------------------------
Total Net Benefits
------------------------------------------------------------------------
Including Emissions Reduction Monetized 1.892 7
Value [dagger].........................
3.582 3
------------------------------------------------------------------------
* This table presents the costs and benefits associated with CWAF
shipped in 2018-2047. These results include impacts on commercial
consumers which accrue after 2048 from the products purchased in 2018-
2047. The results account for the incremental variable and fixed costs
incurred by manufacturers due to the standard, some of which may be
incurred in preparation for the rule.
** The interagency group selected four sets of SCC values for use in
regulatory analyses. Three sets of values (represented by 2015 values
of $12.0/t, $40.5/t, and $62.4/t, in 2013$) are based on the average
SCC from the integrated assessment models, at discount rates of 2.5,
3, and 5 percent. The fourth set (represented by 2015 value of $119/t
in 2013$), which represents the 95th percentile SCC estimate across
all three models at a 3-percent discount rate, is included to
represent higher-than-expected impacts from temperature change further
out in the tails of the SCC distribution. The values in parentheses
represent the SCC in 2015. The SCC time series incorporate an
escalation factor. The value for NOX represents the average of the low
and high NOX values considered in DOE's analysis.
[dagger] Total Benefits for both the 3% and 7% cases are derived using
the series corresponding to average SCC with 3-percent discount rate.
The benefits and costs of these proposed standards, for products
sold in 2018-2047, can also be expressed in terms of annualized values.
The annualized monetary values are the sum of: (1) The annualized
national economic value of the benefits from consumer operation of
equipment that meets the proposed standards (consisting primarily of
operating cost savings from using less energy, minus increases in
equipment purchase price and installation costs, which is another way
of representing commercial consumer NPV), and (2) the annualized
monetary value of the benefits of CO2 and NOX
emission reductions.\10\
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\10\ DOE used a two-step calculation process to convert the
time-series of costs and benefits into annualized values. First, DOE
calculated a present value in 2013, the year used for discounting
the NPV of total consumer costs and savings, for the time-series of
costs and benefits using discount rates of three and seven percent
for all costs and benefits except for the value of CO2
reductions. For the latter, DOE used a range of discount rates, as
shown in Table I.4. From the present value, DOE then calculated the
fixed annual payment over a 30-year period (2018 through 2047) that
yields the same present value. The fixed annual payment is the
annualized value. Although DOE calculated annualized values, this
does not imply that the time-series of cost and benefits from which
the annualized values were determined is a steady stream of
payments.
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Although combining the values of operating savings and
CO2 emission reductions provides a useful perspective, two
issues should be considered. First, the national operating savings are
domestic U.S. consumer monetary savings that occur as a result of
market transactions, whereas the value of CO2 reductions is
based on a global value. Second, the assessments of operating cost
savings and CO2 savings are performed with different methods
that use different time frames for analysis. The national operating
cost savings is measured for the lifetime of CWAF shipped in 2018-2047.
The SCC values, on the other hand, reflect the present value of some
future climate-related impacts resulting from the emission of one ton
of carbon dioxide in each year. Because CO2 emissions have a
very long residence time in the atmosphere,\11\ the SCC values after
2050 reflect future climate-related impacts resulting from the emission
of CO2 that continue beyond 2100.
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\11\ The atmospheric lifetime of CO2 is estimated of
the order of 30-95 years. Jacobson, MZ (2005). ``Correction to
``Control of fossil-fuel particulate black carbon and organic
matter, possibly the most effective method of slowing global
warming.'' '' J. Geophys. Res. 110. pp. D14105.
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Estimates of annualized benefits and costs of the proposed
standards are shown in Table I.4. The results under the primary
estimate are as follows. Using a 7-percent discount rate for benefits
and costs other than CO2 reduction, for which DOE used a 3-
percent discount rate along with the average SCC series that uses a 3-
percent discount rate, the estimated cost of the proposed CWAF
standards is $3.51 million per year in increased equipment costs, while
the estimated benefits are $104 million per year in reduced equipment
operating costs, $47 million in CO2 reductions, and $3.38
million in reduced NOX emissions. In this case, the net
benefit would amount to $151 million per year. Using a 3-percent
discount rate for all benefits and costs and the average SCC series,
the estimated cost of the proposed CWAF standards is $3.48 million per
year in increased equipment costs, while the estimated benefits are
$152 million per year in reduced equipment operating costs, $47 million
in CO2 reductions, and $4.57 million in reduced
NOX emissions. In this case, the net benefit would amount to
$200 million per year.
[[Page 6186]]
Table I.4--Annualized Benefits and Costs of Proposed Energy Conservation Standards for Commercial Warm Air
Furnaces *
----------------------------------------------------------------------------------------------------------------
Million 2013$/year
-----------------------------------------------
Discount rate Primary
estimate Low estimate High estimate
----------------------------------------------------------------------------------------------------------------
Benefits
----------------------------------------------------------------------------------------------------------------
Operating Cost Savings................ 7%...................... 104 98 111
3%...................... 152 143 163
CO2 Reduction Monetized Value ($12.0/t 5%...................... 13 13 14
case) **.
CO2 Reduction Monetized Value ($40.5/t 3%...................... 47 45 48
case) **.
CO2 Reduction Monetized Value ($62.4/t 2.5%.................... 69 67 72
case) **.
CO2 Reduction Monetized Value ($119/t 3%...................... 145 140 150
case) **.
NOX Reduction Monetized Value (at 7%...................... 3.38 3.28 3.49
$2,684/ton) **.
3%...................... 4.57 4.41 4.72
Total Benefits [dagger]........... 7% plus CO2 range....... 120 to 253 114 to 242 128 to 264
7%...................... 154 147 163
3% plus CO2 range....... 169 to 302 160 to 287 181 to 318
3%...................... 203 192 216
----------------------------------------------------------------------------------------------------------------
Costs
----------------------------------------------------------------------------------------------------------------
Incremental Equipment Costs........... 7%...................... 3.51 3.48 3.67
3%...................... 3.48 3.41 3.68
----------------------------------------------------------------------------------------------------------------
Net Benefits
----------------------------------------------------------------------------------------------------------------
Total [dagger].................... 7% plus CO2 range....... 117 to 249 111 to 238 124 to 261
7%...................... 151 143 159
3% plus CO2 range....... 166 to 298 156 to 283 177 to 314
3%...................... 200 189 212
----------------------------------------------------------------------------------------------------------------
* This table presents the annualized costs and benefits associated with CWAF shipped in 2018-2047. These results
include benefits to commercial consumers which accrue after 2048 from the products purchased in 2018-2047. The
results account for the incremental variable and fixed costs incurred by manufacturers due to the standard,
some of which may be incurred in preparation for the rule. The Primary, Low Benefits, and High Benefits
Estimates utilize projections of energy prices from the AEO 2013 Reference case, Low Economic Growth case, and
High Economic Growth case, respectively. Incremental equipment costs account for equipment price trends and
include, beyond the reference scenario, a low price decline scenario used in the Low Benefits Estimate and a
high price decline scenario used in the High Benefits Estimates.
** The interagency group selected four sets of SCC values for use in regulatory analyses. Three sets of values
(represented by 2015 values of $12.0/t, $40.5/t, and $62.4/t, in 2013$) are based on the average SCC from the
integrated assessment models, at discount rates of 2.5, 3, and 5 percent. The fourth set (represented by 2015
value of $119/t, in 2013$), which represents the 95th percentile SCC estimate across all three models at a 3-
percent discount rate, is included to represent higher-than-expected impacts from temperature change further
out in the tails of the SCC distribution. The values in parentheses represent the SCC in 2015. The SCC time
series incorporate an escalation factor. The value for NOX represents the average of the low and high values
considered in DOE's analysis.
[dagger] Total Benefits for both the 3-percent and 7-percent cases are derived using the series corresponding to
average SCC with a 3-percent discount rate. In the rows labeled ``7% plus CO2 range'' and ``3% plus CO2
range,'' the operating cost and NOX benefits are calculated using the labeled discount rate, and those values
are added to the full range of CO2 values.
DOE's analysis of the national impacts of the proposed standards is
described in sections IV.H, IV.K and IV.L of this notice.
D. Conclusion
DOE has tentatively concluded that, based upon clear and convincing
evidence, the proposed standards represent the maximum improvement in
energy efficiency that is technologically feasible and economically
justified, and would result in the significant conservation of energy.
DOE further notes that equipment achieving these standard levels is
already commercially available for the equipment classes covered by
this proposal. Based on the analyses described above, DOE has
tentatively concluded that the benefits of the proposed standards to
the Nation (energy savings, positive NPV of commercial consumer
benefits, commercial consumer LCC savings, and emission reductions)
would outweigh the burdens (loss of INPV for manufacturers and LCC
increases for some commercial consumers).
DOE also considered more-stringent energy efficiency levels as
trial standard levels, and is still considering them in this
rulemaking. However, DOE has tentatively concluded that the potential
burdens of the more-stringent energy efficiency levels would outweigh
the projected benefits. Based on consideration of the public comments
DOE receives in response to this notice and related information
collected and analyzed during the course of this rulemaking effort, DOE
may adopt energy efficiency levels presented in this notice that are
either higher or lower than the proposed standards, or some combination
of level(s) that incorporate the proposed standards in part.
II. Introduction
The following section briefly discusses the statutory authority
underlying this proposal, as well as some of the relevant historical
background related to the energy conservation standards for CWAF.
A. Authority
Title III, Part C \12\ of the Energy Policy and Conservation Act of
1975 (EPCA or the Act), Public Law 94-163 (42 U.S.C. 6311-6317, as
codified), added by Public Law 95-619, Title IV, Sec. 441(a),
established the Energy Conservation Program for Certain Industrial
Equipment, which includes provisions covering the CWAF equipment that
is
[[Page 6187]]
the subject of this notice.\13\ In general, this program addresses the
energy efficiency of certain types of commercial and industrial
equipment. Relevant provisions of the Act specifically include
definitions (42 U.S.C. 6311), energy conservation standards (42 U.S.C.
6313), test procedures (42 U.S.C. 6314), labeling provisions (42 U.S.C.
6315), and the authority to require information and reports from
manufacturers (42 U.S.C. 6316).
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\12\ For editorial reasons, upon codification in the U.S. Code,
Part C was re-designated Part A-1.
\13\ All references to EPCA in this document refer to the
statute as amended through the American Energy Manufacturing
Technical Corrections Act of 2012, Pub. L. 112-210 (enacted Dec. 18,
2012).
---------------------------------------------------------------------------
The initial Federal energy conservation standards for CWAF were
added to EPCA by the Energy Policy Act of 1992 (EPACT 1992), Public Law
102-486. (42 U.S.C. 6313(a)(4)) These types of covered equipment have a
rated capacity (rated maximum input \14\) greater than or equal to
225,000 Btu/h, can be gas-fired or oil-fired, and are designed to heat
commercial buildings. Id. Under the Act, DOE is obligated to review its
energy conservation standards for certain commercial and industrial
equipment (i.e., specified heating, air-conditioning, and water-heating
equipment) whenever the American Society of Heating, Refrigerating, and
Air-Conditioning Engineers (ASHRAE) updates the efficiency levels in
ASHRAE Standard 90.1, Energy Standard for Buildings Except Low-Rise
Residential Buildings. DOE must either adopt the levels contained in
ASHRAE Standard 90.1 or adopt levels more stringent than the ASHRAE
levels if there is clear and convincing evidence in support of doing
so. (42 U.S.C. 6313(a)(6)(A)) Such review is to be conducted in
accordance with the procedures established for ASHRAE equipment under
42 U.S.C. 6313(a)(6). In addition, DOE must periodically review and
consider amending the energy conservation standards for these specified
types of covered commercial and industrial equipment and publish either
a notice of proposed rulemaking with amended standards or a
determination that the standards do not need to be amended. (42 U.S.C.
6313(a)(6)(C)(i))
---------------------------------------------------------------------------
\14\ Rated maximum input means the maximum gas-burning capacity
of a commercial warm-air furnace in Btu per hour, as specified by
the manufacturer.
---------------------------------------------------------------------------
In amending EPCA, the American Energy Manufacturing Technical
Corrections Act (AEMTCA), Public Law 112-210 (Dec. 18, 2012), in
relevant part, modified the manner in which DOE must amend the energy
efficiency standards for certain types of commercial and industrial
equipment, adding a review requirement that is triggered when ASHRAE
adopts a design requirement, even if the standard level remains
unchanged. Id. AEMTCA also clarified that DOE's periodic review of
ASHRAE equipment must occur ``[e]very six years.'' Id. AEMTCA further
added to this process a requirement that DOE must initiate a rulemaking
to consider amending the energy conservation standards for any covered
equipment for which more than 6 years has elapsed since the issuance of
the most recent final rule establishing or amending a standard for the
product as of the date of AEMTCA's enactment (i.e., December 18, 2012),
in which case DOE must publish either: (1) A notice of determination
that the current standards do not need to be amended, or (2) a notice
of proposed rulemaking containing proposed standards by December 31,
2013. (42 U.S.C. 6313(a)(6)(C)(vi)) Because DOE has not issued a
standard for commercial warm air furnaces in the past six years, the
December 31, 2013 deadline for publication of the applicable rulemaking
document applies.
Pursuant to EPCA, DOE's energy conservation program for covered
equipment consists essentially of four parts: (1) Testing; (2)
labeling; (3) the establishment of Federal energy conservation
standards; and (4) certification and enforcement procedures. Subject to
certain criteria and conditions, DOE is required to develop test
procedures to measure the energy efficiency, energy use, or estimated
annual operating cost of covered equipment. (42 U.S.C. 6314)
Manufacturers of covered equipment must use the prescribed DOE test
procedure as the basis for certifying to DOE that their equipment
comply with the applicable energy conservation standards adopted under
EPCA and when making representations to the public regarding the energy
use or efficiency of such equipment. (42 U.S.C. 6314(d)) Similarly, DOE
must use these test procedures to determine whether the equipment
comply with standards adopted pursuant to EPCA. The DOE test procedures
for CWAF currently appear at title 10 of the Code of Federal
Regulations (CFR) part 431.76.
When setting standards for the equipment addressed by the proposed
rule, EPCA, as amended by AEMTCA, prescribes specific statutory
criteria for DOE to consider. See generally 42 U.S.C. 6313(a)(6)(A)-
(C). As indicated above, any amended standard for covered equipment
more stringent than the level contained in ASHRAE Standard 90.1 must be
designed to achieve the maximum improvement in energy efficiency that
is technologically feasible and economically justified. (42 U.S.C.
6313(a)(6)(A)(ii)(II)) Furthermore, DOE may not adopt any standard that
would not result in the significant additional conservation of energy.
Id. In deciding whether a proposed standard is economically justified,
DOE must determine whether the benefits of the standard exceed its
burdens. DOE must make this determination after receiving comments on
the proposed standard, and by considering, to the maximum extent
practicable, the following seven statutory factors:
1. The economic impact of the standard on manufacturers and
consumers of products subject to the standard;
2. The savings in operating costs throughout the estimated
average life of the covered products in the type (or class) compared
to any increase in the price, initial charges, or maintenance
expenses for the covered products which are likely to result from
the standard;
3. The total projected amount of energy savings likely to result
directly from the standard;
4. Any lessening of the utility or the performance of the
covered products likely to result from the standard;
5. The impact of any lessening of competition, as determined in
writing by the Attorney General, that is likely to result from the
standard;
6. The need for national energy conservation; and
7. Other factors the Secretary of Energy considers relevant.
(42 U.S.C. 6313(a)(6)(B)(ii))
EPCA, as codified, also contains what is known as an ``anti-
backsliding'' provision, which prevents the Secretary from prescribing
any amended standard that either increases the maximum allowable energy
use or decreases the minimum required energy efficiency of a covered
product. (42 U.S.C. 6313(a)(6)(B)(iii)(I)) Also, the Secretary may not
prescribe an amended or new standard if interested persons have
established by a preponderance of the evidence that the standard is
likely to result in the unavailability in the United States of any
covered product type (or class) of performance characteristics
(including reliability), features, sizes, capacities, and volumes that
are substantially the same as those generally available in the United
States. (42 U.S.C. 6313(a)(6)(B)(iii)(II))
Further, under EPCA's provisions for consumer products, there is a
rebuttable presumption that a standard is economically justified if the
Secretary finds that the additional cost to the customer of purchasing
a product complying with an energy conservation standard level will be
less than three times the value of the energy (and, as
[[Page 6188]]
applicable, water) savings during the first year that the consumer will
receive as a result of the standard, as calculated under the applicable
test procedure. (42 U.S.C. 6295(o)(2)(B)(iii)) For this rulemaking, DOE
considered the criteria for rebuttable presumption as part of its
analysis.
Additionally, when a type or class of covered equipment has two or
more subcategories, DOE often specifies more than one standard level.
DOE generally will adopt a different standard level than that which
applies generally to such type or class of products for any group of
covered products that have the same function or intended use if DOE
determines that products within such group: (A) Consume a different
kind of energy from that consumed by other covered products within such
type (or class); or (B) have a capacity or other performance-related
feature which other products within such type (or class) do not have
and which justifies a higher or lower standard. In determining whether
a performance-related feature justifies a different standard for a
group of products, DOE generally considers such factors as the utility
to the customer of the feature and other factors DOE deems appropriate.
In a rule prescribing such a standard, DOE includes an explanation of
the basis on which such higher or lower level was established. DOE
considered these criteria for this rulemaking.
Because ASHRAE did not update its efficiency levels for CWAF in any
of its most recent updates to ASHRAE Standard 90.1 (e.g., ASHRAE
Standard 90.1-2007, ASHRAE Standard 90.1-2010, ASHRAE Standard 90.1-
2013), DOE is analyzing amended standards consistent with the
procedures defined under 42 U.S.C. 6313(a)(6)(C). Specifically,
pursuant to 42 U.S.C. 6313(a)(6)(C)(i)(II), DOE must use the procedures
established under subparagraph (B) when issuing a NOPR. As noted above,
the statutory provision at 42 U.S.C. 6313(a)(6)(B)(ii), recently
amended by AEMTCA, states that in deciding whether a standard is
economically justified, DOE must determine, after receiving comments on
the proposed standard, whether the benefits of the standard exceed its
burdens by considering, to the maximum extent practicable, the seven
factors, as stated above.
After carefully reviewing all CWAF equipment classes, DOE has
tentatively concluded that following this rulemaking process will
provide ``clear and convincing evidence'' that the proposed standards
for gas-fired and oil-fired CWAF which are more stringent than those
set forth in ASHRAE Standard 90.1-2013, would result in significant
additional conservation of energy and would be technologically feasible
and economically justified, as mandated by 42 U.S.C. 6313(a)(6).
B. Background
1. Current Standards
As noted above, EPACT 1992 amended EPCA to set the current minimum
energy conservation standards for CWAF. (42 U.S.C. 6313(a)(4)(A) and
(B)) These standards apply to all CWAF manufactured on or after January
1, 1994. The current standards are set forth in Table II.1.
Table II.1--Current Federal Energy Conservation Standards for CWAF
----------------------------------------------------------------------------------------------------------------
Thermal Compliance
Equipment type Input capacity efficiency * date
----------------------------------------------------------------------------------------------------------------
Gas-Fired Furnaces........................................... >=225,000 Btu/h 80% 1/1/1994
Oil-Fired Furnaces........................................... >=225,000 Btu/h 81% 1/1/1994
----------------------------------------------------------------------------------------------------------------
* At the maximum rated capacity (rated maximum input).
2. History of Standards Rulemaking for CWAF
On October 21, 2004, DOE published a final rule in the Federal
Register which adopted definitions for ``commercial warm air furnace''
and ``thermal efficiency,'' promulgated test procedures for this
equipment, and recodified the energy conservation standards so that the
standards are located contiguous with the test procedures in the Code
of Federal Regulations (CFR). 69 FR 61916, 61917, 61939-41. In the same
final rule, DOE incorporated by reference (see 10 CFR 431.75) a number
of industry test standards relevant to commercial warm air furnaces,
including: (1) American National Standards Institute (ANSI) Standard
Z21.47-1998, ``Gas-Fired Central Furnaces,'' for gas-fired CWAF; (2)
Underwriters Laboratories (UL) Standard 727-1994, ``Standard for Safety
Oil-Fired Central Furnaces,'' for oil-fired CWAF; (3) provisions from
Hydronics Institute (HI) Standard BTS-2000, ``Method to Determine
Efficiency of Commercial Space Heating Boilers,'' to calculate flue
loss for oil-fired CWAF, and (4) provisions from the American Society
of Heating, Refrigerating, and Air-conditioning Engineers (ASHRAE)
Standard 103-1993, ``Method of Testing for Annual Fuel Utilization
Efficiency of Residential Central Furnaces and Boilers,'' to determine
the incremental efficiency of condensing furnaces under steady-state
conditions. Id. at 61940. Then in a final rule published in the Federal
Register on May 16, 2012, DOE updated the test procedures for
commercial warm air furnaces to match the procedures specified in
ASHRAE Standard 90.1-2010, which referenced ANSI Z21.47-2006, ``Gas-
Fired Central Furnaces,'' for gas-fired CWAF, and UL 727-2006,
``Standard for Safety for Oil-Fired Central Furnaces,'' for oil-fired
furnaces. 77 FR 28928, 28987-88.
As noted previously, in accordance with the requirements of EPCA,
as amended by AEMTCA, DOE must publish either: (1) A notice of
determination that the current standards do not need to be amended, or
(2) a notice of proposed rulemaking containing proposed standards for
CWAF by December 31, 2013. (42 U.S.C. 6313(a)(6)(C)(i) and (vi))
Consequently, DOE initiated this rulemaking to determine whether to
amend the current standards for CWAF.
On May 2, 2013, DOE published a request for information (RFI) and
notice of document availability for CWAF. 78 FR 25627. The notice
solicited information from the public to help DOE determine whether
more-stringent energy conservation standards for CWAF would result in a
significant additional amount of energy savings and whether those
standards would be technologically feasible and economically justified.
DOE received a number of comments from interested parties in
response to the RFI. These commenters are identified in Table II.2. DOE
considered these comments in the preparation of the NOPR. Relevant
comments, and DOE's responses, are provided in the appropriate sections
of this notice.
[[Page 6189]]
Table II.2--Interested Parties Providing Written Comments on the CWAF
RFI
------------------------------------------------------------------------
Name Abbreviation Commenter type *
------------------------------------------------------------------------
Air-Conditioning, Heating and AHRI.............. IR.
Refrigeration Institute.
Appliance Standards Awareness ASAP, ACEEE, NRDC EA.
Project, American Council for (Joint Efficiency
an Energy-Efficient Economy, Advocates).
Natural Resources Defense
Council.
Lennox International Inc....... Lennox............ M.
UTC Climate, Controls & Carrier........... M.
Security.
Goodman Manufacturing Inc...... Goodman........... M.
American Society of Heating, ASHRAE............ IR.
Refrigeration, and Air-
Conditioning Engineers.
------------------------------------------------------------------------
* ``IR'': Industry Representative; ``M'': Manufacturer; ``EA'':
Efficiency/Environmental Advocate.
III. General Discussion
A. Compliance Date
As discussed in section II.A, DOE is analyzing amended standards
pursuant to 42 U.S.C. 6313(a)(6)(C)(vi), which requires DOE to publish
by December 31, 2013, either a notice of determination that standards
for this type of equipment do not need to be amended or a notice of
proposed rulemaking for any equipment for which more than 6 years has
elapsed since the issuance of the most recent final rule. EPCA requires
that an amended standard prescribed under 42 U.S.C. 6313(a)(6)(C) must
apply to products manufactured after the date that is the later of: (1)
The date 3 years after publication of the final rule establishing a new
standard or (2) the date 6 years after the effective date of the
current standard for a covered product. (42 U.S.C. 6313(a)(6)(C)(iv))
For CWAF, the date 3 years after the publication of the final rule
would be later than the date 6 years after the effective date of the
current standard. As a result, compliance with any amended energy
conservation standards promulgated in the final rule would be required
beginning on the date 3 years after the publication of the final rule.
B. Technological Feasibility
1. General
In each energy conservation standards rulemaking, DOE conducts a
screening analysis based on information gathered on all current
technology options and prototype designs that could improve the
efficiency of the products or equipment that are the subject of the
rulemaking. As the first step in such an analysis, DOE develops a list
of technology options for consideration in consultation with
manufacturers, design engineers, and other interested parties. See
chapter 3 of the NOPR TSD for a discussion of the list of technology
options that were identified. DOE then determines which of those means
for improving efficiency are technologically feasible. DOE considers
technologies incorporated in commercially-available equipment or in
working prototypes to be technologically feasible. 10 CFR part 430,
subpart C, appendix A, section 4(a)(4)(i).
After DOE has determined that particular technology options are
technologically feasible, it further evaluates each technology option
in light of the following additional screening criteria: (1)
Practicability to manufacture, install, and service; (2) adverse
impacts on equipment utility or availability; and (3) adverse impacts
on health or safety. 10 CFR part 430, subpart C, appendix A, section
4(a)(4)(ii)-(iv). Section IV.B of this notice discusses the results of
the screening analysis for CWAF, particularly the designs DOE
considered, those it screened out, and those that are the basis for the
trial standard levels (TSLs) in this rulemaking. For further details on
the screening analysis for this rulemaking, see chapter 4 of the NOPR
Technical Support Document (TSD).
Additionally, DOE notes that these screening criteria do not
directly address the proprietary status of design options. DOE only
considers efficiency levels achieved through the use of proprietary
designs in the engineering analysis if they are not part of a unique
path to achieve that efficiency level (i.e., if there are other non-
proprietary technologies capable of achieving the same efficiency). DOE
believes the proposed standards for the equipment covered in this
rulemaking would not mandate the use of any proprietary technologies,
and that all manufacturers would be able to achieve the proposed levels
through the use of non-proprietary designs. DOE seeks comment on this
tentative conclusion and requests additional information regarding
proprietary designs and patented technologies.
2. Maximum Technologically Feasible Levels
When DOE proposes to adopt an amended standard for a type or class
of covered equipment, it must determine the maximum improvement in
energy efficiency or maximum reduction in energy use that is
technologically feasible for such equipment. Accordingly, in the
engineering analysis, DOE determined the maximum technologically
feasible (``max-tech'') improvements in energy efficiency for CWAF,
using the design parameters for the most efficient equipment available
on the market or in working prototypes. (See chapter 5 of the NOPR
TSD.) The max-tech levels that DOE determined for this rulemaking are
described in section IV.C.2.b of this proposed rule.
C. Energy Savings
1. Determination of Savings
For each TSL, DOE projected energy savings from the equipment that
is the subject of this rulemaking purchased in the 30-year period that
begins in the year of compliance with potential amended standards
(2018-2047). The savings are measured over the entire lifetime of
equipment purchased in the 30-year analysis period.\15\ DOE quantified
the energy savings attributable to each TSL as the difference in energy
consumption between each standards case and the base case. The base
case represents a projection of energy consumption in the absence of
amended mandatory efficiency standards, and it considers market forces
and policies that affect demand for more-efficient products.
---------------------------------------------------------------------------
\15\ In the past DOE presented energy savings results for only
the 30-year period that begins in the year of compliance. In the
calculation of economic impacts, however, DOE considered operating
cost savings measured over the entire lifetime of products purchased
in the 30-year period. DOE has chosen to modify its presentation of
national energy savings to be consistent with the approach used for
its national economic analysis.
---------------------------------------------------------------------------
DOE used its national impact analysis (NIA) spreadsheet model to
estimate energy savings from amended standards for the products that
are the subject of this rulemaking. The NIA spreadsheet model
(described in section IV.H of this notice) calculates energy savings in
site energy, which is the energy directly
[[Page 6190]]
consumed by products at the locations where they are used. For CWAF,
the energy savings are primarily in the form of natural gas, which is
considered to be primary energy.\16\
---------------------------------------------------------------------------
\16\ Primary energy consumption refers to the direct use at the
source, or supply to users without transformation, of crude energy;
that is, energy that has not been subjected to any conversion or
transformation process.
---------------------------------------------------------------------------
DOE has begun to also estimate full-fuel-cycle energy savings, as
discussed in DOE's statement of policy and notice of policy amendment.
76 FR 51281 (August 18, 2011), as amended at 77 FR 49701 (August 17,
2012). The full-fuel-cycle (FFC) metric includes the energy consumed in
extracting, processing, and transporting primary fuels (i.e., coal,
natural gas, petroleum fuels), which collectively presents a more
complete picture of the impacts of energy efficiency standards. DOE's
approach is based on calculation of an FFC multiplier for each of the
energy types used by covered products and equipment. For more
information on FFC energy savings, see section IV.H.
DOE reports both primary energy and FFC energy savings in section
V.B.3.a of this NOPR.
2. Significance of Savings
To adopt more-stringent standards for CWAF, DOE must determine that
such action would result in significant additional conservation of
energy. (42 U.S.C. 6313(a)(6)(A)(ii)(II)) Although the term
``significant'' is not defined in the Act, the U.S. Court of Appeals,
in Natural Resources Defense Council v. Herrington, 768 F.2d 1355, 1373
(D.C. Cir. 1985), indicated that Congress intended ``significant''
energy savings in the context of EPCA to be savings that were not
``genuinely trivial.'' DOE has tentatively concluded that the energy
savings associated with the proposed standards--0.52 quads due to CWAFs
shipped in 2018-2047--are significant.
D. Economic Justification
1. Specific Criteria
As discussed above, EPCA provides seven factors to be evaluated in
determining whether a potential more-stringent energy conservation
standard for CWAF is economically justified. (42 U.S.C.
6313(a)(6)(B)(ii)(I)-(VII)) The following sections discuss how DOE has
addressed each of those seven factors in this rulemaking.
a. Economic Impact on Manufacturers and Consumers
In determining the impacts of a potential amended standard on
manufacturers, DOE conducts a manufacturer impact analysis (MIA), as
discussed in section IV.J. (42 U.S.C. 6313(a)(6)(B)(ii)(I)) DOE first
uses an annual cash-flow approach to determine the quantitative
impacts. This step includes both a short-term assessment--based on the
cost and capital requirements during the period between when a
regulation is issued and when entities must comply with the
regulation--and a long-term assessment over a 30-year period. The
industry-wide impacts analyzed include: (1) Industry net present value
(INPV), which values the industry on the basis of expected future cash
flows; (2) cash flows by year; (3) changes in revenue and income; and
(4) other measures of impact, as appropriate. Second, DOE analyzes and
reports the impacts on different subgroups of manufacturers, including
impacts on small manufacturers. Third, DOE considers the impact of
standards on domestic manufacturer employment and manufacturing
capacity, as well as the potential for standards to result in plant
closures and loss of capital investment. Finally, DOE takes into
account cumulative impacts of various DOE regulations and other
regulatory requirements on manufacturers.
For individual consumers, measures of economic impact include the
changes in life-cycle cost (LCC) and payback period (PBP) associated
with new or amended standards. The LCC is discussed further in the
following section. For consumers in the aggregate, DOE also calculates
the national net present value of the economic impacts applicable to a
particular rulemaking. DOE also evaluates the LCC impacts of potential
standards on identifiable subgroups of consumers that may be affected
disproportionately by a national standard.
b. Life-Cycle Costs
EPCA requires DOE to consider the savings in operating costs
throughout the estimated average life of the covered product compared
to any increase in the price of the covered product that are likely to
result from the imposition of the standard. (42 U.S.C.
6313(a)(6)(B)(ii)(II)) DOE conducts this comparison in its LCC and PBP
analysis. The LCC is the sum of the purchase price of a product
(including its installation) and the operating expense (including
energy, maintenance, and repair expenditures) discounted over the
lifetime of the product. The LCC analysis requires a variety of inputs,
such as product prices, product energy consumption, energy prices,
maintenance and repair costs, product lifetime, and consumer discount
rates. To account for uncertainty and variability in specific inputs,
such as product lifetime and discount rate, DOE uses a distribution of
values, with probabilities attached to each value. For the LCC
analysis, DOE assumes that consumers will purchase the covered products
in the first year of compliance with amended standards.
The LCC savings and the PBP for the considered efficiency levels
are calculated relative to a base case that reflects projected market
trends in the absence of amended standards. DOE identifies the
percentage of consumers estimated to receive LCC savings or experience
an LCC increase, in addition to the average LCC savings associated with
a particular standard level. DOE's LCC and PBP analysis is discussed in
further detail in section IV.F.
c. Energy Savings
Although significant conservation of energy is a separate statutory
requirement for adopting an energy conservation standard, EPCA requires
DOE, in determining the economic justification of a standard, to
consider the total projected energy savings that are expected to result
directly from the standard. (42 U.S.C. 6313(a)(6)(B)(ii)(III)) As
discussed in section IV.H, DOE uses the NIA spreadsheet to project
national energy savings.
d. Lessening of Utility or Performance of Equipment
In establishing classes of equipment, and in evaluating design
options and the impact of potential standard levels, DOE must consider
any lessening of the utility or performance of the considered products
likely to result from the standard. (42 U.S.C. 6313(a)(6)(B)(ii)(IV))
Based on data available to DOE, the proposed standards would not reduce
the utility or performance of the products under consideration in this
rulemaking.
e. Impact of Any Lessening of Competition
EPCA directs DOE to consider the impact of any lessening of
competition, as determined in writing by the Attorney General, that is
likely to result from a proposed standard. (42 U.S.C.
6313(a)(6)(B)(ii)(V)) DOE will transmit a copy of the proposed rule to
the Attorney General with a request that the Department of Justice
(DOJ) provide its determination on this issue. DOE will publish and
respond to the Attorney General's determination in the final rule.
[[Page 6191]]
f. Need for National Energy Conservation
In evaluating the need for national energy conservation, DOE
expects that the energy savings from the proposed standards are likely
to provide improvements to the security and reliability of the nation's
energy system. (42 U.S.C. 6313(a)(6)(B)(ii)(VI)) Reductions in the
demand for electricity also may result in reduced costs for maintaining
the reliability of the nation's electricity system. DOE conducts a
utility impact analysis to estimate how standards may affect the
nation's needed power generation capacity, as discussed in section
IV.M.
The proposed standards also are likely to result in environmental
benefits in the form of reduced emissions of air pollutants and
greenhouse gases associated with energy production. DOE reports the
emissions impacts from the proposed standards, and from each TSL it
considered, in section IV.K of this notice. DOE also reports estimates
of the economic value of some of the emissions reductions resulting
from the considered TSLs, as discussed in section IV.L.
g. Other Factors
EPCA allows the Secretary of Energy, in determining whether a
standard is economically justified, to consider any other factors that
the Secretary deems to be relevant. (42 U.S.C. 6313(a)(6)(B)(ii)(VII))
DOE did not consider other factors for this notice.
2. Rebuttable Presumption
EPCA creates a rebuttable presumption that an energy conservation
standard is economically justified if the additional cost to the
consumer of a product that meets the standard is less than three times
the value of the first year's energy savings resulting from the
standard, as calculated under the applicable DOE test procedure. DOE's
LCC and PBP analyses generate values used to calculate the effects that
proposed energy conservation standards would have on the payback period
for consumers. These analyses include, but are not limited to, the 3-
year payback period contemplated under the rebuttable-presumption test.
In addition, DOE routinely conducts an economic analysis that considers
the full range of impacts to consumers, manufacturers, the Nation, and
the environment. The results of this analysis serve as the basis for
DOE's evaluation of the economic justification for a potential standard
level (thereby supporting or rebutting the results of any preliminary
determination of economic justification). The rebuttable presumption
payback calculation is discussed in section IV.F of this proposed rule.
IV. Methodology and Discussion of Related Comments
DOE used four analytical tools to estimate the impact of the
proposed standards for CWAF. The first tool is the LCC spreadsheet, a
spreadsheet that calculates LCCs and PBPs of potential new energy
conservation standards, and the second tool, the LCC inputs
spreadsheet, is a spreadsheet that provides detailed inputs to the LCC
spreadsheet. The third tool, the NIA spreadsheet, is a spreadsheet that
calculates national energy savings and net present value resulting from
potential amended energy conservation standards. The fourth spreadsheet
tool, the Government Regulatory Impact Model (GRIM), helped DOE to
assess manufacturer impacts.
Additionally, DOE used a variant of EIA's National Energy Modeling
System (NEMS) for the utility and emissions analyses. NEMS is a public
domain, multi-sectored, partial equilibrium model of the U.S. energy
sector that EIA uses NEMS to prepare its Annual Energy Outlook (AEO), a
widely known energy forecast for the United States.\17\
---------------------------------------------------------------------------
\17\ For more information on NEMS, refer to the U.S. Department
of Energy, Energy Information Administration documentation. A useful
summary is National Energy Modeling System: An Overview 2003, DOE/
EIA-0581(2003) (March, 2003).
---------------------------------------------------------------------------
A. Market and Technology Assessment
1. General
For the market and technology assessment for CWAF, DOE developed
information that provided an overall picture of the market for the
equipment concerned, including the purpose of the equipment, the
industry structure, market characteristics, and the technologies used
in the equipment. This activity included both quantitative and
qualitative assessments, based primarily on publicly-available
information. The subjects addressed in the market and technology
assessment for this rulemaking include scope of coverage, equipment
classes, types of equipment sold and offered for sale, manufacturers,
and technology options that could improve the energy efficiency of the
equipment under examination. The key findings of DOE's market and
technology assessment are summarized below. For additional detail, see
chapter 3 of the NOPR TSD.
2. Scope of Coverage and Equipment Classes
The proposed energy conservation standards in the NOPR cover
commercial warm air furnaces, as defined by EPCA and DOE. EPCA defines
``warm air furnace'' as meaning ``a self-contained oil- or gas-fired
furnace designed to supply heated air through ducts to spaces that
require it and includes combination warm air furnace/electric air
conditioning units but does not include unit heaters and duct
furnaces.'' (42 U.S.C. 6311(11)(A)) DOE defines ``commercial warm air
furnace'' as meaning ``a warm air furnace that is industrial equipment,
and that has a capacity (rated maximum input) of 225,000 Btu per hour
or more.'' 10 CFR 431.72. Accordingly, this rulemaking covers equipment
in these categories having a rated capacity of 225,000 Btu/h or higher
and that are designed to supply heated air in commercial buildings via
ducts (excluding unit heaters and duct furnaces).
When evaluating and establishing energy conservation standards, DOE
divides covered equipment into equipment classes based on the type of
energy used or by capacity or other performance-related features that
would justify having a higher or lower standard from that which applies
to other equipment classes. In determining whether a performance-
related feature would justify a different standard, DOE considers such
factors as the utility to the consumer of the feature and other factors
DOE determines are appropriate.
The current equipment classes for CWAF were defined in the EPACT
1992 amendments to EPCA, and divide this equipment into two classes
based on fuel type (i.e., one for gas-fired units, and one for oil-
fired units). Table IV.1 shows the current equipment class structure
for CWAF.
Table IV.1--Current CWAF Equipment Classes
------------------------------------------------------------------------
Heating Thermal
Fuel type capacity efficiency
(Btu/h) (%)
------------------------------------------------------------------------
Gas-fired....................................... >=225,000 80
Oil-fired....................................... >=225,000 81
------------------------------------------------------------------------
In the May 2, 2013 RFI, DOE stated that it planned to use the
existing CWAF equipment classes for its analysis of amended energy
conservation standards. DOE requested feedback on the current equipment
classes and sought information regarding other equipment classes it
should consider for
[[Page 6192]]
inclusion in its analysis. 78 FR 25627, 25629-31.
One particular issue on which DOE sought comment was the need for
separate equipment classes for units designed to be installed indoors
(i.e., ``non-weatherized'' units) and units designed to be installed
outdoors (i.e., ``weatherized'' units). High efficiency, condensing
CWAF produce acidic condensate during operation due to the cooling of
flue gasses below their dew point. Condensate is more difficult to
manage in weatherized CWAF than in non-weatherized CWAF, due to the
risk of the condensate freezing after exiting the furnace. For gas-
fired models, which represent the large majority of CWAF on the market,
most of the models on the market are weatherized units, and a small
number are non-weatherized. For oil-fired units, which make up a very
small percentage of the CWAF models on the market, all models that DOE
identified during the market assessment are non-weatherized.
In response to the RFI, Carrier supported the idea of separate
product classes for weatherized and non-weatherized commercial warm air
furnaces and stated that unit heaters and duct heaters could
potentially fall into these two classifications. (Carrier, No. 2 at p.
1) AHRI asserted that it believes that separate classes are needed for
non-weatherized and weatherized CWAF due to issues related to
condensate management, but noted that creating separate equipment
classes would not lead to any significant energy savings because a
majority of the commercial warm air furnace market consists of non-
condensing weatherized equipment. (AHRI, No. 7 at p. 4) Similarly,
Goodman commented that there is a very small segment of the commercial
warm air furnace market that consists of units installed indoors, which
would indicate that the costs would far outweigh the benefits of having
separate equipment classes (indoor/outdoor). (Goodman, No. 6 at p. 2)
DOE considered these comments and has tentatively decided to
continue the use of the existing equipment classes. DOE agrees with
AHRI that differentiating between weatherized and non-weatherized CWAF
for establishing product classes would provide little opportunity for
additional energy savings or benefits as compared to the current
equipment class structure. Therefore, DOE is not proposing to adopt
separate equipment classes for weatherized and non-weatherized
equipment. As to Carrier's assertion that unit heaters and duct heaters
could fall into the classification of commercial warm air furnaces, DOE
notes that the definition of ``warm air furnace'' in EPCA explicitly
excludes such equipment as it defines a warm air furnace as: ``a self-
contained oil- or gas-fired furnace designed to supply heated air
through ducts to spaces that require it and includes combination warm
air furnace/electric air conditioning units but does not include unit
heaters and duct furnaces.'' (42 U.S.C. 6311(11)(A))
Another specific issue identified in the May 2, 2013 RFI was the
potential gap in coverage of DOE's regulations for three-phase
commercial furnaces with an input rating below 225,000 Btu/h. 78 FR
25627, 25630-31. Current Federal energy conservation standards for CWAF
only cover equipment with an input rating at or above 225,000 Btu/h,
and Federal energy conservation standards for residential furnaces
cover products with input ratings below 225,000 Btu/h, but only for
single-phase products. Thus, there are no Federal standards for
furnaces with an input rating below 225,000 Btu/h that use 3-phase
electric power.
Carrier stated that weatherized and non-weatherized product classes
should be created to cover three-phase commercial warm air furnaces
with input ratings below 225,000 Btu/h, and that DOE should adopt the
current levels in ASHRAE Standard 90.1 for these products. However,
Carrier stated that there would be limited energy savings for new 3-
phase, less than 225,000 Btu/h product classes because many of those
products share designs with current covered products that already meet
efficiency levels set forth in ASHRAE Standard 90.1. (Carrier, No. 2 at
p. 2) Lennox supported regulation of three-phase commercial warm air
furnaces with input ratings below 225,000 Btu/h, stating that closing
this gap would prevent a manufacturer from entering the market with a
cost advantage. (Lennox, No. 3 at p. 2) Conversely, AHRI stated that
creating an equipment class for three-phase commercial warm air
furnaces with an input rating below 225,000 Btu/h would not lead to any
additional energy savings since they share the same design as their
single-phase counterparts, and consequently have similar thermal
efficiencies. (AHRI, No. 7 at p. 4) Goodman reiterated this point,
stating that most manufacturers have the same basic design for single-
and three-phase products and added that the efficiency of three-phase
equipment with an input rating below 225,000 Btu/h generally meet the
requirements of single-phase products. Therefore, Goodman argued that
any additional regulations would be duplicative and burdensome.
(Goodman, No. 6 at p. 3)
Upon considering the comments in response to the RFI on the
potential for a new equipment class for three-phase commercial warm air
furnaces with an input capacity less than 225,000 Btu/h, DOE has
tentatively decided not to extend coverage to this equipment at this
time. DOE agrees with commenters who pointed out the limited potential
for energy savings due to the fact that equipment with these
characteristics already meets efficiency levels specified by ASHRAE
Standard 90.1. In its review of the market, DOE did not identify any
equipment not meeting or exceeding the ASHRAE Standard 90.1 levels, and
thus, has tentatively concluded that a separate equipment class and
standard for this equipment may be unnecessarily duplicative and
provide little opportunity for energy savings. Further, three-phase
commercial warm air furnaces with input ratings below 225,000 Btu/h
typically achieve the same efficiency as their single-phase residential
counterparts. Thus, the efficiency of this equipment could be expected
to be consistent with residential furnace energy conservation
standards.
Lastly, in response to the RFI, several commenters suggested that
DOE should adopt an upper limit to the input capacity of covered
commercial warm air furnaces. Carrier recommended that DOE should
consider an upper limit for weatherized furnaces corresponding to DOE's
upper limit of 760,000 Btu/h of cooling capacity for commercial air
conditioners, and noted that for 760,000 Btu/h air conditioners, the
maximum heat input of equipment in their product offering is 1.2
million Btu/h. (Carrier, No. 2 at p. 2) AHRI also recommended an upper
limit on input capacity and suggested that the limit be 2,000,000 Btu/
h. According to AHRI, this is the maximum input capacity associated
with a commercial warm air furnace that is paired with an air
conditioner having a cooling capacity of 760,000 Btu/h. (AHRI, No. 7 at
p. 5)
DOE notes that neither the statute nor DOE's existing regulations
for CWAF specify an upper limit to the input rating of covered
equipment. Establishing an upper limit as suggested by interested
parties would potentially remove coverage of models that would have
otherwise been covered by DOE regulations. As such, DOE sees advantage
to leaving the upper end of the range open, such that the standard can
accommodate any very large CWAF which may come on the market in the
future. Therefore, DOE has tentatively
[[Page 6193]]
decided not to establish an upper limit on the input capacity of
covered CWAF.
DOE requests comment on the proposed scope of coverage and
equipment classes for this rulemaking.
3. Technology Options
As part of the market and technology assessment, DOE uses
information about existing and past technology options and prototype
designs to help identify technologies that manufacturers could use to
improve CWAF energy efficiency. Initially, these technologies encompass
all those that DOE believes are technologically feasible. Chapter 3 of
the NOPR TSD includes the detailed list and descriptions of all
technology options identified for this equipment.
In the May 2, 2013 RFI, DOE requested comment on technology options
that could be used to improve the thermal efficiency of CWAF. 78 FR
25627, 25631. The comments generally centered on how to improve the
efficiency of non-condensing CWAF while still achieving efficiencies in
the non-condensing range (i.e., less than 90 percent thermal
efficiency), and on how to improve the efficiency of non-condensing
CWAF by utilizing condensing operation (which would achieve a thermal
efficiency greater than 90 percent).
Carrier stated that raising the thermal efficiency from 80 to 82
percent requires more heat transfer surface. (Carrier, No. 2 at p. 3)
Lennox commented that all their warm air furnaces are rated at 80
percent thermal efficiency and are constructed with induced draft
combustion system with multiple burners firing into aluminized steel
tubes. Lennox explained that these tubes are enhanced on the flue
portion to improve heat transfer and balance flow between the parallel
flow paths. Further, Lennox expounded that heat exchanger tubes are
arranged below or beside the supply blower for optimal coverage of the
tube surface area, and the tubes are sloped from the flue outlet back
to the burner area to allow any condensate produced by the heat
exchanger to drain out in order to prevent heat exchanger corrosion.
Lennox stated that 82-percent thermal efficiency furnaces are similar
to 80-percent furnaces except that more heat transfer surface is
needed, and the amount of excess air required to support complete
combustion has to be reduced, and the commenter asserted that the
additional flue side pressure drop requires a more powerful combustion
inducer (which would draw more electricity). Lennox stated that the
lower excess air would reduce the ability for the furnace to operate
without derating at high-altitude conditions, and expressed its belief
that there would be a risk of corrosion and heat exchanger failure at
82 percent for a very small benefit. (Lennox, No. 3 at p. 4)
To reach 90 percent thermal efficiency, Carrier stated that a
secondary heat exchanger is required along with a reliable condensate
management system. Carrier described the challenges for achieving
thermal efficiencies of greater than 82 percent, including dealing with
condensate freezing and disposal of acidic condensate. (Carrier, No. 2
at p. 2) AHRI stated that in order to increase the efficiency of a
commercial gas warm air furnace to a condensing level, the heat
exchanger surface area must be increased. AHRI further explained that
handling acidic condensate would require condensate disposal lines,
which cannot be drained on ground or on the roof. (AHRI, No. 7 at p. 3)
Lennox commented that condensing furnaces would necessitate a secondary
heat exchanger, which would require a much more expensive corrosion-
resistant material. Further, Lennox explained that combustion blowers
with upgraded housing and stainless steel impellers to protect against
corrosion would be required. Lennox reported that it participated in a
1988 Gas Research Institute study on the feasibility of a 90+ percent
gas furnace, where condensate was managed by draining it into the
building; Lennox explained that incremental product costs were high due
to use of a stainless steel secondary heat exchanger, a larger
combustion inducer, piping, and thermostatically-controlled heat tape,
and that the additional energy used to overcome the pressure drop
offset the gas savings. Lennox added that a 90-percent-efficiency gas
furnace would have even more barriers in horizontal applications (which
make up approximately 15 to 20 percent of the market) because the
condensate would have to be pumped into the building. (Lennox, No. 3 at
p. 5) Goodman stated that while technology exists that allows
condensing operation of commercial warm air furnaces, the application
requirements are very onerous, costly, and potentially dangerous.
Goodman further stated that many condensate lines today are exposed to
extreme weather conditions and are apt to crack or fail at joints, and
such a failure would then leak acidic condensate directly onto the
building rooftop with a high risk of causing holes in the roof surface.
(Goodman, No. 6 at p. 3)
After considering the comments, discussing approaches for improving
efficiency with manufacturers during interviews, and reviewing the
market for CWAF, DOE primarily considered the following technology
options for improving the rated thermal efficiency of CWAF in the
development of this NOPR:
Increased heat exchanger (HX) surface area \18\
---------------------------------------------------------------------------
\18\ This design option includes a larger combustion inducer (to
overcome the pressure drop of the increased HX area). The larger
combustion inducer does not directly lead to a higher thermal
efficiency, but would allow the implementation of other technologies
(i.e., HX improvements) that would cause the furnace to operate more
efficiently.
---------------------------------------------------------------------------
Improved flue side HX enhancements (e.g., dimples,
turbulators)
Secondary HX (stainless steel) \19\
\19\ This design option includes a larger combustion inducer
fan, upgraded housing for combustion blowers, stainless steel
impellers, condensate heater, and condensate drainage system that
would be required for condensing operation. Although these design
changes do not directly lead to a higher thermal efficiency, they
allow the implementation of condensing operation, which causes the
furnace to operate more efficiently.
---------------------------------------------------------------------------
DOE notes that many commenters acknowledged that a secondary heat
exchanger for condensing operation is a possible technology option for
CWAF, but also that that technology has considerable issues to overcome
when used in weatherized equipment. These issues relate specifically to
the handling of acidic condensate produced by a condensing furnace in
the secondary heat exchanger. Condensate must be drained from the
furnace to prevent build-up in the secondary heat exchanger, and
properly disposed of after exiting into the external environment. Some
building codes limit the disposal of condensate into the municipal
sewage system, so the condensate must be passed through a neutralizer
to reduce its acidity to appropriate levels prior to disposal. In
weatherized installations, it is more difficult to access the municipal
sewage system than in non-weatherized installations. Condensate
produced by a weatherized condensing furnace must flow naturally or be
pumped through pipes to the nearest disposal drain, which may not be in
close proximity to the furnace. In cold environments, there is a risk
of the condensate freezing as it flows through these pipes, which can
cause an eventual back-up of condensate into the heat exchanger,
resulting in significant damage to the furnace.
Despite these issues, DOE found in its review of the market that
multiple manufacturers offer weatherized HVAC equipment with a
condensing furnace heating section. DOE believes that this indicates
that many of the issues explained by the commenters can be
[[Page 6194]]
overcome, and thus, DOE considered a secondary condensing heat
exchanger as a technology option. As discussed in section IV.B and
IV.C.2.b, this technology was ultimately passed through the screening
analysis and considered in the engineering analysis. Regarding
condensate disposal, DOE included the cost of a condensate disposal
lines for all condensing installations. For more details, see section
IV.F.1.
DOE also identified the following technology options for improving
the efficiency of CWAF, which were either removed from the analysis
because they were screened out (see section IV.B) or because they did
not improve the rated thermal efficiency as measured by the DOE test
procedure.
Pulse combustion
Low NOX premix burners
Low pressure, air-atomized burners
Burner derating
Two-stage or modulating burners
DOE requests comment on the technologies identified in this
rulemaking, as well as the technologies which were primarily considered
as the methods for increasing thermal efficiency of commercial warm air
furnaces.
B. Screening Analysis
After DOE identified the technologies that might improve the energy
efficiency of CWAF, DOE conducted a screening analysis. The purpose of
the screening analysis is to determine which options to consider
further and which to screen out. DOE consulted with industry, technical
experts, and other interested parties in developing a list of design
options. DOE then applied the following set of screening criteria to
determine which design options are unsuitable for further consideration
in the rulemaking:
Technological Feasibility: DOE will consider only those
technologies incorporated in commercial equipment or in working
prototypes to be technologically feasible.
Practicability to Manufacture, Install, and Service: If
mass production of a technology in commercial equipment and reliable
installation and servicing of the technology could be achieved on the
scale necessary to serve the relevant market at the time of the
effective date of the standard, then DOE will consider that technology
practicable to manufacture, install, and service.
Adverse Impacts on Equipment Utility or Equipment
Availability: DOE will not further consider a technology if DOE
determines it will have a significant adverse impact on the utility of
the equipment to significant subgroups of customers. DOE will also not
further consider a technology that will result in the unavailability of
any covered equipment type with performance characteristics (including
reliability), features, sizes, capacities, and volumes that are
substantially the same as equipment generally available in the United
States at the time.
Adverse Impacts on Health or Safety: DOE will not further
consider a technology if DOE determines that the technology will have
significant adverse impacts on health or safety.
(10 CFR part 430, subpart C, appendix A, 4(a)(4) and 5(b))
Additionally, DOE notes that these screening criteria do not
directly address the propriety status of design options. DOE only
considers efficiency levels achieved through the use of proprietary
designs in the engineering analysis if they are not part of a unique
path to achieve that efficiency level (i.e., if there are other non-
proprietary technologies capable of achieving the same efficiency). DOE
believes the proposed standards for the CWAF equipment covered in this
rulemaking would not mandate the use of any proprietary technologies,
and that all manufacturers would be able to achieve the proposed levels
through the use of non-proprietary designs. DOE seeks comment on this
tentative conclusion and requests additional information regarding
proprietary designs and patented technologies.
Technologies that pass through the screening analysis are referred
to as ``design options'' and are subsequently examined in the
engineering analysis for consideration in DOE's downstream cost-benefit
analysis. In view of the above factors, DOE screened out the following
design options listed below in Table IV.2.
Table IV.2--Screened Technology Options
------------------------------------------------------------------------
Technology option Reason for screening out
------------------------------------------------------------------------
Pulse Combustion....................... Adverse impact on utility;
potential for adverse impact
on safety.
Low NOX Premix Burner.................. Technological feasibility.
Burner Derating........................ Adverse impact on utility.
Low Pressure, Air-Atomized Burner...... Technological Feasibility.
------------------------------------------------------------------------
Based on the screening analysis, DOE identified the following seven
design options for further consideration in the engineering analysis:
Condensing secondary heat exchanger
Increased heat exchanger surface area
Incorporation of heat exchanger surface features (e.g.,
dimples)
Use of heat exchanger baffles and turbulators
Use of concentric venting of flue gases
Improved combustion air flow (oil-fired)
High-static oil burner
A full description of each technology option is included in chapter
3 of the TSD, and additional discussion of the screening analysis is
included in chapter 4 of the TSD.
C. Engineering Analysis
The engineering analysis establishes the relationship between an
increase in energy efficiency of the equipment and the increase in
manufacturer selling price (MSP) associated with that efficiency level.
This relationship serves as the basis for the cost-benefit calculations
for commercial consumers, manufacturers, and the Nation. In determining
the cost-efficiency relationship, DOE estimates the increase in
manufacturer cost associated with increasing the efficiency of
equipment above the baseline up to the maximum technologically feasible
(``max-tech'') efficiency level for each equipment class.
1. Methodology
DOE typically structures its engineering analysis using one or more
of three identified basic methods for generating manufacturing costs:
(1) The design-option approach, which provides the incremental costs of
adding individual technology options (from the market and technology
assessment) that can be added alone or in combination to a baseline
model in order to improve its efficiency (i.e., lower its energy use);
(2) the efficiency-level approach, which provides the incremental costs
of moving to higher energy efficiency levels, without regard to the
particular design option(s) used to achieve such increases; and (3) the
reverse-
[[Page 6195]]
engineering (or cost-assessment) approach, which provides ``bottom-up''
manufacturing cost assessments for achieving various levels of
increased efficiency, based on teardown analyses (or physical
teardowns) providing detailed data on costs for parts and material,
labor, shipping/packaging, and investment for models that operate at
particular efficiency levels. A supplementary method called a catalog
teardown uses published manufacturer catalogs and supplementary
component data to estimate the major physical differences between a
piece of equipment that has been physically disassembled and another
piece of similar equipment for which catalog data are available to
determine the cost of the latter equipment.
In the RFI, DOE stated that in order to create the cost-efficiency
relationship for CWAF, it anticipated having to structure its
engineering analysis using the reverse-engineering approach,
potentially including physical and catalog teardowns. DOE requested
comments on the approach outlined in the RFI and on the appropriate
representative capacities for each equipment class. 78 FR 25627, 25631
(May 2, 2013).
In response to the RFI, Carrier stated that equipment is available
for teardown analysis to develop a cost-efficiency relationship between
80 percent and 82 percent, but noted that it may be difficult to draw
clear conclusions from the data. However, Carrier added that it was
unclear how to analyze a 90-percent efficiency level through a teardown
analysis.
For this NOPR, DOE conducted the engineering analysis using the
reverse-engineering approach to estimate the costs of achieving various
efficiency levels. DOE selected two gas-fired CWAF in the non-
condensing efficiency range for physical teardowns at an input rating
of 250,000 Btu/h, which was considered to be the representative input
rating for analysis. DOE also performed a physical teardown of an oil-
fired CWAF at 81-percent thermal efficiency at an input rating of
400,000 Btu/h, which was subsequently scaled down via cost modeling
techniques to represent a unit of the representative 250,000 Btu/h
input rating. DOE seeks comment regarding the applicability of these
teardown units to represent the range of potential input capacities on
the market. Additional detail on the teardowns performed is provided in
chapter 5, section 5.6.2, of the proposed rule TSD. In addition, DOE
used catalog data and information from physical teardowns to virtually
model a gas-fired unit at the max-tech 92-percent thermal efficiency
level, as well as two oil-fired furances (at 82 percent and the max-
tech 92 percent thermal efficiency).
2. Efficiency Levels
a. Baseline Efficiency Levels
The baseline model is used as a reference point for each equipment
class in the engineering analysis and the life-cycle cost and payback-
period analyses, which provides a starting point for analyzing
potential technologies that provide energy efficiency improvements.
Generally, DOE considers ``baseline'' equipment to refer to a model or
models having features and technologies that just meet, but do not
exceed, the minimum energy conservation standard. In establishing the
baseline efficiency level for this analysis, DOE used the existing
minimum energy conservation standards for CWAF to identify baseline
units. The baseline thermal efficiency levels for each equipment class
are presented below in Table IV.3.
Table IV.3--Baseline Thermal Efficiency Levels for CWAF
------------------------------------------------------------------------
Baseline
Equipment class efficiency
level (%)
------------------------------------------------------------------------
Gas-fired Commercial Warm Air Furnace...................... 80
Oil-fired Commercial Warm Air Furnace...................... 81
------------------------------------------------------------------------
b. Incremental and Max-Tech Efficiency Levels
For each equipment class, DOE analyzes several efficiency levels
and determines the incremental cost at each of these levels. For this
NOPR, DOE developed efficiency levels based on a review of available
equipment. DOE compiled a database of the CWAF market to determine what
types of equipment are currently available to commercial consumers. At
each representative capacity, DOE surveyed various manufacturers'
equipment offerings to identify the commonly-available efficiency
levels. By identifying the most prevalent energy efficiencies in the
range of available equipment, DOE can establish a technology path that
manufacturers would typically use to increase the thermal efficiency of
a CWAF and corresponding efficiency levels along that technology path.
DOE established incremental thermal efficiency levels for each
equipment class. The incremental thermal efficiency levels are
representative of efficiency levels along the technology paths that
manufacturers of CWAF commonly use to maintain cost-effective designs
while increasing the thermal efficiency. DOE reviewed AHRI's Directory
of Certified Product Performance,\20\ manufacturer catalogs, and other
publicly-available literature to determine which thermal efficiency
levels are the most prevalent for each representative equipment class.
For gas-fired CWAF, DOE chose two efficiency levels between the
baseline and max-tech for analysis (see Table IV.4). For oil-fired
CWAF, DOE chose one thermal efficiency level between the baseline and
max-tech for analysis (see Table IV.5).
---------------------------------------------------------------------------
\20\ For more information see: http://cafs.ahrinet.org/gama_cafs/sdpsearch/search.jsp?table=CFurnace.
---------------------------------------------------------------------------
Carrier stated that in the current market, the max-tech efficiency
level for gas-fired weatherized furnaces is 81-percent to 82-percent
thermal efficiency, pointing out that no AHRI member makes a more
efficient gas-fired furnace, and asserting that 90 percent is not
currently feasible. (Carrier, No. 2 at p. 2) Lennox described how an
82-percent gas-fired commercial furnace could be designed, but then
expressed significant concerns about trying to develop furnaces at 82-
percent thermal efficiency. The commenter asserted that there would be
an undue risk of corrosion and heat exchanger failure for a very small
benefit in gas consumption at this efficiency level. Lennox also
commented that the two gas-fired 90-percent thermal efficiency model
lines available on the market currently are for makeup air
applications,\21\ which is a niche market. (Lennox, No. 3 at pp. 4-5)
AHRI stated that since January 1, 1994, the efficiency trends for gas-
fired commercial warm air furnaces have stayed near a thermal
efficiency of 80 percent. As discussed previously in section IV.A.3,
many of the commenters also noted concerns regarding issues with
condensate management in weatherized furnaces with thermal efficiencies
at or above 90 percent.
---------------------------------------------------------------------------
\21\ Makeup air applications require fresh outdoor air that is
brought into a building through the ventilation system, and do not
allow air to be recirculated through the building.
---------------------------------------------------------------------------
DOE considered these comments in conjunction with its review of the
market. DOE found several manufacturers that offer gas-fired equipment
at 81-percent thermal efficiency. In addition, although only one
manufacturer has gas-fired equipment rated at 82-percent thermal
efficiency, there is equipment available across a wide range of input
capacities indicating that the entire product family would be capable
of meeting 82-percent
[[Page 6196]]
thermal efficiency. DOE acknowledges the concerns raised regarding the
near-condensing operation at 82-percent thermal efficiency, but
believes that the presence of models across a broad range of input
ratings demonstrates the feasibility of this efficiency level. Thus,
DOE considered 81-percent and 82-percent as incrementally higher
thermal efficiency levels for the gas-fired commercial furnace
analysis. DOE also considered the max-tech level, which was identified
as 92-percent thermal efficiency. The max-tech level is based on a
dedicated outdoor air system with a condensing furnace section, which
proves the technical feasibility of a weatherized condensing furnace.
For oil-fired furnaces, which are typically installed indoors, DOE
surveyed the market and found non-condensing equipment with thermal
efficiencies in the range of 81 to 82 percent, as well as a condensing
model with a thermal efficiency of 92 percent. Therefore, DOE analyzed
those three levels in this NOPR analysis. The efficiency levels DOE
considered for each equipment class during the NOPR analyses (including
the baseline levels) are presented in Table IV.4 and Table IV.5.
Table IV.4--Efficiency Levels for Gas-Fired CWAF
------------------------------------------------------------------------
Gas-fired
Efficiency level CWAF (%)
------------------------------------------------------------------------
EL0 (Baseline)............................................. 80
EL1........................................................ 81
EL2........................................................ 82
Max-Tech................................................... 92
------------------------------------------------------------------------
Table IV.5--Efficiency Levels for Oil-Fired CWAF
------------------------------------------------------------------------
Oil-fired
Efficiency level CWAF (%)
------------------------------------------------------------------------
EL0 (Baseline)............................................. 81
EL1........................................................ 82
Max-Tech................................................... 92
------------------------------------------------------------------------
DOE requests comment on the efficiency levels analyzed for gas-
fired and oil-fired commercial warm air furnaces. In particular, DOE is
interested in the feasibility of the max-tech efficiency levels, as
well as the 82-percent thermal efficiency level for gas-fired
commercial warm air furnaces.
3. Equipment Testing and Reverse Engineering
As discussed above, for the engineering analysis, DOE analyzed a
representative input capacity of 250,000 Btu/h for the gas-fired and
oil-fired CWAF equipment classes to develop incremental cost-efficiency
relationships. The models were selected to represent the efficiency
levels available on the market, ranging from the baseline 80-percent
thermal efficiency for gas-fired units, and baseline 81-percent thermal
efficiency for oil-fired units, up to the max-tech 92-percent thermal
efficiency for gas-fired units, and 92-percent thermal efficiency for
oil-fired units. DOE based the selection of units for testing and
reverse engineering on the efficiency data available in the AHRI
certification database \22\ and the CEC equipment database.\23\ Details
of the key features of the tested units are presented in chapter 5 of
the NOPR TSD.
---------------------------------------------------------------------------
\22\ Available at: https://www.ahridirectory.org/ahridirectory/pages/home.aspx.
\23\ Available at: http://www.appliances.energy.ca.gov/Default.aspx.
---------------------------------------------------------------------------
DOE conducted physical or virtual teardowns on each test unit to
develop a manufacturing cost model and to evaluate key design features
(e.g., heat exchangers, blower and inducer fans/fan motors, control
strategies).
For gas-fired commercial warm air furnaces, DOE performed two
teardowns on weatherized furnaces at non-condensing efficiency levels.
Prior to teardown, the units were tested by a third-party test lab and
achieved a thermal efficiency of 82 percent. The units were from the
same manufacturer and had nearly identical furnace sections with
different air conditioner sections. DOE assumed that the repeatability
of the test result on both units indicated that the furnace design that
was torn down is representative of equipment that would achieve 82-
percent thermal efficiency. Using the cost-assessment methodology, DOE
determined the cost of the furnace components through reverse-
engineering of the furnace section of the weatherized packaged units.
Based on discussions with manufacturers, a review of product
literature, and experience obtained from examining residential
weatherized furnaces, DOE made assumptions regarding how the heat
exchanger size would vary between units with 82-percent thermal
efficiency and at the baseline (80-percent thermal efficiency) and the
81-percent thermal efficiency intermediate level. At the 80-percent and
81-percent thermal efficiency levels, DOE scaled down the size of the
heat exchanger and related components (e.g., inducer fan, cabinet
panels, insulation), as applicable, to generate an estimate of the cost
to manufacture equipment at those levels. Thus, DOE obtained an
estimate of the differential cost of manufacturing a commercial gas
furnace section at the baseline (80-percent), 81-percent, and 82-
percent thermal efficiency. To develop an estimate of the cost of a
max-tech unit at 92-percent thermal efficiency, DOE obtained a sample
of commercial HVAC equipment that utilizes a condensing furnace section
for analysis, and also used information gathered from a teardown of a
condensing weatherized residential furnace. DOE examined the heat
exchanger, inducer fan, condensate management system, and other aspects
of the furnace section in the commercial equipment sample to develop a
cost estimate to manufacture a condensing commercial furnace. DOE then
used information from the residential condensing weatherized furnace
teardown to refine estimates of the costs of the exhaust assembly,
inducer fan assembly, and condensate management system to model the
cost of a 92-percent efficient CWAF that is designed for implementation
on a broad scale.
For oil-fired commercial furnaces, DOE performed a teardown of a
non-weatherized furnace at 81-percent thermal efficiency. DOE used this
teardown, along with product literature, prior industry experience,
manufacturer feedback, and analysis previously performed on residential
furnaces to develop cost estimates at the 82-percent and 92-percent
thermal efficiency levels.
In a previous analysis of residential non-weatherized oil-fired
furnaces, DOE developed an estimate of the cost-efficiency relationship
across a range of efficiency levels. In examining product literature
for commercial oil-fired furnaces, DOE found that commercial units are
very similar to residential units, except with higher input ratings and
overall larger size. Based on information obtained from the physical
teardown of the 81-percent thermal efficiency oil furnace, in addition
to the information gained from the residential furnace analysis and
product literature, DOE was able to conduct a virtual teardown at the
82-percent thermal efficiency level. Key to this model was the growth
in heat exchanger size necessary for a 1-percent increase in thermal
efficiency, which necessitates a larger cabinet to accommodate it.
Sheet metal and other components sensitive to size changes were scaled
in order to match the larger size of the unit, while components that
are not sensitive to heat exchanger size changes remained unchanged.
Similarly, DOE relied on the physical teardown at the 81-percent
thermal efficiency level, as well as prior
[[Page 6197]]
comparisons of residential oil-fired furnaces at condensing and non-
condensing efficiency levels, to conduct a virtual teardown at the 92-
percent thermal efficiency level. At 92-percent thermal efficiency, a
secondary condensing heat exchanger made from a high-grade stainless
steel was added in order to withstand the formation of condensate from
the flue gases coupled with increased heat extraction into the building
airstream (and, thus, higher thermal efficiency). This additional heat
exchanger was appropriately sized based on information gathered from
the residential furnaces teardowns. To accommodate the secondary heat
exchanger, the cabinet was increased in size, and all associated sheet
metal, wiring, and other components sensitive to cabinet size changes
were also scaled as a result. In addition, the size of the blower fan
blade was increased appropriately to account for the additional airflow
needed over the secondary heat exchanger (however, based on
observations in product literature, the rated fan power was unchanged).
The manufacturing costs obtained from these physical and virtual
teardowns served as the basis for the cost-efficiency relationship for
this equipment class. The teardown analyses are described in further
detail in section 5.6 of the proposed rule TSD.
4. Cost Model
DOE developed a manufacturing cost model to estimate the
manufacturing production cost of CWAF. The cost model is a spreadsheet
model that converts the materials and components in the bills of
materials (BOMs) into dollar values based on the price of materials,
average labor rates associated with fabrication and assembling, and the
cost of overhead and depreciation, as determined based on manufacturer
interviews and DOE expertise. To convert the information in the BOMs
into dollar values, DOE collected information on labor rates, tooling
costs, raw material prices, and other factors. For purchased parts, the
cost model estimates the purchase price based on volume-variable price
quotations and detailed discussions with manufacturers and component
suppliers. For fabricated parts, the prices of raw metal materials
(e.g., tube, sheet metal) are estimated on the basis of five-year
averages. The cost of transforming the intermediate materials into
finished parts is estimated based on current industry pricing.
Additional details on the cost model are contained in chapter 5 of the
NOPR TSD.
5. Manufacturing Production Costs
Once the cost estimates for all the components in each teardown
unit were finalized, DOE totaled the cost of materials, labor, and
direct overhead used to manufacture each type of equipment in order to
calculate the manufacturing production cost. The total cost of the
equipment was broken down into two main costs: (1) The full
manufacturing production cost, referred to as MPC; and (2) the non-
production cost, which includes selling, general, and administration
(SG&A) costs; the cost of research and development; and interest from
borrowing for operations or capital expenditures. DOE estimated the MPC
at each efficiency level considered for each equipment class, from the
baseline through the max-tech level. After incorporating all of the
assumptions into the cost model, DOE calculated the percentages
attributable to each element of total production costs (i.e.,
materials, labor, depreciation, and overhead). These percentages are
used to validate the assumptions by comparing them to manufacturers'
actual financial data published in annual reports, along with feedback
obtained from manufacturers during interviews. DOE uses these
production cost percentages in the MIA.
Based on the analytical methodology discussed in the sections
above, DOE developed the cost-efficiency results shown in Table IV.6
for each thermal efficiency level analyzed. The results shown in Table
IV.6 represent the incremental increase in manufacturing cost, relative
to the baseline manufacturing cost, needed to produce equipment at each
efficiency level above baseline. Details of the cost-efficiency
analysis, including descriptions of the technologies DOE analyzed for
each thermal efficiency level to develop incremental manufacturing
costs, are presented in chapter 5 of the NOPR TSD. DOE seeks comment on
the results of the engineering analysis at each efficiency level
considered.
Table IV.6--Incremental Manufacturing Cost Increases *
----------------------------------------------------------------------------------------------------------------
EL2 (oil- EL3 (gas-
Equipment type EL0 EL1 fired max- fired max-
(baseline) tech) tech)
----------------------------------------------------------------------------------------------------------------
Gas-fired CWAF.............................................. ........... $5 $10 $613
Oil-fired CWAF.............................................. ........... 24 660 ...........
----------------------------------------------------------------------------------------------------------------
* DOE structures proposed standards in terms of TSLs and analyzed five TSLs for this NOPR. TSL 1 includes EL1
for gas-fired CWAF and EL0 for oil-fired CWAF, TSL 2 includes EL1 for both equipment classes, TSL 3 includes
EL2 for gas-fired CWAF and EL0 for oil-fired CWAF, TSL 4 includes EL2 for gas-fired CWAF and EL1 for oil-fired
CWAF, and TSL 5 includes EL3 for gas-fired CWAF and EL2 for oil-fired CWAF. For more information on the TSL
structure, see section V.A of this NOPR.
6. Manufacturer Markup
To account for manufacturers' non-production costs and profit
margin, DOE applies a non-production cost multiplier (the manufacturer
markup) to the full MPC. The resulting manufacturer selling price (MSP)
is the price at which the manufacturer can recover all production and
non-production costs and earn a profit. To meet new or amended energy
conservation standards, manufacturers often introduce design changes to
their equipment lines that result in increased MPCs. Depending on the
competitive pressures, some or all of the increased production costs
may be passed from manufacturers to retailers and eventually to
customers in the form of higher purchase prices. As production costs
increase, manufacturers typically incur additional overhead. The MSP
should be high enough to recover the full cost of the equipment (i.e.,
full production and non-production costs) and yield a profit. The
manufacturer markup has an important bearing on profitability. A high
markup under a standards scenario suggests manufacturers can readily
pass along the increased variable costs and some of the capital and
product conversion costs (the one-time expenditure) to customers. A low
markup suggests that manufacturers will not be able to recover as much
of the necessary investment in plant and equipment. DOE developed the
manufacturer markup through an examination of corporate annual reports
and Securities and Exchange Commission (SEC) 10-K
[[Page 6198]]
reports.\24\ Additional information is contained in chapter 5 of the
TSD.
---------------------------------------------------------------------------
\24\ U.S. Securities and Exchange Commission, Annual 10-K
Reports (Various Years) (Available at: http://www.sec.gov/edgar/searchedgar/companysearch.html) (Last Accessed Dec. 13, 2013).
---------------------------------------------------------------------------
7. Shipping Costs
Manufacturers of heating, ventilation, and air-conditioning (HVAC)
equipment typically pay for shipping to the first step in the
distribution chain. Freight is not a manufacturing cost, but because it
is a substantial cost incurred by the manufacturer, DOE is accounting
for shipping costs of CWAF separately from other non-production costs
that comprise the manufacturer markup. To calculate the MSP for CWAF,
DOE multiplied the MPC at each efficiency level by the manufacturer
markup and added shipping costs for equipment at the given efficiency
level. More specifically, DOE calculated shipping costs at each
efficiency level based on the average outer dimensions of equipment at
the given efficiency and assuming the use of a typical 53-foot
straight-frame trailer with a storage volume of 4,240 cubic feet. Gas-
fired CWAF equipment is almost exclusively enclosed within a cabinet
that also contains a commercial unitary air conditioner (CUAC). Thus,
the CUAC components are significant factor in driving the overall
cabinet dimensions. DOE found that the changes in CWAF component sizes
necessary to achieve the 81 percent and 82 percent thermal efficiency
levels are not large enough to add any size to the cabinet, which is
driven primarily by the size of the CUAC components. The shipping costs
calculated for each efficiency level are shown in Table IV.7. Due to
the noted dependence on CUAC components of the overall shipping cost
for gas-fired CWAF, DOE presents only the incremental cost change due
to increased CWAF efficiency for that equipment. For oil-fired CWAF,
DOE presents the full cost of shipping, since this equipment is not
packaged with CUAC components, and thus, the shipping cost represents
only the oil-fired CWAF. Chapter 5 of the NOPR TSD contains additional
details about DOE's shipping cost assumptions and DOE's shipping cost
estimates.
Table IV.7--CWAF Shipping Cost Estimates
------------------------------------------------------------------------
Thermal Shipping costs *
CWAF equipment class efficiency (%) (2013$)
------------------------------------------------------------------------
Gas-Fired CWAF.................... 80 $0
81 0
82 0
92 39.64
Oil-Fired CWAF.................... 81 63.78
82 69.60
92 76.53
------------------------------------------------------------------------
* Because gas-fired CWAF are weatherized and are typically included in a
cabinet with a commercial unitary air conditioner which affects the
shipping cost, the shipping costs for gas-fired CWAF are shown in
terms of the incremental increase from the baseline level. Since oil-
fired CWAF are normally self-contained non-weatherized units, the
shipping costs for oil-fired CWAF are representative of the entire
cost to ship the unit.
D. Markups Analysis
The markups analysis develops appropriate markups in the
distribution chain to convert the estimates of manufacturer selling
price derived in the engineering analysis to commercial consumer
prices. (``Commercial consumer'' refers to purchasers of the equipment
being regulated.) DOE develops baseline and incremental markups based
on the equipment markups at each step in the distribution chain. The
markups are multipliers that represent increases above equipment
purchase costs for CWAF equipment. The incremental markup relates the
change in the manufacturer sales price of higher-efficiency models (the
incremental cost increase) to the change in the customer price.
In the RFI, DOE characterized two distribution channels to describe
how CWAF equipment passes from the manufacturer to the commercial
consumer. 78 FR 25627, 25632 (May 2, 2013). The first distribution
channel is characterized as follows:
Manufacturer >< Wholesaler
>< Mechanical Contractor
>< General Contractor
>< Consumer
In the second distribution channel, the manufacturer sells the
equipment directly to the customer through a national account:
Manufacturer >< Consumer
(National Account)
Carrier stated that the distribution channels outlined in the RFI
are relevant for commercial warm air furnaces. Carrier added that in
addition to the two channels described, for very large air-cooled
equipment, there is an additional channel that consists of factory
employees selling direct to end customers/mechanical contractors.
(Carrier, No. 2 at p. 3) Lennox stated that the first example of
distribution channels provided by DOE (manufacturer to wholesaler to
mechanical contractor to general contractor to customer) is a typical
distribution approach. Lennox stated that the second example (where a
manufacturer would sell directly to a customer) is not a typical
distribution approach, but rather the distribution channel should
include the contractor, who must set up and install the system at the
building site. (Lennox, No. 3 at p. 6) Goodman stated that the
distribution channels should not be significantly different from the
analysis performed for the same products being considered for the
cooling mode. (Goodman, No. 6 at p. 3)
In response to these comments, DOE modified the second distribution
channel to include a wholesaler who purchases the equipment and sells
it to the customer. DOE's understanding of this channel is that the
contractor who installs the system generally does not purchase and mark
up the equipment. Rather, the building owner purchases the equipment
and hires the contractor. Thus, for the purposes of DOE's analysis, it
would not be appropriate to include the contractor in the distribution
channel.
DOE also sought input on the percentage of equipment being
distributed through the various types of distribution channels. Carrier
stated that approximately 70 percent of equipment flows through the
first distribution
[[Page 6199]]
channel described in the RFI, with the remainder split among the other
channels. (Carrier, No. 2 at p. 4) Lennox stated that the first
distribution approach discussed is the typical approach to equipment
sales, accounting for approximately 90-95 percent of sales. (Lennox,
No. 3 at p. 6)
DOE assumes that the above responses reflect each company's
experience, rather than a characterization of the industry overall. For
this NOPR, DOE estimated that the first distribution channel accounts
for 83 percent of shipments, and the second distribution channel
accounts for 17 percent.
To develop markups for the parties involved in the distribution of
the equipment, DOE utilized several sources, including: (1) The
Heating, Air-Conditioning & Refrigeration Distributors International
(HARDI) 2012 Profit Report \25\ to develop wholesaler markups; (2) the
2005 Air Conditioning Contractors of America's (ACCA) financial
analysis for the heating, ventilation, air-conditioning, and
refrigeration (HVACR) contracting industry \26\ to develop mechanical
contractor markups, and (3) U.S. Census Bureau's 2007 Economic Census
data \27\ for the commercial and institutional building construction
industry to develop general contractor markups. For mechanical
contractors, DOE derived separate markups for small and large
contractors.
---------------------------------------------------------------------------
\25\ Heating, Air Conditioning & Refrigeration Distributors
International 2012 Profit Report (Available at: http://www.hardinet.org/Profit-Report) (Last accessed April 10, 2013).
\26\ Air Conditioning Contractors of America (ACCA), Financial
Analysis for the HVACR Contracting Industry: 2005 (Available at:
https://http://www.acca.org/store/product.php?pid=142) (Last
accessed April 10, 2013).
\27\ U.S. Census Bureau, 2007 Economic Census Data (2007)
(Available at: http://www.census.gov/econ/) (Last accessed April 10,
2013).
---------------------------------------------------------------------------
In addition to the markups, DOE derived State and local taxes from
data provided by the Sales Tax Clearinghouse.\28\ These data represent
weighted average taxes that include county and city rates. DOE derived
shipment-weighted average tax values for each CBECS region considered
in the analysis.
---------------------------------------------------------------------------
\28\ Sales Tax Clearinghouse Inc., State Sales Tax Rates Along
with Combined Average City and County Rates, 2013 (Available at:
http://thestc.com/STrates.stm) (Last accessed Sept. 11, 2013).
---------------------------------------------------------------------------
Chapter 6 of the NOPR TSD provides further detail on the estimation
of markups.
E. Energy Use Analysis
The purpose of the energy use analysis is to assess the energy
requirements of equipment at different efficiencies in several building
types that utilize the equipment and to assess the energy savings
potential of increased commercial warm air furnace efficiency. The
annual energy consumption includes the natural gas and oil fuel types
used for heating and the auxiliary electrical use associated with the
furnace electrical components.
DOE based the energy use analysis on Energy Information
Administration's 2003 Commercial Building Energy Consumption Survey
(CBECS) \29\ for the subset that uses the type of equipment covered by
the standards. DOE utilized the building types defined in CBECS
2003.\30\ Each building was assigned to a specific location, and the
approach captured variability in heating loads due to factors such as
building activity, schedule, occupancy, local weather, and shell
characteristics. Energy use estimates from 2003 CBECS were adjusted for
average weather conditions and for projected improvements to the
building shell efficiency. DOE also accounted for the energy use of a
small fraction of commercial warm air furnaces that are installed in
residential housing using data from the 2009 Residential Energy
Consumption Survey (RECS 2009).\31\
---------------------------------------------------------------------------
\29\ Energy Information Administration (EIA), 2003 Commercial
Building Energy Consumption Survey (Available at: http://www.eia.gov/consumption/commercial/) (Last accessed April 10, 2013).
Note: CBECS 2012 is currently in development but was not available
in time for this rulemaking.
\30\ Definitions of CBECS building types can be found at: http://www.eia.gov/emeu/cbecs/building_types.html.
\31\ EIA, 2009 Residential Energy Consumption Survey (Available
at: http://www.eia.gov/consumption/residential/) (Last accessed
April 10, 2013).
---------------------------------------------------------------------------
To determine the energy consumption of commercial warm air
furnaces, DOE is using a Thermal Efficiency (TE) rating, along with
relevant characteristics for each sample building. DOE assumed that TE
is proportional to annual heating energy consumption for any given set
of operating conditions. To calculate commercial warm air furnace
energy consumption at each considered efficiency level, DOE determined
the equipment capacity and the heating load in each CBECS building.
In the RFI, DOE requested comment on its planned method to
determine the equipment load profiles. 78 FR 25627, 25632 (May 2,
2013). Carrier stated that DOE should develop equipment load profiles
using the 16 benchmark buildings from Pacific Northwest National
Laboratories (PNNL) building models.\32\ (Carrier, No. 2 at p. 4)
---------------------------------------------------------------------------
\32\ Deru, M., K. Field, D. Studer, K. Benne, B. Griffith, P.
Torcellini, B. Liu, M. Halverson, D. Winiarski, M. Rosenberg, M.
Yazdanian, J. Huang, and D. Crawley, U.S. Department of Energy
Commercial Reference Building Models of the National Building Stock,
2011 (Available at http://www.nrel.gov/docs/fy11osti/46861.pdf)
(Last accessed December 6, 2013).
---------------------------------------------------------------------------
In response, rather than developing detailed load profiles for
various building types, DOE decided to use CBECS-reported heating
energy use for each sample building. DOE assumed that the CBECS data
are representative of the energy use measured in the field for the U.S.
commercial building types. CBECS provides information about buildings
with a wide range of energy use representing both high-energy-use and
low-energy-use buildings. DOE has concluded that the selected approach
better reflects the heating energy use of the commercial buildings
stock in the U.S. in comparison to using a set of benchmark buildings.
DOE's RFI also sought input from stakeholders on the current
distribution of equipment efficiencies in the building population. 78
FR 25627, 25632 (May 2, 2013). Carrier stated that the vast majority of
equipment should be in the 80-percent to 82-percent efficiency range
based on the ASHRAE 90.1 standard. (Carrier, No. 2 at p. 4) DOE's
approach is consistent with Carrier's comment. It utilizes model
efficiency information from the 2013 AHRI Certification Directory for
Commercial Furnaces.\33\
---------------------------------------------------------------------------
\33\ AHRI, 2013 AHRI Certification Directory for Commercial
Furnaces (Available at: http://www.ahridirectory.org/ahridirectory/pages/home.aspx).
---------------------------------------------------------------------------
In the RFI, DOE requested comment on how equipment energy use for a
given heating load shape scales as a function of capacity (i.e.,
whether two commercial furnace units of a certain capacity use the same
total heating energy as one commercial furnace unit of twice the
capacity). 78 FR 25627, 25632 (May 2, 2013). Carrier stated that it
would expect to see no measurable difference in energy use for a given
load shape as a function of capacity. (Carrier, No. 2 at p. 4) DOE's
approach reflects the statement made by Carrier.
Lennox stated that in its experience, furnaces with higher thermal
efficiency ratings may use less gas, but they may use more electricity,
offsetting the potential benefits. (Lennox, No. 3 at p. 7) For
condensing CWAF, DOE's analysis accounts for the increased blower fan
electricity use in the field in both heating and cooling mode due to
the presense of the secondary heat exchanger. The increased electricity
use of condensing furnaces is expected to be small compared to the
potential savings in fuel use. DOE also accounts for
[[Page 6200]]
condensate line freeze protection or a condensate pump for a fraction
of installations. Condensing CWAF installed outdoors that are located
in regions with an outdoor design temperature of <=32[emsp14][deg]F
were assumed to require condensate freeze protection. This applies to
roughly 90 percent of gas-fired CWAF. All oil-fired CWAFs are assumed
to be installed indoors so condensate line freeze protection was
assumed to not be needed.
Carrier stated that increasing plug loads (e.g., computers and
related equipment) and tighter buildings with higher insulation values
will most likely continue to lower the change-over temperature from
cooling to heating in commercial buildings. (Carrier, No. 2 at p. 6)
Lennox stated that commercial buildings are being required to have
higher insulation levels by ASHRAE Standard 90.1 in the future, which
will reduce the building load and further reduce the potential energy
savings for higher-efficiency furnaces. (Lennox, No. 3 at p. 7) DOE's
analysis accounts for improvements in the building shell. The analysis
uses the AEO 2013 building shell efficiency index for commercial
buildings to account for these impacts. Although plug loads may
increase, decreasing the heating load, the efficiency of the equipment
is also likely to improve, which would increase the heating load, so
the net effect is uncertain.
In the RFI, DOE requested comment on the fraction of commercial
warm air furnaces which are used in residential applications such as
multi-family buildings. 78 FR 25627, 25632 (May 2, 2013). Carrier
stated that the fraction of commercial furnaces applied in residential
applications is negligible. (Carrier, No. 2 at p. 5) Based on RECS 2009
data, DOE estimates that about two percent of commercial furnaces are
used in residential applications.\34\
---------------------------------------------------------------------------
\34\ EIA, 2009 Residential Energy Consumption Survey (Available
at: http://www.eia.gov/consumption/residential/) (Last accessed
April 10, 2013).
---------------------------------------------------------------------------
F. Life-Cycle Cost and Payback Period Analysis
The purpose of the LCC and PBP analysis is to analyze the effects
of potential amended energy conservation standards on commercial
consumers of commercial furnace equipment by determining how a
potential amended standard would affect their operating expenses
(usually decreased) and their total installed costs (usually
increased).
The LCC is the total consumer expense over the life of the
equipment, consisting of equipment and installation costs plus
operating costs over the lifetime of the equipment (expenses for energy
use, maintenance, and repair). DOE discounts future operating costs to
the time of purchase using commercial consumer discount rates. The PBP
is the estimated amount of time (in years) it takes commercial
consumers to recover the increased total installed cost (including
equipment and installation costs) of a more-efficient type of equipment
through lower operating costs. DOE calculates the PBP by dividing the
change in total installed cost (normally higher) due to a new or
amended energy conservation standard by the change in annual operating
cost (normally lower) that results from that standard.
For any given efficiency level, DOE measures the PBP and the change
in LCC relative to an estimate of the base-case efficiency level. The
base-case estimate reflects the market in the absence of amended energy
conservation standards, including market trends for equipment that
exceeds the current energy conservation standards.
DOE analyzed the potential for variability and uncertainty by
performing the LCC and PBP calculations on a nationally-representative
sample of individual commercial buildings. More specifically, DOE
utilized the sample of buildings developed for the energy use analysis.
Within a given building, one or more commercial warm air furnace units
may serve the building's space-conditioning needs, depending on the
heating load requirements of the building. As a result, the Department
also expressed the LCC and PBP results as the percentage of commercial
warm air furnace customers experiencing economic impacts of different
magnitudes. DOE modeled both the uncertainty and the variability in the
inputs to the LCC and PBP analysis using Monte Carlo simulation and
probability distributions. As a result, the LCC and PBP results are
displayed as distributions of impacts compared to the base-case
conditions.
EPCA establishes a rebuttable presumption that a standard is
economically justified if the Secretary finds that the additional cost
to the consumer of purchasing a product complying with an energy
conservation standard level will be less than three times the value of
the energy (and, as applicable, water) savings during the first year
that the consumer will receive as a result of the standard, as
calculated under the test procedure in place for that standard. For
each considered efficiency level, DOE typically determines the value of
the first year's energy savings by calculating the quantity of those
savings in accordance with the applicable DOE test procedure,\35\ and
multiplying that amount by the average energy price forecast for the
year in which compliance with the amended standards would be required.
---------------------------------------------------------------------------
\35\ The DOE test procedure for commercial warm air furnaces a
10 CFR 431.76 does not specify a calculation method for determining
energy use. For the rebuttable presumption PBP calculation, DOE used
average energy use reported from CBECS 2003 for this equipment.
---------------------------------------------------------------------------
DOE calculated the LCC and PBP for all commercial consumers of CWAF
as if each were to purchase new equipment in the year that compliance
with amended standards is required. EPCA directs DOE to publish a final
rule amending the standard for the products covered by this NOPR not
later than 2 years after a notice of proposed rulemaking is issued. (42
U.S.C. 6313(a)(6)(C)(iii)) At the time of preparation of the NOPR
analysis, the expected issuance date was early 2015, leading to an
anticipated final rule publication in 2015. EPCA also states that
amended standards prescribed under this subsection shall apply to
products manufactured after a date that is the later of--(I) the date
that is 3 years after publication of the final rule establishing a new
standard; or (II) the date that is 6 years after the effective date of
the current standard for a covered product. (42 U.S.C.
6313(a)(6)(C)(iv)) The date under clause (I), currently projected to be
2018, is later than the date under clause (II). Therefore, for purposes
of its analysis, DOE used January 1, 2018 as the beginning of
compliance with potential amended standards for CWAF.
In the RFI, DOE requested comment from stakeholders on the overall
method that it intended to use in conducting the LCC and PBP analysis
for commercial warm air furnaces. 78 FR 25627, 25632 (May 2, 2013).
Carrier stated that DOE should use the procedures as developed by the
ASHRAE 90.1 committee and PNNL for evaluating changes to ASHRAE
Standard 90.1, because this procedure has defined buildings that can be
used for these products. Carrier added that ASHRAE also has a standard
work procedure for economic analysis that is similar to the LCC
analysis but uses the Scalar Ratio as defined by the ASHRAE 90.1
committee with national average electric and gas rates. (Carrier, No. 2
at p. 5)
DOE reviewed the approach suggested by Carrier. It did not use this
approach because, for the reasons explained in section IV.E, DOE is not
estimating
[[Page 6201]]
energy use using whole building simulation, as do the procedures as
developed by the ASHRAE 90.1 committee. Furthermore, DOE's methodology
allows a better evaluation of variability and uncertainty in key
variables, such as equipment lifetime and discount rates, that affect
the LCC analysis. The method advocated by Carrier typically uses
average values, which do not capture the range of equipment operation
and user characteristics found in the field.
Inputs to the LCC and PBP analysis are categorized as: (1) inputs
for establishing the purchase expense, otherwise known as the total
installed cost, and (2) inputs for calculating the operating expense.
These key inputs are discussed in further detail immediately below.
1. Inputs to Installed Cost
The primary inputs for establishing the total installed cost are
the baseline commercial consumer equipment price, standard-level
customer price increases, and installation costs. Baseline customer
prices and standard-level customer price increases were determined by
applying markups to manufacturer price estimates. The installation cost
is added to the customer price to arrive at a total installed cost.
DOE used the historic trend in the Producer Price Index (PPI) for
``Warm air furnaces'' \36\ to estimate the change in price for
commercial warm air furnaces between the present and 2018. The PPI for
``Warm air furnaces'' shows a small rate of annual price decline. The
price trend in this PPI series shows a small rate of annual price
decline.
---------------------------------------------------------------------------
\36\ PCU333415333415C: Warm air furnaces including duct
furnaces, humidifiers and electric comfort heating (Available at:
http://www.bls.gov/ppi/).
---------------------------------------------------------------------------
In the RFI, DOE sought input on its planned approach and the data
sources it intended to use to develop installation costs. 78 FR 25627,
25633 (May 2, 2013). Carrier recommended that if RS Means Mechanical
Cost Data are to be used to estimate installed cost, it should be based
on unit rated cooling capacity for combined air conditioning and
commercial furnace equipment.
DOE developed installation costs for commercial warm air furnaces
using the most recent RS Means Mechanical Cost Data.\37\ In estimating
costs, DOE considered the heating and cooling capacity of the combined
equipment.
---------------------------------------------------------------------------
\37\ RS Means, 2013 Mechanical Cost Data (Available at: http://rsmeans.reedconstructiondata.com/60023.aspx) (Last accessed April
10, 2013).
---------------------------------------------------------------------------
Carrier stated that DOE must factor in additional cost for
condensate drainage and treatment if the analysis includes furnaces at
condensing efficiencies. (Carrier, No. 2 at p. 5) Goodman expects that
application costs would be very significant for the application of
condensing technologies, and, therefore, must be thoroughly and
completely considered. (Goodman, No. 6 at p. 4)
DOE accounted for additional installation costs for condensate
removal, which includes condensate drainage, freeze protection, and
treatment for furnaces with condensing designs. On average, the
installation cost for condensate removal is $389 for gas-fired CWAF and
$180 for oil-fired CWAF. The details about the condensate removal costs
are provided in appendix 8-D of DOE's proposed rule TSD. DOE also
accounted for meeting the venting requirements for oil-fired commercial
warm air furnaces, as well as for the small fraction of gas commercial
warm air furnaces installed indoors.
2. Inputs to Operating Costs
The primary inputs for calculating the operating costs are
equipment energy consumption, equipment efficiency, energy prices and
forecasts, maintenance and repair costs, equipment lifetime, and
discount rates.
a. Energy Consumption
The equipment energy consumption is the site energy use associated
with providing space-heating to the building. DOE utilized the
methodology described in section IV.E to establish equipment energy
use.
Lennox cautioned DOE that, as it develops estimates for the
operating costs of these systems, DOE should keep in mind that the
systems are being applied in a commercial application where the
overwhelming majority of the time the system is operating in cooling--
not heating--mode. Lennox gave the example that when the outside
ambient temperature is 30[emsp14][deg]F, the system could be calling
for cooling, based on the internal heat gains. (Lennox, No. 3 at p. 7)
DOE's analysis accounts for the range of CWAF operating conditions with
respect to heating and cooling mode.
b. Energy Prices
In the RFI, DOE sought comment on its approach for developing
energy prices. 78 FR 25627, 25633 (May 2, 2013). Carrier stated that
DOE's tariff-based approach makes sense, and that the most recent price
data available should be used. (Carrier, No. 2 at p. 5)
For the NOPR, DOE determined gas, oil, and electricity prices based
on recent or current tariffs from a representative sample of utilities,
as well as historical State commercial energy price data from the
Energy Information Administration (EIA). This approach calculates
energy expenses based on actual energy prices that commercial consumers
are paying in different geographical areas of the country. In addition
to using tariffs, DOE used data provided in EIA's Form 861 data \38\ to
calculate commercial electricity prices, EIA's Natural Gas Navigator
\39\ to calculate commercial natural gas prices, and EIA's State Energy
Data System (SEDS) \40\ to calculate LPG and fuel oil prices. Future
energy prices were projected using trends from the EIA's 2013 Annual
Energy Outlook (AEO 2013).\41\
---------------------------------------------------------------------------
\38\ Energy Information Administration (EIA), Survey form EIA-
861--Annual Electric Power Industry Report (Available at: http://www.eia.gov/electricity/data/eia861/index.html) (Last accessed April
15, 2013).
\39\ Energy Information Administration (EIA), Natural Gas
Navigator (Available at: http://tonto.eia.doe.gov/dnav/ng/ng_pri_sum_dcu_nus_m.htm) (Last accessed April 15, 2013).
\40\ Energy Information Administration (EIA), State Energy Data
System (SEDS) (Available at: http://www.eia.gov/state/seds/) (Last
accessed April 15, 2013).
\41\ Energy Information Administration (EIA), 2013 Annual Energy
Outlook (AEO) Full Version (Available at: http://www.eia.gov/forecasts/aeo/) (Last accessed April 15, 2013).
---------------------------------------------------------------------------
c. Maintenance and Repair Costs
Maintenance costs are expenses associated with ensuring continued
operation of the covered equipment over time. In the RFI, DOE sought
input on the approach and data sources it intended to use to develop
maintenance costs. 78 FR 25627, 25633 (May 2, 2013). Carrier stated
that RS Means might serve as a reasonable guide to assist in developing
maintenance costs; however, assuming the issues associated with
condensing furnace technology are overcome, it is reasonable to expect
increased maintenance costs for these higher-efficiency furnaces.
Carrier added that, based on experience with residential 80-percent
versus 90-percent AFUE furnaces, it expects the maintenance costs for
condensing furnace sections to be at least two to three times the
maintenance costs for current non-condensing commercial warm air
furnaces. (Carrier, No. 2 at p. 5)
DOE developed maintenance costs for its analysis using the most
recent RS Means Facilities Maintenance & Repair Cost Data.\42\ DOE
included increased maintenance costs for condensing
[[Page 6202]]
equipment. For condensing gas-fired commercial warm air furnaces, DOE
added labor and material costs to account for checking the condensate
withdrawal system, including inspecting, cleaning, and flushing the
condensate trap and drain tubes; inspecting the grounding and power
connection of heat tape; checking condensate neutralizer; and checking
condensate pump for corrosion and proper operation. For gas-fired CWAF,
the annualized maintenance cost is $157 for 81- and 82-percent TE
units, and $169 for 92 percent TE units. For oil-fired CWAF, the
annualized maintenance cost is $289 for 82-percent TE units, and $317
for 92 percent TE units.
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\42\ RS Means, 2013 Facilities Maintenance & Repair Cost Data
(Available at: http://rsmeans.reedconstructiondata.com/60303.aspx)
(Last accessed April 10, 2013).
---------------------------------------------------------------------------
For condensing oil-fired commercial warm air furnaces, DOE added
additional maintenance for installations in non-low-sulfur regions to
account for extra cleaning of the heat exchanger for condensing
designs, as well as checking of the condensate withdrawal system. DOE
also considered the cases when the equipment is covered by service and/
or maintenance agreements.
Repair costs are expenses associated with repairing or replacing
components of the covered equipment that have failed. In the RFI, DOE
sought comment as to whether repair costs vary as a function of
equipment efficiency. 78 FR 25627, 25633 (May 2, 2013). Carrier stated
that condensing furnace repair costs will be higher due to a number of
factors including: (1) The presence of acidic condensate; (2) potential
damage due to condensate expansion during freezing; (3) the presence of
a secondary heat exchanger; and (4) the need to add a condensate pump
for some applications. (Carrier, No. 2 at p. 6) Goodman stated that as
a general rule, due to additional components and additional materials
required to achieve higher efficiencies, as well as additional service
time for analysis and actual repair time, repair costs will always be
higher for higher-efficiency products. (Goodman, No. 6 at p. 4)
DOE developed repair costs for its analysis using the most recent
RS Means Facilities Maintenance & Repair Cost Data.\43\ It agrees with
the comments and, therefore, included additional repair costs for
higher efficiency levels (i.e., condensing furnaces). For gas-fired
CWAF, the annualized repair cost is $0.57 for 81- and 82-percent TE
units, and $1.31 for 92 percent TE units. For gas-fired CWAF, the
annualized repair cost is $1.94 for 82-percent TE units, and $2.58 for
92 percent TE units.
---------------------------------------------------------------------------
\43\ RS Means, 2013 Mechanical Cost Data (Available at: http://rsmeans.reedconstructiondata.com/60023.aspx) (Last accessed April
10, 2013).
---------------------------------------------------------------------------
See chapter 8 of the NOPR TSD for more details on maintenance and
repair costs.
d. Other Inputs
Equipment lifetime is the age at which a unit of covered equipment
is retired from service. The average equipment lifetime for commercial
warm air furnaces is estimated by ASHRAE to be between 15 and 20
years.\44\
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\44\ American Society of Heating, Refrigerating and Air-
Conditioning Engineers, Inc. (ASHRAE), ASHRAE Handbook of HVAC
Systems and Equipment (2008) p. 32.8.
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In the RFI, DOE requested any equipment lifetime data and sought
comment on its approach of using a Weibull probability distribution to
characterize equipment lifetime. 78 FR 25627, 25633 (May 2, 2013).
Carrier stated that a 15 to 20 year life expectancy for commercial warm
air furnaces is reasonable. (Carrier, No. 2 at p. 6) Lennox stated that
the Weibull analysis is the preferred method when evaluating product or
component life. (Lennox, No. 3 at p. 7)
For gas-fired commercial warm air furnaces, DOE used the lifetime
Weibull probability distribution developed in the NOPR analysis for
small, large, and very large air-cooled commercial package air
conditioning and heating equipment,\45\ which results in a 19-year
average lifetime. For oil-fired commercial warm air furnaces, DOE used
a lifetime Weibull probability distribution based on a method described
in an article in HVAC&R Research,\46\ which results in a 26-year
average lifetime. DOE expects the lifetime of the equipment to not
change due to any new energy efficiency standards.
---------------------------------------------------------------------------
\45\ Technical Support Document for Small, Large, and Very Large
Commercial Package Air Conditioners and Heat Pumps Notice of
Proposed Rulemaking (Available at: http://www1.eere.energy.gov/buildings/appliance_standards/rulemaking.aspx/ruleid/59).
\46\ Lutz, J., A. Hopkins, V. Letschert, V. Franco, and A.
Sturges, Using national survey data to estimate lifetimes of
residential appliances. HVAC&R Research (2011) 17(5): pp. 28
(Available at: http://www.tandfonline.com/doi/abs/10.1080/10789669.2011.558166).
---------------------------------------------------------------------------
The discount rate is the rate at which future expenditures are
discounted to establish their present value. DOE did not receive
comments on discount rates. It derived a distribution of discount rates
by estimating the cost of capital of companies that purchase commercial
warm air furnace equipment.
DOE measures LCC and PBP impacts of potential standard levels
relative to a base case that reflects the likely distribution of
efficiencies in the market in the absence of amended standards. In the
RFI, DOE requested data on current efficiency market shares (of
shipments) by equipment class, and also similar historic data. 78 FR
25627, 25633 (May 2, 2013). Carrier stated that these data are not
readily available for the industry as a whole. Carrier added that the
vast majority of equipment should be in the 80-percent to 82-percent
efficiency range based on the standard in place since 1989. (Carrier,
No. 2 at p. 6)
Since shipment-weighted efficiency data are not available, DOE
developed current market-share efficiency (i.e., the current
distribution of equipment shipments by efficiency) for the CWAF
equipment classes for 2013 based on the number of models at different
efficiency levels from AHRI's Certification Directory for Commercial
Furnaces.\47\ These data show no market share for condensing CWAF.
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\47\ AHRI, 2013 AHRI Certification Directory for Commercial
Furnaces (Available at: http://www.ahridirectory.org/ahridirectory/pages/home.aspx) (Last accessed Oct. 15, 2013).
---------------------------------------------------------------------------
In the RFI, DOE also requested information on expected trends in
efficiency for commercial warm air furnaces over the next five years.
78 FR 25627, 25633 (May 2, 2013). Carrier added that while there will
be continuing pressure on cooling efficiency, it expects that the
resultant efficiency trend will be flat for commercial warm air
furnaces combined in air conditioning equipment. (Carrier, No. 2 at p.
6) Lennox stated that its weatherized commercial furnaces are at the
80-percent thermal efficiency level and would be expected to remain
there for the foreseeable future, as there is little market demand for
higher-efficiency furnaces in the commercial sector. (Lennox, No. 3 at
p. 7) DOE agrees with the comments with respect to non-condensing CWAF,
and it assumed no change from the current distribution of equipment
shipments by efficiency. For condensing gas-fired CWAF, however, DOE
found that models are just now becoming available, so DOE estimated a
market share of one percent by 2018.
A rebound effect occurs when a piece of equipment that is made more
efficient is used more intensively, such that the expected energy
savings from the efficiency improvement may not fully materialize. In
the RFI, DOE sought comments and data on any rebound effect that may be
associated with more-efficient commercial warm air furnaces. 78 FR
25627, 25633 (May 2, 2013). Carrier opined that any rebound effect
associated with higher-efficiency
[[Page 6203]]
commercial equipment would be negligible for commercial buildings.
(Carrier, No. 2 at p. 7)
DOE found no evidence for a rebound effect associated with higher-
efficiency commercial furnaces. HVAC operation adjustment in commercial
buildings is not driven by the occupants but primarily by building
managers or owners. In such cases, the comfort conditions are already
established in order to satisfy the occupants, and they are unlikely to
change due to replacement with higher-efficiency equipment. CWAF
installed in residential buildings are mainly in situations similar to
commercial buildings, so DOE expects there would be negligible rebound
effect.
G. Shipments Analysis
DOE uses projections of product shipments for CWAF to calculate
equipment stock over the course of the analysis period, which in turn
is used to determine the impacts of amended standards on national
energy savings, net present value, and future manufacturer cash flows.
DOE develops shipment projections based on historical data and an
analysis of key market drivers for each product. Historical shipments
data are used to build up an equipment stock and also to calibrate the
shipments model.
Historical shipments data for commercial warm air furnace equipment
are very limited. DOE used 1994 shipments data from AHRI (previously
GAMA) that were presented in a report from PNNL,\48\ and the historical
shipments of non-heat pump commercial unitary air conditioners
(CUAC),\49\ which are usually packaged together with CWAF. The ratio of
the shipments of non-heat pump CUAC equipment and the shipments of gas-
fired commercial warm air furnaces in 1994 was calculated.\50\ DOE
believes that this ratio should be reasonably stable over time.
Therefore, DOE determined the historical shipments of gas-fired CWAF by
multiplying this ratio with the historical shipments of non-heat pump
CUAC.
---------------------------------------------------------------------------
\48\ Pacific Northwest National Laboratory (PNNL), Screening
Analysis for EPACT-Covered Commercial HVAC and Water-Heating
Equipment, April 2000. (Available at: http://www.pnl.gov/main/publications/external/technical_reports/PNNL-13232.pdf) (Last
accessed April 10, 2013).
\49\ Air-Conditioning and Refrigeration Institute, Commercial
Unitary Air Conditioner and Heat Pump Unit Shipments for 1980-2001
(Jan. 2005) (Prepared for Lawrence Berkeley National Laboratory).
\50\ The fraction of non-heat pump CUAC equipment that is
packaged with commercial furnaces is 80 percent.
---------------------------------------------------------------------------
Shipments data for oil-fired CWAF is not publically available. DOE
used the ratio of oil-fired versus gas-fired residential furnace
shipments from AHRI \51\ and the historical shipments of gas-fired
commercial furnaces to calculate the historical shipment of oil-fired
commercial furnaces. DOE estimated that oil-fired CWAF account for
about 1 percent of total CWAF shipments.
---------------------------------------------------------------------------
\51\ Air-Conditioning Heating and Refrigeration Institute,
Furnaces Historical Data (1994-2013). 2015. (Available at: http://www.ahrinet.org/site/497/Resources/Statistics/Historical-Data/Furnaces-Historical-Data). (Last accessed January 7, 2015).
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The CWAF shipments model considers two market segments: (1) new
commercial buildings acquiring equipment; (2) existing buildings
replacing old equipment.
For new commercial buildings, DOE estimated shipments using
forecasts of commercial building and residential housing construction
and estimates of the saturation of CWAF equipment in new buildings. DOE
determined new commercial building and residential housing construction
starts by using recorded data through 2012 \52\ and projections from
AEO 2013. DOE developed data on the historic saturation of CWAF
equipment in new buildings using CBECS 2003 and RECS 2009. To estimate
future saturations in new commercial buildings, DOE used the average
saturations in buildings built in 1990-2003 (from CBECS 2003 data) that
use each type of CWAF equipment. To estimate future saturations in
residential housing, DOE used the average saturations in homes built in
1990-2009 (from RECS 2009 data) that use each type of CWAF equipment.
---------------------------------------------------------------------------
\52\ U.S. Department of Commerce--Bureau of the Census, New
Privately Owned Housing Units Started: Annual Data 1959-2012 (2013)
(Available at: http://www.census.gov/construction/mhs/mhsindex.html)
(Last accessed March 15, 2013).
U.S. Department of Commerce--Bureau of the Census, Placements of
New Manufactured Homes by Region and Size of Home: 1980-2011 (2013)
(Available at: http://www.census.gov/construction/mhs/pdf/placnsa_all.pdf) (Last accessed March 15, 2013).
---------------------------------------------------------------------------
To estimate shipments to existing buildings replacing old
equipment, DOE used a survival function to estimate the fraction of
commercial warm air furnaces of a given age still in operation. When a
furnace fails, it is removed from the stock or, as explained below, is
repaired for extended use. The survival function uses the lifetime
values from the LCC analysis and has the form of a cumulative Weibull
distribution.
For cases with potential CWAF standards, DOE considered whether the
increase in price would cause some commercial consumers to choose to
repair rather than replace their commercial furnace equipment. To
determine whether a commercial consumer would choose to repair rather
than replace their commercial warm air furnace equipment, the shipments
model uses a relative price elasticity to account for the combined
effects of changes in purchase price and annual operating cost on the
purchase versus repair decision. Appendix 9-A of the NOPR TSD describes
the method. DOE assumed that the consumers who repair their equipment
rather than replace it would extend the life of the product by 6 years.
When the extended repaired units fail after the 6-year period, they
will be replaced with new ones.
The details of the shipments analysis can be found in chapter 9 of
the NOPR TSD.
H. National Impact Analysis
The purpose of the national impact analysis (NIA) is to estimate
aggregate impacts of potential energy conservation standards from a
national perspective, rather than from the consumer perspective
represented by the LCC and PBP analysis. Impacts that DOE reports
include the national energy savings (NES) from potential standards and
the net present value (NPV) (future amounts discounted to the present)
of the total commercial consumer costs and savings that are expected to
result from amended or new standards at specific efficiency levels.
To make the analysis more accessible and transparent to all
interested parties, DOE used a spreadsheet model to calculate the
energy savings and the national commercial consumer costs and savings
from each TSL.\53\ The NIA calculations are based on the annual energy
consumption and total installed cost data from the energy use analysis
and the LCC analysis. In the NIA, DOE forecasted the lifetime energy
savings, energy cost savings, equipment costs, and NPV of commercial
consumer benefits for each equipment class over the lifetime of
equipment sold from 2018 through 2047.
---------------------------------------------------------------------------
\53\ DOE's use of spreadsheet models provides interested parties
with access to the models within a familiar context. In addition,
the TSD and other documentation that DOE provides during the
rulemaking help explain the models and how to use them, and
interested parties can review DOE's analyses by changing various
input quantities within the spreadsheet.
---------------------------------------------------------------------------
To develop the NES, DOE calculates annual energy consumption for
the base case and the standards cases. DOE calculates the annual energy
consumption using per-unit annual energy use data multiplied by
projected shipments. As explained in section IV.E,
[[Page 6204]]
DOE did not incorporate a rebound effect for CWAF.
To develop the national NPV of consumer benefits from potential
energy conservation standards, DOE calculates annual energy
expenditures and annual equipment expenditures for the base case and
the standards cases. DOE calculates annual energy expenditures from
annual energy consumption by incorporating forecasted energy prices,
using shipment projections and average energy efficiency projections.
The per-unit energy savings were derived as described in section IV.E.
To calculate future electricity prices, DOE applied the projected trend
in national-average commercial electricity price from the AEO 2013
Reference case (which extends to 2040) to the prices derived in the LCC
and PBP analysis. DOE used the trend from 2030 to 2040 to extrapolate
beyond 2040. DOE calculates annual equipment expenditures by
multiplying the price per unit times the projected shipments.
DOE used the historic trend in the Producer Price Index (PPI) for
``Warm air furnaces'' \54\ to estimate the change in price for
commercial warm air furnaces over the analysis period. The inflation-
adjusted PPI for ``Warm air furnaces'' from 1989 to 2006 shows a small
rate of annual price decline. DOE also developed a sensitivity analysis
that considered one scenario with a lower rate of price decline than
the Reference case and one scenario with a higher rate of price decline
than the Reference case.
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\54\ PCU333415333415C: Warm air furnaces including duct
furnaces, humidifiers and electric comfort heating (Available at:
http://www.bls.gov/ppi/).
---------------------------------------------------------------------------
The aggregate difference each year between energy bill savings and
increased equipment expenditures is the net savings or net costs. In
calculating the NPV, DOE multiplies the net savings in future years by
a discount factor to determine their present value. DOE estimates the
NPV using both a 3-percent and a 7-percent real discount rate, in
accordance with guidance provided by the Office of Management and
Budget (OMB) to Federal agencies on the development of regulatory
analysis.\55\ The discount rates for the determination of NPV are in
contrast to the discount rates used in the LCC analysis, which are
designed to reflect a consumer's perspective.
---------------------------------------------------------------------------
\55\ OMB Circular A-4, section E (Sept. 17, 2003) (Available at:
http://www.whitehouse.gov/omb/circulars_a004_a-4).
---------------------------------------------------------------------------
A key component of the NIA is the equipment energy efficiency
forecasted over time for the base case and for each of the standards
cases. In the RFI, DOE requested information on expected trends in
efficiency of commercial warm air furnaces over the long run. 78 FR
25627, 25634 (May 2, 2013). AHRI stated that since January 1, 1994, the
efficiency trends for commercial warm air furnaces have stayed near a
thermal efficiency of 80 percent. AHRI expects that the efficiency
trends for these products will continue to remain flat over the long
run. (AHRI, No. 7 at p. 6) DOE agrees with the comment, and it assumed
no change in efficiency in the base case for non-condensing CWAF. For
condensing gas-fired CWAF, however, it estimated that market interest
in efficiency would lead to a modest growth in market share (from one
percent in 2018 to five percent in 2047). In addition, for each
standards case, DOE assumed no change in efficiency over time, given
this long-term efficiency trend.
To estimate the impact that amended energy conservation standards
may have in the year compliance becomes required, DOE uses ``roll-up''
or ``shift'' scenarios in its standards rulemakings. Under the ``roll-
up'' scenario, DOE assumes equipment efficiencies in the base case that
do not meet the new or amended standard level under consideration would
``roll up'' to meet that standard level, and equipment shipments at
efficiencies above the standard level under consideration would not be
affected. Under the ``shift'' scenario, DOE retains the pattern of the
base-case efficiency distribution but re-orients the distribution at
and above the new or amended minimum energy conservation standard.
In the RFI, DOE requested comment on whether it should pursue a
roll-up or shift approach for potential commercial warm air furnace
standards in the NIA. 78 FR 25627, 25634 (May 2, 2013). Lennox stated
that given that virtually all commercial warm air furnaces are at or
just above the current minimum efficiency requirement, the roll-up
approach is the more appropriate choice. (Lennox, No. 3 at p. 8) DOE
concurs with the comment, and it used the roll-up approach for the
standards cases.
Based on the user samples in the LCC and PBP analysis, DOE
estimated that a small fraction of commercial warm air furnaces (1-3
percent) is installed in residential buildings. The national energy
savings in the standard cases includes the savings from both commercial
and residential furnace users.
DOE has historically presented NES in terms of primary energy
savings. In response to the recommendations of a committee on ``Point-
of-Use and Full-Fuel-Cycle Measurement Approaches to Energy Efficiency
Standards'' appointed by the National Academy of Sciences, DOE
announced its intention to use full-fuel-cycle (FFC) measures of energy
use and greenhouse gas and other emissions in the national impact
analyses and emissions analyses included in future energy conservation
standards rulemakings. 76 FR 51281 (August 18, 2011). After evaluating
the approaches discussed in the August 18, 2011 notice, DOE published a
statement of amended policy in the Federal Register in which DOE
explained its determination that NEMS is the most appropriate tool for
its FFC analysis and its intention to use NEMS for that purpose. 77 FR
49701 (August 17, 2012). The method used to derive the FFC measures is
described in appendix 10-B of the NOPR TSD.
I. Consumer Subgroup Analysis
In analyzing the potential impacts of new or amended standards on
commercial consumers, DOE evaluates impacts on identifiable groups
(i.e., subgroups) of consumers that may be disproportionately affected
by a national standard. DOE believes that small businesses could be
such a subgroup. Accordingly, for the NOPR, DOE evaluated impacts on a
small business subgroup using the LCC and PBP spreadsheet model. To the
extent possible, it utilized inputs appropriate for this subgroup. The
commercial consumer subgroup analysis is discussed in detail in chapter
11 of the NOPR TSD.
J. Manufacturer Impact Analysis
1. Overview
DOE performed a manufacturer impact analysis (MIA) to estimate the
financial impact of amended energy conservation standards on
manufacturers of CWAF and to calculate the potential impact of such
standards on employment and manufacturing capacity. The MIA has both
quantitative and qualitative aspects. The quantitative part of the MIA
primarily relies on the Government Regulatory Impact Model (GRIM), an
industry cash-flow model with inputs specific to this rulemaking. The
key GRIM inputs are data on the industry cost structure, equipment
costs, shipments, and assumptions about markups and conversion
expenditures. The key output is the industry net present value (INPV).
Different sets of assumptions (markup scenarios) will produce different
results. The qualitative part of the MIA addresses factors such as
equipment characteristics, impacts on particular subgroups of firms,
and important industry, market, and equipment trends.
[[Page 6205]]
The complete MIA is outlined in chapter 12 of the NOPR TSD.
DOE conducted the MIA for this rulemaking in three phases. In Phase
1 of the MIA, DOE prepared a profile of the CWAF industry that includes
a top-down manufacturer cost analysis that DOE used to derive
preliminary financial inputs for the GRIM (e.g., sales, general, and
administration (SG&A) expenses; research and development (R&D)
expenses; and tax rates). DOE used public sources of information,
including company Securities and Exchange Commission (SEC) 10-K
filings, corporate annual reports, the U.S. Census Bureau's Economic
Census,\56\ and Hoover's reports.\57\
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\56\ U.S. Census Bureau, Annual Survey of Manufacturers: General
Statistics: Statistics for Industry Groups and Industries (Available
at: http://factfinder2.census.gov/faces/nav/jsf/pages/searchresults.xhtml?refresh=t).
\57\ Hoovers Inc., Company Profiles, Various Companies
(Available at: http://www.hoovers.com). Last Accessed December 13,
2013.
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In Phase 2 of the MIA, DOE prepared an industry cash-flow analysis
to quantify the potential impacts of an amended energy conservation
standard. In general, new or more-stringent energy conservation
standards can affect manufacturer cash flow in three distinct ways: (1)
Create a need for increased investment; (2) raise production costs per
unit; and (3) alter revenue due to higher per-unit prices and possible
changes in sales volumes.
In Phase 3 of the MIA, DOE conducted structured, detailed
interviews with a representative cross-section of manufacturers. During
these interviews, DOE discussed engineering, manufacturing,
procurement, and financial topics to validate assumptions used in the
GRIM and to identify key issues or concerns. See section IV.J.2.c for a
description of the key issues manufacturers raised during the
interviews.
Additionally, in Phase 3, DOE evaluated subgroups of manufacturers
that may be disproportionately impacted by new standards or that may
not be accurately represented by the average cost assumptions used to
develop the industry cash-flow analysis. For example, small
manufacturers, niche players, or manufacturers exhibiting a cost
structure that largely differs from the industry average could be more
negatively affected. DOE identified one subgroup (i.e., small
manufacturers) for a separate impact analysis.
DOE applied the small business size standards published by the
Small Business Administration (SBA) to determine whether a company is
considered a small business. 65 FR 30836, 30848 (May 15, 2000), as
amended at 65 FR 53533, 53544 (Sept. 5, 2000) and codified at 13 CFR
part 121. To be categorized as a small business under North American
Industry Classification System (NAICS) code 333415, ``Air-Conditioning
and Warm Air Heating Equipment and Commercial and Industrial
Refrigeration Equipment Manufacturing,'' a CWAF manufacturer and its
affiliates may employ a maximum of 750 employees. The 750-employee
threshold includes all employees in a business's parent company and any
other subsidiaries. Based on this classification, DOE identified two
manufacturers that qualify as small businesses under the SBA
definition. The CWAF small manufacturer subgroup is discussed in
chapter 12 of the NOPR TSD and in sections V.B.2.d and VI.B of this
notice.
2. Government Regulatory Impact Model
DOE uses the GRIM to quantify the changes in cash flow due to new
standards that result in a higher or lower industry value. The GRIM
analysis uses a standard, annual, discounted cash-flow methodology that
incorporates manufacturer costs, markups, shipments, and industry
financial information as inputs. The GRIM models changes in costs,
distribution of shipments, investments, and manufacturer margins that
could result from an amended energy conservation standard. The GRIM
spreadsheet uses the inputs to arrive at a series of annual cash flows,
beginning in 2014 (the base year of the analysis) and continuing to
2047. DOE calculated INPVs by summing the stream of annual discounted
cash flows during this period. For CWAF manufacturers, DOE used a real
discount rate of 8.9 percent, which was derived from industry
financials and then modified according to feedback received during
manufacturer interviews.
The GRIM calculates cash flows using standard accounting principles
and compares changes in INPV between a base case and each standards
case. The difference in INPV between the base case and a standards case
represents the financial impact of the amended energy conservation
standard on manufacturers. As discussed previously, DOE collected this
information on the critical GRIM inputs from a number of sources,
including publicly-available data and interviews with a number of
manufacturers (described in the next section). The GRIM results are
shown in section V.B.2. Additional details about the GRIM, the discount
rate, and other financial parameters can be found in chapter 12 of the
NOPR TSD.
a. Government Regulatory Impact Model Key Inputs
Manufacturer Production Costs
Manufacturing higher-efficiency equipment is typically more
expensive than manufacturing baseline equipment due to the use of more
complex components, which are typically more costly than baseline
components. The changes in the manufacturer production cost (MPC) of
the analyzed equipment can affect the revenues, gross margins, and cash
flow of the industry, making these equipment cost data key GRIM inputs
for DOE's analysis.
In the MIA, DOE used the MPCs for each considered efficiency level
calculated in the engineering analysis, as described in section IV.C
and further detailed in chapter 5 of the NOPR TSD. In addition, DOE
used information from its teardown analysis, described in chapter 5 of
the TSD, to disaggregate the MPCs into material, labor, and overhead
costs. To calculate the MPCs for equipment above the baseline, DOE
added the incremental material, labor, and overhead costs from the
engineering cost-efficiency curves to the baseline MPCs. These cost
breakdowns and equipment markups were validated and revised based on
manufacturer comments received during MIA interviews.
Shipments Forecasts
The GRIM estimates manufacturer revenues based on total unit
shipment forecasts and the distribution of these values by equipment
class and efficiency level. Changes in sales volumes and efficiency mix
over time can significantly affect manufacturer finances. For this
analysis, the GRIM uses the NIA's annual shipment forecasts derived
from the shipments analysis from 2014 (the base year) to 2047 (the end
year of the analysis period). The NIA shipments forecasts are, in part,
based on a roll-up scenario. The forecast assumes that product in the
base case that does not meet the standard under consideration would
``roll up'' to meet the new standard beginning in the compliance year
of 2018. See section IV.G. above and chapter 9 of the NOPR TSD for
additional details.
b. Government Regulatory Impact Model Scenarios
Markup Scenarios
As discussed above, MSPs include direct manufacturing production
costs (i.e., labor, materials, and overhead
[[Page 6206]]
estimated in DOE's MPCs) and all non-production costs (i.e., SG&A, R&D,
and interest), along with profit. To calculate the MSPs in the GRIM,
DOE applied non-production cost markups to the MPCs estimated in the
engineering analysis for each equipment class and efficiency level.
Modifying these markups in the standards case yields different sets of
impacts on manufacturers. For the MIA, DOE modeled two standards-case
markup scenarios to represent the uncertainty regarding the potential
impacts on prices and profitability for manufacturers following the
implementation of amended energy conservation standards: (1) A
preservation of gross margin percentage markup scenario; and (2) a
preservation of per-unit operating profit markup scenario. These
scenarios lead to different markups values that, when applied to the
inputted MPCs, result in varying revenue and cash flow impacts.
Under the preservation of gross margin percentage scenario, DOE
applied a single uniform ``gross margin percentage'' markup across all
efficiency levels, which assumes that manufacturers would be able to
maintain the same amount of profit as a percentage of revenues at all
efficiency levels within an equipment class. As production costs
increase with efficiency, this scenario implies that the absolute
dollar markup will increase as well. Based on publicly-available
financial information for manufacturers of CWAF as well as comments
from manufacturer interviews, DOE assumed the average non-production
cost markup--which includes SG&A expenses, R&D expenses, interest, and
profit--to be the following for each CWAF equipment class:
Table IV.8--Manufacturer Markup for Baseline Equipment in the Base Case
------------------------------------------------------------------------
Equipment Markup
------------------------------------------------------------------------
Gas-fired Commercial Warm Air Furnaces >=225,000 Btu/h........ 1.31
Oil-fired Commercial Warm Air Furnaces >=225,000 Btu/h........ 1.28
------------------------------------------------------------------------
Because this markup scenario assumes that manufacturers would be
able to maintain their gross margin percentage markups as production
costs increase in response to an amended energy conservation standard,
it represents a high bound to industry profitability.
In the preservation of operating profit scenario, manufacturer
markups are set so that operating profit one year after the compliance
date of the amended energy conservation standard is the same as in the
base case. Under this scenario, as the costs of production increase
under a standards case, manufacturers are generally required to reduce
their markups to a level that maintains base-case operating profit. The
implicit assumption behind this markup scenario is that the industry
can only maintain its operating profit in absolute dollars after
compliance with the new or amended standard is required. Therefore,
operating margin in percentage terms is reduced between the base case
and standards case. DOE adjusted (i.e., lowered) the manufacturer
markups in the GRIM at each TSL to yield approximately the same
earnings before interest and taxes in the standards case as in the base
case. This markup scenario represents a low bound to industry
profitability under an amended energy conservation standard.
Table IV.9--Markups for Baseline Equipment at the Proposed Standard
Levels
------------------------------------------------------------------------
Equipment Markup
------------------------------------------------------------------------
Gas-fired Commercial Warm Air Furnaces >=225,000 Btu/h........ 1.30
Oil-fired Commercial Warm Air Furnaces >=225,000 Btu/h........ 1.28
------------------------------------------------------------------------
Conversion Cost Scenarios
An amended energy conservation standard would cause manufacturers
to incur one-time conversion costs to bring their production facilities
and equipment designs into compliance. DOE evaluated the level of
conversion-related expenditures that would be needed to comply with
each considered efficiency level in each equipment class. For the MIA,
DOE classified these conversion costs into two major groups: (1)
Product conversion costs; and (2) capital conversion costs. Product
conversion costs are one-time investments in research, development,
testing, marketing, and other non-capitalized costs necessary to make
product designs comply with the amended energy conservation standard.
Capital conversion costs are one-time investments in property, plant,
and equipment necessary to adapt or change existing production
facilities such that equipment with new, compliant designs can be
fabricated and assembled.
DOE based its estimates of the conversion costs for each efficiency
level on information obtained from manufacturer interviews and the
design pathways analyzed in the engineering analysis. Two methodologies
were used to develop conversion cost estimates: (1) A Top-Down approach
using feedback from manufacturer interviews to gather data on the level
of costs expected at each efficiency level, and (2) a Bottom-Up
approach using engineering analysis inputs derived from the equipment
teardown analysis and engineering model described in chapter 5 of the
TSD to evaluate the investment required to design, manufacturer, and
release equipment that meets a higher energy conservation standard.
For estimating capital conversion costs, the Top-Down approach took
available feedback from manufacturers and market share weighted the
responses to arrive at an approximation representative of the industry
as a whole. Responses from manufacturers with the greatest market share
were given the greatest weight, while responses from manufacturers with
the lowest market share were given the lowest weight. The Bottom-Up
approach took capital conversion costs from the engineering analysis on
a per-manufacturer basis to develop an industry-wide cost estimate.
This analysis included the expected equipment, tooling, conveyor, and
plant costs associated with CWAF production, as estimated by DOE based
on product tear-down and manufacturers' plant tours. The results of the
two methodologies were integrated to create high and low capital
conversion cost scenarios.
Product conversion costs for CWAFs are primarily driven by re-
development and testing expenses. As the standard increases, increasing
levels of re-development effort would be required to meet the
efficiency requirements, as more equipment models would require
redesign. Additionally, expected product conversion costs would ramp up
significantly where DOE expects condensing technology to be necessary
to meet a revised energy conservation standard.
To estimate costs for product R&D, the Top-Down approach developed
average costs per product platform based on feedback from
manufacturers. Manufacturer feedback focused on the human capital
investments, such as engineering and lab technician time necessary to
update designs. In the Bottom-Up approach, DOE used vendor quotes,
industry product information, and engineering cost model data to
estimate the expenses associated with thermal efficiency testing, heat
limit testing, product safety testing, reliability testing, and
engineering effort. The results of the two methodologies were
integrated to create high and low product conversion cost scenarios.
[[Page 6207]]
In general, DOE assumes that all conversion-related investments
occur between the year of publication of the final rule and the year by
which manufacturers must comply with the amended standard. The
conversion cost figures used in the GRIM can be found in section
V.B.2.a of this notice. For additional information on the estimated
product and capital conversion costs, see chapter 12 of the NOPR TSD.
DOE requests comment on the product and capital conversion costs
required to meet the range of energy conservation standard levels being
considered by DOE.
c. Manufacturer Interviews
DOE interviewed manufacturers representing over 80 percent of the
domestic CWAF market by revenue in order to discuss the potential
impacts of amended energy conservation standards on the industry. The
information gathered during these interviews enabled DOE to tailor the
GRIM to reflect the unique financial characteristics of the CWAF
industry. In interviews, DOE asked manufacturers to describe their
major concerns with the rulemaking involving CWAF equipment. This
section (IV.J.2.c) highlights manufacturers' interview statements that
helped shaped DOE's understanding of the potential impacts of an
amended standard on the industry. Manufacturers raised a range of
general issues to consider (but did not necessarily provide a specific
recommendation), including condensate disposal concerns, increased
operating risks for end-users, and a change in the repair rate of older
units. Below, DOE summarizes these issues, which were informally raised
in manufacturer interviews, in order to obtain public comment and
related data.
Condensate Disposal
The primary concern among the interview participants centered on
condensate formation at efficiency levels above 81 to 82 percent.
Nearly all interviewed CWAF manufacturers raised this issue as a
serious problem for both the industry and customers in terms of cost
and implementation. The major drawbacks mentioned relate to the
management and disposal of acidic condensate created by high-efficiency
furnaces. In most commercial rooftop units, condensate would need to be
removed in electrically-heated piping or channeled directly into the
building to avoid freezing. Manufacturers argued that such
infrastructure would be required for condensing furnaces to safely
dispose of the acidic runoff in both cold and warm climates. Solutions
for condensate management systems would be a separate and additional
cost to the consumer beyond the cost of the higher-efficiency furnace.
Manufacturers stated that a simple, packaged solution for disposal of
acidic condensate is not available and that the design of the
condensate management system will be highly dependent on the design of
the building, local building codes, waste water disposal requirements,
and the expertise of the installer.
DOE agrees with manufacturers that the formation and disposal of
corrosive condensate is a concern for CWAF achieving efficiencies
greater than 82-percent. DOE considered this factor in its engineering
analysis and when developing the installation costs for the LCC
analysis. See sections IV.C and IV.F of this NOPR for more information
about how DOE addressed these concerns.
Increased Operating Risks for the End User
Many interview participants expressed concerns about risk
associated with installation and equipment for reliable management of
caustic effluent from condensing CWAF. They believe there are risks in
installation, as condensate management systems must often be installed
around other rooftop equipment and contractor ability varies widely.
They cited problems with power outages, which tend to happen during
winter and can impair even well-designed effluent management systems.
Manufacturers stated than any leak or failure of the condensate
management system could result in costly roofing repairs for the end
user. The interview participants were of the opinion that effluent
management would be a significant expense for end-users and that the
risk and cost of roof damage would outweigh any benefits of high-
efficiency condensing units.
DOE acknowledges the potential issues that could be associated with
an improperly installed condensing rooftop furnace, which could cause
reliability issues for end-users of this equipment. DOE believes that
the technical challenges of installing a condensing rooftop furnace can
be overcome, and this has been demonstrated by the dedicated outdoor
air systems that are currently on the market, which are installed on
rooftops and have reliable condensate management systems. Nevertheless,
DOE believes significant installer training and education would be
required to ensure reliable installation of outdoor furnaces using
condensing technology.
Repair and Replacement Rates
During interviews, most manufacturers expressed concerns that an
increase in energy conservation standards for CWAF may make customers
more likely to repair an old unit rather than replace it. According to
manufacturers, the main reason an amended standard may lead to a drop
in shipments is the price sensitivity of end users. Manufacturers added
that some customers would need to make significant alterations to the
layout of rooftop equipment in order to accommodate larger CWAF units
and condensate management systems. The higher total installed cost of
more-efficient CWAF units and the possible risk of damage to existing
roofing could deter customers from purchasing new units. The lower cost
of fixing an old unit may become a more attractive option. Furthermore,
manufacturers indicated that there could be a reduction in national
energy savings from a higher standard due to an increased number of
older, less-efficient units that are repaired rather than replaced with
newer, more-efficient units. Manufacturers expressed concern over a
potential contraction in the overall market size resulting from amended
standards, because commercial consumers may decide to turn to other
space-conditioning options entirely.
DOE agrees with manufacturers that for certain equipment, such as
CWAF, the higher total installed cost of more-efficient equipment may
lead end-users to delay purchasing new equipment and to repair rather
than to replace this equipment. DOE accounts for this effect at higher
efficiency levels in the shipments analysis by examining the cost of
higher-efficiency equipment as compared to the operating savings, and
this is discussed further in chapter 9 of the TSD (shipments analysis).
K. Emissions Analysis
In the emissions analysis, DOE estimates the reduction in power
sector emissions of carbon dioxide (CO2), nitrogen oxides
(NOX), sulfur dioxide (SO2), and mercury (Hg)
from potential energy conservation standards for CWAF. In addition, DOE
estimates emissions impacts in production activities (extracting,
processing, and transporting fuels) that provide the energy inputs to
power plants. These are referred to as ``upstream'' emissions.
Together, these emissions account for the full-fuel-cycle (FFC). In
accordance with DOE's FFC Statement of Policy (76 FR 51281 (Aug. 18,
2011)), the FFC analysis includes impacts on emissions
[[Page 6208]]
of methane (CH4) and nitrous oxide (N2O), both of
which are recognized as greenhouse gases.
The proposed standards would reduce use of fuel at the site and
slightly reduce electricity use, thereby reducing power sector
emissions. However, the highest efficiency levels (i.e., the max-tech
levels) considered for CWAF would increase the use of electricity by
the furnace. For the considered TSLs, DOE estimated the change in power
sector and upstream emissions of CO2, NOX,
SO2, and mercury (Hg).\58\
---------------------------------------------------------------------------
\58\ Note that in these cases the reduction in site emissions of
CO2, NOX, and SO2 is larger than
the increase in power sector emissions.
---------------------------------------------------------------------------
DOE primarily conducted the emissions analysis using emissions
factors for CO2 and most of the other gases derived from
data in EIA's Annual Energy Outlook 2013 (AEO 2013). Combustion
emissions of CH4 and N2O were estimated using
emissions intensity factors published by the Environmental Protection
Agency (EPA) through its GHG Emissions Factors Hub.\59\ Site emissions
of CO2 and NOX were estimated using emissions
intensity factors from an EPA publication.\60\ DOE developed separate
emissions factors for power sector emissions and upstream emissions.
The method that DOE used to derive emissions factors is described in
chapter 13 of the NOPR TSD.
---------------------------------------------------------------------------
\59\ See http://www.epa.gov/climateleadership/guidance/ghg-emissions.html.
\60\ U.S. Environmental Protection Agency, Compilation of Air
Pollutant Emission Factors, AP-42, Fifth Edition, Volume I:
Stationary Point and Area Sources (1998) (Available at: http://www.epa.gov/ttn/chief/ap42/index.html).
---------------------------------------------------------------------------
For CH4 and N2O, DOE calculated emissions
reduction in tons and also in terms of units of carbon dioxide
equivalent (CO2eq). Gases are converted to CO2eq
by multiplying by the gas' global warming potential (GWP) over a 100-
year time horizon. Based on the Fourth Assessment Report of the
Intergovernmental Panel on Climate Change,\61\ DOE used GWP values of
25 for CH4 and 298 for N2O.
---------------------------------------------------------------------------
\61\ Forster, P., V. Ramaswamy, P. Artaxo, T. Berntsen, R.
Betts, D.W. Fahey, J. Haywood, J. Lean, DC Lowe, G. Myhre, J.
Nganga, R. Prinn,G. Raga, M. Schulz and R. Van Dorland. 2007:
Changes in Atmospheric Constituents and in Radiative Forcing. In
Climate Change 2007: The Physical Science Basis. Contribution of
Working Group I to the Fourth Assessment Report of the
Intergovernmental Panel on Climate Change. S. Solomon, D. Qin, M.
Manning, Z. Chen, M. Marquis, K.B. Averyt, M.Tignor and H.L. Miller,
Editors. 2007. Cambridge University Press, Cambridge, United Kingdom
and New York, NY, USA. p. 212.
---------------------------------------------------------------------------
EIA prepares the Annual Energy Outlook using NEMS. Each annual
version of NEMS incorporates the projected impacts of existing air
quality regulations on emissions. AEO 2013 generally represents current
legislation and environmental regulations, including recent government
actions, for which implementing regulations were available as of
December 31, 2012.
Because the on-site operation of CWAF requires use of fossil fuels
and results in emissions of CO2, NOX, and
SO2 at the sites where these appliances are used, DOE also
accounted for the reduction in these site emissions and the associated
upstream emissions due to potential standards.
SO2 emissions from affected electric generating units
(EGUs) are subject to nationwide and regional emissions cap-and-trade
programs. Title IV of the Clean Air Act sets an annual emissions cap on
SO2 for affected EGUs in the 48 contiguous States and the
District of Columbia (DC). SO2 emissions from 28 eastern
States and DC were also limited under the Clean Air Interstate Rule
(CAIR; 70 FR 25162 (May 12, 2005)), which created an allowance-based
trading program that operates along with the Title IV program. CAIR was
remanded to the U.S. Environmental Protection Agency (EPA) by the U.S.
Court of Appeals for the District of Columbia Circuit, but it remained
in effect.\62\ In 2011 EPA issued a replacement for CAIR, the Cross-
State Air Pollution Rule (CSAPR). 76 FR 48208 (August 8, 2011). On
August 21, 2012, the DC Circuit issued a decision to vacate CSAPR.\63\
The court ordered EPA to continue administering CAIR. The emissions
factors used for the NOPR, which are based on AEO 2013 assume that CAIR
remains a binding regulation through 2040.\64\
---------------------------------------------------------------------------
\62\ See North Carolina v. EPA, 550 F.3d 1176 (D.C. Cir. 2008);
North Carolina v. EPA, 531 F.3d 896 (D.C. Cir. 2008).
\63\ See EME Homer City Generation, LP v. EPA, 696 F.3d 7, 38
(D.C. Cir. 2012).
\64\ On April 29, 2014, the U.S. Supreme Court reversed the
judgment of the DC Circuit and remanded the case for further
proceedings consistent with the Supreme Court's opinion. The Supreme
Court held in part that EPA's methodology for quantifying emissions
that must be eliminated in certain states due to their impacts in
other downwind states was based on a permissible, workable, and
equitable interpretation of the Clean Air Act provision that
provides statutory authority for CSAPR. See EPA v. EME Homer City
Generation, No 12-1182, slip op. at 32 (U.S. April 29, 2014).
Because DOE is using emissions factors based on AEO 2013 for NOPR,
the analysis assumes that CAIR, not CSAPR, is the regulation in
force. The difference between CAIR and CSAPR is not relevant for the
purpose of DOE's analysis of SO2 emissions.
---------------------------------------------------------------------------
The attainment of emissions caps is typically flexible among EGUs
and is enforced through the use of emissions allowances and tradable
permits. Under existing EPA regulations, any excess SO2
emissions allowances resulting from the lower electricity demand caused
by the adoption of an efficiency standard could be used to permit
offsetting increases in SO2 emissions by any regulated EGU.
In past rulemakings, DOE recognized that there was uncertainty about
the effects of efficiency standards on SO2 emissions covered
by the existing cap-and-trade system, but it concluded that negligible
reductions in power sector SO2 emissions would occur as a
result of standards.
Beginning in 2015, however, SO2 emissions will decline
significantly as a result of the Mercury and Air Toxics Standards
(MATS) for power plants. 77 FR 9304 (Feb. 16, 2012). In the final MATS
rule, EPA established a standard for hydrogen chloride as a surrogate
for acid gas hazardous air pollutants (HAP), and also established a
standard for SO2 (a non-HAP acid gas) as an alternative
equivalent surrogate standard for acid gas HAP. The same controls are
used to reduce HAP and non-HAP acid gas; thus, SO2 emissions
will be reduced as a result of the control technologies installed on
coal-fired power plants to comply with the MATS requirements for acid
gas. AEO 2013 assumes that, in order to continue operating, coal plants
must have either flue gas desulfurization or dry sorbent injection
systems installed by 2015. Both technologies, which are used to reduce
acid gas emissions, also reduce SO2 emissions. Under the
MATS, NEMS shows a reduction in SO2 emissions when
electricity demand decreases (e.g., as a result of energy efficiency
standards). Emissions will be far below the cap established by CAIR, so
it is likely that excess SO2 emissions allowances resulting
from the lower electricity demand would be needed or used to permit
offsetting increases in SO2 emissions by any regulated EGU.
Therefore, DOE believes that energy efficiency standards will reduce
SO2 emissions in 2015 and beyond.
CAIR established a cap on NOX emissions in 28 eastern
States and the District of Columbia. Energy conservation standards are
expected to have little effect on NOX emissions in those
States covered by CAIR because excess NOX emissions
allowances resulting from the lower electricity demand could be used to
permit offsetting increases in NOX emissions. However,
standards would be expected to reduce NOX emissions in the
States not affected by the caps, so DOE estimated NOX
emissions reductions from the standards considered in the NOPR for
these States.
The MATS limit mercury emissions from power plants, but they do not
include emissions caps and, as such, DOE's energy conservation
standards
[[Page 6209]]
would likely reduce Hg emissions. DOE estimated mercury emissions
reduction using emissions factors based on AEO 2013, which incorporates
the MATS.
L. Monetizing Carbon Dioxide and Other Emissions Impacts
As part of the development of this proposed rule, DOE considered
the estimated monetary benefits from the reduced emissions of
CO2 and NOX that are expected to result from each
of the TSLs considered. In order to make this calculation similar to
the calculation of the NPV of consumer benefit, DOE considered the
reduced emissions expected to result over the lifetime of equipment
shipped in the forecast period for each TSL. This section summarizes
the basis for the monetary values used for each of these emissions and
presents the values considered in this rulemaking.
For this NOPR, DOE is relying on a set of values for the social
cost of carbon (SCC) that was developed by an interagency process. A
summary of the basis for these values is provided below, and a more
detailed description of the methodologies used is provided as an
appendix to chapter 14 of the NOPR TSD.
1. Social Cost of Carbon
The SCC is an estimate of the monetized damages associated with an
incremental increase in carbon emissions in a given year. It is
intended to include (but is not limited to) changes in net agricultural
productivity, human health, property damages from increased flood risk,
and the value of ecosystem services. Estimates of the SCC are provided
in dollars per metric ton of carbon dioxide. A domestic SCC value is
meant to reflect the value of damages in the United States resulting
from a unit change in carbon dioxide emissions, while a global SCC
value is meant to reflect the value of damages worldwide.
Under section 1(b)(6) of Executive Order 12866, ``Regulatory
Planning and Review,'' 58 FR 51735 (Oct. 4, 1993), agencies must, to
the extent permitted by law, assess both the costs and the benefits of
the intended regulation and, recognizing that some costs and benefits
are difficult to quantify, propose or adopt a regulation only upon a
reasoned determination that the benefits of the intended regulation
justify its costs. The purpose of the SCC estimates presented here is
to allow agencies to incorporate the monetized social benefits of
reducing CO2 emissions into cost-benefit analyses of
regulatory actions. The estimates are presented with an acknowledgement
of the many uncertainties involved and with a clear understanding that
they should be updated over time to reflect increasing knowledge of the
science and economics of climate impacts.
As part of the interagency process that developed the SCC
estimates, technical experts from numerous agencies met on a regular
basis to consider public comments, explore the technical literature in
relevant fields, and discuss key model inputs and assumptions. The main
objective of this process was to develop a range of SCC values using a
defensible set of input assumptions grounded in the existing scientific
and economic literatures. In this way, key uncertainties and model
differences transparently and consistently inform the range of SCC
estimates used in the rulemaking process.
a. Monetizing Carbon Dioxide Emissions
When attempting to assess the incremental economic impacts of
carbon dioxide emissions, the analyst faces a number of challenges. A
recent report from the National Research Council points out that any
assessment will suffer from uncertainty, speculation, and lack of
information about: (1) Future emissions of greenhouse gases; (2) the
effects of past and future emissions on the climate system; (3) the
impact of changes in climate on the physical and biological
environment; and (4) the translation of these environmental impacts
into economic damages. As a result, any effort to quantify and monetize
the harms associated with climate change will raise questions of
science, economics, and ethics and should be viewed as provisional.
Despite the limits of both quantification and monetization, SCC
estimates can be useful in estimating the social benefits of reducing
carbon dioxide emissions. The agency can estimate the benefits from
reduced emissions in any future year by multiplying the change in
emissions in that year by the SCC value appropriate for that year. The
net present value of the benefits can then be calculated by multiplying
the future benefits by an appropriate discount factor and summing
across all affected years.
It is important to emphasize that the interagency process is
committed to updating these estimates as the science and economic
understanding of climate change and its impacts on society improves
over time. In the meantime, the interagency group will continue to
explore the issues raised by this analysis and consider public comments
as part of the ongoing interagency process.
b. Development of Social Cost of Carbon Values
In 2009, an interagency process was initiated to offer a
preliminary assessment of how best to quantify the benefits from
reducing carbon dioxide emissions. To ensure consistency in how
benefits are evaluated across agencies, the Administration sought to
develop a transparent and defensible method, specifically designed for
the rulemaking process, to quantify avoided climate change damages from
reduced CO2 emissions. The interagency group did not
undertake any original analysis. Instead, it combined SCC estimates
from the existing literature to use as interim values until a more
comprehensive analysis could be conducted. The outcome of the
preliminary assessment by the interagency group was a set of five
interim values: global SCC estimates for 2007 (in 2006$) of $55, $33,
$19, $10, and $5 per metric ton of CO2. These interim values
represented the first sustained interagency effort within the U.S.
government to develop an SCC for use in regulatory analysis. The
results of this preliminary effort were presented in several proposed
and final rules.
c. Current Approach and Key Assumptions
After the release of the interim values, the interagency group
reconvened on a regular basis to generate improved SCC estimates.
Specifically, the group considered public comments and further explored
the technical literature in relevant fields. The interagency group
relied on three integrated assessment models commonly used to estimate
the SCC: the FUND, DICE, and PAGE models. These models are frequently
cited in the peer-reviewed literature and were used in the last
assessment of the Intergovernmental Panel on Climate Change. Each model
was given equal weight in the SCC values that were developed.
Each model takes a slightly different approach to model how changes
in emissions result in changes in economic damages. A key objective of
the interagency process was to enable a consistent exploration of the
three models while respecting the different approaches to quantifying
damages taken by the key modelers in the field. An extensive review of
the literature was conducted to select three sets of input parameters
for these models: climate sensitivity, socio-economic and emissions
trajectories, and discount rates. A probability distribution for
climate sensitivity was specified as an input into all three models. In
addition,
[[Page 6210]]
the interagency group used a range of scenarios for the socio-economic
parameters and a range of values for the discount rate. All other model
features were left unchanged, relying on the model developers' best
estimates and judgments.
In 2010, the interagency group selected four sets of SCC values for
use in regulatory analyses.\65\ Three sets of values are based on the
average SCC from three integrated assessment models, at discount rates
of 2.5 percent, 3 percent, and 5 percent. The fourth set, which
represents the 95th-percentile SCC estimate across all three models at
a 3-percent discount rate, is included to represent higher-than-
expected impacts from climate change further out in the tails of the
SCC distribution. The values grow in real terms over time.
Additionally, the interagency group determined that a range of values
from 7 percent to 23 percent should be used to adjust the global SCC to
calculate domestic effects, although preference is given to
consideration of the global benefits of reducing CO2
emissions. Table IV.10 presents the values in the 2010 interagency
group report,\66\ which is reproduced in appendix 14-A of the NOPR TSD.
---------------------------------------------------------------------------
\65\ Social Cost of Carbon for Regulatory Impact Analysis Under
Executive Order 12866, Interagency Working Group on Social Cost of
Carbon, United States Government (February 2010) (Available at:
http://www.whitehouse.gov/sites/default/files/omb/inforeg/for-agencies/Social-Cost-of-Carbon-for-RIA.pdf).
\66\ Id.
Table IV.10--Annual SCC Values From 2010 Interagency Report, 2010-2050
[In 2007 dollars per metric ton CO2]
----------------------------------------------------------------------------------------------------------------
Discount rate %
---------------------------------------------------------------
5 3 2.5 3
Year ---------------------------------------------------------------
95th
Average Average Average Percentile
----------------------------------------------------------------------------------------------------------------
2010............................................ 4.7 21.4 35.1 64.9
2015............................................ 5.7 23.8 38.4 72.8
2020............................................ 6.8 26.3 41.7 80.7
2025............................................ 8.2 29.6 45.9 90.4
2030............................................ 9.7 32.8 50.0 100.0
2035............................................ 11.2 36.0 54.2 109.7
2040............................................ 12.7 39.2 58.4 119.3
2045............................................ 14.2 42.1 61.7 127.8
2050............................................ 15.7 44.9 65.0 136.2
----------------------------------------------------------------------------------------------------------------
The SCC values used for this NOPR were generated using the most
recent versions of the three integrated assessment models that have
been published in the peer-reviewed literature.\67\ Table IV.11 shows
the updated sets of SCC estimates from the 2013 interagency update in
five-year increments from 2010 to 2050. Appendix 14-B of the NOPR TSD
provides the full set of values. The central value that emerges is the
average SCC across models at 3-percent discount rate. However, for
purposes of capturing the uncertainties involved in regulatory impact
analysis, the interagency group emphasizes the importance of including
all four sets of SCC values.
---------------------------------------------------------------------------
\67\ Technical Update of the Social Cost of Carbon for
Regulatory Impact Analysis Under Executive Order 12866, Interagency
Working Group on Social Cost of Carbon, United States Government
(May 2013; revised November 2013) (Available at: http://www.whitehouse.gov/sites/default/files/omb/assets/inforeg/technical-update-social-cost-of-carbon-for-regulator-impact-analysis.pdf).
Table IV.11--Annual SCC Values From 2013 Interagency Update, 2010-2050
[in 2007 dollars per metric ton CO2]
----------------------------------------------------------------------------------------------------------------
Discount rate %
---------------------------------------------------------------
5 3 2.5 3
Year ---------------------------------------------------------------
95th
Average Average Average Percentile
----------------------------------------------------------------------------------------------------------------
2010............................................ 11 32 51 89
2015............................................ 11 37 57 109
2020............................................ 12 43 64 128
2025............................................ 14 47 69 143
2030............................................ 16 52 75 159
2035............................................ 19 56 80 175
2040............................................ 21 61 86 191
2045............................................ 24 66 92 206
2050............................................ 26 71 97 220
----------------------------------------------------------------------------------------------------------------
It is important to recognize that a number of key uncertainties
remain, and that current SCC estimates should be treated as provisional
and revisable since they will evolve with improved scientific and
economic understanding. The interagency group also recognizes that the
existing models are imperfect and incomplete. The National Research
Council report mentioned above points out that there is tension between
the goal of producing quantified estimates of the economic damages from
an incremental ton of carbon and the limits of existing efforts to
model these effects. There are a number of analytical challenges that
are being addressed by the research community, including
[[Page 6211]]
research programs housed in many of the Federal agencies participating
in the interagency process to estimate the SCC. The interagency group
intends to periodically review and reconsider those estimates to
reflect increasing knowledge of the science and economics of climate
impacts, as well as improvements in modeling.
In summary, in considering the potential global benefits resulting
from reduced CO2 emissions, DOE used the values from the
2013 interagency report, adjusted to 2013$ using the Gross Domestic
Product price deflator. For each of the four SCC cases specified, the
values used for emissions in 2015 were $12.0, $40.5, $62.4, and $119
per metric ton avoided (values expressed in 2013$). For the years after
2050, DOE applied the average annual growth rate of the SCC estimates
in 2040-2050 associated with each of the four sets of values.\68\
---------------------------------------------------------------------------
\68\ The post-2050 annual growth rates for the four SCC cases
are 2.6%, 1.6%, 1.3%, and 1.5%.
---------------------------------------------------------------------------
DOE multiplied the CO2 emissions reduction estimated for
each year by the SCC value for that year in each of the four cases. To
calculate a present value of the stream of monetary values, DOE
discounted the values in each of the four cases using the specific
discount rate that had been used to obtain the SCC values in each case.
2. Valuation of Other Emissions Reductions
As noted above, DOE has taken into account how amended energy
conservation standards would reduce site NOX emissions
nationwide and increase power sector NOX emissions in those
22 States not affected by the CAIR. DOE estimated the monetized value
of net NOX emissions reductions resulting from each of the
TSLs considered for this NOPR based on estimates found in the relevant
scientific literature. Estimates of monetary value for reducing
NOX from stationary sources range from $476 to $4,893 per
ton in 2013$.\69\ DOE calculated monetary benefits using a medium value
for NOX emissions of $2,684 per short ton (in 2013$), and
NOX real discount rates of 3 percent and 7 percent.
---------------------------------------------------------------------------
\69\ U.S. Office of Management and Budget, Office of Information
and Regulatory Affairs, 2006 Report to Congress on the Costs and
Benefits of Federal Regulations and Unfunded Mandates on State,
Local, and Tribal Entities, Washington, DC.
---------------------------------------------------------------------------
DOE is evaluating appropriate monetization of avoided
SO2 and Hg emissions in energy conservation standards
rulemakings. It has not included monetization in the current analysis.
M. Utility Impact Analysis
The utility impact analysis estimates several effects on the
electricity generation industry that would result from the adoption of
amended energy conservation standards. In the utility impact analysis,
DOE analyzes the changes in installed electricity capacity and
generation that would result for each trial standard level. The utility
impact analysis used a variant of NEMS. The analysis consists of a
comparison between model results for the most recent AEO Reference Case
and for cases in which energy use is decremented to reflect the impact
of potential standards. The energy savings inputs associated with each
TSL come from the NIA. Chapter 15 of the NOPR TSD describes the utility
impact analysis in further detail.
N. Employment Impact Analysis
Employment impacts from new or amended energy conservation
standards include direct and indirect impacts. Direct employment
impacts are any changes in the number of employees of manufacturers of
the equipment subject to standards; the MIA addresses those impacts.
Indirect employment impacts are changes in national employment that
occur due to the shift in expenditures and capital investment caused by
the purchase and operation of more-efficient equipment. Indirect
employment impacts from standards consist of the jobs created or
eliminated in the national economy, other than in the manufacturing
sector being regulated, due to: (1) Reduced spending by end users on
energy; (2) reduced spending on new energy supply by the utility
industry; (3) increased consumer spending on the purchase of new
equipment; and (4) the effects of those three factors throughout the
economy.
One method for assessing the possible effects on the demand for
labor of such shifts in economic activity is to compare sector
employment statistics developed by the Labor Department's Bureau of
Labor Statistics (BLS). BLS regularly publishes its estimates of the
number of jobs per million dollars of economic activity in different
sectors of the economy, as well as the jobs created elsewhere in the
economy by this same economic activity. Data from BLS indicate that
expenditures in the utility sector generally create fewer jobs (both
directly and indirectly) than expenditures in other sectors of the
economy.\70\ There are many reasons for these differences, including
wage differences and the fact that the utility sector is more capital-
intensive and less labor-intensive than other sectors. Energy
conservation standards have the effect of reducing consumer utility
bills. Because reduced consumer expenditures for energy likely lead to
increased expenditures in other sectors of the economy, the general
effect of efficiency standards is to shift economic activity from a
less labor-intensive sector (i.e., the utility sector) to more labor-
intensive sectors (e.g., the retail and service sectors). Thus, based
on the BLS data alone, DOE believes net national employment may
increase because of shifts in economic activity resulting from amended
standards for CWAF.
---------------------------------------------------------------------------
\70\ See Bureau of Economic Analysis, ``Regional Multipliers: A
Handbook for the Regional Input-Output Modeling System (RIMS II),''
U.S. Department of Commerce (1992).
---------------------------------------------------------------------------
For the amended standard levels considered in the NOPR, DOE
estimated indirect national employment impacts using an input/output
model of the U.S. economy called Impact of Sector Energy Technologies,
Version 3.1.1 (ImSET).\71\ ImSET is a special-purpose version of the
``U.S. Benchmark National Input-Output'' (I-O) model, which was
designed to estimate the national employment and income effects of
energy-saving technologies. The ImSET software includes a computer-
based I-O model having structural coefficients that characterize
economic flows among the 187 sectors. ImSET's national economic I-O
structure is based on a 2002 U.S. benchmark table, specially aggregated
to the 187 sectors most relevant to industrial, commercial, and
residential building energy use. DOE notes that ImSET is not a general
equilibrium forecasting model, and understands the uncertainties
involved in projecting employment impacts, especially changes in the
later years of the analysis. Because ImSET does not incorporate price
changes, the employment effects predicted by ImSET may over-estimate
actual job impacts over the long run. For the NOPR, DOE used ImSET only
to estimate short-term (through 2023) employment impacts.
---------------------------------------------------------------------------
\71\ M.J. Scott, O.V. Livingston, P.J. Balducci, J.M. Roop, and
R.W. Schultz, ImSET 3.1: Impact of Sector Energy Technologies, PNNL-
18412, Pacific Northwest National Laboratory (2009) (Available at:
www.pnl.gov/main/publications/external/technical_reports/PNNL-18412.pdf).
---------------------------------------------------------------------------
For more details on the employment impact analysis, see chapter 16
of the NOPR TSD.
V. Analytical Results and Conclusions
The following section addresses the results from DOE's analyses
with respect to potential amended energy conservation standards for
CWAF in this rulemaking. It addresses the trial
[[Page 6212]]
standard levels (TSLs) examined by DOE, the projected impacts of each
of these levels if adopted as energy conservation standards for CWAF,
and the proposed standard levels that DOE sets forth in the NOPR.
Additional details regarding DOE's analyses are contained in the TSD
supporting this notice.
A. Trial Standard Levels
At the NOPR stage, DOE develops TSLs for consideration. TSLs are
formed by grouping different efficiency levels, which are potential
standard levels for each equipment class. DOE analyzed the benefits and
burdens of the TSLs developed for this proposed rule. Table V.1
presents the TSLs analyzed and the corresponding efficiency level for
each CWAF equipment class. TSL 5 represents the max-tech efficiency
levels, which use condensing technology. For non-condensing efficiency
levels, DOE considered all gas-fired and oil-fired efficiency level
combinations as part of the TSL structure.
Table V.1--Summary of Trial Standard Levels for Commercial Warm Air Furnaces
----------------------------------------------------------------------------------------------------------------
Equipment class TSL 1 TSL 2 TSL 3 TSL 4 TSL 5
----------------------------------------------------------------------------------------------------------------
Thermal efficiency (TE)
==============
Gas-fired Furnaces............................. 81% 81% 82% 82% 92%
Oil-fired Furnaces............................. 81% 82% 81% 82% 92%
----------------------------------------------------------------------------------------------------------------
B. Economic Justification and Energy Savings
As discussed in section II.A, EPCA provides seven factors to be
evaluated in determining whether a more-stringent standard for CWAF is
economically justified. (42 U.S.C. 6313(a)(6)(B)(ii)) The following
sections generally discuss how DOE is addressing each of those factors
in this rulemaking.
1. Economic Impacts on Individual Commercial Consumers
DOE analyzed the economic impacts on CWAF consumers by looking at
the effects standards would have on the LCC and PBP. DOE also examined
the impacts of potential standards on commercial consumer subgroups.
These analyses are discussed below.
a. Life-Cycle Cost and Payback Period
To evaluate the net economic impact of potential amended energy
conservation standards on commercial consumers of CWAF, DOE conducted
LCC and PBP analyses for each TSL. In general, higher-efficiency
equipment would affect customers in two ways: (1) Annual operating
expense would decrease, and (2) purchase price would increase. Inputs
used for calculating the LCC and PBP include total installed costs
(i.e., equipment price plus installation costs), operating costs (i.e.,
annual energy savings, energy prices, energy price trends, repair
costs, and maintenance costs), equipment lifetime, and discount rates.
The key outputs of the LCC analysis are a mean LCC savings (or
cost) and a median PBP relative to the base case for each equipment
class, as well as the percentage of consumers for which the LCC under
an amended standard would decrease (net benefit), increase (net cost),
or exhibit no change (no impact) relative to the base-case equipment
forecast. No impacts occur when the base-case efficiency equals or
exceeds the efficiency at a given TSL.
DOE also performed a PBP analysis as part of the consumer impact
analysis. The PBP is the number of years it would take for the consumer
of this commercial equipment to recover the increased costs of higher-
efficiency equipment as a result of energy savings based on the
operating cost savings. The PBP is an economic benefit-cost measure
that uses benefits and costs without discounting. Chapter 8 of the NOPR
TSD provides detailed information on the LCC and PBP analyses.
Table V.2 and Table V.3 show the key LCC and PBP results for each
equipment class.
Table V.2--Summary Life-Cycle Cost and Payback Period Results for Gas-Fired Commercial Warm Air Furnaces
--------------------------------------------------------------------------------------------------------------------------------------------------------
Life-cycle cost 2013$ Life-cycle cost savings
------------------------------------------------------------------------------------------- Median
Thermal % of Customers that experience payback
Trial standard level efficiency Total Discounted Average --------------------------------------- period
installed operating LCC savings Net years
cost cost 2013$* Net cost No impact benefit
--------------------------------------------------------------------------------------------------------------------------------------------------------
Baseline........................... 80% $2,262 $26,623 $28,885 NA 0% 100% 0% NA
1, 2............................... 81% 2,271 26,343 28,613 $186 1% 33% 66% 0.6
3, 4............................... 82% 2,280 26,069 28,349 $426 2% 10% 88% 0.7
5.................................. 92% 3,848 23,898 27,746 $1,025 48% 1% 51% 12.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Rounding may cause some items to not total 100 percent.
[[Page 6213]]
Table V.3--Summary Life-Cycle Cost and Payback Period Results for Oil-Fired Commercial Warm Air Furnaces
--------------------------------------------------------------------------------------------------------------------------------------------------------
Life-cycle cost 2013$ Life-cycle cost savings
------------------------------------------------------------------------------------------- Median
Thermal % of Customers that experience payback
Trial standard level efficiency Total Discounted Average --------------------------------------- period
installed operating LCC savings Net years
cost cost 2013$* Net cost No impact benefit
--------------------------------------------------------------------------------------------------------------------------------------------------------
Baseline, 1, 3..................... 81% $6,504 $67,313 $73,817 NA 0% 100% 0% NA
2, 4............................... 82% 6,556 73,310 73,310 $164 8% 69% 23% 2.8
5.................................. 92% 8,008 62,187 70,195 $3,278 47% 0% 53% 7.5
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Rounding may cause some items to not total 100 percent.
b. Consumer Subgroup Analysis
In the consumer subgroup analysis, DOE estimated the impacts of the
considered TSLs on small business consumers. The LCC savings and
payback periods for small business consumers are shown in Table V.4.
Chapter 11 of the NOPR TSD presents detailed results of the commercial
consumer subgroup analysis.
Table V.4--Summary Consumer Subgroup (Small Business Consumers) Results for Commercial Warm Air Furnaces
----------------------------------------------------------------------------------------------------------------
Gas-fired Oil-fired
---------------------------------------------------
Trial standard level Average Average
LCC Median PBP LCC Median PBP
savings* savings*
----------------------------------------------------------------------------------------------------------------
1........................................................... $158 0.6 NA NA
2........................................................... 158 0.6 $132 2.3
3........................................................... 365 0.7 NA NA
4........................................................... 365 0.7 $132 2.3
5........................................................... 708 12.6 $2,454 8.8
----------------------------------------------------------------------------------------------------------------
* LCC savings are net savings (i.e., savings over the life time net of any costs incurred).
c. Rebuttable Presumption Payback
As discussed in section III.C.2, EPCA establishes a rebuttable
presumption that an energy conservation standard is economically
justified if the increased purchase cost for equipment that meets the
standard is less than three times the value of the first-year energy
savings resulting from the standard. DOE calculated a rebuttable-
presumption PBP for each TSL to determine whether DOE could presume
that a standard at that level is economically justified.
DOE based the calculations on average usage profiles. As a result,
DOE calculated a single rebuttable-presumption payback value, and not a
distribution of PBPs, for each TSL. Table V.5 shows the rebuttable-
presumption PBPs for the considered TSLs. The rebuttable presumption is
fulfilled in those cases where the PBP is three years or less. However,
DOE routinely conducts an economic analysis that considers the full
range of impacts to the customer, manufacturer, Nation, and
environment, as required by EPCA. The results of that analysis serve as
the basis for DOE to definitively evaluate the economic justification
for a potential standard level (thereby supporting or rebutting the
results of any three-year PBP analysis). Section V.C addresses how DOE
considered the range of impacts to select these proposed standards.
Table V.5--Rebuttable-Presumption Payback Periods (Years) for Commercial Warm Air Furnaces*
----------------------------------------------------------------------------------------------------------------
Trial standard level
Equipment class ----------------------------------------------------------------
1 2 3 4 5
----------------------------------------------------------------------------------------------------------------
Gas-fired...................................... 0.02 0.02 0.02 0.02 0.44
Oil-fired...................................... ........... 0.14 ........... 0.14 0.63
----------------------------------------------------------------------------------------------------------------
* The rebuttable PBP is based on DOE's test procedure and uses single-point values, while the LCC analysis
presented in Table V.2 and Table V.3 reflects energy use under actual field conditions and uses a distribution
of values.
2. Economic Impacts on Manufacturers
As noted above, DOE performed an MIA to estimate the impact of
amended energy conservation standards on manufacturers of CWAF. The
following section describes the expected impacts on manufacturers at
each considered TSL. Chapter 12 of the NOPR TSD explains the analysis
in further detail.
a. Industry Cash-Flow Analysis Results
Table V.6. and Table V.7 depict the estimated financial impacts
(represented by changes in INPV) of amended energy standards on
manufacturers of CWAF, as well as the conversion costs that DOE expects
manufacturers would incur for all equipment classes at each TSL. To
evaluate the range of cash flow impacts on the CWAF industry associated
with
[[Page 6214]]
potential amended energy conservation standards, DOE modeled two
different mark-up scenarios and two different conversion cost
scenarios, as described in section IV.J.b (Government Regulatory Impact
Model Scenarios). The combination of markup scenarios and conversion
costs scenarios results in 4 sets of results: (1) Preservation of Gross
Margin Percentage and Low Conversion Costs scenario, (2) Preservation
of Gross Margin Percentage and High Conversion Costs scenario, (3)
Preservation of Operating Profit and Low Conversion Costs scenario, (4)
Preservation of Operating Profit and High Conversion Costs scenario.
Each of the modeled scenarios results in a unique set of cash flows and
corresponding industry values at each TSL. DOE presents the highest and
lowest INPV results from the combined scenarios to portray the range of
potential impacts on the industry. The low end of the range of impacts
is the Preservation of Gross Margin Percentage and Low Conversion Costs
scenario. The high end of the range of impacts is the Preservation of
Operating Profit and High Conversion Costs scenario.
In the following discussion, the INPV results refer to the
difference in industry value between the base case and each standards
case that results from the sum of discounted cash flows from the base
year 2014 through 2047, the end of the analysis period. To provide
perspective on the short-run cash flow impact, DOE includes in the
discussion of the results below a comparison of free cash flow between
the base case and the standards case at each TSL in the year before new
standards would take effect. This figure provides an understanding of
the magnitude of the required conversion costs relative to the cash
flow generated by the industry in the base case.
The set of results below shows potential INPV impacts for CWAF
manufacturers; Table V.6. reflects the lower bound of impacts, and
Table V.7 represents the upper bound.
Table V.6--Manufacturer Impact Analysis for CWAF--Preservation of Gross Margin Percentage/Low Conversion Cost Scenario Scenario*
--------------------------------------------------------------------------------------------------------------------------------------------------------
Trial standard level
Units Base case ----------------------------------------------------------------
1 2 3 4 5
--------------------------------------------------------------------------------------------------------------------------------------------------------
INPV......................................................... 2013$ M 74.67 67.9 67.5 64.0 63.5 89.4
Change in INPV............................................... 2013$ M ........... (6.7) (7.2) (10.7) (11.1) 14.8
% ........... -9% -10% -14% -15% -20%
Product Conversion Costs..................................... 2013$ M ........... 11.1 11.5 18.0 18.4 28.2
Capital Conversion Costs..................................... 2013$ M ........... 0.6 0.9 1.2 1.5 61.3
Total Conversion Costs....................................... 2013$ M ........... 11.7 12.4 19.2 19.9 89.4
Free Cash Flow............................................... 2013$ M 6.3 2.4 2.2 (0.1) (0.3) (31.3)
Change in Free Cash Flow..................................... 2013$ M ........... 3.9 4.1 6.4 6.7 37.6
% Change ........... 61.4 65.6 101.4 105.5 596.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Parentheses indicate negative values.
Table V.7--Manufacturer Impact Analysis for CWAF--Preservation of Operating Profit Scenario/High Conversion Costs Scenario: Changes Scenario*
--------------------------------------------------------------------------------------------------------------------------------------------------------
Trial standard level
Units Base case ----------------------------------------------------------------
1 2 3 4 5
--------------------------------------------------------------------------------------------------------------------------------------------------------
INPV......................................................... 2013$ M 74.67 64.2 60.1 36.7 31.4 (23.7)
Change in INPV............................................... 2013$ M ........... (10.5) (14.5) (38.0) (43.3) (98.3)
% ........... 14% 19% 51% 58% 132%
Product Conversion Costs..................................... 2013$ M ........... 11.3 17.2 48.8 54.7 81.0
Capital Conversion Costs..................................... 2013$ M ........... 4.4 5.0 4.5 5.0 71.5
Total Conversion Costs....................................... 2013$ M ........... 15.7 22.2 53.2 59.7 152.5
Free Cash Flow............................................... 2013$ M 6.3 0.7 (1.5) (14.8) (17.7) (59.2)
Change in.................................................... 2013$ M ........... 5.7 7.8 21.1 24.0 65.5
Free Cash Flow...............................................
% Change ........... 89.6 124.3 334.7 380.4 1038.6
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Parentheses indicate negative values.
As noted in section IV.J.a (Government Regulatory Impact Model Key
Inputs), the MIA uses the Engineering Analysis's manufacturer
production costs and the Shipments Analysis's sales forecasts as
inputs. Two key trends in these inputs help drive the MIA results.
First, the increase in efficiency at TSLs below max-tech can be
accomplished with very little incremental production cost. This is
highlighted in Table IV.6. At levels below TSL 5, gas-fired equipment
MPCs increase by 4% at most and oil-fired MPC increase by 1% at most.
Furthermore, at levels below TSL 5, total industry shipments over the
analysis period remain the same across TSLs. Since DOE's analysis
indicates there are no significant changes to variable production costs
and no significant changes in total shipments below max-tech,
manufacturer markups are also unlikely to vary significantly at those
TSLs and have limited impact on the change in industry value between
the base case and standards cases.
However, anticipated conversion costs provided by manufacturers in
interviews were quite high relative to industry value. As a result,
conversion costs would have a significant impact on industry value. In
particular, product conversion costs and time requirements were a
concern for the industry. Manufacturer input during interviews
indicated higher product conversion costs than initially expected by
DOE. As a result, the Department modeled a sensitivity related to
conversion costs. DOE applied two different
[[Page 6215]]
methodologies to estimate conversion costs. A Top-Down methodology
relied on manufacturer feedback, AHRI listing data, and market share
estimates. A Bottom-Up methodology was also used to estimate industry
conversion costs, under which DOE relied on test lab pricing quotes,
industry product literature, and the engineering cost model data to
estimate the expenses associated with thermal efficiency testing, heat
limit testing, product safety testing, reliability testing, and
engineering effort. DOE assumed these items comprised the bulk of
product conversion costs.
In its analysis, DOE ran 4 scenarios based on combinations from 2
markup scenarios and 2 conversion cost scenarios. The results presented
below represent the upper-bound and lower-bound of results from those
scenarios.
TSL 1 represents EL 1 (81 percent) for gas-fired CWAF and baseline
(81 percent) for oil-fired CWAF. At this level, DOE estimates 54% of
the industry platforms would require redesign at a total industry
conversion cost of $11.7 million to $15.7 million. DOE estimates
impacts on INPV for CWAF manufacturers to range from a change in INPV
of -14.0 percent to -9.0 percent, or $10.5 million to -$6.7 million. At
this potential standard level, industry free cash flow is estimated to
decrease by as much as 89.6 percent to -$0.7 million, compared to the
base-case value of $6.3 million in 2017, the year before the compliance
date (2018).
TSL 2 represents EL 1 (81 percent for gas-fired and 82 percent for
oil-fired) across all equipment classes. At this level, DOE estimates
60% of the industry platforms would require redesign at a total
industry conversion cost of $12.4 million to $22.2 million. DOE
estimates impacts on INPV for CWAF manufacturers to range from a change
in INPV of -19.5 percent to -9.6 percent, or a change of -$14.5 million
to -$7.2 million. At this potential standard level, industry free cash
flow is estimated to decrease by as much as 124.3 percent to -$1.5
million, compared to the base-case value of $6.3 million in the year
before the compliance date (2018).
TSL 3 represents EL 2 (82 percent) for gas-fired CWAF and baseline
(81 percent) for oil-fired CWAF. At this level, DOE estimates 77% of
the industry platforms would require redesign at a total industry
conversion cost of $19.2 million to $53.2 million DOE estimates impacts
on INPV for CWAF manufacturers to range from a change in INPV of -50.8
percent to -14.3 percent, or -$38.0 million to -$10.7 million. At this
potential standard level, industry free cash flow is estimated to
decrease by as much as 334.7 percent to -$14.8 million, compared to the
base-case value of $6.3 million in the year before the compliance date
(2018).
TSL 4 represents EL 2 (82 percent) for gas-fired CWAF and EL 1 (82
percent) for oil-fired CWAF. At this level, DOE estimates 83% of the
industry platforms would require redesign at a total industry
conversion cost of $19.9 million to $59.7 million. DOE estimates
impacts on INPV for CWAF manufacturers to range from a change in INPV
of -58.0 percent to -14.9 percent, or -$43.3 million to -$11.1 million.
At this potential standard level, industry free cash flow is estimated
to decrease by as much as 380.4 percent to -$17.7 million, compared to
the base-case value of $6.3 million in the year before the compliance
date (2018)
TSL 5 represents max-tech across all equipment classes (i.e., EL 3
(92 percent) for gas-fired CWAF and EL 2 (92 percent) for oil-fired
CWAF). At this level, DOE estimates 92% of the industry platforms would
require redesign at a total industry conversion cost of $89.4 million
to $152.5 million. Conversion costs more than double from TSL 4 to TSL
5. The vast majority of the industry does not offer condensing
commercial furnaces today and would need to develop condensing
technology for commercial applications. Implementing a condensing
commercial furnace would likely have design implication for the cooling
side of the HVAC product and for the chassis that houses both the
cooling and heating components. DOE estimates impacts on INPV for CWAF
manufacturers to range from a change in INPV of -131.7 percent to 19.8
percent, or -$98.3 million to $14.8 million. The loss of more than 100%
of INPV reflects the fact that conversion expenses extend beyond the
commercial furnace and affect commercial air conditioners and heat
pumps, which tend to be the more expensive and complex component of
commercial HVAC products. At this potential standard level, industry
free cash flow is estimated to decrease by as much as 1,038.6 percent
to -$59.2 million relative to the base-case value of $6.3 million in
the year before the compliance date (2018).
b. Impacts on Direct Employment
To quantitatively assess the potential impacts of amended energy
conservation standards on direct employment in the CWAF industry, DOE
used the GRIM to estimate the domestic labor expenditures and number of
employees in the base case and at each TSL from 2014 through 2047. DOE
used statistical data from the U.S. Census Bureau's 2011 Annual Survey
of Manufacturers (ASM),\72\ the results of the engineering analysis,
and interviews with manufacturers to determine the inputs necessary to
calculate industry-wide labor expenditures and domestic employment
levels. Labor expenditures related to manufacturing of the product are
a function of the labor intensity of the product, the sales volume, and
an assumption that wages remain fixed in real terms over time. The
total labor expenditures in each year are calculated by multiplying the
MPCs by the labor percentage of MPCs. DOE estimates that 99 percent of
CWAF units are produced domestically.
---------------------------------------------------------------------------
\72\ ``Annual Survey of Manufactures (ASM),'' U.S. Census Bureau
(2011) (Available at: http://www.census.gov/manufacturing/asm/).
---------------------------------------------------------------------------
The total labor expenditures in the GRIM were then converted to
domestic production employment levels by dividing production labor
expenditures by the annual payment per production worker (production
worker hours times the labor rate found in the U.S. Census Bureau's
2011 ASM). The estimates of production workers in this section cover
workers, including line-supervisors who are directly involved in
fabricating and assembling a product within the manufacturing facility.
Workers performing services that are closely associated with production
operations, such as materials handling tasks using forklifts, are also
included as production labor. DOE's estimates only account for
production workers who manufacture the specific products covered by
this rulemaking. The total direct employment impacts calculated in the
GRIM are the changes in the number of production workers resulting from
the amended energy conservation standards for CWAF, as compared to the
base case. In general, more-efficient equipment is larger, more
complex, and more labor-intensive to build. Per unit labor requirements
and production time requirements increase with a higher energy
conservation standard. As a result, the total labor calculations
described in this paragraph are considered an upper bound to direct
employment forecasts.
Using the GRIM, DOE estimates that in the absence of amended energy
conservation standards, there would be 235 domestic production workers
for CWAF equipment. DOE estimates that 99 percent of CWAF units sold in
the United States are manufactured domestically. The employment impact
estimates in Table V.8 below show a
[[Page 6216]]
range of potential production employment levels that could exist
following the compliance date of amended energy conservation standards.
These direct employment impacts shown are independent of the employment
impacts to the broader U.S. economy, which are documented in the
section IV.N (Employment Impact Analysis) and chapter 13 of the NOPR
TSD.
Table V.8--Range of Potential Changes in CWAF Production Workers in 2018
----------------------------------------------------------------------------------------------------------------
Trial standard level
----------------------------------------------------------------
1 2 3 4 5
----------------------------------------------------------------------------------------------------------------
Total Number of Domestic Production Workers in 235 to 190 235 to 189 235 to 142 235 to 141 521 to 136
2018 (no production location change)..........
Change from Base Case Estimate of 235 Domestic 0 to (45) 0 to (46) 0 to (93) 0 to (94) 286 to (99)
Production Workers in 2018....................
----------------------------------------------------------------------------------------------------------------
The upper bound of the range assumes that manufacturers would
continue to produce the same scope of covered equipment within the
United States, and assumes that domestic production would not shift to
countries with lower labor costs. At TSL 1 through 4, the upper bound
shows no change in employment from the baseline due to a constant level
of production labor expenditure. The major costs and changes for
increasing product efficiency at lower levels would be for capital, not
labor. On the other hand, the max-tech level at TSL 5 would require
significant increases in both capital and labor expenditure due to
increased complexity and size of condensing furnaces.
The lower bound assumes that as the standard increases,
manufacturers choose to retire sub-standard product lines rather than
invest in manufacturing facility conversions and product redesigns. DOE
assumes manufacturers take the lowest investment option and do not
relocate any production facilities to lower-cost countries. In this
scenario, there is a loss of employment because manufacturers
consolidate and operate fewer production lines. Since this is intended
to be a worst-case scenario for employment, there is no consideration
given to the fact that there may be employment growth in higher-
efficiency lines.
c. Impacts on Manufacturing Capacity
According to the certain CWAF manufacturers interviewed, amended
energy conservation standards could lead to decreased production
capacity. Most manufacturers indicated there would be little to no
production capacity decrease at 81-percent and 82-percent efficiency
levels, but at 91-percent and 92-percent levels, there would be
significant capacity shortfall. This feedback is consistent with the
engineering analysis, which found there would be sufficient capacity at
current levels to meet slightly higher efficiency standards, but that
significant investment would be required to support production of
higher-efficiency, condensing furnace standards.
d. Impacts on Subgroups of Manufacturers
Small manufacturers, niche equipment manufacturers, and
manufacturers exhibiting a cost structure substantially different from
the industry average could be affected disproportionately. For CWAF,
DOE identified and evaluated the impact of amended energy conservation
standards on one subgroup: small manufacturers. The Small Business
Administration (SBA) defines a ``small business'' as having 750
employees or less for NAICS 333415, ``Air-Conditioning and Warm Air
Heating Equipment and Commercial and Industrial Refrigeration Equipment
Manufacturing.'' Based on this definition, DOE identified 2
manufacturers in the CWAF industry that are small businesses.
As discussed in section IV.J, using average cost assumptions to
develop an industry cash-flow estimate is inadequate to assess
differential impacts among manufacturer subgroups. Therefore, for a
more detailed discussion of DOE's assessment of the impacts on the
small manufacturer subgroup, see the regulatory flexibility analysis in
section VI.B of this notice and chapter 12 of the NOPR TSD. DOE
requests stakeholder input on the number of small business CWAF
manufacturers and the potential for disproportionate impacts to those
small manufacturers.
e. Cumulative Regulatory Burden
While any one regulation may not impose a significant burden on
manufacturers, the combined effects of recent or impending regulations
may have serious consequences for some manufacturers, groups of
manufacturers, or an entire industry. Assessing the impact of a single
regulation may overlook this cumulative regulatory burden. In addition
to energy conservation standards, other regulations can significantly
affect manufacturers' financial operations. Multiple regulations
affecting the same manufacturer can strain profits and lead companies
to abandon product lines or markets with lower expected future returns
than competing products. For these reasons, DOE conducts an analysis of
cumulative regulatory burden as part of its rulemakings pertaining to
appliance efficiency.
For the cumulative regulatory burden analysis, DOE looks at other
regulations that could affect CWAF manufacturers that will take effect
approximately three years before or after the 2018 compliance date of
amended energy conservation standards for these products. In
interviews, manufacturers cited Federal regulations on equipment other
than CWAF that contribute to their cumulative regulatory burden. The
compliance years and expected industry conversion costs of relevant
amended energy conservation standards are indicated in Table V.9 below.
[[Page 6217]]
Table V.9--Compliance Dates and Expected Conversion Expenses of Federal
Energy Conservation Standards Affecting CWAF Manufacturers
------------------------------------------------------------------------
Estimated
Approximate total industry
Federal energy conservation standards compliance conversion
date expense
------------------------------------------------------------------------
2007 Residential Furnaces & Boilers *-- 2015 $88M
72 FR 65136 (Nov. 19, 2007)............ (2006$)
2011 Residential Furnaces **--76 FR 2015 $2.5M
37408 (June 27, 2011); 76 FR 67037 (2009$)
(Oct. 31, 2011)........................
2011 Residential Central Air 2015 $26.0M
Conditioners and Heat Pumps **--76 FR (2009$)
37408 (June 27, 2011); 76 FR 67037
(Oct. 31, 2011)........................
2010 Gas Fired and Electric Storage 2015 $95.4M
Water Heaters--75 FR 20112 (April 16, (2009$)
2010)..................................
2014 Walk-in Coolers and Freezers--79 FR 2017 $35.2M
32049 (June 3, 2014)................... (2012$)
Commercial Packaged Air-Conditioning and 2018 $226.4M
Heating Equipment [dagger]--79 FR 58948 (2013$)
(September 30, 2014)...................
Commercial and Industrial Fans and 2018 TBD
Blowers [dagger]--2014 Furnace Fans--79 2019 $40.6M
FR 37937 (July 3, 2014)................ (2013$)
Packaged Terminal Air Conditioners and 2019 $7.6M
Heat Pumps [dagger]--79 FR 55538 (2013$)
(September 16, 2014)...................
Single Package Vertical Units [dagger]-- 2019 $16.1M
79 FR 78614 (December 30, 2014)........ (2013$)
Residential Boilers [dagger]............ 2019 TBD
Commercial Boilers [dagger]............. 2019 TBD
------------------------------------------------------------------------
* Conversion expenses for manufacturers of oil-fired furnaces and for
manufacturers of gas-fired and oil-fired boilers associated with the
November 2007 final rule for residential furnaces and boilers are
excluded from this figure. With regard to oil-fired furnaces, the 2011
direct final rule for residential furnaces sets a higher standard and
earlier compliance date for oil-fired furnaces than the 2007 final
rule. As a result, manufacturers will be required to design to the
2011 direct final rule standard. The conversion costs associated with
the 2011 direct final rule are listed separately in this table. With
regard to gas-fired and oil-fired boilers, EISA 2007 legislated higher
standards and earlier compliance dates for residential boilers than
were in the November 2007 final rule. As a result, gas-fired and oil-
fired boiler manufacturers were required to design to the EISA 2007
standard beginning in 2012.
** Estimated industry conversion expense and approximate compliance date
reflect a court-ordered May 1, 2013 stay of the residential non-
weatherized and mobile home gas furnaces standards set in the 2011
Energy Conservation Standards for Residential Furnaces and Residential
Central Air Conditioners and Heat Pumps.
[dagger] The final rule for this energy conservation standard has not
been published. For energy conservation standards which have published
a NOPR, DOE lists the compliance date and conversion costs for the
proposed standard level. However, standard level and analytic results
are not finalized until the publication of the final rule. For energy
conservation standards which have not yet reached the NOPR publication
phase of the rulemaking, information is not yet available.
In addition to Federal energy conservation standards, DOE
identified other Federal regulatory burdens that would affect
manufacturers of CWAF:
EPA Phase-out of Hydrochlorofluorocarbons (HCFCs)
The U.S. is obligated under the Montreal Protocol to limit
production and consumption of HCFCs through incremental reductions,
culminating in a complete phase-out of HCFCs by 2030.\73\ On December
15, 2009, the U.S. Environmental Protection Agency (EPA) published a
final rule commonly referred to as the ``2010 HCFC Allocation Rule,''
which allocates production and consumption allowances for HCFC-22 for
each year between 2010 and 2014. 74 FR 66412. On January 4, 2012, EPA
published the ``2012 HCFC Allocation Proposed Rule,'' which proposes to
lift the regulatory ban on the production and consumption of HCFC-22
(following a court decision \74\ in August 2010 to vacate a portion of
the ``2010 HCFC Allocation Rule'') by establishing company-by-company
HCFC-22 baselines and allocating allowances for 2012-2014. 77 FR 237.
---------------------------------------------------------------------------
\73\ ``Montreal Protocol,'' United Nations Environment
Programme, Web. 26 (August 2010) (Available at: http://ozone.unep.org/new_site/en/montreal_protocol.php) (Last accessed 12/
13/13).
\74\ See Arkema v. EPA, 618 F.3d 1 (D.C. Cir. 2010).
---------------------------------------------------------------------------
HCFC-22, which is also known as R-22, is a popular refrigerant that
is commonly used in air-conditioning products. Many manufacturers of
CWAF also manufacture air-conditioning products, and would be impacted
by the HCFC phase-out. Manufacturers of CWAF that make air-conditioning
equipment must comply with the allowances established by the allocation
rule, thereby facing a cumulative regulatory burden.
DOE requests comment on the cumulative regulatory burden that may
be imposed on industry by regulations that go into effect in the 3
years before and the 3 years after the proposed CWAF standards year of
2018.
3. National Impact Analysis
a. Significance of Energy Savings
For each TSL, DOE projected energy savings for CWAF purchased in
the 30-year period that begins in the year of anticipated compliance
with amended standards (2018-2047). The savings are measured over the
entire lifetime of equipment purchased in the 30-year period. DOE
quantified the energy savings attributable to each TSL as the
difference in energy consumption between each standards case and the
base case. Table V.10 presents the estimated primary energy savings for
each considered TSL, and Table V.11 presents the estimated FFC energy
savings for each TSL. The approach for estimating national energy
savings is further described in section IV.H.
[[Page 6218]]
Table V.10--Cumulative National Primary Energy Savings for Commercial Warm Air Furnace Trial Standard Levels for
Units Sold in 2018-2047 *
----------------------------------------------------------------------------------------------------------------
Trial standard level
Equipment class ----------------------------------------------------------------
1 2 3 4 5
----------------------------------------------------------------------------------------------------------------
quads
----------------------------------------------------------------------------------------------------------------
Gas-fired Furnaces............................. 0.203 0.203 0.471 0.471 3.040
Oil-fired Furnaces............................. 0.000 0.001 0.000 0.001 0.031
----------------------------------------------------------------
Total All Classes.......................... 0.203 0.204 0.471 0.472 3.071
----------------------------------------------------------------------------------------------------------------
* Note: Components may not sum due to rounding.
Table V.11--Cumulative National Full-Fuel-Cycle Energy Savings for Commercial Warm Air Furnace Trial Standard
Levels for Units Sold in 2018-2047 *
----------------------------------------------------------------------------------------------------------------
Trial standard level
Equipment class ----------------------------------------------------------------
1 2 3 4 5
----------------------------------------------------------------------------------------------------------------
quads
----------------------------------------------------------------------------------------------------------------
Gas-fired Furnaces............................. 0.222 0.222 0.516 0.516 3.338
Oil-fired Furnaces............................. 0.000 0.001 0.000 0.001 0.036
----------------------------------------------------------------
Total All Classes.......................... 0.222 0.223 0.516 0.517 3.374
----------------------------------------------------------------------------------------------------------------
* Note: Components may not sum due to rounding.
Circular A-4 \75\ requires agencies to present analytical results,
including separate schedules of the monetized benefits and costs that
show the type and timing of benefits and costs. Circular A-4 also
directs agencies to consider the variability of key elements underlying
the estimates of benefits and costs. For this rulemaking, DOE undertook
a sensitivity analysis using nine, rather than 30, years of equipment
shipments. The choice of a nine-year period is a proxy for the timeline
in EPCA for the review of certain energy conservation standards and
potential revision of and compliance with such revised standards.\76\
The review timeframe established in EPCA is generally not synchronized
with the equipment lifetime, equipment manufacturing cycles, or other
factors specific to CWAF. Thus, this information is presented for
informational purposes only and is not indicative of any change in
DOE's analytical methodology. The NES results based on a nine-year
analytical period are presented in Table V.12. The impacts are counted
over the lifetime of CWAF purchased in 2018-2026.
---------------------------------------------------------------------------
\75\ OMB, Circular A-4: Regulatory Analysis (Sept. 17, 2003).
\76\ EPCA requires DOE to review its energy conservation
standards at least once every 6 years, and requires, for certain
products, a 3-year period after any new standard is promulgated
before compliance is required, except that in no case may any new
standards be required within 6 years of the compliance date of the
previous standards. (42 U.S.C. 6313(a)(6)(C)(iv)) While adding a 6-
year review to the 3-year compliance period adds up to 9 years, DOE
notes that it may undertake reviews at any time within the 6 year
period and that the 3-year compliance date may yield to the 6-year
backstop. A 9-year analysis period may not be appropriate given the
variability that occurs in the timing of standards reviews and the
fact that for some consumer products, the compliance period is 5
years rather than 3 years.
Table V.12--Cumulative National Primary Energy Savings for Commercial Warm Air Furnace Trial Standard Levels for
Units Sold in 2018-2026
----------------------------------------------------------------------------------------------------------------
Trial standard level
Equipment class ----------------------------------------------------------------
1 2 3 4 5
----------------------------------------------------------------------------------------------------------------
quads
----------------------------------------------------------------------------------------------------------------
Gas-fired Furnaces............................. 0.059 0.059 0.136 0.136 0.937
Oil-fired Furnaces............................. 0.000 0.000 0.000 0.000 0.013
----------------------------------------------------------------
Total All Classes.......................... 0.059 0.059 0.136 0.137 0.950
----------------------------------------------------------------------------------------------------------------
b. Net Present Value of Commercial Consumer Costs and Benefits
DOE estimated the cumulative NPV of the total costs and savings for
commercial consumers that would result from the TSLs considered for
CWAF. In accordance with OMB's guidelines on regulatory analysis,\77\
DOE calculated the NPV using both a 7-percent and a 3-percent real
discount rate. The 7-percent rate is an estimate of the average before-
tax rate of return on private capital in the U.S. economy, and reflects
the returns on real estate and small business capital as well as
corporate capital. This discount rate approximates the opportunity cost
of capital in the private sector (OMB analysis has found the average
rate of return on capital to be near this rate).
[[Page 6219]]
The 3-percent rate reflects the potential effects of standards on
private consumption (e.g., through higher prices for equipment and
reduced purchases of energy). This rate represents the rate at which
society discounts future consumption flows to their present value. It
can be approximated by the real rate of return on long-term government
debt (i.e., yield on United States Treasury notes), which has averaged
about 3 percent for the past 30 years.
---------------------------------------------------------------------------
\77\ OMB Circular A-4, section E (Sept. 17, 2003) (Available at:
http://www.whitehouse.gov/omb/circulars_a004_a-4).
---------------------------------------------------------------------------
Table V.13 shows the commercial consumer NPV results for each TSL
considered for CWAF. In each case, the impacts cover the lifetime of
equipment purchased in 2018-2047.
Table V.13--Cumulative Net Present Value of Consumer Benefits for Commercial Warm Air Furnace Trial Standard
Levels for Units Sold in 2018-2047
----------------------------------------------------------------------------------------------------------------
Discount Trial standard level
Equipment class rate ------------------------------------------------------
(percent) 1 2 3 4 5
----------------------------------------------------------------------------------------------------------------
......... billion 2013$
-----------------------------------------------------------------
Gas-fired Furnaces............................ 1.1391 1.1391 2.6432 2.6432 10.0083
Oil-fired Furnaces............................ 3 0.0000 0.0157 0.0000 0.0157 0.3756
-----------------------------------------------------------------
Total All Classes *....................... 1.1391 1.1548 2.6432 2.6589 10.3839
Gas-fired Furnaces............................ 0.4361 0.4361 1.0111 1.0111 2.7799
Oil-fired Furnaces............................ 7 0.0000 0.0057 0.0000 0.0057 0.1220
-----------------------------------------------------------------
Total All Classes *....................... 0.4361 0.4417 1.0111 1.0168 2.9019
----------------------------------------------------------------------------------------------------------------
* Note: Components may not sum due to rounding.
The NPV results based on the aforementioned nine-year analytical
period are presented in Table V.14. The impacts are counted over the
lifetime of equipment purchased in 2018-2026. As mentioned previously,
this information is presented for informational purposes only and is
not indicative of any change in DOE's analytical methodology or
decision criteria.
Table V.14--Cumulative Net Present Value of Consumer Benefits for Commercial Warm Air Furnace Trial Standard
Levels for Units Sold in 2018-2026
----------------------------------------------------------------------------------------------------------------
Discount Trial standard level
Equipment class rate ------------------------------------------------------
(percent) 1 2 3 4 5
----------------------------------------------------------------------------------------------------------------
......... billion 2013$
-----------------------------------------------------------------
Gas-fired Furnaces............................ 0.366 0.366 0.849 0.849 2.978
Oil-fired Furnaces............................ 3 0.000 0.007 0.000 0.007 0.177
-----------------------------------------------------------------
Total All Classes......................... 0.366 0.373 0.849 0.856 3.156
Gas-fired Furnaces............................ 0.199 0.199 0.461 0.461 1.139
Oil-fired Furnaces............................ 7 0.000 0.003 0.000 0.003 0.073
-----------------------------------------------------------------
Total All Classes......................... 0.199 0.202 0.461 0.464 1.212
----------------------------------------------------------------------------------------------------------------
The above results reflect the use of the historic trend in the
inflation-adjusted PPI for ``Warm air furnaces'' to estimate the change
in price for CWAF over the analysis period (see section IV.H). The
trend shows a small rate of annual price decline. DOE also developed
sensitivity analyses using two price trends that have rates of price
decline that are less than and greater than the Reference trend. The
results of these alternative cases are presented in appendix 10-C of
the NOPR TSD.
c. Indirect Impacts on Employment
DOE expects that amended energy conservation standards for CWAF
would reduce energy costs for equipment owners, with the resulting net
savings being redirected to other forms of economic activity. Those
shifts in spending and economic activity could affect the demand for
labor. As described in section IV.N, DOE used an input/output model of
the U.S. economy to estimate indirect employment impacts of the TSLs
that DOE considered in this rulemaking. DOE understands that there are
uncertainties involved in projecting employment impacts, especially
changes in the later years of the analysis. Therefore, DOE generated
results for near-term time frames (2018-2023), where these
uncertainties are reduced.
The results suggest that the proposed standards would be likely to
have a negligible impact on the net demand for labor in the economy.
The net change in jobs is so small that it would be imperceptible in
national labor statistics and might be offset by other, unanticipated
effects on employment. Chapter 16 of the NOPR TSD presents detailed
results regarding indirect employment impacts.
4. Impact on Utility or Performance of Equipment
DOE has tentatively concluded that the amended standards it is
proposing in the NOPR would not lessen the utility or performance of
CWAF.
5. Impact of Any Lessening of Competition
DOE considers any lessening of competition that is likely to result
from new or amended standards. The Attorney General determines the
[[Page 6220]]
impact, if any, of any lessening of competition likely to result from a
proposed standard, and transmits such determination in writing to the
Secretary, together with an analysis of the nature and extent of such
impact.
To assist the Attorney General in making such determination, DOE
has provided DOJ with copies of this NOPR and the TSD for review. DOE
will consider DOJ's comments on the proposed rule in preparing the
final rule, and DOE will publish and respond to DOJ's comments in that
document.
6. Need of the Nation to Conserve Energy
Enhanced energy efficiency, where economically justified, improves
the Nation's energy security, strengthens the economy, and reduces the
environmental impacts (costs) of energy production. Energy savings from
amended standards for the CWAF equipment classes covered in today's
NOPR could also produce environmental benefits in the form of reduced
emissions of air pollutants and greenhouse gases associated with
electricity production. Table V.15 provides DOE's estimate of
cumulative emissions reductions projected to result from the TSLs
considered in this rulemaking. This table includes both site and
upstream emissions. DOE reports annual emissions reductions for each
TSL in chapter 13 of the NOPR TSD.
Table V.15--Cumulative Emissions Reduction Estimated for Commercial Warm Air Furnace Trial Standard Levels
----------------------------------------------------------------------------------------------------------------
Trial standard level
----------------------------------------------------------------------------------------------------------------
1 2 3 4 5
----------------------------------------------------------------------------------------------------------------
Site and Power Sector Emissions*
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons)...................... 10.7 10.8 24.8 24.9 162.8
SO2 (thousand tons)............................ 0.9 0.9 2.2 2.2 4.6
NOX (thousand tons)............................ 9.2 9.3 21.3 21.4 141.9
Hg (tons)...................................... 0.001 0.001 0.003 0.003 0.005
CH4 (thousand tons)............................ 0.3 0.3 0.6 0.6 3.7
N2O (thousand tons)............................ 0.033 0.035 0.077 0.079 0.435
----------------------------------------------------------------------------------------------------------------
Upstream Emissions
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons)...................... 1.3 1.3 3.0 3.0 19.8
SO2 (thousand tons)............................ 0.0 0.0 0.0 0.0 0.2
NOX (thousand tons)............................ 19.5 19.6 45.3 45.4 302.3
Hg (tons)...................................... 0.000 0.000 0.000 0.000 0.000
CH4 (thousand tons)............................ 137.4 137.5 319.0 319.2 2107.1
N2O (thousand tons)............................ 0.002 0.003 0.006 0.006 0.038
----------------------------------------------------------------------------------------------------------------
Total Emissions
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons)...................... 12.0 12.1 27.8 27.9 182.5
SO2 (thousand tons)............................ 0.9 1.0 2.2 2.2 4.8
NOX (thousand tons)............................ 28.7 28.9 66.6 66.8 444.1
Hg (tons)...................................... 0.001 0.001 0.003 0.003 0.005
CH4 (thousand tons)............................ 137.6 137.8 319.7 319.8 2110.8
N2O (thousand tons)............................ 0.036 0.038 0.083 0.085 0.472
CH4 (million tons CO2eq) **.................... 3.4 3.4 8.0 8.0 52.8
N2O (thousand tons CO2eq) **................... 10.6 11.2 24.7 25.2 140.7
----------------------------------------------------------------------------------------------------------------
* Primarily site emissions. Values include the increase in power sector emissions from higher electricity use at
TSL 5.
** CO2eq is the quantity of CO2 that would have the same global warming potential (GWP).
As part of the analysis for this proposed rule, DOE estimated
monetary benefits likely to result from the reduced emissions of
CO2 and NOX that DOE estimated for each of the
TSLs considered for CWAF. As discussed in section IV.L, DOE used the
most recent values for the SCC developed by an interagency process. The
four sets of SCC values for CO2 emissions reductions in 2015
resulting from that process (expressed in 2013$) are represented by
$12.0/metric ton (the average value from a distribution that uses a 5-
percent discount rate), $40.5/metric ton (the average value from a
distribution that uses a 3-percent discount rate), $62.4/metric ton
(the average value from a distribution that uses a 2.5-percent discount
rate), and $119/metric ton (the 95th-percentile value from a
distribution that uses a 3-percent discount rate). The values for later
years are higher due to increasing damages (emissions-related costs) as
the projected magnitude of climate change increases.
Table V.16 presents the global value of CO2 emissions
reductions at each TSL. For each of the four cases, DOE calculated a
present value of the stream of annual values using the same discount
rate as was used in the studies upon which the dollar-per-ton values
are based. DOE calculated domestic values as a range from 7 percent to
23 percent of the global values, and these results are presented in
chapter 14 of the NOPR TSD.
[[Page 6221]]
Table V.16--Estimates of Global Present Value of CO2 Emissions Reduction Under Commercial Warm Air Furnace Trial Standard Levels
--------------------------------------------------------------------------------------------------------------------------------------------------------
SCC case *
---------------------------------------------------------------------------------------------------
TSL 5% Discount rate, 3% Discount rate, 2.5% Discount rate, 3% Discount rate, 95th
average average average percentile
--------------------------------------------------------------------------------------------------------------------------------------------------------
Million 2013$
--------------------------------------------------------------------------------------------------------------------------------------------------------
Site and Power Sector Emissions **
--------------------------------------------------------------------------------------------------------------------------------------------------------
1................................................... 67.3 323 517 1,000
2................................................... 67.7 325 520 1,007
3................................................... 156 750 1,200 2,322
4................................................... 157 752 1,204 2,329
5................................................... 1,032 4,932 7,890 15,271
--------------------------------------------------------------------------------------------------------------------------------------------------------
Upstream Emissions
--------------------------------------------------------------------------------------------------------------------------------------------------------
1................................................... 7.99 38.4 61.4 119
2................................................... 8.06 38.7 62.0 120
3................................................... 18.6 89.1 143 276
4................................................... 18.6 89.4 143 277
5................................................... 125 598 957 1,852
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total Emissions
--------------------------------------------------------------------------------------------------------------------------------------------------------
1................................................... 75.2 361 578 1,119
2................................................... 75.8 364 582 1,127
3................................................... 175 839 1,343 2,598
4................................................... 175 841 1,347 2,606
5................................................... 1,157 5,530 8,847 17,123
--------------------------------------------------------------------------------------------------------------------------------------------------------
* For each of the four cases, the corresponding SCC value for emissions in 2015 is $12.0, $40.5, $62.4, and $119 per metric ton (2013$).
** Includes the increase in power sector emissions from higher electricity use at TSL 5.
DOE is well aware that scientific and economic knowledge about the
contribution of CO2 and other greenhouse gas (GHG) emissions
to changes in the future global climate and the potential resulting
damages to the world economy continues to evolve rapidly. Thus, any
value placed on reducing CO2 emissions in this rulemaking is
subject to change. DOE, together with other Federal agencies, will
continue to review various methodologies for estimating the monetary
value of reductions in CO2 and other GHG emissions. This
ongoing review will consider the comments on this subject that are part
of the public record for this and other rulemakings, as well as other
methodological assumptions and issues. However, consistent with DOE's
legal obligations, and taking into account the uncertainty involved
with this particular issue, DOE has included in this proposed rule the
most recent values and analyses resulting from the interagency process.
DOE also estimated the cumulative monetary value of the economic
benefits associated with NOX emissions reductions
anticipated to result from amended standards for the CWAF equipment
that is the subject of this notice. The dollar-per-ton values that DOE
used are discussed in section IV.L. Table V.17 presents the cumulative
present values for NOX emissions reductions for each TSL
calculated using the average dollar-per-ton values and seven-percent
and three-percent discount rates.
Table V.17--Estimates of Present Value of NOX Emissions Reduction Under Commercial Warm Air Furnace Trial
Standard Levels
----------------------------------------------------------------------------------------------------------------
TSL 3% Discount rate 7% Discount rate
----------------------------------------------------------------------------------------------------------------
Million 2013$
----------------------------------------------------------------------------------------------------------------
Site and Power Sector Emissions *
----------------------------------------------------------------------------------------------------------------
1............................................................. 11.3 4.72
2............................................................. 11.4 4.76
3............................................................. 26.2 11.0
4............................................................. 26.3 11.0
5............................................................. 176 74.9
----------------------------------------------------------------------------------------------------------------
Upstream Emissions
----------------------------------------------------------------------------------------------------------------
1............................................................. 23.9 9.98
2............................................................. 24.1 10.0
3............................................................. 55.5 23.2
4............................................................. 55.7 23.2
[[Page 6222]]
5............................................................. 375 159
----------------------------------------------------------------------------------------------------------------
Total Emissions
----------------------------------------------------------------------------------------------------------------
1............................................................. 35.2 14.7
2............................................................. 35.4 14.8
3............................................................. 81.7 34.1
4............................................................. 82.0 34.2
5............................................................. 551 234
----------------------------------------------------------------------------------------------------------------
* Includes the increase in power sector emissions from higher electricity use at TSL 5.
7. Other Factors
The Secretary of Energy, in determining whether a standard is
economically justified, may consider any other factors that the
Secretary deems to be relevant. (42 U.S.C. 6313(a)(6)(B)(ii)(VII)) No
other factors were considered in this analysis.
8. Summary of Other National Economic Impacts
The NPV of the monetized benefits associated with emissions
reductions can be viewed as a complement to the NPV of the commercial
consumer savings calculated for each TSL considered in this rulemaking.
Table V.18. presents the NPV values that result from adding the
estimates of the potential economic benefits resulting from reduced
CO2 and NOX emissions in each of four valuation
scenarios to the NPV of commercial consumer savings calculated for each
TSL considered in this rulemaking, at both a seven-percent and three-
percent discount rate. The CO2 values used in the columns of
each table correspond to the four sets of SCC values discussed above.
Table V.18--CWAF TSLs: Net Present Value of Consumer Savings Combined With Present Value of Monetized Benefits From CO2 and NOX Emissions Reductions
--------------------------------------------------------------------------------------------------------------------------------------------------------
Consumer NPV at 3% discount rate added with:
---------------------------------------------------------------------------------------------------
TSL SCC Case $12.0/metric SCC Case $40.5/metric SCC Case $62.4/metric SCC Case $119/metric
ton CO2 * and medium ton CO2 * and medium ton CO2 * and medium ton CO2 * and medium
value for NOX value for NOX value for NOX value for NOX
--------------------------------------------------------------------------------------------------------------------------------------------------------
Billion 2013$
--------------------------------------------------------------------------------------------------------------------------------------------------------
1................................................... 1.2 1.5 1.8 2.3
2................................................... 1.3 1.6 1.8 2.3
3................................................... 2.9 3.6 4.1 5.3
4................................................... 2.9 3.6 4.1 5.3
5................................................... 12.1 16.5 19.8 28.1
--------------------------------------------------------------------------------------------------------------------------------------------------------
Consumer NPV at 7% discount rate added with:
---------------------------------------------------------------------------------------------------
TSL SCC Case $12.0/metric SCC Case $40.5/metric SCC Case $62.4/metric SCC Case $119/metric
ton CO2 * ton CO2 * ton CO2 * ton CO2 *
--------------------------------------------------------------------------------------------------------------------------------------------------------
Billion 2013$
--------------------------------------------------------------------------------------------------------------------------------------------------------
1................................................... 0.5 0.8 1.0 1.5
2................................................... 0.5 0.8 1.0 1.6
3................................................... 1.2 1.9 2.4 3.6
4................................................... 1.2 1.9 2.4 3.7
5................................................... 4.3 8.7 12.0 20.3
--------------------------------------------------------------------------------------------------------------------------------------------------------
* These label values represent the global SCC in 2015, in 2013$. For NOX emissions, each case uses the medium value, which corresponds to $2,684 per
ton.
Although adding the value of consumer savings to the values of
emission reductions provides a valuable perspective, two issues should
be considered. First, the national operating cost savings are domestic
U.S. consumer monetary savings that occur as a result of market
transactions, while the value of CO2 reductions is based on
a global value. Second, the assessments of operating cost savings and
the SCC are performed with different methods that use different time
frames for analysis. The national operating cost savings is measured
for the lifetime of equipment shipped in 2018-2047. The SCC values, on
the other hand, reflect the present value of future climate-related
impacts resulting from the emission of one metric ton of CO2
in each year. These impacts continue well beyond 2100.
C. Proposed Standards
To adopt national standards more stringent than the current
standards for CWAF, DOE must determine that such action would result in
significant additional conservation of energy and is technologically
feasible and
[[Page 6223]]
economically justified. (42 U.S.C. 6313(a)(6)(A)(ii)) As discussed
previously, EPCA provides seven factors to be evaluated in determining
whether a more-stringent standard for CWAF is economically justified.
(42 U.S.C. 6313(a)(6)(B)(ii)(I)-(VII))
For this NOPR, DOE considered the impacts of amended standards for
CWAF at each TSL, beginning with the maximum technologically feasible
level, to determine whether that level was economically justified.
Where the max-tech level was not justified, DOE then considered the
next most efficient level and undertook the same evaluation until it
reached the highest efficiency level that is both technologically
feasible and economically justified and saves a significant additional
amount of energy.
To aid the reader in understanding the benefits and/or burdens of
each TSL, tables in this section summarize the quantitative analytical
results for each TSL, based on the assumptions and methodology
discussed herein. The efficiency levels contained in each TSL are
described in section V.A. In addition to the quantitative results
presented in the tables, DOE also considers other burdens and benefits
that affect economic justification. These include the impacts on
subgroups of consumer who may be disproportionately affected by a
national standard (see section V.B.1.b), and impacts on employment. DOE
discusses the impacts on direct employment in CWAF manufacturing in
section V.B.2.b, and discusses the indirect employment impacts in
section V.B.3.c.
1. Benefits and Burdens of Trial Standard Levels Considered for CWAF
Table V.19 and Table V.20 summarize the quantitative impacts
estimated for each TSL for CWAF. The national impacts are measured over
the lifetime of CWAF purchased in the 30-year period that begins in the
year of compliance with amended standards (2018-2047). The energy
savings, emissions reductions, and value of emissions reductions refer
to full-fuel-cycle results.
Table V.19--Summary of Analytical Results for Commercial Warm Air Furnaces: National Impacts
----------------------------------------------------------------------------------------------------------------
Category TSL 1 TSL 2 TSL 3 TSL 4 TSL 5
----------------------------------------------------------------------------------------------------------------
National FFC Energy Savings (quads)
----------------------------------------------------------------------------------------------------------------
0.22 0.22 0.52 0.52 3.37
----------------------------------------------------------------------------------------------------------------
NPV of Consumer Benefits (2013$ billion)
----------------------------------------------------------------------------------------------------------------
3% discount rate................ 1.1 1.2 2.6 2.7 10.4
7% discount rate................ 0.4 0.4 1.0 1.0 2.9
----------------------------------------------------------------------------------------------------------------
Cumulative Emissions Reduction (Total FFC Emissions) *
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons)....... 12.0 12.1 27.8 27.9 182.5
SO2 (thousand tons)............. 0.9 1.0 2.2 2.2 4.8
NOX (thousand tons)............. 28.7 28.9 66.6 66.8 444.1
Hg (tons)....................... 0.001 0.001 0.003 0.003 0.005
CH4 (thousand tons)............. 137.6 137.8 319.7 319.8 2110.8
N2O (thousand tons)............. 0.04 0.04 0.08 0.08 0.47
CH4 (million tons CO2eq**)...... 3.4 3.4 8.0 8.0 52.8
N2O (thousand tons CO2eq**)..... 10.6 11.2 24.7 25.2 140.7
----------------------------------------------------------------------------------------------------------------
Value of Emissions Reduction (Total FFC Emissions)
----------------------------------------------------------------------------------------------------------------
CO2 (2013$ billion) [dagger].... 0.1 to 1.1 0.1 to 1.1 0.2 to 2.6 0.2 to 2.6 1.2 to 17.1
NOX-3% discount rate (2013$ 35.2 35.4 81.7 82.0 550.9
million).......................
NOX-7% discount rate (2013$ 14.7 14.8 34.1 34.2 234.3
million).......................
----------------------------------------------------------------------------------------------------------------
* Includes the increase in power sector emissions from higher electricity use at TSL 5.
** CO2eq is the quantity of CO2 that would have the same global warming potential (GWP).
[dagger] Range of the economic value of CO2 reductions is based on estimates of the global benefit of reduced
CO2 emissions.
Table V.20--Summary of Analytical Results for Commercial Warm Air Furnaces: Manufacturer and Consumer Impacts*
----------------------------------------------------------------------------------------------------------------
Category TSL 1 TSL 2 TSL 3 TSL 4 TSL 5
----------------------------------------------------------------------------------------------------------------
Manufacturer Impacts
----------------------------------------------------------------------------------------------------------------
Industry NPV (2013$ million).... 64.2 to 67.9 60.1 to 67.5 36.7 to 64.0 31.4 to 63.5 (23.7) to 89.4
Change in Industry NPV (%) (14.0) to (19.5) to (50.8) to (58.0) to (131.7) to
[dagger]....................... (9.0) (9.6) (14.3) (14.9) 19.8
[dagger][dagge
r]
----------------------------------------------------------------------------------------------------------------
Commercial Consumer Mean LCC Savings (2013$)
----------------------------------------------------------------------------------------------------------------
Gas-fired Furnaces.............. $186 $186 $426 $426 $1,025
Oil-fired Furnaces.............. NA $164 NA $164 $3,278
----------------------------------------------------------------------------------------------------------------
Commercial Consumer Median PBP (years)
----------------------------------------------------------------------------------------------------------------
Gas-fired Furnaces.............. 0.6 0.6 0.7 0.7 12.2
Oil-fired Furnaces.............. NA 2.8 NA 2.8 7.5
----------------------------------------------------------------------------------------------------------------
Distribution of Commercial Consumer LCC Impacts
----------------------------------------------------------------------------------------------------------------
Gas-fired Furnaces **
----------------------------------------------------------------------------------------------------------------
Customers with Net Cost (%)..... 1% 1% 2% 2% 48%
[[Page 6224]]
Customers with Net Benefit (%).. 66% 66% 88% 88% 51%
Customers with No Impact (%).... 33% 33% 10% 10% 1%
----------------------------------------------------------------------------------------------------------------
Oil-fired Furnaces **
----------------------------------------------------------------------------------------------------------------
Customers with Net Cost (%)..... 0% 8% 0% 8% 47%
Customers with Net Benefit (%).. 0% 23% 0% 23% 53%
Customers with No Impact (%).... 100% 69% 100% 69% 0%
----------------------------------------------------------------------------------------------------------------
* Weighted by shares of each equipment class in total projected shipments in 2018.
** Rounding may cause some items to not total 100 percent.
[dagger] Parentheses indicate negative values.
[dagger][dagger] At max tech, the standard will likely require commercial furnace manufacturers to make design
changes to the cooling components of commercial HVAC products and to the chassis that houses the heating and
cooling components. Since these cooling system changes are triggered by the CWAF standard, they are taken into
account in the MIA's estimate of conversion costs. The additional expense of updating the commercial cooling
product contributes to an INPV loss that is greater than 100%.
First, DOE considered TSL 5, the most efficient level (max-tech),
which would save an estimated total of 3.37 quads of energy, an amount
DOE considers significant. TSL 5 has an estimated NPV of commercial
consumer benefit of $2.9 billion using a 7-percent discount rate, and
$10.4 billion using a 3-percent discount rate.
The cumulative emissions reductions at TSL 5 are 182.5 million
metric tons of CO2, 444.12 thousand tons of NOX,
4.80 thousand tons of SO2, and 0.005 tons of Hg. The
estimated monetary value of the CO2 emissions reductions at
TSL 5 ranges from $1.2 billion to $17.1 billion.
At TSL 5, the average LCC savings are $1025.2 for gas-fired CWAF
and $3278.3 for oil-fired CWAF. The median PBP is 12.2 years for gas-
fired CWAF and 7.5 years for oil-fired CWAF. The share of commercial
consumers experiencing a net LCC benefit is 51 percent for gas-fired
CWAF and 53 percent for oil-fired CWAF.
At TSL 5, the projected change in INPV ranges from a decrease of
$98.3 million to an increase of $14.8 million, depending on the
manufacturer markup scenario. If the larger decrease is realized, TSL 5
could result in a net loss of 131.7 percent in INPV to manufacturers of
covered CWAF.
Accordingly, the Secretary tentatively concludes that, at TSL 5 for
CWAF, the benefits of energy savings, positive NPV of total commercial
consumer benefits, commercial consumer LCC savings, emission
reductions, and the estimated monetary value of the emissions
reductions would be outweighed by the very large reduction in industry
value at TSL 5, as well as the potential for loss of domestic
manufacturing. Consequently, DOE has concluded that TSL 5 is not
economically justified.
Next, DOE considered TSL 4, which would save an estimated total of
0.52 quads of energy, an amount DOE considers significant. TSL 4 has an
estimated NPV of commercial consumer benefit of $1.0 billion using a 7-
percent discount rate, and $2.7 billion using a 3-percent discount
rate.
The cumulative emissions reductions at TSL 4 are 27.9 million
metric tons of CO2, 66.84 thousand tons of NOX,
2.21 thousand tons of SO2, and 0.003 tons of Hg. The
estimated monetary value of the CO2 emissions reductions at
TSL 4 ranges from $0.2 billion to $2.6 billion.
At TSL 4, the average LCC savings are $425.9 for gas-fired CWAF and
$163.9 for oil-fired CWAF. The median PBP is 0.7 years for gas-fired
CWAF and 2.8 years for oil-fired CWAF. The share of commercial
consumers experiencing a net LCC benefit is 88 percent for gas-fired
CWAF and 23 percent for oil-fired CWAF.
At TSL 4, projected change in INPV ranges from a decrease of $43.3
million to a decrease of $11.1 million. If the larger decrease is
realized, TSL 4 could result in a net loss of 58 percent in INPV to
manufacturers of covered CWAF.
After considering the analysis and weighing the benefits and the
burdens, DOE has tentatively concluded that at TSL 4 for CWAFs, the
benefits of energy savings, positive NPV of commercial consumer
benefit, positive impacts on consumers (as indicated by positive
average LCC savings, favorable PBPs, and the large percentage of
commercial consumers who would experience LCC benefits), emission
reductions, and the estimated monetary value of the emissions
reductions would outweigh the potential reductions in INPV for
manufacturers. The Secretary of Energy has concluded that TSL 4 would
save a significant additional amount of energy, is technologically
feasible and economically justified, and is supported by clear and
convincing evidence.
Based on the above considerations, DOE today proposes to adopt the
energy conservation standards for CWAFs at TSL 4. Table V.21 presents
the proposed energy conservation standards for CWAFs.
Table V.21--Proposed Energy Conservation Standards for Commercial Warm
Air Furnaces
------------------------------------------------------------------------
Input capacity Thermal
Equipment type (Btu/h) efficiency
------------------------------------------------------------------------
Gas-fired Furnaces...................... >=225,000 82%
Oil-fired Furnaces...................... >=225,000 82%
------------------------------------------------------------------------
2. Summary of Benefits and Costs (Annualized) of the Proposed Standards
The benefits and costs of the proposed standards can also be
expressed in terms of annualized values. The annualized monetary values
are the sum of: (1) The annualized national economic value (expressed
in 2013$) of the benefits from operation of equipment that meets the
proposed standards (consisting primarily of operating cost savings from
using less energy, minus increases in equipment purchase costs, which
is another way of representing consumer NPV), and (2) the annualized
monetary value of the benefits of emission reductions, including
CO2 emission reductions.\78\ The value of CO2
[[Page 6225]]
reductions, otherwise known as the Social Cost of Carbon (SCC), is
calculated using a range of values per metric ton of CO2
developed by a recent interagency process.
---------------------------------------------------------------------------
\78\ DOE used a two-step calculation process to convert the
time-series of costs and benefits into annualized values. First, DOE
calculated a present value in 2013, the year used for discounting
the NPV of total customer costs and savings, for the time-series of
costs and benefits using discount rates of three and seven percent
for all costs and benefits except for the value of CO2
reductions. For the latter, DOE used a range of discount rates. From
the present value, DOE then calculated the fixed annual payment over
a 30-year period (2018 through 2047) that yields the same present
value. The fixed annual payment is the annualized value. Although
DOE calculated annualized values, this does not imply that the time-
series of cost and benefits from which the annualized values were
determined is a steady stream of payments.
---------------------------------------------------------------------------
Although combining the values of operating savings and
CO2 emission reductions provides a useful perspective, two
issues should be considered. First, the national operating savings are
domestic U.S. consumer monetary savings that occur as a result of
market transactions, while the value of CO2 reductions is
based on a global value. Second, the assessments of operating cost
savings and CO2 savings are performed with different methods
that use different time frames for analysis. The national operating
cost savings is measured for the lifetime of CWAF shipped in 2018 -
2047. The SCC values, on the other hand, reflect the present value of
some future climate-related impacts resulting from the emission of one
metric ton of carbon dioxide in each year. These impacts continue well
beyond 2100.
Estimates of annualized benefits and costs of the proposed
standards for CWAF are shown in Table V.22. The results under the
primary estimate are as follows. Using a 7-percent discount rate for
benefits and costs other than CO2 reduction, for which DOE
used a 3-percent discount rate along with the average SCC series that
uses a 3-percent discount rate, the estimated cost of the proposed CWAF
standards is $3.51 million per year in increased equipment costs, while
the estimated benefits are $104 million per year in reduced equipment
operating costs, $47 million in CO2 reductions, and $3.38
million in reduced NOX emissions. In this case, the net
benefit would amount to $151 million per year. Using a 3-percent
discount rate for all benefits and costs and the average SCC series,
the estimated cost of the proposed CWAF standards is $3.48 million per
year in increased equipment costs, while the estimated benefits are
$152 million per year in reduced equipment operating costs, $47 million
in CO2 reductions, and $4.57 million in reduced
NOX emissions. In this case, the net benefit would amount to
$200 million per year.
Table V.22--Annualized Benefits and Costs of Proposed Standards (TSL 4) for Commercial Warm Air Furnaces*
----------------------------------------------------------------------------------------------------------------
Million 2013 $/year
Discount rate ---------------------------------------------------------
Primary estimate Low estimate High estimate
----------------------------------------------------------------------------------------------------------------
Benefits
----------------------------------------------------------------------------------------------------------------
Operating Cost Savings...... 7% 104 98 111
3% 152 143 163
CO2 Reduction Monetized 5% 13 13 14
Value ($12.0/t case)**.....
CO2 Reduction Monetized 3% 47 45 48
Value ($40.5/t case)**.....
CO2 Reduction Monetized 2.5% 69 67 72
Value ($62.4/t case)**.....
CO2 Reduction Monetized 3% 145 140 150
Value ($119/t case)**......
NOX Reduction Monetized 7% 3.38 3.28 3.49
Value (at $2,684/ton)**....
3% 4.57 4.41 4.72
Total Benefits[dagger].. 7% plus CO2 range 120 to 253 114 to 242 128 to 264
7% 154 147 163
3% plus CO2 range 169 to 302 160 to 287 181 to 318
3% 203 192 216
----------------------------------------------------------------------------------------------------------------
Costs
----------------------------------------------------------------------------------------------------------------
Incremental Equipment Costs. 7% 3.51 3.48 3.67
3% 3.48 3.41 3.68
----------------------------------------------------------------------------------------------------------------
Net Benefits/Costs
----------------------------------------------------------------------------------------------------------------
Total[dagger]........... 7% plus CO2 range 117 to 249 111 to 238 124 to 261
7% 151 143 159
3% plus CO2 range 166 to 298 156 to 283 177 to 314
3% 200 189 212
----------------------------------------------------------------------------------------------------------------
* This table presents the annualized costs and benefits associated with CWAF shipped in 2018-2047. These results
include benefits to commercial consumers which accrue after 2048 from the equipment purchased in 2018-2047.
The results account for the incremental variable and fixed costs incurred by manufacturers due to the
standard, some of which may be incurred in preparation for the rule. The Primary, Low Benefits, and High
Benefits Estimates utilize projections of energy prices from the AEO2013 Reference case, Low Economic Growth
case, and High Economic Growth case, respectively. Incremental equipment costs account for equipment price
trends and include, beyond the reference scenario, a low price decline scenario used in the Low Benefits
Estimate and a high price decline scenario used in the High Benefits Estimates.
** The interagency group selected four sets of SCC values for use in regulatory analyses. Three sets of values
are based on the average SCC from the three integrated assessment models, at discount rates of 2.5, 3, and 5
percent. The fourth set, which represents the 95th percentile SCC estimate across all three models at a 3-
percent discount rate, is included to represent higher-than-expected impacts from temperature change further
out in the tails of the SCC distribution. The values in parentheses represent the SCC in 2015. The SCC time
series incorporate an escalation factor. The value for NOX is the average of the low and high values used in
DOE's analysis.
[dagger] Total benefits for both the 3-percent and 7-percent cases are derived using the series corresponding to
average SCC with 3-percent discount rate. In the rows labeled ``7% plus CO2 range'' and ``3% plus CO2 range,''
the operating cost and NOX benefits are calculated using the labeled discount rate, and those values are added
to the full range of CO2 values.
[[Page 6226]]
VI. Procedural Issues and Regulatory Review
A. Review Under Executive Orders 12866 and 13563
Section 1(b)(1) of Executive Order 12866, ``Regulatory Planning and
Review,'' 58 FR 51735 (Oct. 4, 1993), requires each agency to identify
the problem that it intends to address, including, where applicable,
the failures of private markets or public institutions that warrant new
agency action, as well as to assess the significance of that problem.
The problems that the proposed standards address are as follows:
(1) Insufficient information and the high costs of gathering and
analyzing relevant information leads some consumers to miss
opportunities to make cost-effective investments in energy
efficiency.
(2) In some cases the benefits of more efficient equipment are
not realized due to misaligned incentives between purchasers and
users. An example of such a case is when the equipment purchase
decision is made by a building contractor or building owner who does
not pay the energy costs of operating the equipment.
(3) There are external benefits resulting from improved energy
efficiency of CWAF that are not captured by the users of such
equipment. These benefits include externalities related to public
health, environmental protection and national security that are not
reflected in energy prices, such as reduced emissions of air
pollutants and greenhouse gases that impact human health and global
warming.
In addition, DOE has determined that this regulatory action is an
``economically significant regulatory action'' under section 3(f)(1) of
Executive Order 12866. Accordingly, section 6(a)(3) of the Executive
Order requires that DOE prepare a regulatory impact analysis (RIA) on
the rule being proposed and that the Office of Information and
Regulatory Affairs (OIRA) in the Office of Management and Budget (OMB)
review the rule. DOE presented to OIRA for review the draft rule and
other documents prepared for this rulemaking, including the RIA, and
has included these documents in the rulemaking record. The assessments
prepared pursuant to Executive Order 12866 can be found in the
technical support document for this rulemaking.
DOE has also reviewed this proposed regulation pursuant to
Executive Order 13563, issued on January 18, 2011. 76 FR 3281 (Jan. 21,
2011). Executive Order 13563 is supplemental to and explicitly
reaffirms the principles, structures, and definitions governing
regulatory review established in Executive Order 12866. To the extent
permitted by law, agencies are required by Executive Order 13563 to:
(1) Propose or adopt a regulation only upon a reasoned determination
that its benefits justify its costs (recognizing that some benefits and
costs are difficult to quantify); (2) tailor regulations to impose the
least burden on society, consistent with obtaining regulatory
objectives, taking into account, among other things, and to the extent
practicable, the costs of cumulative regulations; (3) select, in
choosing among alternative regulatory approaches, those approaches that
maximize net benefits (including potential economic, environmental,
public health and safety, and other advantages; distributive impacts;
and equity); (4) to the extent feasible, specify performance
objectives, rather than specifying the behavior or manner of compliance
that regulated entities must adopt; and (5) identify and assess
available alternatives to direct regulation, including providing
economic incentives to encourage the desired behavior, such as user
fees or marketable permits, or providing information upon which choices
can be made by the public.
DOE emphasizes as well that Executive Order 13563 requires agencies
to use the best available techniques to quantify anticipated present
and future benefits and costs as accurately as possible. In its
guidance, the Office of Information and Regulatory Affairs has
emphasized that such techniques may include identifying changing future
compliance costs that might result from technological innovation or
anticipated behavioral changes. For the reasons stated in the preamble,
DOE believes that today's NOPR is consistent with these principles,
including the requirement that, to the extent permitted by law,
benefits justify costs and that net benefits are maximized.
B. Review Under the Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires
preparation of an initial regulatory flexibility analysis (IRFA) for
any rule that by law must be proposed for public comment, unless the
agency certifies that the rule, if promulgated, will not have a
significant economic impact on a substantial number of small entities.
As required by Executive Order 13272, ``Proper Consideration of Small
Entities in Agency Rulemaking,'' 67 FR 53461 (August 16, 2002), DOE
published procedures and policies on February 19, 2003, to ensure that
the potential impacts of its rules on small entities are properly
considered during the rulemaking process. 68 FR 7990. DOE has made its
procedures and policies available on the Office of the General
Counsel's Web site (http://energy.gov/gc/office-general-counsel). DOE
has prepared the following IRFA for the products that are the subject
of this rulemaking.
For manufacturers of CWAF, the Small Business Administration (SBA)
has set a size threshold, which defines those entities classified as
``small businesses'' for the purposes of the statute. DOE used the
SBA's small business size standards to determine whether any small
entities would be subject to the requirements of the rule. 65 FR 30836,
30848 (May 15, 2000), as amended at 65 FR 53533, 53544 (Sept. 5, 2000)
and codified at 13 CFR part 121. The size standards are listed by North
American Industry Classification System (NAICS) code and industry
description and are available at http://www.sba.gov/category/navigation-structure/contracting/contracting-officials/small-business-size-standards. Manufacturing of CWAF is classified under NAICS 333415,
``Air-Conditioning and Warm Air Heating Equipment and Commercial and
Industrial Refrigeration Equipment Manufacturing.'' The SBA sets a
threshold of 750 employees or less for an entity to be considered as a
small business for this category.
1. Description and Estimated Number of Small Entities Regulated
DOE reviewed the proposed energy conservation standards for CWAF
considered in this notice of proposed rulemaking under the provisions
of the Regulatory Flexibility Act and the procedures and policies
published on February 19, 2003. 68 FR 7990. To better assess the
potential impacts of this rulemaking on small entities, DOE conducted a
more focused inquiry of the companies that could be small business
manufacturers of equipment covered by this rulemaking. DOE conducted a
market survey using available public information to identify potential
small manufacturers. DOE's research involved industry trade association
membership directories (including AHRI \79\), individual company Web
sites, and market research tools (e.g., Hoovers reports \80\) to create
a list of companies that manufacture or sell the CWAF equipment covered
by this rulemaking. DOE also asked industry representatives if they
were aware of any other small
[[Page 6227]]
manufacturers during manufacturer interviews. DOE reviewed publicly-
available data and contacted companies on its list, as necessary, to
determine whether they met the SBA's definition of a small business
manufacturer of covered CWAF equipment. DOE screened out companies that
do not offer equipment covered by this rulemaking, do not meet the
definition of a ``small business,'' or are foreign-owned and operated.
DOE was able to identify two manufacturers that meet the SBA's
definition of a ``small business'' out of the 13 companies that
manufacture products covered by this rulemaking.
---------------------------------------------------------------------------
\79\ Based on listings in the AHRI directory accessed on August
2, 2013 (Available at: https://www.ahridirectory.org/ahridirectory/pages/home.aspx).
\80\ Hoovers [verbarlm] Company Information [verbarlm] Industry
Information [verbarlm] Lists, D&B (2013) (Available at: http://www.hoovers.com/) (Last accessed April 3, 2013).
---------------------------------------------------------------------------
Before issuing this NOPR, DOE attempted to contact all the small
business manufacturers of CWAF it had identified. None of the small
businesses consented to formal interviews. DOE also attempted to obtain
information about small business impacts while interviewing large
manufacturers.
2. Description and Estimate of Compliance Requirements
DOE identified one small gas-fired CWAF manufacturer and one small
oil-fired CWAF manufacturer. The small gas-fired CWAF manufacturer
accounts for 17 of the 250 \81\ gas-fired CWAF listings in the AHRI
Directory, or approximately 7 percent of the listings. This small
manufacturer offers product exclusively at 80-percent TE, and at the
proposed level of TSL 4, would need to update its equipment offerings
to meet a standard of 82-percent TE. However, this position is not
unique. There are also some large gas-fired CWAF manufacturers would
that would need to update all equipment offerings to meet the proposed
standard. From a design perspective, DOE believes that most gas-fired
equipment lines on the market today can be upgraded to achieve the
proposed standard with increases in heat exchange surface area.
However, based on feedback used in the Top-Down conversion costs
analysis (see chapter 12 of the NOPR TSD), industry average conversion
costs could reach $4.4 million per gas-fired CWAF manufacturer.
---------------------------------------------------------------------------
\81\ The AHRI directory lists approximately 1,000 units. Many of
these units are from the same model line, share the same chassis,
and have the same level of performance, but have different heating
capacities or installed product options. DOE consolidated the AHRI
listing of CWAF such that all units from the same model line and
chassis are listed together as a single unit.
Table VI.1--Average Conversion Cost per Gas-Fired CWAF Manufacturer*
------------------------------------------------------------------------
Bottom-up Top-down
model model
(million $) (million $)
------------------------------------------------------------------------
TSL 1......................................... 1.0 1.3
TSL 2......................................... 1.0 1.3
TSL 3......................................... 1.6 4.4
TSL 4......................................... 1.6 4.4
TSL 5......................................... 7.2 11.3
------------------------------------------------------------------------
* Additional information about industry conversion costs and the two
estimation models can be found in section IV.J.2.B of this Notice.
Because this is a relatively low sales volume market, and because
the industry as a whole generally produces equipment at the baseline,
DOE believes the average impacts will be similar for large and small
business manufacturers. DOE was unable to identify any publicly
available information that would lead to a conclusion that small
manufacturers are differentially impacted, and as noted above, requests
to conduct interviews with small business manufacturers were declined.
Therefore, DOE assumed that small business manufacturers would face
similar conversion costs as larger businesses. However, the small gas-
fired CWAF manufacturer may need to allocate a greater portion of
technical resources or may need to access outside capital to support
the transition to the proposed standard.
The small oil-fired CWAF manufacturer accounts for 11 of the 16
oil-fired CWAF listings in the AHRI Directory. The small oil-fired
furnace manufacturer produces some of the most efficient products on
the market at 82-percent TE. It would be unlikely to be at a
technological disadvantage relative to its competitors at the proposed
TSL. It is possible the small manufacturer would have a competitive
advantage, given its technological lead and experience in the niche
market of high-efficiency commercial oil-fired warm air furnaces.
Table VI.2--Average Conversion Cost per Oil-Fired CWAF Manufacturer*
------------------------------------------------------------------------
Bottom-up Top-down
model model
(million $) (million $)
------------------------------------------------------------------------
TSL 1......................................... 0.0 0.0
TSL 2......................................... 0.2 2.2
TSL 3......................................... 0.0 0.0
TSL 4......................................... 0.2 2.2
TSL 5......................................... 0.9 5.5
------------------------------------------------------------------------
* Additional information about industry conversion costs and the two
estimation models can be found in section IV.J.2.B of this Notice.
An amended energy conservation standard is likely to necessitate
conversion investment by all manufacturers to bring products into
compliance. Manufacturers may choose to access outside capital to help
fund the upfront, one-time costs to bring products into compliance.
Small manufacturers may have greater difficulty securing outside
capital \82\ and, as a result, may face higher costs of capital than
large competitors.
---------------------------------------------------------------------------
\82\ Simon, Ruth, and Angus Loten. ``Small-Business Lending Is
Slow to Recover.'' Wall Street Journal, August 14, 2014. Accessed
August 2014. http://online.wsj.com/articles/small-business-lending-is-slow-to-recover-1408329562.
---------------------------------------------------------------------------
As noted above, none of the small businesses consented to formal
interviews, so information regarding the impacts of this proposed
standard for small business manufacturers is limited. DOE seeks further
information and data regarding the sales volume and annual revenues for
small businesses so the agency can be better informed concerning the
potential impacts to small business manufacturers of the proposed
energy conservation standards, and would consider any such additional
information when formulating and selecting TSLs for the final rule.
3. Duplication, Overlap, and Conflict With Other Rules and Regulations
DOE is not aware of any rules or regulations that duplicate,
overlap, or conflict with the proposed rule.
4. Significant Alternatives to the Rule
The discussion above analyzes impacts on small businesses that
would result from DOE's proposed rule. In addition to the other TSLs
being considered, the proposed rulemaking TSD includes a regulatory
impact analysis (RIA). For CWAF, the RIA discusses the following policy
alternatives: (1) No change in standard; (2) consumer rebates; (3)
consumer tax credits; (4) manufacturer tax credits; (5) voluntary
energy efficiency targets; and (6) bulk government purchases. While
these alternatives may mitigate to some varying extent the economic
impacts on small entities compared to the standards, DOE did not
consider the alternatives further because they are either not feasible
to implement without authority and funding from Congress, or are
expected to result in energy savings that are significantly smaller
than those that would be expected to result from adoption of the
proposed standard levels. In reviewing alternatives that would reduce
burden on small business manufacturers, DOE analyzed a case in which
the voluntary programs targeted
[[Page 6228]]
efficiencies corresponding to TSL 4. DOE also examined standards at
lower efficiency levels, TSL 3, TSL 2 and TSL 1. (See section V.C of
this NOPR for a description of benefits and burdens at each TSL and
discussion of DOE's TSL selection process.)
TSL 3 achieves a slightly lower level of energy savings as TSL 4;
and it would not significantly reduce burden on small business
manufacturers. TSL 3 would reduce the required efficiency of oil-fired
CWAF as compared to TSL 4, while leaving the standard for gas-fired
CWAF the same. Thus, there would be no reduction of burden for the
small business manufacturer of gas-fired CWAF. TSL 3 would marginally
reduce the burden for the small business manufacturer of oil-fired
CWAF, but as noted previously the majority of the small oil-fired
furnace manufacturer's products already meet TSL 4. The small oil-fired
manufacturer may have a competitive advantage at TSL 4, given its
technological lead and experience in the niche market of high-
efficiency commercial oil-fired warm air furnaces. TSL 2 and TSL 1 both
achieve savings that would be less than half of that achieved by TSL 4.
Voluntary programs at these levels achieve only a fraction of the
savings achieved by standards and would provide even lower savings
benefits. To achieve substantial reductions in small business impacts
would force the standard down to TSL 2 levels, at the expense of
substantial energy savings and NPV benefits, which would be
inconsistent with DOE's statutory mandate to maximize the improvement
in energy efficiency that the Secretary determines is technologically
feasible and economically justified. DOE believes that establishing
standards at TSL 4 provides the optimum balance between energy savings
benefits and impacts on small businesses. DOE notes that it did not
consider an alternative compliance date for the entire industry
affected by this rulemaking. DOE is constrained by the three-year lead
time required by statute (42 U.S.C. 6313(a)(6)(D)). However, certain
compliance date alternatives may be available to individual
manufacturers, as discussed below. Accordingly, DOE is declining to
adopt any of these alternatives and is proposing the standards set
forth in this rulemaking. (See chapter 17 of the NOPR TSD for further
detail on the policy alternatives DOE considered.) The TSD considers
regulatory alternatives that would potentially reduce the burden on the
industry as a whole, including small businesses and the agency requests
comment on this issue.
Additional compliance flexibilities may be available through other
means. For example, individual manufacturers may petition for a waiver
of the applicable test procedure. (See 10 CFR 431.401.) Further, EPCA
provides that a manufacturer whose annual gross revenue from all of its
operations does not exceed $8,000,000 may apply for an exemption from
all or part of an energy conservation standard for a period not longer
than 24 months after the effective date of a final rule establishing
the standard. Additionally, Section 504 of the Department of Energy
Organization Act, 42 U.S.C. 7194, provides authority for the Secretary
to adjust a rule issued under EPCA in order to prevent ``special
hardship, inequity, or unfair distribution of burdens'' that may be
imposed on that manufacturer as a result of such rule. Manufacturers
should refer to 10 CFR part 430, subpart E, and part 1003 for
additional details.
C. Review Under the Paperwork Reduction Act of 1995
Manufacturers of CWAF must certify to DOE that their equipment
complies with any applicable energy conservation standards. In
certifying compliance, manufacturers must test their equipment
according to the applicable DOE test procedures for CWAF, including any
amendments adopted for those test procedures on the date that
compliance is required. DOE has established regulations for the
certification and recordkeeping requirements for all covered consumer
products and commercial equipment, including CWAF. 76 FR 12422 (March
7, 2011). The collection-of-information requirement for the
certification and recordkeeping is subject to review and approval by
OMB under the Paperwork Reduction Act (PRA). This requirement has been
approved by OMB under OMB control number 1910-1400. Public reporting
burden for the certification is estimated to average 20 hours per
response, including the time for reviewing instructions, searching
existing data sources, gathering and maintaining the data needed, and
completing and reviewing the collection of information.
Notwithstanding any other provision of the law, no person is
required to respond to, nor shall any person be subject to a penalty
for failure to comply with, a collection of information subject to the
requirements of the PRA, unless that collection of information displays
a currently valid OMB Control Number.
D. Review Under the National Environmental Policy Act of 1969
Pursuant to the National Environmental Policy Act (NEPA) of 1969,
DOE has determined that the proposed rule fits within the category of
actions included in Categorical Exclusion (CX) B5.1 and otherwise meets
the requirements for application of a CX. See 10 CFR part 1021, App. B,
B5.1(b); 1021.410(b) and Appendix B, B(1)-(5). The proposed rule fits
within the category of actions under CX B5.1 because it is a rulemaking
that establishes energy conservation standards for consumer products or
industrial equipment, and for which none of the exceptions identified
in CX B5.1(b) apply. Therefore, DOE has made a CX determination for
this rulemaking, and DOE does not need to prepare an Environmental
Assessment or Environmental Impact Statement for this proposed rule.
DOE's CX determination for this proposed rule is available at http://cxnepa.energy.gov/.
E. Review Under Executive Order 13132
Executive Order 13132, ``Federalism,'' 64 FR 43255 (Aug. 10, 1999),
imposes certain requirements on Federal agencies formulating and
implementing policies or regulations that preempt State law or that
have Federalism implications. The Executive Order requires agencies to
examine the constitutional and statutory authority supporting any
action that would limit the policymaking discretion of the States and
to carefully assess the necessity for such actions. The Executive Order
also requires agencies to have an accountable process to ensure
meaningful and timely input by State and local officials in the
development of regulatory policies that have Federalism implications.
On March 14, 2000, DOE published a statement of policy describing the
intergovernmental consultation process it will follow in the
development of such regulations. 65 FR 13735. DOE has examined this
proposed rule and has tentatively determined that it would not have a
substantial direct effect on the States, on the relationship between
the national government and the States, or on the distribution of power
and responsibilities among the various levels of government. EPCA
governs and prescribes Federal preemption of State regulations as to
energy conservation for the products that are the subject of the
proposed rule. States can petition DOE for exemption from such
preemption to the extent, and based on criteria, set forth in EPCA. (42
U.S.C. 6297) No
[[Page 6229]]
further action is required by Executive Order 13132.
F. Review Under Executive Order 12988
With respect to the review of existing regulations and the
promulgation of new regulations, section 3(a) of Executive Order 12988,
``Civil Justice Reform,'' imposes on Federal agencies the general duty
to adhere to the following requirements: (1) eliminate drafting errors
and ambiguity; (2) write regulations to minimize litigation; and (3)
provide a clear legal standard for affected conduct rather than a
general standard; and (4) promote simplification and burden reduction.
61 FR 4729 (Feb. 7, 1996). Regarding the review required by section
3(a), section 3(b) of Executive Order 12988 specifically requires that
Executive agencies make every reasonable effort to ensure that the
regulation: (1) clearly specifies the preemptive effect, if any; (2)
clearly specifies any effect on existing Federal law or regulation; (3)
provides a clear legal standard for affected conduct while promoting
simplification and burden reduction; (4) specifies the retroactive
effect, if any; (5) adequately defines key terms; and (6) addresses
other important issues affecting clarity and general draftsmanship
under any guidelines issued by the Attorney General. Section 3(c) of
Executive Order 12988 requires Executive agencies to review regulations
in light of applicable standards in section 3(a) and section 3(b) to
determine whether they are met or it is unreasonable to meet one or
more of them. DOE has completed the required review and determined
that, to the extent permitted by law, this proposed rule meets the
relevant standards of Executive Order 12988.
G. Review Under the Unfunded Mandates Reform Act of 1995
Title II of the Unfunded Mandates Reform Act of 1995 (UMRA)
requires each Federal agency to assess the effects of Federal
regulatory actions on State, local, and Tribal governments and the
private sector. Pub. L. 104-4, sec. 201 (codified at 2 U.S.C. 1531).
For a proposed regulatory action likely to result in a rule that may
cause the expenditure by State, local, and Tribal governments, in the
aggregate, or by the private sector of $100 million or more in any one
year (adjusted annually for inflation), section 202 of UMRA requires a
Federal agency to publish a written statement that estimates the
resulting costs, benefits, and other effects on the national economy.
(2 U.S.C. 1532(a), (b)) The UMRA also requires a Federal agency to
develop an effective process to permit timely input by elected officers
of State, local, and Tribal governments on a proposed ``significant
intergovernmental mandate,'' and requires an agency plan for giving
notice and opportunity for timely input to potentially affected small
governments before establishing any requirements that might
significantly or uniquely affect them. On March 18, 1997, DOE published
a statement of policy on its process for intergovernmental consultation
under UMRA. 62 FR 12820. DOE's policy statement is also available at
http://energy.gov/gc/office-general-counsel.
Although today's proposed rule, which proposes amended energy
conservation standards for CWAF, does not contain a Federal
intergovernmental mandate, it may require annual expenditures of $100
million or more by the private sector. Specifically, the proposed rule
would likely result in a final rule that could require expenditures of
$100 million or more. Such expenditures may include: (1) investment in
research and development and in capital expenditures by CWAF
manufacturers in the years between the final rule and the compliance
date for the amended standards, and (2) incremental additional
expenditures by commercial consumers to purchase higher-efficiency
CWAF, starting at the compliance date for the applicable standard.
Section 202 of UMRA authorizes a Federal agency to respond to the
content requirements of UMRA in any other statement or analysis that
accompanies the proposed rule. 2 U.S.C. 1532(c). The content
requirements of section 202(b) of UMRA relevant to a private sector
mandate substantially overlap the economic analysis requirements that
apply under section 325(o) of EPCA and Executive Order 12866. The
SUPPLEMENTARY INFORMATION section of the NOPR and the ``Regulatory
Impact Analysis'' section of the TSD for this proposed rule respond to
those requirements.
Under section 205 of UMRA, the Department is obligated to identify
and consider a reasonable number of regulatory alternatives before
promulgating a rule for which a written statement under section 202 is
required. 2 U.S.C. 1535(a). DOE is required to select from those
alternatives the most cost-effective and least burdensome alternative
that achieves the objectives of the proposed rule unless DOE publishes
an explanation for doing otherwise, or the selection of such an
alternative is inconsistent with law. As required by 42 U.S.C. 6313(a),
this proposed rule would establish amended energy conservation
standards for CWAF that are designed to achieve the maximum improvement
in energy efficiency that DOE has determined to be both technologically
feasible and economically justified. A full discussion of the
alternatives considered by DOE is presented in the ``Regulatory Impact
Analysis'' section of the TSD for today's proposed rule.
H. Review Under the Treasury and General Government Appropriations Act,
1999
Section 654 of the Treasury and General Government Appropriations
Act, 1999 (Pub. L. 105-277) requires Federal agencies to issue a Family
Policymaking Assessment for any rule that may affect family well-being.
This rule would not have any impact on the autonomy or integrity of the
family as an institution. Accordingly, DOE has concluded that it is not
necessary to prepare a Family Policymaking Assessment.
I. Review Under Executive Order 12630
Pursuant to Executive Order 12630, ``Governmental Actions and
Interference with Constitutionally Protected Property Rights,'' 53 FR
8859 (March 15, 1988), DOE has determined that this proposed rule would
not result in any takings that might require compensation under the
Fifth Amendment to the U.S. Constitution.
J. Review Under the Treasury and General Government Appropriations Act,
2001
Section 515 of the Treasury and General Government Appropriations
Act, 2001 (44 U.S.C. 3516 note) provides for Federal agencies to review
most disseminations of information to the public under information
quality guidelines established by each agency pursuant to general
guidelines issued by OMB. OMB's guidelines were published at 67 FR 8452
(Feb. 22, 2002), and DOE's guidelines were published at 67 FR 62446
(Oct. 7, 2002). DOE has reviewed the NOPR under the OMB and DOE
guidelines and has concluded that it is consistent with applicable
policies in those guidelines.
K. Review Under Executive Order 13211
Executive Order 13211, ``Actions Concerning Regulations That
Significantly Affect Energy Supply, Distribution, or Use,'' 66 FR 28355
(May 22, 2001), requires Federal agencies to prepare and submit to OIRA
at OMB, a Statement of Energy Effects for any proposed significant
energy action. A ``significant energy action'' is defined as any action
by an agency that promulgates or is expected to lead to
[[Page 6230]]
promulgation of a final rule, and that: (1) is a significant regulatory
action under Executive Order 12866, or any successor order; and (2) is
likely to have a significant adverse effect on the supply,
distribution, or use of energy, or (3) is designated by the
Administrator of OIRA as a significant energy action. For any proposed
significant energy action, the agency must give a detailed statement of
any adverse effects on energy supply, distribution, or use should the
proposal be implemented, and of reasonable alternatives to the action
and their expected benefits on energy supply, distribution, and use.
DOE has tentatively concluded that today's regulatory action, which
sets forth proposed energy conservation standards for CWAF, is not a
significant energy action because the proposed standards are not likely
to have a significant adverse effect on the supply, distribution, or
use of energy, nor has it been designated as such by the Administrator
at OIRA. Accordingly, DOE has not prepared a Statement of Energy
Effects on the proposed rule.
L. Review Under the Information Quality Bulletin for Peer Review
On December 16, 2004, OMB, in consultation with the Office of
Science and Technology Policy (OSTP), issued its Final Information
Quality Bulletin for Peer Review (the Bulletin). 70 FR 2664 (Jan. 14,
2005). The Bulletin establishes that certain scientific information
shall be peer reviewed by qualified specialists before it is
disseminated by the Federal Government, including influential
scientific information related to agency regulatory actions. The
purpose of the bulletin is to enhance the quality and credibility of
the Government's scientific information. Under the Bulletin, the energy
conservation standards rulemaking analyses are ``influential scientific
information,'' which the Bulletin defines as ``scientific information
the agency reasonably can determine will have, or does have, a clear
and substantial impact on important public policies or private sector
decisions.'' Id. at 2667.
In response to OMB's Bulletin, DOE conducted formal in-progress
peer reviews of the energy conservation standards development process
and analyses and has prepared a Peer Review Report pertaining to the
energy conservation standards rulemaking analyses. Generation of this
report involved a rigorous, formal, and documented evaluation using
objective criteria and qualified and independent reviewers to make a
judgment as to the technical/scientific/business merit, the actual or
anticipated results, and the productivity and management effectiveness
of programs and/or projects. The ``Energy Conservation Standards
Rulemaking Peer Review Report'' dated February 2007 has been
disseminated and is available at the following Web site:
www1.eere.energy.gov/buildings/appliance_standards/peer_review.html.
VII. Public Participation
A. Attendance at the Public Meeting
The time, date, and location of the public meeting are listed in
the DATES and ADDRESSES sections at the beginning of this notice. If
you plan to attend the public meeting, please notify Ms. Brenda Edwards
at (202) 586-2945 or [email protected].
All participants will undergo security processing upon building
entry. Any participant with a laptop computer or similar device (e.g.,
tablets), must undergo additional screening. Note that any foreign
national who requests to participate in the public meeting is subject
to advance security screening prior to the date of the public meeting,
and such persons should contact Ms. Brenda Edwards as soon as possible
at (202) 586-2945 to commence the necessary procedures.
Due to the REAL ID Act implemented by the Department of Homeland
Security (DHS), there have been recent changes regarding identification
(ID) requirements for individuals wishing to enter Federal buildings
from specific States and U.S. territories. As a result, driver's
licenses from the following States or territory will not be accepted
for building entry, and instead, one of the alternate forms of ID
listed below will be required.
DHS has determined that regular driver's licenses (and ID cards)
from the following jurisdictions are not acceptable for entry into DOE
facilities: Alaska, American Samoa, Arizona, Louisiana, Maine,
Massachusetts, Minnesota, New York, Oklahoma, and Washington.
Acceptable alternate forms of Photo-ID include: U.S. Passport or
Passport Card; an Enhanced Driver's License or Enhanced ID-Card issued
by the States of Minnesota, New York or Washington (Enhanced licenses
issued by these States are clearly marked Enhanced or Enhanced Driver's
License); a military ID or other Federal government-issued Photo-ID
card.
In addition, you can attend the public meeting via webinar. Webinar
registration information, participant instructions, and information
about the capabilities available to webinar participants will be
published on DOE's Web site at: http://www1.eere.energy.gov/buildings/appliance_standards/rulemaking.aspx/ruleid/70. Participants are
responsible for ensuring their systems are compatible with the webinar
software.
B. Procedure for Submitting Requests To Speak and Prepared General
Statements for Distribution
Any person who has an interest in the topics addressed in this
notice, or who is representative of a group or class of persons that
has an interest in these issues, may request an opportunity to make an
oral presentation at the public meeting. Such persons may hand-deliver
requests to speak to the address shown in the ADDRESSES section at the
beginning of this notice between 9:00 a.m. and 4:00 p.m., Monday
through Friday, except Federal holidays. Requests may also be sent by
mail or email to: Ms. Brenda Edwards, U.S. Department of Energy,
Building Technologies Program, Mailstop EE-2J, 1000 Independence Avenue
SW., Washington, DC 20585-0121, or [email protected]. Persons
who wish to speak should include with their request a computer diskette
or CD-ROM in WordPerfect, Microsoft Word, PDF, or text (ASCII) file
format that briefly describes the nature of their interest in this
rulemaking and the topics they wish to discuss. Such persons should
also provide a daytime telephone number where they can be reached.
DOE requests persons scheduled to make an oral presentation to
submit an advance copy of their statements at least one week before the
public meeting. DOE may permit persons who cannot supply an advance
copy of their statement to participate, if those persons have made
advance alternative arrangements with the Building Technologies
Program. As necessary, requests to give an oral presentation should ask
for such alternative arrangements. DOE prefers to receive requests and
advance copies via email. Any person who has plans to present a
prepared general statement may request that copies of his or her
statement be made available at the public meeting.
C. Conduct of the Public Meeting
DOE will designate a DOE official to preside at the public meeting
and may also use a professional facilitator to aid discussion. The
meeting will not be a judicial or evidentiary-type public hearing, but
DOE will conduct it in accordance with section 336 of EPCA (42 U.S.C.
6306). A court reporter will be present to record the proceedings and
[[Page 6231]]
prepare a transcript. DOE reserves the right to schedule the order of
presentations and to establish the procedures governing the conduct of
the public meeting. There shall not be discussion of proprietary
information, costs or prices, market share, or other commercial matters
regulated by U.S. anti-trust laws. After the public meeting, interested
parties may submit further comments on the proceedings, as well as on
any aspect of the rulemaking, until the end of the comment period.
The public meeting will be conducted in an informal, conference
style. DOE will present summaries of comments received before the
public meeting, allow time for prepared general statements by
participants, and encourage all interested parties to share their views
on issues affecting this rulemaking. Each participant will be allowed
to make a general statement (within time limits determined by DOE),
before the discussion of specific topics. DOE will allow, as time
permits, other participants to comment briefly on any general
statements.
At the end of all prepared statements on a topic, DOE will permit
participants to clarify their statements briefly and comment on
statements made by others. Participants should be prepared to answer
questions by DOE and by other participants concerning these issues. DOE
representatives may also ask questions of participants concerning other
matters relevant to this rulemaking. The official conducting the public
meeting will accept additional comments or questions from those
attending, as time permits. The presiding official will announce any
further procedural rules or modification of the above procedures that
may be needed for the proper conduct of the public meeting.
A transcript of the public meeting will be included in the docket,
which can be viewed as described in the Docket section at the beginning
of this notice and will be accessible on the DOE Web site. In addition,
any person may buy a copy of the transcript from the transcribing
reporter.
D. Submission of Comments
DOE will accept comments, data, and information regarding this
proposed rule before or after the public meeting, but no later than the
date provided in the DATES section at the beginning of this proposed
rule. Interested parties may submit comments, data, and other
information using any of the methods described in the ADDRESSES section
at the beginning of this notice.
Submitting comments via www.regulations.gov. The
www.regulations.gov Web page will require you to provide your name and
contact information. Your contact information will be viewable to DOE
Building Technologies staff only. Your contact information will not be
publicly viewable except for your first and last names, organization
name (if any), and submitter representative name (if any). If your
comment is not processed properly because of technical difficulties,
DOE will use this information to contact you. If DOE cannot read your
comment due to technical difficulties and cannot contact you for
clarification, DOE may not be able to consider your comment.
However, your contact information will be publicly viewable if you
include it in the comment itself or in any documents attached to your
comment. Any information that you do not want to be publicly viewable
should not be included in your comment, nor in any document attached to
your comment. Otherwise, persons viewing comments will see only first
and last names, organization names, correspondence containing comments,
and any documents submitted with the comments.
Do not submit to www.regulations.gov information for which
disclosure is restricted by statute, such as trade secrets and
commercial or financial information (hereinafter referred to as
Confidential Business Information (CBI)). Comments submitted through
http://www.regulations.gov cannot be claimed as CBI. Comments received
through the Web site will waive any CBI claims for the information
submitted. For information on submitting CBI, see the Confidential
Business Information section below.
DOE processes submissions made through www.regulations.gov before
posting. Normally, comments will be posted within a few days of being
submitted. However, if large volumes of comments are being processed
simultaneously, your comment may not be viewable for up to several
weeks. Please keep the comment tracking number that www.regulations.gov
provides after you have successfully uploaded your comment.
Submitting comments via email, hand delivery/courier, or mail.
Comments and documents submitted via email, hand delivery, or mail also
will be posted to www.regulations.gov. If you do not want your personal
contact information to be publicly viewable, do not include it in your
comment or any accompanying documents. Instead, provide your contact
information in a cover letter. Include your first and last names, email
address, telephone number, and optional mailing address. The cover
letter will not be publicly viewable as long as it does not include any
comments
Include contact information each time you submit comments, data,
documents, and other information to DOE. If you submit via mail or hand
delivery/courier, please provide all items on a CD, if feasible, in
which case it is not necessary to submit printed copies. No facsimiles
(faxes) will be accepted.
Comments, data, and other information submitted to DOE
electronically should be provided in PDF (preferred), Microsoft Word or
Excel, WordPerfect, or text (ASCII) file format. Provide documents that
are not secured, that are written in English, and that are free of any
defects or viruses. Documents should not contain special characters or
any form of encryption and, if possible, they should carry the
electronic signature of the author.
Campaign form letters. Please submit campaign form letters by the
originating organization in batches of between 50 to 500 form letters
per PDF or as one form letter with a list of supporters' names compiled
into one or more PDFs. This reduces comment processing and posting
time.
Confidential Business Information. Pursuant to 10 CFR 1004.11, any
person submitting information that he or she believes to be
confidential and exempt by law from public disclosure should submit via
email, postal mail, or hand delivery/courier two well-marked copies:
one copy of the document marked ``confidential'' including all the
information believed to be confidential, and one copy of the document
marked ``non-confidential'' with the information believed to be
confidential deleted. Submit these documents via email or on a CD, if
feasible. DOE will make its own determination about the confidential
status of the information and treat it according to its determination.
Factors of interest to DOE when evaluating requests to treat
submitted information as confidential include: (1) A description of the
items; (2) whether and why such items are customarily treated as
confidential within the industry; (3) whether the information is
generally known by or available from other sources; (4) whether the
information has previously been made available to others without
obligation concerning its confidentiality; (5) an explanation of the
competitive injury to the submitting person which would result from
public disclosure; (6) when such information might lose its
confidential character due to the passage of time; and (7) why
disclosure
[[Page 6232]]
of the information would be contrary to the public interest.
It is DOE's policy that all comments may be included in the public
docket, without change and as received, including any personal
information provided in the comments (except information deemed to be
exempt from public disclosure).
E. Issues on Which DOE Seeks Comment
Although DOE welcomes comments on any aspect of this proposal, DOE
is particularly interested in receiving comments and views of
interested parties concerning the following issues:
1. The use of proprietary designs and patented technologies in
CWAF, and whether all manufacturers would be able to achieve the
proposed levels through the use of non-proprietary designs. (See
section III.B.1 and chapter 3 of the NOPR TSD.)
2. The proposed scope of coverage and equipment classes for this
rulemaking. In particular DOE seeks comment on whether there is a
need for separate equipment classes for units designed to be
installed indoors (i.e., ``non-weatherized'' units) and units
designed to be installed outdoors (i.e., ``weatherized'' units) due
to the potential need to manage acidic condensate and the potential
for condensate freezing after exiting the furnace. (See section
IV.A.2 and chapter 3 of the NOPR TSD.)
3. The technologies identified in this rulemaking, as well as
the technologies which were primarily considered as the methods for
increasing thermal efficiency of commercial warm air furnaces. (See
section IV.A.3 and chapters 3 and 4 of the NOPR TSD.)
4. The potential for lessening of product utility for CWAF
meeting the proposed standards and whether the proposed standards
would likely result in the unavailability in the United States of
any covered product type (or class) of performance characteristics
(including reliability), features, sizes, capacities, and volumes
that are substantially the same as those generally available in the
United States . (See section II.A and chapter 3 of the NOPR TSD.)
5. The efficiency levels analyzed for gas-fired and oil-fired
commercial warm air furnaces. In particular, DOE is interested in
the feasibility of the max-tech efficiency levels, as well as the
ability of non-condensing technologies to meet the 82 percent
thermal efficiency level for gas-fired commercial furnaces. DOE also
seeks comment on whether an 82 percent thermal efficiency standard
would shift production to condensing technology if manufacturers,
for example, would need to design their equipment to a level
slightly higher than the DOE standard due to the margin of error
associated with the test methodology. In addition, DOE is interested
in whether the accuracy of the results from the test method would
support measuring thermal efficiencies to the tenth decimal place
such that DOE could consider 81.5 percent or some other fraction as
a potential standard level as opposed to rounding the standard to
the nearest whole number. (See section IV.C.2.b and chapter 5 of the
NOPR TSD.)
6. The applicability of the teardown units at 250,000 Btu/h and
400,000 Btu/h input capacities to represent the range of potential
input capacities on the market. (See section IV.C.1 and chapter 5 of
the NOPR TSD.)
7. The incremental manufacturing costs above the baseline cost
at the efficiency levels considered in the engineering analysis,
which DOE estimates to be $10 for gas-fired CWAFs and $24 for oil-
fired CWAFs at the proposed standard level. (See section IV.C.5 and
chapter 5 of the NOPR TSD.)
8. The approach used to estimate the trend for future CWAF
consumer prices. (See section IV.F.1 and chapter 8 of the NOPR TSD.)
9. The approach of using CBECS and RECS data for determining the
energy consumption of CWAF in residential and commercial buildings.
(See section IV.E and chapter 7 of the NOPR TSD.)
10. The analytical methodology to estimate the annual energy use
for CWAF. (See section IV.E and chapter 7 of the NOPR TSD.)
11. The approach and data sources used for assessing changes in
installation costs for more-efficient CWAF. (See section IV.F.1 and
chapter 8 of the NOPR TSD.)
12. The methodology and data sources used for assessing changes
in maintenance and repair costs for more-efficient CWAF. (See
section IV.F.2.c and chapter 8 of the NOPR TSD.)
13. The approach used to determine the lifetimes for CWAF and
whether the lifetimes assumed in the analysis are reflective of CWAF
equipment covered by this rule. In addition, the agency is seeking
comment on whether the energy efficiency standards would be expected
to affect the lifetime of the products covered by the proposed
standards. (See section IV.F.2.d and chapter 8 of the NOPR TSD.)
14. The potential for a rebound effect associated with higher
efficiency standards for the covered furnaces in both commercial and
residential installations. (See section IV.F.2.d and chapter 8 of
the NOPR TSD.)
15. The appropriate base case distribution of energy
efficiencies for CWAF in 2018 (compliance year of the standard) in
the absence of amended energy conservation standards. (See section
IV.F.2.d and chapter 8 of the NOPR TSD.)
16. DOE's methodology and data sources used for projecting the
future shipments of CWAF in the absence of amended energy
conservation standards. Specifically, DOE is interested in the
historical data from the past 10 years for CWAF. (See section
IV.F.2.d and chapter 9 of the NOPR TSD.)
17. The potential impacts of amended standards on product
shipments, including impacts related to equipment switching. (See
section IV.F.2.d and chapter 9 of the NOPR TSD.)
18. The methodology used to determine long-term changes in CWAF
energy efficiency independent of amending energy conservation
standards. (See section IV.H and chapter 10 of the NOPR TSD.)
19. Consumer subgroups that should be considered in this
rulemaking. (See section IV.I and chapter 11 of the NOPR TSD.)
20. The approach for conducting the emissions analysis for CWAF.
(See section IV.K and chapter 13 of the NOPR TSD.)
21. DOE's approach for estimating monetary benefits associated
with emissions reductions, including the SCC values used. (See
section IV.L and chapter 14 of the NOPR TSD.)
22. Impacts on small business manufacturers from the proposed
standard. In particular, DOE seeks further information and data
regarding the sales volume and annual revenues for small businesses
so the agency can be better informed concerning the potential
impacts to small business manufacturers of the proposed energy
conservation standards, and would consider any such additional
information when formulating and selecting TSLs for the final rule
and whether any feasible compliance flexibilities that the agency
may consider. (See section VI.B and chapter 12 of the NOPR TSD.)
VIII. Approval of the Office of the Secretary
The Secretary of Energy has approved publication of this notice of
proposed rulemaking.
List of Subjects in 10 CFR Part 431
Administrative practice and procedure, Confidential business
information, Energy conservation, Reporting and recordkeeping
requirements.
Issued in Washington, DC, on January 16, 2015.
Michael Carr,
Principal Deputy Assistant Secretary, Energy Efficiency and Renewable
Energy.
For the reasons set forth in the preamble, DOE proposes to amend
part 431 of Chapter II, Subchapter D, of Title 10 of the Code of
Federal Regulations, as set forth below:
PART 431--ENERGY EFFICIENCY PROGRAM FOR CERTAIN COMMERCIAL AND
INDUSTRIAL EQUIPMENT
0
1. The authority citation for part 431 continues to read as follows:
Authority: 42 U.S.C. 6291-6317.
0
2. Section 431.77 is revised to read as follows:
Sec. 431.77 Energy conservation standards and their effective dates.
(a) Gas-fired Commercial Warm Air Furnaces. Each gas-fired
commercial warm air furnace must meet the following energy efficiency
standard levels:
(1) For gas-fired commercial warm air furnaces manufactured on and
after January 1, 1994, and before [date 3 years after publication of
the energy conservation standards final rule], the
[[Page 6233]]
thermal efficiency at the maximum rated capacity (rated maximum input)
must be not less than 80 percent; and
(2) For gas-fired commercial warm air furnaces manufactured on and
after [date 3 years after publication of the energy conservation
standards final rule], the thermal efficiency at the maximum rated
capacity (rated maximum input) must be not less than 82 percent.
(b) Oil-fired Commercial Warm Air Furnaces. Each oil-fired
commercial warm air furnace must meet the following energy efficiency
standard levels:
(1) For oil-fired commercial warm air furnaces manufactured on and
after January 1, 1994, and before [date 3 years after publication of
the energy conservation standards final rule], the thermal efficiency
at the maximum rated capacity (rated maximum input) must be not less
than 81 percent; and
(2) For oil-fired commercial warm air furnaces manufactured on and
after [date 3 years after publication of the energy conservation
standards final rule], the thermal efficiency at the maximum rated
capacity (rated maximum input) must be not less than 82 percent.
[FR Doc. 2015-01415 Filed 2-3-15; 8:45 am]
BILLING CODE 6450-01-P