[Federal Register Volume 80, Number 87 (Wednesday, May 6, 2015)]
[Rules and Regulations]
[Pages 25901-25924]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-10380]
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DEPARTMENT OF AGRICULTURE
7 CFR Chapter 0
RIN 0575-ZA00
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
24 CFR Parts 91 and 93
[HUD FR-5647-N-02]
RIN 2501-ZA01
Final Affordability Determination--Energy Efficiency Standards
AGENCY: U.S. Department of Housing and Urban Development and U.S.
Department of Agriculture.
ACTION: Notice of Final Determination.
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SUMMARY: The U.S. Department of Housing and Urban Development (HUD) and
the U.S. Department of Agriculture (USDA) have determined that adoption
of the 2009 edition of the International Energy Conservation Code
(IECC) for single family homes and the 2007 edition of the American
Society of Heating, Refrigerating and Air-conditioning Engineers
(ASHRAE) 90.1 for multifamily buildings will not negatively affect the
affordability and availability of certain HUD- and USDA-assisted
housing specified in section 481 of the Energy and Independence and
Security Act of 2007 (EISA). This determination fulfills a statutory
requirement established under EISA that HUD and USDA adopt revisions to
the 2006 IECC and ASHRAE 90.1-2004 subject to: A determination that the
revised codes do not negatively affect the availability or
affordability of new construction of single family and multifamily
housing covered by EISA; and a determination by the Secretary of Energy
that the revised codes ``would improve energy efficiency.'' For the
more recent IECC and ASHRAE codes that have been published since the
publication of the 2009 IECC and ASHRAE 90.1-2007, HUD and USDA intend
to follow this Notice of Final Determination with an advance notice
that addresses the next steps the agencies plan to take on the 2015
IECC and ASHRAE 90.1-2013 codes.
DATES: This notice of final determination will be effective according
to the implementation schedule described herein that commences no
earlier than June 5, 2015.
FOR FURTHER INFORMATION CONTACT: HUD: Rachel Isacoff, Office of
Economic Resilience, Department of Housing and Urban Development, 451
7th Street SW., Room 10180, Washington, DC 20410; telephone number 202-
402-3710 (this is not a toll-free number). Persons with hearing or
speech impairments may access this number through TTY by calling the
Federal Relay Service toll-free at 800-877-8339. USDA: Meghan Walsh,
Rural Housing Service, Department of Agriculture, 1400 Independence
Avenue SW., Room 6900-S, Washington, DC 20250; telephone number 202-
205-9590 (this is not a toll-free number).
SUPPLEMENTARY INFORMATION:
I. Background
A. Statutory Requirements
B. HUD and USDA Preliminary Determination
C. Public Comments on Preliminary Determination
D. Adoption of Preliminary Determination as Final Determination
II. HUD-USDA Final Affordability Determination
A. Discussion of Market Failures
B. 2009 IECC Affordability Determination
1. Current Adoption of the 2009 IECC
2. 2009 IECC Affordability Analysis
3. Cost Effectiveness Analysis and Results
4. Limitations
5. Distributional Impacts on Low-Income Consumers or Low Energy
Users
6. Conclusion
C. ASHRAE 90.1-2007 Affordability Determination
1. Current Adoption of ASHRAE 90.1-2007
2. ASHRAE 90.1-2007 Affordability Analysis
3. Energy Savings Analysis
4. Cost Effectiveness Analysis and Results
5. Conclusion
D. Impact on Availability of Housing
1. Impact of increases in housing prices and hedonic effects
2. Impact of 2009 IECC on Housing Availability
3. Impact of ASHRAE 90.1-2007 on Housing Availability
4. Conclusion
E. Implementation Schedule
F. Alternative Compliance Paths
G. Cost Benefit Analysis
1. Energy Costs and Savings
2. Social Benefits of Energy Standards
III. Findings and Certifications
A. Environmental Review
List of Tables:
1. Current Energy Standards and Incentives for HUD and USDA
Programs (New Construction Only)
2. Current Status of IECC Adoption by State
3. Life-cycle Cost (LCC) Savings, Net Positive Cash Flow, and
Simple Payback for the 2009 IECC
4. Quintiles of Income Before Taxes and Shares of Average Annual
Expenditures
5. Current Status of ASHRAE Code Adoption by State
6. Estimated Costs and Benefits per Dwelling Unit From Adoption
of ASHRAE 90.1-2007
7. Estimated Number of HUD- and USDA-Supported Units Potentially
Impacted by Adoption of 2009 IECC
8. Estimated Number of HUD-Assisted Units Potentially Impacted
by Adoption of ASHRAE 90.1-2007
9. Annualized Value of Reduction in CO2 Emissions
Appendices:
1. Covered HUD and USDA Programs
2. Estimated Energy and Cost Savings From Adoption of ASHRAE
90.1-2007
3. Total Development Cost (TDC) Adjustment Factors for States
That Have Not Adopted ASHRAE 90.1-2007
4. Estimated Total Costs and Energy Cost Savings From Adoption
of 2009 IECC
5. Estimated Total Costs and Energy Cost Savings From Adoption
of ASHRAE 90.1-2007
I. Background
A. Statutory Requirements
HUD and USDA have a statutory responsibility to adopt minimum
energy standards for new construction of certain HUD- and USDA-assisted
housing, following procedures established in EISA. Section 481 of EISA
amended section 109 of the Cranston-Gonzalez National Affordable
Housing Act of 1990 (Cranston-Gonzalez) (42 U.S.C. 12709), which
establishes procedures for setting minimum energy standards for certain
HUD and USDA programs. The two standards referenced in EISA (the IECC
and ASHRAE 90.1) apply to different building types: the IECC standard
applies to single family homes and low-rise multifamily buildings (up
to three stories), while ASHRAE 90.1 applies to multifamily mid- or
high-rise residential buildings (four or more stories).\1\
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\1\ The IECC addresses both residential and commercial
buildings. ASHRAE 90.1 covers commercial buildings only, including
multifamily buildings four or more stories above grade. The IECC
adopts, by reference, ASHRAE 90.1; that is, compliance with ASHRAE
90.1 qualifies as compliance with the IECC for commercial buildings.
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The following HUD and USDA programs are specified in the statute:
(A) New construction of public and assisted housing and single
family and multifamily residential housing (other than manufactured
homes) subject to
[[Page 25902]]
mortgages insured under the National Housing Act; \2\
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\2\ This subsection of EISA refers to HUD programs only. See
Appendix 1 for specific HUD programs covered by the Act.
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(B) New construction of single family housing (other than
manufactured homes) subject to mortgages insured, guaranteed, or made
by the Secretary of Agriculture under title V of the Housing Act of
1949; \3\ and,
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\3\ This subsection of EISA refers to USDA programs only. See
Appendix 1 for specific USDA programs covered by the Act.
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(C) Rehabilitation and new construction of public and assisted
housing funded by HOPE VI revitalization grants under section 24 of the
United States Housing Act of 1937 (42 U.S.C. 1437v).
In addition to these EISA-specified categories, sections
215(a)(1)(F) and (b)(4) of Cranston-Gonzalez make new construction of
rental housing and homeownership housing assisted under the HOME
Investment Partnerships Program (HOME) subject to section 109 of
Cranston-Gonzalez and, therefore, to section 481 of EISA. From the
beginning of the HOME program, the regulation at 24 CFR 92.251
implemented section 109. However, compliance with section 109 of
Cranston-Gonzalez was omitted from the July 2013 HOME program final
rule because HUD planned to update and implement energy efficiency
standards through a separate proposed rule (see the discussion in the
preamble to the HOME proposed rule published on December 16, 2011 (76
FR 78344)). Although the energy standards at 24 CFR 92.251(a)(2)(ii)
are reserved in the July 2013 HOME final program rule, the statutory
requirements of section 109 continue to apply to all newly-constructed
housing funded by the HOME program. Therefore, this notice is
applicable to the HOME program when the regulations at 24 CFR 92.251 in
the 2013 HOME final rule (78 FR 44627) become effective. The HOME
program will issue Guidance for HOME Participating Jurisdictions (PJs)
that provides notice that the new standard takes effect. A conforming
amendment to the HOME regulation will be published at a later date.
Section 109(a) of Cranston Gonzalez, as amended by EISA, required
HUD and USDA to collaborate and develop their own energy efficiency
building standards if they met or exceeded the 2006 IECC or ASHRAE
90.1-2004, but if the two agencies did not act on this option, EISA
specifies that the 2006 IECC and ASHRAE 90.1-2004 standards would
apply. The two agencies did not develop independent energy efficiency
building standards, and, therefore, the 2006 IECC or ASHRAE 90.1-2004
applied to covered HUD and USDA programs, and the provision of section
109(d) of Cranston-Gonzalez must be followed.
This notice implements section 109(d) of Cranston-Gonzalez, as
amended by EISA, which establishes procedures for updating HUD and USDA
energy standards, following periodic revisions to the 2006 IECC and
ASHRAE 90.1-2004 codes. Specifically, section 109(d) provides that
subsequent revisions to the IECC or ASHRAE codes will apply to HUD and/
or USDA's programs if: (1) Either agency ``make[s] a determination that
the revised codes do not negatively affect the availability or
affordability'' of new construction housing covered by the Act, and (2)
the Secretary of Energy has made a determination under section 304 of
the Energy Conservation and Production Act (42 U.S.C. 6833) that the
revised codes would improve energy efficiency (see 42 U.S.C. 12709(d)).
Otherwise, the 2006 IECC and ASHRAE 90.1-2004 will continue to apply.
B. HUD and USDA Preliminary Determination
On April 15, 2014, at 79 FR 21259, HUD and USDA announced in the
Federal Register their Preliminary Determination that the 2009 IECC and
ASHRAE 90.1-2007 would not negatively affect the affordability and
availability of housing covered by the Act. This Preliminary
Determination followed the Department of Energy's (DOE) Determination
that the 2009 IECC and ASHRAE 90.1-2007 standards would improve energy
efficiency.\4\ The April 15, 2014, HUD-USDA notice solicited public
comment on this Preliminary Determination for a period of 45 days, and
the public comment period concluded on May 30, 2014. HUD and USDA
convened a conference call for interested parties on May 15, 2014, at
which the agencies summarized the key features of the notice and
answered several questions from participants.
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\4\ See HUD's April 15, 2014 Federal Register notice for
additional information about DOE's determination. http://www.gpo.gov/fdsys/pkg/FR-2014-04-15/pdf/2014-08562.pdf.
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C. Public Comments on Preliminary Determination and HUD Responses
1. Overview of Comments
HUD received 13 public comments, representing 28 organizations or
individuals, on this notice. Comments were received from a wide range
of stakeholders, including one state (Colorado), the two code bodies
represented in this notice (the International Code Council and ASHRAE),
as well as several national associations representing mortgage lenders,
home builders, environmental and energy efficiency advocates,
consumers, State energy offices, insulation and other building product
trade associations, and other interested parties. All but two of the
comments were from single organizations or individuals. Multiple
organizations were represented in two comments, one submitted on behalf
of another three organizations, and another on behalf of 16 additional
national organizations.
The overwhelming majority of the comments expressed support for
HUD's and USDA's Preliminary Determination. Of these supportive
comments, most expressed support for HUD's and USDA's methodology and
conclusions, but in turn urged HUD and USDA to rapidly move to adopt
the more recent IECC or ASHRAE 90.1 codes that have been promulgated
since the publication of the 2009 edition of the IECC and the 2007
edition of ASHRAE 90.1 that are addressed in this notice. In addition,
several commenters suggested that HUD and USDA allow alternative
compliance pathways for these standards through equivalent or higher
state standards, or through one or more green building standards that
have seen rapid growth in adoption rates in recent years.
Three of the 13 comments expressed concerns or opposition to one or
more features of the Preliminary Determination. The concerns raised
were in three primary areas: the use of the Social Cost of Carbon (SCC)
as an appropriate cost-benefit metric for this determination; the
proposed timetable for implementing the proposed standards after a
Final Determination is published; and the relatively longer payback
periods of 10 or more years estimated by HUD and USDA for adoption of
ASHRAE 90.1-2007 in some States.
This discussion of the public comments received on the Preliminary
Determination presents the significant issues and questions raised by
the commenters.
2. Support for Preliminary Determination
Comment: Support for Preliminary Determination. The large majority
of comments supported the Preliminary Determination. These comments
generally agreed with HUD's and USDA's methodology in arriving at the
determination that the 2009 IECC and ASHRAE 90.1-2007 would not
negatively impact the affordability and availability of the housing
covered by the Determination.
[[Page 25903]]
One commenter noted, for example, ``that it is well settled and no
longer in dispute that the 2009 IECC, as well as the 2007 ASHRAE 90.1 .
. . increase the energy efficiency of homes and buildings constructed
to meet them.'' The commenter commended HUD and USDA for ``an
exceptionally thorough and comprehensive review of both the available
research and literature relating to the cost effectiveness of building
homes and multifamily units to the IECC and/or ASHRAE 90.1,'' and
pointed out that HUD and USDA had reached the same conclusion as
experts and building code authorities in the majority of States: that
building single family and multifamily homes to the 2009 IECC is cost-
effective, results in greater affordability, and lowers energy use and
energy expenses.
The commenter also stressed the importance of assessing
affordability on the basis of operating costs as well as the first cost
of the home: ``if the monthly utility bill is lowered by 10 or 20
percent, as a result of energy efficient code requirements, the home is
more affordable, even if the initial cost increases by several thousand
dollars, since the increase in the monthly amortized mortgage cost will
be less than the decrease in utility costs.''
Another representative comment characterized the HUD and USDA
determination as a ``comprehensive and robust evaluation of the reasons
to adopt the current updated standards under consideration based on the
Departments' statutory responsibilities under federal law to establish
minimum energy standards.'' Another commenter stated that ``HUD and
USDA's determination . . . is well supported by law and policy.''
Another commenter indicated that recent experience with the
adoption of the 2009 IECC and ASHRAE 90.1-2007 codes, as well as with
``premium'' labels such as ENERGY STAR, offers clear and convincing
evidence that the codes do not harm affordability and availability. The
commenter noted that ``[i]f builders were unable or unwilling to build
homes that meet the codes, or buyers were unable or unwilling to pay
for them, there would not be new homes in states that have adopted the
codes, or new homes with green labels.''
The commenter also provided national data reflecting housing
production in the 32 States and the District of Columbia that have
adopted the 2009 IECC or a comparable statewide code as follows: 1.6
million residential building permits were issued between when the 2009
IECC went into effect and the end of 2013, with 538,000 permits issued
in the 12 months after the 2009 IECC went into effect, compared to
433,000 beforehand-an increase of 24 percent. For ASHRAE 90.1-2007, the
commenter provided similar data: 650,000 units were built since the
codes were implemented in 37 States and the District of Columbia,
168,000 of them in the first 12 months after the codes were enacted,
compared to 109,000 in the previous 12 months. The commenter concludes
that ``codes do not seem to be harming construction in states that have
implemented them,'' and also references the significant number of homes
(81,000 in 2012 alone) that have been built voluntarily to a higher
(ENERGY STAR) standard.
HUD-USDA Response: HUD and USDA acknowledge the support expressed
by these commenters for the Preliminary Determination. These comments
indicate confidence in HUD and USDA's use of DOE's and the Pacific
Northwest National Laboratory's (PNNL's) analysis of the subject codes,
and in their overall conclusions regarding the lack of a negative
impact that these codes would have on the affordability and
availability of housing covered by EISA.
Comment: HUD should proceed quickly to adoption of the more recent
IECC/ASHRAE codes. Several commenters who were supportive of the
Preliminary Determination also encouraged HUD and USDA to move quickly
to adoption of the next or most recent IECC and ASHRAE codes. One
commenter urged HUD and USDA to ``provide a consistent Federal
Government approach'' by endorsing ASHRAE 90.1-2010, and to ``promptly
update their regulations'' to ASHRAE 90.1-2013 upon a favorable DOE
determination. The commenter noted that ``[a] single, consistent U.S.
Standard will enable better enforcement and compliance and avoid
marketplace confusion, ultimately moving the U.S. toward President
Obama's goal of significant improvement in building energy
efficiency.''
Another commenter and 16 national consumer, environmental, energy
efficiency, or building organizations urged HUD and USDA to finalize
this determination and incorporate the codes into their loan processes
as soon as possible, and to ``move quickly to complete a determination
on the 2012 IECC and ASHRAE 90.1-2010, which have already been
determined by DOE to save energy, and which have been shown to be very
cost-effective.'' The commenter also urged HUD and USDA to ``help and
encourage builders to comply with the new requirements'' through
education and quality assurance efforts.
HUD-USDA Response: HUD and USDA will address the affordability of
the more recent IECC and ASHRAE 90.1 codes in an advance notice in the
near future, according to the timetable prescribed in EISA. For
adoption or consideration of these codes and future code revisions, HUD
and USDA are committed to timely and expeditious compliance with the
EISA statutory requirements. However, it is unlikely that HUD and USDA
will be able to meet the statutory one-year compliance period
prescribed under Cranston-Gonzalez section 109(c) as amended by EISA,
because of the time required to do the following: publish a Preliminary
Determination, allow for public comments on the Preliminary
Determination, and publish a Final Determination along with the
requisite clearances by HUD and USDA and the Office of Management and
Budget (OMB).
Accordingly, while HUD and USDA will continue to explore ways to
comply with the one-year compliance period set forth in section 109(c),
HUD and USDA intend to address the next code cycles under the
requirements of section 109(d) of Cranston-Gonzalez. Section 109(d)
requires that, after failure to comply with section 109(c), the two
agencies will conduct an analysis of the impact that the new code will
have on the ``affordability and availability'' of covered housing. As
is the case for this Final Determination on the 2009 IECC and ASHRAE
90.1-2007, for future code determinations HUD and USDA will rely on the
following reports or notices from DOE and PNNL: (1) An efficiency
determination required under Title III of the Energy Conservation and
Production Act of 2005; and (2) a subsequent cost analysis by PNNL.
3. Objections To or Concerns With Preliminary Determination
Comment: The payback periods shown for ASHRAE 90.1-2007 that exceed
10 years are too long to require compliance with this standard. One
commenter recommends that, while the 2009 IECC shows payback periods of
less than 10 years, this is not the case for ASHRAE 90.1-2007. Appendix
4 in the Preliminary Determination showed that six of the 11 states
evaluated for ASHRAE 90.1-2007 have payback periods that exceed this
period. The commenter also maintains that multifamily rental property
investors expect to see annual rental receipts that are approximately
11 percent of the value of the property. This implies a 100 percent
increased first cost/11 percent increase in rental receipts or a 9-year
simple payback on energy efficiency
[[Page 25904]]
requirements. If that rate of return is not achieved, then the
likelihood of a project being built will be reduced. Paybacks of
greater than 9 years may therefore reduce the future availability of
multifamily rental properties. Given these ``two realities,'' the
commenter does not support the HUD-USDA finding that compliance with
ASHRAE 90.1-2007 will not negatively affect the affordability and
availability of housing covered by EISA--at least in those six States
with longer payback periods of more than 10 years.
HUD-USDA Response: Note that ASHRAE 90.1-2007 only impacts HUD-
insured or -assisted properties; USDA multifamily properties are not
covered by EISA. Of the 12 States that have not yet adopted this
standard, Appendix 4 of the Preliminary Determination (amended as Table
6 in this Final Determination) showed six States with paybacks of more
than 10 years: Hawaii, Colorado, Minnesota, Missouri, Oklahoma, and
Tennessee. With the exception of Hawaii, all of these States showed
simple paybacks of less than 15 years:
Preliminary Determination--Appendix 4
Estimated Costs and Benefits per Dwelling Unit From Adoption of ASHRAE 90.1-2007
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Energy cost
State Incremental savings/unit Simple payback/
cost/unit ($) ($/year)* unit (years)
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AK.............................................................. 489 57.68 8.5
AZ.............................................................. 340 52.12 6.5
CO.............................................................. 354 31.96 11.1
HI.............................................................. 476 8.17 58.4
KS.............................................................. 338 59.37 5.7
ME.............................................................. 373 42.66 8.8
MN.............................................................. 413 33.96 12.2
MO.............................................................. 366 26.60 14.3
OK.............................................................. 309 21.96 14.1
SD.............................................................. 317 34.53 9.2
TN.............................................................. 318 25.61 12.5
WY.............................................................. 319 33.09 9.7
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The estimated energy cost savings per unit and simple paybacks
provided in this table in the Preliminary Determination used national
average prices for natural gas of $1.2201 per therm, and $.0939 per kWh
for electricity, using the methodology used by PNNL in their cost
determination of ASHRAE 90.1-2007.\5\ In this Final Determination, HUD
and USDA have updated the PNNL methodology by using individualized
state-by-state fuel and electricity prices, in order to provide a more
current and accurate estimate of cost savings. The updated and revised
estimated cost savings and paybacks are now presented in Table 6 of the
Final Determination as follows:
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\5\ Pacific Northwest National Laboratory, Cost Effectiveness
and Impact Analysis of Adoption of ASHRAE 90.1-2007 for New York
State. (U.S. Department of Energy, PNNL-18552, June 2009). http://www.pnl.gov/main/publications/external/technical_reports/PNNL-18552.pdf.
Final Determination--Table 6.
Estimated Costs and Benefits per Dwelling Unit From Adoption of ASHRAE 90.1-2007
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Energy cost
State Incremental savings/unit Simple payback/
cost/unit ($) ($/year)* unit (years)
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AK.............................................................. 489 68.95 7.1
AZ.............................................................. 340 76.88 4.4
CO.............................................................. 354 28.70 12.4
HI.............................................................. 476 31.66 15.1
KS.............................................................. 338 80.13 4.2
ME.............................................................. 373 62.95 5.9
MN.............................................................. 413 31.15 13.3
MO.............................................................. 366 36.28 10.1
OK.............................................................. 309 31.79 9.7
SD.............................................................. 317 32.32 9.8
TN.............................................................. 318 30.40 10.5
WY.............................................................. 319 33.38 9.6
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Using individual state-by-state fuel and electricity prices, rather
than a national average as used by PNNL, of the 12 States that have not
yet adopted ASHRAE 90.1-2007, seven States show simple paybacks of less
than 10 years (Alaska, Arizona, Kansas, Maine, Oklahoma, South Dakota,
and Wyoming) and four States show paybacks of less than 15 years
(Colorado, Minnesota, Missouri, Tennessee). One state (Hawaii) shows a
payback of more than 15 years (15.1 years).
With regard to the five States with paybacks of more than 10 years,
while we agree that shorter paybacks are generally better when
considering simple payback periods as a measure of cost-effectiveness
or affordability, we believe that the 10-year simple payback limit
proposed by the commenter is too limiting for the purpose of this
analysis, for two reasons. First, the life of the
[[Page 25905]]
energy efficient equipment or materials installed as a result of
complying with ASHRAE 90.1-2007 (e.g., windows, doors, insulation,
boilers, etc.) is likely to be significantly longer than 10 years, in
some cases for the life of the building; a cost-benefit analysis for
these measures indicates a net-positive result over the much longer
life of the equipment. Second, as noted in the Preliminary
Determination, another important factor is the incremental cost
involved; the per-unit costs shown above (in the $300-$400 range) are a
small fraction of the Total Development Cost (TDC) per unit.
In addition, the price-ratio measure referenced by the commenter
may mix the expected return on an entire property with the expected
return on a particular aspect of the property (the upgraded features).
In order to cause a development not to be pursued, the new standard
would have to violate the return threshold for the entire property.
And, it ignores the possibility that efficiency measures, to some
extent, would be internalized in rent receipts.
To best understand the profitability of multifamily housing, it may
be preferable to examine the capitalization rate (rental income less
operating costs divided by the market value of the property) rather
than the rent-to-price ratio, since the capitalization rate takes into
account operating costs and therefore is more likely to reflect the
building's energy efficiency than the rent-to-price ratio. According to
the 2012 Rental Housing Finance Survey (RHFS), the median
capitalization rate of rental buildings is 6 percent. For some states,
the cost savings are close to 6 percent. However, as described in the
notice, the return on investment (ROI) is almost always positive, which
would increase affordability. Perhaps most important, at an estimated
average cost per unit of $441, the cost of compliance is less than 1
percent (0.24%) of the average TDC per unit of $185,000, and is more
than offset by the benefits of this notice. Thus, the value of the
construction project will not be adversely affected by the higher code
adopted as a result of this notice.
Comment: HUD should ease compliance with the code requirements for
single family homes by updating and accepting Form HUD-92541 as
evidence of compliance. One commenter indicated that, while it ``does
not disagree with USDA and HUD's estimates about affordability,'' it is
concerned about how mortgage lenders should demonstrate compliance for
single-family new construction. The commenter noted that this is
``particularly important when underwriting loans for new construction
in unincorporated localities, where there may not be public inspectors
and other third-party specialists, such as Home Energy Rating System
(HERS) rating specialists within several hundred miles, such as in
states like Colorado or South Dakota.'' The commenter recommends that
HUD modify form HUD-92541 by changing box number four, ``International
Energy Conservation Code (IECC) 2006,'' to read ``IECC 2009 or a higher
standard,'' and that this form should be available when the Final
Determination is issued. The commenter also recommends that the HUD
handbook be updated to reflect the single family new construction
requirement and that Form HUD-92541 be treated as an acceptable method
of certifying the property's minimum energy efficient status.
HUD-USDA Response: HUD agrees that Builder's Certification form
HUD-92541 will be the primary tool for ensuring compliance of single
family FHA-insured properties with the 2009 IECC and intends to update
the form to reflect the code (the 2009 IECC) established by this
notice. HUD cannot commit to this being completed simultaneously with
the publication of the Final Determination, in light of Paperwork
Reduction Act requirements; however, it is anticipated that the updated
Builder's Certification form HUD-92451, as well as any handbook
updates, will be completed during the 180-day implementation period, in
order to ensure maximum compliance with the new code requirement.
4. Comments Regarding Data and Methodology
Comment: The Social Cost of Carbon (SCC) should not be included in
this notice. One commenter objected to the use of the Social Cost of
Carbon in this notice, and proposed its deletion. The commenter
maintained that the SCC is ``discordant with the best scientific
literature on the equilibrium climate sensitivity and the fertilization
effect of carbon dioxide--two critically important parameters for
establishing the net externality of carbon dioxide emissions.'' The
commenter also notes that the SCC [is] ``at odds with existing Office
of Management and Budget (OMB) guidelines for preparing regulatory
analyses, and founded upon the output of Integrated Assessment Models
(IAMs) which encapsulate such large uncertainties as to provide no
reliable guidance as to the sign, much less the magnitude of the social
cost of carbon.'' The commenter also suggests that the IAMs, as run by
the Interagency Working Group (IWG) produce ``illogical results'' that
indicate a ``misleading disconnect between a climate change and the SCC
value.'' Further, the commenter believes that sea-level rise
projections (and thus SCC) of at least one of the IAMs (DICE 2010)
cannot be supported by the mainstream climate science.
Based on these objections to the SCC, the commenter proposes that
the SCC should be ``barred from use in this and all other federal
rulemaking. It is better not to include any value for the SCC in cost/
benefit analyses such as these, than to include a value which is
knowingly improper, inaccurate and misleading.'' The commenter proposes
``to remove any and all analyses in this Preliminary Determination that
makes reference to, or incorporates a value of, the social cost of
carbon as determined by the federal Interagency Working Group.''
Specifically, the commenter proposes that HUD-USDA remove Table 8 and
related text from the notice.
An alternative, supportive, view of the SCC was provided by another
commenter. This commenter strongly argues for the use of the SCC as a
measure of nonenergy benefits. This commenter notes that ``SCC
calculations are important for evaluating the costs of activities that
produce greenhouse gas emissions and contribute to climate change, such
as burning fossil fuels to produce energy. The SCC is also important
for evaluating the benefits of policies that would reduce the amount of
those emissions going into the atmosphere. For example, in order to
properly evaluate standards that reduce the use of carbon-intensive
energy or that improve energy efficiency--like the proposed updated
energy codes--it is important to understand the benefits they will
provide, including the benefit of reducing carbon pollution and the
harm it causes.''
This commenter also defends the Interagency Working Group's (IWG)
analysis as ``science-based, open, and transparent'' and believes that
``the IWG correctly used a global SCC value.'' While conceding that the
IWG can improve its SCC methodology, the commenter nevertheless argues
that ``HUD and USDA should continue to use the current IWG estimate of
the SCC.''
HUD Response: HUD and USDA acknowledge the critique of the SCC from
the commenter, but believe that the SCC is an important and established
element of a regulatory impact analysis for energy-related governmental
regulations. Lower energy consumption involving fossil fuels will by
default result in lower carbon emissions; there are economic, health
and safety costs
[[Page 25906]]
associated with these emissions, and, conversely, cost benefits when
these emissions are reduced. While the commenter is correct that the
SCC is not specifically required for the affordability or availability
analysis specified under EISA (the primary analysis for that purpose
involves energy and cost savings accruing directly to the property
owner or resident) the SCC is relevant to the larger economic costs and
benefits required for a regulatory impact analysis. The cost benefits
of carbon saved as a result of adopting the higher standards specified
in the notice can and should be incorporated in the regulatory impact
analysis, and do not affect, or undermine, the underlying affordability
or availability findings of the notice.
Comment: Additional research shows similar results as DOE findings.
One commenter cited a study by the National Association of Home
Builders (NAHB) Research Center (now the Home Innovation Research Labs)
(Research Center) that shows the national average simple payback for
the 2009 IECC of 5.6 years compared to the DOE study cited in the
Preliminary Determination of 5.1 years. The commenter notes that the
slightly longer payback from the Research Center may be because the
initial construction costs were assumed to be about 35 percent higher
in the Research Center analysis than in the PNNL analysis for DOE, due
to the Research Center's reference home being based on national
averages with more wall area than assumed in the PNNL analysis (2,580
vs. 2,380 sq. ft.) while having slightly less floor area (2,352 vs.
2,400 sq. ft.). In addition, the commenter points out that construction
costs used in the Research Center study generated by actual builders
were higher than those used by PNNL, which were developed by commercial
estimators.
HUD-USDA Response: HUD and USDA relied on DOE and PNNL analysis of
the 2009 IECC and ASHRAE 90.1-2007 in order to maximize alignment of
our findings with those of other Federal agencies. We appreciate and
recognize the additional independent findings on the 2009 IECC
referenced by the commenter in the Research Center report. Despite the
differences noted in the characteristics of the assumed reference
house, the NAHB Research Center's results show very similar payback
periods to those arrived at by DOE and PNNL (5.6 years vs. 5.1 years),
thereby confirming and reinforcing HUD and USDA's findings on the cost
effectiveness of the 2009 IECC.\6\ While the PNNL and Research Center
paybacks are similar, the incremental costs for the 2009 IECC in the
Research Center report are higher than those determined by PNNL.
---------------------------------------------------------------------------
\6\ NAHB Research Center, 2009 IECC Cost Effectiveness Analysis,
May 2012. http://www.homeinnovation.com/~/media/Files/Reports/
Percent%20Energy%20Savings%202009%20IECC%20Cost%20Effectiveness%20Ana
lysis.PDF.
---------------------------------------------------------------------------
These incremental cost differences result from the differences in
the reference homes used in each report. The PNNL methodology defines a
residential prototype building to be representative of typical new
residential construction using data from the U.S. Census Bureau, the
American Housing Survey, and NAHB, and establishes typical construction
and operating assumptions, whereas the Research Center uses national
averages. The assumptions were subjected to a public review through a
Request for Information (RFI) process.\7\ We believe that the PNNL
methodology provides an objective prototype most suitable for a
national sample.
---------------------------------------------------------------------------
\7\ The PNNL methodology for the residential prototype is
published online at http://www.energycodes.gov/development/residential/methodology.
---------------------------------------------------------------------------
Comment: Updated information in local or statewide adoption of the
subject codes. The Preliminary Determination identified 18 States that
have not yet adopted the 2009 IECC and 12 States that have not yet
adopted ASHRAE 90.1-2007. Two commenters provided updated information
that at least five of these States (Colorado, Arizona, Kansas, Missouri
and Maine) have seen significant local adoption of the 2009, or even
the 2012, IECC. In Colorado, for example, jurisdictions that have
adopted either of these standards represent 90 percent of the statewide
population; in Arizona, it is estimated at 70 percent. It was also
noted by one commenter that two States (Kentucky and Louisiana) have
``already adopted'' the 2009 IECC or ``almost its equivalent,'' while
two additional States are either in the final stages of adopting or are
in the process of adopting the 2009 IECC (Minnesota and Arkansas,
respectively).
HUD-USDA Response: HUD and USDA recognize these updates on State or
local adoption of the 2009 or 2012 IECC. Statewide adoption of energy
codes is an evolving process, with new States (or home rule
municipalities) adopting the more recent codes on an ongoing basis. The
18 states that had not yet adopted the 2009 IECC or ASHRAE 90.1-2007
cited in the Preliminary Determination reflected information posted by
DOE's Building Energy Codes Program (BECP) at or near the time of
publication of the Preliminary Determination. The updated data on two
additional States provided by the commenters does not change the
overall affordability and availability finding for the remaining States
that have not yet adopted the 2009 IECC or ASHRAE 90.1-2007 (that the
subject codes will not negatively impact the affordability and
availability of covered housing); rather, these data have the effect of
lowering the number of units estimated to be impacted by the adoption
of the codes addressed in this notice. Similarly, to the extent that
there are local jurisdictions that have adopted higher codes than those
adopted by local jurisdictions within States that have not yet adopted
the code statewide, this will have the effect of lowering the overall
costs (and related benefits) associated with this notice. HUD and USDA
have updated the estimated impacts in the Final Determination, in order
to reflect the most recent code adoption status reported by the BECP at
http://www.energycodes.gov/adoption/states (as of May 2014).
5. Alternative Green Standards or Equivalent State or Local Standards
Comment: HUD and USDA should accept one or more green building
standards as alternative compliance paths. One commenter proposed that
the ICC 700 National Green Building Standard (NGBS) should be accepted
as an alternative compliance certification, for the following reasons:
NGBS certification requirements ensure that all certified buildings
achieve a minimum energy efficiency performance 15 percent more
efficient than the 2009 IECC, and many homes/buildings that achieve
NGBS certification far exceed that baseline; the NGBS is designed to
cover all residential construction, and can be applied to all housing
types noted in the notice; and NGBS certification offers a quality
assurance mechanism, in that all units are verified by an independent,
third-party NGBS Green Verifier. Another commenter proposed similar
adoption by HUD and USDA of LEED for Homes (Version 8) as a compliance
path, and another commenter indicated that the codes referenced in the
notice are already included as a minimum requirement in the Enterprise
Green Communities standard.
Comment: Equivalent energy performance. One commenter suggested
that HUD and USDA recognize State and/or local jurisdictions that have
established standards that have equal or
[[Page 25907]]
better energy savings. The commenter cites title IV, section 410, of
the American Recovery and Reinvestment Act, that provided specific
language that dealt with equivalency by considering any energy code
that ``achieves equivalent or greater energy savings'' as an acceptable
alternative code. This would benefit States such as California that
already exceed the 2009 IECC with their independently developed Title
24 energy efficiency standard. The commenter suggests that a reference
to energy equivalency be included in the ``Implementation'' section of
the notice.
HUD-USDA Response: The 2009 IECC and ASHRAE 90.1-2007 codes
addressed in this Determination establish a floor, not a ceiling, for
HUD- and USDA-covered programs. HUD and USDA recognize that the green
building certifications referenced by the commenters, such as the NGBS
(Performance Path), LEED for Homes, and Enterprise Green Communities,
have incorporated the 2009 IECC or ASHRAE 90.1-2007 as minimum required
energy standards. Accordingly, HUD and USDA will accept these standards
as evidence of compliance with the 2009 IECC or ASHRAE 90.1-2007. In
addition to these standards, these may include LEED for New
Construction, ENERGY STAR Certified New Homes or ENERGY STAR for
Multifamily High Rise, Enterprise Green Communities, and other
regionally or locally recognized green building standards, such as
Earth Advantage, Earthcraft, and others.
With regard to State standards that have equivalent or higher
standards, there is documented evidence that Title 24 in California
exceeds the standards specified in the HUD-USDA notice, so by
definition any project in California complying with Title 24 will
automatically comply with the 2009 IECC and/or ASHRAE 90.1-2007. If
documented evidence is provided to HUD and USDA that a specific state
standard equals or exceeds the standards specified in this notice,
these State standards will also be accepted as a compliance path.
6. Suggested Changes and Alternatives to Preliminary Determination
Comment: Hawaii should not be exempted from ASHRAE 90.1-2007. HUD
and USDA solicited comments on whether Hawaii should be exempted from
complying with ASHRAE 90.1-2007, as was proposed in the Preliminary
Determination. Using average national electricity prices in the
Preliminary Determination, Hawaii showed a 58-year payback for adoption
of ASHRAE 90.1-2007; however, using Hawaii electricity prices, the
payback dropped to 17 years. (As discussed below, this Final
Determination uses more recent October 2014 electricity prices, and the
resulting payback for Hawaii declines further to 15.1 years.)
Two commenters disagreed with the Preliminary Determination's
finding that exempted Hawaii from adopting ASHRAE 90.1-2007 and
proposed instead that HUD and USDA require Hawaii compliance with
ASHRAE 90.1-2007. The most detailed comment was provided by one
commenter. This commenter notes that the Hawaii State Building Code
Council has approved the 2009 IECC (roughly equivalent to ASHRAE 90.1-
2007) for adoption in its four counties, and one county has already
adopted these requirements. The commenter argues that ``if Hawaii has
already found the code to be sensible for all residential and
commercial buildings in its unique climate zone, we do not see any
reason to exclude it from the updated HUD/USDA energy efficiency
standard.''
The commenter also maintains that Hawaii's cooling needs are very
different from New York's, on which HUD's and USDA's conclusion was
based, and that ``a simple payback analysis is [not] a complete enough
foundation from which to make a decision on cost-effectiveness.'' The
Preliminary Determination found that when Hawaii's average electricity
costs are applied to the HUD/USDA analysis (rather than a national
average), mid-rise apartment buildings achieved simple payback in 17
years. The commenter suggested that a 17-year payback should not
automatically be deemed not cost-effective, considering the expected
lifetime of a multifamily building (30 to 100 years). The commenter
suggests that a closer consideration of Hawaii will demonstrate a much
more rapid payback, but even if the payback period is 17 years, EISA
does not set a specific simple payback period or even require a simple
payback analysis. The commenter notes that the relevant inquiry is
whether the home or dwelling unit is ``affordable,'' and by a life-
cycle analysis of 30 years, ``multifamily buildings in Hawaii should be
required to meet ASHRAE 90.1-2007.''
Another commenter reached a similar conclusion. The commenter noted
Hawaii has exceptionally high energy prices, and Hawaii is in a
different climate zone with different requirements and thus will have
different costs than New York, on which the Preliminary Determination
was based. In fact, the Hawaii Building Code Council adopted the 2009
IECC (roughly equivalent for commercial buildings to ASHRAE 90.1-2007)
with amendments, suggesting that the Hawaiians found the code
reasonable for their State.
HUD-USDA Response: In this Final Determination HUD and USDA are
amending the proposed exemption in the Preliminary Determination of
HUD-assisted or FHA-insured multifamily properties in Hawaii from
compliance with ASHRAE 90.1-2007. HUD acknowledges that the Hawaii
Building Code Council has already adopted the 2009 IECC (roughly
equivalent to ASHRAE 90.1-2007), as well as the fact that current
(October 2014) EIA data show the average cost per kilowatt hour in
Hawaii as of October 2014 has risen to 36 cents per kilowatt hour--even
higher than the 32 cents cited in the Preliminary Determination,
thereby lowering the estimated payback period for Hawaii to 15.1 years.
At 36 cents per kilowatt hour, the simple payback of 15.1 years for
energy savings in Hawaii is consistent with the other four States shown
in table 6 with paybacks that are longer than 10 years; i.e., Colorado,
Minnesota, Missouri, and Tennessee, whose paybacks range from 10.1
years to 13.3 years. Accordingly, HUD-assisted or FHA-insured
multifamily properties in Hawaii are covered under this Final
Determination.
Comment: Extend implementation period for ASHRAE 90.1-2007 for
multifamily buildings from 90 to 180 days. Two commenters requested
that the implementation timetable for multifamily properties be
extended to 180 days. The notice currently states that for FHA-insured
multifamily programs, the new standard would apply to those properties
for which mortgage insurance applications are received by HUD 90 days
after the effective date of a final determination. One commenter
maintains that multifamily loan applications must include ``almost
full'' plans and specifications; the design of the project will
therefore have been completed or nearly-completed at the time of the
loan application within 90 days. A 90-day notice may therefore result
in developers having to modify plans and specs, which could be costly
so late in the design process. Similarly, another commenter expressed a
concern that multifamily new construction or substantial rehabilitation
transactions have a long lead time and, for locations where the new
standard represents a change, a longer lead time would ensure that the
standard would not affect financings already in the development or
application stages.
HUD Response: HUD proposes to retain the 90-day implementation
period for multifamily properties but, to
[[Page 25908]]
address the concerns expressed by the commenters that this could impact
projects already in the development or application stages, HUD will
clarify that the 90 days refers to the preapplication; i.e., not the
application for Firm Commitment. This 90-day period would commence 30
days after the Final Determination is published, thereby effectively
providing a 120-day implementation period.\8\ Multifamily properties
have different compliance dates than single family properties, since
the process is different for securing FHA single family mortgage
insurance or USDA single family loan guarantees versus multifamily
insurance. Multifamily developers submit preapplication proposals to
FHA for insurance very early in the application process, whereas there
is no such similar preapplication requirement for FHA single family.
HUD does not want the implementation to impede or slow down projects in
the pipeline, but is also aware that there have been two code cycles
since ASHRAE 90.1-2007 and that it is important that this standard be
implemented as expeditiously as possible.
---------------------------------------------------------------------------
\8\ Note that the 90 days applies to preapplications for FHA
multifamily insurance, whereas the 180 days applies to building
permits for FHA single family insurance.
---------------------------------------------------------------------------
D. Adoption of Preliminary Determination as Final Determination
After consideration of the public comments on the Preliminary
Determination, HUD and USDA adopt the Preliminary Determination as
their Final Determination. This Final Determination takes into
consideration the public comments received in response to HUD and
USDA's Preliminary Determination.
After careful consideration of the issues raised by the comments,
HUD and USDA have made five changes as follows:
(1) Modified the implementation schedule for multifamily
properties to clarify that the 90-day implementation period
commences after the 30-day effective date of the Final
Determination, and that the implementation period refers to
preapplications received by HUD for multifamily insurance, not the
application for Firm Commitment. The Final Determination also
includes an implementation schedule for new HOME units covered by
the statute;
(2) Provided an alternative compliance path for properties
meeting ENERGY STAR Certified Homes, ENERGY STAR for Multifamily
High Rise and certain green building standards;
(3) Provided additional detail on administrative and regulatory
actions that HUD and USDA will take to implement the code
requirements;
(4) Updated the status of code adoption of certain States or
localities to reflect the status reported in the comments as
confirmed by DOE. These include Louisiana and Kentucky, both of
which, as of November 2014, have adopted the 2009 IECC, and
adjustments of the estimated number of impacted units in Colorado
and Arizona to reflect home rule municipalities' adoption of these
codes in the absence of statewide legislation; and,
(5) Removed the exemption proposed in the Preliminary
Determination of HUD-assisted or FHA-insured multifamily properties
in Hawaii from compliance with ASHRAE 90.1-2007.
This notice does not address the more recent IECC and ASHRAE codes
for which DOE has published efficiency determinations:
Final Determination for the 2010 edition of ASHRAE 90.1
(published October 19, 2011);
Final Determination for the 2012 edition of the IECC
(published May 17, 2012);
Final Determination for the 2013 edition of ASHRAE 90.1
(published September 26, 2014); \9\
---------------------------------------------------------------------------
\9\ U.S. Department of Energy, ``Determination Regarding Energy
Efficiency Improvements in ANSI/ASHRAE/IES Standard 90.1-2013:
Energy Standard for Buildings Except Low-Rise Residential
Buildings,'' Federal Register Notice, 79-FR-57900, September 26,
2014. https://federalregister.gov/a/2014-22882.
---------------------------------------------------------------------------
Preliminary Determination for the 2015 edition of the
IECC (published September 26, 2014).\10\
---------------------------------------------------------------------------
\10\ Current status of determinations are listed by DOE at
https://www.energycodes.gov/determinations.
---------------------------------------------------------------------------
DOE has also completed a cost analysis of the 2012 IECC for 43 of
the 50 States and the District of Columbia, a national cost analysis of
ASHRAE 90.1-2010, and a cost analysis of the ASHRAE 90.1-2010 for 22 of
the 50 States and the District of Columbia.\11\ DOE intends to publish
a similar national cost-effectiveness analysis for ASHRAE 90.1-2013 in
2015.
---------------------------------------------------------------------------
\11\ ASHRAE 90.1 cost-effectiveness analyses are provided at
https://www.energycodes.gov/development/commercial/cost_effectiveness.
---------------------------------------------------------------------------
The impact of these more recent codes on the affordability and
availability of HUD- and USDA-funded new construction is currently
being assessed by the two agencies. Since HUD and USDA's affordability
determination relies on DOE's analysis, HUD and USDA will address the
affordability of these codes in a subsequent notice in the near future.
It is HUD's and USDA's intention that while adoption of future IECC and
ASHRAE 90.1 standards can be implemented with a Determination such as
this one, each program will subsequently update its handbooks,
mortgagee letters, relevant forms, or other administrative procedures
each time HUD and USDA determine that the new standard will not
negatively impact the affordability or availability of housing under
the covered programs.
Although HUD and USDA are adopting the 2009 IECC and ASHRAE 90.1-
2007 energy codes, as noted in their April 15, 2014, Preliminary
Determination, HUD and USDA, along with other Federal agencies, have
also adopted the December 2011 energy alignment framework of the
interagency Rental Policy Working Group. According to this framework,
several HUD competitive grant programs already require or provide
incentives to grantees to comply with energy efficiency standards that
exceed the 2009 IECC and ASHRAE 90.1-2007 standards outlined in this
notice.\12\ This standard is typically ENERGY STAR Certified New Homes
for single family properties or ENERGY STAR for Multifamily High Rise
for multifamily properties. Nothing in this notice will preclude these
competitive programs from maintaining these higher standards, or
raising them further. A list of current program requirements or
incentives prior to publication of this notice is shown in Table 1,
below.
---------------------------------------------------------------------------
\12\ Rental Policy Working Group, Federal Rental Alignment:
Administration Proposals, December 31, 2011. www.huduser.org/portal/aff_rental_hsg/rpwg_conceptual_proposals_fall_2011.pdf.
Table 1--Current Energy Standards and Incentives for HUD and USDA
Programs
[New construction only]
------------------------------------------------------------------------
Current energy
efficiency
Program Type requirements and
incentives
------------------------------------------------------------------------
HUD ................. .....................
Choice Neighborhoods-- Competitive Grant Single family and low-
Implementation. rise multifamily:
ENERGY STAR
Certified New Homes.
Multifamily high-
rise (4 or more
stories): ENERGY
STAR for Multifamily
High Rise.
Additional 2 rating
points for achieving
Certified LEED-ND or
similar standard; or
1 point if project
complies with goal
of achieving LEED-ND
or similar standard.
[[Page 25909]]
Choice Neighborhoods-- Competitive Grant Eligible for Stage 1
Planning. Conditional Approval
of all or a portion
of the neighborhood
targeted in their
Transformation Plan
for LEED for
Neighborhood
Development from the
U.S. Green Building
Council.
HOPE VI................... Competitive Grant While no new grants
are being awarded,
the most recent
Notice of Funding
Availability
provided the
following rating
points: 3 points if
new units were
certified to one of
several recognized
green building
programs, including
Enterprise Green
Communities,
National Green
Building Standard,
LEED for Homes, LEED
New Construction, or
local or regional
standards such as
Earthcraft; 2 points
if new construction
was certified to
ENERGY STAR for New
Homes standard; 1
point if only ENERGY
STAR-certified
products and
appliances were used
in new units.
Section 202 Supportive Competitive Grant Single family and low-
Housing for the Elderly. rise multifamily:
ENERGY STAR
Certified New Homes.
Multifamily high-
rise (4 or more
stories): ENERGY
STAR for Multifamily
High Rise.
Applicants earn
additional points if
they meet one of
several recognized
green building
standards. http://archives.hud.gov/funding/2010/202elderly.pdf.
(Note: capital
advances for new
construction last
awarded in FY 2010).
Section 811 for Persons Competitive Grant ENERGY STAR Certified
with Disabilities Project New Homes for single
Rental Assistance. family homes, or
ENERGY STAR for
Multifamily High
Rise for multifamily
buildings. http://archives.hud.gov/funding/2012/sec811pranofa.pdf.
(Note that HUD is no
longer awarding
Section 811 grants
for new units.)
Rental Assistance Conversion of Minimum 2006 IECC or
Demonstration (RAD). Existing Units. ASHRAE 90.1-2004 for
new construction or
any successor code
adopted by HUD;
applicants
encouraged to build
to ENERGY STAR
Certified New Homes
or ENERGY STAR for
Multifamily High
Rise. Minimum
WaterSense and
ENERGY STAR
appliances required
and the most cost-
effective measures
identified in the
Physical Condition
Assessment (PCA).
(Note that most RAD
units will be
conversions of
existing units, not
new construction).
FHA Multifamily Mortgage Mortgage 2006 IECC or ASHRAE
Insurance. Insurance. 90.1-2004
(Multifamily
Accelerated
Processing Guide at
http://portal.hud.gov/hudportal/documents/huddoc?id=4430GHSGG.pdf pdf).
FHA Single Family Mortgage Mortgage 2006 IECC (See
Insurance. Insurance. Builder's
Certification form
HUD-92541 at http://portal.hud.gov/hudportal/documents/huddoc?id=92541.pdf.
)
HOME Investment Formula Grant.... Cranston-Gonzalez
Partnerships Program. sections 215(b)(4)
and section
215(a)(1)(F) require
HOME units to meet
minimum energy
efficiency standards
promulgated by the
Secretary in
accordance with
Cranston Gonzalez
section 109 (42
U.S.C. 12745). Final
HOME Rule published
July 24, 2013 at
www.onecpd.info/home/home-final-rule/reserves reserves the energy
standard for a
separate rulemaking
at 24 CFR 92.251.
Public Housing Capital Formula Grant.... 2009 IECC and ASHRAE
Fund. 90.1-2010, or
successor standards,
Capital Final Rule
October 24, 2013, at
http://www.gpo.gov/fdsys/pkg/FR-2013-10-24/pdf/2013-23230.pdf. ENERGY
STAR appliances are
also required unless
not cost effective.
USDA
Section 502 Guaranteed Loan Guarantee... 2006 IECC at
Housing Loans. minimum.* Rural
Energy Plus program
requires compliance
with most recent
version of IECC,
which is currently
IECC 2012.
Section 502 Rural Housing Loan Guarantee... 2006 IECC at
Direct Loans. minimum.* A pilot is
being created that
gives incentive
points for
participation in
ENERGY STAR
Certified New Homes,
Green Communities,
Challenge Home, NAHB
National Green
Building Standard,
and LEED for Homes
Section 502 Direct Loans Loan Guarantee... 2006 IECC at
for Section 523 Mutual minimum.* A pilot is
Self-Help Loan program being created that
homeowner participants. gives incentive
points for
participation in
ENERGY STAR
Certified New Homes,
Green Communities,
Challenge Home, NAHB
National Green
Building Standard,
and LEED for Homes
------------------------------------------------------------------------
* USDA programs updated annually per Administrative Notice.
II. HUD-USDA Final Affordability Determination
The specific HUD and USDA programs covered by this notice are
listed in Appendix I. While not specifically referenced in EISA, the
Home Investment Partnerships Program (HOME) is covered, pursuant to a
requirement in the HOME statute at section 215(b)(4) (42 U.S.C.
12745(b)(4)) and section 215(a)(1)(F) (42 U.S.C. 12745(a)(1)(f)) of
Cranston-Gonzalez, which set the minimum standard for new construction
of HOME-funded units at the standard established through this
determination under Cranston-Gonzalez section 109.
Several exclusions are worth noting. EISA's application to the
``rehabilitation and new construction of public and assisted housing
funded by HOPE VI revitalization grants'' is no longer applicable,
since funding for HOPE VI
[[Page 25910]]
has been discontinued. HUD's Housing Choice Voucher program, also known
as Section 8 Tenant-Based Rental Assistance (TBRA), is excluded since
the agency does not have the authority or ability to establish housing
standards for properties before they are rented by tenant households
under that program; i.e., when they are newly built. Indian housing
programs are excluded because they do not constitute assisted housing
and are not authorized under the National Housing Act (12 U.S.C. 1701
et seq.) as specified in EISA. For instance, the Section 184 Loan
Guarantee Program is authorized under section 184 of the Housing and
Community Development Act of 1992 (42 U.S.C. 1715z-13a). Similarly,
housing financed with Community Development Block Grant (CDBG) funds is
not included, since CDBG, which is authorized by the Housing and
Community Development Act of 1974 (42 U.S.C. 5301 et seq.), is neither
an assisted housing program nor a National Housing Act mortgage
insurance program. Finally, only single family USDA programs are
covered by EISA, whereas both single family and multifamily HUD
programs are covered.
A. Discussion of Market Failures
Before focusing on the specific costs and benefits associated with
adoption of the IECC and ASHRAE codes addressed in this notice, the
extent to which market failures or barriers exist in the residential
sector that may prompt the need for these higher codes is discussed
below. There is a wide body of literature on a range of market failures
that have resulted in an ``energy efficiency gap'' between the actual
level of investment in energy efficiency and the higher level of
investment that would be cost beneficial from the consumer's (i.e., the
individual's or firm's) point of view.\13\ More broadly, market
failures involve externalities, market power, and inadequate or
asymmetric information. Market barriers include capital market barriers
and incomplete markets for energy efficiency; i.e., the fact that
energy efficiency is generally purchased as an attribute of another
product (in this case shelter or a building).
---------------------------------------------------------------------------
\13\ The existence of this gap has been documented in many
cases. See Marilyn A. Brown, ``Market Failures and Barriers as a
Basis for Clean Energy Policies,'' Energy Policy 29 (2001): 1197-
1207.
---------------------------------------------------------------------------
Within this broader world of market failures and barriers,
suboptimal energy efficient investment in housing imposes two primary
costs: Increased energy expenditures for households and an increase in
the negative externalities associated with energy consumption. In
addition to complying with the EISA statute, HUD and USDA have two
primary motivations in the promulgation of this notice: (1) To reduce
the total cost of operating and thereby increasing the affordability of
housing by promoting the adoption of cost-effective energy
technologies, and (2) to reduce the social costs (negative
externalities) imposed by residential energy consumption. The first
justification (lowering housing costs) requires that there exist
significant market failures or other barriers that deter builders from
supplying the energy efficiency demanded by consumers of housing.
Alternatively, there may be market barriers that limit consumer demand
for energy efficiency, which builders might readily supply if such
demand existed. While the gains from cost-effective investments in
energy efficiency are potentially very large, the argument that the
market will not provide energy efficient housing demanded by households
is somewhat complex.
The second justification (reducing social costs) requires that the
consumption of energy imposes external costs that are not internalized
by the market. There is near universal agreement among scientists and
economists that energy consumption leads to indirect costs. The
challenge is to measure those costs.
Under Investment in Energy-Saving Technologies
The production of energy efficient housing may be substantial, but
if there are market failures or barriers that are not reflected in the
return on the investment, the market penetration of energy efficient
investments in housing will be less than optimal.
When analyzing energy efficiency standards, the generation of
savings is typically the greatest of the different categories of
benefits. Using potential private benefits to justify costly energy
efficiency standards is often criticized.\14\ A skeptic of this
approach of measuring the benefits discussed in this notice would
indicate that if, indeed, there were net private benefits to energy
efficient housing, consumers would place a premium on that
characteristic and builders would respond to market incentives and
provide energy-efficient homes. The noninterventionist might argue that
the analyst who finds net benefits of implementing a standard did not
measure the benefits and costs correctly.\15\ The existence of
unobserved costs (either upfront or periodic) is a potential
explanation for low levels of investment in energy-saving technology.
Finally, a proponent of the market approach could argue that the very
existence of energy efficient homes is ample proof that the market
functions well. If developers build energy efficient housing, the
theoretical challenge is to explain why there is an undersupply.
---------------------------------------------------------------------------
\14\ Hunt Allcott and Michael Greenstone, Is There An Energy
Efficiency Gap? National Bureau of Economic Research, Working Paper
No. 17766, January 2012. http://www.nber.org/papers/w17766.pdf.
\15\ For a detailed example, see Allcott and Greenstone, Is
There an Energy Efficiency Gap?
---------------------------------------------------------------------------
Despite the economic argument for nonintervention, there are many
compelling economic arguments for the existence of an energy efficiency
gap. Thaler and Sunstein attribute the energy efficiency gap to
incentive problems that are exaggerated because upfront costs are borne
by the builder, whereas the benefits are enjoyed over the long term by
tenants.\16\ Four justifications deserve special consideration: (1)
Imperfect information concerning energy efficiency, (2) inattention to
energy efficiency, (3) split incentives for energy efficient
investments in the housing market, and (4) lack of financing for energy
efficient retrofits.\17\
---------------------------------------------------------------------------
\16\ Richard H. Thaler and Cass R. Sunstein, Nudge: Improving
Decisions about Health, Wealth, and Happiness (New Haven: Yale
University Press, 2008).
\17\ Allcott and Greenstone, Is There an Energy Efficiency Gap?
---------------------------------------------------------------------------
(1) Imperfect information. Assuming information concerning energy
efficiency affects investment, one can imagine two scenarios in which
imperfect information would lead to an underinvestment in energy
efficiency. First, consumers may be unaware of the potential gains from
energy efficiency or even of the existence of a particular energy-
saving investment. Second, imperfect information may inhibit energy
efficient investments. A consumer may be perfectly capable of
evaluating energy efficiency and making rational economic decisions but
researching the options is costly. Establishing standards reduces
search costs: consumers will know that newer housing possesses a
minimal level of efficiency. Similarly, because it may be costly for
consumers to identify energy efficient housing, the real estate
industry may hesitate to invest in energy efficiency.
(2) Consumer inattention to energy efficiency. Consumers may be
inattentive to long-run operating costs (energy bills) when purchasing
durable energy-using goods.\18\ Procrastination and self-control also
may affect the
[[Page 25911]]
rationality of long-run decisions.\19\ These behavioral phenomena may
deter energy efficiency choices. Establishing minimal standards that do
not impose excessive costs but generate economic gains will benefit
consumers who, when making housing choices, concentrate on other
characteristics of the property.
---------------------------------------------------------------------------
\18\ Ibid, 21.
\19\ Dan Ariely, Predictably Irrational. Revised and Expanded
Edition (New York: Harper Collins, 2009).
---------------------------------------------------------------------------
(3) Split incentives. For owner-occupied homes, the prospect of
ownership transfer may create a barrier to energy efficient
investment.\20\ If owners, builders, or buyers do not believe that they
will be able to recapture the value of the investment upon selling
their home, they will be deterred from investing in energy efficiency.
As indicated by McKinsey and Company in their landmark 2009 report, the
length of the payback period and lifetime of the stream of benefits is
longer than a large proportion of households' tenure. This concern may
lead to the exclusive pursuit of investments for which there is an
immediate payback.
---------------------------------------------------------------------------
\20\ McKinsey and Company, Unlocking Efficiency in the U.S.
Economy (July 2009), p.24. http://www.mckinsey.com/client_service/electric_power_and_natural_gas/latest_thinking/unlocking_energy_efficiency_in_the_us_economy.
---------------------------------------------------------------------------
For rental housing, split incentives exist that lead to sub-optimal
housing.\21\ There is an agency problem when the landlord pays the
energy bill and cannot observe tenant behavior or when the tenant pays
the energy bill and cannot observe the landlord's investment
behavior.\22\
---------------------------------------------------------------------------
\21\ Kenneth Gillingham, Matthew Harding and David Rapson,
``Split Incentives and Household Energy Consumption,'' Energy
Journal 33:2 (2012): 37-62.
\22\ Such agency problems are not unique to energy. A landlord
does not know in advance of extending a lease to what extent a
tenant will inflict damage, make an effort to take care of the
property, or report urgent problems. The response is to raise rent
and lower quality.
---------------------------------------------------------------------------
(4) Lack of financing. Energy efficient investment may require a
significant investment that cannot be equity financed. Capital
constraints are a formidable barrier to energy efficiency for low-
income households.\23\ While there is a wide variety of financing
alternatives for home purchases, there are not many financing
alternatives specifically for undertaking energy retrofits of for-sale
housing.\24\ Building energy efficiency into housing at the time of
construction allows homeowners and landlords to finance the energy-
saving improvement with a lower mortgage interest rate, as opposed to a
less affordable home improvement loan specifically for energy
retrofits.\25\
---------------------------------------------------------------------------
\23\ McKinsey and Company, Unlocking Efficiency.
\24\ Alastair McFarlane, ``The Impact of Home Energy Retrofit
Loan Insurance: A Pilot Program,'' Cityscape: A Journal of Policy
Development and Research, Volume 13, Number 3. U.S. Department of
Housing and Urban Development Office of Policy Development Research
(2011): 237-249.
\25\ With the exception of a few programs serving specific
markets and a Federal Housing Administration (FHA) pilot program,
affordable financing for home energy improvements that reflects
sound lending principles is limited. Unsecured consumer loans or
credit card products for home improvements typically charge high
interest rates. Home equity lines of credit require owners to be
willing to borrow against the value of their homes during a period
when home values are flat or declining in many markets. Utility ``on
bill'' financing (in which a home energy retrofit loan is amortized
through an incremental change on a utility bill) serves only a
handful of markets on a small scale. Property Assessed Clean Energy
(PACE) financing programs have encountered resistance because of
their general requirement to have priority over existing liens on a
property.
---------------------------------------------------------------------------
Nonenergy Benefits
Even if there were no investment inefficiencies and individual
consumers who were able to satisfy their need for energy efficiency,
nonenergy consumption externalities could justify energy conservation
policy. The primary nonenergy co-benefits of reducing energy
consumption are the reduction of emissions, and health benefits. The
emission of pollutants (such as particulate matter) cause health and
property damage. Greenhouse gases (such as carbon dioxide) cause global
warming, which imposes a cost on health, agriculture, and other
sectors. Greater energy efficiency allows households to afford energy
for heating during severe cold or cooling during intense heat, which
could have positive health effects for vulnerable populations. For
example, studies have found a strong link between health outcomes and
indoor environmental quality, of which temperature, lighting, and
ventilation are important determinants.\26\ Clinch and Healy discuss
how to value the effect on mortality and morbidity in a cost-benefit
analysis of energy efficiency.\27\
---------------------------------------------------------------------------
\26\ William J. Fisk, ``How IEQ Affects Health, Productivity,''
ASHRAE Journal 57 (2002).
\27\ Peter J. Clinch and John D. Healy, ``2001 Cost-benefit
Analysis of Domestic Energy Efficiency,'' Energy Policy 29 (2001):
113-124.
---------------------------------------------------------------------------
In addition to the direct health benefits for residents of energy
efficient housing, there will be indirect public health benefits.
First, the local population will gain from reducing emissions of
particulate matter that have harmful health effects. Second, there may
be a positive safety effect from reducing the probability of fires by
eliminating the need for supplemental heating sources.\28\
---------------------------------------------------------------------------
\28\ Martin Schweitzer and Bruce Tonn, Nonenergy Benefits from
the Weatherization Assistance Program: A Summary of Findings from
the Recent Literature. ORNL/CON-484 (Oak Ridge National Laboratory,
April 2002).
---------------------------------------------------------------------------
B. 2009 IECC Affordability Determination
The IECC is a model energy code developed by the ICC through a
public hearing process involving national experts for single family
residential and commercial buildings.\29\ The code contains minimum
energy efficiency provisions for residential buildings, defined as
single family homes and low-rise residential buildings up to three
stories, offering both prescriptive and performance-based approaches.
Key elements of the code are building envelope requirements for thermal
performance and air leakage control.
---------------------------------------------------------------------------
\29\ The IECC also covers commercial buildings. States may
choose to adopt the IECC for residential buildings only, or may
extend the code to commercial buildings (which include multifamily
residential buildings of four or more stories).
---------------------------------------------------------------------------
The IECC is typically published every 3 years, though there are
some exceptions. In the last two decades, full editions of its
predecessor, the Model Energy Code, came out in 1989, 1992, 1993, and
1995, and full editions of the IECC came out in 1998, 2000, 2003, 2006,
2009, and 2012. Though there were changes in each edition of the IECC
from the previous one, the IECC can be categorized into two general
eras: 2003 and before, and 2004 and after. The residential portion of
the IECC was heavily revised in 2004. The climate zones were completely
revised (reduced from 17 zones to 8 primary zones), and the building
envelope requirements were restructured into a different format.\30\
The post-2004 code became much more concise and simpler to use, but
these changes complicate comparisons of State codes based on pre-2004
versions of the IECC to the 2009 IECC.
---------------------------------------------------------------------------
\30\ In the early 2000s, researchers at the U.S. Department of
Energy's Pacific Northwest National Laboratory prepared a simplified
map of U.S. climate zones. This PNNL-developed map divided the
United States into eight temperature-oriented climate zones. http://apps1.eere.energy.gov/buildings/publications/pdfs/building_america/4_3a_ba_innov_buildingscienceclimatemaps_011713.pdf.
---------------------------------------------------------------------------
The 2009 IECC substantially revised the 2006 code as follows: \31\
---------------------------------------------------------------------------
\31\ Pacific Northwest National Laboratory for the U.S.
Department of Energy, Impacts of the 2009 IECC for Residential
Buildings at State Level (September 2009). https://www.energycodes.gov/impacts-2009-iecc-residential-buildings-state-level-0.
The duct system has to be tested and the air leakage
out of ducts must be kept to an acceptable maximum level. Testing is
not required if all ducts are inside the building envelope (for
example in heated basements), though the ducts still have to be
sealed.
[[Page 25912]]
50 percent of the lighting (bulbs, tubes, etc.) in a
building has to be energy efficient. Compact fluorescent light bulbs
qualify; standard incandescent bulbs do not.
Trade-off credit can no longer be obtained for high-
efficiency heating, ventilation, and air conditioning (HVAC)
equipment. For example, if a high-efficiency furnace is used, no
reduction in wall insulation is allowed.
Vertical fenestration U-factor requirements are reduced
from 0.75 to 0.65 in Climate Zone 2, 0.65 to 0.5 in Climate Zone 3,
and 0.4 to 0.35 in Climate Zone 4.
The maximum allowable solar heat gain coefficient for
glazed fenestration (windows) is reduced from 0.40 to 0.30 in
Climate Zones 1, 2, and 3.
R-20 walls in climate zones 5 and 6 (increased from R-
19).
Modest basement wall and floor insulation improvements.
R-3 pipe insulation on hydronic distribution systems
(increased from R-2).
Limitation on opaque door exemption both size and style
(side hinged).
Improved air-sealing language.
Controls for driveway/sidewalk snow melting systems.
Pool covers are required for heated pools.
1. Current Adoption of the 2009 IECC
As of November 2014, 34 States and the District of Columbia have
voluntarily adopted the 2009 IECC, its equivalent, or a more recent
energy code (Table 2).\32\ The remaining 16 States have not yet adopted
the 2009 IECC.\33\ (In certain cases, cities or counties within a State
have a different code from the rest of the State. For example, the
cities of Austin and Houston, Texas, have adopted energy codes that
exceed the minimum Texas statewide code).34 35 HUD and USDA
are primarily interested in those States that have not yet adopted the
2009 IECC, since it is in these States that any affordability impacts
will be felt relative to the cost of housing built to current State
codes. As noted, in instances where a local entity has a more stringent
standard, the affordability impacts within a State will differ.
---------------------------------------------------------------------------
\32\ Not shown in Table 2 are the U.S. Territories. The status
of IECC code adoption in these jurisdictions is as follows: Guam,
Puerto Rico, and the U.S. Virgin Islands have adopted the 2009 IECC
for residential buildings. The Northern Mariana Islands have adopted
the Tropical Model Energy Code, which is equivalent to the 2003
IECC. American Samoa does not have a building energy code. These
territories are all covered by EISA, for any covered HUD and USDA
program that operates in these localities.
\33\ In addition, there are two territories that have not yet
adopted the 2009 IECC: the Northern Mariana Islands and American
Samoa. Accordingly, they will be covered by the affordability and
availability determinations of this notice.
\34\ Pacific Northwest National Laboratory, Impacts of the 2009
IECC.
\35\ HUD and USDA do not currently maintain a list of local
communities that may have adopted a different code than their State
code. There are cities and counties that have adopted the 2009 or
even the 2012 IECC in States that have not adopted the 2009 IECC or
equivalent/better. For example, most major cities or counties in
Arizona have adopted the 2009 IECC or better. And Maine has adopted
the 2009 IECC but allows towns under 4,000 people to be exempt. The
code requirements can also vary. Kentucky, for example, adopted the
2009 IECC for all homes except those that have a basement. The
following Web site notes locations that have adopted the 2012 (but
not the 2009) IECC: http://energycodesocean.org/2012-iecc-and-igcc-local-adoptions.
---------------------------------------------------------------------------
An increasing number of States have in recent years adopted, or
plan to adopt, the 2009 IECC, in part due to section 410 of the
American Recovery and Reinvestment Act of 2009 (ARRA) (Pub L. 111-5,
approved February 17, 2009), which established as a condition of
receiving State energy grants the adoption of an energy code that meets
or exceeds the 2009 IECC (and ASHRAE 90.1-2007), and achievement of 90
percent compliance by 2017. All 50 State governors subsequently
submitted letters notifying DOE that the provisions of section 410
would be met.\36\
---------------------------------------------------------------------------
\36\ American Recovery and Reinvestment Act, Pub L. 111-5,
division A, section 410(a)(2).
Table 2--Current Status of IECC Adoption by State \37\
[As of November 2014]
------------------------------------------------------------------------
2009 IECC or equivalent or higher (34
states and DC) Prior codes (16 states)
------------------------------------------------------------------------
Alabama................................... 2006 IECC or Equivalent (6
States)
California (Exceeds 2012 IECC)............ Hawaii.
Connecticut............................... Minnesota.
Delaware (2012 IECC)...................... Oklahoma.
District of Columbia (2012 IECC).......... Tennessee.
Florida................................... Utah.
Georgia................................... Wisconsin.
Idaho ............................
Illinois (2012 IECC)...................... 2003 IECC or Equivalent (2
States)
Indiana................................... Arkansas.
Iowa (2012 IECC).......................... Colorado.
Kentucky.................................. ............................
Louisiana................................. No Statewide Code (8 States)
Maryland (2012 IECC)...................... Alaska.
Massachusetts (2012 IECC)................. Arizona.
Michigan.................................. Kansas.
Montana................................... Maine.
Nebraska.................................. Mississippi.
Nevada.................................... Missouri.
New Hampshire............................. South Dakota.
New Jersey................................ Wyoming.
New Mexico
New York
North Carolina
North Dakota
Ohio
Oregon
Pennsylvania
Rhode Island (2012 IECC)
South Carolina
Texas
Vermont
Virginia (2012 IECC)
Washington (2012 IECC)
West Virginia
------------------------------------------------------------------------
2. 2009 IECC Affordability Analysis
In this notice, HUD and USDA address two aspects of housing
affordability in assessing the impact that the revised code will have
on housing affordability. As described further below, the primary
affordability test is a life-cycle cost (LCC) savings test, the extent
to which the additional, or incremental, investments required to comply
with the revised code are cost effective; i.e., the additional measures
pay for themselves with energy cost savings over a typical 30-year
mortgage period. A second test is whether the incremental cost of
complying with the code as a share of total construction costs--
regardless of the energy savings associated with the investment--is
affordable to the borrower or renter of the home.
---------------------------------------------------------------------------
\37\ ``Status of State Energy Code Adoption,'' U.S. Department
of Energy, http://www.energycodes.gov/adoption/states.
---------------------------------------------------------------------------
In determining the impact that the 2009 IECC will have on HUD and
USDA assisted, guaranteed or insured new homes, the agencies have
relied on a cost-benefit analysis of the 2009 IECC completed by PNNL
for DOE.\38\ This study provides an assessment of both the initial
costs and the long-term estimated savings and cost-benefits associated
with complying with the 2009 IECC. It offers evidence that the 2009
IECC may not negatively impact the affordability of housing covered by
EISA. The financing assumptions used in the LCC analysis prepared by
PNNL for DOE contains several variables that may not fully represent
the target population of FHA-insured and USDA-guaranteed borrowers
relative to borrowers utilizing conventional
[[Page 25913]]
financing. For example, it assumes a higher down payment (20 percent)
than FHA single family borrowers usually have, and it does not
incorporate the Mortgage Insurance Premiums associated with FHA-insured
single family mortgages.\39\ However, these variables do not change the
overall affordability and/or availability findings in this
Determination. While FHA average housing prices are lower than the
national average, and the down payment requirements are lower for FHA
than for conventional financing (3.5 percent vs. as high as 20
percent), these differences do not impact the overall cost-benefit
findings, given the very small incremental costs involved. For example,
the lower 3.5 percent down payment allowed by FHA will make the
``mortgage payback'' for the incremental cost of the higher energy code
somewhat more attractive--in that the increase in the down payment to
cover the added construction cost for the new energy code will be lower
for FHA than conventional financing. The remaining amount will be
amortized over 30 years for the FHA loan and will therefore actually
improve cash flow to the consumer.
---------------------------------------------------------------------------
\38\ U.S. Department of Energy, National Energy and Cost Savings
for New Single- and Multifamily Homes: A Comparison of the 2006,
2009 and 2012 Editions of the IECC (April 2012). http://www
.energycodes.gov/sites/default/files/documents/
NationalResidentialCostEffectiveness.pdf.
\39\ Pacific Northwest National Laboratory for the U.S.
Department of Energy, Methodology for Evaluating Cost-Effectiveness
of Residential Energy Code Changes (April 2012), 3-11. http://www.energycodes.gov/sites/default/files/documents/residential_methodology.pdf.
---------------------------------------------------------------------------
Note that there may be other benefits associated with energy
efficient homes, in addition to positive cash flows. A March 2013 study
by the University of North Carolina (UNC) Center for Community Capital
and the Institute for Market Transformation (IMT) shows a correlation
between greater energy efficiency and lower mortgage default risk for
new homes. The UNC study surveyed 71,000 ENERGY STAR-rated homes and
found that mortgage default risks are 32 percent lower for these more
energy efficient homes than homes without ENERGY STAR ratings.\40\
---------------------------------------------------------------------------
\40\ University of North Carolina, Home Energy Efficiency and
Mortgage Risks (March 2013). http://www.imt.org/uploads/resources/files/IMT_UNC_HomeEEMortgageRisksfinal.pdf.
---------------------------------------------------------------------------
3. Cost-Effectiveness Analysis and Results
The DOE study, National Energy and Cost Savings for New Single and
Multifamily Homes: A Comparison of the 2006, 2009, and 2012 Editions of
the IECC, published in April 2012 (2012 DOE study), shows positive
results for the cost effectiveness of the 2009 IECC for new homes. This
national study projects energy and cost savings, as well as LCC savings
that assume that the initial costs are mortgaged over 30 years. The LCC
method is a ``robust cost-benefit metric that sums the costs and
benefits of a code change over a specified time frame. LCC is a well-
known approach to assessing cost effectiveness.'' \41\ In September
2011, DOE solicited input via Federal Register notice on their proposed
cost-benefit methodology \42\ and this input was incorporated into the
final methodology posted on DOE's Web site in April 2012.\43\ A further
Technical Support Document was published in April 2013.\44\
---------------------------------------------------------------------------
\41\ U.S. Department of Energy, National Energy and Cost Savings
for new Single- and Multifamily Homes.
\42\ U.S. Department of Energy, Building Energy Codes Cost
Analysis (Federal Register notice 76-FR-56413, September 13, 2011).
https://federalregister.gov/a/2011-23236.
\43\ Pacific Northwest National Laboratory for the Department of
Energy Methodology for Evaluating Cost-Effectiveness of Residential
Energy Code Changes.
\44\ Pacific Northwest National Laboratory for the Department of
Energy (V. Mendon, R. Lucas, S. Goel), Cost-Effectiveness Analysis
of the 2009 and 2012 IECC Residential Provisions--Technical Support
Document (April 2013). http://www.energycodes.gov/sites/default/files/documents/State_CostEffectiveness_TSD_Final.pdf.
---------------------------------------------------------------------------
In summary, DOE calculates energy use for new homes using
EnergyPlusTM energy modeling software, Version 5.0. Two
buildings are simulated: A 2,400 square foot single family home and an
apartment building (a three-story multifamily prototype with six
dwelling units per floor) with 1,200 square-foot per dwelling. DOE
combines the results into a composite average dwelling unit based on
2010 Census building permit data for each State and eight climate
zones. Single family home construction is more common than low-rise
multifamily construction; the results are weighted accordingly to
reflect this. Census data also is used to determine climate zone and
national averages weighted for construction activity.
Four heating systems are considered: Natural gas furnaces, oil
furnaces, electric heat pumps, and electric resistance furnaces. The
market share of heating system types are obtained from the U.S.
Department of Energy Residential Energy Consumption Survey (2009).
Domestic water heating systems are assumed to use the same fuel as the
space heating system.
For all 50 States, DOE estimates that the 2009 IECC saves 10.8
percent of energy costs for heating, cooling, water heating, and
lighting over the 2006 IECC. LCC savings over a 30-year period are
significant in all climate zones: Average consumer savings range from
$1,944 in Climate Zone 3, to $9,147 in Climate Zone 8 when comparing
the 2009 IECC to the 2006 IECC.\45\
---------------------------------------------------------------------------
\45\ U.S. Department of Energy, National Energy and Cost
Savings, 3.
---------------------------------------------------------------------------
The published cost and savings data for all 50 States provides
weighted average costs and savings for both single family and low-rise
multifamily buildings. For the 16 States impacted by this notice, DOE
provided disaggregated data for single family homes and low-rise
multifamily housing to HUD and USDA. These disaggregated data are shown
in Table 3. Front-end construction costs range from $550 (Kansas) to
$1,950 (Hawaii) for the 2009 IECC over the 2006 IECC. On the savings
side, average LCC savings over a 30-year period of ownership range from
$1,633 in Utah to $6,187 in Alaska when comparing the 2009 IECC to the
2006 IECC.\46\
---------------------------------------------------------------------------
\46\ Disaggregated single family and low-rise multifamily data
provided by DOE to HUD and USDA. Data shows LCC savings
disaggregated for single family homes only (subset of LCC savings
for both single family and low-rise multifamily shown in an April
2012 DOE study. Data are posted at www.hud.gov/resilience.
---------------------------------------------------------------------------
In addition to LCC savings, the 2012 DOE study also provides simple
paybacks and ``net positive cash flows'' for these investments. These
are additional measures of cost effectiveness. Simple payback is a
measure, expressed in years, of how long it will take for the owner to
repay the initial investment with the estimated annual savings
associated with that investment. Positive cash flow assumes that the
measure will be financed with a 30-year mortgage, and reflects the
break-even point--equivalent to the number of months or years after
loan closing--at which the cost savings from the incremental energy
investment exceeds the combined cost of: (1) The additional down
payment requirement and (2) the additional monthly debt service
resulting from the added investment.
For example, the average LCC for Minnesota's adoption of the 2009
IECC over its current standard (the 2006 IECC) is estimated at $2,174,
with a simple payback of 7.2 years, and a net positive cash flow
(mortgage payback) of 2 years. Mississippi homeowners will save $2,674
over 30 years under the 2009 IECC, with a simple payback of 3.8 years,
and a positive cash flow of 1 year on the initial investment. As shown
in Table 3, below, similar results were obtained for the remaining
States analyzed, with simple paybacks ranging from a high of 8.3 years
(Louisiana) to a low of 2.6 years (Alaska). The positive cash flow for
all 18 impacted States is always 1 or 2 years, while the simple
[[Page 25914]]
payback averages 5.1 years, and is always less than 10 years (the
longest payback is 8.3 years in Louisiana).
As noted, the costs and savings estimates for the 16 States
presented here do not use the composite single family/low-rise
multifamily data presented in the 2012 DOE study. Rather, DOE provided
HUD and USDA with the unpublished underlying disaggregated data for
single family housing, to more accurately reflect the housing type
receiving FHA single family mortgage insurance or USDA loan guarantees.
These disaggregated data for single family homes are available at
www.hud.gov/resilience.
Table 3--Life-Cycle Cost (LCC) Savings, Net Positive Cash Flow, and Simple Payback for the 2009 IECC \47\
----------------------------------------------------------------------------------------------------------------
Weighted Weighted
average average Life-cycle Net positive Simple
State * incremental energy cost cost (LCC) cash flow payback
cost ($ per savings per savings ($ per (years) (years)
unit) year ($) unit)
----------------------------------------------------------------------------------------------------------------
Alaska.......................... 940 357 6,187 1 2.6
Arizona......................... 1,364 242 3,411 1 5.6
Arkansas........................ 1,090 173 2,320 2 6.3
Colorado........................ 902 134 1,782 2 6.7
Hawaii.......................... 1,950 393 5,861 1 5.0
Kansas.......................... 550 176 2,934 1 3.1
Maine........................... 910 305 5,261 1 3.0
Minnesota....................... 1,275 176 2,174 2 7.2
Mississippi..................... 643 168 2,674 1 3.8
Missouri........................ 967 151 2,077 2 6.4
Oklahoma........................ 1,293 202 2,680 2 6.4
South Dakota.................... 869 196 3,070 1 4.4
Tennessee....................... 643 143 2,158 1 4.5
Utah............................ 925 128 1,633 2 7.2
Wisconsin....................... 1,027 239 3,788 1 4.3
Wyoming......................... 885 155 2,215 1 5.7
Avg. of U.S................. 980 203 3,069 1.4 5.1
Avg. of 16 States........... 1,019 215 3,066 1.3 5.0
----------------------------------------------------------------------------------------------------------------
* Only the 16 States that have not yet adopted the 2009 IECC as of November 2014 are included in this table.
4. Limitations of Cost Benefit Analysis
HUD and USDA are aware of studies that discuss limitations
associated with cost-savings models such as these developed by PNNL for
DOE. For example, Alcott and Greenstone suggest that ``it is difficult
to take at face value the quantitative conclusions of the engineering
analyses'' associated with these models, as they suffer from several
empirical problems.\48\ They cite two problems in particular. First,
engineering costs typically incorporate upfront capital costs only and
omit opportunity costs or other unobserved factors. For example, one
study found that nearly half of the investments that engineering
assessments showed would have short payback periods were not adopted
due to unaccounted physical costs, risks, or opportunity costs. Second,
engineering estimates of energy savings can overstate true field
returns, sometimes by a large amount, and some engineering simulation
models have still not been fully calibrated to approximate actual
returns. Another limitation may be the uncertainty as to the extent to
which home rule municipalities have adopted higher energy codes in the
absence of statewide adoption.
---------------------------------------------------------------------------
\47\ Data provided by DOE to HUD and USDA showing disaggregated
LCC savings for single family homes only (subset of LCC savings for
both single family and low-rise multifamily published in April 2012
DOE study). Data are posted at www.hud.gov/resilience.
\48\ Allcott and Greenstone, Is There An Energy Efficiency Gap?,
3-28.
---------------------------------------------------------------------------
HUD and USDA nevertheless believe that the PNNL-DOE model used to
estimate the savings shown in this notice represents the current state-
of-the art for such modeling, is the product of significant public
comment and input, and is now the standard for all of DOE's energy code
simulations and models.
5. Distributional Impacts on Low-Income Consumers or Low Energy Users
For reasons discussed below, HUD and USDA project that
affordability will not decrease for many low-income consumers of HUD-
or USDA-funded units as a result of the determination in this notice.
The purpose of this regulatory action is to lower gross housing costs.
For rental housing, the gross housing cost equals contract rent plus
utilities (unless the contract rent includes utilities, in which case
gross housing costs equal the contract rent). For homeowners, housing
cost equals mortgage payments, property taxes, insurance, utilities,
and other maintenance expenditures. Reducing periodic utility payments
is achieved through an upfront investment in energy efficiency. The
cost of building energy efficient housing will be passed on to
residents (either renters or homeowners) through the price of the unit
(either rent or sales price). Households will gain so long as the net
present value of energy savings to the consumer is greater than the
cost to the builder of providing energy efficiency. The 2012 DOE study
cited in this notice provides compelling evidence that this is the case
for the energy standards in question; i.e., that they would have a
positive impact on affordability. In the 16 States impacted by the 2009
IECC, one of two codes addressed in the notice, the average incremental
cost of going to the higher standard is just $1,019 per unit, with
average annual savings of $215, for a 5.0 year simple payback, and a
1.3 year net positive cash flow.\49\
---------------------------------------------------------------------------
\49\ U.S. Department of Energy, National Energy and Cost
Savings.
---------------------------------------------------------------------------
Households that would gain the most from this regulatory action
would be those that consume energy the most intensively. However, it is
possible, although unlikely, that a minority of households could
experience a net increase in housing costs as a result of the
regulatory action. Households that consume significantly less energy
than the average household could experience
[[Page 25915]]
a net gain in housing costs if their energy expenditures do not justify
paying the cost of providing energy efficient housing.
There are a few reasons why a significant number of these
households are not expected to be inconvenienced. First, in the rare
case that a household does not value the benefits of energy efficient
housing, much of the preexisting housing stock is available at a lower
standard. Those that would lose from the capitalization of energy
savings in more efficient housing could choose alternative housing from
the large stock of existing and less energy efficient housing.
Second, to the extent that the majority of users of HUD/USDA
programs are likely to be lower-income households, these households may
suffer more from the ``energy efficiency gap'' than higher income
households. Low-income households pay a larger portion of their income
on utilities and so are not likely to be adversely affected by
requiring energy efficiency rules. According to data from the 2012
Consumer Expenditure Survey, utilities represent almost 10 percent of
total expenditures for the lowest-income households, as opposed to just
5 percent for the highest income. A declining expenditure share
indicates that utilities are a necessary good. One study of earlier
data from the Consumer Expenditure Survey found a short-run income
elasticity of demand of 0.23 (indicating that energy is a normal and
necessary good).\50\ Given these caveats, the expectation is that the
overwhelming majority of low-income households will gain from this
regulatory action.
---------------------------------------------------------------------------
\50\ Raphael E. Branch, ``Short Run Income Elasticity of Demand
for Residential Electricity Using Consumer Expenditure Survey
Data,'' Energy Journal 14:4 (1993): 111-121.
Table 4--Quintiles of Income Before Taxes and Shares of Average Annual Expenditures
--------------------------------------------------------------------------------------------------------------------------------------------------------
Lowest 20 Second 20 Third 20 Fourth 20 Highest 20 All consumer
Item percent percent percent percent percent units (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total Housing *................................... 40 38 34 31 30 33
Shelter....................................... 25 22 20 18 18 19
Utilities, fuels, and public services............. 9.8 9.1 8.3 7.0 5.4 7.1
Natural gas....................................... 0.9 0.8 0.8 0.7 0.6 0.7
Electricity....................................... 4.3 3.7 3.2 2.5 1.9 2.7
Fuel oil and other fuels.......................... 0.3 0.3 0.3 0.2 0.2 0.3
Telephone services................................ 3.0 3.0 2.9 2.5 1.8 2.4
Water and other public services................... 1.3 1.3 1.2 1.0 0.8 1.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Housing expenditures are composed of shelter, utilities, household operations, housekeeping expenses, furniture, and appliances.
Source: Consumer Expenditure Survey, 2012, shares calculated by HUD.
Third, as noted above, the standards under consideration in this
notice are not overly restrictive and are expected to yield a high
benefit-cost return.
Notwithstanding the LCC savings and rapid simple paybacks on the
initial investment described in this notice, low-income households face
severe capital constraints; as a result there may be a question as to
whether low-income families could be adversely impacted by the front-
end incremental costs associated with adopting these codes. Based on
the analysis provided in this Determination, the incremental costs are
not sufficiently large to disadvantage low-income families in relation
to the immediate benefits of that cost. Assuming a 3.5 percent down
payment for an FHA-insured mortgage, low-income families will be
required to pay an additional $35 at closing on the average incremental
cost of approximately $1,000 required for the 2009 IECC. In addition,
while HUD and USDA recognize the disproportionate burden that the
incremental cost associated with higher code adoption has on low-income
families, the benefits would also be shared disproportionately (this
time positively), as a result of the much higher share of income low-
income families spend on utilities relative to other households.
6. Conclusion
For the 34 States and the District of Columbia that have already
adopted the 2009 IECC or a stricter code, there will be little or no
impact on HUD and USDA's adoption of this standard for the programs
covered under EISA, since all housing in these States is already
required to meet this standard as a result of state legislation. For
the remaining 16 States that have not yet adopted the 2009 IECC, HUD
and USDA expect no negative affordability impacts from adoption of the
code as a result of the low incremental first costs, the rapid simple
payback times, and the LCC savings documented above.
For the States that have not yet adopted the 2009 IECC, the
evidence shows that the 2009 IECC is cost effective in all climate
zones and on a national basis. Cost effectiveness is based on LCC cost
savings estimated by DOE for energy-savings equipment financed over a
30-year period. In addition, simple paybacks on these investments are
typically less than 10 years, and positive cash flows are in the 1- to
2-year range. HUD and USDA therefore determine that the adoption of the
2009 IECC code for HUD and USDA assisted and insured new single family
home construction does not negatively impact the affordability of those
homes.
C. ASHRAE 90.1-2007 Affordability Determination
EISA requires HUD to consider the adoption of ASHRAE 90.1 for HUD-
assisted multifamily programs (USDA multifamily programs are not
covered). ASHRAE 90.1 is an energy code published by the ASHRAE for
commercial buildings, which, by definition, include multifamily
residential buildings of more than three stories. The standard provides
minimum requirements for the energy efficient design of commercial
buildings, including high-rise residential buildings (four or more
stories). By design of the standard revision process, ASHRAE 90.1 sets
requirements for the cost-effective use of energy in commercial
buildings.
Beginning with ASHRAE 90.1-2001, the standard moved to a 3-year
publication cycle. Substantial revisions to the standard have occurred
since 1989. Significant requirements in ASHRAE 90.1-2007 over the
previous (2004) code included stronger building insulation, simplified
fenestration
[[Page 25916]]
requirements, demand control ventilation requirements for higher
density occupancy, and separate simple and complex mechanical
requirements.
ASHRAE 90.1-2007 included 44 changes, or addenda, to ASHRAE 90.1-
2004.\51\ In an analysis of the code, DOE preliminarily determined that
30 of the 44 would have a neutral impact on overall building
efficiency; these included editorial changes, changes to reference
standards, changes to alternative compliance paths, and other changes
to the text of the standard that may improve the usability of the
standard, but do not generally improve or degrade the energy efficiency
of the building. Eleven changes were determined to have a positive
impact on energy efficiency and two changes to have a negative
impact.\52\
---------------------------------------------------------------------------
\51\ Pacific Northwest National Laboratory for the U.S.
Department of Energy, Impacts of Standard 90.1-2007 for Commercial
Buildings at State Level (September 2009). https://www.energycodes.gov/impacts-standard-901-2007-commercial-buildings-state-level.
\52\ The two negative impacts on energy efficiency are: (1)
Expanded lighting power exceptions for use with the visually
impaired, and (2) allowance for louvered overhangs.
---------------------------------------------------------------------------
The 11 addendums with positive impacts on energy efficiency
include: increased requirement for building vestibules, removal of data
processing centers from exceptions to HVAC requirements, removal of
hotel room exceptions to HVAC requirements, modification of demand-
controlled ventilation requirements, modification of fan power
limitations, modification of retail display lighting requirements,
modification of cooling tower testing requirements, modification of
commercial boiler requirements, modification of part load fan
requirements, modification of opaque envelope requirements, and
modification of fenestration envelope requirements.
1. Current Adoption of ASHRAE 90.1-2007
Thirty-eight States and the District of Columbia have adopted
ASHRAE 90.1-2007, its equivalent, or a stronger commercial energy
standard (Table 5).\53\ In many cases, that standard is adopted by
reference through adoption of the commercial buildings section of the
2009 IECC, while in other cases ASHRAE 90.1 is adopted separately.
Twelve States either have previous ASHRAE codes in place or no
statewide codes. ASHRAE 90.1-2007 was also the baseline energy standard
established under ARRA for commercial buildings (including multifamily
properties), to be adopted by all 50 States and for achieving a 90
percent compliance rate by 2017.\54\
---------------------------------------------------------------------------
\53\ Not shown in Table 5 are the U.S. Territories. Guam, Puerto
Rico, and the U.S. Virgin Islands have adopted ASHRAE 90.1-2007 for
multifamily buildings. The Northern Mariana Islands have adopted the
Tropical Model Energy Code, equivalent to ASHRAE 90.1-2001. American
Samoa does not have a building energy code.
Table 5--Current Status of ASHRAE Code Adoption by State \54\
[as of November 2014]
------------------------------------------------------------------------
ASHRAE 90.1-2007 or higher (38 states and Prior or no statewide codes
District of Columbia) (12 States)
------------------------------------------------------------------------
Alabama................................... ASHRAE 90.1-2004 or
Equivalent (4 States)
Arkansas.................................. Hawaii.
California................................ Minnesota.
Connecticut............................... Oklahoma.
Delaware.................................. Tennessee.
District of Columbia
Florida................................... ASHRAE 90.1-2001 or
Equivalent (1 State)
Georgia................................... Colorado.
Idaho
Illinois.................................. No Statewide Code (7 States)
Indiana................................... Alaska.
Iowa...................................... Arizona.
Kentucky.................................. Kansas.
Louisiana................................. Maine.
Maryland.................................. Missouri.
Massachusetts............................. South Dakota.
Michigan.................................. Wyoming.
Mississippi (Effective July 1, 2013)
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oregon
Pennsylvania
Rhode Island
South Carolina
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
------------------------------------------------------------------------
2. ASHRAE 90.1-2007 Affordability Analysis
---------------------------------------------------------------------------
\54\ ``Status of State Energy Code Adoption.''
---------------------------------------------------------------------------
Section 304(b) of Energy Conservation and Policy Act of 2005 (ECPA)
requires the Secretary of DOE to determine whether a revision to the
most recent ASHRAE standard for energy efficiency in commercial
buildings will improve energy efficiency in those buildings.\55\ In its
determination of improved energy efficiency for commercial buildings,
DOE developed both a ``qualitative'' analysis and a ``quantitative''
analysis to assess increased efficiency of ASHRAE Standard 90.1.\56\
The qualitative analysis evaluates the changes from one version of
Standard 90.1 to the next and assesses if each individual change saves
energy overall. The quantitative analysis estimates the energy savings
associated with the change, and is developed from whole building
simulations of a standard set of buildings built to the standard over a
range of U.S. climates.
---------------------------------------------------------------------------
\55\ 42 U.S.C. 6833(b)(2)(A). http://www.gpo.gov/fdsys/pkg/USCODE-2010-title42/pdf/USCODE-2010-title42-chap81-subchapII-sec6833.pdf.
\56\ U.S. Department of Energy, Building Energy Standards
Program: Determination Regarding Energy Efficiency Improvements in
the Energy Standard for Buildings, Except Low-Rise Residential
Buildings, ANSI/ASHRAE/IESNA Standard 90.1-2007 (Federal Register
notice 76-FR-43287, July 20, 2011). https://www.federalregister.gov/articles/2011/07/20/2011-18251/building-energy-standards-program-determination-regarding-energy-efficiency-improvements-in-the.
---------------------------------------------------------------------------
3. Energy Savings Analysis
DOE's quantitative analysis for ASHRAE 90.1-2007 concluded that on
average for mid-rise apartment buildings nationwide, electric energy
use intensity would decrease by 2.1 percent and natural gas energy use
intensity would decrease by 11.5 percent, for a total site decrease in
energy use intensity of 4.3 percent under ASHRAE 90.1-2007.\57\ The
energy cost index for this building type was also calculated to
decrease by 3 percent.
---------------------------------------------------------------------------
\57\ Pacific Northwest National Laboratory, Impacts of Standard
90.1-2007 for Commercial Buildings at State Level.
---------------------------------------------------------------------------
DOE also completed a state-by-state assessment of the impacts of
ASHRAE 90.1-2007 on residential (mid-rise apartments), nonresidential,
and semi-heated buildings subject to commercial building codes.\58\
This analysis included energy and cost savings over current commercial
building codes by both State and climate zone, by comparing each
State's base code at the time of the study to ASHRAE standard 90.1-
2007. Results of this savings analysis for the 12 States that have not
yet adopted Standard 90.1-2007 can be found in Appendix 2. Results are
shown for the percent reduction estimated by DOE in both overall site
energy use and energy cost resulting from adoption of Standard 90.1-
2007 over the base case.\59\
[[Page 25917]]
ASHRAE 90.1-2007 was projected to generate both energy and cost savings
in all States in all climate zones over existing codes.
---------------------------------------------------------------------------
\58\ Ibid, 9ff. Individual state reports also available at
https://www.energycodes.gov/impacts-standard-901-2007-commercial-buildings-state-level.
\59\ Energy cost savings were estimated using national average
energy costs of $0.0939 per kWh for electricity and $1.2201 per
therm for natural gas.
---------------------------------------------------------------------------
As shown in Appendix 2, the highest energy and cost savings
projected by DOE for residential buildings, for example, was in Topeka,
Kansas (Climate Zone 4A), where adoption of ASHRAE 90.1-2007 would
provide 10.3 percent energy savings and 6.8 percent cost savings over
the current energy code of the State of Kansas. The lowest energy and
cost savings estimated by DOE for residential buildings were in
Honolulu, Hawaii (Climate Zone 1A), at 0.8 percent in reduced
electricity consumption and costs. (Differentials between energy
savings and cost savings reflect price differences and varying shares
of the total for different fuel sources.)
As shown in Table 6, estimated front-end construction costs for the
12 States that have not yet adopted ASHRAE Standard 90.1-2007 range
from $309 (Oklahoma) to $489 (Alaska). On the savings side, the
estimated cost savings per unit range from a low of $28.70/year/unit in
Colorado, to a high of $80.13/year/unit in Kansas. Simple paybacks on
the initial investment range from a low of 4.2 years (Kansas) to a high
of 15.1 years (Hawaii).
Table 6--Estimated Costs and Benefits Per Dwelling Unit From Adoption of ASHRAE 90.1-2007 \60\
----------------------------------------------------------------------------------------------------------------
Energy cost Simple
State Incremental savings/unit payback/unit
cost/unit ($) ($/year)* (years)
----------------------------------------------------------------------------------------------------------------
AK.............................................................. 489 68.95 7.1
AZ.............................................................. 340 76.88 4.4
CO.............................................................. 354 28.70 12.4
HI.............................................................. 476 31.66 15.1
KS.............................................................. 338 80.13 4.2
ME.............................................................. 373 62.95 5.9
MN.............................................................. 413 31.15 13.3
MO.............................................................. 366 36.28 10.1
OK.............................................................. 309 31.79 9.7
SD.............................................................. 317 32.32 9.8
TN.............................................................. 318 30.40 10.5
WY.............................................................. 319 33.38 9.6
----------------------------------------------------------------------------------------------------------------
* Note on Energy Cost Savings: This table uses EIA fuel prices by state.
4. Cost Effectiveness Analysis and Results
---------------------------------------------------------------------------
\60\ Sources: HUD estimate of incremental costs and cost savings
associated with ASHRAE 90.1-2007; incremental costs/unit were
estimated by adjusting the New York incremental cost of $441 per
unit by Total Development Cost (TDC) adjustment factors in Appendix
2B. Energy cost savings/unit were derived using EIA's Average Retail
Price of Electricity in October 2014 (http://www.eia.gov/electricity/monthly/, Table 5.6 for October 2014 data from the
December 2014 Electric Power Monthly) and October 2014 Natural Gas
Prices (http://www.eia.gov/dnav/ng/ng_pri_sum_a_EPG0_PRS_DMcf_m.htm).
---------------------------------------------------------------------------
As discussed above, while DOE has completed an analysis of
projected savings that will result from ASHRAE 90.1-2007, an equivalent
to the cost studies conducted by DOE of the 2009 IECC does not exist
for ASHRAE 90.1-2007. However, in 2009 PNNL completed an analysis for
DOE of the incremental costs and associated cost benefits of complying
with the new standard for the State of New York, and this analysis was
used by HUD and USDA as the basis for determining the overall
affordability impacts of the new standard.\61\ Note, however, a number
of limitations exist in this analysis. For their cost analysis, PNNL
compared ASHRAE 90.1-2007 to the prevailing code in New York at the
time, the 2003 IECC (that references ASHRAE 90.1-2001) whereas the
current minimum standard for HUD-assisted multifamily buildings is
ASHRAE 90.1-2004. On the other hand, for their benefits analysis (i.e.,
energy savings) PNNL compared savings that would result from the
adoption of ASHRAE 90.1-2007 to prevailing state codes at the time. For
the 12 states that have not yet adopted ASHRAE 90.1-2007, the
prevailing state codes used by PNNL were equivalent to the current HUD
standard, ASHRAE 90.1-2004, in three States. For the remaining States,
the prevailing State codes used by PNNL were ASHRAE 90.1-2001 in two
States, a State-specific code in one State (Minnesota) and ASHRAE 90.1-
1999 in five States in the absence of a statewide code. Despite these
limitations as to the baseline codes used by PNNL compared to current
minimum HUD standards, the PNNL baseline analysis as used in this
Determination is the best available analysis upon which to base a
Determination on the costs and benefits associated with the adoption of
ASHRAE 90.1-2007.
---------------------------------------------------------------------------
\61\ Pacific Northwest National Laboratory, Cost Effectiveness
and Impact Analysis of Adoption of ASHRAE 90.1-2007 for New York
State.
---------------------------------------------------------------------------
In its New York analysis, PNNL found that adoption of ASHRAE 90.1-
2007 would be cost effective for all commercial building types,
including multifamily buildings, in all climate zones in the State. The
incremental first cost of adopting the revised standard for a
hypothetical 31-unit mid-rise residential prototype building in New
York was projected to be $21,083, $10,423, and $9,525 per building for
each of three climate zones in New York (Climate Zones 4A, 5A, and 6A,
respectively), for an average across all climate zones of $13,677 per
building, or $441 per dwelling unit. (Costs in Climate Zone 4A were
high because the sample location chosen for construction costs was New
York City.)
Annual energy cost savings in New York were projected to be $2,050,
$1,234, and $1,185 for Climate Zones 4A, 5A, and 6A per building,
respectively, for an average building, yielding cost savings of $1,489
per building for all climate zones, and average savings of $45 per
unit. The average simple payback period for this investment in New York
is 9.8 years, with a range of approximately 8 to 10 years.
Using New York as a baseline, HUD and USDA used Total Development
Cost (TDC) adjustment factors developed by HUD in order to determine an
estimate of the incremental costs associated with ASHRAE 90.1-2007 in
the 12 States that have not yet adopted this code. HUD develops annual
TDC limits for multifamily units for major metropolitan areas in each
State. The average TDC for each State was derived by averaging TDCs for
walkup- and elevator-style building types in each of
[[Page 25918]]
several metropolitan areas in that State. Note that TDC costs include
soft costs, site improvement costs, and management costs, and are
derived by a standard adjustment factor applied to hard construction
costs, referred to as Housing Construction Costs (HCC). HCC limits are
determined by averaging R.S. Means ``average'' and Marshall and Swift
``good'' cost indices. Section 6(b) of the United States Housing Act of
1937 and regulations at 24 CFR 941.306 require HUD to establish TDC
limits by multiplying the HCC construction cost guideline by 1.6 for
elevator type structures and by 1.75 for non-elevator type structures.
For the State of New York, TDCs were averaged for all of the State's
metro areas, and arrived at an average New York TDC of $221,607 per
unit.\62\ HUD and USDA then developed a TDC adjustment factor, which
consists of the ratio of the average New York TDC of $221,607 for a
two-bedroom unit against the average TDC for a similar unit in other
States (Appendix 3). This TDC adjustment factor was then applied to the
average cost per unit of $441 for complying with ASHRAE 90.1-2007 in
New York, to arrive at an incremental cost per unit for the 12 States
that have not yet adopted ASHRAE 90.1-2007 (Table 6).
---------------------------------------------------------------------------
\62\ ``2011 Unit Total Development Cost (TDC) Limits,'' U.S.
Department of Housing and Urban Development, http://portal.hud.gov/huddoc/2011tdcreport.pdf.
---------------------------------------------------------------------------
In developing this adjustment factor, HUD considered whether to use
IECC location cost indices developed by PNNL \63\ or HCC costs (TDC
minus soft and site improvement costs) rather than TDC costs. With
regard to possible use of the IECC cost indices, since TDC cost indices
were specifically developed for HUD-assisted properties, they are
appropriately used here rather than the IECC cost indices. In addition,
TDC (and HCC) costs apply to mid- and high-rise multifamily properties,
while the IECC cost indices may or may not be transferable since they
were developed for a different building type (single family or low-rise
multifamily). With regard to using the HCC rather than the TDC, since
the TDC is a standard function of the HCC, the adjustment factor will
be the same for both the TDC (including soft costs) and the HCC
(excluding soft costs).
---------------------------------------------------------------------------
\63\ Pacific Northwest National Laboratory, Cost-Effectiveness
Analysis of the 2009 and 2012 IECC Residential Provisions--Technical
Support Document.
---------------------------------------------------------------------------
In their April 15 Preliminary Determination HUD and USDA used
national averages for electricity and fuel rates to estimate energy
savings. In this Final Determination HUD and USDA use current State
average electricity and natural gas rates (October 2014) published by
the EIA, and apply those rates to an average of DOE's estimated energy
savings across climate zones in each State to generate statewide energy
savings estimates and to calculate simple payback periods for the
ASHRAE 90.1-2007 investments.\64\ For example, as shown in Table 6 and
Appendix 2, the average annual cost savings per unit resulting from
adopting ASHRAE 90.1-2007 in Arizona is estimated to be 5.5 percent of
baseline utility costs of $1,393 per unit per year, or $76.88 in per
unit annual energy cost savings. For an estimated average incremental
cost of $340 per unit, the simple payback derived from these costs
savings in Arizona is 4.4 years.\65\ Note that the same baseline code
used for the New York incremental cost analysis (the IECC 2003 or
ASHRAE 90.1-2001) is assumed for these States; the actual baseline
codes in these States may vary from the New York baseline (see Appendix
2).
---------------------------------------------------------------------------
\64\ U.S. Energy Information Administration, Independent
Statistics and Analysis, October 2014, at http://www.eia.gov/electricity/monthly/, Table 5.6 for October 2014 data from the
December 2014 Electric Power Monthly, and http://www.eia.gov/dnav/ng/ng_pri_sum_a_EPG0_PRS_DMcf_m.htm.
\65\ While the 12 States that have not yet adopted ASHRAE 90.1-
2007 have a variety of different energy codes, for the purposes of
these estimates, the current codes in those States are assumed to be
roughly equivalent to those in New York (ASHRAE 90.1-2004) at the
time of the DOE study. States that have pre-2004 codes in place are
likely to yield greater savings.
---------------------------------------------------------------------------
5. Conclusion
USDA's multifamily programs are not covered by EISA, and therefore
will not be impacted by ASHRAE 90.1. For impacted HUD programs in the
38 States and the District of Columbia that have adopted ASHRAE 90.1-
2007 or a higher standard, there will, by default, be no adverse
affordability impacts of adopting this standard. For the remaining 12
States that have not yet adopted ASHRAE 90.1-2007, HUD and USDA
estimate the incremental cost of ASHRAE 90.1-2007 compliance at under
$500 per dwelling unit, with the highest incremental cost at $490 per
dwelling unit (Alaska), and the lowest cost at $310 per dwelling unit
(Oklahoma). This estimate compares favorably to the cost of complying
with the 2009 IECC for single family homes, which shows a somewhat
higher average incremental cost of $1,019 per dwelling unit. With one
exception (Hawaii), simple payback times using the most recent State
average energy prices from EIA are 15 years or under.
The estimated payback for Hawaii slightly exceeds 15 years (15.1
years). While the Preliminary Determination had proposed to exempt
Hawaii, as a result of this Final Determination, HUD will require
Hawaii to comply with ASHRAE 90.1-2007 for HUD-assisted or FHA-insured
multifamily properties specified in EISA. This is because the Hawaii
Building Code Council has already adopted the 2009 IECC (roughly
equivalent to ASHRAE 90.1-2007), as well as the fact that current
(October 2014) EIA data show the average cost per kilowatt hour in that
State as of February 2014 has risen to 36 cents per kilowatt hour,
thereby lowering the payback period to 15.1 years. The payback of 15.1
years is consistent with the other four States shown in Table 6 with
paybacks that are longer than 10 years.
Accordingly, given the low incremental cost of compliance with the
new standard and the generally favorable simple payback times, HUD and
USDA have determined that adoption of ASHRAE 90.1-2007 by the covered
HUD programs will not negatively impact the affordability of
multifamily buildings built to the revised standard in the 12 States
that have not yet adopted this standard.
D. Impact on Availability of Housing
EISA requires that HUD and USDA assess both the affordability and
availability of housing covered by the Act. This section of this notice
addresses the impact that the EISA requirements would have on the
``availability'' of housing covered by the Act. ``Affordability'' is
assumed to be a measure of whether a home built to the updated energy
code is affordable to potential homebuyers or renters, while
``availability'' of housing is a measure associated with whether
builders will make such housing available to consumers at the higher
code level; i.e., whether the higher cost per unit as a result of
complying with the revised code will impact whether that unit is likely
to be built or not. A key aspect of determining the impact on
availability is the proportion of affected units in relation to total
units funded by HUD and USDA or total for-sale units. These issues are
discussed below.
1. Impact of Increases in Housing Prices and Hedonic Effects
Though both higher construction costs and hedonic increases in
demand for more energy-efficient housing are expected to contribute to
an increase in housing prices or contract rents, HUD and USDA do not
project such higher prices to decrease the quantity of
[[Page 25919]]
affordable housing exchanged in the market. For reasons explained in
the above discussion of market failures, improved standards are
expected to reduce operating costs per square foot, which will motivate
consumers to increase demand for more housing at each rent level, and
for developers or builders to respond to such demand with increased
supply. Therefore, regulatory action that leads to investments with
positive net present value can be expected to maintain or increase the
quantity of housing consumed.
Measuring the hedonic value (demand effect) of energy efficiency
improvements is fraught with difficulty, and there is little consensus
in the empirical literature concerning the degree of
capitalization.\66\ However, whatever their methodology, studies do
suggest a significant and positive influence of energy efficiency on
real estate values. One of the most complete studies on the hedonic
effects of energy efficiency is on commercial buildings.\67\ The
results indicate that a commercial building with an ENERGY STAR
certification will rent for about 3 percent more per square foot,
increase effective rents by 7 percent, and sell for as much as 16
percent more. The authors skillfully disentangle the energy savings
required to obtain a label from the unobserved effects of the label
itself. Energy savings are important: a 10 percent decrease in energy
consumption leads to an increase in value of about 1 percent, over and
above the rent and value premium for a labeled building. According to
the authors of the study, the ``intangible effects of the label
itself'' seem to play a role in determining the value of green
buildings.
---------------------------------------------------------------------------
\66\ Joseph Laquatra et al, ``Housing Market Capitalization of
Energy Efficiency Revisited,'' (paper presented at the 2002 ACEEE
Summer Study on Energy Efficiency in Buildings, 2002). http://www.eceee.org/library/conference_proceedings/ACEEE_buildings/2002/Panel_8/p8_12/paper.
\67\ P. Eichholz, N. Kok and J. Quigley, ``Doing Well by Doing
Good? Green Office Buildings,'' American Economic Review 100:5
(2010): 2492-2509.
---------------------------------------------------------------------------
2. Impact of 2009 IECC on Housing Availability
For the 34 States and the District of Columbia that have already
adopted the 2009 IECC, there will be few negative effects on the
availability of housing covered by EISA as a result of HUD and USDA
establishing the 2009 IECC as a minimum standard. For those 16 States
that have not yet adopted the revised codes, HUD and USDA have
estimated the number of new construction units built under the affected
programs in FY 2011. As detailed in Table 7, in FY 2011, a total of
15,425 units of HUD- and USDA-assisted new single family homes were
built in these States, including 11,533 that were FHA-insured new
homes, 850 that received USDA Section 502 direct loans, and 2,864 that
received Section 502 guaranteed loans. Overall, this represented 4.6
percent of all new single family home sales in the United States, and
0.3 percent of all U.S. single family home sales in FY 2011.\68\
---------------------------------------------------------------------------
\68\ New single family home sales totaled 333,000 in 2011; all
single family home sales totaled 5,236,000. ``FHA Single-Family
Activity in the Home-Purchase Market Through November 2011,''
Federal Housing Administration, February 2012, http://portal.hud.gov/hudportal/documents/huddoc?id=fhamkt1111.pdf.
---------------------------------------------------------------------------
Assuming similar levels of production as in 2011, the share of
units estimated as likely to be impacted by the IECC in the 16 States
that have not yet adopted this code is likely to be similar; i.e.,
approximately 4.6 percent of all new single family home sales in those
16 States, and 0.3 percent of all single family home sales in those 16
States.
Table 7--Estimated Number of HUD- and USDA-Supported Units Potentially Impacted by Adoption of 2009 IECC
--------------------------------------------------------------------------------------------------------------------------------------------------------
USDA Sec. 502 USDA Sec. 502
States not yet adopted 2009 IECC HOME FHA Single family direct guaranteed Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
AK....................................................... 16 207 25 53 301
AR....................................................... 10 672 127 412 1,221
AZ....................................................... 14 866 28 115 1,023
CO....................................................... 5 195 5 8 212
HI....................................................... 10 109 35 165 319
KS....................................................... 5 686 28 52 771
ME....................................................... 0 175 50 95 320
MN....................................................... 14 1,659 20 72 1,765
MO....................................................... 13 1,456 48 284 1,801
MS....................................................... 10 506 114 361 991
OK....................................................... 15 1,074 100 275 1,464
SD....................................................... 6 182 30 80 298
TN....................................................... 28 1,609 57 349 2,043
UT....................................................... 14 1,224 156 314 1,708
WI....................................................... 19 743 15 66 843
WY....................................................... 0 171 12 163 346
----------------------------------------------------------------------------------------------
Total................................................ 178 11,533 850 2,864 15,425
--------------------------------------------------------------------------------------------------------------------------------------------------------
Adoption of the 2009 IECC for affected HUD and USDA programs
represents an estimated one-time incremental cost increase for new
construction single family units of $15 million nationwide, and an
estimated annual benefit of $3.0 million in energy cost savings, for an
estimated simple payback of 5 years, as shown in Appendix 5.
3. Impact of ASHRAE 90.1-2007 on Housing Availability
ASHRAE 90.1-2007 has been adopted by 38 States and the District of
Columbia; the availability of HUD- assisted housing will therefore not
be negatively impacted in these States with the adoption of this
standard by the two agencies. As shown in Table 8, in the 12 States
that have not yet adopted this code, 5,256 new multifamily units were
funded or insured through HUD programs in FY 2011. HUD and USDA project
that of the units produced in the programs shown in Table 8, only units
for which HOME Investment Partnership Program (HOME) funds are
committed on or after January 24, 2015, and future units under FHA-
insured
[[Page 25920]]
multifamily programs will be affected by this Notice of Final
Determination. Using FY 2011 unit production as the baseline, HUD and
USDA project this to be approximately 3,217 units annually. This total,
as well as other totals in Table 8 below, reflect a discount factor for
Arizona and Colorado to reflect current home rule adoption of higher
codes in those States (70 percent and 90 percent, respectively).
Although covered under EISA, HUD's Public Housing Capital Fund, the
Sections 202 and 811 Supportive Housing and the HOPE VI programs are
not projected to be covered by the codes addressed in this notice, due
to the fact that the Public Housing Capital Fund currently already
requires a more recent building energy code for new construction
(ASHRAE 90.1-2010); the Sections 202 and 811 Supportive Housing
programs no longer fund new construction, and, in any case have
established higher standards for new construction in recent notices of
funding availability (NOFAs) (ENERGY STAR Certified New Homes and
ENERGY STAR Certified Multifamily High Rise buildings); and HOPE VI is
no longer active.
Table 8--Estimated Number of HUD-Assisted Units Potentially Impacted by Adoption of ASHRAE 90.1-2007
--------------------------------------------------------------------------------------------------------------------------------------------------------
Public housing Section 202/ FHA-
States not yet adopted ASHRAE 90.1-2007 capital fund 811 HOME HOPE VI Multifamily Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
AK...................................................... .............. 16 53 .............. 0 69
AZ *.................................................... .............. 0 175 .............. 82 257
CO *.................................................... .............. 1 15 .............. 164 181
HI...................................................... .............. 0 138 .............. 0 138
KS...................................................... .............. 24 35 .............. 0 59
ME...................................................... .............. 0 0 .............. 0 0
MN...................................................... .............. 204 80 .............. 180 464
MO...................................................... .............. 134 532 .............. 144 810
OK...................................................... .............. 10 215 .............. 1,086 1,311
SD...................................................... .............. 0 79 .............. 60 139
TN...................................................... .............. 33 91 .............. 144 268
WY...................................................... .............. 0 9 .............. 72 81
Unallocated............................................. 1,155 .............. .............. 323 .............. ..............
-----------------------------------------------------------------------------------------------
Total Units Produced in FY2011...................... 1,155 422 1,422 323 1,932 5,256
-----------------------------------------------------------------------------------------------
Total Units Projected to be Covered Under this .............. .............. 1,422 .............. 1,932 3,217
Notice.............................................
--------------------------------------------------------------------------------------------------------------------------------------------------------
* AZ and CO statewide numbers adjusted by 70 percent and 90 percent respectively, to reflect estimated adoption rate of the code by home rule
municipalities.
Of the total, approximately 15 new multifamily projects with 1,932
units were endorsed by FHA in 2011 in these States. The 1,932
multifamily units endorsed by FHA in FY 2011 in States that have not
yet adopted ASHRAE 90.1-2007 represented approximately 1 percent of a
total of 180,367 units receiving FHA multifamily endorsements
nationwide in FY 2011. The 15 projects with affected units represented
a mortgage value of $187 million, or 1.6 percent of a total FHA-insured
mortgage amount of $11.68 billion in FY 2011. Assuming a similar share
of impacted units as in FY 2011 in future years, HUD and USDA assume
that approximately 1 percent of FHA multifamily endorsements will be
impacted by ASHRAE 90.1-2007, and less than 2 percent of total loan
volume.
For both HOME and FHA-insured units shown in Table 8 (above)
adoption of ASHRAE 90.1-2007 by the covered HUD programs represents an
estimated one-time incremental cost increase for new multifamily
residential units of $1 million nationwide, and an estimated annual
benefit of $93,400 nationwide, resulting in an estimated simple payback
time of less than 12 years, as shown in Appendix 5.
4. Conclusion
Given the extremely low incremental costs associated with adopting
both the 2009 IECC and ASHRAE 90.1-2007 described above, and that the
estimated number of new construction units built under the affected
programs in FY 2011 in States that have not yet adopted the revised
codes is a small percentage of the total number of new construction
units in those programs nationwide, HUD and USDA have determined that
adoption of the codes will not adversely impact the availability of the
affected units.
E. Implementation Schedule
Section 109(d) of Cranston-Gonzalez automatically applies 2009 IECC
and ASHRAE 90.1-2007 to all covered programs upon completion of this
determination by HUD and USDA, and the previously published energy
efficiency determinations by DOE. Accordingly, the adoption of the 2009
IECC or ASHRAE 90.1-2007 new construction standards described in this
notice will take effect as follows:
(1) For FHA-insured multifamily programs, to those properties for
which mortgage insurance pre-applications are received by HUD 90 days
after the effective date of this Final Determination;
(2) For FHA-insured and USDA-guaranteed single family loan
programs, to properties for which building permits are issued 180 days
after the effective date of a Final Determination.
(3) For the HOME program, the standards set forth by this notice
are applicable to projects upon publication of guidance by HUD related
to property standard requirements at 24 CFR 92.251.
HUD and USDA will take such administrative actions as are necessary
to ensure timely implementation of, and compliance with, the energy
codes, to include mortgagee letters, notices, Builder's Certification
form HUD-92541, and amendments to relevant handbooks. Conforming
rulemaking will also be required for one HUD program to update previous
regulatory standards: the Federal Housing Administration's (FHA) single
family minimum property standards, for which the regulations are
codified at 24 CFR 200.926d. In addition, USDA will update minimum
energy requirements codified in USDA regulations at 7 CFR 1924.
[[Page 25921]]
F. Alternative Compliance Paths
HUD and USDA will accept certifications for a range of energy and
green building standards that require energy efficiency levels that
meet or exceed the 2009 IECC or ASHRAE 90.1-2007 as evidence of
compliance with the standards addressed in this notice. These include
the ICC-700 National Green Building Standard (Performance Path),
Enterprise Green Communities, ENERGY STAR Certified New Homes, ENERGY
STAR Multifamily High Rise, LEED-NC, LEED-H, or LEED-H Midrise, and
several regional or local green building standards, such as Earthcraft
House, Earthcraft Multifamily, Earth Advantage New Homes, or GreenPoint
Rated New Homes. These standards all require energy efficiency levels
that meet or exceed the 2009 IECC and ASHRAE 90.1-2007. In addition,
several States have adopted energy efficiency codes or standards that
exceed the efficiency levels of the 2009 IECC and ASHRAE 90.1-2007,
including, for example, the Title 24 California Energy Code in
California, and Focus on Energy in Wisconsin. HUD and USDA will accept
certifications of compliance with these State codes or standards as
well as other State codes or standards for which credible third-party
documentation exists that these exceed the 2009 IECC and ASHRAE 90.1-
2007.
G. Cost Benefit Analysis
1. Energy Costs and Savings
For both single family units complying with the 2009 IECC and
multifamily units complying with ASHRAE 90.1-2007, the combined cost of
implementing the updated codes is estimated at $16.1 million, with an
estimated annual energy cost savings of $3.1 million, yielding a simple
payback of 5.2 years. Annualized costs for this initial investment over
10 years are $1.8 million. Over 10 years, the present value of these
cost savings, using a discount rate of 3 percent, is $27.0 million, for
a net present value savings of $10.9 million over 10 years.
2. Social Benefits of Energy Standards
In addition to energy savings (described above) that will result
from adoption of the energy standards addressed in this Determination,
additional benefits are realized (in the form of lower social costs)
from the resulting reductions in emissions of pollutants (such as
particulate matter) that cause health and property damage and
greenhouse gases (such as carbon dioxide) (CO2) that cause
global warming.
The ``social cost of carbon'' (SCC) is an estimate used by EPA and
other Federal agencies to describe the economic damages associated with
a small increase in CO2 emissions, conventionally 1 metric
ton, in a given year. This dollar figure also represents the value of
damages avoided for a small emission reduction (i.e., the benefit of a
CO2 reduction).\69\ The SCC is meant to be a comprehensive
estimate of climate change damages and includes, but is not limited to,
changes in net agricultural productivity, human health, and property
damages from increased flood risk.\70\
---------------------------------------------------------------------------
\69\ Definition of Social Cost of Carbon at http://www.epa.gov/climatechange/EPAactivities/economics/scc.html.
\70\ Ibid. Given current modeling and data limitations, the SCC
does not include all important damages. As noted by the
Intergovernmental Panel on Climate Change Fourth Assessment Report,
it is ``very likely that [SCC] underestimates'' the damages. The
models used to develop SCC estimates, known as integrated assessment
models, do not currently include all of the important physical,
ecological, and economic impacts of climate change recognized in the
climate change literature because of a lack of precise information
on the nature of damages and because the science incorporated into
these models naturally lags behind the most recent research.
Nonetheless, the SCC is a useful measure to assess the benefits of
CO2 reductions.
---------------------------------------------------------------------------
The marginal social cost of carbon is taken from the Interagency
Working Group on Social Cost of Carbon (2013) and adjusted by the Gross
Domestic Product deflator to the 2012 price level. To calculate the
social cost of carbon in any given year, the Interagency Working Group
on Social Cost of Carbon estimated the future damages to agriculture,
human health, and other market and nonmarket sectors from an additional
unit (metric ton) of carbon dioxide emitted in a particular year.\71\
The interagency group provides estimates of the damage for every year
of the analysis from a future value of $39 in 2013 to $96 in 2027 (a
25-year stream of benefits). A worst-case scenario was presented by the
Interagency Working Group with costs starting at $110 in 2013 and
rising to $196 by 2037.
---------------------------------------------------------------------------
\71\ Interagency Working Group on Social Cost of Carbon,
Technical Support Document: Social Cost of Carbon for Regulatory
Impact Analysis under Executive Order 12866, United States
Government, 2010. The interagency group chose a global measure of
the social cost of carbon because emissions of most greenhouse gases
contribute to damages around the world.
---------------------------------------------------------------------------
The emission rate of metric tons of CO2 for each British
thermal unit (BTU) consumed varies by power or fuel source. The primary
source for these data is emissions factors developed by the U.S. Energy
Information Administration (EIA) and utilized by the EIA Voluntary
Reporting of Greenhouse Gases Program, as well as other EIA
sources.\72\
---------------------------------------------------------------------------
\72\ The EIA Voluntary Reporting Greenhouse Gas Reporting
Program was discontinued in 2011, but the emissions factors utilized
by that program, posted at http://www.eia.gov/oiaf/1605/emission_factors.html, and utilized here by HUD and USDA, remain
valid.
---------------------------------------------------------------------------
HUD uses a range for its emission factor of 0.107 to 0.137 metric
tons of CO2 per million BTUs. The lower figure of 0.107
metric tons of CO2 per million BTUs was derived as follows:
the most direct method of calculating the CO2 emission rate
for the residential sector is to divide total reported CO2
emissions from energy consumption in the energy sector (1,162 million
metric tons) by the corresponding energy consumption (10,833 trillion
BTUs) including coal, natural gas, petroleum, and retail electricity.
The average emission factor would be 107 kg CO2 per million
BTUs.
The higher figure of 0.137 metric tons of CO2 per
million BTUs was derived using a more detailed and comprehensive
analysis for specific power or fuel sources: the emission rates for
coal, natural gas, and petroleum \73\ are those for the residential and
commercial sectors as provided the EIA. Carbon dioxide emission
coefficients from the generation of electricity were calculated from
the 2012 United States Electricity Profile 2012.\74\ HUD included both
direct (sales) and indirect (energy losses) emissions using an emission
factor of 169.8 metric tons of CO2 per million BTUs for
both.\75\ HUD found that the weighted average CO2 emission
factor is 137.7 metric tons CO2 per million BTUs by
weighting the emission coefficient factors by the share of residential
energy consumption from each power source except biomass.\76\
---------------------------------------------------------------------------
\73\ Petroleum consumption includes distillate fuel oil,
kerosene, and liquefied petroleum gases. The emission coefficient is
the one for ``Home Heating and Diesel Fuel.''
\74\ U.S. Energy Information Administration, ``State Electricity
Profiles,'' 2012. http://www.eia.gov/electricity/state/unitedstates/.
\75\ This estimate is very close to that of www.carbonfund.org,
which estimates a CO2 emission factor of 173 using EPA
eGRID data.
\76\ Energy Information Administration, Annual Energy Review,
2013, Table 2.1b.
---------------------------------------------------------------------------
Given that both approaches are credible but arrive at a different
estimate, HUD and USDA used a range for its emission factor of from
0.107 to 0.137 metric tons of CO2 per million BTUs.
Based on studies by DOE, HUD estimates energy savings of 1.79
million BTUs per housing unit per year from the ASHRAE 90.1-2007
standard and a reduction of 7.3 million BTUs per housing unit per year
from the 2009 IECC. The expected aggregate energy
[[Page 25922]]
savings (technical efficiency) is approximately 118,300 million BTUs
annually.\77\
---------------------------------------------------------------------------
\77\ Aggregated energy savings are derived as follows: 1.79
MMBTU x 3,217 multifamily units + 7.3 MMBTU x 15,425 single family
units.
---------------------------------------------------------------------------
Whatever the predicted energy savings (technical efficiencies) of
an energy efficiency upgrade, the actual energy savings by a household
are likely to be smaller due to a behavioral response known as the
``rebound effect.'' A rebound effect has been observed when an energy
efficient investment effectively lowers the price of the outputs of
energy (heat, cooling, and lighting), which may lead to both income and
substitution effects by raising the demand for energy. Increasing
energy efficiency reduces the expense of physical comfort and may thus
increase the demand for comfort. To account for the wide range of
estimates for the scale of the rebound effect and the uncertainty
surrounding these estimates, HUD assumes a range of between 10 and 30
percent.\78\ The size of the rebound effect does not reduce the benefit
to a consumer of energy efficiency but indicates how those benefits are
allocated between reduced energy costs and increased comfort. Taking
account of the rebound effect, the technical efficiencies provided by
the energy standards discussed in this notice produce an estimated
energy savings between 82,810 million and 106,470 million BTUs.
---------------------------------------------------------------------------
\78\ Sorrel, Steven, The Rebound Effect: An Assessment of the
Evidence for Economy-Wide Energy Savings from Improved Energy
Efficiency, UK Energy Research Centre, October 2007.
---------------------------------------------------------------------------
Table 9 below summarizes the aggregate social benefits realized
from reducing carbon emissions for different marginal social cost
scenarios (average and worst case), lifecycles, and scenario
assumptions. The highest benefits will be for a high marginal social
cost of carbon, long life cycle, low rebound factor, and high emissions
factor.
Marginal Social Costs as used here are a measure of the non-energy
economic costs associated with carbon emissions. Marginal Social Costs
are defined by the Business Dictionary as the ``incremental cost of an
activity as viewed by the society and expressed as the sum of marginal
external cost and marginal private cost.'' As discussed in more detail
above, the Marginal Social Cost of carbon is the social cost of each
additional ton of CO2 resulting from energy consumption. As
defined by the Technical Update of the Social Cost of Carbon for
Regulatory Impact Analysis, ``(t)he 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 due to
climate change.\79\
---------------------------------------------------------------------------
\79\ Under Executive Order 12866, Interagency Working Group on
Social Cost of Carbon.
Table 9--Annualized Value of Reduction in CO2 Emissions
[$2012 million]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Emission factor of 0.107 Emission factor of 0.137
-------------------------------------------------------------------------------------------------------
Rebound 30% Rebound 10% Rebound of 30% Rebound of 10%
Life cycle -------------------------------------------------------------------------------------------------------
Median MSC Median MSC Median MSC Median MSC
* High MSC * High MSC * High MSC * High MSC
--------------------------------------------------------------------------------------------------------------------------------------------------------
10 years........................................ 0.39 1.14 0.49 1.45 0.49 1.45 0.64 1.86
15 years........................................ 0.41 1.20 0.52 1.55 0.52 1.54 0.67 2.01
20 years........................................ 0.43 1.26 0.55 1.62 0.55 1.62 0.70 2.11
25 years........................................ 0.44 1.33 0.57 1.70 0.57 1.70 0.72 2.18
--------------------------------------------------------------------------------------------------------------------------------------------------------
* MSC = Marginal Social Cost.
The annualized value of the social benefits of reducing carbon
emissions, discounted at 3 percent, ranges from $390,000 (median MSC
over 10 years) to $2.18 million (high MSC over 25 years).\80\ The
corresponding present values range from $3.4 to $16.3 million over 10
years and from $7.9 million to $39 million over 25 years.
---------------------------------------------------------------------------
\80\ Because the Interagency Group used a 3 percent rate to
calculate the present value of damage, HUD uses the same rate in
order to be consistent with the federally approved estimates of
damage.
---------------------------------------------------------------------------
III. Findings and Certifications
Environmental Review
A Finding of No Significant Impact with respect to the environment
was made with respect to the preliminary affordability determination in
accordance with HUD regulations at 24 CFR part 50, which implement
section 102(2)(C) of the National Environmental Policy Act of 1969 (42
U.S.C. 4332(2)(C)), and remains applicable to this final affordability
determination. That finding is posted at www.regulations.gov and
www.hud.gov/resilience and is available for public inspection between
the hours of 8 a.m. and 5 p.m., weekdays, in the Regulations Division,
Office of General Counsel, Department of Housing and Urban Development,
451 7th Street SW., Room 10276, Washington, DC 20410-0500. Due to
security measures at the HUD Headquarters building, please schedule an
appointment to review the finding by calling the Regulations Division
at 202-402-3055 (this is not a toll-free number).
Dated: April 23, 2015.
Juli[aacute]n Castro,
Secretary, U.S. Department of Housing and Urban Development.
Dated: April 23, 2015.
Thomas J. Vilsack,
Secretary, U.S. Department of Agriculture.
Appendix 1. Covered HUD and USDA Programs
----------------------------------------------------------------------------------------------------------------
Legal authority Regulations
----------------------------------------------------------------------------------------------------------------
HUD Programs:
Public Housing Capital Fund...... Section 9(d) and section 30 24 CFR parts 905, 941, and 968.
of the U.S. Housing Act of
1937 (42 U.S.C. 1437g(d) and
1437z-2).
[[Page 25923]]
HOPE VI Revitalization of Section 24 of the U.S. 24 CFR part 971.
Severely Distressed Public Housing Act of 1937 (42
Housing. U.S.C. 1437v).
Choice Neighborhoods Section 24 of the U.S. 24 CFR part 971.
Implementation Grants. Housing Act of 1937 (42
U.S.C. 1437v).
Choice Neighborhoods Planning Section 24 of the U.S. 24 CFR part 971.
Grants. Housing Act of 1937 (42
U.S.C. 1437v).
Section 202 Supportive Housing Section 202 of the Housing 24 CFR part 891.
For the Elderly. Act of 1959 (12 U.S.C.
1701q), as amended.
Section 811 Supportive Housing Section 811 of the Housing 24 CFR part 891.
for Persons with Disabilities. Act of 1959 (12 U.S.C.
1701q), as amended.
HOME Investment Partnerships Title II of the Cranston- 24 CFR part 92.
(HOME). Gonzalez National Affordable
Housing Act (42 U.S.C. 12742
et seq.).
FHA Single Family Mortgage National Housing Act Sections 24 CFR parts 203, Subpart A; 203.18(i);
Insurance Programs. 203(b) (12 U.S.C. 1709(b)), 203.43i; 203; 203.49; 203.43h.
Section 251 (12 U.S.C. 1715z-
16), Section 247 (12 U.S.C.
1715z-12), Section 203(h)
(12 U.S.C. 1709(h)), Housing
and Economic Recovery Act of
2008 (Pub. L. 110-289),
Section 248 of the National
Housing Act (12 U.S.C. 1715z-
13).
FHA Multifamily Mortgage Sections 213, 220, 221, 231, 24 CFR parts 200, subpart A, 213; 231;
Insurance Programs. and 232 of the National 220;221, subparts C and D; and 232.
Housing Act (12 U.S.C.1715e,
12 U.S.C.1715v, 12
U.S.C.1715k, 12 U.S.C.17151,
12 U.S.C.1715w).
USDA Programs:
Section 502 Guaranteed Housing Section 502 of Housing Act 7 CFR part 1980.
Loans. (42 U.S.C. 1472).
Section 502 Rural Housing Direct Section 502 of Housing Act 7 CFR part 3550.
Loans. (42 U.S.C. 1472).
Section 502 Mutual Self Help Loan Section 502 of Housing Act 7 CFR part 3550.
program, homeowner participants. (42 U.S.C. 1472).
----------------------------------------------------------------------------------------------------------------
Appendix 2. Estimated Energy and Cost Savings from Adoption of ASHRAE
90.1-2007 \81\
---------------------------------------------------------------------------
\81\ Source: Pacific Northwest National Laboratory (PNNL),
Department of Energy, Impacts of Standard 90.1-2007 for Commercial
Buildings at State Level, September 2009. States for which figures
are provided are States that have not yet adopted ASHRAE 90.1-2007.
Available at http://www.energycod5.6es.gov/impacts-standard-901-2007-commercial-buildings-state-level. This table updates the energy
cost savings presented in this report, by utilizing current
individual State fuel and electricity prices (as of October 2014),
whereas the PNNL report utilizes national average prices.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Baseline energy Energy cost
State Location Climate zone Energy savings costs ($/unit/ savings ($/unit/ Energy cost
(%) year) year) savings (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
AK................................ Anchorage............ 7 6.5 2,202 70.40 3.3
Fairbanks............ 8 4.7 2,428 67.50 2.8
Average.............. ................. 5.6 2,315 68.95 3.0
AZ................................ Phoenix.............. 2B 6.6 1,385 82.55 6.0
Sierra Vista......... 3B 6.1 1,342 76.29 5.7
Prescott............. 4B 8.7 1,407 92.76 6.6
Flagstaff............ 5B 5.7 1,437 55.92 3.9
Average.............. ................. 6.8 1,393 76.88 5.5
CO................................ La Junta............. 4B 7.4 1,300 45.28 3.5
Boulder.............. 5B 7.5 1,304 46.13 3.5
Eagle................ 6B 1.7 1,295 8.18 0.6
Alamosa.............. 7B 2.7 1,306 15.20 1.2
Average.............. ................. 4.8 1,301 28.70 2.2
HI................................ Honolulu............. 1A 0.8 3,930 31.66 0.8
Average.............. ................. 0.8 3,930 31.66 0.8
KS................................ Topeka............... 4A 10.3 1,615 109.83 6.8
Goodland............. 5A 5.2 1,594 50.43 3.2
Average.............. ................. 7.8 1,605 80.13 5.0
ME................................ Portland............. 6A 4.5 1,907 47.78 2.5
Caribou.............. 7 5.4 2,104 78.12 3.7
Average.............. ................. 5.0 2,005 62.95 3.1
MN................................ St. Paul............. 6A 2.2 1,462 12.04 0.8
Duluth............... 7 5.2 1,546 50.27 3.3
Average.............. ................. 3.7 1,504 31.15 2.1
MO................................ St. Louis............ 4A 3.5 1,370 36.05 2.6
St. Joseph........... 5A 3.6 1,383 36.51 2.6
Average.............. ................. 3.6 1,377 36.28 2.6
OK................................ Oklahoma City........ 3A 1.5 1,325 21.27 1.6
[[Page 25924]]
Guymon............... 4A 3.6 1,374 42.32 3.1
Average.............. ................. 2.6 1,349 31.79 2.4
SD................................ Yankton.............. 5A 4.1 1,409 32.49 2.3
Pierre............... 6A 4.2 1,411 32.14 2.3
Average.............. ................. 4.2 1,410 32.32 2.3
TN................................ Memphis.............. 3A 3.4 1,174 35.68 3.0
Nashville............ 4A 3.2 1,221 25.12 2.1
Average.............. ................. 3.3 1,198 30.40 2.5
WY................................ Torrington........... 5B 4.2 1,316 31.21 2.4
Cheyenne............. 6B 4.5 1,347 33.72 2.5
Rock Springs......... 7B 4.7 1,372 35.20 2.6
Average.............. ................. 4.5 1,345 33.38 2.5
--------------------------------------------------------------------------------------------------------------------------------------------------------
Appendix 3. TDC Adjustment Factors For States That Have Not Adopted
ASHRAE 90.1-2007
------------------------------------------------------------------------
TDC adjustment
State TDC Limit ($) factor *
------------------------------------------------------------------------
AK...................................... 245,882 1.11
AZ...................................... 171,058 0.77
CO...................................... 178,241 0.80
HI...................................... 239,412 1.08
KS...................................... 170,213 0.77
ME...................................... 187,802 0.85
MN...................................... 207,475 0.94
MO...................................... 184,221 0.83
OK...................................... 155,578 0.70
SD...................................... 159,576 0.72
TN...................................... 160,222 0.72
WY...................................... 160,431 0.72
Avg..................................... 185,009 ..............
------------------------------------------------------------------------
* Uses New York TDC as baseline; assumes average 2-BR multifamily unit.
Appendix 4. Estimated Total Costs and Energy Cost Savings From Adoption
of 2009 IECC
------------------------------------------------------------------------
Total Total energy
incremental cost savings
State cost per state per state ($
($) per year)
------------------------------------------------------------------------
AK...................................... 282,940 107,457
AR...................................... 1,330,890 211,233
AZ *.................................... 1,394,963 247,493
CO *.................................... 190,953 28,368
HI...................................... 622,050 125,367
KS...................................... 424,050 135,696
ME...................................... 291,200 97,600
MN...................................... 1,840,895 432,425
MO...................................... 1,158.043 302,568
MS...................................... 1,263,525 174,416
OK...................................... 1,892,952 295,728
SD...................................... 258,962 58,408
TN...................................... 1,313,649 292,149
UT...................................... 1,579,900 218,624
WI...................................... 865,761 201,477
WY...................................... 306,210 53,630
-------------------------------
Total............................... 15,016,943 2,982,639
------------------------------------------------------------------------
* AZ and CO statewide estimates were adjusted by 70 percent and 90
percent, respectively, to reflect estimated adoption rate of code by
home rule municipalities.
Appendix 5. Estimated Total Costs and Energy Cost Savings From
Adoption of ASHRAE 90.1-2007
---------------------------------------------------------------------------
\82\ No units were produced under affected programs in Maine in
FY 2011, the baseline year used for this analysis; therefore, no
estimated costs or savings are shown for this State.
------------------------------------------------------------------------
Total Total energy
incremental cost savings/
State cost/state state ($/
($) year)
------------------------------------------------------------------------
AK...................................... 25,945 3,069
AZ *.................................... 87,658 13,956
CO *.................................... 63,873 5,762
KS...................................... 11,860 2,074
ME \82\................................. 0 0
MN...................................... 107,396 8,749
MO...................................... 247,930 17,948
OK...................................... 402,972 28,271
SD...................................... 44,159 4,909
TN...................................... 74,960 6,009
WY...................................... 25,871 2,669
-------------------------------
Total............................... 1,092,624 93,416
------------------------------------------------------------------------
* AZ and CO statewide estimates adjusted by 70 percent and 90 percent,
respectively, to reflect estimated adoption rate of code by home rule
municipalities.
[FR Doc. 2015-10380 Filed 5-5-15; 8:45 am]
BILLING CODE 4210-67-P