[Federal Register: November 19, 2007 (Volume 72, Number 222)]
[Rules and Regulations]
[Page 65135-65170]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr19no07-11]
[[Page 65135]]
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Part II
Department of Energy
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10 CFR Part 430
Energy Conservation Program for Consumer Products: Energy Conservation
Standards for Residential Furnaces and Boilers; Final Rule
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DEPARTMENT OF ENERGY
10 CFR Part 430
[Docket Number: EE-RM/STD-01-350]
RIN 1904-AA78
Energy Conservation Program for Consumer Products: Energy
Conservation Standards for Residential Furnaces and Boilers
AGENCY: Department of Energy.
ACTION: Final rule.
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SUMMARY: The Department of Energy (DOE) has determined that revised
energy conservation standards for residential furnaces and boilers will
result in significant conservation of energy, are technologically
feasible, and are economically justified. On this basis, DOE is today
amending the existing energy conservation standards for these products.
DATES: The rule is effective January 18, 2008. The standards
established in today's final rule have a compliance date of November
19, 2015.
ADDRESSES: For access to the docket to read background documents, the
technical support document (TSD), transcripts of the public meetings in
this proceeding, or comments received, visit the U.S. Department of
Energy, the Resource Room of the Building Technologies Program at 950
L'Enfant Plaza Drive, SW., Washington, DC. 20024, (202) 586-2945,
between 9 a.m. and 4 p.m., Monday through Friday, except Federal
holidays. Please call Ms. Brenda Edwards at the above telephone number
for additional information regarding visiting the Resource Room. Please
note: DOE's Freedom of Information Reading Room (formerly Room 1E-190
at the Forrestal Building) no longer houses rulemaking materials. You
may also obtain copies of certain previous rulemaking documents from
this proceeding (i.e., Framework Document, advance notice of proposed
rulemaking (ANOPR), notice of proposed rulemaking (NOPR or proposed
rule)), draft analyses, public meeting materials, and related test
procedure documents from the Office of Energy Efficiency and Renewable
Energy's Web site at http://www.eere.energy.gov/buildings/appliance--
standards/residential/furnaces--boilers.html.
FOR FURTHER INFORMATION CONTACT: Mohammed Khan, Project Manager, Energy
Conservation Standards for Residential Furnaces and Boilers, U.S.
Department of Energy, Energy Efficiency and Renewable Energy, Building
Technologies Program, EE-2J, 1000 Independence Avenue, SW., Washington,
DC 20585-0121, (202) 586-7892, e-mail: Mohammed.Khan@ee.doe.gov; or
Chris Calamita, Esq. or Francine Pinto, Esq., U.S. Department of
Energy, Office of the General Counsel, GC-72, 1000 Independence Avenue,
SW., Washington, DC 20585-0121, (202) 586-9507, e-mail:
Christopher.Calamita@hq.doe.gov or Francine.Pinto@hq.doe.gov.
SUPPLEMENTARY INFORMATION:
I. Summary of the Final Rule and Its Benefits
A. The Standard Levels
B. Current Federal Standards for Residential Furnaces and
Boilers
C. Consumer Benefits
D. Impact on Manufacturers
E. National Benefits
F. Conclusion
II. Introduction
A. Authority
B. Background
1. Current Standards
2. History of Standards Rulemaking for Residential Furnaces and
Boilers
III. General Discussion
A. Test Procedures
B. Technological Feasibility
1. General
2. Maximum Technologically Feasible Levels
C. Energy Savings
D. Economic Justification
1. Specific Criteria
a. Economic Impact on Consumers and Manufacturers
b. Life-Cycle Costs
c. Energy Savings
d. Lessening of Utility or Performance of Products
e. Impact of Any Lessening of Competition
f. Need of the Nation to Conserve Energy
g. Other Factors
2. Rebuttable Presumption
IV. Methodology and Revisions to the Analyses Employed in the
Proposed Rule
A. Engineering Analysis
B. Life-Cycle Cost and Payback Period Analyses
C. National Impact Analysis
D. Consumer Subgroup Analysis
E. Manufacturer Impact Analysis
F. Employment Impact Analysis
G. Regulatory Impact Analysis
H. Utility Impact Analysis
I. Environmental Analysis
V. Discussion of Other Comments
A. Information and Assumptions Used in Analysis
1. Engineering Analysis
2. Life-Cycle Cost Analysis
3. Manufacturer Impact Analysis
B. Other Issues
1. Joint Stakeholder Recommendation for Boilers
2. Regional Standards and Waiver from Federal Preemption for
States
3. Effective Date for New Standards
4. Consumer Benefits From Reduction in Natural Gas Prices
Associated With a Standard of 90-Percent AFUE or Higher for Non-
Weatherized Gas Furnaces
5. Efficiency Standards for Electric Furnaces
6. Electricity Consumption of Furnace Fans
7. Use of LCC Results in Selecting Standard Levels
8. Definition of Trial Standard Levels
9. Test Procedure
10. Structural Cost Associated With Condensing Furnaces
VI. Analytical Results and Conclusions
A. Trial Standard Levels
B. Significance of Energy Savings
C. Economic Justification
1. Economic Impact on Consumers
a. Life-Cycle Costs and Payback Period
b. Consumer Subgroup Analysis
2. Economic Impact on Manufacturers
a. Industry Cash-Flow Analysis Results
b. Impacts on Manufacturing Capacity and Subgroups of
Manufacturers
c. Cumulative Regulatory Burden
3. National Net Present Value and Net National Employment
4. Impact on Utility or Performance of Equipment
5. Impact of Any Lessening of Competition
6. Need of the Nation to Conserve Energy
7. Other Factors
D. Conclusion
VII. Procedural Issues and Regulatory Review
A. Review Under Executive Order 12866
B. Review Under the Regulatory Flexibility Act
C. Review Under the Paperwork Reduction Act
D. Review Under the National Environmental Policy Act
E. Review Under Executive Order 13132
F. Review Under Executive Order 12988
G. Review Under the Unfunded Mandates Reform Act of 1995
H. Review Under the Treasury and General Government
Appropriations Act, 1999
I. Review Under Executive Order 12630
J. Review Under the Treasury and General Government
Appropriations Act, 2001
K. Review Under Executive Order 13211
L. Review Under the Information Quality Bulletin for Peer Review
M. Review Under Executive Order 12898
N. Congressional Notification
VIII. Approval of the Office of the Secretary
I. Summary of the Final Rule and Its Benefits
A. The Standard Levels
The Energy Policy and Conservation Act, as amended (42 U.S.C. 6291
et seq.; EPCA), directs the Department of Energy (DOE) to consider
amending the energy conservation standards for residential furnaces and
boilers established under EPCA. (42 U.S.C. 6295(f)(3)(B)) Any amended
standard must be designed to ``achieve the maximum improvement in
energy efficiency * * * which the Secretary determines is
technologically feasible and economically justified.'' (42 U.S.C.
6295(o)(2)(A)) Moreover, EPCA states that the Secretary may not
establish an amended standard if such standard would not result in
[[Page 65137]]
``significant conservation of energy,'' or ``is not technologically
feasible or economically justified.'' (42 U.S.C. 6295(o)(3)(B)) The
standards in today's final rule, which apply to non-weatherized and
weatherized gas furnaces, mobile home gas furnaces, oil-fired furnaces,
and gas- and oil-fired boilers,\1\ satisfy these requirements.
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\1\ These types of products are referred to collectively
hereafter as ``residential furnaces and boilers'' or ``furnaces and
boilers.''
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Table I.1 shows the standard levels DOE is promulgating today.
These standards will apply to products manufactured for sale in the
United States, or imported to the United States, on or after November
19, 2015.
Table I.1.--Standard Levels for Furnaces and Boilers
------------------------------------------------------------------------
Product class AFUE* (%)
------------------------------------------------------------------------
Non-weatherized gas furnaces................................. 80
Weatherized gas furnaces..................................... 81
Mobile home gas furnaces..................................... 80
Oil-fired furnaces........................................... 82
Gas boilers.................................................. 82
Oil-fired boilers............................................ 83
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*AFUE = annual fuel utilization efficiency.
B. Current Federal Standards for Residential Furnaces and Boilers
Table I.2 presents the current Federal minimum energy conservation
standards for residential furnaces and boilers.
Table I.2.--Current Federal Standards for Residential Furnaces and
Boilers
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Product class AFUE (%)
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Non-weatherized gas furnaces................................. 78
Weatherized gas furnaces..................................... 78
Mobile home gas furnaces..................................... 75
Oil-fired furnaces........................................... 78
Gas boilers.................................................. 80
Oil-fired boilers............................................ 80
------------------------------------------------------------------------
C. Consumer Benefits
Table I.3 summarizes the implications of today's standards for
consumers of residential furnaces and boilers.
Table I.3.--Implications of New Standards for Consumers*
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Installed cost Life-cycle Payback period
Product class AFUE (%) Installed cost increase cost savings (years)
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Non-weatherized gas furnaces........ 80 $2,044 $8 $2 1.7
Weatherized gas furnaces............ 81 3,907 19 62 3.4
Mobile home gas furnaces............ 80 940 96 111 3.7
Oil-fired furnaces.................. 82 3,142 17 177 0.7
Gas boilers......................... 82 3,826 199 208 12
Oil-fired boilers................... 83 3,920 28 69 0.9
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* Average values.
The economic impacts on consumers (i.e., the average life-cycle
cost (LCC) savings) are positive. For example, a non-weatherized gas
furnace meeting the standard is projected to have a very small increase
in average total installed cost, and the annual energy savings result
in an average LCC savings of $2 and a payback period of 1.7 years. No
households purchasing non-weatherized gas furnaces, including southern
households, would experience a net LCC increase. A gas boiler meeting
the standard is projected to have an increase in average total
installed cost of $199, but the annual energy savings result in an
average LCC savings of $208 and a payback period of 12 years.
D. Impact on Manufacturers
Using a real corporate discount rate of 7.4 percent for furnaces
and 6.2 percent for boilers, DOE estimates the industry net present
value (INPV) of the residential furnace industry to be $1,528 million
and the INPV of the residential boiler industry to be $279 million, in
2006$. DOE estimates the impact of today's standards on the INPV of the
residential furnace and boiler industry to be between a 4.0 percent
loss and a 2.7 percent loss (-$74 million to -$48 million). Based on
DOE's interviews with the major manufacturers of residential furnaces
and boilers, DOE estimates minimal plant closings or loss of employment
as a result of the standards promulgated today.
E. National Benefits
DOE estimates the standards will save approximately 0.25 quads
(quadrillion (10\15\) British thermal units (Btu)) of energy over 24
years (2015-2038). For comparison, approximately four quads are used
annually for space heating in U.S. homes.
These energy savings are projected to result in cumulative
greenhouse gas emission reductions of approximately 7.8 million tons
(Mt) of carbon dioxide (CO2). Additionally, the standards
will help alleviate air pollution by resulting in approximately 9.2
thousand tons (kt) of nitrogen oxides (NOX) emission
reductions from 2015 through 2038, or a similar amount of NOX
emissions allowance credits in areas where such emissions are subject
to emissions caps, and approximately 1.8 kt of household emission
reductions of sulfur dioxide (SO2). DOE expects the
standards to have negligible impact on electricity generating capacity.
The national net present value (NPV) of the standards is $0.69
billion using a seven-percent discount rate and $2.18 billion using a
three-percent discount rate, cumulative from 2015 to 2038 in 2006$.
This is the estimated total value of future savings minus the estimated
increased costs for purchasing complying products, discounted to the
year 2007.
The benefits and costs of today's final rule can also be expressed
in terms of annualized 2006$ values over the forecast period 2015
through 2038. Using a seven percent discount rate for the annualized
cost analysis, the cost of the standards established in today's final
rule is $41 million per year in increased equipment and installation
costs while the annualized benefits are $144 million per year in
reduced equipment operating costs. Using a three percent discount rate,
the cost of the standards established n today's final rule is $40
million per year while the benefits of today's standards are $204
million per year.
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F. Conclusion
DOE concludes that the benefits (energy savings, consumer LCC
savings, national NPV increases, and emissions reductions) to the
Nation of the standards outweigh their costs (loss of manufacturer INPV
and consumer LCC increases for a relatively small number of furnace and
boiler users). DOE also concludes that today's standards for furnaces
and boilers represent that maximum improvement in energy efficiency
that is technologically feasible and economically justified, and will
result in significant energy savings. At present, products that meet
the new standard levels are commercially available.
II. Introduction
A. Authority
Title III of EPCA sets forth a variety of provisions designed to
improve energy efficiency; specifically, Part B of title III
establishes the Energy Conservation Program for Consumer Products other
than Automobiles. (42 U.S.C. 6291-6309) The program covers consumer
products (referred to hereafter as ``covered products''), including
residential furnaces and boilers. (42 U.S.C. 6292(a)(5))
Under EPCA, the energy conservation program consists essentially of
the following: Testing, labeling, and Federal energy conservation
standards. The Federal Trade Commission (FTC) has primary
responsibility for labeling, and DOE implements the remainder of the
program. (42 U.S.C. 3294) Section 323 of EPCA authorizes DOE, with
assistance from the National Institute of Standards and Technology
(NIST) and subject to certain criteria and conditions, to develop test
procedures to measure the energy efficiency, energy use, or estimated
annual operating cost of each covered product. (42 U.S.C. 6293) The
applicable furnace and boiler test procedures appear at Title 10 of the
Code of Federal Regulations (CFR) part 430, subpart B, Appendix N.
EPCA provides criteria for prescribing new or amended standards for
covered products. Any new or amended standard for a covered product
must be designed to achieve the maximum improvement in energy
efficiency that is technologically feasible and economically justified.
(42 U.S.C. 6295(o)(2)(A))
Additionally, EPCA provides specific prohibitions on prescribing
new and amended standards. Generally, DOE may not prescribe an amended
or new standard for products if no test procedure has been established
for the product.\2\ (42 U.S.C. 6295(o)(3)(A). Further, DOE may not
prescribe an amended or new standard if DOE determines by rule that
such standard would not result in ``significant conservation of
energy,'' or ``is not technologically feasible or economically
justified.'' (42 U.S.C. 6295(o)(3)(B))
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\2\ This prohibition does not apply to standards for
dishwashers, clothes washers, clothes dryers, and kitchen ranges and
ovens. (42 U.S.C. 3295(o)(3)(A))
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EPCA also provides that, in deciding whether a standard is
economically justified, DOE must, after receiving comments on a
proposed standard, determine whether the benefits of the standard
exceed its burdens by considering, to the greatest extent practicable,
the following seven factors:
(1) The economic impact of the standard on manufacturers and
consumers of the products subject to the standard;
(2) The savings in operating costs throughout the estimated average
life of the covered products in the type (or class) compared to any
increase in the price, initial charges, or maintenance expenses for the
covered products that are likely to result from the imposition of the
standard;
(3) The total projected amount of energy savings likely to result
directly from the imposition of the standard;
(4) Any lessening of the utility or the performance of the covered
products likely to result from the imposition of the standard;
(5) The impact of any lessening of competition, as determined in
writing by the Attorney General, that is likely to result from the
imposition of the standard;
(6) The need for national energy conservation; and
(7) Other factors the Secretary considers relevant. (42 U.S.C.
6295(o)(2)(B)(i))
EPCA contains what is commonly known as an ``anti-backsliding''
provision. This provision mandates that the Secretary not prescribe any
amended standard that either increases the maximum allowable energy use
or decreases the minimum required energy efficiency of a covered
product. (42 U.S.C. 6295(o)(1)) Also, the Secretary may not prescribe
an amended or a new standard if interested persons have established by
a preponderance of the evidence that the standard is likely to result
in the unavailability in the United States of any covered product type
(or class) with performance characteristics, features, sizes,
capacities, and volume that are substantially the same as those
generally available in the United States. (42 U.S.C. 6295(o)(4))
Section 325(q) of EPCA is applicable to promulgating a standard for
a type or class of covered product that has two or more subcategories.
(42 U.S.C. 6295(q)) DOE must specify a different standard level than
that which applies generally to such type or class of products ``for
any group of covered products which have the same function or intended
use, if * * * products within such group--(A) consume a different kind
of energy from that consumed by other covered products within such type
(or class); or (B) have a capacity or other performance-related feature
which other products within such type (or class) do not have and such
feature justifies a higher or lower standard'' than applies or will
apply to the other products. (42 U.S.C. 6295(q)(l)(A) and (B)) In
determining whether a performance-related feature justifies such a
different standard for a group of products, DOE must consider ``such
factors as the utility to the consumer of such a feature'' and other
factors DOE deems appropriate. (42 U.S.C. 6295(q)(1)) Any rule
prescribing such a standard must include an explanation of the basis on
which DOE established such higher or lower level. (42 U.S.C.
6295(q)(2)) In 1993, DOE relied on this authority to establish four
product classes of residential furnaces and two product classes of
residential boilers, which are the subject of this rulemaking. 58 FR
47326 (September 8, 1993).
Federal energy conservation requirements generally preempt State
laws and regulations concerning energy conservation testing, labeling,
and standards. (42 U.S.C. 6297) DOE is authorized, however, to grant
waivers from preemption for particular State laws or regulations, in
accordance with the procedures and provisions set forth in section
327(d) of EPCA. (42 U.S.C. 6297(d)) Specifically, States with a
regulation that provides for an energy conservation standard for any
type of covered product for which there is a Federal energy
conservation standard may petition the Secretary for a DOE rule that
permits the State regulation to become effective with respect to such
covered product. In order for a petition to be granted, a State must
establish by a preponderance of the evidence that its regulation is
needed to meet ``unusual and compelling State or local energy * * *
interests.'' (42 U.S.C. 6297(d)(1)(B))
B. Background
1. Current Standards
EPCA established an energy conservation standard for residential
furnaces and boilers. It set the standard
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in terms of the annual fuel utilization efficiency (AFUE) descriptor at
a minimum value of 78 percent for most furnaces. (42 U.S.C. 6295(f)(1))
It set the minimum AFUE at 75 percent for gas steam boilers and 80
percent for other boilers. (42 U.S.C. 6295(f)(1)(A)) For mobile home
furnaces, EPCA set the minimum AFUE at 75 percent. (42 U.S.C.
6295(f)(2)) These standards became effective on January 1, 1992, with
the exception of the standard for mobile home furnaces, for which the
effective date was September 1, 1990. (42 U.S.C. 6295(f)(1) and (2))
2. History of Standards Rulemaking for Residential Furnaces and Boilers
As discussed in the October 2006 notice of proposed rulemaking
(NOPR), this rulemaking began with the publication of an advance notice
of proposed rulemaking (ANOPR) on September 28, 1990. 55 FR 39624. A
second ANOPR was published on July 29, 2004. 69 FR 45420. On October 6,
2006, DOE published a NOPR in the Federal Register proposing amended
energy efficiency standards for residential furnace and boilers. 71 FR
59203. In conjunction with the October 2006 NOPR, DOE also published on
its Web site the complete technical support document (TSD) for the
proposed rule, which incorporated the final analyses DOE conducted and
technical documentation of each analysis. The NOPR TSD included the
engineering analysis spreadsheet, the LCC spreadsheets, the national
and regional impact analysis spreadsheets, and the manufacturer impact
analysis (MIA) spreadsheet--all of which are available at http://
www.eere.energy.gov/buildings/appliance--standards/residential/fb--
nopr--analysis.html. The energy efficiency standards proposed for
furnaces and boilers were as shown in Table II.1.
Table II.1.--October 2006 Proposed Energy Efficiency Standards for
Furnaces and Boilers
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Product class AFUE* (%)
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Non-weatherized gas furnaces................................. 80
Weatherized gas furnaces..................................... 83
Mobile home gas furnaces..................................... 80
Oil-fired furnaces........................................... 82
Gas boilers.................................................. 84
Oil-fired boilers............................................ 83
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* AFUE = annual fuel utilization efficiency.
The October 2006 NOPR also included additional background
information on the history of this rulemaking and on DOE's use in this
rulemaking of the procedures, interpretations, and policies set forth
in the Process Rule. 71 FR 59207-59208. DOE held a public meeting in
Washington, DC, on October 30, 2006, to hear oral comments relevant to
the October 2006 proposed rule.
After the publication of the October 2006 proposed rule, DOE met
with GAMA, Carrier, and Rheem on December 14, 2006, to receive comments
regarding cost and safety issues concerning weatherized gas furnaces
that are manufactured to operate at 83-percent AFUE. (GAMA, No. 146 at
p. 1) \3\ These comments are further described in section IV.A. In
addition, DOE issued a notice of data availability and reopening of
comment period on February 9, 2007, to respond to questions raised at
the public meeting concerning DOE's assumptions regarding shipments in
the base case and the installation cost for oil-fired furnaces. 72 FR
6184.
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\3\ A notation in the form ``GAMA, No. 146 at p. 1'' identifies
a written comment DOE has received and has included in the docket of
this rulemaking. This particular notation refers to a comment (1) By
the Gas Appliance Manufacturers Association (GAMA), (2) under
document number 146 in the docket of this rulemaking (maintained in
the Resource Room of Building Technologies Program), and (3)
appearing on page 1 of document number 146.
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III. General Discussion
A. Test Procedures
Section 7(c) of the Process Rule indicates that, if modifications
are needed to its test procedures for a covered product, DOE will issue
a final, modified test procedure before issuing a proposed rule for
energy conservation standards for that product. DOE has determined that
modifications are not needed to its existing test procedure for
furnaces and boilers, and accordingly has not adopted a revised test
procedure for these products. Comments received about test procedures
are discussed in section V.B.9.
B. Technological Feasibility
1. General
As stated above, standards that DOE establishes for furnaces and
boilers must be technologically feasible. (42 U.S.C. 6295(o)(2)(A) and
(o)(3)(B)) DOE considers a design option to be technologically feasible
if it is in use by the respective industry or if research has
progressed to the development of a working prototype. The Process Rule
sets forth a definition of technological feasibility as follows:
``Technologies incorporated in commercial products or in working
prototypes will be considered technologically feasible.'' 10 CFR part
430, subpart C, Appendix A, section 4(a)(4)(i).
This final rule considers the same design options as those
evaluated in the October 2006 proposed rule. (See the final rule TSD
accompanying this notice, Chapter 4.) The evaluated technologies all
have been used (or are being used) in commercially available products
or working prototypes. The designs all incorporate materials and
components that are commercially available in today's furnace and
boiler supply market. DOE has determined that all of the efficiency
levels evaluated in this notice are technologically feasible.
2. Maximum Technologically Feasible Levels
In developing the October 2006 proposed rule, consistent with
section 325(p)(2) of EPCA, DOE identified the maximum technologically
feasible levels. (See NOPR TSD Chapter 6.) DOE did not receive any
comments on the October 2006 proposed rule to lead DOE to consider
changes to the maximum technologically feasible (max tech) levels.
Therefore, for today's final rule, the max tech levels for all classes
are the same max tech levels identified in the October 2006 proposed
rule and are provided in Table II.2 below. 71 FR 59211.
Table II.2.--Max Tech Levels Considered in Furnace and Boiler Rulemaking
------------------------------------------------------------------------
Product class AFUE* (%)
------------------------------------------------------------------------
Non-weatherized gas furnaces................................. 96
Weatherized gas furnaces..................................... 83
Mobile home gas furnaces..................................... 90
Oil-fired furnaces........................................... 85
Gas boilers.................................................. 99
Oil-fired boilers............................................ 95
------------------------------------------------------------------------
* AFUE = annual fuel utilization efficiency.
C. Energy Savings
As stated above, EPCA directs DOE to establish amended standards at
a level of maximum improvement in energy efficiency that is
technologically feasible and economically justified. (42 U.S.C.
6295(o)(2)(A)) DOE is prohibited from adopting a standard for a product
if that standard would not result in ``significant'' energy savings, or
is not technologically feasible or economically justified. (42 U.S.C.
6295(o)(3)(B)) While EPCA does not define the term ``significant,'' the
U.S. Court of Appeals, in Natural Resources Defense Council v.
Herrington, indicated that Congress intended ``significant'' energy
savings in this context to be savings that were not
[[Page 65140]]
``genuinely trivial.'' 768 F.2d 1355, 1373 (D.C. Cir. 1985). The energy
savings for energy conservation standards at each of the trial standard
levels (TSLs) considered in this rulemaking are nontrivial, and
therefore, DOE has determined them to be ``significant'' within the
meaning of section 325 of EPCA.
DOE forecasted energy savings attributable to the TSLs using the
national energy savings (NES) spreadsheet tool, as discussed in the
October 2006 proposed rule. 71 FR 59211-59212, 59224-59227, and 59245-
59246. For the purpose of today's final rule, DOE has relied on the NES
analysis as presented in the October 2006 proposed rule. EPCA further
requires consideration of energy savings in the context of the economic
justification.
D. Economic Justification
1. Specific Criteria
As noted earlier, EPCA provides seven factors for DOE to evaluate
in determining whether an energy conservation standard for residential
furnaces and boilers is economically justified. (42 U.S.C.
6295(o)(2)(B)(i)) The following discusses how DOE has addressed each of
those seven factors in this rulemaking. Changes to considerations of
those criteria between the proposed rule and the final rule are also
discussed below. The inputs relied upon in consideration of each
criterion and changes to those inputs are discussed in section V,
below.
a. Economic Impact on Consumers and Manufacturers
DOE considered the economic impact of the standard on consumers and
manufacturers, as discussed in the October 2006 proposed rule. 71 FR
59212, 59219-59223, 59228-59233, 59234-59245. For this final rule, DOE
updated the analyses to incorporate more recent material price
information.
b. Life-Cycle Costs
DOE considered life-cycle costs of furnaces and boilers, as
discussed in the October 2006 proposed rule. 71 FR 59212-59213, 59219-
59224, 59234-59239. It calculated the sum of the purchase price and the
operating expense--discounted over the lifetime of the products--to
estimate the range in expected LCC benefits to consumers due to the
standards.
c. Energy Savings
While significant conservation of energy is a separate statutory
requirement for imposing an energy conservation standard, EPCA also
requires DOE, in determining the economic justification of a proposed
standard, to consider the total projected energy savings that are
expected to result directly from the standard. (42 U.S.C.
6295(o)(2)(B)(i)(III)) As in the October 2006 Proposed Rule, DOE used
the NES spreadsheet results in its consideration of total projected
savings that are directly attributable to the considered standard
levels. 71 FR 59211-59212, 59224-59227, 59245-59246.
d. Lessening of Utility or Performance of Products
As reflected in the October 2006 proposed rule, DOE considered
whether any lessening of the utility or performance of furnaces and
boilers would be likely to result from today's standards. 71 FR 59213.
e. Impact of Any Lessening of Competition
DOE considers any lessening of competition that is likely to result
from standards. Accordingly, as discussed in the October 2006 proposed
rule, 71 FR 59213, 59247, DOE requested that the Attorney General
transmit to the Secretary a written determination of the impact, if
any, of any lessening of competition likely to result from the
standard, together with an analysis of the nature and extent of such
impact. (42 U.S.C. 6295(o)(2)(B)(i)(V) and (B)(ii))
To assist the Attorney General in making such a determination, DOE
provided the Department of Justice (DOJ) with copies of the October
2006 proposed rule and the NOPR TSD for review. The Attorney General's
response is discussed in section VI.C.5 below, and is reprinted at the
end of this final rule.
f. Need of the Nation To Conserve Energy
In considering standards for furnaces and boilers, the Secretary
must consider the need of the Nation to conserve energy. (42 U.S.C.
6295(o)(2)(B)(i)(VI)) The Secretary recognizes that energy conservation
benefits the Nation in several important ways, including slowing the
depletion of domestic natural gas resources, improving the security of
the Nation's energy system, and reducing greenhouse gas emissions. The
potential benefits from additional natural gas conservation are further
discussed in section V.B.4 below.
g. Other Factors
The Secretary, in determining whether a standard is economically
justified, may consider any other factors that the Secretary deems to
be relevant. (42 U.S.C. 6295(o)(2)(B)(i)(VII)) In considering amended
standards in the October 2006 proposed rule and in adopting today's
standards, the Secretary considered the potential for furnace and
boiler standards to pose public health risks due to carbon monoxide
release into the home as a result of venting system or heat exchanger
failure. As discussed in section VI of this preamble, potential safety
concerns were weighed against adopting certain standard levels.
2. Rebuttable Presumption
Section 325(o)(2)(B)(iii) of EPCA states that there is a rebuttable
presumption that an energy conservation standard is economically
justified if the increased installed cost for a product that meets the
standard is less than three times the value of the first-year energy
savings resulting from the standard, as calculated under the applicable
DOE test procedure. (42 U.S.C. 6295(o)(2)(B)(iii)) Under the standard
levels adopted in this document for non-weatherized and weatherized gas
furnaces, mobile home gas furnaces, and hot-water oil-fired boilers,
DOE determined that this presumption applies. Regardless of the
rebuttable presumption, DOE also determined that all of the standard
levels adopted in today's final rule are economically justified based
on the above-described analyses.
IV. Methodology and Revisions to the Analyses Employed in the Proposed
Rule
DOE used a number of analytical tools that it previously developed
and adapted for use in this rulemaking. One of the tools is a
spreadsheet that calculates LCC and payback period (PBP). Another tool
calculates NES and national NPV. DOE also used the Government
Regulatory Impact Model (GRIM), along with other methods, in its MIA.
Finally, DOE developed an approach using the National Energy Modeling
System (NEMS) to estimate impacts of residential furnace and boiler
energy efficiency standards on utilities and the environment. Each of
the analytical tools is discussed in detail in the October 2006 NOPR.
71 FR 59213-59234.
As a basis for this final rule, DOE has continued to use the
spreadsheets and approaches explained in the October 2006 NOPR. DOE
used the same general methodology as applied in the October 2006 NOPR
but revised some of the assumptions and inputs for the final rule in
response to stakeholder comments. These updates are discussed in the
sections below.
[[Page 65141]]
A. Engineering Analysis
The purpose of the engineering analysis was to characterize the
relationship between the efficiency and the cost of residential
furnaces and boilers. As discussed in the NOPR, DOE used the design-
option approach, the efficiency-level approach, and the cost-assessment
approach to the engineering analysis. 71 FR 59214-59219. As part of the
analysis, DOE developed data--including manufacturing costs, markups,
installation costs, and maintenance costs--that it used to establish
the manufacturing selling price of more-efficient equipment. Chapter 6
of the TSD contains detailed discussion of the engineering analysis
methodology.
In response to the publication of the October 2006 proposed rule,
DOE received a number of comments on the engineering analysis
methodology. These comments referred to the assumptions concerning the
heat exchanger materials, costs for weatherized gas furnaces, the
installation costs for gas-fired boilers, and other topics. In response
to these comments, DOE made several changes to the data applied in its
approach. Table IV.1 summarizes the data DOE used to derive the inputs
to the engineering analysis for the NOPR and for today's final rule.
Table IV.1.--Approach and Data Used to Derive the Inputs to the
Engineering Analysis
------------------------------------------------------------------------
Input NOPR analysis Final rule analysis
------------------------------------------------------------------------
Equipment Cost.............. For the most widely Same method, using
used efficiency average materials
levels, DOE used a prices for the
cost model of period 2002 to
manufacturing costs 2006. For
created by tear- weatherized gas
down analysis. For furnaces, assumed
the remaining stainless steel
levels, DOE used heat exchangers for
design-option 82-percent and 83-
analysis. percent AFUE
Incorporated products. For gas
industry feedback boilers, assumed
from GAMA and those fractions of
individual boilers requiring
manufacturers to Category III
generate venting at various
manufacturing-cost- AFUE levels will
versus-efficiency also incorporate a
curves. Updated draft inducer into
manufacturing-cost- the product design.
versus-efficiency
curves.
Markups..................... Derived markups from No change.
an analysis of
corporate financial
data. Multiplied
manufacturing costs
by manufacturer,
distributor,
contractor, and
builder markups,
and sales tax, as
appropriate, to get
equipment price.
Installation Cost........... Used a distribution No change.
of weighted-average
installation costs
from the
Installation Model.
Installation
configurations are
weight-averaged by
frequency of
occurrence in the
field, and vary by
installation size.
The Installation
Model is based on a
commonly used cost-
estimation method
and is comparable
to available, known
data. New
assumption that all
81-percent AFUE gas
furnaces use double-
wall vents.
Maintenance Costs........... Used Gas Research Same sources for
Institute data for maintenance costs.
gas furnaces and Included repair
boilers, water costs for gas-fired
heater rulemaking equipment as a
survey results for function of the
oil-fired equipment price.
equipment, and data
from the 1993
rulemaking for
mobile home
furnaces. Accounted
for higher
maintenance
frequency for
modulating design
option, and used
same costs for
condensing and non-
condensing
equipment.
Annual Energy Use *......... Calculated energy No change.
use using the DOE
test procedure.
Energy Prices *............. Annual Energy AEO2007 forecast
Outlook (AEO)2005 prices for
forecast prices for effective date of
effective date of 2015.
2015.
------------------------------------------------------------------------
* Inputs required to calculate rebuttable-presumption payback period.
For more details on the rebuttable-presumption payback period, refer
to sections III.D.2 and VI.C.1.a.
GAMA, Lennox, Carrier, and Trane submitted comments urging DOE to
revise the costs assumed in the engineering analysis for manufacturing
high-efficiency weatherized gas furnaces. Specifically, GAMA commented
that DOE underestimated the cost of attaining 83-percent AFUE. GAMA
stated that a significant amount of condensation can build up upon
start-up of a weatherized gas furnace having an 83-percent AFUE and
that the unit must run for a considerable amount of time before the
heat exchanger completely dries out. As a result, GAMA commented that
manufacturers would need to design their weatherized gas furnaces at
83-percent AFUE to handle condensate. (GAMA, No. 116 at pp. 5-8) \4\
Lennox pointed out that it is physically possible to design a furnace
that will deliver 83-percent AFUE in a laboratory test, but that the
variability of outdoor conditions will pose condensation problems at
efficiency levels above 80-percent AFUE. At 83-percent AFUE, which
translates to a steady-state efficiency of 85.5 percent or higher,
Lennox stated that it may also be necessary to provide a condensate
disposal system for the furnace. (Public Meeting Transcript, No. 107.6
at p. 107)
Carrier commented that weatherized gas furnaces are installed
outdoors, and moisture in the flue gas cannot be allowed to condense,
regardless of the corrosion-resistance of the material used. (Carrier,
No. 118 at pp. 1-2) Carrier stated its belief that a means to dispose
of the condensate in cold outdoor ambient conditions must be developed
to provide for drainage or freeze protection. It further stated that,
when cold outside air and safety factors are taken into account, the
maximum design efficiency to avoid significant potential for continuous
condensation on a complete model family is 80-percent AFUE. (Carrier,
No. 118 at pp. 1-2)
Trane commented that 83-percent AFUE for weatherized gas furnaces
would result in a steady-state efficiency of 85-86 percent, which would
necessitate different, more costly materials than the materials DOE
assumed in the October 2006 proposed rule. (Public Meeting Transcript,
No. 107.6 at p. 107)
GAMA and Lennox specifically commented on DOE's incremental
[[Page 65142]]
manufacturing cost increase of $30 for an 83-percent AFUE weatherized
gas furnace over the baseline. GAMA pointed out that DOE's NOPR
analysis used increased heat exchanger area as the only design option
needed to achieve 83-percent AFUE. GAMA stated that, based on
manufacturer experience, the proposed 83-percent AFUE standard for
weatherized gas furnaces would require the use of stainless steel for
internal components such as the heat exchanger, collector box, and
internal flue, due to the expected internal condensation. GAMA also
commented that AL 29-4C is the most probable type of stainless steel
that manufacturers would use, which would significantly increase the
cost of the product. GAMA also stated its opinion that weatherized gas
furnaces at 83-percent AFUE would also require a condensate disposal
system that could function in below-freezing temperatures. GAMA
surveyed its members and provided estimates of the incremental
manufacturing costs to reach 83-percent AFUE over the baseline, which
range from $78 to $320. (GAMA, No. 116 at pp. 5-8)
Lennox also disagreed with DOE's analysis, which indicated that an
83-percent AFUE weatherized gas furnace with characteristics
satisfactory for the expected use can be manufactured and sold to the
consumer for an additional $30. Lennox stated that GAMA's average
incremental manufacturing cost estimate of $223 over the baseline for
an 83-percent AFUE weatherized gas furnace, for the addition of
stainless steel heat exchangers and condensate removal components,
results in an increase in consumer cost of approximately $500. (Lennox,
No. 130 at pp. 2-3)
DOE reviewed all the statements from GAMA, Lennox, Carrier, and
Trane and revised its engineering analysis accordingly. Specifically,
DOE revised its cost assumptions for the heat exchangers in 82-percent-
and 83-percent-AFUE weatherized gas furnaces. In the October 2006
proposed rule, DOE assumed that these heat exchangers were made of
aluminized steel--the same material used for the higher volume non-
weatherized gas furnaces, which would allow manufacturers to take
advantage of high-volume material pricing. Thus, the incremental costs
of increasing from the baseline to an 83-percent AFUE were only $30.
(See NOPR TSD Chapter 6.) In light of the comments, DOE revised the
cost model to include heat exchangers made of AL 29-4C at these two
AFUE levels and included the cost of a condensate disposal system that
could function at below-freezing temperatures. DOE specifically
reviewed the costs that GAMA submitted and, based on information
obtained during manufacturing interviews and internal engineering
expertise, DOE believes GAMA's estimates are within the range of
possible manufacturing costs for these systems (see Chapter 6 of the
final rule TSD). Therefore, DOE conducted analysis at both the low and
high points of the cost range (i.e., $78 and $320, respectively). DOE
examined both the low and high scenarios using the LCC spreadsheet and
presented the results in Chapter 8 of the final rule TSD.
Ultimately, DOE used the low-cost scenario as the basis for the
analysis because DOE's estimates corresponded more closely to the low-
range cost that GAMA provided (i.e., $78). However, DOE recognizes that
some installations may incur a higher cost. DOE believes inclusion of
stainless steel heat exchanger and condensate removal component costs
takes into account manufacturer longevity and safety concerns
associated with near-condensing weatherized gas furnaces.
DOE did not include the cost of stainless steel heat exchangers for
weatherized gas furnaces at 81-percent AFUE. Given the presence of 81-
percent AFUE products in the marketplace that do not contain stainless
steel heat exchangers, DOE assumed that only units with an AFUE of 82
percent and 83 percent would need stainless steel heat exchangers to
prevent corrosion.
Burnham and GAMA commented that DOE neglected to consider the costs
associated with adding induced-draft technology to a Category III gas-
fired boiler at 84-percent AFUE and above. Burnham further stated that
some 84-percent AFUE boilers are natural draft with draft hoods, vent
dampers, and electronic ignition, and some are induced draft with
either Category I or Category III venting, depending on the
manufacturer's requirements in a given installation. In its comments on
the October 2006 proposed rule, Burnham pointed out that DOE estimated
that 24 percent of installations at 84-percent AFUE would be Category
III, and this percentage represents a partial transformation of the
baseline boiler market. However, although DOE included the costs
associated with Category III special gas vents, Burnham noted that all
Category III installations are induced-draft boilers, and that DOE
neglected the costs associated with adding induced-draft technology to
the boiler. (Public Meeting Transcript, No. 107.6 at p. 42; Burnham,
No. 99 at p. 4) Burnham also predicted that, to avoid the venting risks
associated with installing natural draft 84-percent AFUE boilers in
every installation, all boiler installations at 84-percent AFUE will
become induced-draft, and most or all of those will require Category
III venting. Burnham urged DOE to apply the costs associated with
adding induced-draft technology to all Category III installations.
(Public Meeting Transcript, No. 107.6 at p. 42; Burnham, No. 99 at p.
4)
GAMA commented that additional concerns regarding venting safety
would require manufacturers to reconsider the application and
installation guidelines if the minimum standards for gas-fired boilers
were set at 84-percent AFUE. GAMA noted that atmospheric units cost
less and meet certain customers' requirements, but they can only be
installed in a subset of locations due to venting limitations. At 84-
percent AFUE, GAMA commented these gas-fired boilers would be operating
at near-condensing conditions, which would lead to potential venting
corrosion. GAMA stated that it has been told by its members that
concern for safety and reliability would force manufacturers to specify
AL 29-4C stainless steel chimney liners and vent connectors in all
Category I installations. GAMA estimated the cost of this change to
100-percent stainless steel venting to be roughly $700 to $900. GAMA
stated that manufacturers desiring an additional margin of safety might
eliminate natural draft products from their product lines completely in
favor of induced-draft units. (GAMA, No. 116 at p. 11)
GAMA stated that safety concerns would force manufacturers to
specify Category II or III stainless steel venting systems in some gas
boiler installations. GAMA stated its belief that DOE's projections for
venting consequences of 86-percent and 85-percent-AFUE gas-fired
boilers would actually occur at 84-percent and 83-percent AFUE. GAMA
further commented that 84-percent-AFUE gas-fired boilers would require
100 percent stainless steel venting. GAMA surveyed its boiler
manufacturer members regarding the additional cost of incorporating
induced-draft technology and provided DOE with the resulting cost
estimates, ranging between $108.75 and $145.75. (GAMA, No. 116 at pp.
10-11)
In response to the comments from Burnham and GAMA, DOE revised the
cost model for gas-fired boilers and added the cost of induced-draft
technology to the fraction of Category III boilers assumed for each
AFUE level. In other words, DOE applied the cost of induced-draft
technology to the 24 percent of installations requiring Category III
venting at 84-percent AFUE. DOE agrees with stakeholders that
[[Page 65143]]
induced-draft technology is likely required for the population of
installations using Category III venting. DOE specifically reviewed the
costs that GAMA submitted and, based on information obtained during
manufacturing interviews and internal engineering expertise, DOE
believes GAMA's estimates are within the range of possible
manufacturing costs for these systems. Therefore, DOE conducted
analyses at both the low and high points of the cost range (i.e.,
$108.75 and $145.75, respectively). DOE used the low and high scenarios
as inputs to the LCC model; the results are presented in Chapter 6 of
the final rule TSD.
DOE did not revise its estimates of the fraction of installations
requiring Category III venting and induced-draft technology from that
relied upon in October 2006 proposed rule. In other words, DOE did not
apply the added cost to the entire population of gas-fired boilers at
84-percent AFUE and above, as both Burnham and GAMA suggested. DOE
relied on the survey data of actual installations requiring Category
III venting that GAMA originally supplied. GAMA and Burnham did not
provide any additional survey data to validate their claim that all
boilers at 84-percent AFUE and above would require Category III venting
and induced-draft technology. DOE acknowledges Burnham's and GAMA's
assertions of safety concerns relating to venting systems failure at
84-percent AFUE and above, and considered this issue for a standard
level for gas-fired boilers.
B. Life-Cycle Cost and Payback Period Analyses
The purpose of the LCC and PBP analyses was to evaluate the
economic impacts of possible new furnace and boiler energy conservation
standards on individual consumers. The LCC is the total consumer
expense over the life of the furnace or boiler, including purchase and
installation expense and operating costs (energy expenditures and
maintenance costs). The PBP is the number of years it would take for
the consumer to recover the increased costs of a higher-efficiency
product through energy savings. As discussed in the NOPR, the LCC and
PBP analyses calculated furnace and boiler energy consumption under
field conditions for a representative sample of housing units. 71 FR
59219-59220. To compute LCCs, DOE discounted future operating costs to
the time of purchase and summed them over the lifetime of the furnace
or boiler. DOE measured the change in LCC and the change in PBP
associated with a given efficiency level relative to a base case
forecast of equipment efficiency. The base case forecast reflects the
market in the absence of amended mandatory energy conservation
standards.
As part of the LCC and PBP analyses, DOE developed data that it
used to establish equipment prices, installation costs, annual
household energy consumption, marginal natural gas and electricity
prices, maintenance and repair costs, equipment lifetime, and discount
rates. Chapter 8 of the TSD contains detailed discussion of the
methodology followed for the LCC and PBP analyses.
In response to the publication of the proposed rule, DOE received
several comments on the LCC and PBP methodology. In response to these
comments, DOE made several changes in its approach. Table IV.2
summarizes the approaches and data DOE used to derive the inputs to the
LCC and PBP calculations for the NOPR, and the changes it made for
today's final rule. Discussion of the inputs and the changes follows in
the sections below.
Table IV.2.--Summary of Inputs and Key Assumptions Used in the Life-
Cycle Cost and Payback Period Analyses
------------------------------------------------------------------------
Inputs NOPR analysis Final rule analysis
------------------------------------------------------------------------
Affecting Installed Costs
------------------------------------------------------------------------
Equipment Price............. Derived by Same method, using
multiplying average materials
manufacturer cost prices for the
by manufacturer, period 2002-2006.
distributor, For weatherized gas
contractor, and furnaces, assumed
builder markups and stainless steel
sales tax, as heat exchanger for
appropriate. 82% and 83% AFUE.
For gas boilers,
assumed that
furnaces that
require Category
III venting
incorporate a draft
inducer.
Installation Cost........... Used a distribution No change.
of weighted-average
installation costs
from the
Installation Model.
Weight-averaged
installation
configuration by
frequency of
occurrence in the
field.
------------------------------------------------------------------------
Affecting Operating Costs
------------------------------------------------------------------------
Maintenance and Repair Costs Used Gas Research Same sources for
Institute data for maintenance costs.
gas furnaces and Included repair
boilers, water costs for gas-fired
heater rulemaking equipment.
survey results for
oil-fired
equipment, and data
from the 1993
rulemaking for
mobile home
furnaces.
Supplemented with
information that
indicates higher
maintenance
frequency for
modulating
equipment, and
identical
maintenance costs
for condensing and
non-condensing
equipment. Did not
include repair
costs.
Annual Heating Load......... Calculated heating No change.
loads using 2001
Residential Energy
Consumption Survey
(RECS) data
(cooling loads not
considered).
Incorporated
adjustment to
account for change
in new home size
and shell
performance between
2001 and 2015.
Annual Energy Use........... Used 26 virtual No change.
models that
captured the range
of common furnace
sizes. Energy
calculations used
annual heating load
for each housing
unit based on RECS
2001.
[[Page 65144]]
Energy Prices............... Calculated 2001 Same method, using
average and AEO2007 forecasts
marginal energy to estimate future
prices for each average and
sample house. Used marginal energy
AEO2005 forecasts prices.
to estimate future
average and
marginal energy
prices.
------------------------------------------------------------------------
Affecting Present Value of Annual Operating Cost Savings
------------------------------------------------------------------------
Lifetime.................... Used 2001.58(9) No change.
Appliance Magazine
survey results,
except for boilers,
for which DOE
developed new
estimates based on
a literature review.
Discount Rate............... Applied data from Same sources, using
1998 and 2001 additional data
Survey of Consumer from 1989, 1992,
Finances and other 1995, and 2004
sources to estimate Survey of Consumer
a discount rate for Finances. (See TSD,
each house. Chapter 8).
------------------------------------------------------------------------
The changes in the approach for estimating the equipment prices are
discussed in Chapter 6 of the TSD.
In the October 2006 proposed rule analysis, DOE assumed that
maintenance costs would not vary with the AFUE level of furnaces and
boilers. Several stakeholders commented that DOE should apply a higher
maintenance cost for condensing gas furnaces than for non-condensing
equipment. (Carrier, No. 100 at p. 3; Public Meeting Transcript, No.
107.6 at p. 57; GAMA, No. 116 at p. 5; Rheem, No. 138 at p. 3)
In its analysis for today's final rule, DOE included repair costs
for gas furnaces and boilers. The repair cost is the cost to the
consumer for replacing or repairing components that have failed in the
space-conditioning equipment, while the maintenance cost is a regular
expense. Since representative data on repair costs were not available,
DOE used the same approach as in the 2001 Central Air Conditioner
standards rulemaking (67 FR 36383) and assumed that annualized repair
costs are equal to one-half the equipment price divided by the average
lifetime. Since the equipment cost is higher for equipment that
contains more sophisticated mechanical or electronic components, such
as condensing furnaces, DOE applied a higher repair cost for these
products. Since all gas equipment components are fully covered by a
manufacturer warranty for five years, DOE assumed that consumers would
not incur any repair costs in the first five years. As a conservative
assumption, DOE applied the annualized cost beginning in the sixth year
and ending in the last year of service for the equipment.
For oil-fired furnaces and boilers, DOE included an annual
maintenance contract, which typically includes repair of failed
components. Therefore, DOE did not include a separate repair cost for
these products.
DOE defines the equipment lifetime as the age at which a furnace or
boiler is retired from service. The American Council for an Energy-
Efficient Economy (ACEEE) commented that DOE's equipment lifetime
estimate for oil-fired furnaces should be 18 years rather than 15
years, which DOE assumed in the NOPR analysis. (ACEEE, No. 120 at p.
10) DOE based the assumed lifetime of 15 years from Appliance Magazine,
which reports data provided by furnace manufacturers. ACEEE did not
provide data to substantiate the 18-year lifetime. Thus, DOE did not
change its assumption about equipment lifetime for oil-fired furnaces.
As it has done in previous rulemakings, DOE derived the discount
rates for the LCC analysis from estimates of the finance cost to
purchase a furnace or boiler. The Natural Resources Defense Council
(NRDC) commented that DOE's decision to use consumer-borrowing rates as
a basis for consumer discount rates in the LCC analysis is flawed.
(NRDC, No. 63 at p. 12) Consistent with financial theory, the finance
cost of raising funds to purchase appliances can be interpreted as: (1)
The financial cost of any debt incurred to purchase products, or (2)
the opportunity cost of equity used to purchase equipment. DOE used
both of these interpretations in estimating discount rates for the LCC
analysis for furnaces and boilers. For the NOPR analysis, DOE used data
from the Federal Reserve Board's 1998 and 2001 Survey of Consumer
Finances (SCF). 71 FR 59233. For the analysis in today's final rule,
DOE expanded the data to include the 1989, 1992, 1995, and 2004 SCF.
These additional data on consumer finances represent a wide range of
economic conditions affecting consumer behavior. Thus, DOE decided to
continue to use consumer-borrowing rates as a suitable basis for
consumer discount rates in the LCC analysis.
C. National Impact Analysis
The purpose of the national impact analysis (NIA) was to evaluate
the energy and economic impacts of possible new furnace and boiler
energy conservation standards at the national level. As discussed in
the NOPR, DOE calculated the NES and the NPV of total customer costs
and savings expected to result from new standards at specific
efficiency levels. 71 FR 59224-59228. Table IV.3 summarizes the
approach and data DOE used to derive the inputs to the shipments
analysis for the NOPR, and the changes it made in the analysis for
final rule. In the analysis for the NOPR, DOE analyzed fuel switching
only in the new construction market. For this final rule, DOE also
analyzed fuel switching in the replacement market, using the same
method as for the new construction market. This change results in a
larger drop in shipments of non-weatherized gas furnaces at higher
efficiency levels than reported in the NOPR. As part of the MIA,
furnace manufacturers provided a shipments scenario (i.e., the
manufacturers' shipments scenario) that shows significantly greater
decreases in gas furnace shipments with a standard at condensing levels
(see section E, below).
[[Page 65145]]
Table IV.3.--Approach and Data Used To Derive the Inputs to the
Shipments Analysis
------------------------------------------------------------------------
Input NOPR analysis Final rule analysis
------------------------------------------------------------------------
Shipments................... Calculated total Same approach as
shipments for NOPR, with
replacements based projection of new
on past shipments housing updated to
and retirement AEO2007.
function, and for
new homes based on
projection of new
housing from
(AEO)2005. The
projected market
shares in new homes
were a function of
relative heating
equipment prices.
Based conversions-
upon-replacement on
historic survey
data. Model used
two additional
shipment categories
to calibrate with
GAMA data. Included
shipments for
mobile home furnace
replacement.
Replacements in Kind........ Replacement of worn- Same approach as
out heating NOPR, except for
equipment with unit non-weatherized gas
of same equipment furnaces, for which
type (i.e., furnace DOE modeled fuel
or boiler) and same switching in the
fuel. Applied a replacement market
replacement according to energy
probability and equipment price
distribution based trends, using same
on equipment method and data as
lifetime. for installations
in new housing.
Conversions................. Replacement of worn- No change.
out heating
equipment with
equipment using a
different fuel.
Based on utility
surveys conducted
by American Gas
Association that
report the numbers
of households that
converted from oil
or electricity to
natural gas space
heating.
Installations in New Housing Installation of No change.
heating equipment
into new single-
family, multi-
family, or mobile
homes according to
construction rates
and equipment type
market shares. Used
housing completions
according to AEO
forecast and
modeled fuel market
shares according to
energy and
equipment price
trends.
Gas Furnace Early Early replacement of No change.
Replacement. non-condensing
furnaces with more-
efficient
condensing
furnaces. Model
calibrated to GAMA
data, which show a
large increase in
condensing furnace
shipments in
response to rising
natural gas prices.
Conversion from Non-Central Conversion from non- No change.
Gas Heating to Central central gas heating
Heating with a Gas Furnace. to central heating
with a gas furnace.
Model used
Residential Energy
Consumption Survey
data, which show a
large increase
between 1993 and
2001 in homes with
central gas heating
that were built
before 1990.
------------------------------------------------------------------------
In its assessment of fuel switching from gas to electric heating,
DOE estimated that heat pumps and electric resistance furnaces would
have the same market shares. The Appliance Standards Awareness Project
(ASAP), GAMA, Nordyne, the Northeast Power Coordinating Council, and
Rheem commented that market shares might change over the analysis
period. (Public Meeting Transcript, No. 107.6 at p. 96; Public Meeting
Transcript, No. 107.6 at p. 96; public Meeting Transcript, No. 107.6 at
p. 98; Public Meeting Transcript, No. 107.6 at p. 97; Rheem, No. 101 at
p. 2) DOE reviewed the projections of heating equipment market shares
in EIA's AEO2007, and found that EIA's projections show little change
in the national market shares of heat pumps and electric resistance
furnaces until 2030. Thus, DOE believes that its assumption of constant
market shares is reasonable.
Table IV.4 summarizes the approach and data DOE used to derive the
inputs to the NES and NPV analyses for the NOPR, and the changes it
made in the analyses for this final rule.
Table IV.4.--Approach and Data Used To Derive the Inputs to the National
Energy Savings and Net Present Value Analyses
------------------------------------------------------------------------
Input NOPR analysis Final rule analysis
------------------------------------------------------------------------
Shipments................... Annual shipments See Table IV.3.
from shipments
model.
Date Products Must Meet 2015................ No change.
Standard.
Annual Unit Energy Annual weighted- No change.
Consumption (UEC). average values were
a function of
efficiency level.
Base case UEC for
non-weatherized gas
furnaces accounted
for projected share
of condensing
furnaces.
Installed Cost per Unit..... Annual weighted- No change.
average values were
a function of
efficiency level
(established from
the LCC analysis).
Maintenance Cost per Unit... Annual weighted- No change.
average values were
a function of
efficiency level
(established from
the LCC analysis).
Energy Prices............... AEO2005 forecasts to AEO2007 forecasts to
2025 and 2030 and
extrapolation extrapolation
beyond 2025. beyond 2030.
Energy Site-to-Source Generated by DOE/ No change.
Conversion. EIA's NEMS includes
electric
generation,
transmission, and
distribution losses.
[[Page 65146]]
Discount Rate............... 7-percent and 3- No change.
percent real.
Present Year................ Future expenses Future expenses
discounted to year discounted to year
2004. 2006.
------------------------------------------------------------------------
The NPV calculation for the October 2006 proposed rule used
marginal energy prices to value energy savings for natural gas and
electricity, and average energy prices to value energy savings for fuel
oil and liquefied petroleum gas (LPG) from AEO2005. 71 FR 59227. ACEEE
commented that DOE should use the AEO2007 price forecast in its
analysis for the final rule. (ACEEE, No. 120 at p. 10) DOE used energy
price projections from AEO2007 (which ends in 2030) in its analysis for
the final rule. For the years after 2030, DOE applied the average
annual growth rate in 2020-2030, except for heating oil prices, for
which DOE applied the average annual growth rate in 2015-2030. The
above approach follows guidance provided by EIA.\5\
---------------------------------------------------------------------------
\5\ Memorandum about Energy Price Projections for Federal LCC
Analysis, Attachment 2, EIA/DOE, 2/10/2006.
---------------------------------------------------------------------------
To discount future impacts, DOE used discount rates of both seven
percent and three percent, in accordance with the Office of Management
and Budget (OMB)'s guidelines contained in Circular A-4, Regulatory
Analysis, September 17, 2003. (OMB Circular A-4, Sec. E (September 17,
2003)). NRDC commented that DOE should rely exclusively on a three-
percent discount rate in making determinations about the economic value
of prospective standards, in part because investments in energy
efficiency reduce overall societal risk. (NRDC, No. 131 at p. 16) As
mentioned above, OMB recommends using discount rates of both seven
percent and three percent for regulatory analysis. DOE concluded that
both seven percent and three percent are appropriate to use because
they reflect a broad range of discount rates at a national level.
D. Consumer Subgroup Analysis
In analyzing the potential consumer impact of new or amended
standards, DOE evaluates the impact on identifiable groups of consumers
(i.e., subgroups) that may be disproportionately affected by a new
national standard level. For this rulemaking, DOE analyzed the
potential effect of standards on households with low income levels and
households occupied by seniors, two consumer subgroups of interest.
(See TSD, Chapter 11.)
For today's final rule, DOE also analyzed the impact of standards
for non-weatherized gas furnaces on households located in northern and
southern regions. DOE defined the southern region as comprising states
with an average of less than 5,000 heating degree-days (HDD) \6\, and
the northern region as comprising states with an average of more than
5,000 HDD. DOE also performed an analysis using a definition of the
southern region as comprising states with an average of less than 6,000
HDD and a definition of the northern region as comprising states with
an average of more than 6,000 HDD. See TSD Chapter 11 for a listing of
the states included in each grouping.
---------------------------------------------------------------------------
\6\ HDDs are quantitative indices demonstrated to reflect demand
for energy to heat residential buildings. These indices are derived
from daily temperature observations.
---------------------------------------------------------------------------
E. Manufacturer Impact Analysis
In determining whether a standard for a covered product is
economically justified, the Secretary of Energy is required to consider
in part ``the economic impact of the standard on the manufacturers and
on the consumers of the products subject to such standard.'' (42 U.S.C.
6295(o)(2)(B)(i)(I)) EPCA also requires for an assessment of the impact
of any lessening of competition as determined by the Attorney General.
(42 U.S.C. 6295(o)(2)(B)(i)(V)) DOE performed the MIA to estimate the
financial impact of efficiency standards on the residential furnace and
boiler industry and to assess the impact of such standards on
employment and manufacturing capacity, and published the results in the
October 2006 NOPR. 71 FR 59228-59232, 59240-59245. For this final rule,
DOE did not introduce changes to the methodology as described in the
October 2006 NOPR, but did update the manufacturers' shipments scenario
based on the updated NIA results. (See TSD, Chapter 12.)
F. Employment Impact Analysis
The Process Rule includes employment impacts among the factors DOE
considers in selecting a proposed standard. Employment impacts include
direct and indirect impacts. Direct employment impacts are any changes
in the number of employees for furnace and boiler manufacturers.
Indirect impacts are those changes of employment in the larger economy
that occur due to the shift in expenditures and capital investment that
is caused by the purchase and operation of more efficient furnace and
boiler equipment. The MIA addresses direct employment impacts; the
employment impact analysis describes indirect impacts.
For today's final rule, DOE estimated indirect national employment
impacts using a model of the U.S. economy called IMBUILD (impact of
building energy efficiency programs). DOE's Office of Building
Technology, State, and Community Programs (now the Building
Technologies Program) developed the model. IMBUILD is a personal-
computer-based, economic-analysis model that characterizes the
relationships among 35 sectors of the economy using national input/
output structural matrices, and data from the U.S. Bureau of Labor
Statistics (BLS). The IMBUILD model estimates changes in employment,
industry output, and wage income in the overall economy of the United
States resulting from changes in expenditures in the various sectors of
the economy.
In comments on the proposed rule, NRDC stated that DOE failed to
consider the economic value of increased employment at TSL 4. (NRDC,
No. 131 at p. 12) DOE takes employment impacts into account without
quantifying the net economic value of such impacts. While both the
IMBUILD input/output model and the direct use of BLS employment data
suggest the proposed furnace and boiler standards could increase the
net demand for labor in the economy, DOE believes the gains would most
likely be very small relative to total national employment. DOE,
therefore, concludes only that the furnace and boiler standards are
likely to produce employment benefits that are sufficient to offset any
adverse impacts on employment in the furnace and boiler or energy
industries. (See TSD, Chapter 14.)
G. Regulatory Impact Analysis
The regulatory impact analysis provides a description and analysis
of
[[Page 65147]]
the feasible policy alternatives to this regulation and a quantitative
comparison of the impacts of the alternatives. In this analysis, DOE
also investigated the impact of standards on northern and southern
regions. DOE used the NIA spreadsheet, which uses inputs generated by
LCC spreadsheets constructed to separately analyze the northern and
southern regions, to generate the results presented in the NOPR for
both regions. DOE performed the national LCC analysis on the basis of
the nine Census divisions, plus four large States (New York,
California, Texas, and Florida), rather than on a State-by-State basis.
Commenting on the NOPR, ASAP stated that the results for the northern
region, defined as areas with more than 6,000 HDDs, appear to be
incorrect. (Public Meeting Transcript, No. 107.6 at p. 154)
For the NOPR analysis of the potential impacts of regional
standards, DOE based the distribution of furnace efficiency in the base
case on data that GAMA provided on the percentage of condensing furnace
sales in each State. DOE combined the State-level GAMA data into Census
divisions, and then assumed condensing gas furnaces were installed in
households solely on the basis of climate (i.e., high HDDs). This
assumption led to the comparatively small energy savings estimated to
result from a condensing-level standard for the northern region.
Upon review, DOE determined that the assumption that the existing
(and future) market for condensing furnaces (absent a standard) was
likely to be concentrated in the coldest states was not an accurate
reflection of the State-level data that GAMA provided. By using
distribution assumptions that are based on the State-level data, DOE
subsequently developed an alternative analysis, which it now believes
is a better indicator of the energy savings likely to result in
specified regions from various standard levels. In the revised
analysis, a much lower percentage (45 percent) of households in the
States with HDDs of 6,000 or higher is assigned condensing furnaces.
This share is half of the comparable 90 percent value in the NOPR
analysis and is close to the 48 percent share of condensing furnaces
for the 20 States with an average HDD of 6,000 or higher in the GAMA
shipments data. See Appendix V of the TSD for further discussion.
H. Utility Impact Analysis
The utility impact analysis estimates the change in the forecasted
power generation capacity for the Nation. This analysis separately
determines the changes in energy supply and demand as a result of
natural gas, fuel oil, LPG, or electricity residential consumption
savings due to the standard. DOE calculated these changes using the
NEMS-BT computer model.\7\ The analysis output provides a forecast for
the needed generation capacities at each TSL. The estimated net benefit
of the standard is the difference between the generation capacities
forecasted by NEMS-BT and the AEO2006 Reference Case.
---------------------------------------------------------------------------
\7\ NEMS, which is available in the public domain, is a large,
multi-sectoral, partial-equilibrium model of the U.S. energy sector.
The EIA uses NEMS to produce its AEO--a widely recognized baseline
energy forecast for the U.S. DOE used a variant known as NEMS-BT.
---------------------------------------------------------------------------
DOE obtained the energy savings inputs associated with electricity
and natural gas consumption savings from the NES analysis. These inputs
reflect the effects of efficiency improvement on furnace energy
consumption, including both fuel (natural gas, fuel oil, and LPG) and
electricity. The inputs also reflect the impacts associated with the
market shift from natural gas heating to electric heating projected to
occur at TSLs that result in an increased installed cost for gas
furnaces. See Chapter 13 of the TSD for further discussion.
The American Gas Association (AGA) stated that DOE's approach for
analyzing utility impacts, and in particular its evaluation of market
shifts from gas to electric heating equipment, does not adequately
account for impacts on gas utilities. (AGA, No. 137 at p. 6)
Historically, DOE's approach for the utility impact analysis has been
to only evaluate the impact of market shifts associated with standards
on utility energy sales. DOE has not been able to characterize what the
impacts of standards would be on gas utilities, other than the
financial impacts as measured by sales. Thus, DOE was not able to
perform further evaluation of the gas utility impacts for the furnace
and boiler standards rulemaking.
I. Environmental Analysis
Under 42 U.S.C. 6295(o)(2)(B)(i)(VI), DOE estimated the
environmental impacts of the standards established in today's final
rule. DOE estimated direct emissions impacts at the household level as
well as impacts on power plant emissions. While DOE regulating furnace
and boiler electricity use, the electricity consumption of these
appliances affects power plant emissions. As discussed in the NOPR, DOE
calculated the reduction in power plant emissions of CO2 and
NOX using the NEMS-BT computer model.\8\ DOE does not report
estimated reduction in power plant emissions of SO2 because
any such reduction resulting from an efficiency standard would not
affect the overall level of SO2 emissions in the U.S.\9\
---------------------------------------------------------------------------
\8\ Power sector NOX emissions impacts will be
affected by the Clean Air Interstate Rule (CAIR), which the U.S.
Environmental Protection Agency (EPA) issued on March 10, 2005. CAIR
will permanently cap emissions of NOX in 28 eastern
States and the District of Columbia. 70 FR 25162 (May 12, 2005). As
with SO2 emissions, a cap on NOX emissions
means that equipment efficiency standards may result in no physical
effects on these emissions. When NOX emissions are
subject to emissions caps, DOE's emissions reduction estimate
corresponds to incremental changes in emissions allowance credits in
cap-and-trade emissions markets rather than physical emissions
reductions. Therefore, while the emissions cap may not result in
physical emissions reduction from the proposed standards, it does
produce an environment-related economic benefit in the form of
emissions allowance credits.
\9\ The Clean Air Act Amendments of 1990 set an SO2
emissions cap on all power generation. The attainment of this target
is flexible among generators and is enforced through the use of
emissions allowances and tradable permits. Accurate simulation of
SO2 trading implies that the effect of efficiency
standards on physical emissions will be near zero because emissions
will always be at or near the allowed ceiling. However, although
there may not be an environmental benefit from reduced
SO2 emissions from electricity savings, there still may
be an economic benefit. Electricity savings can decrease the need to
purchase or produce SO2 emissions allowance credits,
which decreases the costs of complying with regulatory caps on
emissions.
---------------------------------------------------------------------------
The operation of most furnaces and boilers requires use of fossil
fuels, and results in household emissions of CO2,
NOX, and SO2 at the sites where appliances are
used. NEMS-BT provides no means for estimating such household
emissions, so DOE calculated separate estimates of the effect of the
standards on household emissions of CO2, NOX, and
SO2, based on emissions factors derived from the literature.
DOE reports household SO2 emissions savings, because the
SO2 emissions caps do not apply to household emissions.
The operation of furnaces and boilers requires use of fossil fuels,
and results in household emissions of CO2, NOX,
and SO2 at the sites where appliances are used. NEMS-BT
provides no means for estimating such household emissions, so DOE
calculated separate estimates of the effect of the standards on
household emissions of CO2, NOX, and
SO2, based on emissions factors derived from the literature.
DOE reports household SO2 emissions savings, because
SO2 emissions caps do not apply to household emissions.
NRDC and Dow Chemical commented that, although DOE had quantified
emissions savings, it failed to put an economic value on them. (NRDC,
No.
[[Page 65148]]
131 at p. 13; NRDC and Dow Chemical, No. 132 at p. 9) In keeping with
the guidance of the 1996 Process Rule, DOE's analysis of the
environmental impacts of standards included estimated impacts on
emission of carbon and relevant criteria pollutants. 61 FR 36983 (July
15, 1996). For the purpose of promulgating new standard levels for
furnaces and boilers, DOE considers the potential changes to physical
emission resulting from new standards. The detailed environmental
analysis is part of the TSD.
V. Discussion of Other Comments
Since DOE opened the docket for this rulemaking, it received more
than 150 comments from a diverse set of parties, including
manufacturers and their representatives, States, energy conservation
advocates, consumer advocates, and utilities. Comments regarding the
analytic methodologies DOE used are discussed in section IV of this
preamble. Other comments addressed the burdens and benefits associated
with new energy efficiency standards, the information DOE used in its
analyses, results of and inferences drawn from the analyses, impacts of
standards, the merits of the different TSLs DOE considered, other
issues affecting adoption of standards for residential furnaces and
boilers, and the DOE rulemaking process. DOE addressed the comments
raised regarding the ANOPR in the October 2006 NOPR. Comments received
on the October 2006 proposed rule are addressed below.
A. Information and Assumptions Used in Analyses
As a basis for analysis for this final rule, DOE has continued to
use the types of data as explained in the October 2006 NOPR. 71 FR
59213-59234. For the final rule, DOE revised some inputs and expanded
some of the data sources in response to stakeholder comments on the
October 2006 proposed rule. These revisions are discussed below.
1. Engineering Analysis
In the October 2006 proposed rule analyses, DOE used a five-year
average of materials prices from years 2000 through 2004. 71 FR 59216.
For the final rule, DOE revised the material price averages used in the
cost model to include material price data from 2005 and 2006. For this
rulemaking, DOE believes a five-year span is the longest span that
would still provide appropriate weighting to current prices experienced
in the market. DOE calculated a new five-year average materials price
for cold rolled steel, aluminized steel, galvanized steel, painted cold
rolled steel, and stainless steel. DOE used the BLS Producer Price
Indices (PPIs) for cold rolled steel and stainless steel spanning from
2002 to 2006 to calculate new averages, which incorporate the changes
within each material industry and inflation. Finally, DOE adjusted all
averages to 2006$ using the gross-domestic-product implicit-price
deflator.
As was the case for the October 2006 proposed rule, DOE created two
scenarios for the material-price-sensitivity analysis: a low-bound and
a high-bound scenario. DOE calculated the low-bound scenario by finding
the year ranging between 2002 and 2006 with the lowest cost of cold
rolled steel, which was 2002. DOE then used the annual prices for all
other materials in 2002 and applied a 15-percent reduction to each of
the raw material costs. Likewise, DOE calculated the high-bound
scenario using the annual average price for each of the raw materials
from 2006, when prices of raw materials were uncharacteristically high.
DOE expressed both the low-bound scenario and the high-bound scenario
in 2006$. DOE evaluated the results of the material-price-sensitivity
analysis, using all three material-cost scenarios, in the engineering
analysis and then used them as inputs for the LCC analysis. The results
for the material-price-sensitivity analysis are presented in Appendix Z
of the final rule TSD.
GAMA commented that DOE's analysis for non-weatherized gas furnaces
appears to be in error, especially as related to the 81-percent AFUE
option, for several reasons. First, while DOE estimated in the October
2006 NOPR that eight percent of non-weatherized gas furnace
installations would require Category III venting at 81-percent AFUE,
GAMA stated that this number is too low. Second, DOE concluded in the
October 2006 NOPR that a significant fraction of the replacement
installations will require a Type B vent connector, but GAMA pointed
out that DOE only added the additional costs for these connectors to 40
percent of the installations. Lastly, GAMA stated its belief that the
number of horizontal venting configurations assumed in the October 2006
NOPR analyses is too low.
Regarding GAMA's first point, DOE used the approach described by
GAMA in the ANOPR analysis. For the NOPR, DOE determined that non-
weatherized gas furnaces at 81-percent AFUE when applied in vertical
venting installations fall into Category I. To GAMA's second point, DOE
accounted for the cost of Type-B double-wall vent connectors for all
replacement installations. GAMA appears to be referring to the fraction
of existing models that already have a double walled vent connector in
DOE's Installation Model, which was approximately 40 percent as
discussed in the NOPR. To GAMA's last point regarding the number of
horizontal venting configurations, DOE's October 2006 proposed rule
analysis based the number of non-condensing horizontal vent
configurations on the Gas Research Institute's venting survey (see NOPR
TSD Chapter 6). DOE then verified this percentage in consultations with
installers. Consequently, DOE did not revise the number of horizontal
venting configurations for today's final rule.
2. Life-Cycle Cost Analysis
The base case forecasts equipment that consumers are expected to
purchase in the absence of new standards. In the NOPR analysis, DOE
assigned gas furnaces to sampled housing units in the base case to
reflect the trend toward a higher market share for condensing furnaces,
as shown in shipments data through 2003, which GAMA provided. DOE also
based the projected market share of condensing furnaces in 2015 on an
evaluation of the correlation between condensing furnace market share
and the natural gas price for the 1990-2003 period, projected natural
gas prices from AEO2005, and market factors that could sustain the
condensing furnace market share even with a lower gas price. The
projected condensing furnace market share for 2015 was 35.6 percent.
Therefore, for the LCC analysis base case, DOE assigned condensing
furnaces to 35.6 percent of the sampled housing units with non-
weatherized gas furnaces.
GAMA stated the market share for condensing furnaces might continue
to grow because of growth in the replacement market, and thus DOE's
assumption may be low. (Public Meeting Transcript, No. 107.6 at p. 105)
Lennox commented that the market share for condensing furnaces should
consider the replacement market. (Public Meeting Transcript, No. 107.6
at p. 105) Rheem disagreed with DOE's estimate of market share for
condensing furnaces, and stated that the share will be higher if
historic trends continue. (Rheem, No. 138 at p. 5) ACEEE stated that
the market share for condensing furnaces will depend on the price of
natural gas and that DOE's assumptions should be internally consistent
and reflect the price projections it uses. (Public Meeting Transcript,
No. 107.6 at p. 102) DOE found that the empirical,
[[Page 65149]]
national-level data strongly support a correlation between condensing
furnace market share and the natural gas price. The natural gas
projections DOE used in this rulemaking (AEO2007) forecast that the
national-average natural gas price in the period to 2015 does not
exceed the recent level of prices. The condensing furnace market share
in 2005 was approximately 35 percent. DOE determined that its
assumption of a market share of 35.6 percent in 2015 reflects the
empirical correlation.
3. Manufacturer Impact Analysis
NRDC stated that DOE's assessment of the impact of TSL 4 on
manufacturers is flawed because a decline in sales of furnaces
associated with TSL 4 would result in increased sales of heat pumps,
many of which are sold by the furnace manufacturers. (NRDC, No. 131 at
p. 14) Pacific Gas and Electric (PG&E) also commented that DOE's
analysis overstates the deleterious effect of TSL 4 on INPV. PG&E
commented that experience with other standards has shown that the costs
and competitiveness difficulties presented by improved energy
efficiency standards are less burdensome in implementation than
initially projected. (PG&E, No. 129 at p. 1)
While some larger manufacturers of furnaces and boilers sell both
heat pumps and furnaces, DOE is tasked with assessing the impacts of
increased efficiency standards on furnace and boiler manufacturers, not
on the heating, ventilation, and air-conditioning industry as a whole.
In the furnace and air conditioner businesses, some manufacturers
produce both types of products, switching primarily to furnaces in the
winter and air conditioners in the summer. Heat pumps, on the other
hand, tend to be manufactured in other manufacturing facilities. For
the large production volume shifts found for TSL 4, DOE determined that
the furnace divisions of large companies likely will be impacted as
analyzed in the October 2006 proposed rule MIA. The capital (equipment)
and labor (location) in a manufacturing facility cannot easily be
transformed from manufacturing furnaces to manufacturing heat pumps.
For small companies, which focus on fewer types of product lines, the
material costs are less interchangeable. DOE also notes that, under TSL
4, other options--such as electric furnaces--become a choice for
consumers. In light of these uncertainties, DOE determined that its MIA
captures the potential range of impacts at TSL 4 on furnace
manufacturers.
NRDC commented that, in determining industry value, DOE should not
give equal weight to scenarios of product sales created by DOE and
those provided by manufacturers. (NRDC, No. 131 at pp. 14-15) DOE
looked at a range of impacts for each of the six product classes of
furnaces and boilers and presented this entire range of results in the
October 2006 NOPR. In doing so, DOE used both the NES shipments
projections and the manufacturers' shipments scenario to assess the
range of impacts on the industry value at each TSL. Although this final
rule presents results using both shipments scenarios for the MIA, DOE
only used the NES shipments scenario to assess the impacts on the
Nation in the NIA.
NRDC stated its belief that DOE's assumptions regarding markups
biased the INPV result. (NRDC, No. 131 at pp. 14-15) NRDC also
questioned DOE's assumption that the industry cost structure will not
decrease. NRDC stated that manufacturers could distinguish value-added
products in the mid-90s AFUE range based on modulating capacity and
continue to collect higher markups on above-standard products. NRDC
further stated that, as manufacturers gain more experience with 90-
percent AFUE products, the price of the products will come down; it
requested that the cost structure in DOE's analysis account for this.
(NRDC, No. 131 at pp. 14-15)
With regard to markups, DOE considered up to four distinct markup
scenarios to bound the range of expected product prices following
standards. For each product class, DOE used the markup scenarios that
characterize the markup conditions described by manufacturers, and that
reflect the type of market responses manufacturers expect as a result
of standards. Details of the markup scenarios by product class were
presented in the October 2006 NOPR. 71 FR 59240. DOE has determined
that these scenarios capture the range of variability within the
furnace and boiler industry.
As to NRDC's point on the industry cost structure, for condensing,
non-weatherized gas furnaces that are already made in high volumes in
an industry with decades of manufacturer experience, the potential cost
of innovation prompted by higher standards is limited to that of an
already mature industry. DOE recognizes that manufacturers' continuous
improvement programs will continue to reduce future costs, with or
without increased efficiency standards. DOE believes these programs are
not a result of energy conservation standard rulemakings and are not
appropriate to consider when estimating the impacts of energy
conservation standards. DOE estimated the manufacturing cost of a
condensing furnace to be $422.85 in the engineering analysis and DOE
recognizes these costs could be reduced in a standards case scenario.
Therefore, the MIA analysis excludes this effect, and shows a range of
impacts on the industry results from an amended standard.
Rheem stated that DOE's assessment of impacts on manufacturers is
inadequate with respect to domestic manufacturing employment, capacity,
plant closures, and loss of capital investment. Rheem commented that
domestic manufacturing of refrigerators has declined substantially as a
result of three energy standards and the phaseout of
chlorofluorocarbons (CFCs) and hydrochlorofluorocarbons (HCFCs), since
manufacturers have chosen to invest outside the USA in new facilities
rather than upgrade their domestic facilities. Rheem summarized by
stating that the cumulative burden of environmental and efficiency
regulations has been a factor in the consolidation of the domestic
appliance industry. (Rheem, No. 138 at p. 3)
DOE notes that the two most significant regulatory actions
affecting the furnace and boiler industries are more stringent Federal
energy conservation standards for residential and commercial air
conditioners, and the EPA-mandated phaseout of hydrofluorocarbon (HFC)
and HCFC refrigerants. DOE is aware that manufacturers are working to
redesign all of the product lines of residential air conditioners and
have allocated most of their capital resources for redesigning and
retooling their production lines to meet the new minimum efficiency
standard and refrigerant phaseout. DOE quantified the anticipated level
of investment needed to meet each of these two regulatory actions along
with others facing the industry in Chapter 12 of the NOPR TSD. 71 FR
59244-29245.
In the October 2006 NOPR, DOE specifically sought comment on
information that would allow it to monetize changes in warranty costs
resulting from the installation of products at near-condensing levels.
71 FR 59258. GAMA stated that DOE should consider changes in warranty
costs related to gas-fired boilers at 84-percent AFUE. However, GAMA
also stated that it is inappropriate with respect to anti-trust
considerations for manufacturers to discuss information related to
monetizing changes in warranty costs. (Public Meeting Transcript, No.
107.6 at pp. 108-109)
[[Page 65150]]
Rheem stated that it is inappropriate to provide DOE with information
that attempts to monetize the changes in warranty costs resulting from
installation of products at near-condensing levels. Rheem further
commented that these products should not be considered as an option due
to their unacceptable safety and reliability. (Rheem, No. 101 at p. 2;
Public Meeting Transcript, No. 107.6 at p. 82; Rheem, No. 138 at p. 6)
Trane stated that it is inappropriate for manufacturers to discuss
information related to monetizing changes in warranty costs for
products at near-condensing levels. (Public Meeting Transcript, No.
107.6 at p. 108)
In light of the comments, DOE was not able to monetize the changes
in warranty costs resulting from the installation of products at near-
condensing levels. However, as discussed in section VI of this
preamble, safety concerns for standards at near-condensing levels were
a greater factor in considering such standards, which were eventually
rejected.
B. Other Issues
1. Joint Stakeholder Recommendation for Boilers
On July 14, 2006, GAMA and ACEEE, on behalf of 28 residential
boiler manufacturers and four energy efficiency organizations,
submitted a joint recommendation for new national standards for
residential boilers that would consist of a performance requirement
(minimum AFUE levels) and design requirements. Table V.1 exhibits the
performance and design requirements in the joint stakeholder
recommendation for boilers.
Table V.1.--Joint Stakeholder Recommendation for Boilers Performance and
Design Requirements
------------------------------------------------------------------------
Joint
stakeholder
Product class recommendation
for boilers
------------------------------------------------------------------------
Gas Boiler................... Water 82%............. No Standing
Pilot *
Temperature
Reset **.
Steam 80.............. No Standing
Pilot *.
------------------------------------------------------------------------
Oil-Fired Boiler............. Water 84.............. Temperature
Reset.
Steam 82.............. None.
------------------------------------------------------------------------
* The manufacturer shall not equip gas boilers with standing pilots.
** The manufacturer shall equip hot water heating boilers with automatic
means for adjusting the temperature of the water supplied by the
boiler such that an incremental change in inferred heat load produces
a corresponding incremental change in supply water temperature. When
there is no inferred heat load, such automatic means shall adjust the
supply water temperature to no more than 140 deg. F. The boiler shall
be operable only when the automatic means is installed. These
requirements should be implemented five (5) years after publication of
the Final Rule.
For gas-fired boilers, the recommendation calls for a ban on
standing pilots. For gas-fired water boilers only, it suggests two
design requirements: In addition to the ban on standing pilots, the
recommendation also requires a ``temperature reset'' feature that
automatically adjusts the boiler output according to the outdoor
ambient air temperature. For oil-fired water boilers, the
recommendation contains the design requirement for the same
``temperature reset'' feature.
In the October 2006 NOPR, DOE determined that the recommended
standards in the joint stakeholder recommendation are beyond the scope
of its statutory authority. 71 FR 59209. In comments on the October
2006 proposed rule, all of the parties to the joint recommendation
urged DOE to reconsider and adopt the standards in the recommendation.
(Public Meeting Transcript, No. 107.6 at p. 58; ACEEE, No. 120 at p. 4;
Public Meeting Transcript, No. 107.6 at pp. 69, 142; Burnham, No. 99 at
pp. 1-3; Public Meeting Transcript, No. 107.6 at p. 38; GAMA, No. 102
at p. 2; GAMA, No. 116 at p. 2; Public Meeting Transcript, No. 107.6 at
p. 28; Lochinvar, No. 106 at p. 2; Public Meeting Transcript, No. 107.6
at p. 74)
Despite these comments, DOE cannot promulgate design requirements
for unspecified products: The plain language of section 321(6)(B) of
EPCA limits design requirements to only those products for which design
requirements are specified in the statute. (42 U.S.C. 6291(6)(b))
Furnaces are not one of those specified products. DOE legally cannot
establish a design requirement for furnaces.
Congress's establishment of a design requirement on an unspecified
product, i.e., a ceiling fan, does not lift the bar on DOE placing
design requirements on unspecified products as suggest by ACEEE.
(ACEEE, No. 120 at p. 4) While Congress may have amended provisions of
EPCA to require design requirements in conjunction with performances
requirements, it did not amend section 321(6)(B) of EPCA, 42 U.S.C.
6291(6)(B), which remains applicable to furnaces and boilers.
Burnham suggested that section 325(r) of EPCA (42 U.S.C. 6295(r))
grants DOE the authority to add design requirements covered by
performance standards under certain conditions. (Burnham, No. 99 at pp.
1-3) Section 325(r) states in relevant part:
[FEDREG][VOL]*[/VOL][NO]*[/NO][DATE]*[/
DATE][RULES][RULE][PREAMB][AGENCY]*[/AGENCY][SUBJECT]*[/SUBJECT][/
PREAMB][SUPLINF][HED]*[/HED]Any new or amended energy
conservation standard prescribed under this section * * * may
include any requirement which the Secretary determines is necessary
to assure that each covered product to which such standard applies
meets the required level of energy efficiency * * * specified in
such a standard.
(42 U.S.C. 6295(r)) Despite Burnham's suggestion, the plain language of
section 325(r) grants authority to establish requirements necessary to
assure compliance with a required level of energy efficiency. It does
not grant authority to establish requirements that affect the required
level of energy efficiency, e.g., design requirements. Further, if the
language were such that DOE could interpret the language as broadly as
Burnham suggested, the distinction made in section 321(6)(A) and (B)
between products for which design standards can be established and
those for which such standards cannot, would be rendered meaningless.
2. Regional Standards and Waiver From Federal Preemption for States
In the October 2006 NOPR, DOE stated that the establishment of
regional standards or design requirements for residential furnaces and
boilers is beyond the scope of DOE's statutory authority. 71 FR 59209;
see also, 69 FR 45420, 45425 (July 29, 2004). DOE received numerous
comments advocating the adoption of separate standards for northern and
southern regions. (ACEEE, No. 120 at p. 3; Public Meeting Transcript,
No. 107.6 at p. 59; Public Meeting Transcript, No. 107.6 at p. 54;
Public Meeting Transcript, No. 107.6 at p. 68; Office of the Ohio
Consumers' Counsel (OCC), No. 125 at p. 9; National Consumer Law Center
(NCLC), No. 108 at p. 2; Belmont Housing Trust, Inc., No. 127 at p. 8;
City
[[Page 65151]]
of Boston, No. 115 at p. 1; Consumer Group, No. 121 at pp. 9-10;
Northeast Division of Energy Resources (NEDER), No. 123 at p. 4; New
Hampshire Office of Consumer Advocate (NHOCA), No. 134 at p. 1; State
of Michigan (SOM), No. 114 at p. 1; State of New Hampshire Office of
Energy and Planning, No. 139 at p. 1; NRDC, No. 131 at p. 18; Public
Meeting Transcript, No. 107.6 at p. 116; NRDC, No. 132 at p. 10; Ohio
Department of Development (ODD), No. 124 at p. 1; Western Electricity
Coordinating Council (WECC), No. 113 at p. 1) DOE received comments
that DOE incorrectly determined that it cannot implement regional
standards. Conversely, DOE also received comments opposing the adoption
of separate standards for northern and southern regions. (Air
Conditioning Contractors of America, No. 135 at p. 1; Air-Conditioning
and Refrigeration Institute (ARI), No. 133 at p. 1; National Propane
Gas Association (NPGA), No. 142 at p. 3)
DOE recognizes the potential benefit that could be achieved through
regional standards. As discussed in the October 2006 NOPR, DOE analyzed
a regional regulatory scheme based on heating degree-days. 71 FR 59253.
This scheme contemplated efficiency standards for non-weatherized gas
furnaces only, depending on the region of the country.
DOE modeled the policy of regional performance standards by
aggregating States into two broad geographic regions based on climate
(i.e., based on heating degree-days). DOE selected the efficiency level
for this scheme based on maximizing consumer NPV. Under this analysis
the TSL projected to yield the maximum consumer NPV at a seven-percent
discount rate for the cold-climates (i.e., >=5,000 heating degree days
and >=6,000 heating degree days) was the proposed TSL 4, with the
proposed TSL 2 for the warm climates. The projected results for both
regions, the proposed TSL 2 (South) and the proposed TSL 4 (North),
combined were estimated to yield higher energy savings than the than
the proposed TSL 2 standard levels. The projected results for both
regions combined were estimated to yield greater national NPVs (at 7%
discount rate) than the proposed levels of TSL 2, applied as national
standards. A more detailed discussion of this analysis is provided in
the October 2006 NOPR and in the February 9, 2007 Notice of Data
Availability (72 FR 6184).
However, DOE has determined that it does not have authority under
EPCA to establish regional standards. The language of EPCA demonstrates
that the Secretary's authority to establish and amend standards for
furnaces and boilers is limited to establishing and amending a single
national standard for a particular type of furnace and boiler, as
opposed to a national standard plus one or more regional standards.
Section 325(a)(2) of EPCA authorizes the ``Secretary to prescribe
amended or new energy conservation standards for each type (or class)
of covered product.'' (42 U.S.C. 6295(a)(2)) In defining an energy
conservation standard, EPCA employs ``a performance standard'' or ``a
design requirement'' in the singular. (42 U.S.C. 6291(6)) This use of
the singular indicates that the Secretary generally may only set one
energy conservation standard for a product.
Further, were the language of EPCA not clear as to DOE's authority
for setting national standards, interpreting section 325 as generally
prohibiting the establishment of regional standards is reasonable,
particularly when section 325 is read in total. Consumer Groups stated
that, under 1 U.S.C. section 1, the use of the singular tense includes
consideration of the plural tense unless context indicates otherwise.
(No. 121 at p. 10) However, the context of EPCA indicates that the
reliance on the singular tense in the definition of energy conservation
standard for the purpose of the Secretary establishing amended
standards for furnaces and boilers is proper.
EPCA specifies that the Secretary can only set multiple standards
for a product if that product has more than one major function:
The Secretary may set more than 1 energy conservation standard
for products that serve more than 1 major function by setting 1
energy conservation standard for each major function.
(42 U.S.C. 6295(o)(5)). If DOE could adopt multiple performance
standards or design requirements under a single conservation standard,
as suggested by commenters, EPCA's limit of one conservation standard
per major product function would be meaningless.
Additional commenters stated that because Congress established in
certain instances multiple requirements on a single product, section
321(6) should be read more broadly to define a ``conservation
standard.'' \10\ However, while Congress has enacted multiple
performance and design standards for covered products, the Secretary's
authority to do so is limited under section 325(o)(5) as stated above.
---------------------------------------------------------------------------
\10\ Section 325(ff) of EPCA establishes multiple requirements
for ceiling fans. (42 U.S.C. 6295(ff)).
---------------------------------------------------------------------------
Moreover, the Senate Report language accompanying the amendments to
EPCA under the National Appliance Energy Conservation Act (NAECA; Pub.
L. 95-619) indicates that the Secretary is to set national standards.
``The purpose of [NAECA] is to reduce the Nation's consumption of
energy and to reduce the regulatory and economic burdens on the
appliance manufacturing industry through the establishment of national
energy conservation standards for major residential appliances.'' S.
Rep. No. 100-6, at 2 (1987) (Emphasis added).
The two basic provisions of the NAECA amendments to EPCA concern
the establishment of Federal standards and the preemption of State
standards. Id. Although NAECA goes on to state that States have the
ability to petition DOE for a waiver from the national standard, NAECA
warns that achieving such a waiver is ``difficult,'' again indicating a
preference for a national standard. Id.
As a policy matter, national standards established under EPCA
enable DOE to address the Nation's need to conserve energy while
reducing the regulatory burden on manufacturers. The establishment of
regional standards would be overly complicated due to the structure of
DOE's enforcement authority as established in EPCA. Under EPCA, DOE's
enforcement authority generally applies to products as manufactured.
(42 U.S.C. 6302 and 6303) Under current authority, enforcement of
Federal regional standards would be difficult given that a furnace or
boiler could be manufactured for compliance in one region, yet be
easily transported to a region in which it would be noncompliant. The
potential interaction of various standards between regions, the
subsequent potential for products to be shipped and installed in
regions in which they are not compliant, and the resulting impact on
energy savings would have to be considered when establishing standards.
DOE recognizes the potential for regional standards to increase the net
benefits of energy conservation programs under certain circumstances.
However, establishing regional standards in the context of DOE's
current enforcement authority would make it more difficult to achieve
the goals of improved energy conservation and reduced regulatory
burden.
While DOE is prohibited from promulgating regional standards under
the authority in section 325 of EPCA, States can apply for waivers from
Federal preemption under section 327 of EPCA. (42 U.S.C. 6297) In the
October 2006 NOPR, DOE discussed the necessary conditions in order for
it to grant States a waiver from Federal
[[Page 65152]]
preemption of State energy efficiency standards for appliances subject
to Federal regulation, as established in 10 CFR 430.41(a)(1). 71 FR
59209.
DOE received several comments with regard to the waiver from
Federal preemption discussion in the NOPR. Some commenters expressed
concern that DOE was encouraging States to apply for waivers. (Public
Meeting Transcript, No. 107.6 at p. 111; AGA, No. 103 at p. 5;
Association of Home Appliance Manufacturers (AHAM), No. 141 at pp. 1-2;
ARI, No. 133 at pp. 2-3; GAMA, No. 102 at pp. 2-3; GAMA, No. 116 at p.
2; Public Meeting Transcript, No. 107.6 at p. 30; Lennox, No. 130 at p.
3; NPGA, No. 142 at pp. 3-4; Rheem, No. 138 at p. 3; Public Meeting
Transcript, No. 107.6 at p. 113; GAMA, No. 153 at p. 1) Other
commenters supported DOE giving States guidance with regard to waivers
from Federal preemption. (Public Meeting Transcript, No. 107.6 at p.
112; ACEEE, No. 120 at pp. 2-3; Public Meeting Transcript, No. 107.6 at
p. 70; Consumer Groups, No. 121 at p. 2; Public Meeting Transcript, No.
107.6 at p. 116; NEDER, No. 123 at p. 3; NRDC, No. 131 at p. 18; NRDC
and Dow Chemical, No. 132 at p. 10; New York State Energy Research and
Development Authority (NYSERDA), No. 117 at p. 2; OCC, No. 125 at p. 9;
SOM, No. 114 at p. 2; WECC, No. 113 at p. 2)
While the October 2006 NOPR provided a discussion of the necessary
elements of a petition for waiver from Federal preemption, DOE
recognizes the practical limitations of the process as well as the
potential burden resulting from multiple standards. For example, DOE
suggested that a State may include information regarding the
efficiencies of product shipments to that State. 71 FR 59210. One
commenter raised concern that such information may be considered
proprietary or confidential by the manufacturers or trade
organizations. (NCLC, No. 108 at p. 19) However, DOE notes that
inclusion of such information was a suggestion of what a State should
consider including if available, and that such information is not
required for a State waiver petition.
NCLC expressed concern that petitions filed by more than one State,
especially if filed by contiguous or nearby States with similar HDDs,
could be deemed in per se violation of the requirement that a petition
must demonstrate an ``unusual and compelling State or local energy
interest.'' (NCLC, No. 108 at p. 19) DOE provided guidance on this
matter in the denial of the California petition for waiver from Federal
preemption for residential clothes washer standards. 71 FR 78157
(December 28, 2006). In that notice, DOE stated that whether a State
has an ``unusual and compelling State interest,'' DOE will evaluate
that interest in terms of national averages. 71 FR 58161.
DOE has estimated that the potential energy savings likely under a
scenario in which all northern States with 5000 HDD or 6000 HDD
obtained waivers at a level of 90-percent AFUE is 2 quads and 1.45
quads, respectively. While DOE does not have authority to issue
regional standards, EPCA does provide an avenue for DOE to consider
this savings through the waiver provision in section 327(d). As stated
in the October 2006 NOPR, and as required under section 327(d), DOE
would be required to evaluate the benefit of such savings from State
level standards against the potential effects on manufacturers and
consumer. 71 FR 59210; 42 U.S.C. 6297(d)(3) and (4).
3. Effective Date for New Standards
In the October 2006 NOPR, DOE proposed approximately an eight-year
implementation period for the proposed standards; i.e., DOE proposed an
effective date in 2015. 71 FR 59223. DOE noted that EPCA had directed
DOE to publish a final rule to determine whether to amend standards for
furnaces and boilers by January 1, 1994, and that any amendment shall
apply to products manufactured on or after January 1, 2002. (42 U.S.C.
6295(f)(3)(B)) DOE applied the eight-year implementation period of the
EPCA schedule to determine the effective date of the proposed standard.
71 FR 59233.
NRDC stated that the eight-year implementation period is not
required by law and that the earlier central air conditioner efficiency
standard rulemaking established an implementation period shorter than
that provided in the statute. (NRDC, No. 131 at p. 13; Public Meeting
Transcript, No. 107.6 at pp. 54, 150) ACEEE stated that large amounts
of equipment already meet the proposed 2015 standards and are already
available on the market. (ACEEE, No. 107 at pp. 61, 149) For furnaces,
ACEEE suggested that DOE rely on a five-year implementation period
associated with the second round of rulemaking for furnaces and boilers
specified in section 325 of EPCA. (42 U.S.C. 6295(f)(3)(C)) With regard
to boilers, ACEEE requested that DOE use the dates in the ACEEE-GAMA
joint recommendation, given that manufacturers have agreed on those
timeframes. (ACEEE, No. 120 at p. 9) A number of other stakeholders
also stated that DOE should make the effective date earlier than 2015.
(Public Meeting Transcript, No. 107.6 at p. 69; North American
Insulation Manufacturers Association, No. 136 at p. 2; NEDER, No. 123
at p. 6; NHOCA, No. 134 at p. 1; NRDC and Dow Chemical, No. 132 at p.
9; NYSERDA, No. 117 at p. 2; OCC, No. 125 at p. 9; ODD, No. 124 at p.
1; State of New Hampshire Office of Energy and Planning (OEP), No. 139
at p. 1; South Coast Air Quality Management District, No. 128 at p. 1;
SOM, No. 114 at p. 2; WECC, No. 113 at p. 2; National Multi Housing
Council, No. 148 at p. 2) Other stakeholders stated that DOE should
maintain the effective date given in the NOPR. (Public Meeting
Transcript, No. 107.6 at p. 150; GAMA, No. 116 at p. 4; GAMA, No. 153
at p. 1; Rheem, No. 156 at p. 2; Midwest Energy Efficiency Alliance,
No. 150 at p. 1)
The standards adopted in today's final rule are applicable to
products manufactured on or after the date 8 years following
publication of this notice of final rulemaking. DOE is maintaining an
eight-year implementation period consistent with EPCA. NRDC is correct
that DOE established standards with implementation periods
substantially shorter than that specified in EPCA for central air
conditioners. However, in that instance all of the participants in the
rulemaking, including representatives of the manufacturers who would
have to comply with the standards and who had expressed a view about
the matter, had agreed that five years (the period provided in the
statute) of lead time was not needed for central air conditioner
manufacturers to come into compliance with the standards. 69 FR 50997,
50998 (Aug. 17, 2004); 67 FR 36368, 36394 (May 23, 2002). There is no
similar consensus among furnace and boiler manufacturers.
In today's final rule, DOE is providing a lead time consistent with
that provided under EPCA. Today's final rule has a compliance date that
begins on the date 8 years following publication of this notice.
4. Consumer Benefits From Reduction in Natural Gas Prices Associated
With a Standard of 90-Percent AFUE or Higher for Non-Weatherized Gas
Furnaces
In the October 2006 NOPR, DOE stated that it believed it would be
unable to consider the potential impact of energy efficiency standards
on natural gas prices because DOE believed that the analytical methods
necessary to estimate such an impact were not available. 71 FR 59210.
DOE
[[Page 65153]]
acknowledged a then recent study \11\ that considered the potential
impacts of furnace and boiler standards on natural gas prices, but
stated that DOE did not find that the study provided any conclusive
evidence. 71 FR 59280.
---------------------------------------------------------------------------
\11\ Wiser, R., M. Bolinger, M. St. Clair. Easing the Natural
Gas Crisis: Reducing Natural Gas Prices through Increased Deployment
of Renewable Energy and Energy Efficiency. Lawrence Berkley National
Laboratory. January 2005. (http://eetd.lbl.gov/EA/reports/
56756.pdf).
---------------------------------------------------------------------------
NRDC and Dow Chemical challenged DOE's decision not to consider the
potential impacts of reductions in natural gas use due to furnace and
boiler standards with increased stringency, including the impact on
natural gas prices. Commenters stated the Wiser study as well as an
analysis performed by ACEEE indicate ``major influences of efficiency
on price.'' (NRDC and DOW, No. 132 at p. 4) NRDC and Dow stated that
such a price impact provides a substantial economic benefit that may be
estimated using EIA's NEMS model. (NRDC and Dow, No. 132 at p. 10)
In response to these comments, DOE undertook further review of the
issue of the potential impact of residential furnace and boiler energy
efficiency standards on natural gas prices. A review of the economic
literature indicates that there is support for the idea that an impact
will occur and that that impact would result in a reduction in overall
natural gas prices. DOE conducted a preliminary analysis using a
version of the 2007 NEMS-BT, modified to account for energy savings
associated with possible standards. The preliminary analysis estimated
that gas demand reductions resulting from a 90-percent-AFUE non-
weatherized gas furnace standard would reduce the U.S. average wellhead
natural gas price by an average of 0.7 cents per million Btu over the
2015-2030 forecast period and would reduce the average user price of
gas by an average of 1.4 cents per million Btu.\12\
---------------------------------------------------------------------------
\12\ DOE only analyzed the impact of a 90-percent AFUE standard
because it anticipates that impacts to natural gas prices would not
result from energy savings associated with the efficiency levels
considered by DOE, which are below 90-percent AFUE.
---------------------------------------------------------------------------
The projected change in the natural gas price varies among the end
use sectors. DOE estimated that natural gas prices would decrease for
the industrial and electric power sectors, and increase for residential
consumers. The estimated average price changes amount to a decrease of
0.7 cents per million Btu for the industrial sector and of 0.6 cents
per million Btu for the electric power sector, an increase of 4.2 cents
per million Btu for the residential sector, and no change for the
commercial sector. The increase in the residential price occurs because
the fixed charges (e.g., transmission infrastructure costs) are spread
over fewer million Btu of gas sales in the standards case, thus placing
upward pressure on the average price per million Btu.
A projected decrease for the electric power sector would likely
result in a small reduction in electricity prices across all sectors.
Although the estimated reduction in average natural gas prices is
small, the estimated economy-wide savings in natural gas expenditures
over the 2015-2030 forecast period have an estimated net present value
of $1.7 billion at a seven-percent discount rate.\13\
---------------------------------------------------------------------------
\13\ The economy-wide savings over 2015-2038 (the period used to
estimate the NPV of the national consumer benefits) equals $3.6
billion at a seven-percent discount rate.
---------------------------------------------------------------------------
In addition to conducting its own analysis using NEMS, DOE reviewed
the results of: (1) Studies that used NEMS to investigate the price
impact of reductions in natural gas demand, and (2) studies that used
other energy-economic models to investigate the price impact of
substantial change in natural gas demand. While the results vary
considerably among the different studies, they generally show a price
response similar to or larger than that shown by DOE's NEMS
analysis.\14\
---------------------------------------------------------------------------
\14\ The ratio of the percentage change in price to the
percentage change in consumption is termed ``inverse price
elasticity.'' DOE's analysis using NEMS found an average inverse
price elasticity (IPE) over the forecast period of 0.9. Analysis of
the results from studies using six other models (as reported by
Stanford's Energy Modeling Forum in a 2003 report ``Natural Gas,
Fuel Diversity and North American Energy Markets'') found a wide
range of inverse price elasticities for change in natural gas
consumption. Four of the models show an IPE in the range of 1.1 to
2.1; two others show unusually high values of 6.3 and 7.3. DOE also
reviewed studies that used the Energy and Environmental Analysis
Corporation's model and found that this model results in higher
inverse price elasticity (ranging from 4 to 16) than does NEMS.
---------------------------------------------------------------------------
NRDC and Dow Chemical argued that this outcome would likely
represent a net gain to society since most gas users would be better
off, and producers, whose revenues and costs both would fall, would
likely be no worse off. (NRDC and Dow, No. 132 at pp. 4-8). In the
short run, DOE's preliminary analysis indicates that consumer savings
from lower natural gas prices would be offset by declines in gas
producer revenue.
In most instances, a reduction in the price of a good would not
represent a net economic benefit, but rather a transfer from producers
(domestic or foreign) to consumers. In other words, there is a
corresponding $1.7 billion reduction in revenue to natural gas
producers.
However, since natural gas is an exhaustible resource, price
effects may be felt differently. There is a literature 15 16
indicating that, for exhaustible resources, at least some portion of a
price reduction reflects the fact that reduced demand effectively
increases future supply and as such would represent a net economic or
resource benefit, rather than just a transfer between parties.
Although, it is uncertain as to the magnitude of price reduction that
would not be a transfer benefit.
---------------------------------------------------------------------------
\15\ Fisher, A., Resource and Environmental Economics. Cambridge
University Press. 1981.
\16\ Hotelling, H., The economics of exhaustible resources.
Journal of Political Economy. Vol. 39, 137-75. 1931.
---------------------------------------------------------------------------
Based on the discussed analysis, DOE recognizes that there is
uncertainty about the magnitude, distribution, and timing of the costs,
benefits, and net benefits within the economy. DOE's preliminary
analysis indicates that the prices of natural gas to residential
consumers would increase slightly. If there is an increase in the
prices of natural gas for residential consumers the LCCs will be
affected and the LCC savings would be reduced if such price changes
were incorporated in the LCC analysis. While DOE has not been able to
estimate these potential effects, DOE anticipates the effect will be
small since the magnitude of the residential gas price change is small
(but likely to vary as the natural gas savings increases).
Similarly, DOE is uncertain of the effects of the drop in natural
gas on producers and distributors of natural gas. While their revenues
and costs are expected to drop, it is uncertain whether they will drop
in proportion over time. The supply side will likely experience revenue
loss due to both the price changes and the reduction in gas sales that
they will experience.
DOE considered the potential impact on natural gas prices in the
establishment of the final standards, but because of the uncertainty of
these impacts, and because DOE's analysis has not been subjected to
public review, this factor had little impact on DOE's conclusion. The
Department did seek to provide an opportunity for public review and
comment on this analysis, which if affirmed, would have merited
consideration in deciding whether to finalize higher efficiency levels
in this rulemaking, but because certain parties opposed DOE's ability
to provide opportunity for additional comment and because the U.S.
District Court ultimately denied DOE the additional
[[Page 65154]]
time that would be required, DOE was unable to do so.
More specifically, this rulemaking is subject to a Consent Decree
filed with the U.S. District Court for the Southern District of New
York, which settled the consolidated cases of State of New York, et al.
v. Bodman, and Natural Resources Defense Council, Inc., et al., v.
Bodman (No. 05-Civ.-7807 (JES) and No. 05-Civ.-7808 (JES), respectively
(S.D.N.Y consolidated December 6, 2005). Under that Consent Decree, DOE
was required to publish a final rule for amended energy conservation
standards for residential furnaces and boilers by September 30, 2007.
DOE had received comments on the NOPR that indicated the
feasibility and desirability of addressing natural gas price impacts as
a result of the standards at issue in this rulemaking. DOE wished to
consider those impacts prior to promulgating a final rule, and
preliminarily believed that, if confirmed, would have merited
consideration in evaluating higher efficiency standards for the
products covered by this rulemaking, including a 90% AFUE standard for
non-weatherized gas furnaces. Therefore, in order to further address
the natural gas price analysis and potentially promulgate higher
efficiency standard levels, DOE moved the Court to modify the Consent
Decree so that the required publication date for the final rule would
be extended nine months, which would allow DOE to publish a
supplemental notice of proposed rulemaking, consider the additional
information, and potentially use it to form the basis for a final rule.
However, certain other parties--specifically, the Gas Appliance
Manufactures Association, the Air-Conditioning and Refrigeration
Institute, the Association of Home Appliance Manufacturers objected to
DOE's motion. The State of New York et al. and NRDC et al. submitted
that DOE did not establish the requisite ``good cause'' for modifying
the Consent Decree, but would be willing to stipulate to the DOE's
proposed extension, provided that certain conditions are met.
On September 25, 2007, the Court granted a stay of the September
30th deadline to further consider DOE's motion, then on November 1,
2007, the Court denied the motion, thus necessitating DOE's issuance of
a final rule by November 8, 2007. As part of its basis for denying the
motion, the Court said that the 90-percent AFUE standard for non-
weatherized gas furnaces was previously subject to public review.
However, nowhere had DOE made available an analysis of the potential
impact of such a standard on natural gas prices. As indicated by GAMA,
DOE must provide a rationale for the final standard level, and that
generally requires that the analysis underlying DOE's determination be
subject to review and comment. See, Memorandum Filed in Support of
Plaintiff-Intervenors' Opposition to Motion to Modify the Consent
Decree, p. 23. Because DOE was denied additional time to promulgate a
final rule, DOE was unable to solicit data and comment on its natural
gas price analysis, particularly with regard to the uncertainty
thereof. Therefore, DOE must issue a final rule by November 8, 2007, as
ordered by the Court, based on the record available to DOE at this
time.
5. Efficiency Standards for Electric Furnaces
In the October 2006 NOPR, DOE did not propose energy efficiency
standards for electric furnaces because DOE found that the resulting
energy savings would be de minimis given the high efficiency level of
such furnaces. AGA and NPGA objected to DOE's decision not to propose
efficiency standards for electric furnaces, stating that these furnaces
meet the statutory definition of 'furnaces' under current law. (AGA,
No. 103 at p. 3; NPGA, No. 142 at p. 4) AGA disagreed with DOE's
finding that energy savings would be de minimis. (AGA, No. 137 at p. 4)
DOE found that the reports of furnace manufacturers to the FTC list
the efficiency of the electric furnaces at 100-percent AFUE. 16 CFR
Part 305, Appendix G2. As stated in the October 2006 NOPR, DOE did not
consider electric furnaces since their efficiency approaches 100-
percent AFUE and improvements to them would also offer de minimis
energy-savings potential. 71 FR 59214. In addition, commenters did not
provide any additional data to substantiate their claims for electric
furnaces. Therefore, for electric furnaces, DOE is not adopting
standards in today's final rule.
6. Electricity Consumption of Furnace Fans
ACEEE, NEDER, NHOCA, NYSERDA, ODD, and OEP commented that DOE
should consider standards concerning the electricity consumption of
furnace fans, either in the current rulemaking or in the future.
(ACEEE, No. 120 at p. 9; Public Meeting Transcript, No. 107.6 at p. 69;
NEDER, No. 123 at pp. 5-6; NHOCA, No. 134 at p. 1; NYSERDA, No. 117 at
p. 1; ODD, No. 124 at p. 2; OEP, No. 139 at p. 1) As stated in the
October 2006 NOPR, since adding electricity consumption standards to
this rulemaking would likely cause further substantial delay in the
rulemaking process, DOE accepted the recommendations from GAMA and ASAP
and decided not to address furnace electricity consumption in this
rulemaking. 71 FR 59209. DOE may consider furnace electricity
consumption separately in a subsequent rulemaking.
7. Use of LCC Results in Selecting Standard Levels
ACEEE commented that the average LCC results reported in the
October 2006 NOPR show inconsequential differences among ``mainstream''
efficiency options. Therefore, ACEEE stated that, given ``virtually
indistinguishable differences in LCC and the fact that all of these
options are technically feasible,'' DOE should follow NAECA's dictate
to select standards with the maximum savings that are technically
feasible and economically justified. (ACEEE, No. 120 at p. 11) As
discussed above in section III.D.1.b, the LCC is one factor DOE used in
determining whether an energy conservation standard for residential
furnaces and boilers is economically justified. In its consideration,
DOE took into account the magnitude of differences in average LCC
impacts between alternative standards, as well as the percentages of
consumers predicted to experience a positive or negative LCC impact.
8. Definition of Trial Standard Levels
NRDC and Dow Chemical commented that DOE should analyze two
intermediate levels between 90-percent AFUE and 96-percent AFUE (92-
percent AFUE and 94-percent AFUE) for non-weatherized gas furnaces.
NRDC stated that DOE has failed to determine whether these two
additional levels may be economically justified. (NRDC and Dow
Chemical, No. 132 at p. 8; NRDC, No. 131 at p. 10) DOE included the 92-
percent AFUE for non-weatherized gas furnaces in most of the rulemaking
analyses. DOE did not include this efficiency level in any TSL because
it has a lower NPV (at a three-percent discount rate) than the 90-
percent-AFUE furnace. DOE did not include 94-percent AFUE for non-
weatherized gas furnaces in any TSL because DOE's initial evaluations
indicate the costs and benefits of this efficiency level are similar to
those of the 96-percent-AFUE level, which DOE has initially determined
is the max-tech option.
9. Test Procedure
National Oilheat Research Alliance (NORA) encouraged DOE to more
fully
[[Page 65155]]
integrate information about energy saving strategies into the DOE test
procedure for oil-fired equipment. (Public Meeting Transcript, No.
107.6 at p. 63) While the test procedure for furnaces and boilers is
not under revision at this time, DOE acknowledges the comment from NORA
and will take it into consideration when DOE revises the test
procedure.
10. Structural Costs Associated With Condensing Furnaces
DOE stated in the October 2006 NOPR that it recognizes that some
consumers may experience additional costs that exceed those used in
DOE's analysis to address necessary structural changes for installing a
condensing furnace, primarily for the vent systems associated with non-
weatherized gas furnaces and for mobile home gas furnaces at or above
90-percent-AFUE. 71 FR 59218. DOE noted that, for some dwellings, it
may be necessary to make ``structural'' changes, such as the removal or
penetration of an interior wall, exterior wall, or roof, to accommodate
new vent systems (and combustion air intakes). While DOE did not have
data to quantify the number of consumers that may be affected in this
manner and the cost magnitude, it believes the possible cost impacts
may be significant enough to warrant consideration in evaluating the
adoption of a standard level that would require condensing technology.
Therefore, DOE invited comments on the number of consumers that may be
affected by structural changes for installing a condensing furnace and
the cost magnitude of any structural changes. 71 FR 59218.
DOE received two opposing comments on this issue. ACEEE commented
that it does not believe there are extraordinary costs or structural
changes needed for condensing furnaces that DOE did not account for in
the Installation Model. (Public Meeting Transcript, No. 107.6 at p. 94)
Conversely, Rheem acknowledged that there could be structural changes
associated with installing a new vent system in a house, assuming it is
physically feasible to do so in the existing house. (Rheem, No. 101 at
p. 2; Rheem, No. 138 at p. 4) Specifically, Rheem stated that major
building structural changes could be required when changing from a
traditional, 80-percent-AFUE, Category I vent, which is a high-
temperature and negative-pressure metal B-vent, to a 90-percent-AFUE,
Category IV vent, which is a low-temperature, sealed, positive-pressure
vent made with polyvinyl chloride (PVC). In many cases, Rheem pointed
out that installing a new condensing furnace in retrofit applications
may be impossible, which would require the consumer to change to all-
electric heating. (Rheem, No. 101 at p. 2; Rheem, No. 138 at p. 4)
DOE did not revise the Installation Model to include costs
associated with the structural changes that could be required for
installing a condensing furnace in retrofit applications. DOE accounted
for many types of installation configurations and the costs associated
with each of these in the Installation Model, which it derived with
consultations and studies conducted by the Gas Research Institute. See,
Appendix C of the TSD.
VI. Analytical Results and Conclusions
A. Trial Standard Levels
Table VI.1 presents the TSLs analyzed for today's final rule and
the efficiency levels within each TSL for each class of product. TSL 5
is the max-tech level for each class of product. TSL levels 1, 2, 4,
and 5 represent the corresponding TSL levels evaluated in the October
2006 NOPR, but with the revisions to the analysis discussed above. TSL
levels A and B are comprised of standard levels presented in the NOPR,
but not in the particular grouping as present in TSL A and B. TSL A and
B were also evaluated using the updated analysis.
Table VI.1.--Trial Standard Levels for Furnaces and Boilers
----------------------------------------------------------------------------------------------------------------
Trial standard levels (AFUE, %)
Product classes -----------------------------------------------------------------
TSL 1 TSL A TSL 2 TSL B TSL 4 TSL 5
----------------------------------------------------------------------------------------------------------------
Non-weatherized gas furnaces.................. 80 80 81 90 90 96
Weatherized gas furnaces...................... 80 81 81 81 81 83
Mobile home gas furnaces...................... 80 80 80 90 90 90
Oil-fired furnaces............................ 80 82 82 82 84 85
Gas boilers................................... 82 82 84 82 84 99
Oil-fired boilers............................. 83 83 83 84 84 95
----------------------------------------------------------------------------------------------------------------
TSL 1 represents the most common product efficiencies of the
current market. For example, for non-weatherized gas furnaces, TSL 1 is
80-percent AFUE, which represents the highest number of models listed
in the 2005 GAMA directory.
TSL 2 is the set of efficiencies for all product classes that
yields the maximum NPV as calculated in the NES analysis, assuming a
seven-percent discount rate and only considering non-condensing
technologies.
TSL A is comparable to TSL 2 except DOE modified the efficiency
levels for non-weatherized gas furnaces and gas boilers. As discussed
in section IV.A, DOE determined there are safety concerns related to
potential venting failure due to condensation for non-weatherized gas
furnaces at 81-percent AFUE and for gas boilers at 84-percent AFUE.
Therefore, TSL A includes efficiency levels at which DOE initially
determined that there are no safety concerns for these two products
(i.e., 80-percent AFUE for non-weatherized gas furnaces and 82-percent
AFUE for gas boilers).
TSL 4 consists of efficiency levels that correspond to the maximum
efficiency level with a positive NPV as calculated in the NES analysis,
assuming a three-percent discount rate.
TSL B is comparable to TSL 4 except DOE modified the efficiency
levels for oil-fired furnaces and gas boilers. As discussed in section
IV.A, DOE determined there are safety concerns related to potential
venting failure due to condensation for oil furnaces at 84-percent AFUE
and for gas boilers at 84-percent AFUE. Therefore, TSL B includes lower
efficiency levels for these two products where there are no safety
concerns (i.e., 82-percent AFUE for oil-fired furnaces and 82-percent
AFUE for gas boilers). TSL B also includes the 84-percent AFUE level
for oil-fired boilers as found in TSL 4, which is the same AFUE level
as included in the Joint Stakeholder Recommendation for boilers
discussed in section V.B.1, above.
TSL 5 is the max-tech level. It represents condensing technologies
for all classes except weatherized gas-fired
[[Page 65156]]
furnaces. For the latter class, other technologies provide the maximum
technical efficiency.
As presented in the October 2006 NOPR, the only difference between
TSL 3 and 2 was the efficiency levels for non-weatherized gas furnaces
and mobile home furnaces, 81-percent AFUE as compared to 80-percent
AFUE, respectively. In today's notice of final rulemaking, an 81-
percent AFUE for non-weatherized gas furnaces is included in TSL 2.
Further, an 81-percent AFUE for mobile home furnaces no longer yields
the maximum NPV as calculated in the NES analysis, assuming a seven-
percent discount rate. As such, DOE did not evaluate the proposed
standard TSL 3 in this notice, as it would have been redundant for non-
weatherized gas furnaces and inappropriate for mobile home furnaces.
B. Significance of Energy Savings
To estimate the energy savings through 2038 that would result from
new standards, DOE compared the energy consumption of residential
furnaces and boilers under the base case (no new standards) to the
energy consumption of these products under amended standards. Table
VI.2 shows DOE's NES estimates for each TSL. DOE reports both
undiscounted and discounted values of energy savings. Discounted energy
savings represent a policy perspective wherein energy savings farther
in the future are less significant than energy savings closer to the
present.
Table VI.2.--Summary of Cumulative National Energy Savings for Residential Furnaces and Boilers
[Energy savings for units sold from 2015 to 2038]
----------------------------------------------------------------------------------------------------------------
National energy savings (quads)
Trial standard level -----------------------------------------------
Not discounted 3% discounted 7% discounted
----------------------------------------------------------------------------------------------------------------
1............................................................... 0.20 0.10 0.04
A............................................................... 0.25 0.13 0.06
2............................................................... 0.69 0.35 0.15
B............................................................... 3.21 1.62 0.70
4............................................................... 3.34 1.68 0.73
5............................................................... 6.76 3.41 1.47
----------------------------------------------------------------------------------------------------------------
C. Economic Justification
1. Economic Impact on Consumers
a. Life-Cycle Costs and Payback Period
Consumers will be affected by the standards in that they will
experience higher purchase prices and lower operating costs. Generally,
these impacts are best captured by changes in LCC and by the PBP.
Therefore, DOE calculated the LCC and PBP for the standard levels
considered in this rulemaking. DOE's LCC and PBP analyses provided six
key outputs for each TSL, which are reported in Tables VI.3 through
VI.8 below. The first two outputs are the LCC and the average net life-
cycle savings for a design that complies with each TSL, and the next
three outputs are the proportion of purchases where the purchase of a
complying unit would create a net life-cycle cost, no impact, or net
life-cycle savings for the consumer.
The final output is the average PBP for the consumer purchase of a
design that complies with the TSL. The PBP is the number of years it
would take for the consumer to recover, as a result of energy savings,
the increased costs of higher-efficiency equipment, based on the
operating cost savings from the first year of ownership. The PBP is an
economic benefit-cost measure that uses benefits and costs without
discounting. DOE's PBP analysis and its analysis under the rebuttable-
presumption test both concern the payback period for a standard.
However, DOE based the PBP analysis for residential furnaces and
boilers on energy consumption under conditions of actual use of each
product by consumers, whereas, as required by EPCA, it based the
rebuttable presumption test on consumption as determined under
conditions prescribed by the DOE test procedure. As indicated
previously, while DOE examined the rebuttable-presumption criteria, it
evaluated whether the standard levels in today's notice are
economically justified through a more detailed analysis of the economic
impacts of increased efficiency as directed under section
325(o)(2)(B)(i) of EPCA. (42 U.S.C. 6295(o)(2)(B)(i)) Detailed
information on the LCC and PBP analyses can be found in TSD Chapter 8.
Table VI.3.--Summary of LCC and Payback Period Results for Non-Weatherized Gas Furnaces
--------------------------------------------------------------------------------------------------------------------------------------------------------
LCC Payback period
Efficiency ------------------------------------------------------------------------------------------------
Trial standard level level (AFUE) LCC LCC savings Net cost No impact Net benefit
(percent) -------------------------------------------------------------------------------- Years
2006$ 2006$ % % %
--------------------------------------------------------------------------------------------------------------------------------------------------------
78 13,016 .............. .............. .............. .............. ...............
1...................................... 80 12,804 2 0 99 1 1.7
A...................................... 80 12,804 2 0 99 1 1.7
2...................................... 81 12,771 15 29 36 35 22
B...................................... 90 12,617 55 37 36 27 20
4...................................... 90 12,617 55 37 36 27 20
5...................................... 96 13,547 (865) 89 2 9 76
--------------------------------------------------------------------------------------------------------------------------------------------------------
[[Page 65157]]
Table VI.4.--Summary of LCC and Payback Period Results for Weatherized Gas Furnaces
--------------------------------------------------------------------------------------------------------------------------------------------------------
LCC Payback period
Efficiency ------------------------------------------------------------------------------------------------
Trial standard level level (AFUE) LCC LCC savings Net cost No impact Net benefit
(percent) -------------------------------------------------------------------------------- Years
2006$ 2006$ % % %
--------------------------------------------------------------------------------------------------------------------------------------------------------
78 10,491 .............. .............. .............. .............. ...............
1...................................... 80 10,383 19 0 82 18 1.6
A...................................... 81 10,337 62 3 7 91 3.4
2...................................... 81 10,337 62 3 7 91 3.4
B...................................... 81 10,337 62 3 7 91 3.4
4...................................... 81 10,337 62 3 7 91 3.4
5...................................... 83 10,419 (20) 71 0 29 20
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table VI.5.--Summary of LCC and Payback Period Results for Mobile Home Gas Furnaces
--------------------------------------------------------------------------------------------------------------------------------------------------------
LCC Payback period
Efficiency ------------------------------------------------------------------------------------------------
Trial standard level level (AFUE) LCC LCC savings Net cost No impact Net benefit
(percent) -------------------------------------------------------------------------------- Years
2006$ 2006$ % % %
--------------------------------------------------------------------------------------------------------------------------------------------------------
75 11,271 .............. .............. .............. .............. ...............
1...................................... 80 10,529 111 1 85 14 3.7
A...................................... 80 10,529 111 1 85 14 3.7
2...................................... 80 10,529 111 1 85 14 3.7
B...................................... 90 10,187 434 30 5 65 18
4...................................... 90 10,187 434 30 5 65 18
5...................................... 90 10,187 434 30 5 65 18
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table VI.6.--Summary of LCC and Payback Period Results for Oil-Fired Furnaces
--------------------------------------------------------------------------------------------------------------------------------------------------------
LCC Payback period
Efficiency ------------------------------------------------------------------------------------------------
Trial standard level level (AFUE) LCC LCC savings Net cost No impact Net benefit
(percent) -------------------------------------------------------------------------------- Years
2006$ 2006$ % % %
--------------------------------------------------------------------------------------------------------------------------------------------------------
78 16,248 .............. .............. .............. .............. ...............
1...................................... 80 15,971 10 0 96 4 0.3
A...................................... 82 15,716 177 0 30 70 0.7
2...................................... 82 15,716 177 0 30 70 0.7
B...................................... 82 15,716 177 0 30 70 0.7
4...................................... 84 15,815 96 38 15 47 14
5...................................... 85 15,876 40 51 7 42 16
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table VI.7.--Summary of LCC and Payback Period Results for Gas Boilers
--------------------------------------------------------------------------------------------------------------------------------------------------------
LCC Payback period
Efficiency ------------------------------------------------------------------------------------------------
Trial standard level level (AFUE) LCC LCC savings Net cost No impact Net benefit
(percent) -------------------------------------------------------------------------------- Years
2006$ 2006$ % % %
--------------------------------------------------------------------------------------------------------------------------------------------------------
80 20,472 .............. .............. .............. .............. ...............
1...................................... 82 19,898 208 11 44 46 12
A...................................... 82 19,898 208 11 44 46 12
2...................................... 82 19,898 208 11 44 46 12
B...................................... 82 19,898 208 11 44 46 12
4...................................... 84 19,802 300 18 15 67 12
5...................................... 99 21,042 (881) 75 3 22 35
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table VI.8.--Summary of LCC and Payback Period Results for Oil-Fired Boilers
--------------------------------------------------------------------------------------------------------------------------------------------------------
LCC Payback period
Efficiency ------------------------------------------------------------------------------------------------
Trial standard level level (AFUE) LCC LCC savings Net cost No impact Net benefit
(percent) -------------------------------------------------------------------------------- Years
2006$ 2006$ % % %
--------------------------------------------------------------------------------------------------------------------------------------------------------
80 24,594 .............. .............. .............. .............. ...............
1...................................... 83 23,952 69 0 84 16 0.9
[[Page 65158]]
A...................................... 83 23,952 69 0 84 16 0.9
2...................................... 83 23,952 69 0 84 16 0.9
B...................................... 84 23,987 56 17 61 22 19
4...................................... 84 23,987 56 17 61 22 19
5...................................... 95 24,551 (456) 72 0 28 27
--------------------------------------------------------------------------------------------------------------------------------------------------------
b. Consumer Subgroup Analysis
DOE estimated consumer subgroup impacts by analyzing the potential
effects of standards for non-weatherized gas furnaces on low-income
households, households occupied only by seniors, and southern and
northern households. DOE defined northern households as those in States
with average HDD over 6,000, and it defined southern households as
those in States with average HDD below 5,000.
DOE's analysis indicates that today's standard for non-weatherized
gas furnaces would have an impact on low-income households and senior-
only households that would be similar to its impact on all households.
Tables VI.9 and VI.10 show for each TSL the summary of LCC and PBP
results for northern and southern households. Today's standard for non-
weatherized gas furnaces (80 percent AFUE) would result in similar LCC
savings in northern and southern households, with a shorter PBP for
northern households.
Table VI.9.--Summary of LCC and Payback Period Results for Non-Weatherized Gas Furnaces in Northern Households
[>6000 HDD]
--------------------------------------------------------------------------------------------------------------------------------------------------------
LCC Payback period
Efficiency -----------------------------------------------------------------------------------------------
Trial standard level level (AFUE) LCC LCC savings Net cost No impact Net benefit
(percent) -------------------------------------------------------------------------------- years
2006$ 2006$ % % %
--------------------------------------------------------------------------------------------------------------------------------------------------------
78 15,492 .............. .............. .............. .............. ..............
1....................................... 80 15,222 3 0 98 2 0.7
A....................................... 80 15,222 3 0 98 2 0.7
2....................................... 81 15,161 32 47 47 34 14
B....................................... 90 14,779 212 22 47 31 13
4....................................... 90 14,779 212 22 47 31 13
5....................................... 96 15,582 (598) 84 2.4 13 61
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table VI.10.--Summary of LCC and Payback Period Results for Non-Weatherized Gas Furnaces in Southern Households
[<5000 HDD]
--------------------------------------------------------------------------------------------------------------------------------------------------------
LCC Payback period
Efficiency -----------------------------------------------------------------------------------------------
Trial standard level level (AFUE) LCC LCC savings Net cost No impact Net benefit
(percent) -------------------------------------------------------------------------------- years
2006$ 2006$ % % %
--------------------------------------------------------------------------------------------------------------------------------------------------------
78 10,439 .............. .............. .............. .............. ..............
1....................................... 80 10,285 2 0 98 2 2.2
A....................................... 80 10,285 2 0 98 2 2.2
2....................................... 81 10,280 1 40 23 37 29
B....................................... 90 10,345 (82) 55 21 23 26
4....................................... 90 10,345 (82) 55 21 23 26
5....................................... 96 11,389 (1,108) 92 1.4 7 101
--------------------------------------------------------------------------------------------------------------------------------------------------------
Chapter 11 of the TSD explains DOE's method for conducting the
consumer subgroup analysis and presents the detailed results of that
analysis.
2. Economic Impact on Manufacturers
DOE determined the economic impacts on manufacturers of more
stringent standards for residential furnaces and boilers, as described
in the October 2006 NOPR. 71 FR 59212, 59228-59232, 59240-59245. The
only modifications DOE made to the MIA for this final rule were the
inclusion of the revised manufacturing costs from the engineering
analysis, the conversion of the capital and product conversion cost to
2006$, and the revised shipments from the NES analysis. DOE fully
describes this analysis in Chapter 12 of the final rule TSD.
a. Industry Cash-Flow Analysis Results
Using four different markup scenarios and two shipments forecasts,
71 FR 59230-59232, 59240, DOE estimated the impact of amended standards
for
[[Page 65159]]
residential furnaces and boilers on the INPV of the furnace and boiler
industry. The impact of new standards on INPV consists of the
difference between the INPV in the base case (no new standards) and the
INPV in the standards case (with amended standards). INPV is the
primary metric used in the MIA, and provides one measure of the fair
value of the industry in today's dollars. DOE calculated the INPV by
summing all of the net cash flows, discounted at the industry's cost of
capital, or discount rate.
Tables VI.11 through VI.16 show the estimated changes in INPV that
would result from the TSLs DOE considered in this rulemaking, using
both the shipments estimates calculated in the NES analysis, and the
shipments data that manufacturers provided. Each table shows the
changes attributable to one of the product classes DOE evaluated. The
figures in these tables reflect and are affected by the product
conversion expenses and capital investments that the industry would
incur at each TSL, but the tables do not display these expenses and
investments.
Table VI.11.--Changes in Industry Net Present Value for Non-Weatherized Gas Furnaces
[2006$]
--------------------------------------------------------------------------------------------------------------------------------------------------------
NES shipments
-------------------------------------------------------------------------------------------------
Flat markup Two-tier markup
TSL -------------------------------------------------------------------------------------------------
Change in INPV from base Change in INPV from base
INPV $MM --------------------------------- INPV $MM --------------------------------
$MM % change $MM % change
--------------------------------------------------------------------------------------------------------------------------------------------------------
Base case............................................. 1,197 ............... .............. 1,161 ............... ..............
1..................................................... 1,197 0 0 1,162 1 0
A..................................................... 1,197 0 0 1,162 1 0
2..................................................... 1,125 (72) -6 1,084 (78) -7
B..................................................... 1,217 20 2 881 (280) -24
4..................................................... 1,217 20 2 881 (280) -24
5..................................................... 1,505 307 26 937 (224) -19
--------------------------------------------------------------------------------------------------------------------------------------------------------
Manufacturers' shipments
--------------------------------------------------------------------------------------------------------------------------------------------------------
Base case............................................. 1,227 ............... .............. 1,235 ............... ..............
1..................................................... 1,227 0 0 1,235 0 0
A..................................................... 1,227 0 0 1,235 0 0
2..................................................... 1,152 (74) -6 1,155 (79) -6
B..................................................... 1,110 (117) -10 839 (396) -32
4..................................................... 1,110 (117) -10 839 (396) -32
5..................................................... 902 (324) -26 595 (640) -52
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table VI.12.--Changes in Industry Net Present Value for Weatherized Gas Furnaces
[2006$]
--------------------------------------------------------------------------------------------------------------------------------------------------------
NES shipments
-------------------------------------------------------------------------------------------------
Flat markup Constant price markup
TSL -------------------------------------------------------------------------------------------------
Change in INPV from base Change in INPV from base
INPV $MM --------------------------------- INPV $MM --------------------------------
$MM % change $MM % change
--------------------------------------------------------------------------------------------------------------------------------------------------------
Base case............................................. 272 ............... .............. 272 ............... ..............
1..................................................... 239 (32) -12 235 (37) -14
A..................................................... 232 (40) -15 218 (54) -20
2..................................................... 232 (40) -15 218 (54) -20
B..................................................... 232 (40) -15 218 (54) -20
4..................................................... 232 (40) -15 218 (54) -20
5..................................................... 223 (48) -18 181 (91) -33
--------------------------------------------------------------------------------------------------------------------------------------------------------
[[Page 65160]]
Table VI.13.--Changes in Industry Net Present Value for Mobile Home Gas Furnaces
[2006$]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Flat markup
-------------------------------------------------------------------------------------------------
NES shipments Manufacturers' shipments
TSL -------------------------------------------------------------------------------------------------
Change in INPV from base Change in INPV from base
INPV $MM --------------------------------- INPV $MM --------------------------------
$MM % change $MM % change
--------------------------------------------------------------------------------------------------------------------------------------------------------
Base case............................................. 23 ............... .............. 23 ............... ..............
1..................................................... 23 0 0 23 0 0
A..................................................... 23 0 0 23 0 0
2..................................................... 23 0 0 23 0 0
B..................................................... 11 (11) -50 11 (13) -56
4..................................................... 11 (11) -50 11 (13) -56
5..................................................... 11 (11) -50 11 (13) -56
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table VI.14.--Changes in Industry Net Present Value for Oil-Fired Furnaces
[2006$]
----------------------------------------------------------------------------------------------------------------
NES Shipments
-----------------------------------------------------------------------------------------------
Flat markup Constant price markup
TSL -----------------------------------------------------------------------------------------------
Change in INPV from base Change in INPV from base
INPV $MM -------------------------------- INPV $MM -------------------------------
$MM % change $MM % change
----------------------------------------------------------------------------------------------------------------
Base case....... 36 .............. .............. 36 .............. ..............
1............... 35 (2) -5 35 (2) -5
A............... 33 (4) -10 31 (5) -14
2............... 33 (4) -10 31 (5) -14
B............... 33 (4) -10 31 (5) -14
4............... 29 (8) -21 25 (12) -32
5............... 28 (8) -23 22 (15) -40
----------------------------------------------------------------------------------------------------------------
Table VI.15.--Changes in Industry Net Present Value for Gas Boilers
[2006$]
----------------------------------------------------------------------------------------------------------------
Manufacturers' Shipments
-----------------------------------------------------------------------------------------------
Flat markup Three-tier markup
TSL -----------------------------------------------------------------------------------------------
Change in INPV from base Change in INPV from base
INPV $MM -------------------------------- INPV $MM -------------------------------
$MM % change $MM % change
----------------------------------------------------------------------------------------------------------------
Base case....... 201 .............. .............. 201 .............. ..............
1............... 200 (1) -1 196 (5) -3
A............... 200 (1) -1 196 (5) -3
2............... 184 (17) -8 174 (27) -13
B............... 200 (1) -1 196 (5) -3
4............... 184 (17) -8 174 (27) -13
5............... 171 (30) -15 100 (101) -50
----------------------------------------------------------------------------------------------------------------
Table VI.16.--Changes in Industry Net Present Value for Oil-Fired Boilers
[2006$]
----------------------------------------------------------------------------------------------------------------
Manufacturers' Shipments
-----------------------------------------------------------------------------------------------
Flat markup Three-tier markup
TSL -----------------------------------------------------------------------------------------------
Change in INPV from base Change in INPV from base
INPV $MM -------------------------------- INPV $MM -------------------------------
$MM % change $MM % change
----------------------------------------------------------------------------------------------------------------
Base case....... 78 .............. .............. 78 .............. ..............
1............... 74 (4) -5 63 (14) -18
A............... 74 (4) -5 63 (14) -18
2............... 74 (4) -5 63 (14) -18
[[Page 65161]]
B............... 74 (4) -5 62 (15) -20
4............... 74 (4) -5 62 (15) -20
5............... 59 (18) -23 32 (45) -58
----------------------------------------------------------------------------------------------------------------
The October 2006 NOPR provides a detailed discussion of the
estimated impact of amended furnace and boiler standards on INPV for
each product class. 71 FR 59240-59244.
b. Impacts on Manufacturing Capacity and Subgroups of Manufacturers
As discussed in the October 2006 NOPR, to the extent that more
stringent energy conservation standards increase the size of the heat
exchanger, they could reduce plant throughput, particularly for those
plants that are limited in available space used for fabricating heat
exchangers. The standards, thus, could necessitate that manufacturers
add floor space to their existing plants and warehouses. In addition,
assembly and fabrication times could increase for the larger equipment.
In an attempt to recoup capacity, manufacturers might need to invest in
productivity, or equipment, or consider outsourcing some heat exchanger
production. 71 FR 59244.
It is not clear that all new capacity would be added in the United
States. During the MIA interviews, several manufacturers stated that
there has been a trend in the industry to move production facilities to
overseas locations where labor markets offer cost savings. Some of
these companies commented that new standards could speed up this trend.
However, DOE does not expect the standards being adopted in today's
final rule to significantly reduce plant throughput.
As discussed in the October 2006 NOPR, using average cost
assumptions to develop an industry-cash-flow estimate is not adequate
for assessing differential impacts among subgroups of manufacturers. 71
FR 59244. Small manufacturers, niche players, or manufacturers
exhibiting a cost structure that differs largely from the industry
average could be affected differently. DOE used the results of the
industry characterization to group manufacturers exhibiting similar
characteristics. As discussed in the October 2006 NOPR, DOE expects the
standard levels being adopted in today's final rule to have a
relatively minor differential impact on small manufacturers of
residential furnaces and boilers. 71 FR 59244.
c. Cumulative Regulatory Burden
As discussed in the October 2006 NOPR, one aspect of the assessment
of manufacturer burden is the cumulative impact of multiple DOE
standards and other regulatory actions that affect the manufacture of
the same covered products. 71 FR 59244-59245. Manufacturers of
residential furnaces and boilers also manufacture approximately 82
percent of the residential central air conditioners and heat pumps.
New, higher Federal efficiency standards became applicable to
residential central air conditioners manufactured after January 23,
2006, and new, higher Federal standards will apply to commercial air
conditioning equipment manufactured after January 1, 2010. In addition,
the EPA has mandated the phaseout, by January 1, 2010, of certain
refrigerants used in these products. The furnace and boiler
manufacturers who also produce residential and commercial air
conditioning products have been and will be devoting substantial
resources to complying with these requirements. Manufacturers have been
working to redesign all of the product lines and have allocated most of
their capital resources for redesigning and retooling their production
lines to meet the new minimum efficiency standards. Manufacturers are
also now re-designing their product offerings and will need to retool
to meet the EPA standards. Chapter 12 of the final rule TSD addresses
in greater detail the issue of cumulative regulatory burden.
3. National Net Present Value and Net National Employment
The NPV analysis estimates the cumulative benefits or costs to the
Nation that would result from particular standard levels. While the NES
analysis estimates the energy savings from a proposed energy efficiency
standard, the NPV analysis provides estimates of the national economic
impacts of a proposed standard relative to a base case of no new
standard. Table VI.17 provides an overview of the NPV results, using
both a seven-percent and a three-percent real discount rate. See TSD
Chapter 10 for more detailed NPV results.
Table VI.17.--Summary of Cumulative Net Present Value for Residential
Furnaces and Boilers
[Impacts for units sold from 2015 to 2038]
------------------------------------------------------------------------
NPV (billion 2006$)
---------------------
Trial standard level 7% 3%
discount discount
rate rate
------------------------------------------------------------------------
1................................................. 0.51 1.69
A................................................. 0.69 2.18
2................................................. 0.89 4.02
B................................................. 0.98 11.07
4................................................. 0.98 11.53
5................................................. -21.38 -26.03
------------------------------------------------------------------------
DOE also estimated the national employment impacts due to each of
the TSLs. As discussed in the October 2006 NOPR, 71 FR 59232-59233,
59247, DOE expects the net monetary savings from standards to be
redirected to other forms of economic activity. As shown in Table
VI.18, DOE estimates net indirect employment impacts--changes in
employment in the larger economy (other than in the manufacturing
sector being regulated)--from furnace and boiler energy efficiency
standards to be positive but relatively small. Although DOE's analysis
suggests that today's furnace and boiler standards would result in a
very small increase in the net demand for labor in the economy,
relative to total national employment, this increase would be
sufficient to offset fully any adverse impacts on employment that might
occur in the furnace and boiler industry. For details on the employment
impact analysis
[[Page 65162]]
methods and results, see TSD Chapter 14.
Table VI.18.--Net National Change in Indirect Employment
[Thousands of jobs in 2038]
------------------------------------------------------------------------
Trial Standard Level (Thousands of Jobs)
-------------------------------------------------------------------------
TSL1 TSLA TSL2 TSLB TSL4 TSL5
------------------------------------------------------------------------
0.74 0.94 2.55 11.71 12.96 26.07
------------------------------------------------------------------------
4. Impact on Utility or Performance of Equipment
As indicated in section V.B.4 of the October 2006 NOPR, DOE
believes that the new standards it is adopting today will not lessen
the utility or performance of any residential furnaces and boilers. 71
FR 59247.
5. Impact of Any Lessening of Competition
As previously discussed in the October 2006 NOPR, 71 FR 59213,
59247, and in section II.F.1.e of this preamble, DOE considers any
lessening of competition that is likely to result from standards and
the Attorney General determines the impact, if any, of any such
lessening of competition. To assist the Attorney General in making such
a determination, DOE provided DOJ with copies of the October 2006
proposed rule and the NOPR TSD for review.
In comment on the October 2006 proposed rule, DOJ expressed concern
that the proposed standards for weatherized gas furnaces at 83 percent
AFUE and gas boilers at 84 percent AFUE could adversely affect
competition, and that manufacturers would have difficulty designing
products that safely meet the proposed standards. (DOJ at No. 144, p.
2) DOJ noted that, for weatherized gas furnaces, meeting the standard
would likely result in increased condensation, potentially resulting in
significant deterioration that would jeopardize the safety of the
product, and, for gas-fired water boilers, meeting the standard would
make effective CO2 venting more difficult. DOJ further noted
that any resulting costs incurred to solve these issues could adversely
affect the competitiveness of these products in relation to electric
heat pumps and water heaters. DOJ urged DOE to carefully consider its
proposed standards in light of these concerns.
As described in section V.D of this preamble, DOE is adopting lower
efficiency levels for the standards for weatherized gas furnaces and
gas boilers than the levels proposed in the October 2006 proposed rule.
DOE expects that the lower efficiency levels avoid the problems that
DOJ mentioned for weatherized gas furnaces and gas boilers.
Manufacturers would not incur costs to solve these issues and,
therefore, the standards established in today's rule would not
adversely affect the competitiveness of these products in relation to
electric heat pumps and water heaters.
6. Need of the Nation To Conserve Energy
The Secretary recognizes the need of the Nation to save energy.
Enhanced energy efficiency, where economically justified, improves the
Nation's energy security, strengthens the economy, and reduces the
environmental impacts or costs of energy production. The energy savings
from residential furnace and boiler standards is projected to result in
(1) reduced power sector emissions of CO2, (2) either
reduced power sector emissions of NOX or an economic benefit
in the form of emission allowance credits for this pollutant, and (3)
reduced household emissions (i.e., emissions at the sites where
appliances are used) of CO2, NOX, and
SO2. DOE expects the standards to have negligible impact on
electricity generating capacity.
Table VI.19 provides DOE's estimate of the emissions reductions
projected to result from adoption of the TSLs considered in this
rulemaking.
Table VI.19.--Summary of Emissions Reductions for Residential Furnaces and Boilers
[Cumulative reductions for units sold from 2015 to 2038]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Emission TSL 1 TSL A TSL 2 TSL B TSL 4 TSL 5
--------------------------------------------------------------------------------------------------------------------------------------------------------
CO2 (Mt)................................................ -6.1 -7.8 -20.0 -137.1 -141.3 -322.0
NOX (kt)................................................ -7.3 -9.2 -23.9 -164.6 -169.2 -373.1
SO2 (kt)................................................ 0.0 -1.8 -2.0 -6.2 -10.5 -63.9
--------------------------------------------------------------------------------------------------------------------------------------------------------
DOE also calculated discounted values for future emissions, using
the same seven-percent and three-percent real discount rates that it
used in calculating the NPV. Table VI .20 shows the discounted
cumulative emissions impacts for residential furnaces and boilers.
Table VI.20.--Summary of Discounted Emissions Reductions for Residential Furnaces and Boilers
[Cumulative reductions for units sold from 2015 to 2038]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Emission TSL 1 TSL A TSL 2 TSL B TSL 4 TSL 5
--------------------------------------------------------------------------------------------------------------------------------------------------------
7% Discount Rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
CO2 (Mt)................................................ -1.6 -2.1 -5.3 -36.2 -37.3 -83.9
NOX (kt)................................................ -1.7 -2.1 -5.4 -37.3 -38.3 -84.4
[[Page 65163]]
SO2 (kt)................................................ 0.0 -0.4 -0.5 -1.4 -2.4 -14.7
--------------------------------------------------------------------------------------------------------------------------------------------------------
3% Discount Rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
CO2 (Mt)................................................ -3.4 -4.3 -10.9 -74.8 -77.1 -174.9
NOX (kt)................................................ -3.8 -4.7 -12.3 -84.5 -86.9 -191.5
SO2 (kt)................................................ 0.0 -0.9 -1.0 -3.2 -5.4 -33.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
For further details on the environmental impacts of today's
standards, see the ``Environmental Assessment for Proposed Energy
Conservation Standards for Residential Furnaces and Boilers,'' a
separate report in the TSD for today's rule.
7. Other Factors
EPCA provides that, in deciding whether a standard is economically
justified, DOE must, after receiving comments on the proposed standard,
determine whether the benefits of the standard exceed its burdens by
considering, to the greatest extent practicable, other factors the
Secretary considers relevant. (42 U.S.C. 6295(o)(2)(B)(i)) In
developing today's standard, the Secretary took into consideration
safety concerns related to carbon monoxide exposure resulting from
potential failures of venting systems (and heat exchangers), stemming
from extraneous condensate production in furnaces and boilers.
D. Conclusion
EPCA contains criteria for DOE to consider in prescribing new or
amended energy conservation standards. It states that any such standard
for any type (or class) of covered product must be designed to achieve
the maximum improvement in energy efficiency that the Secretary
determines is technologically feasible and economically justified. (42
U.S.C. 6295(o)(2)(A)) As stated above, in determining whether a
standard is economically justified, the Secretary must determine
whether the benefits of the standards exceed its burdens considering:
(1) The economic impact of the standard on the manufacturers and on
the consumers of the products subject to such standard;
(2) The savings in operating costs throughout the estimated average
life of the covered product in the type (or class) compared to any
increase in the price of, or in the initial charges for, or maintenance
expenses of, the covered products which are likely to result from the
imposition of the standard;
(3) The total projected amount of energy, or as applicable, water,
savings likely to result directly from the imposition of the standard;
(4) Any lessening of the utility or the performance of the covered
products likely to result from the imposition of the standard;
(5) The impact of any lessening of competition, as determined in
writing by the Attorney General, that is likely to result from the
imposition of the standard;
(6) The need for national energy and water conservation; and
(7) Other factors the Secretary considers relevant.
(42 U.S.C. 6295(o)(2)(B)(i)) A determination of whether a standard
level is economically justified is not made based on any one of these
factors in isolation. The Secretary must weigh each of these seven
factors in total in determining whether a standard is economically
justified. Further, the Secretary may not establish an amended standard
if such standard would not result in ``significant conservation of
energy,'' or ``is not technologically feasible or economically
justified.'' (42 U.S.C. 6295(o)(3)(B))
In selecting energy conservation standards for residential furnaces
and boilers for consideration in the October 2006 proposed rule as well
as this final rule, DOE started by examining the maximum
technologically feasible levels, and determined whether those levels
were economically justified. Upon finding the maximum technologically
feasible levels not to be justified, DOE analyzed the next lower TSL to
determine whether that level was economically justified. DOE repeated
this procedure until it identified a TSL that was economically
justified.
Table VI.21 summarizes DOE's quantitative analysis results for all
of the TSLs it considered. This table presents the results or, in some
cases, a range of results, for each TSL, and will aid the reader in the
discussion of costs and benefits of each TSL. The range of values
reported in this table for industry impacts represents the results for
the different markup scenarios and shipments forecasts that DOE used to
estimate manufacturer impacts.
Table VI.21.--Summary of Results
--------------------------------------------------------------------------------------------------------------------------------------------------------
TSL 1 TSL A TSL 2 TSL B TSL 4 TSL 5
--------------------------------------------------------------------------------------------------------------------------------------------------------
Primary energy saved (quads)... 0.20............... 0.25.............. 0.69.............. 3.21.............. 3.34.............. 6.76
7% Discount rate........... 0.04............... 0.06.............. 0.15.............. 0.70.............. 0.73.............. 1.47
3% Discount rate........... 0.10............... 0.13.............. 0.35.............. 1.62.............. 1.68.............. 3.41
Generation capacity change (GW) 0.4................ 0.5............... 1.2............... 8.2............... 8.4............... 17.8
**.
NPV (2006$billion):
7% Discount rate........... 0.51............... 0.69.............. 0.89.............. 0.98.............. 0.98.............. -21.38
3% Discount rate........... 1.69............... 2.18.............. 4.02.............. 11.07............. 11.53............. -26.03
Industry impacts:
Industry NPV (2006$million) -38 to -58......... -48 to -74........ -136 to -179...... -39 to -483....... -59 to -519....... 192 to -904
Industry NPV (% Change).... -2 to -3........... -3 to -4.......... -8 to -10......... -2 to -26......... -3 to -28......... 11 to -49
Cumulative emissions impacts:
***
[[Page 65164]]
CO2 (Mt)................... -6.1............... -7.8.............. -20.0............. -137.1............ -141.3............ -322.0
NOX (kt)................... -7.3............... -9.2.............. -23.9............. -164.6............ -169.2............ -373.1
SO2 (kt)................... 0.0................ -1.8.............. -2.0.............. -6.2.............. -10.5............. -63.9
Mean life-cycle cost savings
(2006$):
Non-Weatherized Gas $2................. $2................ $15............... $55............... $55............... ($865)
Furnaces.
Weatherized Gas Furnaces... $19................ $62............... $62............... $62............... $62............... ($20)
Oil-Fired Furnaces......... $10................ $177.............. $177.............. $177.............. $96............... $40
Gas Boilers................ $208............... $208.............. $208.............. $208.............. $300.............. ($881)
Oil-Fired Boilers.......... $69................ $69............... $69............... $56............... $56............... ($456)
Mobile Home Gas Furnaces... $111............... $111.............. $111.............. $434.............. $434.............. $434
Mean Payback Period (years):
Non-Weatherized Gas 1.7................ 1.7............... 22................ 20................ 20................ 76
Furnaces.
Weatherized Gas Furnaces... 1.6................ 3.4............... 3.4............... 3.4............... 3.4............... 20
Oil-Fired Furnaces......... 0.3................ 0.7............... 0.7............... 0.7............... 14................ 16
Gas Boilers................ 12................. 12................ 12................ 12................ 12................ 35
Oil-Fired Boilers.......... 0.9................ 0.9............... 0.9............... 19................ 19................ 27
Mobile Home Gas Furnaces... 3.7................ 3.7............... 3.7............... 18................ 18................ 18
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Parentheses indicate negative (-) values.
** Change in installed generation capacity by the year 2038 based on AEO2007 Reference Case.
*** CO2 emissions impacts include physical reductions at power plants and households. NOX emissions impacts include physical reductions at power plants
and households as well as production of emissions allowance credits where NOX emissions are subject to emissions caps. SO2 emissions impacts include
physical reductions at households only.
In addition to the quantitative results, DOE also considered other
burdens and benefits that affect economic justification. DOE took into
consideration safety concerns arising from the potential failure of
venting systems or heat exchangers used for residential furnaces and
boilers. These concerns affect non-weatherized gas furnaces at 81
percent, weatherized gas furnaces at 83 percent and 82 percent, oil
furnaces at 84 percent, and gas boilers at 84 percent AFUE. See section
IV.A of this preamble and final rule TSD Chapter 6 for further
discussion.
First, DOE considered TSL 5, the maximum technologically feasible
level, for each product class. TSL 5 would likely save 6.76 quads of
energy through 2038, an amount DOE considers significant. Discounted at
seven percent, the energy savings through 2038 would be 1.47 quads. For
the Nation as a whole, TSL 5 would result in a net cost of $21.4
billion in NPV, discounted at seven percent. Although DOE did not
quantify the potential benefits from reductions in natural gas prices
as a result of TSL 5, DOE has determined that the overall impact on the
economy would still be overwhelmingly negative because the decline in
NPV at TSL 5 is very large. The emissions reductions are projected at
322 Mt of CO2,\17\ 373 kt of NOX, and 64 kt of
SO2. Total generating capacity in 2030 is estimated to
increase 17.8 gigawatts (GW) under TSL 5, due to projected switching
from gas furnaces to electric heating equipment.
---------------------------------------------------------------------------
\17\ For all of the TSLs, CO2 emissions impacts
include physical reductions at power plants and households.
NOX emissions impacts include physical reductions at
power plants and households as well as production of emissions
allowance credits where NOX emissions are subject to
emissions caps. SO2 emissions impacts include physical
reductions at households only.
---------------------------------------------------------------------------
At TSL 5, the average consumer is projected to experience a
significant increase in LCC for most product classes. Purchasers of
non-weatherized gas furnaces are projected to lose on average $865 over
the life of the product in present value terms and purchasers of gas-
fired boilers would lose on average $881 in present value terms.\18\
The LCC savings are estimated to be negative for 89 percent of
households in the Nation that purchase non-weatherized gas furnaces,
and for 92 percent of all non-weatherized gas furnace consumers in the
southern region. The mean payback period of all product classes, except
for oil-fired gas furnaces, is estimated to be substantially longer
than the mean lifetime.
---------------------------------------------------------------------------
\18\ Non-weatherized gas furnaces are the most prominent class
of residential furnaces and boilers, accounting for approximately 72
percent of the total industry sales and approximately 81 percent of
residential furnace sales. Gas-fired boilers are the most prominent
class of residential boilers, accounting for 6 percent of the total
industry sales and 61 percent of residential boiler sales.
---------------------------------------------------------------------------
The projected change in industry value (INPV) ranges from an
increase of $192 million to a decrease of $904 million. The magnitude
of the impacts is largely determined by the cashflow results for non-
weatherized gas furnaces. For this product class, the impacts are
driven primarily by the assumptions regarding future product shipments
and the ability of manufacturers to offer differentiated products that
command a premium markup. DOE recognizes the significant difference
between the shipments forecasted by the NES analysis and those
anticipated by manufacturers. DOE is concerned about the projected
increase in total installed cost of $1,859, or 82 percent, for non-
weatherized gas furnaces. With an increase of this size, there is a
significant risk of consumers switching to other heating systems,
including heat pumps and electric resistance heating. DOE also
recognizes that maintaining a full product line is more difficult for
manufacturers at higher standard levels. Therefore, DOE places more
weight on the two-tiered markup scenario for non-weatherized gas
furnaces at TSL 5. In particular, if the high range of impacts is
reached as DOE expects, TSL 5 could result in a net loss of $640
million to the non-weatherized gas furnace industry.
After carefully considering the analysis, comments on the proposed
rule, and weighing the benefits and burdens, the Secretary reached a
similar conclusion as set forth in the NOPR: At TSL 5 the benefits of
energy savings and emissions reduction are expected to be outweighed by
the potential multi-billion dollar negative net economic cost to the
Nation, the economic burden on consumers, and the large capital-
conversion costs that could result in a reduction in INPV for
manufacturers. Consequently, the Secretary has concluded that TSL 5,
the maximum technologically feasible level, is not economically
justified.
Next, DOE considered TSL 4. Primary energy savings is estimated at
3.34 quads of energy through 2038, which DOE considers significant.
Discounted
[[Page 65165]]
at seven percent, the energy savings through 2038 would be 0.73 quads.
For the Nation as a whole, TSL 4 is projected to result in net savings
of $0.98 billion in NPV, discounted at seven percent. The emissions
reductions are projected to be 141 Mt of CO2, 169 kt of
NOX, and 10.5 kt of SO2. Total generating
capacity in 2030 under TSL 4 is estimated to increase by 8.4 GW due to
the projected switching from gas furnaces to electric heating
equipment.
At TSL 4, consumers are projected to experience a decrease in LCC
for all of the product classes. Purchasers of non-weatherized gas
furnaces are projected to save, on average, $55 over the life of the
product in present value terms, and purchasers of gas-fired boilers are
projected to save, on average, $300 over the life of the boiler in
present value terms. DOE found that 37 percent of households with non-
weatherized gas furnaces would be expected to experience a net cost,
and 27 percent of households with non-weatherized gas furnaces would be
expected to experience a net gain.
TSL 4 requires the use of condensing technology for non-weatherized
gas furnaces. A majority of the affected consumers in the south would
be expected to experience a significant increase in total installed
cost. Since the operating cost savings of condensing technology are
less of a factor in warmer climates, the substantial increase in total
installed cost leads to increased life-cycle costs. DOE found that 55
percent of households in the south purchasing a non-weatherized gas
furnace would experience a life-cycle net cost. The average LCC
increase to the southern consumer purchasing a non-weatherized gas
furnace is $82. The mean payback period of non-weatherized gas furnaces
in the south would be substantially longer than the mean lifetime of
these furnaces.
At TSL 4, the projected change in INPV ranges from a loss of $59
million to a loss of $519 million, which could potentially cause up to
a 42 percent drop in total industry value. The magnitude of projected
impacts is still largely determined by the cashflow results for the
non-weatherized gas furnaces. For this product class, the projected
impacts continue to be driven primarily by the assumptions regarding
future product shipments and the ability to offer differentiated
products. Although the projected impacts will not be as severe as
expected for TSL 5 for the non-weatherized gas furnace industry, the
magnitude of the projected impacts would still be determined primarily
by the assumptions regarding future product shipments and the ability
to offer differentiated products that command a premium markup.
Although the range of possible impacts is not as large as for TSL 5,
DOE still recognizes the significant differences between the shipments
forecast by the NES analysis and those anticipated by manufacturers.
DOE believes that with an increase in total installed cost of $701 for
non-weatherized gas furnaces, or 31 percent, some consumers are likely
to switch to other heating systems, including heat pumps and electric
resistance heating. The low-end estimate of losses in INPV is based on
DOE's estimate of the fuel switching that is most likely to occur,
while the high end estimate of losses is based largely on manufacturer
estimates of fuel switching. Additionally, some product classes would
likely require large product-conversion costs because the products
would require new heat-exchanger designs to meet the efficiency
requirements prescribed in TSL 4. Even though the ability of
manufacturers to differentiate products is greater at TSL 4 than at TSL
5, it will still be harder for manufacturers to differentiate products
because all of the products offered in TSL 4 for non-weatherized gas
furnaces use condensing technology. In particular, if the high range of
impacts is reached, TSL 4 could result in a net loss of $396 million to
the non-weatherized gas furnace industry.
After carefully considering the results of the analysis, comments
on the proposed rule, and the benefits versus burdens, the Secretary
reached a similar conclusion as set forth in the NOPR: At TSL 4, the
benefits of energy and cost savings and emissions impacts would be
outweighed by the economic burden on southern households and the
capital conversion costs that are likely to result in a significant
reduction in INPV for manufacturers. In addition, DOE determined that
there are safety concerns related to potential venting failure due to
condensation with oil-fired furnaces at 84 percent AFUE and with gas
boilers at 84 percent AFUE. DOE received numerous comments reaffirming
these safety concerns, and the Secretary has concluded upon
consideration of the factors to determine whether a standard is
economically justified that TSL 4 is not economically justified and
contains two efficiency levels that could pose a safety or health risk
to consumers.
Next, DOE considered TSL B. TSL B is the same as TSL 4 except for
oil-fired furnaces and gas boilers, for which there are safety concerns
as described above. Therefore, for these two products TSL B includes
lower efficiency levels at which these safety concerns are not present
(i.e., 82 percent AFUE for oil furnaces and 82 percent for gas
boilers).
TSL B is projected to save 3.21 quads of energy through 2038, an
amount DOE considers significant. Discounted at seven percent, the
projected energy savings through 2038 would be 0.70 quads. For the
Nation as a whole, TSL B would result in net savings in NPV of $0.98
billion, discounted at seven percent. The emissions reductions are
projected at 137 Mt of CO2, 165 kt of NOX, and
6.2 kt of SO2. Total generating capacity in 2030 under TSL B
is projected to increase by 8.2 GW due to the projected switching from
gas furnaces to electric heating equipment.
At TSL B, DOE estimates that purchasers of non-weatherized gas
furnaces would save, on average, $55 over the life of the product and
purchasers of gas-fired boilers would save, on average, $208. As with
TSL 4, DOE estimates that 37 percent of households with non-weatherized
gas furnaces would experience a net cost, and 27 percent of households
with non-weatherized gas furnaces would experience a net gain, with the
remaining 36 percent being unaffected. DOE estimated that 55 percent of
households in the south with a non-weatherized gas furnace would
experience a net life-cycle cost. The estimated average LCC increase to
the southern consumer purchasing a non-weatherized gas furnace is $82.
The mean payback period of non-weatherized gas furnaces in the south is
projected to be substantially longer than the mean lifetime of these
furnaces.
The projected change in INPV ranges between a loss of $39 million
and a loss of $483 million. Just as with TSL 4, the projected impacts
continue to be driven primarily by the assumptions regarding future
product shipments and the ability to offer differentiated products.
More specifically, most of these differences are attributable to the
significant differences between the shipments forecast by the NES
analysis and those anticipated by manufacturers. Furthermore, some
manufacturers stated they would likely use a de-rating strategy to
reduce the increased capital costs associated with TSL B. If
manufacturers use such a strategy, it is anticipated that the variety
of products offered by the manufacturers would be reduced by
eliminating some of the higher-capacity models to reduce the negative
impacts. At TSL B, consumers would experience an average increase in
total installed cost of $700 for non-weatherized gas furnaces (compared
to an 80-percent AFUE furnace). There is a potential risk at this level
of consumers switching to electric heating
[[Page 65166]]
systems, as further detailed in the shipments forecast discussion in
Chapter 12 of the TSD. For the furnace industry alone, the industry
value would decrease from 2.1 percent to 26.2 percent.
After carefully considering the analysis, comments on the October
2006 proposed rule, and the benefits versus burdens, the Secretary
concludes after weighing the statutory criteria in total that TSL B
would not be economically justifiable. In particular, the benefits of
energy and cost savings and emissions impacts are likely to be
outweighed by the economic burden on southern households and the
capital conversion costs that are likely to result in a significant
reduction in INPV for manufacturers.
Next, DOE considered TSL 2. Primary energy savings at this level
would likely be 0.69 quad of energy through 2038, which DOE considers
significant. Discounted at seven percent, the energy savings through
2038 is projected to be 0.15 quads. For the Nation as a whole, TSL 2 is
projected to result in a net savings of $0.89 billion in NPV,
discounted at seven percent. The emissions reductions are projected at
20 Mt of CO2, 24 kt of NOX, and 2 kt of
SO2. Total generating capacity in 2030 under TSL 2 would
likely increase by 1.2 GW due to the projected switching from gas
furnaces to electric heating equipment.
At TSL 2, purchasers of non-weatherized gas furnaces would save, on
average, an estimated $15 over the life of the product and purchasers
of gas-fired boilers would save, on average, an estimated $208. The
mean payback period for non-weatherized gas furnaces at TSL 2 is
estimated to be 22 years, which is longer than the mean lifetime.
TSL 2 includes a standard for non-weatherized gas furnaces at 81-
percent AFUE. DOE is concerned that, at this level, there is likely an
increased risk of safety concerns with this equipment due to venting
issues. Most manufacturers and DOJ commented that the margin of safety
is diminished in many instances at 81-percent AFUE. Some manufacturers
commented that they would not be willing to accept the risk and/or cost
involved in producing a full line or family of products at 81-percent
AFUE. This potential safety concern is a factor that the Secretary
considers relevant. Based on DOE's evaluation of all the information
considered during the rulemaking, DOE believes that a standard at 81-
percent AFUE for non-weatherized gas furnaces could pose a potential
for safety problems for some consumers.
The projected change in industry value ranges from a loss of INPV
of $136 to a loss of $179 million. TSL 2 potentially could result in up
to a nine-percent loss in INPV for the furnace industry and up to a 15-
percent loss in INPV for the boiler industry. However, DOE anticipates
that manufacturers of non-weatherized gas furnaces would still be able
to differentiate their premium products and retain profitability
margins.
After carefully considering the results of the analysis, comments
on the NOPR, and the benefits versus burdens, the Secretary concluded
that at TSL 2, the benefits of energy savings and emissions impacts
would be outweighed by the reduction in industry value for
manufacturers and the safety concerns related to potential venting
failure due to condensation with non-weatherized gas furnaces at 81
percent AFUE. Consequently, the Secretary has concluded that TSL 2 is
not economically justified.
Next, DOE considered TSL A. Primary energy savings at this level is
projected to be 0.25 quad of energy through 2038, which DOE considers
significant. Discounted at seven percent, the energy savings through
2038 is calculated to be 0.06 quads. For the Nation as a whole, TSL A
would likely result in a net savings of $0.69 billion in NPV,
discounted at seven percent. The emissions reductions are projected at
7.8 Mt of CO2, 9.2 kt of NOX, and 1.8 kt of
SO2. Total generating capacity in 2030 under TSL A would
likely increase by 0.5 GW due to the projected switching from gas
furnaces to electric heating equipment.
At TSL A, purchasers of non-weatherized gas furnaces would save, on
average, an estimated $2 over the life of the product and purchasers of
gas-fired boilers would save, on average, an estimated $208. DOE's
analysis indicates that no households purchasing non-weatherized gas
furnaces would experience an increase in LCC at TSL A, including
southern households. The calculated mean payback periods are less than
the average equipment lifetime for all product classes at TSL A. For
example, the mean payback period for non-weatherized gas furnaces at
TSL A is calculated to be 1.7 years.
The projected change in industry value ranges from a loss of INPV
of $48 million to a loss of $74 million. TSL A potentially could result
in up to a four-percent loss in INPV for the furnace industry and up to
a five-percent loss in INPV for the boiler industry. Furthermore, DOE
anticipates that manufacturers of non-weatherized gas furnaces would
still be able to differentiate their premium products and retain
profitability margins.
TSL A includes an 83-percent AFUE standard level for oil-fired
boilers. DOE notes that the joint stakeholder recommendation for
boilers suggested an 84-percent AFUE standard level (in combination
with a temperature reset design requirement) for oil-fired boilers,
which is estimated to result in greater energy savings than the 83-
percent level proposed in the NOPR and included in TSL A. DOE concluded
that the 84-percent AFUE for oil-fired boilers was inconsistent with
the other standard levels included in TSL A. TSL A was derived from TSL
2, which was described in the NOPR. As discussed in the NOPR, TSL 2
represents the set of efficiency levels, which yield the maximum NPV,
and an 83-percent AFUE for oil boilers is consistent with this grouping
of standard levels for analysis. 71 FR 59203.
After carefully considering the analysis, comments on the NOPR, and
the benefits and burdens, the Secretary concludes that this standard
saves a significant amount of energy and is technologically feasible
and economically justified. DOE also believes the efficiency levels
contained in TSL A do not pose a safety or health risk to consumers.
Therefore, DOE is adopting the energy conservation standards for
residential furnaces and boilers at TSL A.
VII. Procedural Issues and Regulatory Review
A. Review Under Executive Order 12866
This regulatory action has been determined to be a ``significant
regulatory action'' under section 3(f)(1) of Executive Order 12866,
``Regulatory Planning and Review.'' 58 FR 51735 (October 4, 1993). The
Executive Order requires that each agency identify in writing the
specific market failure or other specific problem that it intends to
address that warrant new agency action, as well as assess the
significance of that problem, to enable assessment of whether any new
regulation is warranted. Executive Order 12866, Sec. 1(b)(1).
In the context of furnaces and boilers, problems are expected to
arise due to: (1) Lack of consumer information and/or information
processing capability about energy efficiency opportunities; (2)
misplaced incentives, which separate responsibility for buying new
appliances and for paying their operating costs; (3) transactions
costs, which prevent access to capital to finance energy efficiency
investment; and (4) imperfect competition, which
[[Page 65167]]
may prevent energy efficient appliances from reaching the market place.
Furthermore, for renters in particular, there are split incentives for
more energy efficient equipment. The owner of the home (landlord) may
not invest in efficient equipment because the landlord does not pay the
energy bill, and the renter does not want to invest so as not to risk
losing the capital investment if the renter moves. Furthermore,
imperfect competition may prevent many efficient technologies from
reaching the market. In this case, individual manufacturers may be
limited by capital rationing or more concerned with competing under
existing market conditions, than with offering a full range of energy
efficient products to consumers.
Today's action also required a regulatory impact analysis (RIA)
and, under the Executive Order, was subject to review by the Office of
Information and Regulatory Affairs (OIRA) in OMB. DOE presented to OIRA
for review the draft final rule and other documents prepared for this
rulemaking, including the RIA, and has included these documents in the
rulemaking record. They are available for public review in the Resource
Room of the Building Technologies Program at 950 L'Enfant Plaza Drive,
SW., Washington, DC 20024, (202) 586-9127, between 9 a.m. and 4 p.m.,
Monday through Friday, except Federal holidays.
The RIA calculates the effects of feasible policy alternatives to
residential furnace and boiler standards, and provides a quantitative
comparison of the impacts of the alternatives. DOE evaluated each
alternative in terms of its ability to achieve significant energy
savings at reasonable costs, and compared it to the effectiveness of
the proposed rule. DOE analyzed these alternatives using a series of
regulatory scenarios as input to the NES/Shipments Model for furnaces
and boilers, which it modified to allow inputs for these measures. 71
FR 59253-59255. The complete RIA, ``Regulatory Impact Analysis for
Proposed Energy Conservation Standards for Residential Furnaces and
Boilers,'' is contained in the TSD prepared for today's rule. The RIA
consists of: (1) A statement of the problem addressed by this
regulation, and the mandate for government action; (2) a description
and analysis of the feasible policy alternatives to this regulation;
(3) a quantitative comparison of the impacts of the alternatives; and
(4) the national economic impacts of the proposed standards.
As explained in the NOPR, DOE determined that, with the exception
of regional performance standards, which DOE has determined it lacks
authority to adopt, none of the alternatives it examined would save as
much energy or have an NPV as high as the proposed standards. 71 FR
59253. The same conclusions apply to the standards in this final rule.
In addition, several of the alternatives would require new enabling
legislation, since authority to carry out those alternatives does not
presently exist. Additional detail on the regulatory alternatives is
found in the RIA report in the final rule TSD.
B. Review Under the Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires
preparation of an initial regulatory flexibility analysis (IRFA) for
any rule that by law must be proposed for public comment, and a final
regulatory flexibility analysis (FRFA) for any such rule that an agency
adopts as a final rule, unless the agency certifies that the rule, if
promulgated, will not have a significant economic impact on a
substantial number of small entities. A regulatory flexibility analysis
examines the impact of the rule on small entities and considers
alternative ways of reducing negative impacts. Also, as required by
Executive Order 13272, ``Proper Consideration of Small Entities in
Agency Rulemaking,'' 67 FR 53461 (August 16, 2002), DOE published
procedures and policies on February 19, 2003, to ensure that the
potential impacts of its rules on small entities are properly
considered during the rulemaking process. 68 FR 7990. DOE has made its
procedures and policies available on the Office of General Counsel's
Web site: http:// www.gc.doe.gov.
Small businesses, as defined by the Small Business Administration
(SBA) for both furnace manufacturers and boiler manufacturers, are
manufacturing enterprises with 750 employees or fewer. Prior to issuing
the proposed rule in this rulemaking, DOE interviewed five such small
businesses affected by the rulemaking.
As explained in the NOPR, DOE reviewed the proposed rule under the
provisions of the Regulatory Flexibility Act and the procedures and
policies published on February 19, 2003. 71 FR 59255-59256. On the
basis of this review, DOE certified that the proposed rule, if
promulgated, would ``have no significant economic impact on a
substantial number of small entities.'' 71 FR 59256. Therefore, DOE did
not prepare an initial regulatory flexibility analysis for the proposed
rule. DOE transmitted its certification and a supporting statement of
factual basis to the Chief Counsel for Advocacy of the SBA for review.
DOE received no comments on the certification in response to the
NOPR, and reaffirms the certification. Therefore, DOE has not prepared
a final regulatory flexibility analysis for this rule.
C. Review Under the Paperwork Reduction Act
DOE stated in the NOPR that this rulemaking would impose no new
information and recordkeeping requirements, and that, therefore, OMB
clearance is not required under the Paperwork Reduction Act (44 U.S.C.
3501 et seq.). 71 FR 59256. DOE received no comments on this in
response to the NOPR, and, as with the proposed rule, today's rule
imposes no information and recordkeeping requirements. Therefore, DOE
has taken no further action in this rulemaking with respect to the
Paperwork Reduction Act.
D. Review Under the National Environmental Policy Act
DOE prepared an environmental assessment of the impacts of today's
standards (DOE/EA-1530), which it published as a separate report within
the TSD for this rule. DOE found the environmental effects associated
with various standard efficiency levels for residential furnaces and
boilers to be not significant, and therefore it is issuing a Finding of
No Significant Impact (FONSI) pursuant to the National Environmental
Policy Act of 1969 (42 U.S.C. 4321 et seq.), the regulations of the
Council on Environmental Quality (40 CFR parts 1500-1508), and DOE's
regulations for compliance with the National Environmental Policy Act
(10 CFR part 1021). The FONSI is available in the docket for this
rulemaking.
E. Review Under Executive Order 13132
DOE reviewed this rule pursuant to Executive Order 13132,
``Federalism,'' 64 FR 43255 (August 4, 1999), which imposes certain
requirements on agencies formulating and implementing policies or
regulations that preempt State law or that have federalism
implications. In accordance with DOE's statement of policy describing
the intergovernmental consultation process it will follow in the
development of regulations that have federalism implications, 65 FR
13735 (March 14, 2000), DOE examined the proposed rule and determined
that the rule would not have a substantial direct effect on the States,
on the relationship between the national government and the States, or
[[Page 65168]]
on the distribution of power and responsibilities among the various
levels of government. 71 FR 59256. DOE received no comments on this
issue in response to the NOPR, and its conclusions on this issue are
the same for the final rule as they were for the proposed rule.
Therefore DOE is taking no further action in today's final rule with
respect to Executive Order 13132.
F. Review Under Executive Order 12988
With respect to the review of existing regulations and the
promulgation of new regulations, section 3(a) of Executive Order 12988,
``Civil Justice Reform'' 61 FR 4729 (February 7, 1996) imposes on
Federal agencies the general duty to adhere to the following
requirements: (1) Eliminate drafting errors and ambiguity; (2) write
regulations to minimize litigation; and (3) provide a clear legal
standard for affected conduct rather than a general standard and
promote simplification and burden reduction. Section 3(b) of Executive
Order 12988 specifically requires that Executive agencies make every
reasonable effort to ensure that the regulation: (1) Clearly specifies
the preemptive effect, if any; (2) clearly specifies any effect on
existing Federal law or regulation; (3) provides a clear legal standard
for affected conduct while promoting simplification and burden
reduction; (4) specifies the retroactive effect, if any; (5) adequately
defines key terms; and (6) addresses other important issues affecting
clarity and general draftsmanship under any guidelines issued by the
Attorney General. Section 3(c) of Executive Order 12988 requires
Executive agencies to review regulations in light of applicable
standards in section 3(a) and section 3(b) to determine whether they
are met or it is unreasonable to meet one or more of them. DOE has
completed the required review and determined that, to the extent
permitted by law, the final regulations meet the relevant standards of
Executive Order 12988.
G. Review Under the Unfunded Mandates Reform Act of 1995
As described in the NOPR, Title II of the Unfunded Mandates Reform
Act of 1995 (Pub. L. 104-4) (UMRA) imposes requirements on Federal
agencies when their regulatory actions will have certain types of
impacts on State, local, and Tribal governments and the private sector.
71 FR 59256-59257. DOE concluded that, because the proposed rule would
contain neither an intergovernmental mandate nor a mandate that would
likely result in expenditures in the residential furnace and boiler
industry of $100 million or more in any year, the requirements of UMRA
do not apply to the rule. 71 FR 59257. DOE received no comments
concerning the UMRA in response to the NOPR, and its conclusions on
this issue are the same for the final rule as they were for the
proposed rule. Therefore, DOE is taking no further action in today's
final rule with respect to the UMRA.
H. Review Under the Treasury and General Government Appropriations Act,
1999
DOE determined that, for this rulemaking, it need not prepare a
Family Policymaking Assessment under section 654 of the Treasury and
General Government Appropriations Act, 1999 (Pub. L. 105-277). 71 FR
59257. DOE received no comments concerning section 654 in response to
the NOPR, and, therefore, is taking no further action in today's final
rule with respect to this provision.
I. Review Under Executive Order 12630
DOE determined, under Executive Order 12630, ``Governmental Actions
and Interference with Constitutionally Protected Property Rights,'' 53
FR 8859 (March 18, 1988), that today's rule would not result in any
takings which might require compensation under the Fifth Amendment to
the United States Constitution. 71 FR 59257. DOE received no comments
concerning Executive Order 12630 in response to the NOPR, and,
therefore, is taking no further action in today's final rule with
respect to this Executive Order.
J. Review Under the Treasury and General Government Appropriations Act,
2001
Section 515 of the Treasury and General Government Appropriations
Act, 2001 (44 U.S.C. 3516 note) provides for agencies to review most
disseminations of information to the public under guidelines
established by each agency pursuant to general guidelines issued by
OMB. The OMB's guidelines were published at 67 FR 8452 (February 22,
2002), and DOE's guidelines were published at 67 FR 62446 (October 7,
2002). DOE has reviewed today's final rule under the OMB and DOE
guidelines and has concluded that it is consistent with applicable
policies in those guidelines.
K. Review Under Executive Order 13211
Executive Order 13211, ``Actions Concerning Regulations That
Significantly Affect Energy Supply, Distribution, or Use,'' 66 FR 28355
(May 22, 2001) requires Federal agencies to prepare and submit to the
Office of Information and Regulatory Affairs of the OMB a Statement of
Energy Effects for any significant energy action. DOE determined that
the proposed rule was not a ``significant energy action'' within the
meaning of Executive Order 13211. 71 FR 59257. Accordingly, it did not
prepare a Statement of Energy Effects on the proposed rule. DOE
received no comments on this issue in response to the NOPR. As with the
proposed rule, DOE has concluded that today's final rule is not a
significant energy action within the meaning of Executive Order 13211,
and has not prepared a Statement of Energy Effects on the rule.
L. Review Under the Information Quality Bulletin for Peer Review
On December 16, 2004, OMB, in consultation with the Office of
Science and Technology Policy (OSTP), issued its Final Information
Quality Bulletin for Peer Review (the Bulletin). 70 FR 2664, January
14, 2005. The Bulletin establishes that certain scientific information
shall be peer reviewed by qualified specialists before it is
disseminated by the Federal government, including influential
scientific information related to agency regulatory actions. The
purpose of the Bulletin is to enhance the quality and credibility of
the Government's scientific information.
DOE's Office of Energy Efficiency and Renewable Energy, Building
Technologies Program, held formal in-progress peer reviews covering the
analyses (e.g., screening/engineering analysis, LCC analysis, MIA, and
utility impact analysis) used in conducting the energy efficiency
standards development process on June 28-29, 2005. The in-progress
review is a rigorous, formal, and documented evaluation process using
objective criteria and qualified and independent reviewers to make a
judgment of the technical/scientific/business merit, the actual or
anticipated results, and the productivity and management effectiveness
of programs and/or projects. The Building Technologies Program staff is
preparing a peer review report which, upon completion, will be
disseminated on the Office of Energy Efficiency and Renewable Energy's
Web site and included in the administrative record for this rulemaking.
M. Review Under Executive Order 12898
DOE considers environmental justice under Executive Order 12898,
``Federal Actions to Address Environmental Justice in Minority
Populations and Low-Income Populations.'' 59 FR 7629 (February 16,
1994). The Executive Order requires Federal agencies to
[[Page 65169]]
assess whether a proposed Federal action causes any disproportionately
high and adverse human health or environmental effects on low-income or
minority populations. DOE evaluated the socioeconomic effects of
standards on low-income households and found that they are similar to
the impacts on the rest of the population.
N. Congressional Notification
As required by 5 U.S.C. 801, DOE will submit to Congress a report
regarding the issuance of today's final rule prior to the effective
date set forth at the outset of this notice. The report will state that
it has been determined that the rule is a ``major rule'' as defined by
5 U.S.C. 804(2). DOE also will submit the supporting analyses to the
Comptroller General in the U.S. Government Accountability Office (GAO)
and make them available to each House of Congress.
VIII. Approval of the Office of the Secretary
The Secretary of Energy has approved publication of this final
rule.
List of Subjects in 10 CFR Part 430
Administrative practice and procedure, Energy conservation,
Household appliances.
Issued in Washington, DC, on November 8, 2007.
Alexander A. Karsner,
Assistant Secretary, Energy Efficiency and Renewable Energy.
0
For the reasons set forth in the preamble, part 430 of Title 10, Code
of Federal Regulations, is amended to read as set forth below.
PART 430--ENERGY CONSERVATION PROGRAM FOR CONSUMER PRODUCTS
0
1. The authority citation for part 430 continues to read as follows:
Authority: 42 U.S.C. 6291-6309; 28 U.S.C. 2461 note.
0
2. Section 430.32 is amended by revising the section heading and
paragraph (e) to read as follows:
Sec. 430.32 Energy and water conservation standards and their
effective dates.
* * * * *
(e) Furnaces. (1) Non-weatherized and weatherized gas furnaces,
mobile home gas furnaces, oil-fired furnaces, and gas- and oil-fired
boilers, manufactured before November 19, 2015 and all other types of
furnaces, shall have an efficiency no less than:
------------------------------------------------------------------------
AFUE \1\
Product class (percent) Effective date
------------------------------------------------------------------------
(i) Furnaces (excluding classes noted 78 01/01/92
below) (percent).......................
(ii) Mobile Home Furnaces............... 75 09/01/90
(iii) Small furnaces (other than
furnaces designed solely for
installation in mobile homes) having an
input rate of less than 45,000 Btu/hr:
(A) Weatherized (outdoor)........... 78 01/01/92
(B) Non-weatherized (indoor)........ 78 01/01/92
(iv) Boilers (excluding gas steam) 80 01/01/92
(percent)..............................
(v) Gas steam boilers (percent)......... 75 01/01/92
------------------------------------------------------------------------
\1\ Annual Fuel Utilization Efficiency, as determined in Sec.
430.22(n)(2) of this part.
(2) Non-weatherized and weatherized gas furnaces, mobile home gas
furnaces, oil-fired furnaces, and gas- and oil-fired boilers,
manufactured on or after November 19, 2015, shall have an efficiency no
less than:
------------------------------------------------------------------------
AFUE \1\
Product class (percent)
------------------------------------------------------------------------
(i) Non-weatherized gas furnaces............................ 80
(ii) Weatherized gas furnaces............................... 81
(iii) Mobile home gas furnaces.............................. 80
(iv) Oil-fired furnaces..................................... 82
(v) Gas hot-water boilers................................... 82
(vi) Oil-fired hot-water boilers............................ 83
------------------------------------------------------------------------
\1\ Annual Fuel Utilization Efficiency, as determined in Sec.
430.22(n)(2) of this part.
* * * * *
Appendix
[The following letter from the Department of Justice will not
appear in the Code of Federal Regulations.]
Department of Justice
Antitrust Division, Main Justice Building, 950 Pennsylvania Avenue,
N.W., Washington, DC 20530-0001, (202) 514-2401/(202) 616-2645
(Fax), E-mail: antitrust@usdoj.gov, Web site: http://www.usdoj.gov/
atr.
January 16, 2007.
Warren Belmar, Esq., Deputy General Counsel for Energy Policy, U.S.
Department of Energy, Washington, DC 20585.
Dear Deputy General Counsel Belmar:
I am responding to your November 14, 2006 letters seeking the
views of the Attorney General about the potential impact on
competition of proposed energy efficiency standards relating to (1)
liquid-immersed and medium-voltage, dry-type distribution
transformers (``distribution transformers''), and (2) residential
furnaces and boilers (``furnaces and boilers''). The Energy Policy
and Conservation Act (``EPCA'') authorizes the Department of Energy
(``DOE'') to establish energy conservation standards for a number of
appliances where DOE determines that those standards would be
technologically feasible, economically justified, and result in
significant energy savings.
Your requests were submitted pursuant to Section 325(o)(2)(B)(I)
of the Energy Policy and Conservation Act, 42 U.S.C. 6291, 6295
(``EPCA''), which states that, before the Secretary of Energy may
prescribe a new or amended energy conservation standard, the
Secretary shall ask the Attorney General to make a determination of
``the impact of any lessening of competition * * * that is likely to
result from the imposition of the standard.'' The Attorney General's
responsibility for responding to requests from other departments
about the effect of a program on competition has been delegated to
the Assistant Attorney General for the Antitrust Division in 28 CFR
0.40(g). In conducting its analysis the Antitrust Division examines
whether a standard may lessen competition, for example, by placing
certain manufacturers of a product at an unjustified competitive
disadvantage compared to other manufacturers, or by inducing
avoidable inefficiencies in production or distribution of particular
products. In addition to harming consumers directly through higher
prices, these effects could undercut the ultimate goals of the
legislation.
Your requests included the Notices of Proposed Rulemaking
(``NOPR'') that were published in the Federal Register and
transcripts of public hearings relating to the proposed standards.
The NOPR relating to distribution transformers proposed Trial
Standard Level 2 and explained why DOE had decided not to propose
higher trial standard levels. The NOPR relating to furnaces and
boilers proposed the following standards: 80% annual fuel
utilization efficiency (``AFUE'') for non-weatherized gas furnaces
and mobile home gas furnaces; 82% AFUE for oil-fired furnaces; 83%
AFUE for weatherized gas furnaces and oil-fired boilers; and 84%
AFUE for gas boilers. Our review regarding distribution transformers
and furnaces and boilers has focused upon the standards DOE has
proposed adopting; we have not determined the impact on competition
of more stringent standards than those set forth in the NOPRs.
[[Page 65170]]
In addition to the NOPRs and transcripts, your staff provided us
comments that had been submitted to DOE regarding the proposed
standards. (We understand that the docket has not closed with
respect to furnaces and that more comments may be forthcoming.) We
have reviewed these materials and additionally conducted interviews
with members of the industries.
Based on this inquiry, the Division is concerned that the
distribution transformer Trial Standard Level 2 may adversely affect
competition with respect to distribution transformers used in
industries, such as underground coal mining, where physical
conditions limit the size of equipment that can be effectively
utilized. We understand manufacturers would not be able to satisfy
the proposed standard without increasing the size (or decreasing the
power) of each class of distribution transformer. Firms facing space
constraints would incur significantly increased costs due to
enlarging the required installation space (which, for example, could
involve removal of solid rock around coal seams in underground
mines) or reconfiguring the size and number of each class of
distribution transformers at each site. The resulting cost increases
could constitute production inefficiencies that could make certain
products less competitive. For example, the rule could, by raising
the costs of certain coal mines, adversely affect production
decisions at those mines and potentially result in increased use of
less efficient energy alternatives. We urge the DOE to consider
these concerns carefully in its analysis, and to consider creating
an exception for distribution transformers used in industries with
space constraints.
The Division is also concerned that the standards for
weatherized gas furnaces and gas boilers could adversely affect
competition. We understand that manufacturers would have difficulty
designing products that safely meet the proposed standards. For
weatherized gas furnaces, meeting the standard would likely result
in increased condensation, potentially resulting in significant
deterioration that would jeopardize the safety of the product, and,
for weatherized gas-fired water boilers, meeting the standard would
make effective carbon dioxide venting more difficult. Any resulting
costs incurred to solve these issues could adversely affect the
competitiveness of these products in relation to electric heat pumps
and water heaters. We urge the DOE to carefully consider its
proposed standards in light of these concerns.
Aside from the discussion above, the Division does not otherwise
believe the proposed standards would adversely impact competition.
Yours sincerely,
J. Bruce McDonald,
Acting Assistant Attorney General.
[FR Doc. E7-22216 Filed 11-16-07; 8:45 am]
BILLING CODE 6450-01-P