[Federal Register Volume 75, Number 73 (Friday, April 16, 2010)]
[Rules and Regulations]
[Pages 20112-20236]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-7611]
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Part III
Department of Energy
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10 CFR Part 430
Energy Conservation Program: Energy Conservation Standards for
Residential Water Heaters, Direct Heating Equipment, and Pool Heaters;
Final Rule
Federal Register / Vol. 75, No. 73 / Friday, April 16, 2010 / Rules
and Regulations
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DEPARTMENT OF ENERGY
10 CFR Part 430
[Docket Number EE-2006-BT-STD-0129]
RIN 1904-AA90
Energy Conservation Program: Energy Conservation Standards for
Residential Water Heaters, Direct Heating Equipment, and Pool Heaters
AGENCY: Office of Energy Efficiency and Renewable Energy, Department of
Energy.
ACTION: Final rule.
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SUMMARY: The U.S. Department of Energy (DOE) is amending the existing
energy conservation standards for residential water heaters (other than
tabletop and electric instantaneous models), gas-fired direct heating
equipment, and gas-fired pool heaters. It has determined that the
amended energy conservation standards for these products would result
in significant conservation of energy, and are technologically feasible
and economically justified.
DATES: The effective date of this rule is June 15, 2010. Compliance
with the amended standards established for residential water heaters in
today's final rule is required starting on April 16, 2015, and
compliance with the standards established for DHE and pool heaters is
required starting on April 16, 2013.
ADDRESSES: For access to the docket to read background documents, the
technical support document, transcripts of the public meetings in this
proceeding, or comments received, visit the U.S. Department of Energy,
Resource Room of the Building Technologies Program, 950 L'Enfant Plaza,
SW., 6th Floor, 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. You may also obtain
copies of certain previous rulemaking documents in this proceeding
(i.e., framework document, notice of public meeting and announcement of
a preliminary technical support document (TSD), notice of proposed
rulemaking), draft analyses, public meeting materials, and related test
procedure documents from the Office of Energy Efficiency and Renewable
Energy's Web site at: http://www1.eere.energy.gov/buildings/appliance_standards/residential/waterheaters.html.
FOR FURTHER INFORMATION CONTACT: Mr. Mohammed Khan, U.S. Department of
Energy, Energy Efficiency and Renewable Energy, Building Technologies
Program, EE-2J, 1000 Independence Avenue, SW., Washington, DC 20585-
0121. Telephone: (202) 586-7892. E-mail: [email protected].
Mr. Eric Stas, U.S. Department of Energy, Office of the General
Counsel, GC-71, 1000 Independence Avenue, SW., Washington, DC 20585-
0121. Telephone: (202) 586-9507. E-mail: [email protected].
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Summary of the Final Rule and Its Benefits
A. The Energy Conservation Standard Levels
B. Benefits and Costs to Purchasers of the Three Heating
Products
1. Water Heaters
2. Direct Heating Equipment
3. Pool Heaters
C. Impact on Manufacturers
1. Water Heaters
2. Direct Heating Equipment
3. Pool Heaters
D. National Benefits
E. Conclusion
II. Introduction
A. Authority
B. Background
1. Current Standards
2. History of Standards Rulemaking for the Three Heating
Products
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 Discussion of Comments on Methodology
A. Market and Technology Assessment
1. DOE's Determinations as to the Inclusion of Products in This
Rulemaking
a. Whether Certain Products Are Covered Under the Act
b. Covered Products Not Included in This Rulemaking
2. Product Classes
a. Water Heaters
b. Direct Heating Equipment
c. Pool Heaters
B. Screening Analysis
1. Comments on the Screening Analysis
2. Heat Pump Water Heater and Condensing Gas-Fired Storage Water
Heater Discussion
a. Condensing Gas-Fired Water Heaters
b. Heat Pump Water Heaters
C. Engineering Analysis
1. Representative Products for Analysis
2. Efficiency Levels Analyzed
a. Water Heaters
b. Direct Heating Equipment
c. Pool Heaters
3. Cost Assessment Methodology
a. Manufacturer Production Cost
b. Manufacturer Selling Price
4. Engineering Analysis Results
5. Scaling to Additional Rated Storage Capacities
6. Water Heater Energy Efficiency Equations
D. Markups To Determine Product Price
E. Energy Use Characterization
1. Water Heaters
2. Direct Heating Equipment
3. Pool Heaters
F. Life-Cycle Cost and Payback Period Analyses
1. Product Price
2. Installation Cost
a. Water Heaters
b. Direct Heating Equipment
c. Pool Heaters
3. Annual Energy Use
4. Energy Prices
5. Energy Price Trend
6. Repair and Maintenance Costs
7. Product Lifetime
a. Water Heaters
b. Direct Heating Equipment
c. Pool Heaters
8. Discount Rates
9. Compliance Date
10. Product Energy Efficiency in the Base Case
11. Inputs to Payback Period Analysis
G. National Impact Analysis--National Energy Savings and Net
Present Value Analysis
1. General
2. Shipments
a. Water Heaters
b. Direct Heating Equipment
c. Pool Heaters
d. Impact of Standards on Shipments
3. Base-Case and Standards-Case Efficiency Distributions
4. National Energy Savings
a. Annual Unit Energy Consumption
b. Site-to-Source Energy Conversion
5. Consumer Net Present Value
a. Increased Total Installed Costs and Operating Cost Savings
b. Discount Rates
H. Consumer Subgroup Analysis
I. Manufacturer Impact Analysis
1. Water Heater Conversion Costs
2. Manufacturer Markups and Markup Scenarios
3. Pool Heater Conversion Costs
4. Employment
5. Access to Capital
J. Employment Impact Analysis
K. Utility Impact Analysis
1. Effects of Standards on Energy Prices and Associated Benefits
L. Environmental Assessment
M. Monetizing Carbon Dioxide and Other Emissions Impacts
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1. Social Cost of Carbon
a. Monetizing Carbon Dioxide Emissions
b. Social Cost of Carbon Values Used in Past Regulatory Analyses
c. Approach and Key Assumptions
2. Monetary Values of Non-Carbon Emissions
V. Discussion of Other Comments
A. Trial Standard Levels and Proposed Standards
1. Water Heaters
2. Direct Heating Equipment
3. Pool Heaters
B. Compliance Date of Amended Standards
VI. Analytical Results and Conclusions
A. Trial Standard Levels
1. Water Heaters
2. Direct Heating Equipment
3. Gas-Fired Pool Heaters
B. Significance of Energy Savings
C. Economic Justification
1. Economic Impact on Consumers
a. Life-Cycle Costs and Payback Period
b. Consumer Subgroup Analysis
c. Rebuttable Presumption Payback
2. Economic Impact on Manufacturers
a. Cash-Flow Analysis Results for Water Heaters
b. Cash-Flow Analysis Results for Direct Heating Equipment
c. Cash-Flow Analysis Results for Pool Heaters
d. Impacts on Employment
e. Impacts on Manufacturing Capacity
f. Cumulative Regulatory Burden
g. Impacts on Manufacturers That Are Small Businesses
3. National Net Present Value of Consumer Costs and Benefits and
National Employment Impacts
4. Impact on Utility or Performance of Products
5. Impact of Any Lessening of Competition
6. Need of the Nation To Conserve Energy
7. Other Factors
D. Conclusion
1. Overview
2. Water Heaters
3. Direct Heating Equipment
4. Pool Heaters
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 of 1995
D. Review Under the National Environmental Policy Act of 1969
E. Review Under Executive Order 13132
F. Review Under Executive Order 12988
G. Review Under the Unfunded Mandates Reform Act of 1995
H. Review Under the Treasury and General Government
Appropriations Act, 1999
I. Review Under Executive Order 12630
J. Review Under the Treasury and General Government
Appropriations Act, 2001
K. Review Under Executive Order 13211
L. Review Under the Information Quality Bulletin for Peer Review
M. Congressional Notification
VIII. Approval of the Office of the Secretary
I. Summary of the Final Rule and Its Benefits
A. The Energy Conservation Standard Levels
The Energy Policy and Conservation Act, as amended (42 U.S.C. 6291
et seq.; EPCA or the Act), provides that any new or amended energy
conservation standard the Department of Energy (DOE) prescribes for
covered consumer products, including residential water heaters, direct
heating equipment (DHE), and pool heaters (collectively referred to in
this document as the ``three heating products'') must be designed to
``achieve the maximum improvement in energy efficiency * * * which the
Secretary [of Energy] determines is technologically feasible and
economically justified.'' (42 U.S.C. 6295(o)(2)(A)) Furthermore, the
new or amended standard must ``result in significant conservation of
energy.'' (42 U.S.C. 6295(o)(3)(B)) The standards in today's final
rule, which apply to certain types of the three heating products,
satisfy these requirements.
Table I.1 shows the standard levels DOE is adopting today. These
standards will apply to the types of the three heating products listed
in the table and manufactured for sale in the United States, or
imported into the United States, on or after April 16, 2015 in the case
of water heaters, or on or after April 15, 2013 in the case of direct
heating equipment and pool heaters.
Table I.1--Amended Energy Conservation Standards for Residential Water
Heaters, Direct Heating Equipment, and Pool Heaters
------------------------------------------------------------------------
------------------------------------------------------------------------
Product class Standard level
------------------------------------------------------------------------
Residential water heaters*
------------------------------------------------------------------------
Gas-fired Storage........... For tanks with a For tanks with a
Rated Storage Rated Storage
Volume at or below Volume above 55
55 gallons: gallons:
EF = 0.675-(0.0015 x EF = 0.8012-(0.00078
Rated Storage x Rated Storage
Volume in gallons). Volume in gallons).
Electric Storage............ For tanks with a For tanks with a
Rated Storage Rated Storage
Volume at or below Volume above 55
55 gallons: gallons:
EF = 0.960-(0.0003 x EF = 2.057-(0.00113
Rated Storage x Rated Storage
Volume in gallons). Volume in gallons)
.
Oil-fired Storage........... EF = 0.68-(0.0019 x Rated Storage Volume
in gallons).
Gas-fired Instantaneous..... EF = 0.82-(0.0019 x Rated Storage Volume
in gallons).
------------------------------------------------------------------------
Product class Standard level
------------------------------------------------------------------------
Direct heating equipment**
------------------------------------------------------------------------
Gas wall fan type up to 42,000 AFUE = 75%
Btu/h.
Gas wall fan type over 42,000 Btu/ AFUE = 76%
h.
Gas wall gravity type up to AFUE = 65%
27,000 Btu/h.
Gas wall gravity type over 27,000 AFUE = 66%
Btu/h up to 46,000 Btu/h.
Gas wall gravity type over 46,000 AFUE = 67%
Btu/h.
Gas floor up to 37,000 Btu/h..... AFUE = 57%
Gas floor over 37,000 Btu/h...... AFUE = 58%
Gas room up to 20,000 Btu/h...... AFUE = 61%
Gas room over 20,000 Btu/h up to AFUE = 66%
27,000 Btu/h.
Gas room over 27,000 Btu/h up to AFUE = 67%
46,000 Btu/h.
Gas room over 46,000 Btu/h....... AFUE = 68%
Gas hearth up to 20,000 Btu/h.... AFUE = 61%
Gas hearth over 20,000 Btu/h and AFUE = 66%
up to 27,000 Btu/h.
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Gas hearth over 27,000 Btu/h and AFUE = 67%
up to 46,000 Btu/h.
Gas hearth over 46,000 Btu/h..... AFUE = 68%
------------------------------------------------------------------------
Pool heaters
------------------------------------------------------------------------
Gas-fired........................ Thermal Efficiency = 82%
------------------------------------------------------------------------
* EF is the ``energy factor,'' and the ``Rated Storage Volume'' equals
the water storage capacity of a water heater (in gallons), as
specified by the manufacturer.
** Btu/h is ``British thermal units per hour,'' and AFUE is ``Annual
Fuel Utilization Efficiency.''
B. Benefits and Costs to Purchasers of the Three Heating Products
1. Water Heaters
Table I.2 presents the implications of today's standards for
consumers of residential water heaters. The economic impacts of the
standards on consumers, as measured by the average life-cycle cost
(LCC) savings, are positive, even though the standards may increase
some initial costs. For example, a typical gas storage water heater has
an average installed price of $1,079 and average lifetime operating
costs (discounted) of $2,473. To meet the amended standards, DOE
estimates that the average installed price of such equipment will
increase by $120, which will be offset by savings of $143 in average
lifetime operating costs (discounted).
Table I.2--Implications of Standards for Purchasers of Residential Water Heaters
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Average Average
Energy baseline installed Average life- Median payback
Product class conservation installed price increase cycle cost period years
standard EF * price** $ $ savings*** $
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Gas-Fired Storage Water Heater 0.62 (40 $1,072 $92 $6 2.0
gallons).
0.76 (56 1,261 805 77 9.8
gallons).
Weighted........ 1,079 120 18 2.3
Electric Storage Water Heater. 0.95 (50 554 140 10 6.9
gallons).
2.0 (56 gallons) 729 974 626 6.0
Weighted........ 569 213 64 6.8
Oil-Fired Storage Water Heater 0.62 (32 1,974 67 295 0.5
gallons).
Gas-Fired Instantaneous Water 0.82 (0 gallons) 1,779 601 6 14.8
Heater.
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* The values are for the representative storage volumes (40 gallons for gas-fired storage water heaters, 50
gallons for electric storage water heaters, 32 gallons for oil-fired storage water heaters, and 0 gallons for
gas-fired instantaneous water heaters). The standard level is represented by an energy-efficiency equation,
which specifies an EF level over the entire storage volume range.
** For a baseline model.
*** The average life-cycle cost savings refers to the average savings in the discounted life-cycle costs of
owning and operating the product due to the standard. This value represents the net benefit (or cost) of a
more-efficient product after considering both the increased installed price and the lifetime operating cost
savings.
2. Direct Heating Equipment
Table I.3 presents the implications of today's standards for
consumers of direct heating equipment. The economic impacts of the
standards on consumers, as measured by the average LCC savings, are
positive, even though the standards may increase some initial costs.
For example, a typical gas wall fan DHE has an average installed price
of $1,832 and average lifetime operating costs (discounted) of $5,544.
To meet the amended standards, DOE estimates that the average installed
price of such equipment will increase by $81, which will be more than
offset by savings of $249 in average lifetime operating costs
(discounted).
Table I.3--Implications of Standards for Purchasers of Direct Heating Equipment at the Representative Rated
Input Capacity Range
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Energy Average Average
conservation baseline installed Average life- Median payback
Product class standard* AFUE installed price increase cycle cost period Years
(%) price** $ $ savings*** $
----------------------------------------------------------------------------------------------------------------
Gas Wall Fan.................... 76 $1,832 $81 $102 3.2
Gas Wall Gravity................ 66 1,433 61 21 7.5
Gas Floor....................... 58 2,209 54 13 10.7
Gas Room........................ 67 1,208 83 60 4.5
Gas Hearth...................... 67 1,603 82 112 0.0
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* The values are for the representative input capacity ranges (>42,000 Btu/h for wall fan, >27,000 Btu/h and
<=46,000 Btu/h for wall gravity, >37,000 Btu/h for floor, >27,000 Btu/h and <=46,000 Btu/h for room, and
>27,000 Btu/h and <=46,000 Btu/h for hearth). The standard levels vary by input capacity range.
** For a baseline model.
*** The average life-cycle cost savings refers to the average savings in the discounted life-cycle costs of
owning and operating the product due to the standard. This value represents the net benefit (or cost) of a
more-efficient product after considering both the increased installed price and the lifetime operating cost
savings.
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3. Pool Heaters
Table I.4 presents the implications of today's standards for
consumers of pool heaters. The economic impacts of the standards on
consumers, as measured by the average LCC savings, are positive, even
though the standards may increase some initial costs. For example, a
typical pool heater has an average installed price of $3,240 and
average lifetime operating costs (discounted) of $5,099. To meet the
amended standards, DOE estimates that the average installed price of
such equipment will increase by $103, which will be offset by savings
of $226 in average lifetime operating costs (discounted).
Table I.4--Implications of Standards for Purchasers of Pool Heaters at 250,000 Btu/h
----------------------------------------------------------------------------------------------------------------
Energy
conservation Average Average Average life-
Product class standard* baseline installed cycle cost Median payback
Thermal installed price increase savings*** $ period Years
Efficiency (%) price** $ $
----------------------------------------------------------------------------------------------------------------
Gas-fired....................... 82 $3,240 $103 $22 8.6
----------------------------------------------------------------------------------------------------------------
* The values are for the representative input capacity of 250,000 Btu/h.
** For a baseline model.
*** The average life-cycle cost savings refers to the average savings in the discounted life-cycle costs of
owning and operating the product due to the standard. This value represents the net benefit (or cost) of a
more-efficient product after considering both the increased installed price and the lifetime operating cost
savings.
C. Impact on Manufacturers
1. Water Heaters
Using a real corporate discount rate of 8.9 percent for gas-fired
and electric storage water heaters, 7.6 percent for oil-fired storage
water heaters, and 9.5 percent for gas-fired instantaneous water
heaters, which DOE calculated by examining the financial statements of
residential water heater manufacturers, DOE estimates the industry net
present value (INPV) of the manufacturing industry to be $880 million
for gas-fired and electric storage water heaters, $9 million for oil-
fired storage water heaters, and $648 million for gas-fired
instantaneous water heaters (all figures in 2009$). DOE expects the
impact of the standards on the INPV of manufacturers of gas-fired and
electric storage water heaters to range from a loss of 2.9 percent to a
loss of 13.9 percent (a loss of $25.9 million to a loss of $122.6
million). DOE expects the impact of the standards on the INPV of
manufacturers of oil-fired storage water heaters to range from a loss
of 2.0 percent to a loss of 4.2 percent (a loss of $0.2 million to a
loss of $0.4 million). DOE expects the impact of the standards on the
INPV of manufacturers of gas-fired instantaneous water heaters to range
from an increase of 0.4 percent to a loss of 0.2 percent (an increase
of $2.3 million to a loss of $1.2 million). Based on DOE's interviews
with the major manufacturers of residential water heaters, DOE expects
minimal plant closings or loss of employment as a result of the
standards. At the amended standard level, DOE does not expect
significant impacts on competition in the overall water heater market.
For gas-fired and electric storage water heaters, DOE believes there
are primarily three major manufacturers who have established market
positions. In addition, DOE believes there is another major appliance
manufacturer with significant resources that has recently announced
intentions to scale its efforts in the water heating market. For oil-
fired storage water heaters and gas-fired instantaneous water heaters,
DOE believes the standards-case market can at least sustain the base-
case level of competition.
2. Direct Heating Equipment
Using a real corporate discount rate of 8.5 percent, which DOE
calculated by examining the financial statements of direct heating
equipment manufacturers, DOE estimates the INPV of the manufacturing
industry to be $17 million for traditional direct heating equipment and
$77 million for hearth direct heating equipment (both figures in
2009$). DOE expects the impact of the standards on the INPV of
manufacturers of traditional direct heating equipment to range from a
loss of 7.2 percent to a loss of 23.6 percent (a loss of $1.2 million
to a loss of $3.9 million). DOE expects the impact of the standards on
the INPV of manufacturers of hearth direct heating equipment to range
from a loss of 0.3 percent to a loss of 1.2 percent (a loss of $0.2
million to a loss of $0.9 million). Based on DOE's interviews with the
major manufacturers of both traditional and hearth direct heating
equipment, DOE expects minimal plant closings or loss of employment as
a result of the standards. DOE believes the impact of the amended
standards on competition in the traditional and hearth DHE market will
not be significant because small manufacturers will be able to upgrade
enough product lines to meet the standard, which in combination with
product lines that currently meet the standard, will enable them to
remain viable competitors.
3. Pool Heaters
Using a real corporate discount rate of 7.4 percent, which DOE
calculated by examining the financial statements of pool heater
manufacturers, DOE estimates the INPV of the manufacturing industry to
be $49 million for gas-fired pool heaters (figures in 2009$). DOE
expects the impact of the standards on the INPV of manufacturers of
gas-fired pool heaters to range from an increase of 0.5 percent to a
loss of 1.7 percent (an increase of $0.3 million to a loss of $0.8
million). Based on DOE's interviews with the major manufacturers of
pool heaters, DOE expects minimal plant closings or loss of employment
as a result of the standards. DOE does not believe there will be any
lessening of competition in the pool heater market as a result of the
standards established by today's final rule, because all of the
manufacturers already offer at least one product line that meets or
exceeds the standard level promulgated by today's final rule.
D. National Benefits
DOE estimates the standards will save approximately 2.81 quads
(quadrillion or 10\15\) British thermal units (Btu) of energy over a
30-year period: 2.58 quads for residential water heaters during 2015-
2045, and 0.21 and 0.02 quads for DHE and pool heaters, respectively,
during 2013-2043. The total of 2.81 quads is equivalent to all the
energy consumed by nearly 15 million American households in a single
year. By 2045, DOE expects the energy savings from today's standards to
eliminate the need for approximately three new 250 MW power plants.
These energy savings will result in cumulative greenhouse gas
emission
[[Page 20116]]
reductions of approximately 164 million tons (Mt) of carbon dioxide
(CO2), or an amount equal to that produced by approximately
46 million cars every year. Additionally, the standards will help
alleviate air pollution by resulting in cumulative emissions reductions
of approximately 125 kilotons (kt) for nitrogen oxides (NOX)
and 0.54 tons for power plant mercury (Hg).
The estimated monetary value of the cumulative CO2
emissions reductions, based on a range of values from a recent
interagency process, is $560 to $8,725 million. The estimated monetary
value of the cumulative CO2 emissions reductions, based on
the central value from the interagency process, is $2,861 million. The
estimated net present monetary value of the other emissions reductions
(discounted to 2010 using a 7-percent discount rate and expressed in
2009$) is $12.2 to 125 million for NOX. At a 3-percent
discount rate, the estimated net present value of these emissions
reductions is $27.2 to 284 million for NOX.
The national NPV of consumer benefit of today's standards is $1.98
billion using a 7-percent discount rate and $10.11 billion using a 3-
percent discount rate, cumulative from 2013 to 2043 for DHE and pool
heaters, and from 2015 to 2045 for water heaters, in 2009$. This is the
estimated present value of future operating cost savings minus the
estimated increased costs of purchasing and installing the three types
of heating products, discounted to 2010.
The benefits and costs of today's rule can also be expressed in
terms of annualized values from 2013 to 2043 for DHE and pool heaters,
and from 2015 to 2045 for water heaters. Estimates of annualized values
for the three types of heating products are shown in Table I.5, Table
I.6, and Table I.7. The annualized monetary benefits are the sum of the
annualized national economic value of operating cost savings (energy,
maintenance, and repair), expressed in 2009$, plus the monetary value
of the benefits of CO2 and NOX emission
reductions. For the value of CO2 emission reductions, DOE
uses the global Social Cost of Carbon (SCC) calculated using the
average value derived using a 3-percent discount rate (equivalent to
$21.40 per metric ton of CO2 emitted in 2010, in 2007$).
This value is a central value from a recent interagency process. The
derivation of this value is discussed in section IV.M. The monetary
benefits of cumulative emissions reductions are reported in 2009$ so
that they can be compared with the other costs and benefits in the same
dollar units.
Although the above consideration of benefits provides a valuable
perspective, please note the following: (1) The national operating cost
savings are domestic U.S. consumer monetary savings found in market
transactions, while the value of CO2 reductions is based on
a global value. Also, note that the central value is only one of four
SCC developed by the interagency workgroup. Other marginal SCC values
for 2010 are $4.70, $35.10, and $64.90 per metric ton (2007$ for
emissions in 2010), which reflect different discount rates and, for the
highest value, the possibility of higher-than-expected impacts further
out in the tails of the SCC distribution. (2) The assessments of
operating cost savings and CO2 savings are performed with
different computer models, leading to different time frames for
analysis. The national operating cost savings is measured for the
lifetime of heating products shipped in the period 2013-2043 (for DHE
and pool heaters) or 2015-2045 (for water heaters). The value of
CO2, on the other hand, reflects the present value of all
future climate-related impacts (out to 2300) due to emitting a ton of
carbon dioxide in each year of the forecast period.
Using a 7-percent discount rate and the central SCC value, the
combined cost of the standards adopted in today's final rule for
heating products is $1,285 million per year in increased equipment and
installation costs, while the annualized benefits are $1,500 million
per year in reduced equipment operating costs, $169 million in
CO2 reductions, and $7.7 million in reduced NOX
emissions. At a 7-percent discount rate, the net benefit amounts to
$391 million per year. Using a 3-percent discount rate and the central
SCC value, the cost of the standards adopted in today's rule is $1,249
million per year in increased equipment and installation costs, while
the benefits of today's standards are $1,843 million per year in
reduced operating costs, $169 million in CO2 reductions, and
$9.2 million in reduced NOX emissions. At a 3-percent
discount rate, the net benefit amounts to $771 million per year.
Table I.5--Annualized Benefits and Costs for Water Heaters (TSL 5)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Units
Primary estimate Low estimate High estimate -----------------------------------------------------------
Category (AEO reference (low energy (high energy Period covered
case) price case) price case) Year dollars Disc. rate (2015-2045)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Benefits
--------------------------------------------------------------------------------------------------------------------------------------------------------
Energy Annualized Monetized (millions$/ 1407.0 1275.5 1537.5 2009 7% 30
year).
1729.6 1556.1 1902.9 2009 3% 30
CO2 Monetized Value (at $4.7/Metric 43.5 43.5 43.5 2009 5% 30
Ton, millions$/year)*.
CO2 Monetized Value (at $21.4/Metric 158.6 158.6 158.6 2009 3% 30
Ton, millions$/year)*.
CO2 Monetized Value (at $35.1/Metric 245.7 245.7 245.7 2009 2.5% 30
Ton, millions$/year)*.
CO2 Monetized Value (at $64.9/Metric 483.8 483.8 483.8 2009 3% 30
Ton, millions$/year)*.
NOx Monetized Value (at $2,437/Metric 7.0 7.0 7.0 2009 7% 30
Ton, millions$/year).
8.5 8.5 8.5 2009 3% 30
Total Monetary Benefits (millions$/ 1457.5-1897.8 1326-1766.3 1588-2028.3 2009 7% range 30
year)**.
1572.7 1441.1 1703.2 2009 7% ..............
1896.7 1723.2 2070.0 2009 3% ..............
[[Page 20117]]
1781.5-2221.8 1608-2048.3 1954.9-2395.2 2009 3% range 30
--------------------------------------------------------------------------------------------------------------------------------------------------------
Costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
Annualized Monetized (millions$/year). 1250.3 1184.5 1321.6 2009 7% 30
1216.6 1145.7 1295.6 2009 3% 30
--------------------------------------------------------------------------------------------------------------------------------------------------------
Net Benefits/Costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
Annualized Monetized, including CO2 207.2-647.5 141.5-581.8 266.4-706.7 2009 7% range 30
Benefits (million$/year)**.
322.4 256.6 381.5 2009 7% 30
680.1 577.5 774.4 2009 3% 30
565-1005.3 462.3-902.6 659.3-1099.6 2009 3% range 30
--------------------------------------------------------------------------------------------------------------------------------------------------------
* These values represent global values (in 2009$) of the social cost of CO2 emissions in 2010 under several scenarios. The values of $4.7, $21.4, and
$35.1 per ton are the averages of SCC distributions calculated using 5%, 3%, and 2.5% discount rates, respectively. The value of $64.9 per ton
represents the 95th percentile of the SCC distribution calculated using a 3% discount rate. See section IV.M for details.
** Total Monetary Benefits for both the 3% and 7% cases utilize the central estimate of social cost of CO2 emissions calculated at a 3% discount rate
(averaged across three Integrated Assessment Models (IAMs)), which is equal to $21.4/ton in 2010 (in 2009$). The rows labeled as ``7% Range'' and ``3%
Range'' calculate consumer and NOX cases with the labeled discount rate but add these values to the full range of CO2 values with the $4.7/ton value
at the low end, and the $64.9/ton value at the high end.
Table I.6--Annualized Benefits and Costs for Direct Heating Equipment
[TSL 2]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Units
Primary estimate Low estimate High estimate -----------------------------------------------------------
Category (AEO reference (low energy (high energy Period
case) price case) price case) Year dollars Disc. rate covered (2013-
2043)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Benefits
--------------------------------------------------------------------------------------------------------------------------------------------------------
Energy Annualized Monetized (millions$/ 82.2 78.8 84.6 2009 7% 30
year).
100.6 96.3 103.6 2009 3% 30
CO2 Monetized Value (at $4.7/Metric 2.5 2.5 2.5 2009 5% 30
Ton, millions$/year)*.
CO2 Monetized Value (at $21.4/Metric 9.2 9.2 9.2 2009 3% 30
Ton, millions$/year)*.
CO2 Monetized Value (at $35.1/Metric 14.3 14.3 14.3 2009 2.5% 30
Ton, millions$/year)*.
CO2 Monetized Value (at $64.9/Metric 28.1 28.1 28.1 2009 3% 30
Ton, millions$/year)*.
NOX Monetized Value (at $2,437/Metric 0.6 0.6 0.6 2009 7% 30
Ton, millions$/year).
0.6 0.6 0.6 2009 3% 30
Total Monetary Benefits (millions$/ 85.2-110.8 81.8-107.4 87.7-113.2 2009 7% range 30
year)**.
91.9 88.5 94.4 2009 7% ..............
110.4 106.2 113.4 2009 3% ..............
103.7-129.3 99.5-125 106.7-132.3 2009 3% range 30
--------------------------------------------------------------------------------------------------------------------------------------------------------
Costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
Annualized Monetized (millions$/year). 27.7 27.7 27.7 2009 7% 30
26.0 26.0 26.0 2009 3% 30
--------------------------------------------------------------------------------------------------------------------------------------------------------
Net Benefits/Costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
Annualized Monetized, including CO2 57.6-83.1 54.1-79.7 60-85.6 2009 7% range 30
Benefits (millions$/year)**.
64.3 60.8 66.7 2009 7% 30
84.4 80.1 87.4 2009 3% 30
[[Page 20118]]
77.7-103.2 73.4-99 80.7-106.3 2009 3% range 30
--------------------------------------------------------------------------------------------------------------------------------------------------------
* These values represent global values (in 2009$) of the social cost of CO2 emissions in 2010 under several scenarios. The values of $4.7, $21.4, and
$35.1 per ton are the averages of SCC distributions calculated using 5%, 3%, and 2.5% discount rates, respectively. The value of $64.9 per ton
represents the 95th percentile of the SCC distribution calculated using a 3% discount rate. See section IV.M for details.
** Total Monetary Benefits for both the 3% and 7% cases utilize the central estimate of social cost of CO2 emissions calculated at a 3% discount rate
(averaged across three IAMs), which is equal to $21.4/ton in 2010 (in 2009$). The rows labeled as ``7% Range'' and ``3% Range'' calculate consumer and
NOX cases with the labeled discount rate but add these values to the full range of CO2 values with the $4.7/ton value at the low end, and the $64.9/
ton value at the high end.
Table I.7--Annualized Benefits and Costs for Pool Heaters
[TSL 2]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Units
Primary Low estimate High estimate -----------------------------------------------------------
Category estimate (AEO (low energy (high energy Period
reference case) price case) price case) Year dollars Disc. rate covered (2013-
2043)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Benefits
--------------------------------------------------------------------------------------------------------------------------------------------------------
Energy Annualized Monetized (millions$/ 10.6 10.1 10.9 2009 7% 30
year).
12.5 12.0 12.9 2009 3% 30
CO2 Monetized Value (at $4.7/Metric 0.2 0.2 0.2 2009 5% 30
Ton, millions$/year)*.
CO2 Monetized Value (at $21.4/Metric 0.8 0.8 0.8 2009 3% 30
Ton, millions$/year)*.
CO2 Monetized Value (at $35.1/Metric 1.3 1.3 1.3 2009 2.5% 30
Ton, millions$/year)*.
CO2 Monetized Value (at $64.9/Metric 2.4 2.4 2.4 2009 3% 30
Ton, millions$/year)*.
NOX Monetized Value (at $2,437/Metric 0.1 0.1 0.1 2009 7% 30
Ton, millions$/year).
0.1 0.1 0.1 2009 3% 30
Total Monetary Benefits (millions$/ 10.8-13 10.4-12.6 11.1-13.3 2009 7% range 30
year)**.
11.4 11.0 11.7 2009 7% ..............
13.4 12.8 13.7 2009 3% ..............
12.8-15 12.3-14.4 13.2-15.3 2009 3% range 30
--------------------------------------------------------------------------------------------------------------------------------------------------------
Costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
Annualized Monetized (millions$/year). 6.9 6.9 6.9 2009 7% 30
6.7 6.7 6.7 2009 3% 30
--------------------------------------------------------------------------------------------------------------------------------------------------------
Net Benefits/Costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
Annualized Monetized, including CO2 3.9-6.1 3.4-5.6 4.2-6.4 2009 7% range 30
Benefits (millions$/year)**.
4.5 4.0 4.8 2009 7% 30
6.7 6.2 7.1 2009 3% 30
6.1-8.3 5.6-7.8 6.5-8.7 2009 3% range 30
--------------------------------------------------------------------------------------------------------------------------------------------------------
* These values represent global values (in 2009$) of the social cost of CO2 emissions in 2010 under several scenarios. The values of $4.7, $21.4, and
$35.1 per ton are the averages of SCC distributions calculated using 5%, 3%, and 2.5% discount rates, respectively. The value of $64.9 per ton
represents the 95th percentile of the SCC distribution calculated using a 3% discount rate. See section IV.M for details.
** Total Monetary Benefits for both the 3% and 7% cases utilize the central estimate of social cost of CO2 emissions calculated at a 3% discount rate
(averaged across three IAMs), which is equal to $21.4/ton in 2010 (in 2009$). The rows labeled as ``7% Range'' and ``3% Range'' calculate consumer and
NOX cases with the labeled discount rate but add these values to the full range of CO2 values with the $4.7/ton value at the low end, and the $64.9/
ton value at the high end.
[[Page 20119]]
Table I.8--Sum of Annualized Benefits and Costs for Heating Products Standards
--------------------------------------------------------------------------------------------------------------------------------------------------------
Primary estimate Low estimate High estimate Units
Category (AEO reference (low energy (high energy -----------------------------------------------------------
case) price case) price case) Year dollars Disc. rate Period covered
--------------------------------------------------------------------------------------------------------------------------------------------------------
Benefits
--------------------------------------------------------------------------------------------------------------------------------------------------------
Energy Annualized Monetized (millions$/ 1499.8 1364.4 1633.0 2009 7% 30
year).
1842.7 1664.4 2019.4 2009 3% 30
CO2 Monetized Value (at $4.7/Metric 46.2 46.2 46.2 2009 5% 30
Ton, millions$/year)*.
CO2 Monetized Value (at $21.4/Metric 168.6 168.6 168.6 2009 3% 30
Ton, millions$/year)*.
CO2 Monetized Value (at $35.1/Metric 261.3 261.3 261.3 2009 2.5% 30
Ton, millions$/year)*.
CO2 Monetized Value (at $64.9/Metric 514.2 514.2 514.2 2009 3% 30
Ton, millions$/year)*.
NOX Monetized Value (at $2,437/Metric 7.6 7.6 7.6 2009 7% 30
Ton, millions$/year).
9.2 9.2 9.2 2009 3% 30
Total Monetary Benefits (millions$/ 1553.5-2021.6 1418.2-1886.3 1686.8-2154.8 2009 7% range 30
year)**.
1676.0 1540.6 1809.2 2009 7% ..............
2020.5 1842.2 2197.2 2009 3% ..............
1898-2366.1 1719.8-2187.7 2074.8-2542.8 2009 3% range 30
--------------------------------------------------------------------------------------------------------------------------------------------------------
Costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
Annualized Monetized.................. 1284.9 1219.1 1356.3 2009 7% 30
(millions$/year)......................
1249.3 1178.4 1328.3 2009 3% 30
Annualized Monetized, including CO2 268.7-736.7 199-667.1 330.6-798.7 2009 7% range 30
Benefits (millions$/year)**.
391.1 321.5 453.0 2009 7% 30
771.2 663.8 868.9 2009 3% 30
648.8-1116.8 541.3-1009.4 746.5-1214.6 2009 3% range 30
--------------------------------------------------------------------------------------------------------------------------------------------------------
* These values represent global values (in 2009$) of the social cost of CO2 emissions in 2010 under several scenarios. The values of $4.7, $21.4, and
$35.1 per ton are the averages of SCC distributions calculated using 5%, 3%, and 2.5% discount rates, respectively. The value of $64.9 per ton
represents the 95th percentile of the SCC distribution calculated using a 3% discount rate. See section IV.M for details.
** Total Monetary Benefits for both the 3% and 7% cases utilize the central estimate of social cost of CO2 emissions calculated at a 3% discount rate
(averaged across three IAMs), which is equal to $21.4/ton in 2010 (in 2009$). The rows labeled as ``7% Range'' and ``3% Range'' calculate consumer and
NOX cases with the labeled discount rate but add these values to the full range of CO2 values with the $4.7/ton value at the low end, and the $64.9/
ton value at the high end.
E. Conclusion
Based upon the analysis culminating in this final rule, DOE has
concluded that the benefits (energy savings, consumer LCC savings,
positive national NPV, and emissions reductions) to the Nation of
today's amended standards outweigh their costs (a potential loss of
manufacturer INPV and consumer LCC increases for some users of the
three heating products). Table 1.9 below summarizes total annualized
monetized benefits and costs for these energy conservation standards.
Today's standards also represent the maximum improvement in energy
efficiency that is technologically feasible and economically justified,
and will result in significant energy savings for all three types of
the heating products. At present, residential water heaters, DHE, and
pool heaters that meet the new standard levels are either commercially
available or available as prototypes.
Table I.9--Summary Annualized Monetized Benefits and Costs
----------------------------------------------------------------------------------------------------------------
Category ($million/year) Discount rate
----------------------------------------------------------------------------------------------------------------
Benefits*
1676.0 7%
2020.5 3%
----------------------------------------------------------------------------------------------------------------
Costs
1284.9 7%
1249.3 3%
----------------------------------------------------------------------------------------------------------------
Net Benefits/Costs*
391.1 7%
771.2 3%
----------------------------------------------------------------------------------------------------------------
*Annualized Monetized, including monetized CO2 and NOX benefits.
[[Page 20120]]
II. Introduction
A. Authority
Title III of EPCA sets forth a variety of provisions designed to
improve energy efficiency. Part A\1\ of Title III (42 U.S.C. 6291-6309)
provides for the Energy Conservation Program for Consumer Products
Other Than Automobiles. The program covers consumer products and
certain commercial products (all of which are referred to hereafter as
``covered products''), including the three heating products that are
the subject of this rulemaking. (42 U.S.C. 6292(a)(4), (9), (11)) DOE
publishes today's final rule pursuant to Part A of Title III, which
also provides for test procedures, labeling, and energy conservation
standards for the three heating products and certain other types of
products, and authorizes DOE to require information and reports from
manufacturers. The test procedures for water heaters, vented DHE, and
pool heaters appear at Title 10 of the Code of Federal Regulations
(CFR) part 430, subpart B, appendices E, O, and P, respectively.
---------------------------------------------------------------------------
\1\ This part was originally titled Part B. It was redesignated
Part A in the United States Code for editorial reasons.
---------------------------------------------------------------------------
EPCA prescribes specific energy conservation standards for the
three heating products. (42 U.S.C. 6295(e)(1)-(3)) The statute further
directs DOE to conduct two cycles of rulemakings to determine whether
to amend these standards. (42 U.S.C. 6295(e)(4)) This rulemaking
represents the second round of amendments to the water heater
standards, and the first round of amendments to the DHE and pool heater
standards. The notice of proposed rulemaking (NOPR) in this proceeding
(the December 2009 NOPR; 74 FR 65852, 65858-59, 65866 (Dec. 11, 2009),
and section II.B.2 below, provide additional detail on the nature and
statutory history of the requirements for the three types of heating
products.
EPCA also provides criteria for prescribing amended standards for
covered products generally, including the three heating products. As
indicated above, any such amended standard 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 such
standards. DOE may not prescribe an amended standard for any of the
three heating products for which it has not established a test
procedure. (42 U.S.C. 6295(o)(3)(A)) Further, DOE may not prescribe a
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))
EPCA also provides that in deciding whether a standard is
economically justified for covered products, 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, 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 (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 of Energy (Secretary) considers
relevant. (42 U.S.C. 6295(o)(2)(B)(i)(I)-(VII))
In addition, EPCA, as amended, establishes a rebuttable presumption
that any standard for covered products is economically justified if the
Secretary finds that ``the additional cost to the consumer of
purchasing a product complying with an energy conservation standard
level will be less than three times the value of the energy (and as
applicable, water) savings during the first year that the consumer will
receive as a result of the standard,'' as calculated under the test
procedure in place for that standard. (42 U.S.C. 6295(o)(2)(B)(iii))
EPCA also contains what is commonly known as an ``anti-
backsliding'' provision. (42 U.S.C. 6295(o)(1)) 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. EPCA further provides
that the Secretary may not prescribe an amended 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 product type (or class) with performance characteristics
(including reliability), features, sizes, capacities, and volumes that
are substantially the same as those generally available in the United
States at the time of the Secretary's finding. (42 U.S.C. 6295(o)(4))
Under 42 U.S.C. 6295(q)(1), EPCA specifies requirements applicable
to promulgating standards for any type or class of covered product that
has two or more subcategories. Under this provision, DOE must specify a
different standard level than that which applies generally to such type
or class of product for any group of 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)(1)) 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. Id. 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))
Section 310(3) of the Energy Independence and Security Act of 2007
(EISA 2007; Pub. L. 110-140) amended EPCA to prospectively require that
energy conservation standards address standby mode and off mode energy
use. Specifically, when DOE adopts new or amended standards for a
covered product after July 1, 2010, the final rule must, if justified
by the criteria for adoption of standards in section 325(o) of EPCA,
incorporate standby mode and off mode energy use into a single standard
if feasible, or otherwise adopt a separate standard for such energy use
for that product. (42 U.S.C. 6295(gg)(3)) Because DOE is adopting
today's final rule before July 2010, this requirement does not apply in
this rulemaking, and DOE has not specifically addressed standby mode or
off mode energy use here. DOE is currently working on a test procedure
rulemaking to address the measurement of standby mode and off
[[Page 20121]]
mode energy consumption for the three types of heating products that
are the subject of this rulemaking.
Finally, Federal energy conservation requirements for covered
products generally supersede State laws or regulations concerning
energy conservation testing, labeling, and standards. (42 U.S.C.
6297(a)-(c)) DOE can, however, grant waivers of Federal preemption for
particular State laws or regulations, in accordance with the procedures
and other provisions of section 327(d) of the Act. (42 U.S.C. 6297(d))
B. Background
1. Current Standards
On January 17, 2001, DOE published a final rule prescribing the
current Federal energy conservation standards for residential water
heaters manufactured on or after January 20, 2004, which set minimum
energy factors (EFs) that vary based on the storage volume of the water
heater, the type of energy it uses (i.e., gas, oil, or electricity),
and whether it is a storage, instantaneous, or tabletop model. 66 FR
4474; 10 CFR 430.32(d). EPCA prescribes the Federal energy conservation
standards for DHE and pool heaters. For DHE, these consist of minimum
annual fuel utilization efficiency (AFUE) levels, each of which applies
to a type of unit (i.e., wall fan, wall gravity, floor, or room) and
heating capacity range. (42 U.S.C. 6295(e)(3)); 10 CFR 430.32(i). For
pool heaters, the Federal energy conservation standard prescribed by
EPCA includes a single minimum thermal efficiency level. (42 U.S.C.
6295(e)(2)); 10 CFR 430.32(k).
Table II.1, Table II.2, and Table II.3 present the current Federal
energy conservation standards for residential water heaters, DHE, and
pool heaters, respectively. The water heater standards, set forth in 10
CFR 430.32(d), consist of minimum energy factors (EF) that vary based
on the rated storage volume of the water heater, the type of energy it
uses (i.e., gas, oil, or electricity), and whether it is a storage,
instantaneous, or tabletop model. The DHE standards, set forth in 42
U.S.C. 6295(e)(3) and 10 CFR 430.32(i), consist of minimum annual fuel
utilization efficiency (AFUE) levels, each of which applies to a
particular type of gas-fired product (i.e., wall fan, wall gravity,
floor, room) and input heating capacity range. (Although electric DHE
are available, no Federal energy conservation standards exist for these
products, and today's final rule contains no such standards. For a more
detailed discussion of DHE coverage under EPCA, see 74 FR 65852, 65866
(Dec. 11, 2009) (the December 2009 NOPR)). The pool heater standards,
set forth at 42 U.S.C. 6295(e)(2) and 10 CFR 430.32(k), consist of a
thermal efficiency level. (Similar to the situation with DHE, this
standard applies only to gas-fired products. Although electric pool
heaters are available, no Federal energy conservation standards
currently exist for other pool heaters, and today's final rule contains
no such standard. For a more detailed discussion of pool heater
coverage, see 74 FR 65852, 65866-67 (Dec. 11, 2009).)
Table II.1--Current Federal Energy Conservation Standards for
Residential Water Heaters
------------------------------------------------------------------------
Energy factor as of January 20,
Product class 2004
------------------------------------------------------------------------
Gas-Fired Storage Water Heater......... EF = 0.67--(0.0019 x Rated
Storage Volume in gallons)
Oil-Fired Storage Water Heater......... EF = 0.59--(0.0019 x Rated
Storage Volume in gallons)
Electric Storage Water Heater.......... EF = 0.97--(0.00132 x Rated
Storage Volume in gallons)
Tabletop Water Heater.................. EF = 0.93--(0.00132 x Rated
Storage Volume in gallons)
Gas-Fired Instantaneous Water Heater... EF = 0.62--(0.0019 x Rated
Storage Volume in gallons)
Instantaneous Electric Water Heater.... EF = 0.93--(0.00132 x Rated
Storage Volume in gallons)
------------------------------------------------------------------------
Table II.2--Current Federal Energy Conservation Standards for Direct
Heating Equipment
------------------------------------------------------------------------
Annual fuel
utilization
Direct heating equipment Product class Btu/h efficiency, as
design type of Jan. 1, 1990
%
------------------------------------------------------------------------
Gas Wall Fan.................. Up to 42,000.......... 73
Over 42,000........... 74
Gas Wall Gravity.............. Up to 10,000.......... 59
Over 10,000 and up to 60
12,000.
Over 12,000 and up to 61
15,000.
Over 15,000 and up to 62
19,000.
Over 19,000 and up to 63
27,000.
Over 27,000 and up to 64
46,000.
Over 46,000........... 65
Gas Floor..................... Up to 37,000.......... 56
Over 37,000........... 57
Gas Room...................... Up to 18,000.......... 57
Over 18,000 and up to 58
20,000.
Over 20,000 and up to 63
27,000.
Over 27,000 and up to 64
46,000.
Over 46,000........... 65
------------------------------------------------------------------------
Table II.3--Current Federal Energy Conservation Standards for Pool
Heaters
------------------------------------------------------------------------
Thermal efficiency as of
Product class January 1, 1990
------------------------------------------------------------------------
Gas-Fired Pool Heater.................. Thermal Efficiency = 78%
------------------------------------------------------------------------
[[Page 20122]]
2. History of Standards Rulemaking for the Three Heating Products
Prior to being amended in 1987, EPCA included water heaters and
home heating equipment as covered products. The amendments to EPCA
effected by the National Appliance Energy Conservation Act of 1987
(NAECA; Pub. L. 100-12) included replacing the term ``home heating
equipment'' with ``direct heating equipment,'' adding pool heaters as a
covered product, establishing standards for the three heating products,
and requiring that DOE determine whether these standards should be
amended. (42 U.S.C. 6295(e)(1)-(4)) As indicated above, DOE amended the
statutorily-prescribed standards for water heaters in 2001 (66 FR 4474
(Jan. 17, 2001)), but has not amended the statutory standards for DHE
or pool heaters.
DOE commenced this rulemaking on September 27, 2006, by publishing
on its Web site its ``Rulemaking Framework for Residential Water
Heaters, Direct Heating Equipment, and Pool Heaters.'' (A PDF of the
framework document is available at http://www.eere.energy.gov/buildings/appliance_standards/residential/pdfs/heating_equipment
framework_092706.pdf.) DOE also published a notice announcing the
availability of the framework document and a public meeting and
requesting comments on the matters raised in the document. 71 FR 67825
(Nov. 24, 2006). The framework document described the procedural and
analytical approaches that DOE anticipated using to evaluate potential
energy conservation standards for the three heating products and
identified various issues to be resolved in conducting the rulemaking.
DOE held the framework document public meeting on January 16, 2009.
On January 5, 2009, having considered these comments, gathered
additional information, and performed preliminary analyses as to
standards for the three heating products, DOE announced an informal
public meeting and the availability on its Web site of a preliminary
technical support document (preliminary TSD). 74 FR 1643 (Jan. 13,
2009). The preliminary TSD is available at: http://www1.eere.energy.gov/buildings/appliance_standards/residential/water_pool_heaters_prelim_tsd.html. The preliminary TSD discussed the
comments DOE had received at the framework stage of this rulemaking and
described the actions DOE had taken, the analytical framework DOE was
using, and the content and results of DOE's preliminary analyses. Id.
at 1644, 1645. DOE convened the public meeting to discuss and receive
comments on: (1) These subjects, (2) DOE's proposed product classes,
(3) potential standard levels that DOE might consider, and (4) other
issues participants believed were relevant to the rulemaking. Id. at
1643, 1646. DOE also invited written comments on these matters. The
public meeting took place on February 9, 2009. Many interested parties
participated, and submitted written comments during the comment period.
On December 11, 2009, DOE published a NOPR to consider amending the
existing residential water heater, direct heating equipment, and pool
heater energy conservation standards. 74 FR 65852. Shortly after, DOE
also published on its Web site the complete TSD for the proposed rule,
which incorporated the completed analyses DOE conducted and technical
documentation for each analysis. The TSD included the LCC spreadsheet,
the national impact analysis spreadsheet, and the manufacturer impact
analysis (MIA) spreadsheet--all of which are available at: http://www1.eere.energy.gov/buildings/appliance_standards/residential/water_pool_heaters_nopr.html. In the December 2009 NOPR, DOE proposed
amended energy conservation standards for the three heating products as
follows:
Table II.4--Proposed Amended Energy Conservation Standards for
Residential Water Heaters, Direct Heating Equipment, and Pool Heaters
------------------------------------------------------------------------
------------------------------------------------------------------------
Product Class Proposed Standard Level
------------------------------------------------------------------------
Residential Water Heaters*
------------------------------------------------------------------------
Gas-fired Storage............... For tanks with a For tanks with a
Rated Storage Rated Storage
Volume at or Volume above 60
below 60 gallons: gallons:
EF = 0.675 - EF = 0.717 -
(0.0012 x Rated (0.0019 x Rated
Storage Volume in Storage Volume in
gallons). gallons).
------------------------------------------------------------------------
Electric Storage................ For tanks with a For tanks with a
Rated Storage Rated Storage
Volume at or Volume above 80
below 80 gallons: gallons:
EF = 0.96 - EF = 1.088 -
(0.0003 x Rated (0.0019 x Rated
Storage Volume in Storage Volume in
gallons). gallons).
------------------------------------------------------------------------
Oil-fired Storage............... EF = 0.68 - (0.0019 x Rated Storage
Volume in gallons).
Gas-fired Instantaneous......... EF = 0.82 - (0.0019 x Rated Storage
Volume in gallons).
------------------------------------------------------------------------
Direct Heating Equipment **
------------------------------------------------------------------------
Product Class Proposed Standard
Level
------------------------------------------------------------------------
Gas wall fan type up to 42,000 Btu/h............ AFUE = 76%.
Gas wall fan type over 42,000 Btu/h............. AFUE = 77%.
Gas wall gravity type up to 27,000 Btu/h........ AFUE = 70%.
Gas wall gravity type over 27,000 Btu/h up to AFUE = 71%.
46,000 Btu/h.
Gas wall gravity type over 46,000 Btu/h......... AFUE = 72%.
Gas floor up to 37,000 Btu/h.................... AFUE = 57%.
Gas floor over 37,000 Btu/h..................... AFUE = 58%.
Gas room up to 20,000 Btu/h..................... AFUE = 62%.
Gas room over 20,000 Btu/h up to 27,000 Btu/h... AFUE = 67%.
Gas room over 27,000 Btu/h up to 46,000 Btu/h... AFUE = 68%.
Gas room over 46,000 Btu/h...................... AFUE = 69%.
[[Page 20123]]
Gas hearth up to 20,000 Btu/h................... AFUE = 61%.
Gas hearth over 20,000 Btu/h and up to 27,000 AFUE = 66%.
Btu/h.
Gas hearth over 27,000 Btu/h and up to 46,000 AFUE = 67%.
Btu/h.
Gas hearth over 46,000 Btu/h.................... AFUE = 68%.
------------------------------------------------------------------------
Pool Heaters
------------------------------------------------------------------------
Product Class Proposed Standard
Level
------------------------------------------------------------------------
Gas-fired....................................... Thermal Efficiency =
84%.
------------------------------------------------------------------------
* EF is the ``energy factor,'' and the ``Rated Storage Volume'' equals
the water storage capacity of a water heater (in gallons), as
specified by the manufacturer.
** Btu/h is ``British thermal units per hour,'' and AFUE is ``Annual
Fuel Utilization Efficiency.''
In the December 2009 NOPR, DOE identified 24 specific issues on
which it was particularly interested in receiving the comments and
views of interested parties. 74 FR 65852, 65994-95 (Dec. 11, 2009). In
addition, DOE also specifically requested comments and data that would
allow DOE to further bring clarity to the issues surrounding heat pump
water heaters and condensing water heaters, and determine how the
issues discussed in the December 2009 NOPR could be adequately
addressed prior to the compliance date of an amended national energy
conservation standard for water heaters that would effectively require
the use of such technology. 74 FR 65852, 65966-67 (Dec. 11, 2009). DOE
also held a public meeting in Washington, DC, on January 7, 2010, to
hear oral comments on and solicit information on the issues just
mentioned and any other matters relevant to the proposed rule. Finally,
DOE received many written comments on these and other issues in
response to the December 2009 NOPR, which are further presented and
addressed throughout today's notice. The December 2009 NOPR included
additional, detailed background information on the history of this
rulemaking. See 74 FR at 65852, 65859-60 (Dec. 11, 2009).
III. General Discussion
A. Test Procedures
As noted above, DOE's test procedures for residential water
heaters, vented DHE, and pool heaters are set forth at 10 CFR part 430,
subpart B, appendices E, O, and P, respectively. These test procedures
are currently used to determine whether the three heating products
comply with applicable energy conservation standards and as a basis for
manufacturers' representations as to the energy efficiency of these
products.
During this rulemaking, interested parties have asserted that the
residential water heater test procedure does not: (1) Reflect actual
use of these water heaters by consumers; (2) permit accurate (i.e.,
consistent and repeatable) measurement of the efficiencies of electric
resistance water heaters that have an EF of 0.95 EF and above; or (3)
include all of the cost-effective efficiency measures available for
water heaters. 74 FR 65852, 65860-61 (Dec. 11, 2009).
As to the first point, DOE believes the test procedure does reflect
actual use of water heaters. It employs a hot water draw model, and
data that incorporate correction factors that account for actual use of
water heaters in U.S. homes. 74 FR 65852, 65860 (Dec. 11, 2009). As to
the second point, concerning accuracy of the test procedure, DOE
explains in the December 2009 NOPR that manufacturer certification of
several electric resistance water heaters with EFs of 0.95, as well as
DOE testing of such models, demonstrate that the DOE test procedure can
accurately measure the efficiencies of units at that level that use
conventional, electric resistance technologies. 74 FR 65852, 65680-81
(Dec. 11, 2009). As the December 2009 NOPR also indicates, units with
efficiencies significantly above that level must use advanced
technologies, for which the test procedure also permits accurate
measurement of EF levels. 74 FR 65852, 65681 (Dec. 11, 2009). Thus,
because today's standards for electric water heaters have two
substantially different tiers--for capacities at or below 55 gallons,
minimum EF levels equivalent to 0.95 at the representative storage
capacity, and for larger capacities substantially higher minimum EF
levels--DOE confirms that the existing test procedure will accurately
determine the efficiencies of both models using conventional
technologies to meet the lower tier and models that will have to use
advanced technologies to meet the higher tier. Finally, the only
specific cost-effective efficiency measure that commenters cited as
being absent from DOE's water heater test procedure is insulation on
the tank bottom. 74 FR 65852, 65861 (Dec. 11, 2009). To the contrary,
however, the test procedure addresses and gives credit for inclusion of
such insulation in water heaters. 10 CFR part 430, subpart B, appendix
E, section 5. Although DOE recognizes that the test procedure does not
reflect certain recent advances in energy saving technology, it is
aware of no evidence that such technologies actually do or would result
in significant, cost-effective energy savings under normal operating
conditions for water heaters. Hence, omission of these technologies
from the test procedure does not affect the efficiency levels
considered in this rulemaking. DOE received no comments on this issue
at the NOPR stage. Thus, DOE continues to believe, as stated in the
December 2009 NOPR, that the appropriate time to address such omission
is during the next revision of the test procedure.
As to the DHE and pool heater test procedures, in the December 2009
NOPR, DOE proposed that its test procedures for vented DHE be applied
to establish the efficiencies of vented gas hearth DHE. 74 FR 65852,
65861 (Dec. 11, 2009). DOE received no comments from interested parties
raising any concern in this rulemaking about application of the DOE
test procedures for vented DHE to other types of this product. In
addition, DOE received no comments regarding application of its test
procedures for pool heaters.
EPCA, as amended by EISA 2007, requires DOE to amend the test
procedures for the three types of heating products to include
provisions for measurement of the products' standby mode and off mode
energy consumption. (42 U.S.C. 6295(gg)(2)(B)(v)) DOE is actively
working on a separate rulemaking to amend its test procedures for the
three types of heating products to incorporate these measurements of
standby mode and off mode energy consumption in the future.
B. Technological Feasibility
1. General
As stated above, any standard that DOE establishes for any of the
three heating products must be technologically feasible. (42 U.S.C.
6295(o)(2)(A) and (3)(B)) DOE considers a design or technology option
to be technologically feasible if it is in use by the respective
industry or if research has progressed to the development of a
[[Page 20124]]
working prototype. ``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). Once DOE
has determined that particular technology options are technologically
feasible, it evaluates each technology option in light of the following
additional screening criteria: (1) Practicability to manufacture,
install, or service; (2) adverse impacts on product utility or
availability; and (3) adverse impacts on health or safety.
This final rule considers the same technology options as those
evaluated in the December 2009 NOPR. (See chapter 3 and 4 of the TSD
accompanying this notice.) All of these technologies have been used or
are in use in commercially-available products, or exist in working
prototypes. Also, these technologies all incorporate materials and
components that are commercially available in today's supply markets
for the products covered by this final rule. DOE received several
comments on the technology options considered in the rulemaking and the
preliminary conclusions drawn by applying the four screening criteria
to them. A detailed discussion of the comment and response can be found
in section IV.B. Therefore, DOE determined that all of the efficiency
levels evaluated in this notice are technologically feasible.
2. Maximum Technologically Feasible Levels
As required by 42 U.S.C. 6295(p)(1), in developing the December
2009 NOPR, DOE identified the efficiency levels that would achieve the
maximum improvements in energy efficiency that are technologically
feasible (max-tech levels) for the three heating products. 74 FR 65852,
65861-62 (Dec. 11, 2009). (See chapter 5 of the TSD.) Except for the
levels for electric and gas-fired storage water heaters and gas wall
gravity DHE, DOE received no comments on the December 2009 proposed
rule to lead DOE to consider changes to these levels. Therefore, for
today's final rule, the max-tech levels for all classes of the three
heating products, except for the electric and gas-fired water heaters
and gas wall gravity DHE, are the max-tech levels identified in the
December 2009 NOPR.
The max-tech levels considered for today's rule are provided in
Table III.1. See section IV.C.2 for additional details of the max-tech
efficiency levels and discussion of related comments from interested
parties on the December 2009 NOPR.
Table III.1--Max-Tech Efficiency Levels for the Residential Heating Products Rulemaking for the Representative
Products
----------------------------------------------------------------------------------------------------------------
Product class Representative product Max-Tech efficiency level
----------------------------------------------------------------------------------------------------------------
Residential Water Heaters
----------------------------------------------------------------------------------------------------------------
Gas-Fired Storage Water Heater......... Rated Storage Volume = 40 EF = 0.77.
Gallons.
Electric Storage Water Heater.......... Rated Storage Volume = 50 EF = 2.35.
Gallons.
Oil-Fired Storage Water Heater......... Rated Storage Volume = 32 EF = 0.68.
Gallons.
Gas-Fired Instantaneous Water Heater... Rated Storage Volume = 0 EF = 0.95.
Gallons, Rated Input
Capacity = 199,999 Btu/h.
----------------------------------------------------------------------------------------------------------------
Direct Heating Equipment
----------------------------------------------------------------------------------------------------------------
Gas Wall Fan Type...................... Rated Input Capacity = AFUE = 80%.
Over 42,000 Btu/h.
Gas Wall Gravity Type.................. Rated Input Capacity = AFUE = 70%.
Over 27,000 Btu/h and up
to 46,000 Btu/h.
Gas Floor Type......................... Rated Input Capacity = AFUE = 58%.
Over 37,000 Btu/h.
Gas Room Type.......................... Rated Input Capacity = AFUE = 83%.
Over 27,000 Btu/h and up
to 46,000 Btu/h.
Gas Hearth Type........................ Rated Input Capacity = AFUE = 93%.
Over 27,000 Btu/h and up
to 46,000 Btu/h.
----------------------------------------------------------------------------------------------------------------
Pool Heaters
----------------------------------------------------------------------------------------------------------------
Gas-Fired.............................. Rated Input Capacity = Thermal Efficiency = 95%.
250,000 Btu/h.
----------------------------------------------------------------------------------------------------------------
C. Energy Savings
DOE forecasted energy savings over a 30-year analysis period in its
national impact analysis (NIA) through the use of an NIA spreadsheet
tool, as discussed in the December 2009 NOPR. 74 FR 65862, 65908-14,
65954 (Dec. 11, 2009).
One of the criteria that governs DOE's adoption of standards for
covered products is that the standard must result in ``significant
conservation of energy.'' (42 U.S.C. 6295(o)(3)(B)) While EPCA does not
define the term ``significant,'' the U.S. Court of Appeals for the
District of Columbia Circuit, in Natural Resources Defense Council v.
Herrington, 768 F.2d 1355, 1373 (DC Cir. 1985), indicated that Congress
intended ``significant'' energy savings in this context to be savings
that were not ``genuinely trivial.'' DOE's estimates of the energy
savings for energy conservation standards at each of the TSLs
considered for today's rule indicate that the energy savings each would
achieve are nontrivial. Therefore, DOE considers these savings
``significant'' within the meaning of Section 325 of EPCA.
D. Economic Justification
The following section discusses how DOE has addressed each of the
seven factors that it uses to determine if energy conservation
standards are economically justified. The comments DOE received on
specific analyses and DOE's response to those comments are summarized
and presented throughout section IV.
1. Specific Criteria
As noted earlier, EPCA provides seven factors to evaluate in
determining whether an energy conservation standard for covered
products is economically justified. (42 U.S.C. 6295(o)(2)(B)(i)) The
following sections summarize how DOE has addressed each of those seven
factors in evaluating efficiency standards for the three heating
products.
[[Page 20125]]
a. Economic Impact on Consumers and Manufacturers
As required by EPCA, DOE considered the economic impact of
potential standards on consumers and manufacturers of the three heating
products. (42 U.S.C. 6295(o)(2)(B)(i)(I)) For consumers, DOE measured
the economic impact as the change in installed cost and life-cycle
operating costs (i.e., the change in LCC). (See section IV.F and
VI.C.1.a, and chapter 8 of the final rule TSD.) DOE investigated the
impacts on manufacturers through the manufacturer impact analysis
(MIA). (See sections IV.I and VI.C.2 of today's final rule, and chapter
12 of the final rule TSD.) The economic impact on consumers and
manufacturers is discussed in detail in the December 2009 NOPR. 74 FR
65852, 65862-63, 65897-908, 65915-22, 65932-54, 65984-92 (Dec. 11,
2009).
b. Life-Cycle Costs
As required by EPCA, DOE considered the life-cycle costs of the
three heating products. (42 U.S.C. 6295(o)(2)(B)(i)(II)) LCC is
discussed at length in the December 2009 NOPR. 74 FR 65852, 65863,
65897-908, 65915, 65932-35 (Dec. 11, 2009). DOE calculated the sum of
the purchase price (including associated installation costs) and the
operating expense (including energy, maintenance, and repair
expenditures), discounted over the lifetime of the equipment, to
estimate the range in LCC benefits that consumers would expect to
achieve due to standards.
c. Energy Savings
Although 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 December 2009 NOPR, for today's final
rule, DOE used the NIA spreadsheet results in its consideration of
total projected savings that are directly attributable to the standard
levels DOE considered. 74 FR 65852, 65862, 65908-14, 65954 (Dec. 11,
2009).
d. Lessening of Utility or Performance of Products
In selecting today's standard levels, DOE did not consider trial
standard levels for the three heating products that would lessen the
utility or performance of such products. (42 U.S.C.
6295(o)(2)(B)(i)(IV)). As explained in the December 2009 NOPR, DOE
determined that none of the trial standard levels under considerations
would reduce the utility or performance of the products subject to this
rulemaking. 74 FR 65852, 65863, 65956 (Dec. 11, 2009).
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 December 2009 NOPR (74
FR 65852, 65863, 65956 (Dec. 11, 2009)), DOE requested that the
Attorney General transmit to the Secretary, not later than 60 days
after publication of the proposed rule, a written determination of the
impact, if any, of any lessening of competition likely to result from
the standards proposed in the December 2009 NOPR, 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 U.S. Department of Justice (DOJ) with copies of the
December 2009 proposed rule and the NOPR TSD for review. The Attorney
General's determination is discussed in section VI.C.5 below, and is
reprinted at the end of this rule. DOJ did not believe the standards
proposed in the December 2009 NOPR for water heaters and pool heaters
would likely lead to a lessening of competition. However, DOJ was
concerned about the potential of the proposed standards to impact
competition in the traditional DHE categories if no more than one or
two DHE manufacturers chose to continue to produce products in any one
of the categories. DOJ requested that DOE consider the potential impact
on competition in determining the final standards for these categories.
(DOJ, No. 99 at pp. 1-2) \2\ DOJ's comment and DOE's response are
further described in section VI.C.5.
---------------------------------------------------------------------------
\2\ ``DOJ, No. 99 at pp. 1-2'' refers to: (1) To a statement
that was submitted by the U.S. Department of Justice. It was
recorded in the Resource Room of the Building Technologies Program
in the docket under ``Energy Conservation Program: Energy
Conservation Standards for Residential Water Heaters, Direct Heating
Equipment, and Pool Heaters,'' Docket Number EERE-2006-BT-STD-0129,
as comment number 99; and (2) a passage that appears on pages 1
through 2 of that statement.
---------------------------------------------------------------------------
f. Need of the Nation To Conserve Energy
In considering standards for the three heating products, 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. The non-
monetary benefits of standards are likely to be reflected in
improvements to the security and reliability of the Nation's energy
system. Today's standards will also result in environmental benefits.
As discussed in detail in the December 2009 NOPR (74 FR 65852, 65863,
65923-29, 65956-61 (Dec. 11, 2009)) and in sections IV.K, IV.L, and
IV.M, DOE has considered these factors in considering whether to adopt
standards for the three heating products, primarily through its utility
impact analysis, environmental assessment, and monetization of
anticipated emissions reductions.
g. Other Factors
EPCA directs the Secretary of Energy, in determining whether a
standard is economically justified, to consider any other factors that
the Secretary deems to be relevant. (42 U.S.C. 6295(o)(2)(B)(i)(VII))
In adopting today's standards, the Secretary considered the potential
impact of standards on certain identifiable groups of consumers who
might be disproportionately impacted by any national energy
conservation standard level. For certain water heaters and DHE, DOE
considered the impacts of standards on low-income households and
senior-only households, and of these water heaters, DOE also considered
the impacts of standards on households in multi-family housing and in
manufactured homes. 74 FR 65852, 65863, 65934-35, 65961-62 (Dec. 11,
2009).
In addition, DOE considered the uncertainties associated with
whether, in order to adequately serve the water heater market: (1)
Manufacturers could ramp up production of heat pump water heaters; (2)
heat pump component manufacturers could increase production; and (3)
enough servicers and installers of water heaters could be retrained. 74
FR 65852, 65863-64, 65877-78, 65962, 65965-66 (Dec. 11, 2009). Lastly,
DOE considered the issues identified in the December 2009 NOPR
surrounding the product division used in the two-slope energy-
efficiency equations, promulgation of different standards for a subset
of products, the heat pump water heater market, as well as the
condensing water heater market. 74 FR 65852, 65966-67 (Dec. 11, 2009).
These issues are addressed as presented below in section VI.D.2.
2. Rebuttable Presumption
As set forth in 42 U.S.C. 6295(o)(2)(B)(iii), EPCA states that
there is a rebuttable presumption that an energy conservation standard
is economically justified if the increased
[[Page 20126]]
installed cost for a product that meets the standard is less than three
times the value of the first-year energy (and, as applicable, water)
savings resulting from the standard, as calculated under the applicable
DOE test procedure. DOE's LCC and payback period (PBP) analyses
generate values that calculate the payback period for consumers of
potential energy conservation standards, which include, but are not
limited to, the payback period contemplated under the rebuttable
presumption test described above. However, DOE routinely conducts a
full economic analysis that considers the full range of impacts,
including those to the consumer, manufacturer, Nation, and environment,
as required under 42 U.S.C. 6295(o)(2)(B)(i). The results of this
analysis serve as the basis for DOE to definitively evaluate the
economic justification for a potential standard level (thereby
supporting or rebutting the results of any preliminary determination of
economic justification). The results of DOE's PBP analysis can be found
in sections VI.C.1.a and VI.C.1.c.
IV. Methodology and Discussion of Comments on Methodology
DOE used several analytical tools that it developed previously and
adapted for use in this rulemaking. One is a spreadsheet that
calculates LCC and PBP. Another tool calculates national energy savings
and national NPV that would result from the adoption of energy
conservation standards. DOE also used the Government Regulatory Impact
Model (GRIM), along with other methods, in its MIA to determine the
impacts on manufacturers of standards for the three heating products.
Finally, DOE developed an approach using the Energy Information
Administration's (EIA) National Energy Modeling System \3\ (NEMS) to
estimate the impacts of such standards on utilities and the
environment. Chapters 3 through 16 of the TSD and the December 2009
NOPR discuss each of these analytical tools in detail. 74 FR 65852,
65897-919, 65923-29 (Dec. 11, 2009).
---------------------------------------------------------------------------
\3\ The NEMS model simulates the energy sector of the U.S.
economy. EIA uses NEMS to prepare its AEO, a widely-known energy
forecast for the United States. The EIA approves the use of the name
NEMS to describe only an AEO version of the model without any
modification to code or data. For more information on NEMS, refer to
The National Energy Modeling System: An Overview 1998. DOE/EIA-0581
(98) (Feb. 1998) (available at: http://tonto.eia.doe.gov/FTPROOT/forecasting/058198.pdf). The version of NEMS used for appliance
standards analysis is called NEMS-BT. Because the present analysis
entails some minor code modifications and runs the model under
various policy scenarios that deviate from AEO assumptions, the name
``NEMS-BT'' refers to the model as used here. (``BT'' stands for
DOE's Building Technologies Program.) NEMS-BT offers a sophisticated
picture of the effect of standards because it accounts for the
interactions between the various energy supply and demand sectors
and the economy as a whole.
---------------------------------------------------------------------------
As a basis for this final rule, DOE has continued to use the
spreadsheets and approaches explained in the December 2009 NOPR. DOE
used the same general methodology as applied in the December 2009 NOPR,
but revised some of the assumptions and inputs for the final rule in
response to stakeholder comments. The following sections discuss these
comments and revisions.
A. Market and Technology Assessment
When beginning an energy conservation standards rulemaking, DOE
develops information that provides an overall picture of the market for
the products concerned, including the purpose of the products, the
industry structure, and market characteristics. This activity includes
both quantitative and qualitative assessments based primarily on
publicly-available information. DOE presented its market and technology
assessment for this rulemaking in the December 2009 NOPR and chapter 3
of the NOPR TSD. 74 FR 65852, 65864-72 (Dec. 11, 2009). The assessment
included product definitions, delineation of the products included in
the rulemaking, product classes, manufacturers, quantities and types of
products offered for sale, retail market trends, and regulatory and
non-regulatory initiative programs. As discussed below, commenters
raised a variety of issues related to the market and technology
assessment, to which DOE responds in the following sections.
1. DOE's Determinations as to the Inclusion of Products in This
Rulemaking
a. Whether Certain Products Are Covered Under the Act
i. Solar-Powered Water Heaters and Pool Heaters
As fully explained in the December 2009 NOPR, DOE has concluded
that it presently lacks authority to prescribe standards for these
products because EPCA currently covers only water heaters and pool
heaters that use electricity or fossil fuels, and because any energy
conservation standard currently adopted under EPCA for these two
products must address or be based on the quantity of these fuels, but
not solar power, that the product consumes. 74 FR 65852, 65864 (Dec.
11, 2009). In addition, DOE currently lacks authority to adopt
standards for solar-powered water heaters because EPCA's definition of
``water heater'' includes only products that use ``oil, gas, or
electricity to heat potable water.'' (42 U.S.C. 6291(27); 10 CFR 430.2)
Because DOE did not receive additional feedback from interested
parties, DOE did not change its position on solar-powered water heaters
and pool heaters as presented in the December 2009 NOPR and summarized
above.
ii. Add-On Heat Pump Water Heaters
DOE did not propose in the December 2009 NOPR to adopt standards
for a residential product that is commonly known as an add-on heat pump
water heater. This product typically is marketed and used as an add-on
component to a separately manufactured, fully-functioning electric
storage water heater. The add-on device, by itself, is not capable of
heating water and lacks much of the equipment necessary to operate as a
water heater. DOE has concluded, therefore, that the device does not
meet EPCA's definition of a ``water heater'' and currently is not a
covered product. 74 FR 65852, 65865 (Dec. 11, 2009).
In response to DOE's preliminary conclusions set forth in the
December 2009 NOPR regarding add-on heat pump water heaters, the
American Council for an Energy Efficient Economy (ACEEE) stated that
add-on heat pump water heaters should not have been excluded from the
rulemaking. (ACEEE, No. 79 at p. 5) According to the commenter, the
December 2009 NOPR language used to exclude them could as readily be
used to exclude split system air conditioners as add-ins to furnace
systems, since they are not fully functional without the furnace's air
handler. ACEEE argued that add-on heat pump water heaters could provide
an important opportunity for cost-effective resistive unit retrofits,
and standards are required to help exclude low-performance units that
will not meet consumer needs. Otherwise, ACEEE asserted that there is
danger that failures of low-performance add-on units will damage the
reputation of the integral heat pump water heater product class, as it
is not clear that consumers will easily differentiate the two product
subclasses.
In response, DOE does not agree with ACEEE's comparison of add-on
heat pump water heaters to central air conditioning and heating
systems. Unlike components in a split air-conditioning system, add-on
heat pump water heaters are paired to an electric storage water heater
which is fully functional when it leaves the manufacturing facility.
Components in a split air-conditioning system do not work independently
until paired
[[Page 20127]]
together in the field. As DOE previously stated, the add-on device, by
itself, is not capable of heating water and lacks much of the equipment
necessary to operate as a water heater. DOE is not swayed by the
commenter's speculative assertions regarding the future performance of
add-on heat pump water heaters. Accordingly, DOE has concluded that an
add-on heat pump water heater does not meet EPCA's definition of a
``water heater'' and currently is not a covered product.
iii. Gas-Fired Instantaneous Water Heaters With Inputs Above and Below
Certain Levels
During this rulemaking, DOE considered whether to evaluate for
standards gas-fired instantaneous water heaters with inputs greater
than 200,000 Btu/h or less than 50,000 Btu/h. DOE determined that the
former do not meet EPCA's definition of a ``water heater,'' given the
specific portions of the definition pertaining to ``instantaneous type
units.'' (42 U.S.C. 6291(27)(B)) As to the latter, DOE determined that
manufacturers are not currently producing any gas-fired instantaneous
water heaters with an input capacity less than 50,000 Btu/h. Therefore,
DOE did not propose standards for products with an input capacity above
200,000 Btu/h or below 50,000 Btu/h. 74 FR 65852, 65865 (Dec. 11,
2009). DOE did not receive any comments on this issue at the NOPR
stage, so the above approach has been retained for this final rule, and
accordingly, no standards are being adopted for gas-fired instantaneous
water heaters with inputs greater than 200,000 Btu/h or less than
50,000 Btu/h.
iv. Residential Pool Heaters With Input Capacities Above Certain Levels
and Coverage of Spa Heaters
At the framework stage of this rulemaking, DOE considered excluding
pool heaters with an input capacity greater than 1 million Btu/h, and
commenters suggested that DOE should exclude products with an input
capacity greater than 400,000 Btu/h. The rulemaking covers pool heaters
that meet EPCA's definitions of ``pool heater'' (which provides no
capacity limitation) and of ``consumer product.'' (42 U.S.C. 6291(25);
42 U.S.C. 6291(1)). DOE tentatively concluded that these provisions,
and standards adopted under them, would apply to any pool heater
distributed to any significant extent as a consumer product for
residential use, regardless of input capacity. In addition, DOE
tentatively concluded that pool heaters marketed as commercial
equipment, which contain additional design modifications related to
safety requirements for commercial installation, would not be covered
by such standards. Therefore, DOE did not propose to limit application
of the standards developed in this rulemaking to pool heaters with an
input capacity below a specified level. 74 FR 65852, 65865 (Dec. 11,
2009).
In response to this position in the December 2009 NOPR, DOE
received three comments urging DOE to establish an input capacity limit
for residential pool heaters.
Zodiac Pool Systems (Zodiac) asserted that DOE should consider
setting different minimum efficiency levels for pool heaters with input
ratings of up to 400,000 British thermal units per hour (Btu/h) and for
those with input ratings above 400,000 Btu/h. Zodiac stated its belief
that there may be some benefits to be gained if what Zodiac referred to
as ``commercial'' pool heaters (i.e., those units rated above 400,000
Btu/h input) required a higher minimum efficiency level than that for
``residential'' pool heaters (i.e., those units rated up to 400,000
Btu/h input). According to the commenter, commercial-type units are
operated longer and in general, continuously, thereby increasing the
potential payback in efficiency and energy savings over the life of the
product. (Zodiac, No. 68 at p. 2)
Lochinvar asserted that DOE should limit the input capacity for
residential pool heaters to 400,000 Btu/h and that DOE should add an
additional classification for commercial pool heaters above 400,000
Btu/h. According to the commenter, practically all of the residential
pool heaters sold today have pool heater inputs of 400,000 Btu/h and
below. Lochinvar stated that residential pool heater sales by pool
heater manufacturers do not include pumps. Residential pool heaters are
designed to accept a wide range of water flows to meet the customers'
demands because the residential market is mature with a wide variety of
pool distribution accessories (e.g., pumps that mate with water
filtration systems, water temperature controls, and valving
components). Therefore, pumps are not supplied because this is a
variable that cannot be anticipated by the pool heater manufacturer.
Thus, for efficiency rating purposes, pool heater thermal efficiency,
as calculated by DOE's test procedure, does not include the pump
energy. In contrast, Lochinvar pointed out that commercial pool heater
applications require much higher volumes of water to be circulated in a
primary pool loop that incorporates large filtration systems and pool
water conditioning and monitoring equipment. Commercial pool heaters
are designed to tap off of the primary pool loop and, via means of a
separate pump, circulate pool water through the commercial pool heater
to be heated and then delivered back to the pool loop. The ratio of
water flow through commercial pool loop systems to that flowing through
the pool heater is anywhere from 5 to 15 times. In these applications,
commercial pool heater sales always provide or specify matching pumps
to ensure sufficient water flow through the heat exchanger.
Accordingly, the contribution of pump energy is included in the
industry commercial pool heater test procedure and combustion
efficiency metric. (Lochinvar, No. 56.6 at p. 2)
AHRI recommended that consideration be given in the future to
creating separate subclasses to distinguish between commercial and
residential pool heaters from a market perspective. Comments have
previously been provided noting the major differences between pool
heaters for commercial applications versus residential applications,
specifically in terms of construction, control schemes, and how they go
to market. (AHRI, No. 91 at p. 10)
As DOE discussed in the December 2009 NOPR, EPCA places no capacity
limit on the pool heaters it covers in terms of its definition of
``pool heater.'' (42 U.S.C. 6291(25)) Furthermore, EPCA covers pool
heaters as a ``consumer product,'' (42 U.S.C. 6291(2), 6292(a)(11)) and
defines ``consumer product,'' in part, as an article that ``to any
significant extent, is distributed in commerce for personal use or
consumption by individuals.'' (42 U.S.C. 6291(1)) These provisions
establish that EPCA, and standards adopted under it, apply to any pool
heater distributed to any significant extent as a consumer product for
residential use, regardless of input capacity. In light of the above
and based upon the distinct differences articulated by commenters
between the residential and commercial pool heater markets and
products, DOE has concluded that further delineation by adding an input
capacity limit is not necessary. Specifically, pool heaters marketed as
commercial equipment, which contain additional design modifications
related to safety requirements for installation in commercial
buildings, are not covered by this standard. This would include pool
heating systems that are designed to meet a high volume flow and are
matched with a pump from the point of manufacture to accommodate the
needs of commercial facilities. DOE believes manufacturers can
distinguish those
[[Page 20128]]
units from pool heaters distributed to any significant extent as a
consumer product for residential use, regardless of input capacity.
As to spa heaters, the EPCA definition for ``pool heater'' clearly
encompasses them. (42 U.S.C. 6291(25)) Therefore, in the December 2009
NOPR, DOE tentatively concluded that they are covered by EPCA, and
included them in this rulemaking. Furthermore, DOE tentatively
concluded that because spa heaters and pool heaters perform similar
functions, include similar features, and lack performance or operating
features that would cause them to have inherently different energy
efficiencies, a separate product class for such units is not warranted.
74 FR 65852, 65865-66 (Dec. 11, 2009). DOE did not receive any comments
in response to its proposed treatment of spa heaters in the December
2009 NOPR. Consequently, DOE has concluded that spa heaters are
included within EPCA under the definition of ``pool heater'' and do not
warrant a separate product class.
v. Vented Hearth Products
The following two paragraphs summarize DOE's reasons, explained in
greater detail in the December 2009 NOPR for concluding that EPCA
covers vented hearth products and for including them in this
rulemaking. 74 FR 65852, 65866 (Dec. 11, 2009).
When EPCA was amended to include energy conservation standards for
``direct heating equipment,'' that term replaced the term ``home
heating equipment'' in the Act. However, EPCA has never defined either
of these terms. Instead, DOE regulations define ``home heating
equipment,'' stating that the term includes ``vented home heating
equipment.'' 10 CFR 430.2. These definitions inform the meaning of
``direct heating equipment,'' but, to provide clarity in the future, in
today's rule DOE is incorporating into its regulations a definition of
this term that is identical to the existing definition of ``home
heating equipment.''
Vented hearth products include gas-fired products such as
fireplaces, fireplace inserts, stoves, and log sets that typically
include aesthetic features and that provide space heating. DOE has
concluded that such products meet its definition of ``vented home
heating equipment,'' because they are designed to furnish warmed air to
the living space of a residence. DOE has also concluded, therefore,
that they are covered products under EPCA and are properly classified
as DHE. Accordingly, DOE proposed and today is adopting standards for
vented hearth products.
In the December 2009 NOPR, DOE also pointed out that vented hearth
products would be subject to the same product testing and certification
requirements that currently apply to DHE. 74 FR 65852, 65866 (Dec. 11,
2009). In order to help manufacturers determine more easily whether
their vented hearth direct heating equipment is covered under DOE's
regulations, DOE proposed to adopt the following definition of ``vented
hearth heater'':
Vented hearth heater means a vented, freestanding, recessed,
zero clearance fireplace heater, a gas fireplace insert or a gas-
stove, which simulates a solid fuel fireplace and is designed to
furnish warm air, without ducts to the space in which it is
installed.
74 FR 65852, 65867-68 (Dec. 11, 2009).
The Air-Conditioning, Heating, and Refrigerating Institute (AHRI),
the Hearth, Patio, and Barbeque Association (HPBA), and Empire Comfort
Systems (Empire) do not support DOE's proposed definition ``vented
hearth heater'' as presented above and in the December 2009 NOPR.
However, these three interested parties do support DOE's decision to
establish vented gas fireplace heaters as a separate type of direct
heating equipment. AHRI, HPBA, and Empire urged DOE to use the
definition of ``vented gas fireplace heater'' as presented in the
American National Standards Institute (ANSI) Standard Z21.88, Vented
Gas Fireplace Heaters, so as to directly connect it to this safety
standard. By law, manufacturers are required to list and label these
types of appliances to approved safety standards such as ANSI Z21.88.
By using this safety standard reference, the interested parties argued
that DOE and others would be able to distinguish vented gas fireplace
heaters from decorative gas appliances certified to ANSI Z21.50, Vented
Gas Fireplaces, and ANSI Z21.60, Decorative Gas Appliances for
Installation in Solid-Fuel Burning Fireplaces, thereby eliminating a
significant opportunity for confusion in the marketplace after the new
energy conservation standards take effect. The interested parties
argued that when the National Appliance Energy Conservation Act was
being developed, it was recognized that there were decorative gas
appliances that were marketed based on the aesthetic appeal of a
simulated solid fuel fireplace or stove. The interested parties
asserted that those same products are available in the marketplace
today and need to be excluded from inclusion in this rulemaking in a
proactive manner, preferably by using the consensus safety standard
designation in the definition and adding an explanatory note to the
definition stating that ANSI Z21.50 and ANSI Z21.60 appliances are not
vented gas fireplace heaters. The interested parties suggested the
following definition of ``vented gas fireplace heater'':
Vented Gas Fireplace Heater. A vented appliance which simulates
a solid fuel fireplace and furnishes warm air, with or without duct
connections, to the space in which it is installed. A vented gas
fireplace heater is such that it may be controlled by an automatic
thermostat. The circulation of heated room air may be by gravity or
mechanical means. A vented gas fireplace heater may be freestanding,
recessed, zero clearance, or a gas fireplace insert.
(AHRI, No. 91 at pp. 13-14; HPBA, No. 75 at p. 1; Empire, No. 100 at p.
3; AHRI, Public Meeting Transcript, No. 57.4 at pp. 48-49; HPBA, Public
Meeting Transcript, No. 57.4 at pp. 42 and 51; and Empire, Public
Meeting Transcript, No. 57.4 at pp. 50)
ACEEE also suggested that it would be reasonable for DOE to not set
efficiency regulations for purely decorative products with an output
capacity less than or equal to 6,000 Btu/h. However, ACEEE asserted
that an upper limit is necessary to prevent subterfuge and confusion
with actual heating appliances. (ACEEE, No. 79 at p. 6)
DOE agrees with the interested parties that further modification to
the definition of ``vented hearth heater'' is necessary to provide
clear guidance to the industry regarding which products are covered
under DOE's regulations. DOE's definition of ``vented home heating
equipment'' limits the coverage of vented home heating equipment to
include only those units ``designed to furnish warmed air to the living
space of a residence.'' 10 CFR 430.2. DOE notes that it is often
difficult to determine the intended purpose of fireplace product
currently sold. Units designed to furnish warmed air to the living
space and purely decorative units often share very similar external
appearances, unit construction, and input capacities. Some interested
parties suggested DOE use the ANSI safety standards to distinguish
coverage in the marketplace. DOE does not believe that using ANSI
safety standards would be a suitable solution to this problem since
many of those products classified as ``decorative fireplaces'' under
the ANSI safety standards are very similar in construction to fireplace
heaters and provide warm air to the residence.
DOE notes that the primary difference between the two types of
hearth products is that decorative units are intended only to provide
the ambiance and aesthetic utility associated with a
[[Page 20129]]
solid fuel (e.g., wood-burning) fireplace with little or no heat output
to the living space, while heating hearth products are intended to
provide heat to the living space along with the aesthetic utility.
Heating-type products are often shipped with additional accessories
that decorative products do not have, such as thermostats to control
the heat output and blowers that distribute hot air to the room. DOE
research suggests that this additional equipment is typically optional
and hence not very useful to distinguish between heaters and decorative
units.
After carefully considering the public comments and conducting
additional research, DOE believes implementing a maximum input capacity
limit will likely result in a clear distinguishable way for DOE,
manufacturers, and consumers to identify which products provide
``warmed air to the residence,'' as compared with those designed purely
for aesthetic purposes. Because of the nature of hearth products (i.e.,
the presence of a flame), all hearth products create heat and nearly
all of the hearth products provide some amount of that heat, however
small that may be, to the surrounding living space.
Unlike fireplace heaters, decorative hearth products provide a
unique utility, specifically offering the ambiance and aesthetic appeal
provided by the flame without adding significant heat to the
conditioned space. By way of explanation, some consumers that wish to
purchase purely decorative hearth products live in warmer climates
where any additional heat provided to the residence would be
undesirable. However, these consumers still want the aesthetic appeal
provided by the flame. As the efficiency of the vented hearth product
is increased, the more useful heat is provided to the space. So in
response to comments, DOE is adopting an approach that would maintain
the utility and availability of decorative hearth products.
In order to determine whether a maximum input capacity limit is a
good indicator of intended use, DOE reviewed the market for vented
hearth products, including those products marketed as heaters and
decorative appliances. DOE research identified products marketed for
heating and decorative purposes offered across the entire range of
input capacities. Many of the units produced solely for decorative
purposes come with the capability to vary the input capacity in order
to change the magnitude of the flame. Since manufacturers provide
consumers, installers, and contractor with a means to change the input
capacity of the unit to better match consumers' aesthetic desires and
heating needs, DOE believes input capacity is indicative of the type of
intended use of the vented hearth heater.
DOE believes that consumers desiring a purely decorative unit will
chose to buy units which minimize the heat furnished to their living
space, thereby reducing the impacts on the cooling loads of their house
for those living in warmer climates. DOE contacted several contractors
in warmer climates, where decorative appeal is presumably the
consumers' top priority. From these discussions and further review of
the product literature, DOE found that many hearth products allow the
input capacity to be modulated via the gas valve. In warmer climates,
contractors frequently suggest to their customer to turn down the gas
supply to minimize the amount of heat radiated and convected to the air
within the residence. Some installation companies even offer optional
venting products and dampers, which attempt to direct the heat to other
parts of the residence or outdoors. Even though decorative hearth
products are offered with a large range of input capacities, DOE
research hence suggests that the input rating is typically
significantly reduced for applications in conditions in which the
flames are purely ornamental to minimize heat provided to the
residence. This is shown by the variability in the input ratings
offered for a given model as described in manufacturer catalog data,
which can be field-adjusted based on the amount of heat desired within
the residence.
DOE believes that hearth products intended for decorative purposes
provide a specific aesthetic utility that consumers value. In its
analysis, DOE considered the value of this aesthetic quality and the
additional heat load that such systems produce. DOE believes that a
maximum input capacity of 9,000 Btu/h is an appropriate cut-off for
decorative appliances since existing hearth-type DHE units featuring
adjustable input capacities operate at or below this input capacity
limit. DOE chose 9,000 Btu/h because other gas appliances found in a
house, which may have unintended heating loads, such as a burner on a
gas-cook top, are also found at this input capacity. By allowing
manufacturers the option of producing vented hearth heaters that are
excluded from the standards amended in today's final rule, DOE is
preserving the ability of manufacturers to continue selling decorative
units, consumers can continue to enjoy them, and unintended heat loads
are limited to no more than \1/2\ of a ton of heating capacity per
decorative unit. DOE research suggests that manufacturers can comply
relatively inexpensively with the coverage established by the ``vented
hearth heater'' definition by reducing the maximum input capacity of
the gas delivery system through the use of a restrictor plate,
modifying the gas valve, or altering the flame orifice. All of these
options are currently available or utilized within the industry today.
DOE believes the most likely solution that will be used by hearth
manufacturers to meet DOE's restriction on input capacity would be to
use a restrictor plate because it is the most inexpensive. A restrictor
plate would ensure that limitations were placed upon the gas line such
that the maximum input capacity of the fireplace is less than 9,000
Btu/h. DOE notes that all vented hearth heaters which manufacturers
produce to be purely decorative units must be designed so that the
consumer cannot override this 9,000 Btu/h maximum input capacity limit
in the field.
DOE chose to include a maximum input capacity limitation, instead
of an output capacity limit as ACEEE suggested, because a very
inefficient unit could have a very high input capacity and use a lot of
energy, while meeting DOE's limitation on output capacity.
DOE realizes its amended definition of ``vented hearth heater''
will include all types of hearth units with maximum input capacities
above the specified limit, including all products that are currently
referred to as fireplace heaters and some products that are currently
deemed as decorative within the marketplace. DOE also notes that this
maximum input capacity corresponds to the output capacity suggested by
ACEEE, assuming the unit is about two-thirds efficient, which is an
efficiency that is comparable to the standard level being adopted today
for vented gas hearth heaters. Therefore, DOE is modifying the ``vented
hearth heater'' definition to include a maximum input capacity limit of
9,000 Btu/h for purely decorative units.
AHRI, HBPA, and Empire asserted that DOE should amend its
definition of ``vented hearth heater'' to include duct connections.
While duct connections were excluded from the original ``direct heating
equipment'' definition, the interested parties stated that this
exclusion is unnecessary for vented gas fireplace heaters because they
are allowed to have duct connections by design. The interested parties
argued that there is no reason for DOE to exclude these currently-
available appliances merely based upon the
[[Page 20130]]
presence of ducting, particularly given that the limiting definition of
``vented home heating equipment'' was written before the products were
introduced. (AHRI, No. 91 at pp. 13-14; HPBA, No. 75 at pp. 1-2;
Empire, No. 100 at p. 3)
DOE agrees with these interested parties and is extending coverage
to both ducted and ductless vented hearth heater products. DOE believes
this modification will provide equal treatment to similar products
offered on the market today. DOE's research confirmed that some vented
hearth heater models have the ability to connect to ducts and
distribute the heat furnished to the space throughout the house. In
order to include both ducted and ductless vented hearth products, DOE
is amending the definitions of ``vented hearth heater'' and ``vented
home heating equipment'' for inclusion at 10 CFR 430.2. Lastly, DOE is
making a number of editorial changes to the definition of ``vented
hearth heater'' proposed in the December 2009 NOPR, in order to make
the definition easier to read. As adopted, these definitions read as
follows:
Vented hearth heater means a vented appliance which simulates a
solid fuel fireplace and is designed to furnish warm air, with or
without duct connections, to the space in which it is installed. The
circulation of heated room air may be by gravity or mechanical means. A
vented hearth heater may be freestanding, recessed, zero clearance, or
a gas fireplace insert or stove. Those heaters with a maximum input
capacity less than or equal to 9,000 British thermal units per hour
(Btu/h), as measured using DOE's test procedure for vented home heating
equipment (10 CFR part 430, subpart B, appendix O), are considered
purely decorative and are excluded from DOE's regulations.
DOE is also amending its definition of ``vented home heating
equipment or vented heater'' in 10 CFR 430.2 to include vented hearth
heaters with duct connections. This modification is necessary in order
for the definition of ``vented home heating equipment or vented
heater'' to be consistent with the definition of ``vented hearth
heater.'' DOE is also amending this definition to add ``vented hearth
heater'' to the list of products--``vented wall furnace, vented floor
furnace, and vented room heater''--that the definition currently states
are included as vented home heating equipment. As stated in the
December 2009 NOPR and above, vented hearth products already meet DOE's
definition for ``vented home heating equipment.'' This is true
regardless of whether the term ``vented hearth heater'' is added to
that definition. Thus, the addition of that term merely clarifies the
existing definition, and is a technical correction that does not alter
the substance of the definition. As amended, the definition reads as
follows:
Vented home heating equipment or vented heater means a class of
home heating equipment, not including furnaces, designed to furnish
warmed air to the living space of a residence, directly from the
device, without duct connections (except that boots not to exceed 10
inches beyond the casing may be permitted and except for vented hearth
heaters, which may be with or without duct connections) and includes:
vented wall furnace, vented floor furnace, vented room heater, and
vented hearth heater.
b. Covered Products Not Included in This Rulemaking
As the December 2009 NOPR explains in detail, unvented direct
heating equipment, electric pool heaters, and combination water
heating/space heating products all are covered products under EPCA, but
no Federal energy conservation standards exist for them. 74 FR 65852,
65866-76 (Dec. 11, 2009). DOE did not propose standards for them in
this rulemaking, because, in the case of unvented DHE, a standard could
produce little energy savings (largely due to the fact that any heat
losses are dissipated directly into the conditioned space) and because
of limitations in the applicable DOE test procedure, and in the case of
the other two products, because of the lack of an appropriate DOE test
procedure. Id.
By contrast, standards currently apply to tabletop and electric
instantaneous water heaters. (10 CFR 430.32(d)) But, as explained in
the December 2009 NOPR, an increase in the current standard levels for
tabletop products is not feasible, and would force them off the market,
and an increase in the levels for electric instantaneous products
would, at best, save little energy. 74 FR 65852, 65867 (Dec. 11, 2009).
Therefore, DOE also did not propose amended standards for these
products.
With regard to these five covered products, DOE sees no reason to
change the conclusions expressed in the December 2009 NOPR, and takes
no further action in today's final rule. DOE did not receive any
comments in response to its proposed treatment of these five covered
products in the December 2009 NOPR. Consequently, DOE is not adopting
standards for these products in today's final rule.
2. Product Classes
In evaluating and establishing energy conservation standards, DOE
generally divides covered products into classes by the type of energy
used or by capacity or other performance-related feature that justifies
a different standard for products having such feature. (See 42 U.S.C.
6295(q)) In deciding whether a feature justifies a different standard,
DOE must consider factors such as the utility of the feature to users.
Id. DOE normally establishes different energy conservation standards
for different product classes based on these criteria.
Table IV.1 presents the product classes for the three types of
heating products under consideration in this rulemaking. The
subsections below provide additional details and a discussion of
comments relating to the product classes for the three heating products
in response to the December 2009 NOPR proposals.
Table IV.1--Product Classes for the Three Heating Products
------------------------------------------------------------------------
------------------------------------------------------------------------
Residential water heater type Characteristics
------------------------------------------------------------------------
Gas-Fired Storage Type............ Nominal input of 75,000 Btu/h or
less; rated storage volume from 20
to 100 gallons.
Oil-Fired Storage Type............ Nominal input of 105,000 Btu/h or
less; rated storage volume of 50
gallons or less.
Electric Storage Type............. Nominal input of 12 kW (40,956 Btu/
h) or less; rated storage volume
from 20 to 120 gallons.
Gas-Fired Instantaneous........... Nominal input of over 50,000 Btu/h
up to 200,000 Btu/h; rated storage
volume of 2 gallons or less.
------------------------------------------------------------------------
Direct heating equipment type Heating capacity (Btu/h)
------------------------------------------------------------------------
Gas Wall Fan Type................. Up to 42,000.
Over 42,000.
[[Page 20131]]
Gas Wall Gravity Type............. Up to 27,000.
Over 27,000 and up to 46,000.
Over 46,000.
Gas Floor......................... Up to 37,000.
Over 37,000.
Gas Room.......................... Up to 20,000.
Over 20,000 and up to 27,000.
Over 27,000 and up to 46,000.
Over 46,000.
Gas Hearth........................ Up to 20,000.
Over 20,000 and up to 27,000.
Over 27,000 and up to 46,000.
Over 46,000.
------------------------------------------------------------------------
Pool heater type Characteristics
------------------------------------------------------------------------
Residential Pool Heaters.......... Gas-fired.
------------------------------------------------------------------------
a. Water Heaters
As presented in the December 2009 NOPR, residential water heaters
can be divided into various product classes categorized by physical
characteristics that affect product efficiency. Key characteristics
affecting the energy efficiency of the residential water heater are the
type of energy used and the volume of the storage tank. 74 FR 65852,
65868-71 (Dec. 11, 2009). These product classes are differentiated by
the type of energy used (i.e., electric, gas, or oil) and the type of
storage for the water heater (i.e., storage, tabletop, or
instantaneous). In this rulemaking, DOE has excluded tabletop water
heaters and electric instantaneous water heaters from consideration for
the reasons discussed above. 74 FR 65852, 65868 (Dec. 11, 2009).
In response to the December 2009 NOPR analysis and the issues for
which DOE specifically sought comment, DOE received several comments
from interested parties about DOE's proposed product classes and their
organization for residential water heaters. These comments are
summarized and addressed immediately below.
i. Low-Boy Water Heaters
General Electric (GE), A.O. Smith Corporation (A.O. Smith),
Bradford White Corporation (BWC), and AHRI supported the need for a
separate product class for low-boy water heaters, which are electric
storage water heaters that are shorter in height and wider in diameter
than traditional water heaters. (GE, No. 84 at p. 1; A.O. Smith, No. 76
at p. 2; BWC, No. 61 at p. 3; AHRI, No. 91 at p. 3; Rheem, No. 89 at p.
11; and A. O. Smith, Public Meeting Transcript, No. 57.4 at pp. 55-56)
ACEEE, EarthJustice, and ASAP disagreed and supported DOE's position in
the December 2009 NOPR, which did not establish a separate product
class for low-boy electric storage water heaters. (ACEEE, No. 79 at p.
8; EarthJustice, No. 83 at p. 1; and ASAP, Public Meeting Transcript,
No. 57.4 at p. 60) The individual commenters' rationales and further
justification are presented below.
GE asserted the low-boy water heaters should be separated into
their own product class, because in some categories, the benefits of
unique size, configuration, and functionality are very important to
consumers. In this product category, the unique functionality of a low-
boy water heater happens to focus on the physical dimensions of the
product. GE asserted that some consumers prefer or require the lower
overall product height, as they do not have the space available for a
standard-sized water heater. (GE, No. 84 at p. 1)
A.O. Smith strongly asserted that a separate class for low-boy
water heaters is justified, for many of the same reasons that a
separate class is already established for table-top water heaters.
According to the commenter, low-boy water heaters are predominately
used in installations where height is a constraint, such as where a
furnace or air-handler is mounted on a rack above the low-boy water
heater in an equipment closet. Because low-boy water heaters are
already a larger diameter unit than the baseline design, increasing the
diameter even more by requiring additional insulation thickness would
make the heater too large to fit into the space available in most
replacement situations (again, such as the closet/rack example above).
A.O. Smith stated its belief that there will be a loss of utility for
low-boy heaters if they are not put into a separate class with an EF
less than proposed for the ``standard'' heater. (A.O. Smith, No. 76 at
p. 2)
BWC supports a separate product class for low-boy water heaters
because they have very specific applications. Low-boy water heaters are
frequently used in condominiums where additional space is unavailable
and a gas water heater cannot be used due to venting limitations. When
used in these applications, BWC claimed that low-boys use less water
than typical standard electric water heaters. Therefore, BWC asserted
low-boy water heaters have a different utility than standard electric
water heaters. (BWC, No. 61 at p. 3)
AHRI asserted that low-boy water heaters use electricity, but are
not offered in the same range of volumes as standard electric storage
water heaters. Most low-boys are offered in 30-gallon and 40-gallon
sizes. AHRI asserted that the December 2009 NOPR mischaracterizes the
functionality or utility of these products. Low-boy models have the
unique feature of being able to be installed in short, confined spaces
in a dwelling. But, as is the case with countertop electric water
heaters, the constraints dictated by the spaces in which these products
are installed affect the options for increasing the efficiency of low-
boy electric models. Many low-boy models today may have efficiencies
comparable to standard size electric water heaters, but they do not
have the same potential for further increasing their efficiency.
Accordingly, AHRI argued that this separate product class should have a
minimum EF standard that is 0.01 less than that proposed for electric
storage water heaters. (AHRI, No. 91 at p. 3)
Rheem asserted that low-boy electric water heaters (i.e., electric
storage water heaters ranging from 20 to 50 gallons) are typically
installed under a counter or stacked (air handler) in high-density
housing, such as apartment and condominium communities. According to
Rheem, any size increase driven by a significant change in the EF
[[Page 20132]]
requirements would affect the product geometry (diameter and height)
and drive the potential use of multiple, smaller, point-of-use electric
or instantaneous electric water heaters. (Rheem, No. 89 at p. 11)
ACEEE asserted that low-boy water heaters designed to fit beneath
conventional cabinets are similar to ``table-top'' units, with similar
trade-offs in terms of capacity and improved efficiency (through
thicker insulation). ACEEE agrees with DOE's reasoning in the December
2009 NOPR that low-boys can be designed to meet the proposed standards
by using thicker insulation, higher set-point settings, and a tempering
valve, and, therefore, ACEEE opined that, in general, no special
product class is needed. However, as a compromise, ACEEE stated that it
could support a special class for low-boys designed for small living
units, but with an upper capacity limit of 30 gallons, in order to
prevent ``leakage'' of lower-efficiency units into the general water
heater applications. If larger units are also included, ACEEE expressed
concern that significant growth in low-boy sales would be expected,
leading to a significant loss in energy savings relative to use of
higher-efficiency conventional units. (ACEEE, No. 79 at pp. 8-9)
EarthJustice stated that a separate product class for low-boy water
heaters is not justified. According to the commenter, DOE's analyses
demonstrate that water heaters in these configurations can meet the
efficiency standards under consideration for electric-storage and gas-
storage water heaters, respectively (see 74 FR 65852, 65869 (Dec. 11,
2009)). (EarthJustice, No. 83 at p. 1)
NRDC also stated that ``low-boy'' water heaters do not warrant a
separate product class, because these products could become a low-cost
loophole to the standard if allowed to be less efficient than
traditional tank-type water heaters. (NRDC, No. 85 at p. 6)
ASAP agreed with DOE's position not to establish a separate product
class for low-boy water heaters, as presented in the December 2009
NOPR. ASAP warned DOE to keep a close eye on lower standards for
particular product classes, which can result in market shares for those
products increasing and reduction of the overall energy savings
associated with the energy conservation standards. (ASAP, Public
Meeting Transcript, No. 57.4 at p. 60)
After careful consideration, DOE does not agree with certain
commenters that a separate product class needs to be established for
low-boy water heaters. As noted above, in evaluating and establishing
energy conservation standards, DOE generally divides covered products
into classes by the type of energy used, or by capacity or another
performance-related feature that justifies a different standard. (See
42 U.S.C. 6295(q)) DOE notes that low-boy water heaters use the same
type of energy as other water heaters (i.e., gas or electricity) and
are offered in a range of storage volumes. Thus, the type of energy
used and the functionality of low-boy units are similar to other types
of water heaters. DOE acknowledges that low-boy water heaters are only
offered in certain volume sizes, which tend to be at the lower end of
the range (i.e., below 50 gallons). While many of the commenters
pointed to specific size-constrained applications where low-boy water
heaters are installed, DOE reviewed the market and found that low-boy
water heaters are generally classified as water heaters that have a
shorter height and wider diameter. However, unlike tabletop water
heaters, low-boy water heaters did not seem to have a uniform or common
platform size. Instead, the physical dimensions of low-boy water
heaters varied by manufacturer, model, and efficiency, but this is also
true of the entire electric storage water heating market. Water heater
manufacturers offer a range of options to consumers, including various
physical dimensions that are not unique to low-boy units. (See chapter
3 of the TSD.) Furthermore, DOE does not believe each different
combination of physical dimensions currently available on the market
warrants a separate product class. DOE reaffirmed its position in the
December 2009 NOPR that the size constraints of these units do not
appear to impact energy efficiency, since many ``low-boy'' models have
efficiencies that are comparable to standard-size water heaters
currently available on the market. DOE's research suggests that there
are currently multiple low-boy units offered that will meet the
standards being adopted in today's final rule for electric storage
water heater less than 55 gallons. Specifically, DOE found multiple
low-boy models at 0.95 EF with a rated storage volume of 50 gallons.
Consequently, for the reasons above, DOE is not establishing a separate
product class for low-boy water heaters.
ii. Ultra-Low NOX Water Heaters
In the December 2009 NOPR analysis, DOE did not propose to
establish a separate product class for ultra-low NOX gas-
fired storage water heaters. 74 FR 65852, 65869-70 (Dec. 11, 2009).
However, DOE did specifically analyze these water heaters as compared
to traditional gas-fired storage water heaters with standard burners.
74 FR 65852, 65882-83 (Dec. 11, 2009). In response to the treatment of
ultra-low NOX gas-fired storage water heaters in the
December 2009 NOPR, DOE received a number of different comments. A.O.
Smith, BWC, AHRI, and Rheem urged DOE to establish a separate product
class for ultra-low NOX gas-fired water heaters. (A.O.
Smith, No. 76 at p. 2; BWC, 61 at p. 3; AHRI, No. 91 at p. 3; A.O.
Smith, Public Meeting Transcript, No. 57.4 at pp. 56-57; and AHRI,
Public Meeting Transcript, No. 57.4 at pp. 57-58) On the other hand,
ACEEE, EarthJustice, and NRDC agreed with DOE's position in the
December 2009 NOPR that ultra-low NOX gas-fired water
heaters should not have their own product class. Further details
provided by each commenter are presented below.
A.O. Smith asserted that the burner technology needed to comply
with the South Coast Air Quality Management District's (SCAQMD) ultra-
low NOX requirements and the changes to the water heater
technology that are needed to meet increased efficiency requirement are
``operationally contradictory'' with each other. The types of burners
currently used to comply with the ultra-low NOX requirement
in atmospheric heaters are much more restrictive (higher pressure drop)
than conventional burners. Since these ultra-low NOX heaters
also must comply with the flammable vapor ignition resistance
requirements, they also have flame arrestors on the air inlet, which
add more restriction (pressure drop) to the system. In order to boost
the efficiency, the flue baffle must be made more effective, which
means making it more restrictive. The increased pressure drops due to
all three components taken together is enough to offset the thermal
buoyancy of the atmospheric venting design, and cause the heater to no
longer work. The only way to overcome the additional restriction would
be to add a blower and/or power-burner to the heater, which would
greatly increase the manufacturing and installation costs of the
heater. (A.O. Smith, No. 76 at p. 2)
BWC asserted that ultra-low NOX gas-fired water heaters
should be a separate product class because they have distinct design
differences compared to standard atmospheric gas water heaters. The
unique design requirements for ultra-low NOX gas-fired water
heaters greatly limit their capacity to increase the efficiency while
maintaining a lower level of emissions. (BWC, 61 at p. 3)
[[Page 20133]]
AHRI challenged the December 2009 NOPR's tentative conclusions that
ultra-low NOX gas-fired models provide the same utility as
standard gas-fired storage water heaters, while simply using a distinct
burner to achieve the ultra-low NOX emissions. AHRI argued
that standard gas-fired water heaters do not offer the same utility as
the ultra-low NOX models because the standard gas-fired
water heater cannot heat water efficiently while also emitting
NOX at a very low rate. Regardless of its efficiency, a
standard residential gas-fired water heater cannot be sold or installed
in many areas in California. According to AHRI, the feature of ultra-
low NOX emissions is a unique performance characteristic
that imposes different conditions on how, and at what expense, the
efficiency of these models can be increased. As is the case with low-
boy electric models, AHRI asserted that ultra-low NOX water
heaters should have a separate product class with a minimum EF standard
that is 0.01 less than that proposed for gas-fired storage water
heaters. (AHRI, No. 91 at p. 4)
ACEEE stated that there is no reason for a separate product class
with separate standards for ultra-low NOX water heaters.
According to ACEEE, these units can meet the same standards as
conventional equipment, if they incorporate induced draft (power vent)
to compensate for the combined pressure drop of the better baffle,
FVIR, and ultra-low NOX burner. If stakeholders want an
exception, the commenter suggested that this should be dealt with by
the waiver process rather than by establishing another dead-end class
of atmospherically vented equipment. (ACEEE, No. 79 at p. 9)
EarthJustice stated that a separate product class for ultra-low
NOX gas-fired water heaters is not justified. The commenter
pointed to DOE's own analysis, which arguably demonstrates that water
heaters in these configurations can meet the efficiency standards under
consideration for electric storage and gas storage water heaters,
respectively (see 74 FR 65852, 65869, 65881 (Dec. 11, 2009)).
(EarthJustice, No. 83 at p. 1)
NRDC likewise argued that there should not be a separate product
class for ultra-low NOX gas-fired water heaters. NRDC stated
that the efficiency requirements considered in the rulemaking can be
met in ultra-low NOX gas-fired units by moving to power vent
technology and probably with other routes. Therefore, the commenter
concluded that there is no need to allow a less-stringent standard for
these products when the proposed requirements can be met. (NRDC, No. 85
at p. 6)
After considering public comments on this issue, DOE has decided
not to change its position from the December 2009 NOPR and continues to
believe that a separate product class does not need to be established
for ultra-low NOX gas-fired storage water heaters. As noted
above, in evaluating and establishing energy conservation standards,
DOE generally divides covered products into classes by the type of
energy used, or by capacity or other performance-related feature that
justifies a different standard for products having such feature. (See
42 U.S.C. 6295(q)) Ultra-low NOX gas-fired storage water
heaters use the same type of energy (i.e., gas) and are offered in
comparable storage volumes to traditional gas-fired storage water
heaters using standard burners. In deciding whether the product
incorporates a performance feature that justifies a different standard,
DOE must consider factors such as the utility of the feature to users.
Id. In terms of water heating, DOE believes ultra-low NOX
water heaters provide the same utility to the consumer. However, DOE
also notes that ultra-low NOX water heaters do incorporate a
specific burner technology allowing these units to meet the strict
emissions requirements of local air quality management districts. Some
of the commenters pointed out that the increased pressure drops could
adversely impact the efficiency levels. DOE agreed with this assertion
and maintained its methodology for handling ultra-low NOX
gas-fired storage water heaters, which included development of a
separate analysis for these products, as detailed in the December 2009
NOPR. 74 FR 65852, 65881-82 (Dec. 11, 2009). See section IV.C.2.a for
additional details. This analysis showed that implementing power
venting and the same insulation increases as those for standard gas-
fired water heaters would result in slightly lower efficiencies due to
the additional pressure restrictions resulting from the addition of the
ultra-low NOX burner. Therefore, DOE implemented
technologies at lower efficiency levels for ultra-low NOX
gas-fired storage water heaters in order to achieve the same
efficiencies as those identified for standard gas-fired storage water
heaters. Based on the teardown analysis of ultra-low NOX
water heaters, DOE believes that ultra-low NOX gas-fired
storage water heaters will be able to meet the standards that are being
adopted in today's final rule using available technologies currently on
the market. Therefore, for the above reasons, DOE has decided not to
establish a separate product class for ultra-low NOX gas-
fired storage water heaters in this final rule.
iii. Heat Pump Water Heaters
Throughout the rulemaking, DOE has treated heat pump water heaters
as a design option for electric storage water heaters rather than a
separate product class, as further explained and detailed in the
preliminary analysis. (See Chapter 2 of the preliminary analysis TSD
and the discussion in the December 2009 NOPR (74 FR 65852, 65870-81
(Dec. 11, 2009).) A heat pump water heater represents a merging of two
technologies: (1) An electric resistance storage water heater with tank
and controls; and (2) a refrigeration circuit similar to that found in
a residential air-conditioner. Heat pump water heaters use existing
heat pump technology to extract heat from the surrounding air
(typically at room temperature) for heating stored water. For electric
water heaters, this is an alternative to resistive heating, which
transfers heat from the electric resistance element to the water. DOE
received several comments from interested parties in response to its
treatment of heat pump water heaters and its request for comment on
some of the issues identified surrounding heat pump water heaters. Some
commenters urged DOE to establish separate product classes for
traditional electric resistance storage water heaters and heat pump
water heaters, while others agreed with DOE's classification of heat
pump water heaters. Their specific comments and DOE's response are
presented below.
General Electric stated support for DOE's proposal to not create a
separate product class for heat pump water heaters, as they are
designed to replace traditional electric water heaters in most
residences, and have similar consumer functionalities. (GE, No. 84 at
p. 1)
Daikin asserted that electric resistance water heaters should be
placed in the same product class as heat pump water heaters.
Anecdotally, Daikin stated that in the European Union, the European
Parliament has classified both of these products in the same category
for energy efficiency regulatory purposes, and the commenter further
stated that in Japan, electric resistance water heaters have
practically disappeared from the market as of 2010. In addition, Daikin
stated that heat pump water heaters usually have a back-up electric
heater. If heat pump water heaters are classified separately, there
will be a difficult question about whether the back-up electric heater
requires heat pump water heating systems to remain in the other
[[Page 20134]]
category for some purposes. However, Daikin suggested that if DOE
decides to establish a heat pump water heater product class, then it
should be subdivided based on the following three criteria: (1)
Refrigerant type; (2) heat source (i.e., air to water heat pump); and
(3) add-on or integrated type system (i.e., heat pump system and a
tank). (Daikin, No. 82 at pp. 1-2)
Northwest Energy Efficiency Alliance (NEEA) stated there is not a
need for a separate class of water heaters based on heat pump versus
resistance elements. According to NEEA, all of the current product
offerings have a first-hour rating that is equivalent to an electric
resistance heated product of the same size. From a consumer utility
standpoint, the products are equivalent in terms of delivery of hot
water for an equivalent tank size. These products are all designed as
integrated, ``drop-in'' replacement units according to product
literature that NEAA has reviewed from A.O. Smith, Rheem, and General
Electric. (NEEA, No. 88 at p. 2)
In its comments, EarthJustice opposed establishing a separate
product class for heat pump water heaters, based on the following
rationale. EarthJustice asserted that EPCA provides both mandatory and
permissive authority for DOE to establish new product classes for
covered products. (See 42 U.S.C. 6295(o)(4) and (q)(1)) However, aside
from the unique situation of a covered product capable of consuming
different kinds of energy (42 U.S.C. 6295(q)(1)(A)), EarthJustice
argued that EPCA only mandates the creation of multiple product classes
when the failure to do so would eliminate certain truly unique product
attributes from the market. (42 U.S.C. 6295(o)(4)) In contrast, while
DOE does have discretion to create separate classes for products based
on the presence of ``a capacity or other performance[hyphen]related
feature,'' the Department may exercise this authority only if ``such
feature justifies a [different] standard.'' 42 U.S.C. 6295(q)(1)(B))
For the reasons explained below, EarthJustice argued that the plain
language of EPCA forecloses an interpretation that the establishment of
separate product classes for electric resistance and heat pump water
heaters is warranted or required. First, EarthJustice stated that as
DOE notes in the December 2009 NOPR, there is no distinction between
heat pump and electric resistance water heaters with regard to
operational utility. Accordingly, EarthJustice argued that because heat
pump and electric resistance water heaters provide identical service,
there is no basis for DOE to conclude that separate product classes for
these technologies are necessary to preserve the availability in the
market of a distinct ``feature'' with utility to the user of the
product (see 42 U.S.C. 6295(o)(4)).
At the public hearing on the December 2009 NOPR, representatives
from some manufacturers asserted that a separate product class for heat
pump water heaters was needed to address the fraction of households
that would otherwise experience higher-than-normal installation costs
to replace a water heater using electric resistance heating with one
using a heat pump. However, EarthJustice stated that even if DOE's
analysis confirms that there is a cost penalty to install a heat pump
water heater in some applications, this fact, standing alone, would not
support the creation of separate product classes for heat pump and
electric resistance water heaters. In all standards rulemakings,
EarthJustice reasoned that some households will face higher incremental
costs to install products meeting revised standards, but the proper
approach under EPCA is to consider these impacts in calculating
consumers' average lifecycle cost and payback period for the standard
levels under consideration (see 42 U.S.C. 6295(o)(2)(B)(i)(II)).
According to EarthJustice, to use an increase in the installed cost for
a portion of shipments as the basis for a separate product class would
be an end[hyphen]run around the other factors Congress required DOE to
consider in assessing the economic justification for a standard (see 42
U.S.C. 6295(o)(2)(B)(i)). The commenter suggested that DOE's recent
statements in the commercial clothes washers rulemaking reinforce this
point. There, an industry commenter argued that a particular product
design merited a separate product class on the basis of its low
installed cost. 75 FR 1122, 1130 (Jan. 8, 2010). In response, DOE
explained that it ``does not consider first cost a `feature' that
provides consumer utility for purposes of EPCA. DOE acknowledges that
price is an important consideration to consumers, but DOE accounts for
such consumer impacts in the [lifecycle cost] and [payback period]
analyses conducted in support of this rulemaking.'' Id. at 1134.
EarthJustice stated that DOE's refusal to use installed costs as the
basis for a separate product class for commercial clothes washers is
faithful to EPCA's text, and there is no justification for adopting a
contrary approach for water heaters. (EarthJustice, No. 73 at pp. 1-3)
NRDC also stated that heat pump water heaters do not warrant a
separate product class since heat pump water heater and an electric
tank type water heater provide the same consumer utility. (NRDC, No. 85
at p. 5)
On the other hand, Southern Company (Southern) stated its belief
that there is more of a functional difference between heat pump water
heaters and electric resistance water heaters than with other products
for which DOE has established separate product classes, including
refrigerators (top freezer versus side-by-side), window air
conditioners (for location of louvers), and transformers (a multitude
of different phases and sizes). Southern Company argued that heat pump
water heaters should be treated as a separate product class because the
heat pump water heater transfers cold air from the heat pump to the
surrounding space and are noisier than electric resistance water
heaters. (Southern, No. 90 at p. 5)
BWC recommended a separate product class be established for heat
pump water heaters because the primary fuel source is air instead of
electricity. Heat pump water heaters can attain greater efficiencies,
because while electricity is being converted to heat the water like a
typical electric resistance water heaters, heat is also being moved
from the surrounding environment to the stored water via the heat pump.
In order for heat pump water heaters to maximize efficiency, they must
recover slowly, which changes the utility of the water heater.
According to BWC, the same size heat pump water heater is not providing
the same performance as the equivalent size electric resistance heater.
(BWC, No. 61 at p. 4)
AHRI reaffirmed its position that heat pump water heaters should be
a separate product class. AHRI argued that DOE's tentative conclusion
that heat pump water heaters do not require a separate product class
because they provide hot water just like a traditional electric storage
water heater is invalid because it fails to recognize how the heat pump
water heater produces that hot water and how the heat pump water
heater's performance is effected by the environment in which it is
installed. AHRI asserted that the following characteristics make heat
pump water heaters unique: (1) Water is heated by energy extracted from
the air; (2) the heating capacity is variable depending on the
temperature of the air provided to the heat pump; (3) the unit cannot
heat water above approximately 135 degrees Fahrenheit; (4) the unit
must be installed in a space large enough to provide the necessary
volume of air for the unit to adequately heat water; (5) the unit cools
the air in the household; (6) the unit requires a condensate drain as
part of the installation; (7) the unit cannot be adjusted to meet
increases in
[[Page 20135]]
demand without relying on the electric resistance elements; (8) the
unit can heat water as long as there is adequate airflow through the
heat pump, and thus, a heat pump with electrical power but with a
clogged air filter will not heat water; and (9) the unit needs a back
up water heating means that can operate when the heat pump cannot meet
the load. (AHRI, No. 91 at pp. 4-6)
In response to these NOPR comments, DOE does not agree that heat
pump water heaters meet the requirements for establishing a separate
product class. Specifically, DOE does not believe heat pump water
heaters provide a different utility from traditional electric
resistance water heaters. Heat pump water heaters provide hot water to
a residence just as a traditional electric storage water heater does.
While AHRI noted that heat pump water heaters utilize heat extracted
from the air to heat the water, both heat pump water heaters and
traditional electric resistance storage water heaters use electricity
as the primary fuel source. AHRI's recitation of operational
differences associated with water heaters that utilize heat pump
technology does not establish that the mode of heating water is
performance-related feature or provides a unique utility. As pointed
out by GE, current manufacturers of heat pump water heaters are
marketing these products as direct replacements for traditional
electric resistance water heaters. The rated storage volumes and first
hour ratings of the heat pump water heaters currently on the market are
comparable to the traditional electric resistance water heaters. Some
of the commenters pointed out that heat pump water heaters require
special installation considerations, but to account for this, DOE
applied in its analysis specific installation costs, where applicable,
to heat pump water heaters. (See section IV.F.2 of today's notice for
more details on treatment of the installation costs.) Consequently, DOE
has concluded that heat pump water heaters can replace traditional
electric resistance storage water heaters in most residences, although
the installation requirements may be quite costly. For these reasons,
DOE has decided not to establish a separate product class for heat pump
water heaters.
iv. Unpowered Gas-Fired Water Heaters
The American Gas Association (AGA) asserted that unpowered gas-
fired storage water heaters should be an independent product class. An
unpowered gas-fired storage water heater is one that does not utilize
line electricity in order to provide hot water to the residence. For
many customers during a power outage, unpowered gas-fired water heaters
are the only utility system that provides a source of heat. AGA
believes that this occurrence is sufficiently frequent to justify the
treatment of unpowered gas-fired storage water heaters as an
independent product class, consistent with DOE's charge to establish
product classes based on type of energy used, capacity, and in this
case, ``other performance-related feature'' such as those that provide
utility to consumers. (AGA, No. 78 at pp. 6-7)
DOE does not agree with AGA's assertion that unpowered gas-fired
storage water heaters meet the criteria for the establishment of a
separate product class. Both powered and unpowered gas-fired storage
water heaters use gas as the primary fuel source, and both provide the
same basic utility to consumers, which is to supply hot water to the
residence. DOE does not believe that having the ability to maintain hot
water during power outages when the electricity is not working provides
enough additional utility to consumers to warrant a separate product
class. DOE believes that power outages are infrequent events that can
be handled by a number of different market solutions such as back-up
power systems.
b. Direct Heating Equipment
DHE can be divided into various product classes categorized by
physical characteristics and rated input capacity, both of which affect
product efficiency and function. Key characteristics affecting the
energy efficiency of DHE are the physical construction (e.g., fan wall
units contain circulation blowers), intended installation (e.g., floor
furnaces are installed with the majority of the unit outside of the
conditioned space), and input capacity.
In the December 2009 NOPR, DOE proposed consolidating the product
classes for four types of DHE and adding product classes for one type
of DHE. DOE discusses the full details of its proposals in the December
2009 NOPR. 74 FR 65852, 65871-72 (Dec. 11, 2009). In response to the
proposed product class consolidation, AHRI took the position that the
Federal energy conservation standards should not change for direct
heating equipment, which would include not consolidating any of the
existing BTU range categories or range levels. (AHRI, Public Meeting
Transcript, No. 57.4 at p. 85)
Empire Comfort Products (Empire) stated that if DOE condenses the
product classes for direct heating equipment, it will reduce the
manufacturers' flexibility to increase efficiency. (Empire, Public
Meeting Transcript, No. 57.4 at p. 86)
Neither AHRI nor Empire provided any additional insight to explain
why the proposed reduction in product classes would limit a
manufacturer's ability to increase the efficiency of direct heating
equipment. DOE believes the consolidation of product classes reflects
the current models offered by manufacturers. As discussed in the
December 2009 NOPR, DOE carefully reviewed product catalogs and
performance directories to determine the relationship between AFUE and
input rating found among products listed in the AHRI Directory. For
each of the five types of DHE, DOE found that manufacturers do not
produce products in some of the input capacity ranges or that some of
the efficiency characteristics of these products are similar. DOE
explained each of these changes in the NOPR along with its proposal to
further consolidate the product classes, where applicable. 74 FR 65852,
65871-72 (Dec. 11, 2009). For each product class, DOE characterized
this relationship, and the commenters have provided no data or
rationale as to why DOE's characterization was incorrect. Consequently,
DOE is adopting the consolidated product classes as proposed in the
December 2009 NOPR. Table IV.2 presents the product classes for DHE
being adopted by this rulemaking.
Table IV.2--Product Classes for Direct Heating Equipment
----------------------------------------------------------------------------------------------------------------
Direct heating equipment type Input heating capacity Btu/h
----------------------------------------------------------------------------------------------------------------
Gas Wall Fan Type.......................... Up to 42,000.
Over 42,000.
Gas Wall Gravity Type...................... Up to 27,000.
Over 27,000 and up to 46,000.
[[Page 20136]]
Over 46,000.
Gas Floor.................................. Up to 37,000.
Over 37,000.
Gas Room................................... Up to 20,000.
Over 20,000 and up to 27,000.
Over 27,000 and up to 46,000.
Over 46,000.
Gas Hearth................................. Up to 20,000.
Over 20,000 and up to 27,000.
Over 27,000 and up to 46,000.
Over 46,000.
----------------------------------------------------------------------------------------------------------------
c. Pool Heaters
As discussed in the December 2009 NOPR, the existing Federal energy
conservation standards for pool heaters correspond to the efficiency
levels specified by EPCA, as amended (42 U.S.C. 6295(e)(2)), and
codified in 10 CFR 430.32(k), classifying residential pool heaters with
one product class. This product class is distinguished by fuel input
type (i.e., gas-fired). 74 FR 65852, 65872 (Dec. 11, 2009).
B. Screening Analysis
The purpose of the screening analysis is to evaluate the technology
options identified in the market and technology assessment as having
the potential to improve the efficiency of products and to determine
which technologies to consider further and which to screen out based on
the four screening criteria. DOE consulted with industry, technical
experts, and other interested parties to develop a list of technologies
for consideration. DOE then applied the following four screening
criteria to determine which design options are suitable for further
consideration in the standards rulemaking:
1. Technological feasibility. DOE considers technologies
incorporated in commercial products or in working prototypes to be
technologically feasible.
2. Practicability to manufacture, install, and service. If mass
production and reliable installation and servicing of a technology in
commercial products could be achieved on the scale necessary to serve
the relevant market at the time the standard comes into effect, then
DOE considers that technology practicable to manufacture, install, and
service.
3. Adverse impacts on product utility or product availability. If
DOE determines a technology would have a significant adverse impact on
the utility of the product to significant subgroups of consumers, or
would result in the unavailability of any covered product type with
performance characteristics (including reliability), features, sizes,
capacities, and volumes that are substantially the same as products
generally available in the United States at the time, it will not
consider this technology further.
4. Adverse impacts on health or safety. If DOE determines that a
technology will have significant adverse impacts on health or safety,
it will not consider this technology further.
See 10 CFR part 430, subpart C, appendix A, (4)(a)(4) and (5)(b).
As presented in the December 2009 NOPR, DOE identified a number of
technology options that might be used to improve the efficiency of
residential heating products during the market and technology
assessment. 74 FR 65852, 65872-79 (Dec. 11, 2009). See chapter 3 of the
December 2009 NOPR and final rule TSDs for more information and the
complete list of technologies identified by DOE. DOE then applied the
screening criteria listed above to determine which technologies would
be carried through the analysis. Table IV.3 through Table IV.5 show the
technology options that were screened-in during the December 2009 NOPR
screening analysis.
Table IV.3--Technologies DOE Considered for the Water Heater Engineering Analysis
----------------------------------------------------------------------------------------------------------------
Water heater type by fuel source
---------------------------------------------------------------------------
Technology Storage Instantaneous
---------------------------------------------------------------------------
Gas-fired Electric Oil-fired Gas-fired
----------------------------------------------------------------------------------------------------------------
Increased Jacket Insulation......... X X X .................
Foam Insulation..................... ................. ................. X .................
Improve/Increased Heat Exchanger X X X X
Surface Area.......................
Enhanced Flue Baffle................ X ................. X .................
Direct-Vent (Concentric Venting).... ................. ................. ................. X
Power Vent.......................... X ................. X X
Electronic (or Interrupted) Ignition X ................. X X
Heat Pump Water Heater.............. ................. X ................. .................
Condensing.......................... X ................. X X
----------------------------------------------------------------------------------------------------------------
[[Page 20137]]
Table IV.4--Technologies DOE Considered for the Direct Heating Equipment
Engineering Analysis
------------------------------------------------------------------------
Technology
-------------------------------------------------------------------------
Increased Heat Exchanger Surface Area.
Direct-Vent (Concentric Venting).
Electronic Ignition.
Induced Draft.
Two Stage and Modulating Operation.
Condensing.
------------------------------------------------------------------------
Table IV.5--Technologies DOE Considered for the Pool Heater Engineering
Analysis
------------------------------------------------------------------------
Technology
-------------------------------------------------------------------------
Increased Heat Exchanger Surface Area.
More Effective Insulation (Combustion Chamber).
Power Venting.
Sealed Combustion.
Condensing.
------------------------------------------------------------------------
1. Comments on the Screening Analysis
In response to the screening analysis presented in the December
2009 NOPR, DOE received several comments from interested parties.
In the December 2009 NOPR, CO2 heat pump water heaters
were a technology option screened out by DOE for electric storage water
heaters, because DOE research suggests U.S. manufacturers do not have
the necessary infrastructure to support manufacturing, installation,
and service of CO2 heat pump water heaters on the scale
necessary to serve the relevant market by the compliance date of an
amended energy conservation standard. 74 FR 65852, 65873 (Dec. 11,
2009). In general, ACEEE stated that it strongly objected to the
screening analysis because DOE considered only technologies available
in U.S.-manufactured water heaters and screened out technologies used
in other domestic products, as well as ones used in the global market.
(ACEEE, No. 79 at p. 2) ACEEE stated that DOE's screening out of
CO2 as a heat pump water heater refrigerant is absurd, given
the fact that 1.7 million of them had been sold worldwide through the
end of 2008, and that there is a 5-year lead time before the standards
compliance date in which manufacturers could design a CO2
heat pump water heater. (ACEEE, No. 79 at p. 2)
Conversely, Rheem commented that CO2 refrigerants were
appropriately screened out. (Rheem, No. 89 at p. 8) AHRI noted that
there is a huge heat pump business in the U.S. for air conditioning and
space heating, and no significant percentage of those products use
CO2 as the refrigerant. DOE believes AHRI is using the air
conditioning and space heating industry as an example of an industry
with significant expertise in working refrigerants, but that still does
not use CO2 refrigerants in its heating and cooling
products. Even though DOE is investigating the use of CO2 as
a refrigerant in water heating applications, AHRI's example
demonstrates that U.S. manufacturers and service industries do not have
the expertise in using or handling CO2 as a typical
refrigerant in cooling applications. Therefore, AHRI stated its belief
that CO2 heat pumps have been properly screened out because
it is not the prevailing technology in North America. Further, AHRI
stated that for standards that will apply to U.S. industry, DOE should
not unnecessarily expand this rulemaking by looking at what might be
happening in other parts of the world. (AHRI, Public Meeting
Transcript, No. 57.4 at pp. 133-134) A.O. Smith stated that
CO2 heat pump water heaters sold and installed in Japan are
certified to different levels of standards requirements than those that
exist in the U.S., and those heat pump water heaters would not be
certifiable in the U.S. (A.O. Smith, Public Meeting Transcript, No.
57.4 at pp. 134-135)
In response, DOE believes that CO2 heat pump water
heaters were properly screened out during the December 2009 NOPR
analysis. DOE notes that technologies are not screened out solely
because they are not yet available in the U.S. market. Technologies,
such as CO2 heat pump water heaters, which are available
overseas, are screened out if the U.S. does not have the necessary
infrastructure to support such a technology on the scale necessary by
the compliance date of the standard. As described in chapter 4 of the
final rule TSD (Screening Analysis), CO2 heat pump water
heaters were screened out because the necessary infrastructure to
support manufacturing, installation, and service of CO2 heat
pump water heaters is not available in the United States, and will not
be available on the scale necessary to serve the relevant market at the
time of the compliance date of the standard. ACEEE did not provide any
new evidence that would cause DOE to change its position on this issue,
and, therefore, DOE continued to screen out CO2 heat pump
water heaters for the final rule analysis. DOE notes that pursuant to
Section 612 of the Clean Air Act, the U.S. EPA has found CO2
an acceptable refrigerant for use in the U.S. in certain applications
(e.g., retail food refrigeration), but has not made such a ruling on
the use of CO2 in water heating heat pumps. EPA indicates
that to date it has not received any submission under the SNAP program
for the use of CO2 in such devices. For additional
information on EPA's Significant New Alternative Policy (SNAP) program
(see http://www.epa.gov/ozone/snap/.)
ACEEE asserted that DOE fails to differentiate between low-voltage
(i.e., 24 volt) and line-voltage (i.e., 120 volt) power requirements
for gas-fired equipment auxiliaries such as igniters, controls, and
fans. The commenter stated that line voltage requires a power outlet
reachable by a 6 foot power cord on the water heater, which would
require a new outlet in some retrofits, while a remote low-voltage
plug-in power supply can use much longer supply lines that could
support electronic ignition and electro-mechanical flue dampers. ACEEE
stated that a recent study of standby losses of atmospheric water
heaters shows losses large enough that ACEEE infers that these features
would be quite cost-effective, and that such products have been
demonstrated in the past (for the SCAQMD) and in gas stoves. (ACEEE,
No. 79 at p. 3) ACEEE stated that requiring gas-fired appliances to
have an electrical connection does not diminish utility because it is
not an issue in the minds of the public, and if the capability of gas-
fired products to operate during power outages was important, then
local building codes would require backup non-electric heating
capabilities for houses with electric water heaters. (ACEEE, Public
Meeting Transcript, No. 57.4 at pp. 38-39)
In response, DOE agrees with ACEEE that requiring gas-fired
appliances to have an electrical connection does not diminish utility,
and DOE notes that this rationale was not provided for screening out
any of the technologies that DOE did not consider in the analysis.
Further, DOE notes that many of the design options for gas-fired
appliances included electronic components, such as electronic ignitions
and power venting.
Louisville Tin & Stove (LTS) commented that the proposed standards
for DHE would reduce consumer utility because they would lose the
ability to heat without electricity and/or lose the ability to
retrofit. (LTS, No. 56.7 at p. 2) Empire stated adding components that
require electricity would cause the elimination of the gas wall
gravity, gas room, gas floor, and gas hearth categories because their
main purpose is to provide efficient heating and be able to provide
heat during a power outage
[[Page 20138]]
or for consumers who do not have electricity. (Empire, No. 100 at p. 2)
Although DOE recognizes the consumer utility of direct heating
equipment that can be operated in the event of a power outage, DOE also
notes that there are direct heating equipment available on the market
equipped with an electronic ignition that utilize battery backup
systems to allow for operation during power outages. As a result, DOE
does not believe the use of an electronic ignition would reduce the
consumer utility of direct heating equipment. DOE also does not believe
that adding electrical components would reduce the ability to retrofit
these products, thereby causing the elimination of product classes. The
addition of certain electrical components (e.g., an electronic
ignition) does not require products to be any larger than products
currently available that have no electric components, and thus, DOE
does not believe this will prevent products from being retrofitted. DOE
also does not believe adding larger electrical components (e.g., blower
fans) would cause the elimination of any products, because DOE only
considers the addition of blower fans for certain product classes which
have products that have demonstrated that the technology is possible
(i.e., gas wall fan DHE, gas room DHE, and gas hearth DHE). For gas
wall gravity DHE, where the inclusion of a fan would shift products
into the gas wall fan DHE product class, DOE does not consider a fan as
a design option.
However, DOE does recognize that in certain instances, consumers
will have to install electrical power outlets near the heating
equipment, thereby increasing the cost of retrofitting the product.
These costs are addressed during DOE's analysis of installation costs
and are described in section IV.F.2 of this document. Accordingly, DOE
continued to screen-in electronic ignition and other electronic
components for the final rule analysis of direct heating equipment.
2. Heat Pump Water Heater and Condensing Gas-Fired Storage Water Heater
Discussion
In the December 2009 NOPR, DOE specifically requested comment
regarding the screening process for the advanced technologies used as
the basis for the max-tech levels for gas-fired storage and electric
storage water heater (i.e., heat pump water heaters and condensing gas-
fired storage water heaters). 74 FR 65852, 65878 (Dec. 11, 2009). DOE
received a multitude of comments on this topic, which are summarized
below.
a. Condensing Gas-Fired Water Heaters
DOE received several comments specifically related to condensing
gas-fired water heater technology. ACEEE noted that all three of the
full-line water heater manufacturers in the U.S. currently manufacture
commercial condensing products. (ACEEE, Public Meeting Transcript, No.
57.4 at p. 127) Further, ACEEE stated that at least one condensing gas-
fired storage water heater is actively marketed for residential
applications and is shipped with a residential thermostat. ACEEE
recognized that this product is easy to install, with height, diameter,
and installation requirements similar to standard power-vent units.
ACEEE asserted that the only skills required for installing condensing
gas-fired water heaters, beyond those already required for installing
conventional gas-fired water heaters, are those common to the
installation of condensing furnaces and air conditioners--cutting and
gluing PVC pipe, and hooking up a condensate pump, if required. (ACEEE,
No. 79 at p. 11)
ASAP stated that the manufacturing capacity required for condensing
gas-fired storage water heaters at TSL 5 (i.e., approximately 4
percent, as estimated in the December 2009 NOPR) would be well within
the capacity of manufacturers to serve the market. (ASAP, Public
Meeting Transcript, No. 57.4 at p. 126) AHRI stated that manufacturers
could probably convert their production of 75-gallon gas-fired water
heaters to make only condensing 75-gallon gas-fired storage water
heaters within five years. (AHRI, Public Meeting Transcript, No. 57.4
at p. 119)
In addition, A.O. Smith stated that they manufacture commercial
condensing gas-fired water heaters that are ultra-low NOX,
and, therefore, it is technologically feasible to have an ultra-low
NOX condensing water heater. (A.O. Smith, Public Meeting
Transcript, No. 57.4 at p. 123)
In light of the comments above from interested parties supporting
the technologically feasibility and the practicability of
manufacturing, installing, and servicing condensing gas-fired water
heaters, DOE has concluded that this technology option was
appropriately screened-in and considered during the December 2009 NOPR
analysis, and DOE continued to consider condensing gas-fired water
heaters in the final rule analysis.
b. Heat Pump Water Heaters
DOE received several comments specifically related to the screening
analysis for heat pump water heater technology. These comments related
to adverse impacts on product utility, as well as the practicability to
manufacture, install, and service heat pump water heaters.
Regarding adverse impacts on product utility, the American Public
Power Association (APPA) commented that for electric storage water
heaters at TSL 5 and TSL 6 (i.e., levels requiring heat pump water
heater technology), the utility of the product would be lessened,
although no further explanation was provided. (APPA, No. 92 at p. 3)
Rheem stated that the utility of heat pump water heaters is not
equivalent to electric storage water heaters because of the reduced
delivery performance of heat pump water heaters. As evidence of the
reduced delivery performance, Rheem cited ENERGY STAR's requirement of
a minimum first hour rating of 50 gallons for heat pump water heaters,
which is below the 67 gallons that Rheem claimed is typical for
conventional technologies at that capacity. (Rheem, No. 89 at p. 8) The
first hour rating is the amount of hot water in gallons the heater can
supply per hour (starting with a tank full of hot water). If the first
hour rating were reduced for heat pump water heaters, this would impact
consumer utility because the water heater would not provide the
consumer with the same amount of hot water as with a traditional
electric resistance water heater.
In response, DOE does not believe that any lessening of utility
will occur for electric storage water heaters that use heat pump water
heater technology, as asserted by APPA and Rheem. In response to APPA's
comment (as explained in the December 2009 NOPR), DOE does not believe
the use of heat pump technology will diminish the utility of electric
storage water heaters, and DOE believes that these products will
provide the same utility to the consumer as electric storage water
heaters using traditional electric resistance technology. 72 FR 65852,
65876-77 (Dec. 11, 2009). In response to Rheem's assertion that heat
pump water heaters provide a reduced first hour rating, and thereby
reduce consumer utility, DOE examined the first hour ratings of heat
pump water heaters available on the market. DOE identified heat pump
water heaters currently available on the market that have first hour
ratings of up to 67 gallons, which Rheem states is typical for an
electric resistance water heater. DOE also notes that electric storage
water heater models in the AHRI Directory of certified equipment at the
representative 50-gallon storage volume have first hour
[[Page 20139]]
ratings ranging from 48 to 68 gallons, and for 50-gallon heat pump
water heaters currently available on the market, the first hour ratings
range from 63 to 67 gallons. Thus, DOE has concluded that the
integrated heat pump water heater technology does not cause any
lessening of utility since it provides similar first hour ratings as
water heaters that utilize electric resistance technology.
Regarding practicability to manufacture, install, and service heat
pump water heaters, DOE received numerous comments from interested
parties. The views of interested parties are summarized below, along
with DOE's conclusions based on the results of the comments received.
AHRI stated that to convert the U.S. water heater industry from
producing four million electric resistance units per year to all heat
pump water heaters is an unreasonable expectation. (AHRI, Public
Meeting Transcript, No. 57.4 at p. 90) AHRI pointed out that converting
existing product lines to manufacturing of heat pump water heaters
would be difficult, because manufacturers would continue to manufacture
electric resistance water heaters in order to meet consumer demand
before the compliance date of the standard. (AHRI, Public Meeting
Transcript, No. 57.4 at pp. 101-103)
Bock asserted that with heat pump water heaters, there is no
infrastructure to teach and train technicians to properly install and
maintain those units. Bock asserted that training technicians of
electric resistance, gas-fired, and oil-fired water heaters to install
and maintain heat pump water heaters could not be done quickly. (Bock,
Public Meeting Transcript, No. 57.4 at p. 96) Similarly, Bradford White
stated that there is no infrastructure to repair and maintain heat pump
water heaters. Bradford White stated that water heater service
contractors would need to be extensively retrained, and that it would
be impossible for them to train plumbers to install and maintain heat
pump water heaters in sufficient time. (Bradford White, No. 61 at p. 3)
In support of heat pump water heaters, GE stated that it does
believe that heat pump water heaters are manufacturable in a reasonable
timeframe. (GE, No. 84 at p. 1) Further, GE commented that it currently
has a nationwide network for heat pump water heater product service,
and is developing a nationwide installation base to ensure that its
consumers can readily purchase, install, and repair their heat pump
water heaters. (GE, No. 84 at p. 1) The commenter noted that it is
currently working with two national partners and numerous regional
distributors to have its heat pump water heater available in most
markets and to develop its water heater installation network. GE
forecasted that the availability, service, installation, and
manufacturability of heat pump water heaters will not present a
significant obstacle to the market acceptance of such units. (GE, No.
84 at p. 2) The commenter stated that installation of a heat pump water
heater is only slightly more complex than installing an electric
resistance water heater, and is easily within the capabilities of any
residential plumber. GE did acknowledge that service of the sealed
refrigeration system can be more complex, but stated that it believes
that this can be adequately handled by the national network of
appliance technicians and plumbers. (GE, No. 84 at p. 2)
NPCC commented that several manufacturers already have heat pump
water heater products and business plans to sell heat pump water
heaters over the next five years, a schedule well before the compliance
date of the relevant amended energy conservation standards. Therefore,
NPCC believes that it is within the ability of manufacturers to produce
heat pump water heater units on the scale necessary to serve the market
for large-volume products. (NPCC, Public Meeting Transcript, No. 57.4
at p. 107) NPCC also stated that it believes there is adequate lead
time for those manufacturers who still must develop new products, since
standards will not take effect for five years. (NPCC, No. 87 at p. 5)
Further, NPCC stated that DOE's concern about the manufacturability of
heat pump water heaters and the capacity of manufacturers to ramp up
production are overstated, because two major manufacturers already
appear committed to manufacturing significant quantities of heat pump
water heaters and a third manufacturer also appears likely to do the
same. NPCC asserted that because new energy conservation standards for
water heaters will not go into effect for five years, manufacturers
will have ample time to ``ramp up'' the production of these high-
efficiency models to meet the limited market expected at TSL 5. (NPCC,
No. 87 at pp. 5-6) Regarding practicability to install heat pump water
heaters, the commenter stated that heat pump water heaters currently on
the market are drop-in replacements for electric resistance water
heaters, and are advertised as such by manufacturer literature. NPCC
commented that this fact, along with the fact that a national home
improvement chain has agreed to sell Rheem's heat pump water heater
unit, are evidence that both manufacturers and retailers believe that
the installation of ``advanced'' water heater technology is not a
significant barrier to its adoption. (NPCC, No. 87 at pp.3-4) NPCC
stated that DOE's concern regarding whether the service
infrastructure's lack of familiarity with advanced technologies would
act as a deterrent to their adoption also appears unwarranted, due to
the fact that: (1) Manufacturers are already offering these products;
(2) manufacturers will have 5 years to train and deploy a service
force; (3) major manufacturers with product on the market offer a 10-
year warranty; (4) GE has a set up a nationwide network of authorized
service technicians who are being trained to both install and service
its ``advanced technology'' water heaters; and (5) Rheem has stated
that its heat pump water heater uses a sealed heat pump and that no
HVAC experience is needed, so no additional service technician training
is required. (NPCC, No. 87 at p. 4)
NEEP stated that based on the documented ENERGY STAR-qualified
water heating units on the market, heat pump water heaters and
condensing gas water heaters are commercially viable, manufacturable,
and have a growing infrastructure of service and maintenance
professionals. (NEEP, No. 86 at p.1) NEEP stated that according to a
recent advertisement by Rheem and the Home Depot, their ENERGY STAR-
qualified heat pump water heater ``installs as easily as a standard
electric storage water heater,'' and thus, NEEP commented that
installation issues are clearly not as serious as many manufacturers
claim. (NEEP, No. 86 at p. 2)
NEEA commented that regarding a potential scale-up in response to a
large utility program opportunity that was being considered for heat
pump water heaters, major manufacturers assured them that scale-up to
large manufacturing numbers is not a limiting factor. (NEEA, No. 88 at
pp. 2-3) The commenter stated all of the heat pump water heater units
being offered for sale are designed as drop-in integrated units that
require no more connections than a conventional electric resistance
tank. NEEA asserted that there is nothing in principle about heat pump
water heater technology that makes it substantively more difficult than
a current replacement with a standard electric tank. NEEA also stated
that all heat pump water heaters offered for sale in 2010 have sealed
refrigeration components (similar to a refrigerator or a room air-
conditioner that do not
[[Page 20140]]
require service) and have 10-year warranties, an indication of
manufacturers' confidence in the long-term reliability of the systems.
NEEA commented that a duct to vent cold air to the outdoors is required
in some heat pump water heater installations, and that installing such
a duct is no more complicated than installing a flue for a gas-fired
water heater, which is well within the skill set of existing water
heater installers. (NEEA, No. 88 at p. 3)
ACEEE commented that five years from final rule publication to the
compliance date is sufficient time to design, test, tool up,
manufacture, and certify a brand new product. (ACEEE, No. 79 at pp. 13)
ACEEE stated that manufacturing capacity should not be a concern for
heat pump water heaters, given the five-year lead time between the
standards' effective date and compliance date. The commenter also
stated that resistive tank water heaters and refrigeration engines like
the ones used in heat pump water heaters are mature technologies that
can be integrated to manufacture heat pump water heaters. (ACEEE, No.
79 at p. 4) ACEEE commented that TSL 5 would require new production
lines for about 9 percent of the product, which should be manageable
and in the scale of expected investments in new production lines.
(ACEEE, No. 79 at p. 10) Regarding practicability to install heat pump
water heaters, ACEEE stated that the arguments regarding training time
for installers and servicers are vastly overblown. The commenter noted
further that the Web sites of the leading providers of ENERGY STAR heat
pump water heaters do not contain language that would void warrantees
if such units are home-owner installed, and such units are now sold by
major ``big box'' retailers and Internet sales outlets. (ACEEE, No. 79
at p. 10) With regard to servicing, ACEEE stated that although a heat
pump water heater operates more hours per year than a room air
conditioner, it is basically the same kind of technology, and will
require no routine service beyond that which can be done by the
homeowner (i.e., filter cleaning). Thus, ACEEE argued that at least for
heat pump water heaters with appropriate diagnostics, there are no
skills required beyond those one would expect from a typical
refrigerator repair person. (ACEEE, No. 79 at p. 10) ACEEE stated that
in January 2010, the GE Hybrid electric heat pump water heater will be
sold at Lowe's, Sears, and other locations, presumably to do-it-
yourself installers, and in examining the warranties available on-line,
ACEEE found no restrictions as would limit product installation to
certified or qualified trades people. From this, the commenter inferred
that there are no special skills expected for installation of these
heat pump water heater products. (ACEEE, No. 79 at p. 12) ACEEE
asserted that the skill set required to service heat pump water heaters
is the same as the skill set associated with fixing the refrigeration
engines of room air conditioners, refrigerators, and similar light
equipment. Similarly, the commenter argued that servicing of condensing
gas water heaters uses the same skill sets as condensing boilers. Thus,
ACEEE stated that it believes that over the next five years, the
emergence and market penetration of incentive programs for both types
of products will lead to adequate supplies of servicers with the
requisite skills. (ACEEE, No. 79 at p. 12)
The Joint Advocacy comment \4\ (submitted by ASAP) stated that the
limited scope of the December 2009 NOPR TSL 5 (i.e., the TSL requiring
electric storage water heaters larger than 55 gallons to use heat pump
water heater technology), combined with the five-year lead time before
the compliance date, will make the new standards more manageable for
manufacturers, equipment installers, and servicers than standards which
effectively require heat pump water heaters and condensing gas products
in all sizes. (The Joint Advocacy Comment, No. 102 at p. 2)
---------------------------------------------------------------------------
\4\ The joint advocacy comment was submitted by ASAP on behalf
of multiple organizations, including: ACEEE, National Association of
State Energy Officers, California Energy Commission, Consumer
Federation of America, PG&E, ASE, ASAP, National Consumer Law
Foundation, NRDC, National Grid, National Insulation Association,
North American Insulation Manufacturers Association, NEEP, NPCC,
Sierra Club, Iowa Office of Energy, New Hampshire Office of Energy
and Planning, Office of the Ohio Consumers' Council, California
Public Utilities Commission, New Mexico Public Regulation
Commission, Public Utility Commission of Oregon, New Jersey Board of
Public Utilities, Community Environmental Center, Conservation Law
Foundation, Environmental Defense Fund, Environment America,
Environmental Law and Policy Center, Environmental and Energy Study
Institute, Midwest Energy Efficiency Alliance, Southern Alliance for
Clean Energy, Southwest Energy Efficiency Project, Urban Green
Council (U.S. Green Building Council of New York), Arizona PIRG,
Energy Coordinating Agency of Philadelphia, Environment Illinois,
Environment Texas, Michigan Environmental Council, NW Energy
Coalition, Ohio Environmental Council, Oklahoma Sustainability
Network, Texas Ratepayer's Organization to Save Energy, National
Community Action Foundation, and Fresh Energy.
---------------------------------------------------------------------------
ASE stated that for the December 2009 NOPR's TSL 5, the advanced
technology requirements are limited to a modest share of total water
heater shipments, which is a sensible means of addressing the issue of
manufacturers being able to scale up the production of these products
to meet the needs of the market. (ASE, No. 77 at p. 2)
A.O. Smith stated that a facility to produce 2 million heat pump
water heaters per year (i.e., A.O. Smith's approximate share of the
entire electric storage water heater market) would take 2-3 years to
implement. (A.O. Smith, No. 76 at p. 3)
Daikin stated that heat pump technology can be easily introduced to
existing electric resistance water heater manufacturers from the air
conditioning and refrigerator manufacturing sectors. The commenter
noted that European and Japanese electric resistance heat pump
manufacturers have already obtained the necessary heat pump technology
and have heat pump water heater manufacturing lines up and running.
Daikin stated its belief that taking into account the significance of
the introduction of heat pump technology to unfamiliar manufacturers,
at least one to two years would be required for this change to be
implemented after publication of the final rule. (Daikin, No. 82 at p.
2)
After reviewing the comments from interested parties above, DOE
believes that integrated heat pump water heaters and condensing gas-
fired storage water heaters were properly screened in for the December
2009 NOPR analysis, and DOE continued to consider this technology for
the final rule analysis. Based on the comments of interested parties,
including those from manufacturers, DOE has concluded that given the
five-year lead time, the practicability to manufacture, install, and
service heat pump water heaters and condensing gas-fired storage water
heaters is not a concern that would justify eliminating these
technologies from consideration in this analysis. However, DOE further
considered the concerns of interested parties regarding heat pump water
heaters and condensing gas-fired storage water heaters for the
selection of the final standard level.
Because DOE did not change any of its conclusions about the
screening analysis for technologies for the December 2009 NOPR
analysis, DOE screened in the same technologies for the final rule
(shown in Table IV.3 through Table IV.5). For more information about
the technologies that were screened out, and the reasoning for those
options being screened out, see chapter 4 of the final rule TSD.
DOE believes that all of the efficiency levels discussed in today's
notice are technologically feasible. The technologies that DOE examined
have been used (or are being used) in
[[Page 20141]]
commercially-available products or working prototypes. Furthermore,
these technologies all incorporate materials and components that are
commercially available in today's supply markets for the residential
heating products that are the subject of this final rule.
C. Engineering Analysis
The engineering analysis develops cost-efficiency relationships to
show the manufacturing costs of achieving increased efficiency. As
explained in the December 2009 NOPR, DOE conducted the engineering
analysis for heating products using both the efficiency level approach
to identify incremental improvements in efficiency for each product and
the cost-assessment approach to develop the manufacturer production
cost (MPC) at each efficiency level. 74 FR 65852, 65879-96 (Dec. 11,
2009). DOE first identified the most common residential heating
products on the market and determined their corresponding efficiencies
and the distinguishing technology features associated with those
levels. After identifying the most common products that represent a
cross-section of the market, DOE gathered information about these
selected products using reverse-engineering methodologies, product
information from manufacturer catalogs, and discussions with
manufacturers and other experts of water heaters, DHE, and pool
heaters. This approach provided useful information, including
identification of potential technology paths manufacturers use to
increase energy efficiency.
DOE used information gathered by reverse-engineering multiple
manufacturers' products spanning the range of efficiency levels for
each of the three product categories to generate bills of materials
(BOMs), which describe each product in detail, including all
manufacturing steps required to make and/or assemble each part. DOE
developed a cost model that converted the raw information BOMs into
MPCs. By applying derived manufacturer markups to the MPCs, DOE
calculated the manufacturer selling prices (MSPs) and constructed
industry cost-efficiency curves.
In response to the December 2009 NOPR, DOE received comments from
interested parties on various aspects of the engineering analysis,
including: (1) Efficiency levels analyzed and technology options; (2)
manufacturer production costs; (3) shipping costs; (4) scaling of
storage water heater MPCs to other storage volumes; and (5) the energy
efficiency equations. A further discussion of the engineering analysis
methodology, a discussion of the comments DOE received, DOE's response
to those comments, and any changes DOE made to the engineering analysis
methodology or assumptions as a result of those comments is presented
in the sections below. See chapter 5 of the final rule TSD for
additional details about the engineering analysis.
1. Representative Products for Analysis
As explained in the December 2009 NOPR, DOE reviewed all of the
product classes of residential water heaters, DHE, and pool heaters for
the engineering analysis. Within each product type, DOE chose units for
analysis that represent a cross-section of the residential heating
products market. The December 2009 NOPR contains specific details about
DOE's selection of representative units for each type of heating
product. 74 FR 65852, 65879-81 (Dec. 11, 2009). The analysis of these
representative products allowed DOE to identify specific
characteristics that could be applied to all of the products across a
range of storage and input capacities, as appropriate. In response to
the December 2009 NOPR, DOE did not receive any comments regarding the
representative units analyzed, and as a result, DOE did not change the
representative units from the December 2009 NOPR analysis. The
representative units for each product class are shown in Table IV.6
below. For more details about the selection of the representative units
for each product class, see chapter 5 of the final rule TSD.
Table IV.6--Representative Products Analyzed
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Residential Water Heaters
----------------------------------------------------------------------------------------------------------------
Residential water heater class Representative storage volume
(gallons)
----------------------------------------------------------------------------------------------------------------
Gas-Fired Storage Type................. 40.
Electric Storage Type.................. 50.
Oil-fired Storage Type................. 32.
Instantaneous Gas Fired................ 0.
(199,000 Btu/h input capacity).
----------------------------------------------------------------------------------------------------------------
Direct Heating Equipment
----------------------------------------------------------------------------------------------------------------
Direct heating equipment design type Representative input rating range (Btu/h)
----------------------------------------------------------------------------------------------------------------
Gas Wall Fan........................... Over 42,000.
Gas Wall Gravity....................... Over 27,000 and up to 46,000.
Gas Floor.............................. Over 37,000.
Gas Room............................... Over 27,000 and up to 46,000.
Gas Hearth............................. Over 27,000 and up to 46,000.
----------------------------------------------------------------------------------------------------------------
Residential Pool Heaters
----------------------------------------------------------------------------------------------------------------
Pool heaters product class Representative input rating (Btu/h)
----------------------------------------------------------------------------------------------------------------
Gas-fired Pool Heaters................. 250,000.
----------------------------------------------------------------------------------------------------------------
2. Efficiency Levels Analyzed
For each of the representative products, DOE analyzed multiple
efficiency levels and estimated manufacturer production costs at each
efficiency level. These efficiency levels were presented in detail in
the December 2009 NOPR. 74 FR 65852, 65881-89 (Dec. 11, 2009). DOE
analyzed
[[Page 20142]]
from the baseline efficiency level to the maximum technologically
feasible (max-tech) efficiency level for each product class. The
baseline units in each product class were used as reference points
against which DOE measured changes resulting from potential amended
energy conservation standards. These units generally represent the
basic characteristics of equipment in that product class, just meet
current Federal energy conservation standards, and provide basic
consumer utility. DOE established intermediate energy efficiency levels
for each of the product classes that are representative of efficiencies
that are typically available on the market through a complete review of
AHRI's product certification directory, manufacturer catalogs, and
other publicly-available literature. DOE determined the maximum
improvement in energy efficiency that is technologically feasible (max-
tech) for water heaters, DHE, and pool heaters, as required by section
325(o) of EPCA. (42 U.S.C. 6295(o)). For the representative product
within a given product class, DOE could not identify any working
products or prototypes at higher efficiency levels that were currently
available beyond the identified max-tech level at the time the analysis
was performed.
a. Water Heaters
Table IV.7 through Table IV.11 in this section show the efficiency
levels analyzed at the representative rated storage volume for each of
the water heater product classes for the final rule. These tables also
show the technology pathways identified by DOE which could be used to
reach the identified efficiency levels. DOE received several comments
(discussed below) in response to the efficiency levels and possible
technology pathways presented in the December 2009 NOPR for gas-fired
storage water heater.
Rheem stated that for 40-gallon gas-fired storage water heaters at
TSL 4 (i.e., 0.63 EF), DOE underestimates the insulation thickness that
would be required. Rheem asserted that 3 inches of insulation would be
required to reach this efficiency level, instead of the 2 inches that
DOE estimated in the December 2009 NOPR. In addition, Rheem stated that
for 50-gallon electric storage water heaters, DOE estimates 4 inches of
foam insulation are needed to achieve TSL 4 (i.e., 0.95 EF) but that
DOE should recognize there are diminishing returns for added foam
insulation. Further, Rheem asserted that the increased insulation
requirements will result in increased product cost, shipping cost,
life-cycle cost, space constraint frequency, and reduce consumer
payback. (Rheem, No. 89 at p. 10) Similarly, Bradford White stated that
when increasing insulation thickness to improve water heater
efficiency, there is a diminishing return and a point at which
increasing insulation does not result in any further efficiency gain.
Bradford White asserted that to attain the efficiencies in the December
2009 NOPR, additional changes would be required besides increasing
insulation thickness. (Bradford White, No. 61 at p. 1)
As described in the December 2009 NOPR, DOE performed extensive
research regarding the technologies required to reach each efficiency
level for the representative rated storage volumes analyzed. 74 FR
65852, 65884 (December 11, 2009). DOE research suggested that the
insulation thicknesses listed at various efficiency levels identified
are consistent with products available on the market. DOE reviewed
manufacturer literature (which typically includes information on energy
factor and insulation thicknesses) and then reverse-engineered several
gas-fired water heaters to verify the technologies used to improve
energy efficiency, including insulation thicknesses. For the December
2009 NOPR analysis, DOE also hired an independent testing facility to
determine the EF of a representative sample of water heaters across
multiple efficiency levels. (See chapter 5 of the December 2009 NOPR
TSD for additional details.) These water heaters were subsequently
disassembled to verify the technologies used to increase energy
efficiency. DOE was able to measure the insulation thicknesses on the
sides, top, and bottom of each water heater unit disassembled. For
these reasons, DOE believes the results of its assessment of insulation
thicknesses at various efficiency levels are accurate and maintained
the same insulation thicknesses for the final rule analysis.
AGA stated that efficiency level 2 for gas-fired storage water
heaters should include power venting, because according to industry
testing and research, the prevailing technology at that level will be a
power-vented design, not an atmospheric design. (AGA, Public Meeting
Transcript, No. 57.4 at pp. 35-36) Further, AGA stated that the
majority of the models on the market rated at this efficiency level are
not atmospherically vented, and contended that atmospherically-vented
models at 0.63 EF would have recovery efficiencies high enough such
that they require venting modifications because of the possibility for
corrosive condensate to occur. (AGA, No. 78 at p. 8) If proper venting
is not installed, corrosion from condensate can cause leaks in the
venting system, which in turn can allow combustion by-products (e.g.,
carbon monoxide) to infiltrate into areas where such by-products are
not desirable, possibly leading to serious injury or death. Thus, AGA
recommended that DOE should consider only power-venting technology as
the design option at efficiency level 2 for reasons of installation
safety and practicality, and asserted that continuing to rely upon
atmospheric technology for the efficiency level 2 design would violate
statutory requirements for DOE to avoid implementing efficiency
standards that would pose an increased safety risk to consumers. (AGA,
No. 78 at p. 10)
In response, DOE notes that there are products currently available
on the market at efficiency level 2 that do not use a power-venting
design. The manufacturer literature for these products does not
indicate that there are certain instances in which the installation of
these products would be unsafe. Therefore, DOE did not change its
technology options at efficiency level 2. However, DOE does recognize
the venting concerns of gas-fired storage water heaters at efficiency
level 2 with high recovery efficiencies. DOE addresses this issue in
section IV.F.2 (Installation Cost).
A.O. Smith strongly recommended that DOE lower the max-tech level
for gas-fired storage water heaters from the 0.80 EF level identified
in the December 2009 NOPR for the representative 40-gallon storage
volume. A.O. Smith stated that the 0.80 EF level identified as the max-
tech for gas-fired storage water heaters by the Super Efficient Gas
Water Heating Appliance Initiative (SEGWHAI) program and in a
presentation by A.O. Smith at the 2009 ACEEE Hot Water Forum were based
on theoretical modeling, and not operational prototypes. A.O. Smith
also commented that the ENERGY STAR level of 0.80 EF is based on
similar modeling, and stated that discussions are underway with DOE
regarding the need to lower the Energy Star level to 0.77 EF. A.O.
Smith stated they have recently built and tested a number of condensing
gas-fired water heater prototypes that result in actual performance
that is somewhat lower than predicted by the models. Consequently, A.O.
Smith expressed support for 0.77 EF as the max-tech level for 40 gallon
gas-fired storage water heaters. (A.O. Smith, No. 76 at pp. 1-2)
[[Page 20143]]
In the preliminary analysis, DOE proposed to use 0.77 EF as the
max-tech level for gas-fired storage water heaters at the
representative rated storage volume (see chapter 5 of the preliminary
analysis TSD for more details). In response to this proposal in the
preliminary analysis, DOE received comments from interested parties
stating that the max-tech efficiency level considered for gas-fired
storage water heaters in this rulemaking should be harmonized with the
ENERGY STAR level for residential condensing gas-fired storage water
heaters, and DOE subsequently revised the max-tech level to 0.80 EF for
the December 2009 NOPR analysis. 74 FR 65852, 65883 (Dec. 11, 2009).
DOE believes there is some uncertainty regarding the efficiencies that
can be achieved by gas-fired storage water heaters because there are no
products currently available on the market and to date only prototypes
have been developed for residential applications. For the final rule,
DOE has reviewed confidential data characterizing the performance of
residential gas-fired storage water heater prototypes and has concluded
that 0.77 EF is more representative of the condensing water heaters
likely to enter the market. As such, DOE has revised its max-tech
efficiency level for the final rule so that at the 40-gallon
representative capacity, the efficiency level is 0.77 EF, as shown in
Table IV.7.
Table IV.7--Forty-Gallon Gas-Fired Storage Water Heater (Standard
Burner) Efficiency Levels
------------------------------------------------------------------------
Efficiency level (EF) Technology
------------------------------------------------------------------------
Baseline (EF = 0.59)................... Standing Pilot and 1''
Insulation.
Efficiency Level 1 (EF = 0.62)......... Standing Pilot and 1.5''
Insulation.
Efficiency Level 2 (EF = 0.63)......... Standing Pilot and 2.0''
Insulation.
Efficiency Level 3 (EF = 0.64)......... Electronic Ignition, Power Vent
and 1'' Insulation.
Efficiency Level 4 (EF = 0.65)......... Electronic Ignition, Power Vent
and 1.5'' Insulation.
Efficiency Level 5 (EF = 0.67)......... Electronic Ignition, Power Vent
and 2'' Insulation.
Efficiency Level 6--Max-Tech (EF = Condensing, Power Vent, 2''
0.77). Insulation.
------------------------------------------------------------------------
Regarding the technology options for ultra-low NOX gas-
fired storage water heaters, ACEEE stated that once an inducer fan is
added to an ultra-low NOX product, the ultra-low
NOX design factor is not a prohibitive feature. (ACEEE,
Public Meeting Transcript, No. 57.4 at pp. 127) A.O. Smith stated that
the only way for ultra-low NOX water heaters to overcome the
additional restriction added by increased flue baffling (needed to
promote heat exchange and increase efficiency) would be to add a blower
and/or power-burner to the heater, which would greatly increase the
manufacturing and installation costs of the heater. (A.O. Smith, No. 76
at p. 2)
DOE tentatively concluded in the December 2009 NOPR that ultra-low
NOX gas-fired water heaters require the introduction of
additional technologies to achieve the same efficiency as standard gas-
fired water heaters. For the December 2009 NOPR, DOE performed a
teardown analysis of ultra-low NOX gas-fired storage water
heaters. 74 FR 65852, 65881 (Dec. 11, 2009). (Details about DOE's
December 2009 NOPR analysis of ultra-low NOX storage water
heaters are available in chapter 5 of the December 2009 NOPR TSD.) DOE
research showed that implementing power venting and the same insulation
increases as those for standard gas-fired water heaters would result in
slightly lower efficiencies due to the additional pressure restrictions
resulting from the addition of the ultra-low NOX burner.
Therefore, DOE implemented technologies at lower efficiency levels for
ultra-low NOX gas-fired storage water heaters in order to
achieve the same efficiencies as those identified for standard gas-
fired storage water heaters. Based on the teardown analysis of ultra-
low NOX water heaters, DOE believes that the levels
identified for ultra-low NOX gas-fired storage water heaters
are achievable using the technologies identified in Table IV.8. In its
comments, ACEEE does not present any new data or evidence to support
its assertion that once a power venting design is implemented, ultra-
low NOX gas-fired storage water heaters can achieve the same
efficiencies as gas-fired water heaters with standard burners. As a
result, DOE maintained the technologies and efficiency levels
identified in the December 2009 NOPR for the final rule, with the
exception of the max-tech level, which was reduced to 0.77 EF for the
reasons described above.
Table IV.8--Forty-Gallon Gas-Fired Storage Water Heater (Ultra-Low NOX
Burner) Efficiency Levels
------------------------------------------------------------------------
Efficiency level (EF) Technology
------------------------------------------------------------------------
Baseline (EF = 0.59)................... Standing Pilot and 1''
Insulation.
Efficiency Level 1 (EF = 0.62)......... Standing Pilot and 2''
Insulation.
Efficiency Level 2 (EF = 0.63)......... Electronic Ignition, Power
Vent, and 1'' Insulation.
Efficiency Level 3 (EF = 0.64)......... Electronic Ignition, Power Vent
and 1.5'' Insulation.
Efficiency Level 4 (EF = 0.65)......... Electronic Ignition, Power Vent
and 2'' Insulation.
Efficiency Level 5 (EF = 0.67)......... Not Attainable (would go to
condensing).
Efficiency Level 6--Max-Tech (EF = Condensing, Power Vent, 2''
0.77). Insulation.
------------------------------------------------------------------------
DOE also received several comments relating to the max-tech
efficiency levels for electric storage water heaters, which was
identified as 2.2 EF at the 50-gallon representative rated storage
volume in the December 2009 NOPR. 74 FR 65852, 65884 (Dec. 11, 2009).
GE stated that the heat pump water heater it has in production has an
EF of 2.35 at standard DOE test conditions, which is higher than the
max-tech level identified in the December 2009 NOPR for electric
storage water heaters. (GE, No. 84 at p. 1) A.O. Smith also stated that
the 2.2 EF max-tech in the December 2009 NOPR is too low, citing the GE
heat pump water heater that is rated at 2.3 EF as evidence. A.O. Smith
stated that the heat pump water heater max-tech level should be
increased to 2.3 EF or higher if there is data available showing higher
[[Page 20144]]
levels are feasible. (A.O. Smith, No. 76 at p. 2) Further, A.O. Smith
stated that because of heat pumps using CO2 as a refrigerant
and because other heat pump technologies exist, the max-tech possibly
is higher than 2.2 EF. (A.O. Smith, Public Meeting Transcript, No. 57.4
at p. 131) ACEEE stated that DOE does not have an appropriate max-tech
for electric storage water heaters because it inappropriately screened
out CO2 heat pump water heaters, which are commercially
available in other countries. (ACEEE, Public Meeting Transcript, No.
57.4 at p. 130) Additionally, ACEEE stated that the GE product with an
EF of 2.35 exceeds DOE's December 2009 NOPR max-tech level of 2.2 EF
(ACEEE, No. 79 at p. 8)
Daikin stated that DOE's proposed max-tech for heat pump water
heaters of 2.2 EF is reasonable and appropriate, and is an achievable
standard for heat pump water heaters. (Daikin, No. 82 at p. 1)
In response, DOE estimated the max-tech efficiency for electric
storage water heaters for the December 2009 NOPR before any integrated
heat pump water heaters were commercially available on the market. In
the time since the December 2009 NOPR's publication, several heat pump
water heater models have become available to consumers. The highest EF
of the heat pump water heater models currently available on the market
is 2.35 EF at 50 gallons. While DOE does acknowledge A.O. Smith's and
ACEEE's point that a CO2 heat pump water heater could
provide an even higher EF, that technology was screened out during the
screening process (see section IV.B.1), and DOE is not considering that
technology as a viable way of reaching the max-tech level. As a result,
DOE has revised the max-tech level for the final rule to be 2.35 EF at
the representative 50-gallon rated storage volume, as shown in Table
IV.9.
Table IV.9--Fifty-Gallon Electric Storage Water Heater Efficiency Levels
------------------------------------------------------------------------
Efficiency level (EF) Technology
------------------------------------------------------------------------
Baseline (EF = 0.90)................... 1.5'' Foam Insulation.
Efficiency Level 1 (EF = 0.91)......... 2'' Foam Insulation.
Efficiency Level 2 (EF = 0.92)......... 2.25'' Foam Insulation.
Efficiency Level 3 (EF = 0.93)......... 2.5'' Foam Insulation.
Efficiency Level 4 (EF = 0.94)......... 3'' Foam Insulation.
Efficiency Level 5 (EF = 0.95)......... 4'' Foam Insulation.
Efficiency Level 6 (EF = 2.0).......... Heat Pump Water Heater.
Efficiency Level 7--Max-Tech (EF = Heat Pump Water Heater, More-
2.35). Efficient Compressor.
------------------------------------------------------------------------
DOE received only one comment in response to the efficiency levels
and technology pathways presented in the December 2009 NOPR for oil-
fired storage water heaters. In the December 2009 NOPR, DOE determined
that oil-fired storage water heaters would have to use a multi-flue
design to achieve efficiency levels 6 and 7 (i.e., 0.66 and 0.68 EF for
the 32-gallon representative rated storage volume). 74 FR 65852, 65885-
86 (Dec. 11, 2009). Bradford White stated that at the efficiency level
proposed in the December 2009 NOPR for oil-fired storage water heaters
(i.e., efficiency level 5, or 0.62 EF for the 32-gallon representative
rated storage volume), reaching the required efficiency will likely
require the use of multi-flue designs, thereby adding tremendous cost
to residential designs. (Bradford White, No. 61 at p. 2)
In response, DOE identified the technologies at each efficiency
level by examining the designs of products currently available on the
market at each efficiency level. Oil-fired storage water heaters are
currently available on the market at 0.62 EF, which do not utilize a
multi-flue design or other proprietary technology. As a result, DOE
believes that the technology options identified in the December 2009
NOPR at efficiency level 5 are appropriate, and has retained the same
efficiency levels and technologies for the final rule. Accordingly, DOE
did not include a multi-flue design at efficiency level 5 for the final
rule analysis.
Table IV.10--Thirty-Two-Gallon Oil-Fired Storage Water Heater With
Burner Assembly
------------------------------------------------------------------------
Efficiency level (EF) Technology
------------------------------------------------------------------------
Baseline (EF = 0.53)................... 1'' Fiberglass Insulation.
Efficiency Level 1 (EF = 0.54)......... 1.5'' Fiberglass Insulation.
Efficiency Level 2 (EF = 0.56)......... 2'' Fiberglass Insulation.
Efficiency Level 3 (EF = 0.58)......... 2.5'' Fiberglass Insulation.
Efficiency Level 4 (EF = 0.60)......... 2'' Foam Insulation.
Efficiency Level 5 (EF = 0.62)......... 2.5'' Foam Insulation.
Efficiency Level 6 (EF = 0.66)......... 1'' Fiberglass Insulation, and
Multi-Flue Design.
Efficiency Level 7--Max-Tech (EF = 1'' Foam Insulation, and Multi-
0.68). Flue Design.
------------------------------------------------------------------------
DOE did not receive any comments in response to the efficiency
levels and technology options presented in the December 2009 NOPR
analysis for gas-fired instantaneous water heaters. 74 FR 65852, 65886-
87 (Dec. 11, 2009). DOE believes that the efficiencies and technology
options presented for gas-fired instantaneous water heaters in the
December 2009 NOPR are still valid and continued to use the same
technologies and efficiency levels in the final rule analysis.
[[Page 20145]]
TABLE IV.11--Zero-Gallon Gas-Fired Instantaneous Water Heater, 199,000
Btu/h Input Capacity
------------------------------------------------------------------------
Efficiency level (EF) Technology
------------------------------------------------------------------------
Baseline (EF = 0.62)................... Standing Pilot.
Efficiency Level 1 (EF = 0.69)......... Standing Pilot and Improved
Heat Exchanger Area.
Efficiency Level 2 (EF = 0.78)......... Electronic Ignition And
Improved Heat Exchanger.
Efficiency Level 3 (EF = 0.80)......... Electronic Ignition and Power
Vent.
Efficiency Level 4 (EF = 0.82)......... Electronic Ignition, Power
Vent, Improved Heat Exchanger
Area.
Efficiency Level 5 (EF = 0.84)......... Electronic Ignition, Power
Vent, and Improved Heat
Exchanger Area.
Efficiency Level 6 (EF = 0.85)......... Electronic Ignition, Power
Vent, Direct Vent, and
Improved Heat Exchanger Area.
Efficiency Level 7 (EF = 0.92)......... Electronic Ignition, Power
Vent, Direct Vent, Condensing.
Efficiency Level 8--Max Tech (EF = Electronic Ignition, Power
0.95). Vent, Direct Vent, Condensing
(Max-Tech).
------------------------------------------------------------------------
b. Direct Heating Equipment
Table IV.12 through Table IV.16 present the efficiency levels DOE
examined for the final rule analysis for DHE. In the December 2009 NOPR
analysis, DOE identified various efficiency levels for gas wall fan
DHE. 74 FR 65852, 65887 (Dec. 11, 2009). DOE did not receive any
comments pertaining to its efficiency levels or technologies identified
for the gas wall fan product in the December 2009 NOPR analysis. After
reviewing the efficiency levels and technologies, DOE has determined
that the same efficiency levels and technologies are still appropriate
and continued to use them in the final rule analysis.
Table IV.12--Gas Wall Fan-Type DHE (Over 42,000 Btu/h) Efficiency Levels
------------------------------------------------------------------------
Efficiency level (AFUE) Technology
------------------------------------------------------------------------
Baseline (AFUE = 74)................... Standing Pilot.
Efficiency Level 1 (AFUE = 75)......... Intermittent Ignition and Two-
Speed Blower.
Efficiency Level 2 (AFUE = 76)......... Intermittent Ignition and
Improved Heat Exchanger.
Efficiency Level 3 (AFUE = 77)......... Intermittent Ignition, Two-
Speed Blower, and Improved
Heat Exchanger.
Efficiency Level 4--Max-Tech (AFUE = Induced Draft and Electronic
80). Ignition.
------------------------------------------------------------------------
For gas wall gravity DHE, DOE identified efficiency levels and
technology options in the December 2009 NOPR analysis, which included a
72-percent AFUE level as the max-tech that could be achieved using
electronic ignition. 74 FR 65852, 65887-88 (Dec. 11, 2009). DOE
received several comments in response to the efficiency levels and
technologies for gas wall gravity DHE presented in the December 2009
NOPR. These comments and DOE's response are discussed below.
Williams stated that due to factors such as interior stud-wall
installation, the lack of an electricity requirement, and limited
height footprint, gravity wall heaters do not lend themselves to the
addition of a fan, and the commenter asserted that the TSD
recommendations centered almost exclusively on the incorporation of a
fan for improving efficiency of DHE. (Williams, No. 96 at p. 2)
Further, Williams stated that a three-percent AFUE difference between a
gravity wall and fan wall heater is not plausible. Williams also
commented that DOE's assumption that increased efficiencies of three
percent to nine percent can be attained by using an electronic ignition
is unproven. (Williams, No. 96 at p. 2)
Empire stated that to improve efficiency of DHE, larger heat
exchanger surface areas would be needed and, as a result, the overall
size of the unit may increase. Furthermore, Empire stated that many of
the modifications necessary to improve the efficiency of gas wall
gravity DHE would require electricity. (Empire, Public Meeting
Transcript, No. 57.4 at p. 166) LTS stated that it is not optimistic
that it could manufacture gravity wall furnaces at the proposed level,
because meeting that level would require a larger heat exchanger and
cabinet and, consequently, the product would lose its retrofit ability.
(LTS, No. 56.7 at p. 1)
In consideration of the comments above, DOE reevaluated its
efficiency levels and technologies for gas wall gravity DHE for the
final rule. After reexamining the current market for gas wall gravity
DHE for the final rule, DOE concluded that at the efficiency levels
analyzed by DOE in the December 2009 NOPR, some gas wall gravity DHE
models are available on the market, but these models are not in the
representative rated capacity range. Therefore, DOE revised the
efficiency levels analyzed for the final rule to more accurately
reflect the current market for products within the representative rated
capacity. DOE notes that the revised efficiency levels do not require
the use fans, and allow for heat exchangers to be sized so that the
units can be easily retrofitted. In addition, although no gas wall
gravity products that use an electronic ignition system are available
on the market, DOE maintained the assumption from the December 2009
NOPR that an electronic ignition could be added to gas wall gravity
products to improve the AFUE by 1 percent. DOE does not believe that a
reduction of consumer utility will occur by requiring electrical power
for an electronic ignition because these products could incorporate a
battery backup to mitigate any concerns about operation during power
outages.
Regarding Williams' assertion that the AFUE increases from an
electronic ignition have not been proven, DOE agrees that the actual
AFUE increase resulting from the addition of an electronic ignition
will be highly variable based on the characteristics of each individual
product, and the results of this have not been demonstrated in gas wall
gravity DHE on the market. Because no products are available on the
market in this product class that utilize electronic ignition, it is
difficult to determine the exact impact of utilizing an electronic
ignition for gas wall gravity DHE. However, consideration under the DOE
test procedures for vented home heating
[[Page 20146]]
equipment (10 CFR part 430, subpart B, appendix O) led DOE to believe
it is reasonable to assume that a 1-percent increase in AFUE would be
achieved with the addition of an electronic ignition. Section 4.1.17 of
DOE's test procedures for vented home heating equipment lists the AFUE
equation as:
AFUE = 0.968[eta]ss-wt - 1.78DF -
1.89DS - 129PF - 2.8LJ + 1.81
Of particular relevance in the AFUE equation above is the
PF term, which is the pilot fraction and accounts for the
AFUE reduction caused by the standing pilot. PF is defined
as the ratio of the pilot light input to the total input of the
product. If DOE assumes a typical pilot light input of 400 Btu/h, the
minimum pilot fraction for the representative input range for gas wall
gravity DHE would be 0.009. When multiplied by the 129 coefficient
provided in the equation, a pilot fraction of 0.009 would yield
slightly over a 1-percent AFUE reduction according to the equation.
Therefore, DOE assumes that the elimination of a standing pilot would
provide about a 1-percent AFUE increase for the representative capacity
range. DOE used gas wall gravity DHE with an electronic ignition to
represent the max-tech efficiency level because the incorporation of
electronic ignition does not require significant modifications to the
installation space that would limit consumers' ability to retrofit the
product. Table IV.13 shows the revised efficiency levels for gas wall
gravity DHE that were used in the final rule analysis.
Table IV.13--Gas Wall Gravity DHE (Over 27,000 Btu/h and Up to 46,000
Btu/h) Efficiency Levels
------------------------------------------------------------------------
Efficiency level (AFUE) Technology
------------------------------------------------------------------------
Baseline (AFUE = 64)................... Standing Pilot.
Efficiency Level 1 (AFUE = 66)......... Standing Pilot and Improved
Heat Exchanger.
Efficiency Level 2 (AFUE = 68)......... Standing Pilot and Improved
Heat Exchanger.
Efficiency Level 3 (AFUE = 69)......... Standing Pilot and Improved
Heat Exchanger.
Efficiency Level 4--Max Tech (AFUE = Electronic Ignition.
70).
------------------------------------------------------------------------
For gas floor DHE, gas room DHE, and gas hearth DHE, DOE surveyed
the market and identified a number of efficiency levels for these
products based on the technologies available for each product class in
the December 2009 NOPR analysis. 74 FR 65852, 65888 (Dec. 11, 2009).
DOE did not receive any comments about the efficiency levels and
technologies identified for these products. After reviewing the
efficiency levels and technologies for each of these three product
classes, DOE determined that the efficiency levels and technologies
examined in the December 2009 NOPR are still appropriate and maintained
them for the final rule analysis. Table IV.14 through Table IV.16 show
the efficiency levels analyzed for gas floor, gas room, and gas hearth
DHE.
Table IV.14--Gas Floor DHE (Over 37,000 Btu/h) Efficiency Levels
------------------------------------------------------------------------
Efficiency level (AFUE) Technology
------------------------------------------------------------------------
Baseline (AFUE = 57)................... Standing Pilot.
Efficiency Level 1--Max Tech (AFUE = Standing Pilot and Improved
58). Heat Exchanger.
------------------------------------------------------------------------
Table IV.15--Gas Room DHE (Over 27,000 Btu/h and Up to 46,000 Btu/h)
Efficiency Levels
------------------------------------------------------------------------
Efficiency level (AFUE) Technology
------------------------------------------------------------------------
Baseline (AFUE = 64)................... Standing Pilot.
Efficiency Level 1 (AFUE = 65)......... Standing Pilot and Improved
Heat Exchanger.
Efficiency Level 2 (AFUE = 66)......... Standing Pilot and Improved
Heat Exchanger.
Efficiency Level 3 (AFUE = 67)......... Standing Pilot and Improved
Heat Exchanger.
Efficiency Level 4 (AFUE = 68)......... Standing Pilot and Improved
Heat Exchanger.
Efficiency Level 5--Max Tech (AFUE = Electronic Ignition and
83). Multiple Heat Exchanger
Design.
------------------------------------------------------------------------
Table IV.16--Gas Hearth DHE (Over 27,000 Btu/h and Up to 46,000 Btu/h)
Efficiency Levels
------------------------------------------------------------------------
Efficiency level (AFUE) Technology
------------------------------------------------------------------------
Baseline (AFUE = 64)................... Standing Pilot.
Efficiency Level 1 (AFUE = 67)......... Electronic Ignition.
Efficiency Level 2 (AFUE = 72)......... Fan Assisted.
Efficiency Level 3--Max Tech (AFUE = Condensing.
93).
------------------------------------------------------------------------
c. Pool Heaters
Table IV.17 shows the efficiency levels analyzed for the final rule
analysis for pool heaters. In response to the December 2009 NOPR
analysis, DOE received several comments related to the efficiency
levels and technologies identified for pool heaters, particularly for
efficiency level 5 (i.e., 84-percent thermal efficiency).
AHRI asserted that DOE has incorrectly analyzed the measures
required to manufacture gas-fired pool heaters capable of achieving a
minimum thermal efficiency of 84 percent. Further, AHRI stated that
manufacturers must design products to address the entire range of
installation situations that the product could experience, and if a
particular replacement installation presents concerns about possible
[[Page 20147]]
excessive condensation for a heater with 83- or 84-percent thermal
efficiency, the option currently exists to install a slightly less
efficient pool heater and minimize this concern. However, AHRI asserted
that because this option will no longer exist if DOE adopts TSL 4,
manufacturers will have to use more corrosion-resistant (and more
expensive) stainless steel in the heat exchangers. (AHRI, No. 91 at p.
9)
Similarly, Raypak stated its belief, based on their own testing
conducted to evaluate ways to achieve higher efficiency from their
products that more-expensive stainless steel materials will be required
to properly deal with the increased amount of condensate at higher
efficiency levels (i.e., anything greater than TSL 2). Further, Raypak
stated that atmospheric products currently on the market do condense
(although they are designed to minimize condensation), so increasing
the efficiency level will both increase the amount of condensation and
reduce the life of the product, unless more-expensive stainless steel
materials are used to manage condensate more effectively. (Raypak, No.
67 at p. 3)
Zodiac also stated that 84-percent thermal efficiency for gas-fired
pool heaters approaches the point at which condensing occurs, and that
condensation as a byproduct of combustion is acidic and can cause
corrosion to important components of the heater, including the venting
material if the proper type of venting is not installed. Zodiac stated
that corrosion from condensate can lead to leaks in the venting system,
which in turn can allow combustion by-products to infiltrate into areas
where such by-products are not desirable. Zodiac asserted this can
subsequently contribute to creating a carbon monoxide hazard in the
event that abnormal combustion ever occurs, which can lead to serious
injury or death. (Zodiac, No. 68 at pp. 1-2)
In response to these comments, DOE notes that in the engineering
analysis, DOE examined pool heaters that are currently available on the
market at 84-percent thermal efficiency. DOE determined that these
products did not incorporate stainless steel heat exchangers. In
addition, manufacturer literature does not specify instances when these
products could cause unsafe installations, and where less-efficient
products should be used to minimize corrosive condensate. Instead,
manufacturer literature advertises safety features that minimize
condensate, such as a manual bypass that will raise the incoming water
temperature to reduce the formation of corrosive condensate. Because
these products currently exist on the market and seem to be capable of
safe operation with condensate being mitigated using less expensive
methods than incorporating stainless steel materials, DOE did not
consider stainless steel heat exchangers at 84-percent thermal
efficiency for the final rule. Additionally, DOE notes that typically
pool heaters are installed outdoors or outside of the living space, so
these products are unlikely to cause safety concerns in most
installations. DOE does not believe manufacturers would largely deviate
from the designs currently on the market in the event of a standard at
this efficiency level, and, thus, DOE based its technologies on
products currently available on the market at 84-percent thermal
efficiency. As a result, DOE maintained the pool heater efficiency
levels analyzed for the December 2009 NOPR in the final rule analysis.
Table IV.17--Gas-Fired Pool Heater (250,000 Btu/h) Efficiency Levels
------------------------------------------------------------------------
Efficiency level (thermal
efficiency) Technology
------------------------------------------------------------------------
Baseline (Thermal Efficiency = ....................................
78)*..
Efficiency Level 1 (Thermal Improved Heat Exchanger Design.
Efficiency = 79)*.
Efficiency Level 2 (Thermal Improved Heat Exchanger Design.
Efficiency = 81)*.
Efficiency Level 3 (Thermal Improved Heat Exchanger Design, More
Efficiency = 82)*. Effective Insulation (Combustion
Chamber).
Efficiency Level 4 (Thermal Power Venting.
Efficiency = 83).
Efficiency Level 5 (Thermal Power Venting, Improved Heat
Efficiency = 84). Exchanger Design.
Efficiency Level 6 (Thermal Sealed Combustion, Improved Heat
Efficiency = 86). Exchanger Design.
Efficiency Level 7 (Thermal Sealed Combustion, Condensing.
Efficiency = 90).
Efficiency Level 8--Max-Tech Sealed Combustion, Condensing,
(Thermal Efficiency = 95). Improved Heat Exchanger Design.
------------------------------------------------------------------------
* Technologies incorporating either a standing pilot or electronic
ignition. Efficiency Levels above 3 include electronic ignition.
3. Cost Assessment Methodology
a. Manufacturer Production Cost
As explained in the December 2009 NOPR, DOE's process for
developing manufacturer production costs (MPCs) consisted of several
steps. First, DOE selected representative models that corresponded to
the representative rated storage volumes and input capacities, and that
represented the most common designs and characteristics available in
products on the market. DOE then performed a teardown analysis of the
selected models, which included disassembling the selected products
into their base components and characterizing each component according
to its weight, dimensions, material, quantity, and the manufacturing
processes used to fabricate and assemble it. The teardown analysis for
this rulemaking included a total of over 60 physical and virtual
teardowns of water heaters, DHE, and pool heaters during the
preliminary and NOPR analysis phases. 74 FR 65852, 65889-93 (Dec. 11,
2009).
DOE used the data gathered during the teardown analysis to generate
bills of materials (BOMs) that incorporate all materials, components,
and fasteners classified as either raw materials or purchased parts and
assemblies, and characterize the materials and components by weight,
manufacturing processes used, dimensions, material, and quantity. DOE
developed a cost model using Microsoft Excel that converts the
materials and components in the BOMs into dollar values based on the
price of materials, labor rates associated with manufacturing and
assembling, and the cost of overhead and depreciation. To convert the
information in the BOMs to dollar values, DOE collected information on
labor rates, tooling costs, raw material prices, and other factors. For
purchased parts, the cost model estimates the purchase price based on
volume-variable price quotations and detailed discussions with
manufacturers and component suppliers. For fabricated parts, the prices
of raw metal materials (e.g., tube, sheet metal) are estimated on the
basis of 5-year averages. The cost of transforming the intermediate
materials into finished parts is estimated based on current industry
pricing.
For the final rule analysis, DOE updated all of the labor rates,
tooling costs, raw material prices, and the
[[Page 20148]]
purchased parts costs. DOE calculated new 5-year average materials
prices using the U.S. Department of Labor's Bureau of Labor Statistics
(BLS) Producer Price Indices (PPIs) for various raw metal materials
from 2005 to 2009, which incorporate the changes within each material
industry and inflation. DOE also used BLS PPI data to update current
market pricing for other input materials such as plastic resins and
purchased parts. Finally, DOE adjusted all averages to 2009$ using the
gross domestic product implicit price deflator. Chapter 5 of the final
rule TSD describes DOE's cost model and definitions, assumptions, and
estimates.
Additionally, because integrated heat pump water heaters became
available on the market before the completion of the final rule
analysis, DOE was able to perform teardown analyses and develop
detailed BOMs for multiple heat pump water heaters. DOE used the BOMs
to develop the MPCs for heat pump water heaters, which DOE found
affirmed the MPCs developed for the December 2009 NOPR analysis that
were based on a theoretical heat pump water heater design (since no
heat pump water heaters were available on the market at the time of the
December 2009 NOPR analysis). The teardown analysis of heat pump water
heaters allowed DOE to refine its MPCs for these products for the final
rule analysis.
DOE received several comments in response to the manufacturer
production costs and methodology presented in the December 2009 NOPR.
ACEEE stated its disappointment that DOE did not perform retrospective
analysis of the costs of products affected by changes in efficiency
standards. ACEEE recommended that DOE balance the current approach to
developing the cost-efficiency relationship by considering the
historical results of rulemakings, arguing that manufacturer production
costs for product redesigns almost inevitably result in lower consumer
prices for more-efficient goods than DOE has typically estimated in its
rulemaking analyses for energy conservation standards. Further, ACEEE
stated that DOE's reasoning that it cannot speculate about specific
changes manufacturers might adopt, is no reason to reject analysis of
the historical pattern of manufacturer responses. ACEEE cited published
work by a DOE contractor purportedly showing that most standards yield
consumer prices lower than projected by the Department, and ACEEE
stated that empirical results are simply more credible than those
relied upon in DOE's rulemaking record, particularly for the future
costs of products that include technology shifts and very low market
shares today, such as heat pump water heaters. (ACEEE, No. 79 at p. 3)
In response, DOE reiterates its tentative conclusion in the
December 2009 NOPR that DOE's manufacturing cost estimates seek to
gauge the most likely industry response to meet the requirements of
proposed energy conservation standards. DOE's analysis of manufacturing
cost must be based on currently-available technology that would provide
a nonproprietary pathway for compliance with a standard once it becomes
effective, and, thus, DOE cannot speculate on future product and market
innovation. In response to a change in energy conservation standards,
manufacturers have made a number of changes to reduce costs in the
past. DOE understands manufacturers have re-engineered products to
reduce cost, made changes to manufacturing process to reduce labor
costs, and moved production to lower-cost areas to reduce labor costs.
However, these are individual company decisions, and it is impossible
for DOE to forecast such decisions. DOE does not know of any data that
would allow it to determine the precise course a manufacturer may take.
Furthermore, while manufacturers have been able to reduce the cost of
products that meet previous energy conservation standards, there are no
data to suggest that any further reductions in cost are possible.
Therefore, it would not be appropriate to speculate about cost
reduction based upon prior actions of manufacturers of either the same
or other products. Setting energy conservation standards based upon
relevant data is particularly important given EPCA's anti-backsliding
provision at 42 U.S.C. 6295(o)(1).
At the December 2009 NOPR public meeting, A.O. Smith stated that
the cost impact studies for ultra-low NOX in combination
with condensing technology should be reworked extensively because it is
significantly more complex to implement an ultra-low NOX
design with a condensing gas-fired water heater than a non-condensing
gas-fired water heater. (A.O. Smith, Public Meeting Transcript, No.
57.4 at p. 124) A.O. Smith also commented at the public meeting that
for ultra-low NOX gas-fired storage water heaters, the MPC
at efficiency level 6 for an ultra-low NOX condensing gas
water heater is considerably too low (A.O. Smith, Public Meeting
Transcript, No. 57.4 at p. 139) However, in its written submission,
A.O. Smith stated that they believe DOE's manufacturer production costs
in the December 2009 NOPR are all reasonably accurate. (A.O. Smith, No.
76 at p. 3) DOE believes A.O. Smith's written statement clarified A.O.
Smith's opinion regarding the manufacturer production costs, and thus,
DOE did not change its approach to developing MPCs for ultra-low
NOX condensing water heaters.
Turning to pool heaters, AHRI stated that the manufacturing cost
for pool heater models to comply with TSL 4 (i.e., 84-percent thermal
efficiency) is underestimated by DOE. (AHRI, No. 91 at p. 8) Similarly,
Raypak asserted that DOE does not account for the stainless steel
material improvements (a significant cost increase) at any TSL below
fully condensing. (Raypak, No. 67 at p. 3)
In response, DOE did not include the cost of a stainless steel heat
exchanger design in its analysis of pool heaters at 84-percent thermal
efficiency, because DOE's MPC for this product is based on models at
84-percent thermal efficiency that are currently available on the
market, as explained in section IV.C.2.c, DOE does not have sufficient
reason to believe that in the event of a minimum energy conservation
standard at this efficiency level, manufacturers would completely
redesign their products at this efficiency. Thus, DOE disagrees with
AHRI and Raypak, and does not believe that the pool heater MPC at 84-
percent thermal efficiency was underestimated for the December 2009
NOPR and has continued to use that MPC for the final rule analysis.
b. Manufacturer Selling Price
The manufacturer selling price (MSP) is the price at which the
manufacturer can recover all production and non-production costs and
earn a profit. The MSP should be high enough to recover the full cost
of the product (i.e., full production and non-production costs), and
yield a profit. For heating products, DOE calculates the MSP in one of
two ways, depending on the product type. For gas-fired instantaneous
water heaters, DHE, and pool heaters, the MSP is the MPC multiplied by
a manufacturer markup. For gas-fired, electric, and oil-fired storage
water heaters, the size of the unit is largely dependent on the final
standard requirement, and as a result, the shipping costs are much
different at each efficiency level. Therefore, in the December 2009
NOPR analysis, DOE separated the shipping costs of storage water
heaters from the manufacturer markup to more transparently show the
impacts of standards on the shipping costs of storage water heaters.
The MSP for gas-fired, electric, and oil-fired storage water heaters
was calculated as the MPC multiplied by the manufacturer markup (less
the percentage of markup
[[Page 20149]]
usually attributed to shipping cost) plus the shipping cost per unit.
See chapter 5 of the final rule TSD for more information regarding the
manufacturer markup.
i. Manufacturer Markup
The manufacturer markup is a non-production cost multiplier that
DOE applies to the full MPC to account for corporate non-production
costs and profit. To calculate the manufacturer markups for the
preliminary analysis, DOE used 10-K reports from publicly-owned
residential heating products companies. DOE presented the calculated
markups to manufacturers during interviews conducted for the December
2009 NOPR MIA analysis, and considered the feedback from manufacturers
in order to supplement the calculated markup. DOE then refined the
markups for each type of residential heating product to better reflect
the residential heating products market. DOE used a constant markup to
reflect the MSPs of the baseline products as well as more-efficient
products. DOE used this approach because amended standards may result
in high-efficiency products (which currently are considered premium
products) becoming the baselines.
In regard to the manufacturer markups and methodology for
determining manufacturer markups in the December 2009 NOPR, DOE did not
receive any feedback from interested parties. After reviewing the
manufacturer markups used for the December 2009 NOPR, DOE continued to
use the same manufacturer markups for the final rule.
ii. Shipping Cost for Storage Water Heaters
The final step in DOE's cost-assessment methodology was to
calculate the shipping cost for storage water heaters. Typically, the
cost of shipping is fully accounted for in the manufacturer markup, and
as noted above, this was DOE's approach for direct heating equipment,
pool heaters, and gas-fired instantaneous water heaters. For storage
water heaters, however, shipping costs are highly variable because the
size of the unit is largely dependent upon the efficiency level being
considered. Thus, DOE separated the shipping cost from manufacturer
markup for storage water heaters.
For the final rule, DOE used many of the same assumptions used in
the December 2009 NOPR to calculate shipping costs. DOE calculated
shipping costs based on a typical 53-foot straight-frame trailer with a
storage volume of 4,240 cubic feet, and assumed an average cost of
$4,000 per trailer load. DOE examined the average sizes of water
heaters at each efficiency level and storage volume, and determined the
number of units that would fit in each trailer based on assumptions
about the arrangement of water heaters in the trailer.
In response to the shipping costs presented in the December 2009
NOPR, Bradford White stated that the increases in shipping costs at
higher efficiency levels are far too low. (Bradford White, Public
Meeting Transcript, No. 57.4 at pp. 40-41) However, DOE notes that
Bradford White did not provide any new data regarding shipping costs in
response to the December 2009 NOPR. Further, Bradford White expressed
strong disagreement with the shipping costs used for the December 2009
NOPR analysis, arguing that at the increased insulation thicknesses
presented in the December 2009 NOPR, DOE's shipping costs are very much
underestimated. (Bradford White, No. 61 at p. 1)
In response to these comments, DOE reexamined the shipping costs
for the final rule analysis. DOE made several changes to its December
2009 NOPR assumptions for the final rule, including changes to the
packaging dimensions of heat pump water heaters and changes to
assumptions about the arrangement power vented gas-fired units on the
trailer. For example, for the final rule analysis, DOE was able to
examine actual heat pump water heaters available on the market, which
allowed DOE to refine its estimated shipping dimensions of these units
by increasing the dimensions to more accurately reflect the packaging
of products that have recently become available to consumers. The
increased shipping dimensions led to an increase the shipping cost (as
manufacturers would be able to fit fewer units per shipping load). As a
result, DOE was able to revise its shipping costs to more accurately
reflect the cost to ship products currently available on the market.
However, DOE notes that the shipping costs developed for the final rule
represent estimates of the cost per unit shipped if the trailer were
fully loaded with the same product (i.e., same type of water heater at
the same efficiency level and same storage volume). DOE recognizes that
in reality, manufacturers will likely mix different products of various
storage volumes and efficiencies to try to optimize the use of space
within the trailer, which will cause some variation in the actual
shipping costs per unit. For a full description of shipping costs for
storage water heaters, see chapter 5 of the final rule TSD.
4. Engineering Analysis Results
The results of the engineering analysis are reported as cost-
efficiency data in the form of MSP (in dollars) versus efficiency (EF
for water heaters, AFUE for DHE, and thermal efficiency for pool
heaters). The results from the engineering analysis are the basis for
the subsequent analyses in the final rule and were used in the LCC
analysis to determine consumer prices for residential heating products
at the various potential standard levels. Chapter 5 of the final rule
TSD provides the full list of MPCs and MSPs at each efficiency level
for each analyzed representative product.
5. Scaling to Additional Rated Storage Capacities
As discussed in the December 2009 NOPR, to account for the large
variation in the rated storage volumes of residential storage water
heaters and differences in both usage patterns and first cost to
consumers of water heaters larger or smaller than the representative
capacity, DOE scaled its MPCs and efficiency levels for the
representative rated storage volumes to several discrete rated storage
volumes higher and lower than the representative storage volume for
each storage water heater product class. 74 FR 65852, 65893-94 (Dec.
11, 2009) DOE developed the MPCs for water heaters at each of the rated
storage volumes shown in Table IV.18. The MPCs developed for this
analysis were used in the downstream LCC analysis, where a distribution
of MPCs was used based on the estimated market share of each rated
storage volume (see section IV.F).
Table IV.18--Additional Water Heater Storage Volumes Analyzed
------------------------------------------------------------------------
Storage volumes analyzed (gallons,
Water heater product class U.S.)
------------------------------------------------------------------------
Gas-fired Storage................ 30, 50, 65, 75.
Electric Storage................. 30, 40, 66, 80, 119.
[[Page 20150]]
Oil-fired Storage................ 50.
------------------------------------------------------------------------
As described in the December 2009 NOPR, DOE developed the MPCs for
the analysis of additional storage volumes by creating a cost model
based on teardowns of products at nominal storage volumes outside the
representative volume across a range of efficiencies and manufacturers.
The cost model accounts for changes in the size of water heater
components that would scale with tank volume, while assuming other
components (e.g., gas valves, thermostats, controls) remain largely the
same across the different storage volume sizes. DOE estimated the
changes in material and labor costs that occur at volume sizes higher
and lower than the representative volume based on observations made
during teardowns, which allowed DOE to accurately model certain
characteristics that are not identifiable in manufacturer literature.
Additional details and the results of DOE's analysis for the additional
storage volumes are presented in chapter 5 of the final rule TSD
(engineering analysis).
In response to the scaled MPCs developed for the December 2009 NOPR
analysis, DOE received feedback from several interested parties.
Southern Company and AHRI commented that DOE's assumption that for heat
pump water heaters, the heat pump output capacity would not change as a
function of tank size is likely incorrect. Southern Company stated that
a heat pump with a higher capacity would be used on a 119-gallon tank
than on a 30-gallon tank. As a result, the commenters stated their
belief that DOE's scaling of costs for the heat pump water heater
efficiency levels may be incorrect. (Public Meeting Transcript, No.
57.4 at pp. 152-155) Further, Southern Company stated that the reason
the heating elements in electric resistance heaters have the same
output capacity across the full range of gallon sizes is because they
max-out the standard circuit. (Southern Company, Public Meeting
Transcript, No. 57.4 at p. 155) A.O. Smith also commented that a 119-
gallon heat pump water heater would likely have a higher-capacity
refrigerant circuit than a 30-gallon heat pump water heater. (A.O.
Smith, Public Meeting Transcript, No. 57.4 at p. 157)
DOE's analysis of electric storage water heaters currently
available on the market revealed that electric storage water heaters
use the same capacity heating elements across the range of storage
volumes to provide the same amount of heat input to the water. DOE
notes that for heat pump water heaters, the heat pump unit serves
essentially the same function as the electric resistance element in
electric storage water heaters (i.e., heating the water). Because heat
pump modules paired with electric water heaters currently available on
the market demonstrate that the same amount of heating capability as
compared to the electric elements found in conventional water heaters
and both of these types of heaters can be used to satisfy the heating
requirements of the full range of water heater storage volumes, DOE
believes the same amount of heat input from a heat pump can also be
used to satisfy the heating requirements for the full range of storage
volumes. Therefore, DOE does not believe an increase in the heat pump
capacity would be required at larger tank storage volumes. DOE believes
that the same amount of heat pump heating capacity will be adequate to
serve the water heating needs across the entire range of storage
volumes, and as a result manufacturers would be unlikely to increase
the size and capacity of the heat pump unit as the storage volume
increases. Therefore, DOE maintained the assumption that the heat pump
unit will not scale with storage volume for the final rule analysis.
EEI stated that for large water heaters (66 to 119 gallons), DOE's
costs to go from TSL 4 (electric resistance) to TSL 5 (heat pump water
heaters) are between $20 and $26, which are vastly understated. (EEI,
No. 95 at p. 5)
In response, DOE believes that EEI misinterpreted the scaled MPCs
presented in the December 2009 NOPR analysis. EEI appears to have been
considering the MPC differences between TSLs, whereas the December 2009
NOPR only lists the cost differences between efficiency levels. Heat
pump water heater technology is implemented for larger-storage-volume
products at the December 2009 NOPR TSL 5; however, DOE does not
consider heat pump water heater technology in the engineering analysis
for efficiency level 5, but instead considers it at efficiency level 6
for all product classes. The December 2009 NOPR TSL 5 was a combination
of efficiency level 5 for the smaller storage volume sizes (55 gallons
or less), and efficiency level 6 for the larger storage volume sizes
(greater than 55 gallons). Thus, DOE believes the scaled MPCs at the
higher gallon sizes and higher efficiency levels presented in the
December 2009 NOPR were correct.
6. Water Heater Energy Efficiency Equations
For this rulemaking, DOE reviewed the energy efficiency equations
that define the existing Federal energy conservation standards for
residential water heaters. The energy efficiency equations characterize
the relationship between rated storage volume and energy factor and
allow DOE to expand the analysis on the representative rated storage
volume to the full range of storage volumes covered under the existing
Federal energy conservation standards. The energy efficiency equations
allow DOE to account for the increases in standby losses as tank volume
increases. The current energy efficiency equations show that for each
water heater class, the minimum energy factor decreases as the rated
storage volume increases.
As described in the December 2009 NOPR, DOE reviewed market data
and product literature for gas-fired and electric storage water heaters
and developed two approaches for amending the existing energy
efficiency equations for gas-fired and electric storage water heaters
in the preliminary analysis. 74 FR 65852, 65894-96 (Dec. 11, 2009). One
approach was to maintain the same slope used in the existing equations
(found at 10 CFR 430.32(d)), but to incrementally increase the
intercepts. The second approach was to adjust the slope of the energy
efficiency equations based on the review of the storage water heater
models currently on the market. The advantage of the second approach
was to acknowledge the changes in the product efficiencies that have
occurred since the previous standards were set, and to account for
these changes. DOE examined the efficiencies of models with varying
storage volumes, but with the same or similar design features and
varied the slope of the line to maximize the number of models in the
series that meet the efficiency levels that DOE is considering in the
full range of rated storage volumes.
[[Page 20151]]
The standard levels proposed in the December 2009 NOPR were based
on the results of the second approach for gas-fired and electric
storage water heaters. For oil-fired storage water heaters and gas-
fired instantaneous water heaters, DOE only used the first approach to
develop energy efficiency equations due to the limited number of models
available on the market and limited data to justify modifying the
equations. In response to the energy efficiency equations presented in
the December 2009 NOPR, DOE received feedback from several interested
parties.
A.O. Smith stated it supports the energy-efficiency equations as
generally being appropriate for the various efficiency levels. A.O.
Smith endorsed the equations applicable to TSL 4, and strongly
recommended that they not be revised from those proposed in the
December 2009 NOPR. (A.O. Smith, No. 76 at p. 2)
Bradford White expressed its disagreement with the energy
efficiency equations proposed for electric storage water heaters. In
particular, Bradford White commented that the efficiency level 4
equation (EF = -0.00060(VR) + 0.965) should be used for
VR <= 65 gallons and that the efficiency level 3 equation
(EF = -0.00155(VR) + 1.026) should be used for VR
> 65 gallons. Bradford White asserted that these changes are necessary
to prevent the disproportionate EF increase that was proposed on larger
volumes that have to combat higher standby losses. (Bradford White, No.
61 at p. 4)
Similarly, AHRI recommended that DOE revise the energy efficiency
equation for TSL 4 for electric storage water heaters above 65 gallons,
because AHRI believes it represents a disproportionately large increase
in the EF requirement for these units. AHRI asserts that because larger
electric storage water heaters have a smaller surface-area-to-volume
ratio, increased insulation is less effective in achieving energy
efficiency gains, and as a result, the projected efficiencies are
overstated. AHRI recommended that for electric storage water heaters
above 65 gallons, DOE should select the equation for TSL 3 (EF = 1.051
- (0.00168 * Rated Storage Volume)) as the standard. (AHRI, No. 91 at
p. 2)
Rheem also stated that the energy-efficiency equation for gas-fired
storage water heaters at TSL 4 disproportionately imposes higher
minimum EF values for large-capacity gas-fired storage water heaters.
Rheem expressed concern that the uneven treatment of large-capacity
units would encourage work-around solutions and product shifts. In
addition, Rheem stated that the energy efficiency equation for electric
storage water heaters at TSL 4 disproportionately impacts large-
capacity electric storage water heaters. Rheem recommends that the
equation read EF = 1.026 - (0.00155 x Rated Storage Volume in gallons)
for capacities above 55 gallons, in order to yield balance for high-
capacity units. (Rheem, No. 89 at p. 12)
In light of the comments above, DOE reexamined the energy
efficiency equations proposed in the December 2009 NOPR for gas-fired
and electric storage water heaters. The energy efficiency equations are
intended to represent the relationship between efficiency and storage
volume so that the same technology could be used to meet the EF
requirement for the entire range of gallon capacities. After examining
the characteristics of products on the market at each efficiency level
and gallon size, and based on the results of the testing and teardown
analysis done prior to the December 2009 NOPR, DOE believes that the
energy efficiency equations, as presented in the December 2009 NOPR,
accurately represent the relationship between efficiency and storage
volume. The equations developed by DOE have two slopes and decline
faster for the larger storage volumes than the smaller storage volumes.
The slopes developed for the December 2009 NOPR incorporated the
results of testing and a physical examination (through teardowns) of
the features incorporated into units across various gallon sizes and
efficiency levels. Through this process, DOE was able to determine the
efficiencies that can be achieved using the same technologies across
the range of rated storage volumes. DOE then developed equations based
on the results of this analysis to create efficiency levels that allow
products to utilize the same technology across the range of storage
volumes.
DOE believes that the equations have a proportionate impact on both
larger-storage-volume units and smaller-storage-volume units. While DOE
acknowledges that the efficiency levels in the proposed TSLs (which are
determined based on a variety of factors, see section VI.A for more
details) may be paired in a way which requires different efficiency
levels utilizing different technologies for water heaters at various
storage volumes, DOE does not believe this applies for the energy
efficiency equations in the engineering analysis, which are based on
constant technologies across the full range of storage volumes. The
commenters did not provide any new data or evidence to lead DOE to
conclude that the outcome of its analysis for the December 2009 NOPR is
not valid.
As a result, DOE is maintaining the energy efficiency equations
presented in the December 2009 NOPR, with only minor changes to account
for the new max-tech levels described in section IV.C.2. For the max-
tech energy efficiency equation (i.e., EL 6) for gas-fired storage
water heaters, DOE maintained the slope used in the December 2009 NOPR,
but shifted the efficiency requirements down so that the EF requirement
at the 40-gallon representative rated storage volume is 0.77 EF instead
of 0.80 EF. Similarly, for the max-tech equation (i.e., EL 7) for
electric storage water heaters, DOE maintained the same slope, but
shifted the equation upwards so that the efficiency requirement at the
50-gallon representative rated storage volume is 2.35 EF instead of 2.2
EF. See section IV.C.2.a for discussion of the max-tech efficiency
levels.
DOE did not receive any comments regarding the proposed approach
for oil-fired storage water heater energy efficiency equations
presented in the December 2009 NOPR and has used the same approach in
the final rule. Similarly, DOE did not receive any comments objecting
to the proposed approach for gas-fired instantaneous water heater
energy efficiency equations presented in the December 2009 NOPR and has
used the same approach in the final rule. Table IV.19 through Table
IV.22 show the energy efficiency equations for residential water
heaters. For more information on the energy efficiency equations, see
chapter 5 of the final rule TSD.
Table IV.19--Energy Efficiency Equations for Gas-Fired Storage Water Heaters
----------------------------------------------------------------------------------------------------------------
Minimum energy factor (20 Minimum energy factor (Over 60 and up to 100
Efficiency level to 60 gallons) gallons)
----------------------------------------------------------------------------------------------------------------
Baseline Energy Efficiency EF = -0.00190(VR) + 0.670
Equation.
[[Page 20152]]
EL 1 Energy Efficiency Equation... EF = -0.00150(VR) + 0.675. EF = -0.00190(VR) + 0.699.
----------------------------------------------------------------------------------------------------------------
EL 2 Energy Efficiency Equation... EF = -0.00120(VR) + 0.675. EF = -0.00190(VR) + 0.717.
----------------------------------------------------------------------------------------------------------------
EL 3 Energy Efficiency Equation... EF = -0.00100(VR) + 0.680. EF = -0.00190(VR) + 0.734.
----------------------------------------------------------------------------------------------------------------
EL 4 Energy Efficiency Equation... EF = -0.00090(VR) + 0.690. EF = -0.00190(VR) + 0.750.
----------------------------------------------------------------------------------------------------------------
EL 5 Energy Efficiency Equation... EF = -0.00078(VR) + 0.700. EF = -0.00190(VR) + 0.767.
----------------------------------------------------------------------------------------------------------------
EL 6 Energy Efficiency Equation... EF = -0.00078(VR) + 0.8012
----------------------------------------------------------------------------------------------------------------
Table IV.20--Energy Efficiency Equations for Electric Storage Water Heaters
----------------------------------------------------------------------------------------------------------------
Minimum energy factor Minimum energy factor (Over 80
Efficiency level (20 to 80 gallons) and up to 120 gallons)
----------------------------------------------------------------------------------------------------------------
Baseline Energy Efficiency Equation................... EF = 0.00132(VR) +
0.97.
----------------------------------------------------------------------------------------------------------------
EL 1 Energy Efficiency Equation....................... EF = -0.00113(VR) + EF = -0.00149(VR) + 0.999.
0.97.
----------------------------------------------------------------------------------------------------------------
EL 2 Energy Efficiency Equation....................... EF = -0.00095(VR) + EF = -0.00153(VR) + 1.013.
0.967.
----------------------------------------------------------------------------------------------------------------
EL 3 Energy Efficiency Equation....................... EF = -0.00080(VR) + EF = -0.00155(VR) + 1.026.
0.966.
----------------------------------------------------------------------------------------------------------------
EL 4 Energy Efficiency Equation....................... EF = -0.00060(VR) + EF = -0.00168(VR) + 1.051.
0.965.
----------------------------------------------------------------------------------------------------------------
EL 5 Energy Efficiency Equation....................... EF = -0.00030(VR) + EF = -0.00190(VR) + 1.088.
0.960.
----------------------------------------------------------------------------------------------------------------
EL 6 Energy Efficiency Equation....................... EF = -0.00113(VR) + 2.057
----------------------------------------------------------------------------------------------------------------
EL 7 Energy Efficiency Equation....................... EF = -0.00113(VR) + 2.406
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Table IV.21--Energy Efficiency Equations for Oil-Fired Storage Water Heaters
----------------------------------------------------------------------------------------------------------------
Efficiency level Minimum energy factor
----------------------------------------------------------------------------------------------------------------
EL 1 Energy Efficiency Equation................. EF = -0.0019(VR) + 0.60.
----------------------------------------------------------------------------------------------------------------
EL 2 Energy Efficiency Equation................. EF = -0.0019(VR) + 0.62.
----------------------------------------------------------------------------------------------------------------
EL 3 Energy Efficiency Equation................. EF = -0.0019(VR) + 0.64.
----------------------------------------------------------------------------------------------------------------
EL 4 Energy Efficiency Equation................. EF = -0.0019(VR) + 0.66.
----------------------------------------------------------------------------------------------------------------
EL 5 Energy Efficiency Equation................. EF = -0.0019(VR) + 0.68.
----------------------------------------------------------------------------------------------------------------
EL 6 Energy Efficiency Equation................. EF = -0.0019(VR) + 0.72.
----------------------------------------------------------------------------------------------------------------
EL 7 Energy Efficiency Equation................. EF = -0.0019(VR) + 0.74.
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Table IV.22--Energy Efficiency Equations for Gas-Fired Instantaneous Water Heaters
----------------------------------------------------------------------------------------------------------------
Efficiency Level Minimum energy factor
----------------------------------------------------------------------------------------------------------------
EL 1 Energy Efficiency Equation................. EF = -0.0019(VR) + 0.69.
----------------------------------------------------------------------------------------------------------------
EL 2 Energy Efficiency Equation................. EF = -0.0019(VR) + 0.78.
----------------------------------------------------------------------------------------------------------------
[[Page 20153]]
EL 3 Energy Efficiency Equation................. EF = -0.0019(VR) + 0.80.
----------------------------------------------------------------------------------------------------------------
EL 4 Energy Efficiency Equation................. EF = -0.0019(VR) + 0.82.
----------------------------------------------------------------------------------------------------------------
EL 5 Energy Efficiency Equation................. EF = -0.0019(VR) + 0.84.
----------------------------------------------------------------------------------------------------------------
EL 6 Energy Efficiency Equation................. EF = -0.0019(VR) + 0.85.
----------------------------------------------------------------------------------------------------------------
EL 7 Energy Efficiency Equation................. EF = -0.0019(VR) + 0.92.
----------------------------------------------------------------------------------------------------------------
EL 8 Energy Efficiency Equation................. EF = -0.0019(VR) + 0.95.
----------------------------------------------------------------------------------------------------------------
D. Markups To Determine Product Price
DOE used manufacturer-to-consumer markups to convert the
manufacturer selling prices estimated in the engineering analysis to
customer prices, which then were used in the life-cycle cost (LCC),
payback period (PBP), and manufacturer impact analyses. DOE calculates
markups for baseline products (baseline markups) and for more-efficient
products (incremental markups) based on the markups at each step in the
distribution channel. The overall incremental markup relates the change
in the manufacturer sales price of higher-efficiency models (the
incremental cost increase) to the change in the retailer or distributor
sales price.
In order to develop markups, DOE identifies how the products are
distributed from the manufacturer to the customer (the distribution
channels). DOE estimated manufacturer-to-customer markups for
residential heating products based on separate distribution channels
for water heaters, direct heating equipment, and pool heaters. After
establishing appropriate distribution channels for each of the product
classes, DOE relied on economic data from the U.S. Census Bureau and
other sources to define how prices are marked up as the products pass
from the manufacturer to the customer. A detailed description of the
distribution channels and the markup applied at each step in the
distribution process can be found in chapter 6 of the December 2009
NOPR TSD. DOE did not receive any comments on development of markups,
and it used the same approach for the final rule as it used for the
December 2009 NOPR.
E. Energy Use Characterization
The energy use characterization, which assesses the energy savings
potential from adopting higher efficiency standards, provides the basis
for the energy savings values used in the LCC and subsequent analyses.
For each considered efficiency level within each heating product class,
DOE calculated the potential energy savings compared to baseline
models. As part of the characterization, DOE made certain engineering
assumptions regarding product application, including how the products
are operated and under what conditions. Those assumptions are
documented in chapter 7 of the TSD, which also provides more detail
about DOE's approach.
DOE determined the annual energy use in the field by using a
nationally-representative set of housing units for each type of
product. The housing units were selected from EIA's Residential Energy
Consumption Survey (RECS). The December 2009 NOPR analysis and today's
final rule used the 2005 RECS, which was the latest data set available.
(See http://www.eia.doe.gov/emeu/recs/ recs/.)
1. Water Heaters
For residential storage-type water heaters, DOE relied on an energy
use analysis tool, the water heater analysis model (WHAM), and a hot
water draw model. For this rulemaking, DOE modified earlier versions of
the tools, which were used to conduct the previous rulemaking that
concluded in 2001. Combined with data from the 2005 RECS, these
analytical tools enable DOE to establish the variation in water heater
energy consumption in the United States.
DOE determined the annual energy consumption of water heaters in
actual housing units by considering the primary factors that determine
energy use: (1) Hot water use per household; (2) the energy efficiency
characteristics of the water heater; and (3) water heater operating
conditions other than hot water draws. DOE used a hot water draw model
to determine hot water use for each household in the sample. The
characteristics of each water heater's energy efficiency were taken
from the engineering analysis. DOE developed water heater operating
conditions (other than hot water draws) from weather data and other
relevant sources. DOE calculated the energy use of water heaters using
WHAM, which accounts for a range of operating conditions and energy
efficiency characteristics of water heaters.
For heat pump water heaters that would be located indoors,
overcooling of the indoor space as a result of the unit's operation is
a potential problem. DOE assumed that the majority of households that
would be affected by indoor operation of a heat pump water heater would
not want to incur the cost of a venting system, and would instead
operate their heating and cooling systems to compensate for the effects
of the heat pump water heater. To account for this indirect increase in
home heating (and the decrease in cooling during summer months), DOE
estimated the associated energy consumption by space heating and air
conditioning equipment for the appropriate homes in the RECS subsample
for electric water heaters, and included this energy use in its
analysis.
A.O. Smith stated that to replace an electric resistance water
heater with a heat pump water heater, the heat pump water heater will
either require a larger tank to effectively utilize the heat pump
cycle, or if a larger tank is not provided, the unit will run in the
electric resistance mode and diminish the benefits of having a heat
pump water heater. (A.O. Smith, No. 76 at pp. 2-3) In the December 2009
NOPR analysis and the final rule analysis, DOE estimated the fraction
of heat pump water heater operation that would be in electric
resistance mode for each unit in the subsample. The fraction estimated
to be in electric resistance mode varies from 10 to 50 percent in the
subsample.
Southern stated that heat pump water heaters do not perform well in
temperatures outside the 45[deg]-120 [deg]F range, and it pointed out
that there are locations where ambient temperatures are outside this
range. (Southern, No. 90 at p. 3) DOE accounted for the ambient
temperatures likely to be faced in heat
[[Page 20154]]
pump water heater locations by assuming electric resistance heating
operation under extreme temperatures.
For gas-fired instantaneous water heaters, DOE modified the
approach used for storage water heaters to account for the absence of a
storage tank. DOE applied a performance adjustment factor to account
for evidence that the rated energy efficiency of instantaneous water
heaters does not accurately portray actual performance.
2. Direct Heating Equipment
The household sample developed for DHE is comprised of 2005 RECS
housing units that used a floor/wall furnace, fireplace, or heater as
the primary or secondary source of heat. DOE relied on the assumptions
in the DOE test procedure (10 CFR part 430, subpart B, appendix O) to
establish the typical annual energy consumption of direct heating
equipment. However, to better reflect actual operating conditions, DOE
used home heating loads derived from RECS instead of the average
assumptions in the test procedure.
Williams stated that DHE is used in many applications as a
secondary heat source, where the primary heat source is turned down and
the DHE provides heat to the occupied zone only. (Williams, No. 96 at
p. 1) For the December 2009 NOPR and today's final rule, for those RECS
households that used a gas furnace as the primary heating equipment and
direct heating equipment as a secondary heat source, DOE adjusted the
house heating load to estimate the portion of the load met by only the
direct heating equipment.
DOE did not receive any other comments on its approach for
estimating energy consumption of direct heating equipment, and it has
used essentially the same approach and data for the final rule.
3. Pool Heaters
DOE estimated energy consumption of pool heaters in a
representative sample of housing units from the 2005 RECS. DOE relied
on the assumptions in the DOE test procedure (10 CFR part 430, subpart
B, appendix P) to establish the typical annual energy consumption of
pool heaters. However, to better reflect actual operating conditions,
DOE used pool heater heating loads derived from RECS instead of the
average test procedure assumptions.
The calculation of pool heater energy consumption at each
considered efficiency level depends on the assumed fraction of products
that use a pilot light. In the December 2009 NOPR analysis, DOE used
data based on the number of models in the market to estimate that 26.5
percent of units use a pilot light. Raypak stated that 8 percent of
pool heaters are millivolt pool heaters (i.e., use a pilot light).
(Raypak, No. 67 at p. 2) Given that Raypak's estimate is based upon
actual shipments data, DOE believes that the value it cited likely
better reflects the actual market than the NOPR estimate based on the
number of models. Therefore, for the final rule analysis, DOE adopted
the value cited by Raypak.
F. Life-Cycle Cost and Payback Period Analyses
DOE conducted LCC and PBP analyses to evaluate the economic impacts
on individual consumers of potential amended energy conservation
standards for the three types of residential heating products. The LCC
represents total consumer expenses during the life of an appliance,
including purchase and installation costs plus operating costs
(expenses for energy use, maintenance, and repair). To compute LCCs for
the three heating products, DOE discounted future operating costs to
the time of purchase, and then summed those costs over the life of the
appliances. The PBP is calculated using the change in purchase cost
(normally higher) that results from an amended efficiency standard,
divided by the change in annual operating cost (normally lower) that
results from the standard.
DOE measures the changes in LCC and PBP associated with a given
efficiency level relative to an estimate of base-case appliance
efficiencies. The base-case estimate reflects the market in the absence
of amended mandatory energy conservation standards, including the
market for products that exceed the current standards.
For each set of heating products, DOE calculated the LCC and PBP
for a nationally representative set of housing units, which were
selected from the 2005 RECS. The housing units include five types:
Single-family (attached), single-family (detached), multi-family (2-5
units), multi-family (more than 4 units), and manufactured homes. For
each sample household, DOE determined the energy consumption for the
heating product and the energy price faced by the household. By
developing a representative sample of households, the analysis captured
the variability in energy consumption and energy prices associated with
the use of residential heating products. DOE determined the LCCs and
PBPs for each sampled household using a heating product's unique energy
consumption and the household's energy price, as well as other
variables. DOE calculated the LCC associated with the baseline heating
product in each household. To calculate the LCC savings and PBP
associated with equipment that meets higher efficiency standards, DOE's
analysis replaced the baseline unit with a range of more-efficient
designs.
Inputs to the calculation of total installed cost include the cost
of the product--which includes manufacturer costs, manufacturer
markups, retailer or distributor markups, and sales taxes--and
installation costs. Inputs to the calculation of operating expenses
include annual energy consumption, energy prices and price projections,
repair and maintenance costs, product lifetimes, discount rates, and
the year that proposed standards take effect. For many of the above
inputs, DOE created distributions of values to account for uncertainty
and variability. Within each distribution, probabilities are attached
to each value. As described above, DOE used samples of households to
characterize the variability in energy consumption and energy prices
for heating products. For the inputs to installed cost, DOE used
probability distributions to characterize sales taxes. DOE also used
distributions to characterize the discount rate and product lifetime
that are inputs to operating cost.
The computer model DOE uses to calculate LCC and PBP, which
incorporates Crystal Ball (a commercially-available software program),
relies on a Monte Carlo simulation to incorporate uncertainty and
variability into the analysis. The Monte Carlo simulations randomly
sampled input values from the probability distributions and household
samples. The model calculated the LCC and PBP for products at each
efficiency level for 10,000 housing units per simulation run.
Table IV.23 summarizes the approach and data DOE used to derive
inputs to the LCC and PBP calculations. The table provides the data and
approach DOE used for the December 2009 NOPR TSD, as well as the
changes made for today's final rule. The following subsections discuss
the main inputs and the changes DOE made to them.
[[Page 20155]]
Table IV.23--Summary of Inputs and Key Assumptions in the LCC and PBP
Analyses *
------------------------------------------------------------------------
Changes for the
Inputs NOPR final rule
------------------------------------------------------------------------
Installed Costs
------------------------------------------------------------------------
Product Price............... Derived by Updated manufacturer
multiplying product costs (see
manufacturer cost section IV.C.3.a).
by manufacturer,
retailer, and
distributor markups
and sales tax, as
appropriate.
------------------------------------------------------------------------
Installation Cost........... Water Heaters: Based Applied additional
on data from RS cost for space
Means and other constraints and
sources. other installation
situations.
-------------------------------------------
DHE: Based on data No change.
from RS Means and
DOE's furnace
installation model.
-------------------------------------------
Pool Heaters: Based Modified fraction of
on data from RS installations with
Means. pilot light.
------------------------------------------------------------------------
Operating Costs
------------------------------------------------------------------------
Annual Energy Use........... Water Heaters: Used No change.
hot water draw
model to calculate
hot water use for
each household in
the sample from
RECS 2005.
Calculated energy
use using the water
heater analysis
model (WHAM).
------------------------------------------------------------------------
DHE: Based on sample No change.
and data from RECS
2005.
-------------------------------------------
Pool Heaters: Based Based on sample and
on sample and data data from RECS 2001
from RECS 1993 to and 2005. Included
2005. spa heaters.
------------------------------------------------------------------------
Energy Prices............... Electricity: Based Electricity: Updated
on EIA's 2007 Form using data from
861 data. EIA's 2008 Form 861
Natural Gas: Based data and EIA's Form
on EIA's 2007 826.
Natural Gas Natural Gas: Updated
Navigator. using EIA's 2008
Variability: Natural Gas
Regional energy Navigator.
prices determined Variability: No
for 13 geographic change.
areas **.
------------------------------------------------------------------------
Energy Price Trends......... Forecasted using Forecasts updated
EIA's AEO2009. using EIA's AEO2010
(Early Release).
------------------------------------------------------------------------
Repair and Maintenance Costs Water Heaters: Based No change.
on RS Means and
other sources.
-------------------------------------------
DHE: Based on RS No change.
Means and other
sources.
-------------------------------------------
Pool Heaters: Based No change.
on RS Means and
other sources.
-------------------------------------------
Present Value of Operating Cost Savings
------------------------------------------------------------------------
Product Lifetime............ Water Heaters: Based No change.
on data from RECS,
AHS, and shipments.
Variability and
uncertainty:
Characterized using
Weibull probability
distributions.
-------------------------------------------
Set lifetime of oil- No change.
fired storage water
heater equal to
that of gas-fired
storage water
heater.
-------------------------------------------
DHE: Based on range No change.
of lifetimes from
various sources.
-------------------------------------------
Variability and
uncertainty:
Characterized using
Weibull probability
distributions.
-------------------------------------------
Pool Heaters: Based Average lifetime
on range of increased from 8
lifetimes from years to 10 years.
various sources.
Variability and
uncertainty:
characterized using
Weibull probability
distributions..
------------------------------------------------------------------------
Discount Rates.............. Approach based on No change in
the cost to finance approach; added
an appliance data for asset
purchase. Primary classes.
data source was the
Federal Reserve
Board's SCF *** for
1989, 1992, 1995,
1998, 2001, 2004,
and 2007.
------------------------------------------------------------------------
Standard Compliance Date.... Water heaters: 2015. No change.
DHE and Pool ....................
Heaters: 2013.
------------------------------------------------------------------------
* References for the data sources mentioned in this table are provided
in the sections following the table or in chapter 8 of the December
2009 NOPR TSD.
** Consisting of the nine U.S. Census Divisions, with four large States
(New York, Florida, Texas, and California) treated separately.
*** Survey of Consumer Finances.
[[Page 20156]]
1. Product Price
To calculate consumer product prices, DOE multiplied the
manufacturer selling prices developed in the engineering analysis by
the supply-chain markups described above (along with sales taxes where
appropriate). DOE used different markups for baseline products and
higher-efficiency products, because the markups estimated for
incremental costs differ from those estimated for baseline models. The
estimated product prices at the considered efficiency levels are
included in Chapter 8 in the TSD.
2. Installation Cost
Installation costs include labor, overhead, and any miscellaneous
materials and parts. The following sections discuss DOE's treatment of
installation costs for each of the three heating products for the
December 2009 NOPR, describe and address significant comments received,
and discuss changes that DOE made for today's final rule.
a. Water Heaters
In its preliminary analysis, DOE included several installation
costs to address the space constraints that water heaters having
thicker insulation may face. DOE assumed that major modifications for
replacement installations of electric storage water heaters would occur
40 percent of the time for water heater designs with 3 inches or
greater insulation. To estimate the fraction of households that would
require various modifications, DOE used the water heater location
determined for each sample household. DOE determined the location using
information from the 2005 RECS, which reports whether the house has a
basement, whether the basement is heated or unheated, and the presence
or absence of a garage, crawlspace, or attic.
Generally, DOE maintained the above approach for the December 2009
NOPR. However, in response to comments on the space constraints for
water heaters with increased insulation thickness, for the NOPR
analysis, DOE investigated the issue of space constraints for electric
and gas-fired storage water heaters with an insulation thickness of 2
inches or more. Based upon the results of this inquiry, DOE expanded
the percentage of installations that may have space constraints to also
include water heaters with 2-3 inches of insulation. DOE assumed that
major modifications for replacement installations of electric and gas
storage water heaters would occur 20 percent of the time for water
heater designs with 2-3 inches of insulation. DOE also added for all
water heaters a cost for extra labor needed to install water heaters in
attics, and for installing larger water heaters.
Commenting on the December 2009 NOPR analysis, Rheem and Southern
stated that DOE has not adequately considered the space constraints
faced by manufactured housing, although no data were provided relevant
to this issue. (Rheem, No. 89 at pp. 11-12; Southern, No. 90 at pp. 3-
4) In response, DOE reviewed its assumptions regarding space
constraints faced by manufactured housing, and based on its assessment
of likely water heater locations from 2005 RECS, it approximately
doubled the fraction of installations deemed to have space constraints.
These installations would incur costs as described above to address the
space constraints faced by water heater designs with more insulation.
Regarding installation of gas-fired storage water heaters, A.O.
Smith stated that the need (and cost) to add electrical power and
condensate disposal to existing installations appears to be understated
in the December 2009 NOPR. (A.O. Smith, No. 76 at p. 4) DOE notes that
the commenter did not provide any data to support its position. DOE
reviewed the available sources, which are based on RS Means and
consultant reports, concluded that they provide a reasonable basis for
its estimates, and therefore it has maintained the NOPR estimates for
the final rule.
AHRI stated that replacing larger gas-fired storage water heaters
with condensing water heaters would require the added cost of new
venting system, electrical connection, and a condensate disposal
system, and sometimes an electric supply circuit. (AHRI, No. 91 at p.
7) Rheem stated that external power would be required to operate max-
tech gas-fired storage water heaters, that venting would typically
change to a positive pressure system with plastic venting, and that
condensate lines, pumps, and proper disposal methods would be required.
(Rheem, No. 89 at pp. 3-4) For the final rule analysis, DOE included a
range of installation costs for the condensing water heater design that
include all of the items cited by AHRI and Rheem.
In its preliminary analysis, DOE applied a distribution of costs
for heat pump water heater installations in indoor locations, including
situations where modifications would be required. In response to
comments on the assumed costs, for the December 2009 NOPR analysis, DOE
made a number of changes, which are discussed below. Additional
comments on these issues at the NOPR stage and DOE's response are
likewise presented below.
In 20 percent of replacement installations, DOE assumed that a
household facing space constraints would install a smaller water heater
and use tempering valves. BWC stated that adjusting the thermostat
higher on a smaller-volume heat pump water heater and using a tempering
valve cannot be done. It noted that the viable refrigerants available
limit the water heater to lower temperatures (typically ~130 [deg]F
maximum), and to achieve temperatures above this level, an electric
resistance element must be used, which decreases the efficiency of the
water heater. (BWC, No. 61 at p. 2) Rheem raised similar concerns.
(Rheem, No. 89 at p. 8) DOE finds some merit in the above comments.
Therefore, it reduced the fraction of installations that would use a
tempering valve to include only those cases where the water heater
setpoint would not need to exceed 140 [deg]F, as recommended in
manufacturer product literature. DOE assumed that those households for
which the tempering valve strategy is not viable would incur
significant costs to modify the space to accommodate the heat pump
water heater.
For the December 2009 NOPR, DOE assumed that some households that
would experience significant indoor cooling due to operation of the
heat pump water heater in the heating months would have a venting
system installed to exhaust and supply air. DOE estimated that 40
percent of households facing a significant cooling effect would incur
this cost, which averages $460. A.O. Smith stated that heat pump water
heaters will not be vented due to the exorbitant costs of such a
venting system and the fact that the venting will not fit within the
existing studs and will need to be installed outside the current wall
structure, where it will either be exposed, or have to be covered with
additional material. (A.O. Smith, No. 76 at p. 3) DOE agrees that the
costs of a venting system could be high in some cases, but its analysis
assumes that venting will occur in some cases, and the associated costs
are included in its LCC analysis. DOE also agrees that in some cases it
would be necessary to install the venting system outside the wall
structure, where the exposed vents would likely be covered. Therefore,
for the final rule analysis, DOE has assumed that one-fourth of the
venting system installations would incur an additional cost (on average
$581) for covering the exposed vents.
For half of indoor replacement installations, DOE added a cost for
[[Page 20157]]
installing a fully-louvered closet door to permit adequate air flow for
the operation of the unit. A.O. Smith stated that putting a louvered
door on a closet will not provide adequate air volume for a heat pump
water heater to function correctly. (A.O. Smith, No. 76 at p. 3)
Southern raised similar concerns about closet installations. (Southern,
No. 90 at pp. 3-4) AHRI also commented that heat pump water heaters
installed in replacement situations may require costly alterations so
that the heat pump water heater can perform efficiently. (AHRI, No. 91
at p. 6) DOE agrees that there are legitimate concerns about the extent
to which installing a louvered door will provide adequate air flow for
closet installations of heat pump water heaters. For the final rule
analysis, DOE decreased the fraction of indoor replacement
installations that add a louvered door. DOE now assumes that all indoor
replacement installations where the household would face a significant
cooling effect would use a venting system (costing on average $469),
which would provide adequate air flow and also alleviate excessive
cooling of the indoor space near the water heater.
GE stated that DOE overstated the installation costs for heat pump
water heaters, and claimed that their heat pump water heater has not
required more labor, larger drain pans, tempering valves, or closet
door redesigns. (GE, No. 84 at p. 1) DOE's estimates of installation
costs for heat pump water heaters seek to account for the full range of
installation situations that might be faced in all replacements of
conventional electric storage water heaters. DOE agrees that in many
installations, particularly those not located indoors, the additional
costs associated with heat pump water heater installation may be small,
and DOE's analysis accounts for those installations as well as those
where higher costs may be incurred. Chapter 8 of the final rule TSD
provides further details about DOE's analysis of installation costs for
heat pump water heaters.
For the December 2009 NOPR, DOE's design for gas-fired storage
water heaters at efficiency level 2 (0.63 EF for the representative 40-
gallon unit) assumed natural draft (atmospheric venting) operation.
DOE's analysis assumed that installations with water heaters with
recovery efficiency (RE) of 80 percent or higher (which accounted for a
small fraction of models at 0.63 EF) would use stainless steel vent
connectors. Without such vent connectors, there is a potential for
corrosion of the vent due to condensation of flue gases, which can lead
to safety concerns.
AGA expressed concerns about the safety of atmospheric venting at
efficiency level 2. AGA referred to analysis by the Gas Technology
Institute of vent temperatures from water heaters with high recovery
efficiency, and voiced concern for recovery efficiencies of 78 percent
and higher regarding condensation and the resulting corrosive
environment in vent connectors during water heater cycling. AGA
insisted that, for venting integrity and occupant safety, 100 percent
of installations of units with recovery efficiency of 78 percent and
higher should include the cost of a stainless steel vent connector. It
added that the combined concerns of vent connector corrosion and
venting system buoyancy suggest that the proper vent connector should
be stainless steel Type B. (AGA, No. 78 at p. 9) A.O. Smith also
expressed concerns that efficiency level 2 could potentially lead to
increased vent corrosion and raise issues that may require revisiting
the venting table in the National Fuel Gas Code.\5\ (A.O. Smith, No. 76
at p. 1)
---------------------------------------------------------------------------
\5\ National Fire Protection Association, National Fuel Gas
Code--2009 Edition. Available at: http://www.nfpa.org/AboutTheCodes/AboutTheCodes.asp?DocNum=54.
---------------------------------------------------------------------------
In response, DOE appreciates the information provided by AGA
regarding the safety of atmospheric venting at efficiency level 2.
Although there are several 40-gallon gas-fired water heater models
currently available to consumers at 0.63 EF that utilize atmospheric
venting and do not have any instructions directing installers to use
special venting for these products, DOE believes that the prudent
course is to assume that a stainless steel vent connector would be
required for all models with RE of 78 percent and higher. Applying this
assumption resulted in DOE using a cost for a stainless steel vent
connector for 57 percent of installations at efficiency level 2, for 53
percent of installations at efficiency level 1, and for 24 percent of
installations at the baseline level. DOE agrees that there remain
issues that may require revisiting the venting table in the National
Fuel Gas Code, and discusses these issues in section VI.D.2 below.
b. Direct Heating Equipment
DOE used the approach in the 1993 TSD \6\ to calculate installation
costs for baseline direct heating equipment for its December 2009 NOPR
analysis, as it believed that the factors affecting DHE installation
are largely unchanged, and more recent data are not available. For gas
wall gravity, floor, and room direct heating equipment, DOE included
installation costs for designs that require electricity (the average
cost is $181). DOE made this adjustment for the replacement market
only, because wiring is considered part of the general electrical work
in new construction.
---------------------------------------------------------------------------
\6\ U.S. Department of Energy--Office of Codes and Standards,
Technical Support Document: Energy Efficiency Standards for Consumer
Products: Room Air Conditioners, Water Heaters, Direct Heating
Equipment, Mobile Home Furnaces, Kitchen Ranges and Ovens, Pool
Heaters, Fluorescent Lamp Ballasts & Television Sets, 1993.
Washington, DC. Vol. 1 of 3. Report No. DOE/EE-0009.
---------------------------------------------------------------------------
LTS commented that the proposed standards for the gravity wall
furnace category (71-percent AFUE for furnaces in the input capacity
range over 27,000 and up to 46,000 Btu/h) would not allow the product
to keep the same characteristics, particularly cabinet size and
combustion chamber sizes. The commenter claims that with a bigger
cabinet and heat exchanger dimensions, installation would require more
carpenter work, possible drywall work, and, in some cases, changing or
replacing the vent. According to LTS, these changes would be in
addition to providing an electrical port. (LTS, No. 56.7 at pp. 1-2)
In response, DOE found that gravity wall furnaces that have
dimensions to fit in replacement applications are currently available
on the market with efficiencies ranging from 64-percent to 69-percent
AFUE in the representative capacity range. There are currently no 71-
percent or 72-percent AFUE models within the representative capacity
range offered by any of the manufacturers. DOE agrees that models at
71-percent or 72-percent AFUE are likely to have larger dimensions and/
or include electronic ignition, either of which would require an
additional installation cost. As discussed in section IV.C.2.b, for the
final rule, DOE decided to remove the 71-percent and 72-percent AFUE
levels from its analysis. DOE introduced the 70-percent AFUE level,
which it believes has the necessary dimensions to fit in replacement
applications. This level includes electronic ignition, and DOE included
a cost for installation of electrical wiring.
Regarding gas wall fan type DHE, AHRI commented that adding to the
heat exchanger to increase efficiency would make the upright models
bigger, such that they may not be able to fit in the same space as the
unit they are replacing. The result could be added installation costs.
For the max-tech level for gas wall fan type DHE (80-percent AFUE), DOE
added carpentry cost for cutting and repairing the wall to increase the
dimensions of the wall opening for a fraction of installations. That
fraction also takes into account
[[Page 20158]]
that some installations are ``console units'' and do not have this
issue, and that some upright installations are not installed inside the
wall and, therefore, do not have this issue.
c. Pool Heaters
DOE developed installation cost data for the baseline pool heater
in its December 2009 NOPR analysis using RS Means and information in a
consultant's report. DOE incorporated additional installation costs for
designs involving electronic ignition and/or condensing technology.
In the December 2009 NOPR analysis, DOE included a cost for adding
electricity at efficiencies above 82 percent (which use electronic
ignition only) for installations where the unit currently uses a pilot
light. For the December 2009 NOPR, DOE estimated that 26.5 percent of
installations would incur this cost. Raypak stated that 8 percent of
pool heaters are millivolt pool heaters (i.e., use a pilot light), and
the cost of adding electricity is not insignificant. (Raypak, No. 67 at
p. 2) For the final rule, DOE has adopted the 8-percent value provided
by Raypak to estimate the fraction of installations that would require
addition of electricity at efficiencies above 82 percent. For further
details on DOE's derivation of installation costs for pool heaters, see
chapter 8 of the TSD.
3. Annual Energy Use
DOE determined the annual energy use in the field for the three
types of heating products as described above in section IV.E.
4. Energy Prices
For the December 2009 NOPR analysis, DOE derived average energy
prices for 13 geographic areas consisting of the nine U.S. Census
Divisions, with four large States (New York, Florida, Texas, and
California) treated separately. For Census Divisions containing one of
these large States, DOE calculated the regional average excluding the
data for the large State.
DOE estimated residential electricity prices for each of the
geographic areas based on data from EIA Form 861, ``Annual Electric
Power Industry Database,'' and EIA Form 826, ``Monthly Electric Utility
Sales and Revenue Data.'' DOE calculated average annual regional
residential electricity prices as well as average monthly regional
electricity prices. For the December 2009 NOPR, DOE used data from
2007. For the final rule analysis, DOE used more recent 2008 data from
the same sources.
DOE estimated average annual residential natural gas prices in each
of the 13 geographic areas based on data from EIA's Natural Gas
Navigator.\7\ For the December 2009 NOPR, DOE used EIA data from 2007.
For today's final rule, DOE used more recent 2008 data from the same
source.
---------------------------------------------------------------------------
\7\ See Energy Information Administration, Natural Gas Navigator
(2009). Available at: http://tonto.eia.doe.gov/dnav/ng/ng_pri_sum_dcu_nus_m.htm.
---------------------------------------------------------------------------
DOE estimated average residential prices for liquefied petroleum
gas (LPG) in each of the 13 geographic areas based on data from EIA's
State Energy Consumption, Price, and Expenditures Estimates.\8\ For the
December 2009 NOPR, DOE used data from 2006. For today's final rule,
DOE used the more recent 2007 data from the same source.
---------------------------------------------------------------------------
\8\ See Energy Information Administration, 2007 State Energy
Consumption, Price, and Expenditure Estimates (SEDS). Available at:
http://www.eia.doe.gov/emeu/states/_seds.html.
---------------------------------------------------------------------------
DOE estimated average residential prices for oil in each of the 13
geographic areas based on data from EIA's Petroleum Navigator.\9\ For
the December 2009 NOPR, DOE used data from 2007. For today's final
rule, DOE used more recent 2008 data from the same source.
---------------------------------------------------------------------------
\9\ See Energy Information Administration, Petroleum Navigator,
December (2009). Available at: http://tonto.eia.doe.gov/dnav/pet/pet_cons_821dsta_a_EPD0_VAR_Mgal_a.htm.
---------------------------------------------------------------------------
5. Energy Price Trend
To estimate the trends in electricity prices for the December 2009
NOPR, DOE used the regional price forecasts in the 2009 Annual Energy
Outlook (AEO 2009) April Release.\10\ To arrive at prices in future
years, DOE multiplied the average prices described above by the
forecast of annual average price changes in each region. Because the
AEO 2009 forecasts prices only to 2030, DOE followed past guidelines
provided to the Federal Energy Management Program by EIA and used the
average rate of change during 2020-2030 to estimate the price trends
beyond 2030. For today's final rule, DOE updated its analysis to use
the price forecasts in the AEO 2010 Early Release, which includes price
forecasts until 2035. DOE used the average rate of change from 2025 to
2035 to estimate price trends beyond 2035.
---------------------------------------------------------------------------
\10\ All AEO publications are available online at: http://www.eia.doe.gov/oiaf/aeo/.
---------------------------------------------------------------------------
The spreadsheet tools used to conduct the LCC and PBP analysis
allow users to select either the AEO's high-price case or low-price
case price forecasts to estimate the sensitivity of the LCC and PBP to
different energy price forecasts. The AEO 2009 April Release and AEO
2010 Early Release only provide forecasts for the Reference Case.
Therefore, for the December 2009 NOPR, DOE used the AEO 2009 March
Release high-price or low-price forecasts directly to estimate high-
price and low-price trends. For today's final rule, DOE updated the
low-price and high-price forecasts to be based on the ratio between the
AEO 2009 March Release low- or high-price forecasts and the AEO 2009
March Release reference case. DOE then applied these ratios to the AEO
2010 Early Release reference case to construct its high-price and low-
price forecasts. DOE did not receive any substantive comments on its
forecast of energy price trends. Thus, DOE retained the same approach
for the final rule.
6. Repair and Maintenance Costs
Repair costs are associated with repairing or replacing components
that have failed in the appliance, whereas maintenance costs are
associated with maintaining the operation of the equipment. Determining
the repair cost involves determining the cost and the service life of
the components that are likely to fail. Addressing water heaters, A.O.
Smith commented that the repair and maintenance costs presented in the
December 2009 NOPR are reasonably accurate. (A.O. Smith, No. 76 at p.
4) For more information on DOE's development of repair and maintenance
cost estimates, see chapter 8 of the TSD.
For the December 2009 NOPR analysis, DOE assumed that there would
be some instances where professional maintenance would be needed for
heat pump water heaters. For some locations where the heat pump water
heater might be more exposed to the outdoor environment, such as
garages and crawlspaces, DOE applied a 5-year preventative maintenance
cost based on experience with heat pump water heater outdoor
installations in Australia, which has roughly comparable conditions to
much of the United States.
Commenting on the December 2009 NOPR, BWC stated that heat pump
water heaters are installed with an optional component and that the
repair and maintenance costs of the optional components were not taken
into account, although the commenter provided no specific information
regarding the nature or prevalence of such optional components. (BWC,
No. 61 at p. 3) Daikin stated that heat pump water heaters generally do
not require maintenance for the first 10 years of operation. (Daikin,
No. 82 at p. 2) GE stated that the maintenance cost for heat pump water
heaters is overstated. (GE, No. 84 at p. 1) In response, DOE
acknowledges that many heat pump water heaters may require little or no
maintenance. However, DOE believes that because the field experience
with
[[Page 20159]]
heat pump water heaters is limited, it is reasonable to apply a
maintenance cost for some installations. DOE assumed that optional
components, which are an addition to the water heater, are not
uniformly applicable, and thus, it did not include them in its
analysis.
Therefore, for the reasons above, DOE has retained the approach to
repair and maintenance costs used for the December 2009 NOPR for the
final rule. The approach also accounts for repair or replacement of
common components such as heating elements, fans, and compressors.
7. Product Lifetime
DOE used a variety of sources to establish minimum, average, and
maximum values for the lifetime of each of the three types of heating
products. For each water heater product class and for DHE and pool
heaters, DOE characterized the product lifetime using a Weibull
probability distribution that ranged from minimum to maximum lifetime
estimates. See chapter 8 of the December 2009 NOPR TSD for further
details on the sources DOE used to develop product lifetimes.
a. Water Heaters
For the December 2009 NOPR analysis, DOE used an average lifetime
of 13 years for gas-fired, electric, and oil-fired storage water
heaters. DOE did not receive any comments on this value, and it
continued to use it for the final rule.
For the December 2009 NOPR analysis, DOE used an average lifetime
of 20 years for gas-fired instantaneous water heaters. A.O. Smith
stated that a 20 year lifetime for gas-fired instantaneous water
heaters is too long, and is largely based on manufacturers' literature
or advertising claims. It referred to its experience with commercial
water heating equipment that uses a similar copper-tube type heat
exchanger as gas-fired instantaneous water heaters and similar input
combustion systems of around 200,000 Btu/h, and the commenter concluded
that the same service life (i.e., 13 years) as a tank-type heater
should be used for gas-fired instantaneous water heaters. (A.O. Smith,
No. 76 at pp. 4-5)
DOE acknowledges that, given that long-term field experience with
gas-fired instantaneous water heaters is relatively limited, there is
uncertainty regarding the lifetime of these products. Furthermore, the
lifetime is influenced by maintenance practices. The 20-year mean
lifetime used by DOE is primarily based on the value reported in the
National Association of Home Builders/Bank of America Home Equity Study
of Life Expectancy of Home Components, which is 20+ years.\11\
Regarding the analogy between gas-fired instantaneous water heaters and
commercial water heating equipment mentioned by A.O. Smith, DOE notes
that the usage patterns in residential applications are different
(e.g., less hot water use), and these patterns have a significant
impact on the lifetime. Given the available data, DOE decided to retain
the mean lifetime of 20 years for the final rule analysis.
---------------------------------------------------------------------------
\11\ National Association of Home Builders (NAHB), ``Study of
Life Expectancy of Home Components'' (Feb. 2007). Available at:
http://www.nahb.org/fileUpload_details.aspx?contentID=99359.
---------------------------------------------------------------------------
b. Direct Heating Equipment
For the December 2009 NOPR analysis, DOE used an average lifetime
of 15 years for DHE. DOE did not receive any comments on this value,
and it continued to use it for the final rule.
c. Pool Heaters
For the December 2009 NOPR analysis, DOE used an average lifetime
of 8 years for pool heaters. In the public meeting, Lochinvar stated
that pool heaters live longer than 6-8 years. (Lochinvar, Public
Meeting Transcript, No. 57.4 at p. 224) For the final rule, DOE
subsequently reviewed information provided by an expert consultant and
based upon this information, decided to use a mean lifetime of 10 years
for pool heaters, with the same distribution as in the December 2009
NOPR analysis (3 to 20 years).
8. Discount Rates
For the December 2009 NOPR, DOE developed separate distributions of
discount rates for new construction and replacement applications.
Because the cost of heating products installed in new homes is part of
the home selling price, DOE estimated discount rates for appliance
purchases in new housing using the effective real mortgage rate for
homebuyers, which accounts for deducting mortgage interest for income
tax purposes. DOE developed a distribution of mortgage interest rates
using data from the Federal Reserve Board's ``Survey of Consumer
Finances'' (SCF) for 1989, 1992, 1995, 1998, 2001, 2004, and 2007.\12\
Because the mortgage rates carried by households in these years were
established over a range of time, DOE believes they are representative
of rates that may apply when amended standards take effect. The
effective real interest rates on mortgages across the seven surveys
averaged 3.0 percent.
---------------------------------------------------------------------------
\12\ The Federal Reserve Board, Survey of Consumer Finances
1989, 1992, 1995, 1998, 2001, 2004, 2007. Available at: http://www.federalreserve.gov/pubs/oss/oss2/scfindex.html.
---------------------------------------------------------------------------
DOE's approach for deriving discount rates for replacement
purchases involved identifying all possible debt or asset classes that
might be used to purchase replacement products, including household
assets that might be affected indirectly. DOE used data from the
surveys mentioned above to estimate the average percentages of the
various debt and equity classes in the average U.S. household
portfolios. DOE used SCF data and other sources to develop
distributions of interest or return rates associated with each type of
equity and debt. For the final rule, it added 2009 values for interest
or return rates to the distributions for some of the asset classes. The
resulting average rate across all types of household debt and equity,
weighted by the shares of each class, is 5.1 percent.
DOE did not receive any comments on the discount rates it used in
the LCC analysis, and it continued to apply the approach used in the
December 2009 NOPR, with the updates discussed above, for the final
rule.
9. Compliance Date
In the context of EPCA, the compliance date is the future date when
parties subject to the requirements of a new standard must begin to
comply. As described in DOE's semi-annual Implementation Report for
Energy Conservation Standards Activities submitted to Congress pursuant
to section 141 of the Energy Policy Act of 2005 and section 305 of the
Energy Independence and Security Act of 2007,\13\ a final rule for the
three types of heating products that are the subject of this rulemaking
is scheduled to be completed by March 2010. Compliance with amended
energy efficiency standards for direct heating equipment and pool
heaters is required three years after the final rule is published in
the Federal Register (in 2013); compliance with amended standards for
water heaters is required five years after the final rule is published
(in 2015). Comments on the compliance date for the three types of
heating products are presented and responded to in section V.B of this
final rule. DOE calculated the LCC for the three types of heating
products as if consumers would purchase new products in the year
compliance with the standard is required.
---------------------------------------------------------------------------
\13\ Available at: http://www1.eere.energy.gov/buildings/appliance_standards/pdfs/2010_feb_report_to_congress.pdf.
---------------------------------------------------------------------------
[[Page 20160]]
10. Product Energy Efficiency in the Base Case
To accurately estimate the percentage of consumers who would be
affected by a particular standard level, DOE's analysis considered the
projected distribution of product efficiencies that consumers purchase
under the base case (i.e., the case without new energy efficiency
standards). DOE refers to this distribution as a base-case efficiency
distribution. Using the projected distribution of product efficiencies
for each heating product, DOE randomly assigned a specific product
efficiency to each sample household. If a household was assigned a
product efficiency greater than or equal to the efficiency of the
standard level under consideration, the LCC calculation shows that this
household is not affected by that standard level.
To estimate the base-case market shares of various energy
efficiency levels for water heaters in the compliance year, DOE began
with data on shipments for 2002-2006 from AHRI, supplemented with data
on the number of water heater models at different energy efficiency
levels reported in AHRI Directories. (See chapter 8 of the TSD for
citations for these data sources.) For the final rule, DOE updated its
estimates using the February 2010 AHRI Directory. To estimate the base-
case market shares of gas-fired and electric storage water heaters, DOE
considered the market penetration goals set by the ENERGY STAR program,
in combination with its assessment of constraints on such penetration.
The projected base-case energy efficiency market shares for water
heaters that DOE used for the final rule, shown in Table IV.24, are
half of the ENERGY STAR goal for heat pump water heaters (EF of 2.0 and
2.2), and one-fifth of the ENERGY STAR goal for gas-fired condensing
water heaters (EF of 0.77). These market shares represent the products
that households would purchase in 2015 in the absence of revised energy
conservation standards.
Table IV.24--Water Heaters: Base-Case Energy Efficiency Market Shares*
----------------------------------------------------------------------------------------------------------------
Gas storage Electric storage Oil storage Gas-fired
------------------------------------------------------------------------------------------- instantaneous
---------------------
EF Market EF Market EF Market Market
share (%) share (%) share (%) EF share (%)
----------------------------------------------------------------------------------------------------------------
0.59............................. 63.9 0.90 29.8 0.53 0.0 0.62 1.0
0.62............................. 23.4 0.91 16.8 0.54 20.0 0.69 2.9
0.63............................. 1.6 0.92 11.2 0.56 0.0 0.78 1.0
0.64............................. 4.8 0.93 26.1 0.58 0.0 0.80 4.9
0.65............................. 0.0 0.94 7.5 0.60 10.0 0.82 52.4
0.67............................. 5.3 0.95 3.7 0.62 20.0 0.84 1.9
0.77............................. 1.0 2.0 4.0 0.66 25.0 0.85 3.9
2.2 1.0 0.68 25.0 0.92 20.4
0.95 11.7
100% 100% 100% 100%
----------------------------------------------------------------------------------------------------------------
* The base-case market shares of each product class are estimated in the shipment analysis, as described in
chapter 9 of the final rule TSD.
For DHE, DOE estimated the market shares of different energy
efficiency levels within each product class in the base case using data
in the AHRI Directory. For the final rule, DOE updated its estimates
using the February 2010 AHRI Directory, and for hearth products, DOE
also consulted manufacturers' Web sites in addition to the 2010 AHRI
Directory (see chapter 8 of the TSD for the citation and detailed
information). For pool heaters, DOE estimated the market shares of
different energy efficiency levels in the base-case by using 2008 data
from the Federal Trade Commission (FTC) on the number of gas-fired pool
heater models at different energy efficiency levels as a proxy for
shipments. For the final rule, DOE updated its estimates using 2009 FTC
data.
DOE did not receive any comments on its estimation of base-case
energy efficiency market shares for the three types of heating
products. For further information on DOE's estimation of base-case
market shares, see chapter 8 of the TSD.
11. Inputs to Payback Period Analysis
The payback period is the amount of time it takes the consumer to
recover the additional installed cost of more-efficient products,
compared to baseline products, through energy cost savings. For these
calculations, DOE uses a simple payback period, which does not account
for changes in operating expense over time or the time value of money.
Payback periods are expressed in years. Payback periods that exceed the
life of the product mean that the increased total installed cost is not
recovered in reduced operating expenses.
The inputs to the PBP calculation are the total installed cost of
the equipment to the customer for each efficiency level and the annual
(first-year) operating expenditures for each efficiency level. The PBP
calculation uses the same inputs as the LCC analysis, except that
energy price trends and discount rates are not needed. DOE did not
receive any comments on its methodology for the payback period
analysis.
As noted above, EPCA, as amended, establishes a rebuttable
presumption that a standard is economically justified if the Secretary
finds that the additional cost to the consumer of purchasing a product
complying with an energy conservation standard level will be less than
three times the value of the energy (and, as applicable, water) savings
during the first year that the consumer will receive as a result of the
standard, as calculated under the test procedure in place for that
standard. (42 U.S.C. 6295(o)(2)(B)(iii)) For each TSL, DOE determined
the value of the first year's energy savings by calculating the
quantity of those savings in accordance with the applicable DOE test
procedure, and multiplying that amount by the average energy price
forecast for the year in which compliance with the amended standard
would be required.
Results of DOE's payback period analysis, including both the
rebuttable presumption analysis and the payback period analysis
considering all of the relevant statutory factors, are discussed in
section VI.
[[Page 20161]]
G. National Impact Analysis--National Energy Savings and Net Present
Value Analysis
1. General
DOE's National Impact Analysis (NIA) assesses the national energy
savings (NES) and the national net present value (NPV) of total
consumer costs and savings expected to result from standards at
specific efficiency levels. DOE applied the NIA spreadsheet to
calculate NES and NPV, using the annual energy consumption and total
installed cost data from the LCC analysis. DOE forecasted the energy
savings, energy cost savings, equipment costs, and NPV for each product
class from 2013 through 2043 for DHE and pool heaters, and from 2015
through 2045 for water heaters. The forecasts provide annual and
cumulative values for all four parameters. In addition, DOE
incorporated into its NIA spreadsheet the capability to analyze the
sensitivity of the results to forecasted energy prices and equipment
efficiency trends. Table IV.25 summarizes the approach and data DOE
used to derive the inputs to the NES and NPV analyses for the December
2009 NOPR, and also summarizes the changes DOE made for today's final
rule. These changes are described in the following sections, and more
details are available in chapter 10 of the final rule TSD. Comments on
the NIA, as presented in the December 2009 NOPR, and DOE's response are
presented in the sections that follow.
Table IV.25--Approach and Data Used for the National Impacts Analysis
------------------------------------------------------------------------
Changes for the
Inputs NOPR final rule
------------------------------------------------------------------------
Shipments................... Annual shipments See table IV.4.
from shipments
model.
Compliance Date of Standard. Water Heaters: 2015. No change.
DHE and Pool
Heaters: 2013.
Base-Case Forecasted Efficiency market No change in
Efficiencies. shares estimated approach; updated
for compliance efficiency market
year. Sales- shares for water
weighted energy heaters and DHE
factor (SWEF) estimated for
remains constant compliance year.
except for gas and
electric water
heaters, for which
SWEF increases
slightly over
forecast period.
Standards-Case Forecasted ``Roll-up'' No change in
Efficiencies. scenario used for approach.
determining SWEF in
2013 (or 2015) for
each standards
case. SWEF remains
constant except for
gas and electric
water heaters, for
which SWEF
increases slightly
over forecast
period.
Annual Energy Consumption Annual weighted- No change.
per Unit. average values as a
function of SWEF.
Rebound Effect.............. Water heaters: 10%.. No change.
DHE: 15%............
Pool Heaters: 10%...
Total Installed Cost per Annual weighted- No change.
Unit. average values as a
function of SWEF.
Energy Cost per Unit........ Annual weighted- No change.
average values a
function of the
annual energy
consumption per
unit and energy
(and water) prices.
Repair Cost and Maintenance Annual values are a No change.
Cost per Unit. function of
efficiency level.
Escalation of Energy Prices. AEO2009 forecasts Updated using
(to 2030) and AEO2010 (Early
extrapolation to Release) forecasts.
2043 (and 2045).
Energy Site-to-Source Varies yearly and is No change.
Conversion Factor. generated by DOE/
EIA's NEMS.
Discount Rate............... Three and seven No change.
percent real.
Present Year................ Future expenses are No change.
discounted to 2010,
when the final rule
will be published.
------------------------------------------------------------------------
2. Shipments
The shipments portion of the NIA spreadsheet is a model that uses
historical data as a basis for projecting future shipments of the
appliance products that are the subject of this rulemaking. In
projecting shipments for water heaters and pool heaters, DOE accounted
for two market segments: (1) New construction and (2) replacement of
failed equipment. Data were unavailable to develop separate forecasts
of direct heating equipment shipments for replacement and new home
installations, so the forecast was based on the time series of
historical total shipments developed for each product class.
Table IV.26 summarizes the approach and data DOE used to derive the
inputs to the shipments analysis for the December 2009 NOPR analysis,
and the changes DOE made for today's final rule, based on public
comments. A discussion of these inputs and changes follows. For details
on the shipments analysis, see chapter 9 of the TSD.
Table IV.26--Approach and Data Used for the Shipments Analysis
------------------------------------------------------------------------
Changes for the
Inputs NOPR analysis final rule
------------------------------------------------------------------------
Historical Shipments........ Water Heaters: Data Water Heaters: Used
provided by AHRI. new data for GIWH
for 2008 and 2009.
DHE: Data provided DHE: Derived new
by AHRI and DOE data based on
estimates, and data manufacturer input.
from manufacturers
and the trade
association for
hearth products.
[[Page 20162]]
Pool Heaters: Data Pool Heaters: Used
from 1993 TSD, data provided by
inputs from manufacturers trade
manufacturers, and association.
DOE estimates.
New Construction Shipments.. For water heaters No change in
and pool heaters, approach. New
determined by housing forecast
multiplying housing updated with
forecasts by AEO2010
forecasted projections.
saturation of
products in new
housing.
Housing forecasts
based on AEO2009
projections.
New housing product
saturations based
on American Housing
Survey for water
heaters, consultant
data for pool
heaters.
Replacements................ For water heaters No change.
and pool heaters,
determined by
tracking total
product stock by
vintage and
establishing the
failure of the
stock using
retirement
functions from the
LCC and PBP
analysis. For pool
heaters, included
estimated non-
replacement of some
pool heaters.
------------------------------------------------------------------------
To determine new construction shipments, DOE used forecasts of
housing starts coupled with estimates of product market saturation in
new housing. For the preliminary analysis, DOE used actual data for
2008 for new housing completions and mobile home placements and adopted
the projections from AEO2009 for 2009 to 2030. DOE updated its new
housing projections for today's final rule using AEO2010 Early Release,
which provides projections from 2010 to 2035. DOE kept completions
constant after 2035. DOE estimated replacements using historical
shipments data and product retirement functions that it developed from
product lifetimes. Table IV.27 provides a summary of total shipments in
2009 for residential water heaters, direct heating equipment, and pool
heaters.
Table IV.27--Residential Water Heaters, Direct Heating Equipment and
Pool Heaters Shipments (2009)
------------------------------------------------------------------------
Total
shipments
(million)
------------------------------------------------------------------------
Residential Water Heaters
------------------------------------------------------------------------
Gas-fired Storage........................................... 3.76
Electric Storage............................................ 3.75
Oil-fired Storage........................................... * 0.031
Gas-fired Instantaneous..................................... * 0.384
------------------------------------------------------------------------
Direct Heating Equipment
------------------------------------------------------------------------
Gas Wall Fan................................................ * 0.030
Gas Wall Gravity............................................ * 0.103
Gas Floor................................................... * 0.003
Gas Room.................................................... * 0.020
Gas Hearth.................................................. * 0.286
------------------------------------------------------------------------
Pool Heaters
------------------------------------------------------------------------
Gas-fired................................................... 0.118
------------------------------------------------------------------------
* Estimated.
a. Water Heaters
For the December 2009 NOPR analysis, DOE used information on choice
of water heater products in recently-built housing to estimate
shipments of each product class to the new construction market. DOE
calculated the average market shares of water heaters using a
particular fuel in new homes during 2000 to 2008, and assumed that
these shares would hold throughout the forecast period. AGA stated that
DOE should not fix market shares, and should realize that increasing
disparity between gas and electric installed cost will exacerbate a
trend away from gas-fired units. (AGA, No. 78 at pp. 7-8) In response,
DOE notes that its data on water heater choice in new homes does not
show a clear trend away from gas-fired units during the period from
2000 to 2008 (as documented in chapter 9 of the TSD), nor did AGA
provide any data to substantiate such a trend. DOE recognizes that
future market dynamics may result in changes from the average pattern
seen in 2000 to 2008, but DOE does not have sufficient information to
forecast the various factors that affect water heater choice in new
homes. Therefore, DOE has retained the approach used in the December
2009 NOPR analysis for the final rule.
The shipments model assumes that when a unit using a particular
fuel is retired, it generally is replaced with a unit that uses the
same fuel. Section IV.G.2.d discusses the potential effects of energy
conservation standards on choice of water heater product in the new
construction and replacement markets.
For its shipments forecast for gas-fired storage water heaters and
electric storage water heaters, DOE assumed that the current market
shares of small-volume products (20 to 55 gallons rated storage volume)
and large-volume products (over 55 gallons rated storage volume) would
remain the same throughout the forecast period. The shipments market
shares for large-volume products are 4 percent for gas-fired storage
water heaters and 9 percent for electric storage water heaters.
Within the category of gas-fired water heaters, DOE disaggregated
the shares of gas storage water heaters and gas-fired instantaneous
water heaters based on projections of total shipments of gas-fired
instantaneous water heaters. Because there is much uncertainty about
the future growth of gas-fired instantaneous water heaters, DOE modeled
scenarios of their market penetration based on experience with gas-
fired instantaneous water heaters in Australia, where the proportion of
instantaneous water heaters in total gas-fired storage water heater
shipments has grown considerably in the past decade. (See chapter 9 of
the TSD for information on the past and projected market penetration in
Australia.)
Commenting on the December 2009 NOPR approach, AHRI stated that the
experience of gas-fired instantaneous water heaters in Australia is too
dissimilar to the U.S. market to be used to predict future U.S.
shipments. (AHRI, No. 91 at p. 3) Rheem stated that the Australian
market was primarily based on outdoor installations, and was influenced
by local government programs. (Rheem, No. 89 at p. 13) A.O. Smith
stated that in 2009, gas-fired instantaneous water heater shipments
will be about 9.4 percent of the total gas market, not 20 percent as
the DOE forecast suggests. A.O. Smith estimated a more moderate growth
curve for gas-fired instantaneous water heaters, growing to 13-15
percent of the gas market, consistent with DOE's low-
[[Page 20163]]
penetration scenario. Moreover, A.O. Smith stated that this level will
not be reached for 5-7 years, unlike the DOE forecast of 1-2 years.
(A.O. Smith, No. 76 at p. 5)
In response, DOE acknowledges the uncertainty associated with
basing its forecasted market penetration of gas-fired instantaneous
water heaters on the Australian experience, but it believes that there
is no other market that could provide an approximate model for
forecasting U.S. market penetration. In making use of the Australian
experience, DOE's December 2009 NOPR analysis took into account some of
the differences between the two markets that would tend to cause
shipments growth to be lower in the U.S. In response to the comments
from A.O. Smith, however, DOE made modifications to its approach for
the final rule. First, it incorporated A.O. Smith's estimated market
share for 2009 (as well as data it provided on the actual share in
2008). Second, based on the new data on shipments, DOE significantly
moderated the growth curve for gas-fired instantaneous water heater
market penetration such that the rise is less steep than had been
assumed for the December 2009 NOPR. Because of broad similarities
between the U.S. and Australian water heating markets, DOE continued to
use scenarios of market penetration that are partly based on the
Australian experience for the final rule. Differences in retail prices
and installation costs for instantaneous water heaters, as well as in
government incentives, suggest that the growth in the U.S. market will
be less strong than in Australia. However, DOE believes that the rapid
growth seen in the U.S. before 2008, together with the reputation of
instantaneous gas-fired water heaters as an energy-efficient water
heating option suggest that the ultimate market penetration may be
higher than 13 to 15 percent of the gas water heating market.
Therefore, DOE estimated that the U.S. market share (i.e., 28 percent)
approaches a level equal to half of the Australian level (i.e., 56
percent) by around 2025. Chapter 9 of the TSD presents more details on
DOE's projection.
b. Direct Heating Equipment
To estimate historical shipments of direct heating equipment for
the December 2009 NOPR analysis, DOE used two sets of data from AHRI
and information from the 1993 TSD. As noted above, data were
unavailable to develop separate forecasts of direct heating equipment
shipments for replacement and new home installations, so DOE based the
forecast on the time series of historical total shipments developed for
each product class, along with assumptions regarding future trends. For
gas hearth DHE shipments, the forecast used for the December 2009 NOPR
related shipments to projected new housing completions.
AHRI stated that the December 2009 NOPR assumption that future
shipments of traditional DHE (i.e., all of the product classes except
gas hearth DHE) will be flat is unrealistically optimistic and contrary
to the last 30 years of shipment history. The commenter stated that
this is a declining market not only because these products are sold
primarily as replacements, but also because in some cases, the failing
unit is replaced not with a similar model but rather with a vented
fireplace heater. AHRI recommended that, at a minimum, the shipment
forecast for traditional DHE use a 30-percent decrease over the next 30
years. (AHRI, No. 91 at p. 11) In response, for the final rule
analysis, DOE modified its forecast such that total shipments of
traditional DHE decrease by 30 percent between 2005 and 2042. The
modification of the shipments forecast for each of the four traditional
DHE product classes is described in chapter 9 of the TSD.
c. Pool Heaters
To forecast pool heater shipments for new construction for the
December 2009 NOPR analysis, DOE multiplied the annual housing starts
forecasted for single-family and multi-family housing by the estimated
saturation of gas-fired pool heaters in recently built new housing. For
replacement pool heaters, DOE used a survival function based on its
distribution of product lifetimes to determine when a unit fails. In
addition, DOE assumed that some households would not replace their pool
heater when it fails due to cost considerations. DOE also introduced a
market segment representing purchases by existing households that had
not owned a pool heater. These first-time owners include existing
households that have a pool and those that install one.
The Association of Pool and Spa Professionals (APSP) stated that
DOE's data on pool heater shipments are overstated, and they submitted
shipments data for 2003-2009. (APSP, No. 64 at p. 1) AHRI made similar
comments. (AHRI, No. 91 at p. 8) DOE appreciates the information
provided by APSP. For the final rule, it used the data for 2003-2009 as
a basis for its shipments forecast.
Raypak stated that the pool heater forecasts are overstated, and
that DOE's projection of a huge recovery in first-time pool owners is
inaccurate, because of the significant reduction in property values and
more difficult access to credit. (Raypak, Public Meeting Transcript,
No. 57.4 at pp. 258-259) AHRI stated that DOE did not recognize the
increasing sales of electric heat pump pool heaters, which will reduce
the shipments of gas-fired pool heaters. (AHRI, No. 91 at p. 9) In
response, DOE notes that incorporating the new data for 2003-2009
reduces the forecast of future shipments. DOE agrees with Raypak
regarding first-time pool owners and reduced the number of such
installations in the early years of its forecast. DOE was not able to
consider the impact of heat pump pool heaters as well as electric
resistance pool heaters on the market because shipments data were not
available. Furthermore, DOE did not include electric pool heaters in
the current rulemaking for reasons explained in the NOPR. 74 FR 65852,
65866 (Dec. 11, 2009). Finally, DOE notes that the longer pool heater
lifetime used for the final rule (as described in section IV.F.7.c)
results in fewer replacement shipments.
d. Impact of Standards on Shipments
i. Water Heaters
To the extent that energy conservation standards result in an
increase in the price of a specific type of water heater compared to a
competing product, some consumers (or home builders in the case of
shipments for new construction) may purchase the competing product. The
consumer or builder decision is not solely based on economic factors,
as the availability of a natural gas supply plays a key role.
Evaluation of this decision requires an assessment of the specific
factors that influence it in the context of the two main markets for
water heaters, replacements and new homes.
In the December 2009 NOPR analysis, DOE determined that the
greatest potential for product switching would exist in the case of a
standard that effectively required an electric heat pump water heater.
This type of product often has a substantially higher installed cost
than a typical electric resistance storage water heater and is
relatively new to consumers and builders. Because the product choice
decision partially depends on the relative costs of competing products,
DOE considered three potential combinations that could result from
standards: (1) Electric heat pump water heater and a gas-fired storage
water heater using natural draft; (2) electric heat pump water heater
and a gas-fired storage water heater using power vent; and (3) electric
heat pump water heater and a gas-fired storage water heater using
condensing
[[Page 20164]]
technology. DOE used data from the 2005 RECS to estimate the percentage
of households expected to purchase an electric water heater in the base
case that could switch to gas-fired water heater because they had the
necessary infrastructure. To estimate how many of these households
would switch to gas-fired water heaters, DOE considered the difference
in installed cost between the gas-fired storage water heater and an
electric heat pump water heater in each of the combinations listed
above. The estimated fraction of households using an electric storage
water heater estimated to switch to a gas-fired storage water heater
instead of installing a heat pump water heater ranges from zero with a
standard level for gas-fired storage water heaters that require
condensing technology, to 9 percent with a standard level for gas-fired
storage water heaters that require power vent technology.
DOE did not quantify the potential for switching to gas water
heating in the case of a standard that requires 0.95 EF for some or all
electric water heaters, as the installed cost is only moderately higher
than the baseline electric water heater (0.90 EF). DOE judged that this
increase would not be sufficient to prompt consumers to consider
switching to gas water heating, given the higher cost of a gas water
heater and the fact that such switching would usually require
installation of a venting system, which adds significant cost.
Commenting on DOE's December 2009 NOPR analysis, A.O. Smith stated
that there will not be appreciable fuel switching in retrofits. (A.O.
Smith, No. 76 at p. 4) GE stated that fuel switching is impractical for
most consumers. (GE, No. 84 at p. 2) The American Public Power
Association (APPA) stated that TSL 3 and TSL 4 would not likely induce
fuel switching, but higher TSLs would. (APPA, No. 92 at p. 4) Rheem
stated that TSL 6 (i.e., requiring heat pump water heaters) would
encourage a shift to instantaneous electric water heaters. In response,
DOE believes that the high equipment and installation cost of
instantaneous electric water heaters, which may involve upgrading the
electrical wiring, along with the high operating cost, will limit the
prevalence of a shift to these products. Given that the remaining
comments are generally supportive of the estimates in the December 2009
NOPR, DOE retained its December 2009 NOPR analysis of fuel switching
for the final rule. However, DOE expanded its analysis to consider the
potential for product switching within the same fuel type, as discussed
below.
In the December 2009 NOPR analysis, for TSL 5, DOE combined an
efficiency level requiring heat pump technology for large-volume
electric storage water heaters with an efficiency level requiring
condensing technology for large-volume gas storage water heaters.
Because these technologies have roughly comparable estimated installed
costs and there are constraints in switching from gas to electric or
from electric to gas water heaters, DOE did not project that fuel
switching would occur under TSL 5.
DOE received a number of comments on potential reaction of
consumers to TSL 5. Rheem stated that TSL 5 would provide a strong
value incentive for the replacement consumer to replace one large
electric resistance unit with two smaller electric storage water
heaters to avoid the higher first cost impact associated with a heat
pump water heater. It also pointed to other approaches consumers might
choose, and noted that TSL 5 could encourage installation of large
commercial tank type models in residential applications, where such
products often lack an equitable certification status for safe
operation. (Rheem, No. 89 at p. 6) A.O. Smith stated that the added
cost of a heat pump water heater would induce consumers to install two
smaller-storage-capacity, lower-cost heaters in the place of one
larger-capacity unit. (A.O. Smith, No. 76 at p. 4) AHRI stated that the
market may react to TSL 5 by replacing a large electric storage water
heater with either a 50-gallon model with a tempering valve, a 50-
gallon model with higher input heating elements, two smaller storage
water heaters, or multiple instantaneous water heaters. (AHRI, No. 91
at p. 7) NPCC stated that in emergency replacements of electric water
heaters, switching to two smaller water heaters is unlikely because it
would require a new 30 amp circuit, which would require a contractor.
(NPCC, Public Meeting Transcript, No. 57.4 at pp. 106-107) Regarding
TSL 5's requirement of condensing gas-fired storage water heaters for
large-volume water heaters, Southern stated that consumers could
instead install a non-condensing unit with a 75,000 Btu burner and 55-
gallon tank. (Southern, No. 90 at pp. 6-7) In contrast to these
comments, NRDC opined that it is unlikely that TSL 5 would cause
product switching. (NRDC, No. 85 at p. 6)
In response, DOE agrees that the December 2009 NOPR TSL 5 would
present consumers of large water heaters with a total installed cost
that could lead some of them to consider alternatives to purchasing a
new large water heater. To estimate the likely incidence of switching
away from large-volume units under TSL 5 and TSL 6 in today's final
rule (see section VI.A for description of TSLs), DOE considered several
alternatives to purchasing a new large water heater, as well as
constraints that would likely limit their adoption.
First, DOE considered factors that would cause some households to
choose not to install an alternative to a new large-volume unit. Most
important is the need for emergency replacement, which, according to
comments from Bradford White (BWC, No. 62 at p. 4), accounts for 95
percent of water heater replacements. This may preclude consideration
of switching in some cases. In addition, based on shipments data from
AHRI \14\ and equipment stock information from AEO 2010 \15\, DOE
determined that at least 15 percent of furnace shipments go to
households that are switching from non-condensing to condensing gas
furnace and also have a gas water heater. Some of these households may
want to also install a condensing gas water heater to avoid complex
venting system modifications. The details are described in chapter 9 of
the TSD. DOE judged that the above factors would reduce the fraction of
installations estimated to adopt an alternative to purchasing a large-
volume water heater by 25 percent.
---------------------------------------------------------------------------
\14\ AHRI furnace shipment data. Available at http://www.ahrinet.org/Content/Furnaces_609.aspx.
\15\ AEO 2010 (Early Release): Table 31. Residential Sector
Equipment Stock and Efficiency. Available at: http://www.eia.doe.gov/oiaf/aeo/supplement/supref.html.
---------------------------------------------------------------------------
One alternative applicable to both gas-fired storage water heaters
and electric storage water heaters involves installing a small-volume
water heater, increasing the setpoint, and applying a tempering valve.
DOE believes that this strategy would only be viable for a fraction of
66-gallon units.\16\ This strategy results in the household having
roughly the same amount of hot water with a small-volume water heater
as they would have with a large-volume unit; higher-temperature water
is stored in a smaller tank, and then mixed with cold water using the
valve. For units larger than 66 gallons, meeting the household's hot
water demand would require increasing the setpoint above the 140 [deg]F
limit, which could result in deposits on the internal surface of the
tank. To assess the viability of this approach for each of the sample
households with 66-gallon
[[Page 20165]]
water heaters, DOE calculated whether the first-hour rating of a small-
volume water heater with a tempering valve would meet the first-hour
rating of the existing 66-gallon water heater without exceeding a 140
[deg]F setpoint. (The first hour rating is the amount of hot water in
gallons the heater can supply per hour, starting with a tank full of
hot water). If so, DOE assumed the household would choose this option.
---------------------------------------------------------------------------
\16\ DOE notes that production of large gas-fired water heaters
tends to be clustered around models with a rated storage volume of
66 gallons or 75 gallons. DOE assumed that the strategies discussed
here are likewise relevant to water heaters with a rated capacity
from 56 gallons to 66 gallons.
---------------------------------------------------------------------------
For gas-fired storage water heaters, DOE considered the approach of
switching to a small-volume unit with high input capacity (larger
burner). DOE understands that designs for units below 56-gallon rated
volume that have very high rated input (e.g., 75 kBtu/h) are not
common. There are some 50-gallon models with an input of 65 kBtu/h;
these designs usually incorporate a 5-inch internal flue tube (instead
of 4-inch), and the tank is usually taller to accommodate the same
water storage volume. These units are likely to require venting
modifications (upgrade to 4-inch vent). In addition, for many
installations the input rate for the existing 66-gallon or larger unit
is already 55 kBtu/h or higher, and a 50-gallon unit with a high-
capacity burner may not satisfy the household hot water requirements.
DOE accounted for the above constraints to estimate the fraction of
installations that would switch to a small-volume with high input
capacity. DOE also evaluated a similar strategy for electric storage
water heaters that involves switching to a small-volume unit with high
input heating elements.
To consider the alternative of installing two small-volume units,
for each sample household with a large-volume water heater that,
according to DOE's estimation, would not adopt either of the above two
strategies, DOE first considered space constraints that would limit
this approach, depending on the water heater location. For those
households judged not to have such constraints, DOE compared the total
installed cost of either a heat pump water heater or a gas-fired
condensing water heater with the alternative of installing two small-
volume units. For the cost of this alternative, DOE used information
from a consultant report. Because installing two small-volume units is
more complicated and takes longer, DOE assumed that households would
choose to install two small-volume units only if the total installed
cost was at least 10 percent less than the cost for a heat pump water
heater or a gas-fired condensing water heater.
The results of DOE's analysis indicate that switching away from a
large-volume water heater would occur in 37 percent of large-volume
electric storage water heater installations and in 22 percent of large-
volume gas-fired storage water heater installations. The details of
DOE's approach and the estimated degree of switching using each of the
alternatives described above are provided in chapter 9 of the TSD.
ii. Direct Heating Equipment and Pool Heaters
For DHE and pool heaters, in the December 2009 NOPR analysis, DOE
did not find any data it could use to estimate the extent of switching
away from the products subject to this rulemaking if energy
conservation standards were to result in a significant increase in
installed costs. Raypak stated that as pool heaters become more
expensive, more may be repaired instead of being replaced, so the
fraction of non-replacements should be higher. (Raypak, Public Meeting
Transcript, No. 57.4 at p. 249) It also stated that the proposed
standard for pool heaters would induce product switching to solar or
heat pump pool heaters. (Raypak, No. 67 at p. 3) In response, DOE
believes that the standard adopted for pool heaters in this final rule
(82-percent thermal efficiency) does not increase the installed cost
enough to induce most consumers to not replace the product or to switch
to a different product.
3. Base-Case and Standards-Case Efficiency Distributions
A key input to DOE's estimates of NES and NPV is the energy
efficiencies that DOE forecasts over time for the base case (without
new standards) and each of the standards cases. The forecasted
efficiencies represent the annual shipment-weighted energy efficiency
of the products under consideration over the forecast period.
For the December 2009 NOPR analysis, DOE used the shipment-weighted
average energy efficiencies for 2013 (for DHE and pool heaters) or 2015
(for water heaters) as a starting point to forecast the base-case
energy efficiency distribution for each product class. To represent the
distribution of product energy efficiencies in those years, DOE used
the same market shares as in the base case for the LCC analysis. For
gas-fired storage water heaters and electric storage water heaters, DOE
estimated the distribution of product energy efficiencies in 2015 by
accounting for the estimated market impact of the recently-established
ENERGY STAR efficiency levels for water heaters (see section IV.F.10).
The projected trend to 2015 represents an average annual increase in
energy efficiency of 0.27 percent for gas-fired storage water heaters
and 0.55 percent for electric storage water heaters. DOE applied the
above values to estimate the increase in average energy efficiency
until the end of the forecast period.
DOE found no quantifiable indications of change in energy
efficiencies over time for oil-fired and gas-fired instantaneous water
heaters, direct heating equipment, or pool heaters, and it did not
receive any comments on this topic. Therefore, for these products, DOE
estimated that energy efficiencies remain constant at the 2015 or 2013
level until the end of the forecast period.
For its determination of standards-case forecasted efficiencies,
DOE used a ``roll-up'' scenario in the preliminary analysis and the
December 2009 NOPR to establish the SWEF for the year that compliance
with the standards would be required and subsequent years. In this
approach, product energy efficiencies in the base case that do not meet
the standards level under consideration would roll up to meet the new
standard level. The market share of energy efficiencies that exceed the
standard level under consideration would be the same in the standards
case as in the base case. Changes over the forecast period match those
in the base case. DOE did not receive any comments on its forecasts of
energy efficiency distributions, so for today's final rule, DOE
maintained the approach described above.
4. National Energy Savings
DOE calculates NES for each year as the difference between energy
consumption of the product stock using the average unit energy
consumption (UEC) of the stock in the base case (without new standards)
or in a case given new standards. In addition to annual shipments, key
inputs for determining NES are annual UEC and the site-to-source
conversion factor.
a. Annual Unit Energy Consumption
For each year in the forecast period, DOE used the shipments-
weighted energy efficiencies for the base case and standards cases,
along with the data on annual energy use by efficiency level, to
estimate the shipments-weighted average annual per-unit energy
consumption for each product class under the base case and standards
cases. When calculating energy consumption at each considered
efficiency level above the baseline, DOE applied a rebound effect of 10
percent for water heaters, 15 percent for DHE, and 10 percent for pool
heaters. A rebound effect refers to increased energy
[[Page 20166]]
consumption resulting from actions that increase energy efficiency and
reduce consumer costs. (For example, if energy efficiency improvements
were to reduce the energy consumption of a room air conditioner
(thereby decreasing its electricity costs), a consumer may choose to
run the unit more often, thereby increasing comfort but returning a
portion of the savings arising from DOE's standards.) When the rebound
effect is incorporated, calculated energy savings are lower than if no
rebound effect were considered.
DOE's calculation of UEC accounts for the product switching that
DOE anticipates will occur under specific TSLs. That is, DOE accounted
for the energy use of the products to which some fraction of households
are assumed to switch. For example, in the case of switching from a
large-volume water heater to two small-volume units, DOE calculated and
incorporated the energy use of the two small-volume units.
b. Site-to-Source Energy Conversion
To estimate the national energy savings expected from appliance
standards, DOE uses a multiplicative factor to convert site energy
consumption (at the home or commercial building) into primary or source
energy consumption (the energy required to deliver the site energy).
These conversion factors account for the energy used at power plants to
generate electricity and losses in transmission and distribution, as
well as for natural gas losses from pipeline leakage and energy used
for pumping. For electricity, the conversion factors vary over time due
to projected changes in generation sources (i.e., the power plant types
projected to provide electricity to the country). The factors that DOE
developed are marginal values, which represent the response of the
system to an incremental decrease in consumption associated with
appliance standards.
In the December 2009 NOPR analysis, DOE used annual site-to-source
conversion factors based on the version of NEMS that corresponds to
AEO2009. For today's final rule, DOE updated its conversion factors
based on AEO2010 Early Release. The AEO does not provide energy
forecasts beyond 2035; DOE used conversion factors that remain constant
at the 2035 values throughout the remainder of the forecast period.
In response to a request from the DOE's Office of Energy Efficiency
and Renewable Energy (EERE), the National Research Council (NRC)
appointed a committee on ``Point-of-Use and Full-Fuel-Cycle Measurement
Approaches to Energy Efficiency Standards'' to conduct a study called
for in section 1802 of EPACT 2005. The fundamental task before the
committee was to evaluate the methodology used for setting energy
efficiency standards and to comment on whether site (point-of-use) or
source (full-fuel-cycle) measures of energy efficiency better support
rulemaking to achieve energy conservation goals. The NRC committee
defined ``site (point-of-use) energy consumption'' as reflecting the
use of electricity, natural gas, propane, and/or fuel oil by an
appliance at the site where the appliance is operated. ``Full-fuel-
cycle energy consumption'' was defined as including, in addition to
site energy use, the following: Energy consumed in the extraction,
processing, and transport of primary fuels such as coal, oil, and
natural gas; energy losses in thermal combustion in power generation
plants; and energy losses in transmission and distribution to homes and
commercial buildings.\17\
---------------------------------------------------------------------------
\17\ See The National Academies, Board on Energy and
Environmental Systems, Letter to Dr. John Mizroch, Acting Assistant
Secretary, U.S. DOE, Office of EERE, from James W. Dally, Chair,
Committee on Point-of-Use and Full-Fuel-Cycle Measurement Approaches
to Energy Efficiency Standards (May 15, 2009).
---------------------------------------------------------------------------
In evaluating the merits of using point-of-use and full-fuel-cycle
measures, the NRC committee noted that DOE uses what the committee
referred to as ``extended site'' energy consumption to assess the
impact of energy use on the economy, energy security, and environmental
quality. The extended site measure of energy consumption includes the
generation, transmission, and distribution but, unlike the full-fuel-
cycle measure, does not include the energy consumed in extracting,
processing, and transporting primary fuels. A majority of members on
the NRC committee concluded that extended site energy consumption
understates the total energy consumed to make an appliance operational
at the site. As a result, the NRC committee's primary general
recommendation is for DOE to consider moving over time to use of a
full-fuel-cycle measure of energy consumption for assessment of
national and environmental impacts, especially levels of greenhouse gas
emissions, and to providing more comprehensive information to the
public through labels and other means, such as an enhanced Web site.
For those appliances that use multiple fuels (e.g., water heaters), the
NRC committee believes that measuring full-fuel-cycle energy
consumption would provide a more complete picture of energy used,
thereby allowing comparison across many different appliances as well as
an improved assessment of impacts. The NRC committee also acknowledged
the complexities inherent in developing a full-fuel-cycle measure of
energy use and stated that a majority of the committee recommended a
gradual transition to that expanded measure and eventual replacement of
the currently used extended site measure.
DOE acknowledges that its site-to-source conversion factors do not
capture all of the energy consumed in extracting, processing, and
transporting primary fuels. DOE also agrees with the NRC committee's
conclusion that developing site-to-source conversion factors that
capture the energy associated with the extraction, processing, and
transportation of primary fuels is inherently complex and difficult.
However, DOE has performed some preliminary evaluation of a full-fuel-
cycle measure of energy use.
Based on two studies completed by the National Renewable Energy
Laboratory (NREL) in 1999 and 2000, DOE estimated the ratio of the
energy used upstream to the energy content of the coal or natural gas
delivered to power plants. For coal, the NREL analysis considered
typical mining practices and mine-to-plant transportation distances,
and used data for the State of Illinois. Based on data in this report,
the estimated multiplicative factor for coal is 1.08 (i.e., it takes
approximately 1.08 units of coal energy equivalent to provide 1 unit of
coal to a power plant). A similar analysis of the energy consumed in
upstream processes needed to produce and deliver natural gas to a power
plant yielded a multiplicative factor of 1.19.\18\
---------------------------------------------------------------------------
\18\ For further information on the NREL studies, please see:
Spath, Pamela L., Margaret K. Mann, and Dawn Kerr, ``Life Cycle
Assessment of Coal-fired Power Production, '' NREL/TP-570-25119
(June 1999); and Spath, Pamela L. and Margaret K. Mann, ``Life Cycle
Assessment of a Natural Gas Combined-Cycle Power Generation
System,'' NREL/TP-570-27715 (Sept. 2000).
---------------------------------------------------------------------------
While the above factors are indicative of the magnitude of the
impacts of using full-fuel-cycle measures of energy use, there are two
aspects of the problem that warrant further study. The first is the
refinement of the estimates of the multiplicative factors, particularly
to incorporate regional variation. The second is development of
forecasts of the multiplicative factors over the timeframes used in the
rulemaking analyses, typically ten to fifty years. The second issue, of
forecasting how the efficiency factors for various fuels may change
over time, has the potential to be quite significant. The existing NEMS
forecast of power plant electricity
[[Page 20167]]
generation by fuel type can be used to estimate the impact of a
changing mix of fuels. However, NEMS currently provides no information
on potential changes to the relative ease with which the different
fuels can be extracted and processed.
AGA stated that the December 2009 NOPR's energy consumption
estimates for specific design options do not reflect a full-fuel-cycle
analysis of the energy consumed. Referring to the NRC committee's
report, AGA recommended that DOE use ``extended site energy'' analysis
in the near term.\19\ (AGA, No. 78 at pp. 2-3) In response, DOE refers
to the preceding discussion of why it has not yet adopted a full-fuel-
cycle measure of energy use. DOE's calculation of national energy
savings does in fact use the extended site measure of energy
consumption, which includes generation, transmission, and distribution
but, unlike the full-fuel-cycle measure, does not include the energy
consumed in extracting, processing, and transporting primary fuels. The
calculation of energy consumption that DOE uses in the LCC analysis
does not use an extended site energy measure, because the purpose of
the calculation is to estimate the operating costs that consumers will
face with alternative appliance efficiency levels. The site energy
calculated in the LCC analysis is converted to extended site energy
(i.e., source or primary energy) in the NIA. DOE intends to further
evaluate the viability of using full-fuel-cycle measures of energy
consumption for assessment of national and environmental impacts of
appliance standards.
---------------------------------------------------------------------------
\19\ AGA cited the ``Report'' issued by the National Academy of
Sciences, but it is evident that AGA was referring to the report by
the NRC committee cited in footnote 12.
---------------------------------------------------------------------------
5. Consumer Net Present Value
The consumer NPV is the net value in the present of the costs and
savings experienced by consumers of the considered products. DOE
calculates the NPV using the value of increased total installed costs,
the value of operating cost savings (including energy, repair, and
maintenance costs) in each year in which such savings occur, and a
discount rate.
a. Increased Total Installed Costs and Operating Cost Savings
The increase in total annual installed cost is equal to the annual
change in the per-unit total installed cost (difference between base
case and standards cases) multiplied by the shipments forecasted for
the standards case. Similarly, the total annual savings in operating
costs are equal to the change in annual operating costs (difference
between base case and standards case) per unit multiplied by the
shipments forecasted for the standards case.
DOE's calculation of total annual installed cost and total annual
savings in operating costs accounts for the fuel and product switching
that was estimated to occur under specific TSLs (see section IV.G.2.d).
The accounting of the energy use of the products to which a fraction of
households are assumed to switch was described above in section
IV.G.4.a. DOE also accounted for the installed cost of those products.
For example, in the case of switching from a large-volume water heater
to two small-volume units, DOE calculated and incorporated the
installed cost of the two units.
b. Discount Rates
DOE multiplies monetary values in future years by the discount
factor to determine the present value. For the December 2009 NOPR
analysis and today's final rule, DOE estimated the NPV of appliance
consumer benefits using both a 3-percent and a 7-percent real discount
rate. DOE uses these discount rates in accordance with guidance
provided by the Office of Management and Budget (OMB) to Federal
agencies on the development of regulatory analysis (OMB Circular A-4
(Sept. 17, 2003), section E, ``Identifying and Measuring Benefits and
Costs''). DOE did not receive any comments on the discount rates used
to calculate the NPV of appliance consumer benefits, and consequently,
DOE has retained those discount rates in this final rule.
H. Consumer Subgroup Analysis
In analyzing the potential impact of new or amended energy
conservation standards on individual and commercial consumers, DOE
evaluates the impact on identifiable subgroups of consumers that may be
disproportionately affected by a national standard level. For the
December 2009 NOPR and today's final rule, DOE used 2005 RECS data to
analyze the potential effect of energy conservation standards on the
considered consumer subgroups for selected heating products. For gas-
fired and electric storage water heaters, and gas wall fan and gas wall
gravity DHE, DOE estimated consumer subgroup impacts for low-income
households and senior-only households. In addition, for gas-fired and
electric storage water heaters, DOE estimated consumer subgroup impacts
for households in multi-family housing and households in manufactured
homes as well.
DOE did not evaluate consumer subgroup impacts for gas-fired
instantaneous water heaters and oil-fired storage water heaters. Gas-
fired instantaneous water heaters were excluded from the consumer
subgroup analysis due to insufficient data, and oil-fired storage water
heaters were excluded due to low product shipments. For direct heating
equipment, gas floor DHE and gas room DHE were excluded due to the low
and decreasing levels of product shipments. For gas hearth DHE, DOE
examined the senior-only subgroup, but did not evaluate the low-income
subgroup because the saturation of this product is very small among
low-income households due to the high product cost. DOE did not
evaluate consumer subgroup impacts for pool heaters because the sample
size of the subgroups is too small for meaningful analysis.
DOE did not receive any comments on its approach for the consumer
subgroup analysis, and for today's final rule, DOE has made no change
to its method for estimating consumer subgroup impacts. Details on the
consumer subgroup analysis and results can be found in chapter 11 of
the TSD.
I. Manufacturer Impact Analysis
DOE conducted the MIA to estimate the financial impact of amended
energy conservation standards on water heater, DHE, and pool heater
manufacturers and to calculate the impact of such standards on gross
domestic manufacturing employment and capacity. The MIA has both
quantitative and qualitative aspects. The quantitative part of the MIA
primarily relies on the GRIM--an industry-cash-flow model customized
for the three products covered by this rulemaking. The GRIM inputs are
data characterizing the industry cost structure, investments,
shipments, and markups. The key MIA output is the INPV. Different sets
of assumptions (scenarios) produce different results. DOE presents the
industry impacts by the major product types. DOE estimated the industry
impacts for gas-fired and electric storage water heaters together
because these product groupings represent a market that is served by
the same manufacturers and these products are typically produced in the
same factories. Similarly, DOE presents the other MIA results
separately for oil-fired storage water heaters, gas-fired instantaneous
water heaters, the traditional DHE product categories, gas hearth DHE,
and gas-fired pool heaters.
The qualitative part of the MIA addresses factors such as product
characteristics, market and product
[[Page 20168]]
trends, as well as an assessment of the impacts of standards on
subgroups of manufacturers. DOE outlined its methodology for the MIA in
the December 2009 NOPR. 74 FR 65852, 65915-22 (December 11, 2009). The
complete MIA for the December 2009 NOPR is presented in chapter 12 of
the NOPR TSD.
In overview, for the final rule, DOE updated the MIA to reflect
changes in the outputs of two other key DOE analyses that feed into the
GRIM. Product costs are key inputs to the GRIM. For today's final rule,
DOE incorporated the changes made to the engineering analysis,
including updates to the MPCs (see section IV.C). In the MIA, DOE
updated its shipment forecasts and efficiency distributions. In turn,
DOE updated the GRIM to incorporate these revised costs and shipments.
For consistency in nominal dollars, for the final rule, DOE
inflated the NOPR capital and product conversion costs to 2009$ from
2008$ using producer price index (PPI) information for the relevant
industries. See http://data.bls.gov:8080/PDQ/outside.jsp?survey=pc. The
PPI industry information is related to the North American Industry
Classification System (NAICS) code. For gas-fired storage, oil-fired
storage, and gas-fired instantaneous water heaters, DOE updated the
conversion costs using PPI information under series id
PCU3352283352283--``Household water heaters, except electric.'' DOE
updated the conversion costs for electric storage water heaters using
series id PCU3352283352281--``Household water heaters, electric, for
permanent installation.'' DOE updated the DHE conversion costs using
series id PCU3334143334147--``Floor and wall furnaces, unit heaters,
infrared heaters, and mechanical stokers.'' Finally, DOE updated the
conversion costs for pool heaters using series id PCU3334143334149--
``Other heating equipment, except electric.'' For the final rule, DOE
also updated its traditional DHE product line analysis used to
calculate industry-wide conversion costs to account for new products
that have come on to the market and to account for changes to the
traditional DHE efficiency levels and TSLs, as reflected in the most
current information in the AHRI certification database (see http://www.ahridirectory.org/ahridirectory/pages/home.aspx.).
DOE used the GRIM to revise the MIA results from the December 2009
NOPR to reflect the updated MPCs, shipments, and conversion costs. For
direct employment calculations, DOE revised the GRIM to include the
latest U.S. Census information available from the 2007 Economic
Census.\20\
---------------------------------------------------------------------------
\20\ Annual Economic Census: 2007, American FactFinder, Bureau
of the Census (Available at: http://www.census.gov/econ/census07/)
(Last accessed Feb. 2010).
---------------------------------------------------------------------------
The following sections discuss interested parties' comments on the
December 2009 NOPR MIA methodology. In general, DOE provides background
on an issue that was raised by interested parties, summarizes the
interested parties' comment, and discusses DOE's response to the
comments.
1. Water Heater Conversion Costs
For the MIA, DOE classified one-time conversion costs into two
major categories: (1) Product conversion costs and (2) capital
conversion costs. Product conversion costs are one-time investments in
research, development, testing, marketing, and other costs focused on
making product designs comply with the amended energy conservation
standard. Capital conversion costs are one-time investments in
property, plant, and equipment to adapt or change existing production
facilities so that new product designs can be fabricated and assembled.
In response to the December 2009 NOPR, AHRI stated that TSL 4 would
require more than 75 percent of gas 40-gallon water heater models and
more than 90 percent of electric 50-gallon water heater models from the
AHRI Directory to be either redesigned or dropped from production. AHRI
added that the severity of this change is even greater than this
example suggests because shipments are more skewed towards current
Federal minimum efficiency standards than the proportion of models
suggests. (AHRI, No. 91 at pp. 1-2)
DOE acknowledges that a significant effort may be necessary for
manufacturers to reach the efficiencies required by TSL 4. In the
December 2009 NOPR, DOE noted that over 80 percent of the gas-fired
water heaters currently sold do not meet the efficiency requirements at
TSL 2 through TSL 4 and that only a small portion of the electric
storage water heaters currently on the market meet the required
efficiencies at TSL 4. This current product distribution drives the
estimate of capital conversion costs at TSL 4 and, consequently,
contributes to the overall results. These conversion costs reflect the
need for manufacturers to add foaming stations and additional
production lines to maintain current production levels with water
heaters that require much thicker insulation. 74 FR 65852, 65936-37
(Dec. 11, 2009).
BWC commented that the significant increase in insulation thickness
necessary to achieve the proposed level for water heaters would require
additional assembly time to manufacture the same production quantity.
In order to achieve the same manufacturing capacity, BWC stated that it
would require a combination of more labor, a reconfiguration of
production lines, more foaming equipment on production lines, and/or
additional production lines. BWC stated that any of these options
result in expensive capital conversion costs, which BWC does not
believe were fully taken into consideration. (BWC, No. 61 at pp. 1-2)
DOE's initial estimates for the capital conversion costs for water
heaters at each TSL can be found in the December 2009 NOPR. 74 FR
65852, 65936-41 (Dec. 11, 2009). During interviews with manufacturers
prior to the publication of the December 2009 NOPR, DOE solicited
confidential information about the required capital conversion costs at
each efficiency level. In the December 2009 NOPR, DOE stated that it
based its capital conversion costs for gas-fired and electric storage
water heaters on information learned during these interviews. 74 FR
65852, 65917-18 (Dec. 11, 2009). DOE verified its industry-wide
estimates for the gas-fired and electric storage water heaters by
comparing the NOPR estimates to a separate bottoms-up estimate of the
sub-assembly lines, assembly lines, and tooling changes required by
each manufacturer and the level of investments that would be required
to maintain a historic value for net plant, property, and equipment as
a ratio of total revenue. For oil-fired storage and gas-fired
instantaneous water heaters, DOE estimated its capital conversion costs
using a bottoms-up approach to estimate the cost of additional
production equipment and changes to existing production lines that the
industry would require at each TSL. DOE used feedback from manufacturer
interviews about the tooling requirements at each efficiency level and
product catalogs to estimate the total capital conversion costs for
both oil-fired storage and gas-fired instantaneous water heaters at
each TSL. Id. Pages 12-35 to 12-39 of the December 2009 NOPR TSD also
contained DOE's estimated capital conversion costs as well as
additional information about the assumptions
[[Page 20169]]
behind the required changes at each efficiency level.
For the gas-fired and electric storage water heater capital
conversion costs at TSL 4 and TSL 5 in the December 2009 NOPR, DOE
noted and agrees with BWC's comment that the increased insulation
thickness would require manufacturers to lengthen existing assembly
lines or add additional assembly lines because the much thicker
insulation requirements lower the throughput of existing assembly
lines. However, DOE continues to believe it has adequately addressed
BWC's concerns about the capital conversion cost estimates for two
reasons. First, DOE's capital conversion cost estimates are drawn from
industry-wide aggregated data gathered during manufacturer interviews.
Second, DOE's assumptions regarding the required plant changes at the
proposed TSL in the December 2009 NOPR are consistent with the plant
changes noted in BWC's comment. Finally, BWC did not provide any
additional data supporting its comment that DOE's capital conversion
cost estimates did not fully capture the potential costs.
For today's final rule, DOE continues to use the same methodology
to calculate the water heater conversion costs. Additional details of
DOE's estimates can be found in chapter 12 of the TSD.
DOE also received several comments from manufacturers regarding
issues that would arise under a potential amended standard for electric
storage water heaters that would effectively require heat pump water
heaters (i.e., TSL 5 through TSL 8). Broadly, the comments addressed
three issues: (1) Potential changes to current facilities; (2) the cost
to manufacture heat pump water heaters; and (3) the unique challenges
presented by the December 2009 NOPR TSL 5.
At the public meeting, A.O. Smith stated that it is in the final
stages of implementing production for heat pump water heaters on a
small scale relative to what would be required if the entire market
moved to heat pump water heaters. (A.O. Smith, Public Meeting
Transcript, No. 57.4 at pp. 91-92) In written comments, A.O. Smith
extrapolated the cost of setting up this limited production line to
estimate the cost of shifting the entirety of its electric storage
market share to heat pump water heaters. A.O. Smith stated that a new
facility capable of producing two million heat pump water heaters
annually would cost $90 million to build--before accounting for
investment in land and other fees--and would take 2-3 years to
complete. A.O. Smith stated that it would likely build a new facility
because line speed and assembly operations would not allow for the
product to be integrated into current production lines at high shipment
volumes. A.O. Smith also stated that it would probably be cheaper to
set up a new line than to rework the production lines in existing
facilities. (A.O. Smith, Public Meeting Transcript, No. 57.4 at p. 92)
AHRI stated that an amended standard effectively requiring heat
pump water heaters would force all manufacturers to continue to provide
electric storage water heaters utilizing resistance technologies until
the compliance date of the amended standard due to competitive
pressures. A competitor that did not have to continue manufacturing
resistance water heaters until the compliance date (because,
presumably, it did not serve this market in the base case) could have
an advantage. (AHRI, Public Meeting Transcript, No. 57.4 at pp. 100-
103) BWC added that a standard that required heat pump water heaters
would disrupt its manufacturing facility since existing manufacturing
lines are optimized for specific products. Heat pump water heaters
would require production lines to be redesigned to handle all new
components and their assembly. Finally, a combination of additional
production lines and/or a new manufacturing facility would be required
to manufacture heat pump water heaters without interrupting current
production. (BWC, No. 61 at pp. 2-3)
DOE agrees that modifying existing production facilities to
exclusively heat pump water heaters could be very disruptive to ongoing
operations there. During on-site manufacturing impact interviews, most
manufacturers were still developing their heat pump water heaters. At
that time, manufacturers responded to questions about how they would
approach the manufacture of heat pump water heaters by describing the
necessary changes to existing facilities. For example, manufacturers
anticipated that they would purchase the heat pump modules from outside
vendors if heat pump water heaters were required for all electric
storage water heaters for three reasons: (1) They lacked experience
manufacturing high-volume sealed refrigeration systems; (2) they had
limited refrigeration engineering expertise; and (3) they lacked space
in their facilities to produce heat pump module subassemblies. DOE
incorporated these comments into its NOPR capital cost conversion
analysis in the following manner: (1) Manufacturers would initially
source the heat pump modules; (2) electric storage water heater
assembly and subassembly lines would have to be modified to accommodate
the assembly of heat pump water heaters; (3) assembly lines would need
to be lengthened to merge new tank assemblies with the heat pump
modules; and (4) heat pump water heater integration would require
manufacturers to install advanced testing equipment to verify
performance, operation, etc. In sum, DOE estimated in the NOPR that
manufacturers would incur almost $70 million in capital conversion
costs to modify their production facilities to exclusively manufacture
heat pump electric storage water heaters. DOE estimated these
investments take place between 2010, the announcement date of the
standard, and 2015, the year manufacturers must comply with the
standard. However, the capital conversion cost estimates did not
include the cost of building manufacturing capacity to produce the heat
pump modules in house because DOE believed manufacturers would likely
purchase these as subassemblies. 74 FR 65852, 65921, 65938 (Dec. 11,
2009).
Manufacturers can choose among multiple design paths and production
options for heat pump water heaters, so capital, manufacturing, and
product development expenses will vary accordingly. DOE agrees with
A.O. Smith that one possible reaction by manufacturers at the NOPR TSL
6 or TSL 7 (equivalently, TSL 7 and TSL 8 in the final rule) could be
to build a new facility to exclusively manufacture heat pump water
heaters. In the December 2009 NOPR, DOE stated that manufacturers could
consider moving all or part of their existing production capacity
abroad if NOPR TSL 6 were selected, as the benefit to the manufacturer
of a new facility abroad could be greater than modifying an existing
facility. In the NOPR, DOE noted that building a new facility could
entail less business disruption risk than attempting to completely
redesign and upgrade existing facilities. Combined with lower labor
rates overseas, this prospect could compel manufacturers to move their
production facilities outside of the U.S. 74 FR 65852, 65938, 65952
(Dec. 11, 2009).
While acknowledging there are multiple strategic paths to
manufacturer heat pump water heaters, DOE believes it has used a
consistent approach to characterize the costs facing the industry. DOE
also believes its approach captures manufacturers' concerns about the
technology changes required at the
[[Page 20170]]
NOPR TSL 6 and TSL 7. While DOE did not include the conversion costs to
manufacture the heat pump module or to build new facilities, DOE did
include the substantial costs to modify all existing production lines.
Furthermore, DOE believes that existing facilities could be modified to
produce heat pump water heaters at the final rule TSL 7 and TSL 8,
although at a substantial capital conversion cost. Supporting this
notion, DOE notes that most existing heat pump water heater designs
from major manufacturers incorporate parts of standard electric
resistance water heaters. For example, the tank portion of existing
heat pump water heater designs are very similar to electric resistance
water heater designs, thereby limiting most changes to the assembly
line area of a plant. The designs of heat pump water heaters at TSL 7
or TSL 8 would likely be similar to recently-released heat pump water
heaters and would maintain these similarities with electric resistance
water heaters.
Current manufacturing operations are highly optimized to
manufacture water heaters that utilize resistive elements and
relatively few additional components (e.g., thermostats), whereas heat
pump water heater modules require additional assembly steps even if
they are purchased as completed sub-assemblies. While a new
manufacturing facility would make the integration of heat pump modules
simpler, the $90 million estimate for such a facility projected by A.O.
Smith indicates that this approach could also be more costly.
Alternatively, manufacturers could choose to build an annex for
assembling heat pump water heater modules and then deliver them to the
final assembly area in a manner similar to completed tank assemblies.
When queried in manufacturer impact interviews, no manufacturer of
electric water heater with traditional resistive elements had yet
decided on a specific path towards high-volume heat pump water heater
production. However, DOE believes that the capital conversion costs
that assume manufacturers modify existing facilities to accommodate
integrating a sourced heat pump module would be the most likely
scenario on account of lower capital expenditures than a ``green
field'' facility, established supplier bases, trained work force, etc.
Hence, DOE believes that this scenario captures the significant impacts
on electric storage water heater manufacturers.
Finally, both the preservation of return on invested capital
scenario and the preservation of operating profit scenario incorporate
the financial burdens to substantially modify facilities to manufacture
heat pump water heaters and the significant expenses that would be
required to carry inventory that is many times more expensive than in
the base case (because the MPCs of heat pump water heaters are multiple
times the MPCs of resistance water heaters). In addition, the
preservation of operating profit scenario models the impacts on
manufacturers that would occur after the compliance date of the
standard if they cannot fully markup the substantial cost of a sourced
heat pump module. Therefore, the costs and market disruption to
manufacture heat pump water heaters are modeled in the MIA scenarios.
In response to DOE's request for comment at the public meeting on
the required conversion costs for all considered NOPR TSLs, Rheem did
not comment specifically because it deemed conversion costs
confidential and proprietary. However, Rheem wished to advise DOE that
this information was submitted confidentially to DOE's contractor
during MIA interviews. (Rheem, No. 89 at p. 9) During the public
meeting, Rheem did state that converting all of its electric water
heater models to heat pump water heaters (as the December 2009 NOPR TSL
6 or TSL 7 would require) would be a very significant undertaking
requiring capital and new manufacturing capabilities. As evidence to
that point, Rheem noted that it has to date released only one heat pump
water heater model. (Rheem, Public Meeting Transcript No. 57.4 at p.
93-94)
DOE agrees that migrating electric storage production entirely to
heat pump water heater production would require a significant
investment in time and resources. DOE asked each participant during
manufacturer interviews to quantify the costs to manufacture
exclusively heat pump water heaters. DOE's own analysis of these
conversion costs proved consistent with the estimates submitted by the
industry at large. Therefore, DOE believes that its capital conversion
costs for the industry are reasonable and that it has adequately
modeled the impacts of the significant plant changes that would be
required to exclusively manufacture heat pump water heaters in the
electric storage water heaters product class. The significant product
and capital conversion costs associated with the technology and the
required production changes contribute to large, negative impacts on
INPV at the December 2009 NOPR TSL 6 and TSL 7.
As discussed earlier, the December 2009 NOPR TSL 5 would
effectively require heat pump water heaters for tanks with rated
storage volumes greater than 55 gallons. BWC commented that this
proposed level would likely result in a smaller percentage of the
market above the 55-gallon breakpoint, which would make it more
difficult to finance the high conversion costs for moving large tank
production to heat pump water heaters. BWC also stated it would have to
cut down on its product offerings due to the high development and
capital conversion costs. (BWC, No. 61 at p. 2) A.O. Smith stated it
has two dedicated factories that build commercial condensing products,
and the commenter stated, after studying the production volumes at the
December 2009 NOPR TSL 5, that it would likely have to add production
lines. Water heater manufacturers would have to invest a significant
amount to learn how to manufacture a device with a refrigerant circuit
for a small number of units per year. (A.O. Smith, Public Meeting
Transcript, 122-123, 126) In its written comments, Rheem added that the
December 2009 NOPR TSL 5 introduces added burden and risk because it
requires manufacturers to continue to produce conventional storage
products in large quantities while incrementally preparing for
production of maximum technology products which could involve
additional production lines and new facilities. (Rheem, No. 89 at p.
10) AHRI stated that separate minimum efficiency levels for larger size
water heaters would require separate production lines for these models.
Given the significant differences in the process of manufacturing
either heat pump water heaters or condensing gas-fired water heaters,
these models could not be interspersed into the high-speed production
lines currently operating in water heater manufacturing plants. (AHRI,
No. 91 at p. 6) Finally, BWC, A.O. Smith, and Rheem all commented that
the lower volume of water heaters above 55-gallons made the business
case for the investments in the advanced technology harder to justify.
(BWC, No. 61 at p. 2; A.O. Smith, Public Meeting Transcript, No. 57.4
at pp. 98-99; Rheem, Public Meeting Transcript No. 57.4 at pp. 99-100)
DOE agrees with BWC, A.O. Smith, Rheem, and AHRI that the December
2009 NOPR TSL 5 (i.e., TSL 6 for this final rule) would likely require
additional production lines for manufacturers to produce heat pump
water heaters and condensing products for high-volume products. While
DOE believes that existing facilities could be modified to manufacture
exclusively heat pump water heaters, DOE does not believe individual
manufacturers could
[[Page 20171]]
integrate heat pump water heaters or condensing gas-fired water heaters
above 55-gallons into existing production lines. Rather, DOE calculated
the cost for each manufacturer to build a separate production line as
an annex to an existing facility to maintain their current market share
of the gas-fired and electric storage water heater markets above 55-
gallons. DOE also assumed that the capital conversion costs for rated
storage volumes less than 55-gallons at the NOPR TSL 5 would not
decline if the efficiency requirements were higher for rated storage
volumes greater than 55-gallons (see pages 12-36 to 12-37 of the
December 2009 NOPR TSD). 74 FR 65852, 65918 (Dec. 11, 2009). In
addition, DOE calculated the product conversion costs for large rated
storage volumes at the December 2009 NOPR TSL 5 by multiplying its
estimate for the industry to offer heat pump products at TSL 6 and
condensing gas-fired products at TSL 7 for all rated storage volumes by
the percentage of total electric storage and gas-fired storage water
heater models that exceed a 55-gallon rated volume. 74 FR 65852, 65917
(Dec. 11, 2009). DOE did not modify its approach to calculate the
conversion costs at TSL 5 and TSL 6 for the final rule because its
approach is consistent with manufacturers' comments. Finally, DOE notes
that there are a disproportionately large number of models above 55-
gallons relative to the shipment volumes of those products. Thus, the
economic impacts to convert those products to a new technology are
proportionately more burdensome for those manufacturers. Therefore, DOE
agrees that the business case is harder to justify for the larger
storage volumes and that this is captured by the MIA, but notes that
the impacts are still less severe than requiring manufacturers to
exclusively offer either advanced technology.
DOE also received a number of comments about the impacts of the
oil-fired storage water heater conversion costs on manufacturers. BWC
stated that the business case to make the investments at the December
2009 NOPR TSL 4 is difficult because the industry is small and
declining and could lead them to exit the oil-fired market. (BWC, No.
61 at p. 2; Public Meeting Transcript, No. 57.4 at p. 289) AHRI stated
that the cost to redesign, develop, and retool production for oil-fired
models is high at the proposed December 2009 NOPR TSL 4 compared to the
very small market, which offers limited opportunity for a return. AHRI
added that this TSL is not currently met by all current 50-gallon
residential oil-fired water heaters and all 30-gallon and 32-gallon
models except those offered by one manufacturer. Consequently, some
manufacturers could drop out of the oil water heater market. (AHRI, No.
91 at p. 2)
DOE agrees that there are no existing 50-gallon oil-fired water
heaters on the market that meet the efficiencies required at the
December 2009 NOPR TSL 4. However, DOE notes that there are three
existing 30-gallon products from two manufacturers that meet these
efficiencies using conventional technology. Therefore, DOE continues to
believe that models that do not meet the required efficiencies could be
made to do so by manufacturers using insulation changes. While not
insignificant, the conversion costs to make insulation changes to
existing products would not be as substantial as a higher efficiency
requirement, which could require manufacturers to use significantly
different technology. DOE noted in the December 2009 NOPR that if any
manufacturer had to meet the standard using a more complex technology,
these costs could force them to exit the oil-fired storage water heater
market. 74 FR 65852, 65940 (Dec. 11, 2009). Whether a given
manufacturer chooses to exit the market will depend on a variety of
internal and external factors, but based upon the available
information, DOE believes it has appropriately captured the magnitude
of investments that the various TSLs require.
2. Manufacturer Markups and Markup Scenarios
The MPCs from the engineering analysis are key inputs to the GRIMs
used in this rule. For water heaters, the MSP is comprised of
production costs (the direct manufacturing costs or MPCs), non-
production costs (indirect costs like selling, general, and
administrative expenses (SG&A)), and profit. For gas-fired, electric,
and oil-fired storage water heaters in the MIA, MSP is calculated by
multiplying the MPC by the manufacturer markup and adding the shipping
cost. For all other products, MSP is calculated by multiplying the MPC
by the appropriate manufacturer markup. DOE used several standards-case
markup scenarios to bound the range of uncertainty about the potential
impacts on prices and profitability following the implementation of
amended energy conservation standards.
In both its written submission and comments at the public meeting,
BWC stated that profit margins for water heater manufacturers are
falling due to the decline of new construction and the industry having
excess capacity. BWC argued that because the profitability estimates in
DOE's analysis are incorrect, it would be difficult to sustain the
costs associated with the December 2009 NOPR TSL 4. Detailed profit
data were supplied by BWC in previous communication with DOE's
contractor. (BWC, No. 61 at p. 2; Public Meeting Transcript, No. 57.4
at p. 40)
As background, DOE used publicly-available information to calculate
its initial markup estimates. Because not all manufacturers in the
industry are public and because those that are public often compete in
different businesses, DOE calibrated its initial estimates based on
information received during manufacturer interviews. During the NOPR
phase, DOE refined the manufacturer markup based on feedback from
manufacturers to better reflect the residential heating products
market. 74 FR 65852, 65892 (Dec. 11, 2009). Given this process, DOE
believes the manufacturer markups used in the engineering analysis and
manufacturer impact analysis are representative of the industry as a
whole. In addition, DOE used estimated market shares to weigh feedback
it received on the financial parameters (including the industry capital
structure) to determine an aggregate number representative of the
entire industry. While individual manufacturers have different gross
margins depending on a variety of factors, DOE's use of weighted
average financial parameters yields cash flow from operations that are
consistent with the overall industry. For example, in the base case,
earnings before interest and taxes (EBIT) for gas-fired and electric
storage water heating manufacturing is approximately 5 percent.
Finally, with respect to BWC's concern that margins have compressed due
to the housing downturn, DOE acknowledges that the current economic
environment, particularly in new construction, has adversely impacted
the industry. DOE notes that the two markup scenarios it models are
used to bound the potential impacts on manufacturers due to amended
energy conservation standards, in light of the inherent uncertainty in
how pricing will adjust in the marketplace. The preservation of
operating profit scenario models a case in which margins and
profitability decline in response to amended energy conservation
standards. DOE believes that the impacts captured by the preservation
of operating profit scenario would be a better indicator of the likely
impacts on manufacturers than specifically attempting to model a short-
term effect that also impacts margins in
[[Page 20172]]
the base case. A short-term effect that would be impacted in the base
case and standards case would not model long-term financial impacts
caused by standards and would not consider the impacts on INPV over the
entire analysis period. Consequently, DOE has decided to continue to
use the markup scenarios modeled in the December 2009 NOPR.
DOE also received comments from traditional DHE manufacturers about
the markup scenarios in the MIA. As opposed to the preservation of
return on invested capital scenario, LTS stated that it expects
profitability to decrease, possibly to zero or below in the event of
standards. LTS argued this outcome is likely because manufacturers will
either have to abandon some product categories or face lower consumer
demand following standards because features the consumer wants would no
longer be available, such as the ability to retrofit replacement
products and operate without line power. (LTS, No. 56.7 at p. 2; Public
Meeting Transcript, No. 57.4 at p. 21) LTS further argued that the
preservation of operating profit scenario is too optimistic in the
event product offerings are reduced. (LTS, No. 56.7 at p. 2) Finally,
LTS stated that the large negative impacts on industry net present
values suggest that manufacturers would be substantially harmed if
profitability were impacted. (LTS, Public Meeting Transcript, No. 57.4
at pp. 21-22)
In response, DOE created two markup scenarios to bound the
potential impacts on DHE manufacturers, as discussed in TSD chapter 12.
DOE believes the less optimistic scenario--in which manufacturers do
not earn any additional profit from any of the changes required by
standards despite increased investment--captures LTS's concerns. DOE
agrees with LTS that profitability could decrease if consumer demand
was lower or product lines were dropped. At the same time, if
manufacturers dropped selected product lines, they would not incur the
capital investments included in DOE's estimates because DOE assumes
manufacturers convert all product lines. While DOE acknowledges that
manufacturers could choose to eliminate certain product lines, DOE
believes that its markup scenarios would still reflect the negative
impact on industry value. DOE also agrees that lower consumer demand
would impact profitability. All of the concerns raised by manufacturers
indicate that the range of impacts would be towards the higher end
calculated by DOE. While DOE's results changed slightly from the NOPR
to account for the latest available data on the industry's product
lines, as discussed in chapter 12 of the TSD, DOE believes that the
analytical tools correctly capture the impacts on traditional DHE
manufacturers. DOE is not adopting the same TSL for traditional DHE as
was proposed in the NOPR, in part because of these impacts. DOE further
discusses how it weighs the benefits and burden of the amended energy
conservation standards, including the impact on traditional DHE
manufacturers, in section VI.D.3.
3. Pool Heater Conversion Costs
Raypak agreed with DOE's statement that TSL 5 and TSL 6 would
require manufacturers to incur significant product and capital
conversion costs. Raypak commented that this statement is also true for
TSL 3 and TSL 4. While most manufacturers have some products at these
efficiency levels, Raypak argued that manufacturing all products at the
levels proposed in the December 2009 NOPR would require substantial
tooling and product conversion costs. (Raypak, No. 67 at p. 2; Public
Meeting Transcript, No. 57.4 at p. 308) In addition, Zodiac stated that
even small efficiency improvements often require significant efforts
and burden manufacturers. (Zodiac, No. 68 at p. 1)
DOE agrees that the conversion costs at TSL 3 and TSL 4 are also
significant. However, DOE notes that the plant changes at TSL 5 and TSL
6 increase substantially over those necessary at TSL 4, because
manufacturers would have to make changes to both component parts
(including heating exchanger fabrication) and their main assembly
lines. DOE calculated the conversion costs for manufacturers to convert
all existing products that did not meet the standard. Therefore, the
conversion costs for each manufacturer would vary depending on their
experience with high-efficiency products and the range of their current
product offerings. DOE believes it has adequately captured the impacts
of the conversion costs in the MIA.
4. Employment
Bock stated that the employment impacts discussion in the December
2009 NOPR for oil-fired water heaters did not take into consideration
manufacturers shutting down or moving production outside of the United
States. (Bock, No. 101 at p. 2)
In the December 2009 NOPR, DOE calculated the potential impacts of
amended energy conservation standards on direct employment by bounding
the range of potential impacts. 74 FR 65852, 65947-49 (Dec. 11, 2009).
For the upper end of the range, the direct employment analysis
estimated the number of U.S. production workers who are impacted by
this rulemaking, assuming that manufacturers continue to produce the
same scope of covered products after the compliance date and that the
existing domestic production is not shifted to other countries. In this
best case scenario, the direct employment impact analysis shows
approximately no change in the number of U.S. production workers in the
residential oil-fired storage water heater market. To calculate the
lower bound of the range of potential impacts, DOE calculated the total
number of domestic production workers that would lose their jobs if all
production were no longer made domestically. Id. In this scenario,
manufacturers respond to the higher labor requirements by shifting
production to lower-labor-cost countries or exit the oil-fired market.
Since a major US manufacturer has oil-fired storage water heaters that
exceed the standard proposed in the December 2009 NOPR, a complete exit
from the market or a complete shift to lower-labor-cost countries by
industry is unlikely. In the December 2009 NOPR, DOE did not expect
substantial changes to U.S. production workers in the residential oil-
fired market if manufacturers were able to implement the insulation
design options presented in the engineering analysis. 74 FR 65852,
65949 (Dec. 11, 2009).
A.O. Smith stated that the December 2009 NOPR TSL 6 or TSL 7 would
require manufacturers to keep their electric resistance water heater
lines running while implementing new heat pump water heater production
lines. This assumption implies manufacturers would be building new
factories or production lines, which could be outside of the United
States. (A.O. Smith, Public Meeting Transcript, No. 57.4 at pp. 316-
317) A.O. Smith also noted that it would expect to utilize low-cost-
labor countries to produce the heat pump portion of the assembly,
similar to the trend in the room air conditioning industry. (A.O.
Smith, No. 76 at p. 4) BWC added that a disruptive heat pump water
heater standard could cause a new manufacturing facility to be located
abroad to not disrupt manufacturing in their existing U.S. facility.
(BWC, No. 61 at pp. 2-3)
As stated in section IV.I.1, DOE believes that an electric storage
water heater standard that effectively mandated heat pump water heaters
would not require manufacturers to build new production facilities,
because those products would mimic current heat pump water heater
designs that simplify manufacturing by maintaining
[[Page 20173]]
similarities with electric resistance water heaters. However, DOE does
recognize that heat pump water heaters have higher labor content than
water heaters that only use a resistance element, which could put
additional pressure on U.S. manufacturing employment. DOE also believes
that these pressures exist at a standard level that would only
effectively require heat pump water heaters for products with rated
storage volumes greater than 55-gallons. In particular, DOE believes
TSL 5 or TSL 6 could cause a change in direct employment if
manufacturers with multiple facilities in the U.S. build a dedicated
heat pump water heater line at a factory abroad or relocate domestic
production for large rated storage volumes.
Also in response to the December 2009 NOPR, ACEEE stated that
focusing on manufacturing jobs within the heating products industry is
too narrow, because energy savings creates more jobs, including direct
employment impacts as noted by DOE's statement that significant
technology changes (such as heat pump water heaters) could increase
other manufacturing employment. Finally, ACEEE expressed its belief
that compared to the total number of jobs in the US economy and given
the uncertainties of projections five years into the future, the small
employment numbers estimated are not significant and should not be a
determining factor in DOE's decision. (ACEEE, No. 79 at pp. 3-4)
DOE agrees with ACEEE that the energy savings from more-efficient
standards would likely result in increased net employment. DOE analyzes
how consumer savings increase employment in other sectors of the
economy in the indirect employment analysis (see section IV.J).
Furthermore, DOE agrees that more-efficient technologies such as heat
pump water heaters could increase direct employment in the United
States. DOE noted that even at the December 2009 NOPR TSL 5, if
manufacturers build a dedicated heat pump water heater line in the
United States, additional labor would be required. DOE also noted that
even sourcing heat pump modules could increase U.S. employment because
existing assembly lines would need to be lengthened and the
manufacturing process would take additional time to assemble and test.
74 FR 65852, 65948-49 (Dec. 11, 2009). However, DOE continues to
believe that the higher labor content for assembling heat pump water
heaters could also put additional pressure on manufacturers to relocate
existing manufacturing facilities in lower-labor-cost countries.
Therefore, in light of the multiple strategic options manufacturers
could pursue, DOE believes that presentation and consideration of the
range of direct employment impacts is appropriate, in that it
represents these possibilities. Lastly, while not the only determining
factor, a potential reduction in industry employment is a consideration
in terms of the impacts on manufacturers for the MIA.
DOE received a number of comments about the direct employment
impacts for traditional DHE at the standard levels proposed in the
December 2009 NOPR. Specifically, LTS expressed its agreement with
DOE's statement that TSL 3 would likely lead to the discontinuation of
product lines and could cause small businesses to exit the market
completely. LTS believes that both of these outcomes could be possible
and that either would have a significant impact on future employment in
their industry. (LTS, No. 56.7 at p. 2; Public Meeting Transcript, No.
57.4 at p. 22) LTS also stated that reduced demand, if product features
like retrofitability were eliminated, would also harm employment. (LTS,
Public Meeting Transcript, No. 57.4 at p. 317) Empire stated that jobs
would be lost due to poor prospects for a sufficient return on
investment needed in the traditional DHE categories. (Empire, No. 100
at p. 1; Public Meeting Transcript, No. 57.4 at p. 299) Finally,
Williams added that increased efficiency standards would force them to
eliminate jobs as a result of current products not meeting the new
standards. (Williams, No. 96 at p. 1)
In response, DOE notes that it calculated the potential impacts of
amended energy conservation standards on domestic production employment
for traditional DHE by bounding the range of potential impacts. The
upper end of the range assumes that domestic production is not shifted
to lower-labor-cost countries and that production volume does not
decrease. In this best-case scenario, where shipments do not decrease
and higher-efficiency products require more labor, the direct
employment impact analysis shows a net increase in the number of
domestic jobs for traditional direct heating equipment. To calculate
the upper end of the range of direct employment impacts, DOE believes
it is reasonable to assume that production volume could be sustained by
selectively upgrading certain product lines and increasing shipments of
products that meet the amended energy conservation standard. Under this
set of assumptions, customers would likely continue to demand these
products for the replacement market, and manufacturers would likely
selectively upgrade their most popular products to maintain as many
sales as possible with their limited resources.
However, at some standard levels, including the December 2009 NOPR
TSL 3, the capital conversion and product development costs could be
prohibitive for the small domestic manufacturers of traditional DHE.
Because DOE agrees that the December 2009 NOPR TSL 3 could lead to the
risk of manufacturers exiting the market or reducing the scope of their
product lines, the lower end of the range illustrates the industry
dynamic in which not all product lines continue to be produced in the
U.S. In this scenario, small domestic manufacturers could exit the
market rather than invest in new designs, which would result in a loss
of domestic employment at these firms. In summary, DOE agrees that all
the possibilities raised by manufacturers could result in a loss of
direct employment in the traditional DHE market. DOE acknowledged this
possibility in the December 2009 NOPR. 74 FR 65852, 65949-50 (Dec. 11,
2009). However, DOE believes it has appropriately bounded the range of
employment impacts. DOE continues to believe that amended energy
conservation standards could impact DHE direct employment, but believes
it has taken the potential into consideration in examining the economic
impact on manufacturers in the industry. DOE also notes that it has
reviewed its analysis on the potential impacts on small business
manufacturers in light of the changes made since the December 2009 NOPR
publication and believes it has taken the necessary steps to limit the
possibility of manufacturers exiting the market.
AHRI stated that the negative direct employment impacts for
traditional direct heating equipment could be larger than the indirect
employment gains. (AHRI, Public Meeting Transcript, No. 57.4 at pp.
324-325)
In response, DOE notes that direct and indirect employment impacts
are assessed in different analyses for this rulemaking. The MIA
assesses the direct employment impacts on manufacturers that make the
covered products. The indirect employment impacts are jobs that are
created from the consumer savings on energy as a result of the amended
energy conservation standards. In light of the results of these
analyses, DOE agrees with AHRI that the positive, indirect employment
impacts due to the traditional DHE energy conservation standards could
be offset by possible direct industry employment
[[Page 20174]]
losses. Specifically, DOE calculated that the indirect net employment
benefits would be fewer than 250 jobs gained in any year, whereas DOE
calculated that there are approximately 300 production workers
currently in the traditional DHE market. See chapter 14 of the TSD for
a more complete discussion of the indirect employment impacts related
to the traditional DHE industry.
BWC stated that while it does not meet the SBA definition of a
small business, BWC is a small company, especially compared to its
closest competitors. BWC stated that the December 2009 NOPR TSL 4, and
the large cost increases and capital investments it would entail, could
threaten the company's survival, because it would place a
disproportionate burden on their small company. (BWC, No. 61 at p. 1)
While BWC is not a small business, DOE recognizes that the impacts
on all manufacturers are not uniform. However, DOE believes that as a
full-line competitor in the residential water heater market, BWC's
concerns about the capital investments are most appropriately captured
in the industry-wide impacts which are considered when determining what
TSL is economically justifiable. DOE also notes that DOJ was primarily
concerned about the potential impacts on competition in the traditional
DHE market which is discussed in section VI.C.5.
5. Access to Capital
BWC stated that financing the costs associated with the December
2009 NOPR TSL 4 for water heaters would be difficult, because banks are
more hesitant to lend in the current economic environment. (BWC, No. 61
at p. 2)
In response, DOE acknowledges that it may be difficult for a given
manufacturer to access the capital necessary to finance the investments
required by this final rule, particularly given the recent state of
capital markets. In response to a similar comment in the December 2009
NOPR, DOE noted that the compliance date for the residential water
heater standard is 2015. In the GRIM, DOE assumes the product
conversion and capital conversion costs are allocated in between the
announcement of the final rule adopting amended energy conservation
standards (estimated to be March 2010) and the compliance date of the
standard, with more of conversion costs occurring closer to the
compliance date than the announcement date. Because most of the product
conversion and capital conversion costs are allocated several years in
the future, the economic conditions at that time will likely be
different than they are currently. 74 FR 65852, 65919 (Dec. 11, 2009).
With that said, DOE's current analytical tools do not have the
capability to model the state of financial markets in future years, nor
how those changes will impact the industry's financing capabilities.
DOE acknowledges that the impacts on individual manufacturers are not
uniform, particularly in terms of access to capital. However, during
the course of manufacturer interviews, DOE received feedback from
manufacturers on their capital structure, and DOE adjusted the discount
rate for each of the water heater product types to be reflective of the
manufacturers in the industry. While it could be difficult to obtain
the necessary funding for TSL 4 and higher TSLs, DOE believes it has
accurately captured the requisite level of expenditures to meet the
amended energy conservation standards.
LTS stated it does not have the required capital estimated by DOE
to make the necessary conversions at TSL 3 and, with the current credit
markets, LTS does not think it can borrow it. (LTS, No. 56.7 at pp. 2-
3; Public Meeting Transcript, No. 57.4 at p. 23)
Again, DOE acknowledges that it may be difficult for a given
manufacturer to access the capital necessary to finance the investments
required by this final rule, particularly given the recent state of
capital markets. This is particularly true for small business
manufacturers who cannot rely on a parent company's other operations to
help finance the necessary investments. At the same time, DOE believes
it would be inappropriate to extrapolate the health of the financial
markets at any one particular time to future periods of time. As
discussed above, there is a real possibility that small manufacturers
may choose not to improve all product lines, whether due to limited
access to capital or insufficient expected return on capital. To that
point, DOE believes it has captured the level of expenditures necessary
to meet the amended energy conservation standards and included the cost
for manufacturers to convert all existing product lines to model the
impacts these changes would have on the industry. These considerations
are included in the assessment of the economic justification of the
standard. Finally, DOE notes that the impact of amended energy
conservation standards specifically considered the potential impacts on
small business manufacturers.
J. Employment Impact Analysis
DOE considers employment impacts in the domestic economy as one
factor in selecting an energy conservation standard. Employment impacts
include direct and indirect impacts. Direct employment impacts are
changes in the number of employees for manufacturers of equipment
subject to standards, their suppliers, and related service firms. The
MIA addresses these impacts.
Indirect employment impacts from standards consist of the net jobs
created or eliminated in the national economy, other than in the
manufacturing sector being regulated, due to: (1) Reduced spending by
end users on energy (electricity, gas (including liquefied petroleum
gas), and oil); (2) reduced spending on new energy supply by the
utility industry; (3) increased spending on the purchase price of new
equipment; and (4) the effects of those three factors throughout the
economy. DOE expects the net monetary savings from standards to be
redirected to other forms of economic activity. DOE also expects these
shifts in spending and economic activity to affect the demand for labor
in the short term, as explained below.
One method for assessing the possible effects on the demand for
labor of such shifts in economic activity is to compare employment
statistics in different economic sectors, which are compiled and
published by the Bureau of Labor Statistics (BLS). The BLS regularly
publishes its estimates of the number of jobs per million dollars of
economic activity in different sectors of the economy, as well as the
jobs created elsewhere in the economy by this same economic activity.
Data from BLS indicate that expenditures in the utility sector
generally create fewer jobs (both directly and indirectly) than
expenditures in other sectors of the economy. There are many reasons
for these differences, including wage differences and the fact that the
utility sector is more capital-intensive and less labor-intensive than
other sectors.\21\ Energy conservation standards have the effect of
reducing consumer utility bills. Because reduced consumer expenditures
for energy likely lead to increased expenditures in other sectors of
the economy, the general effect of efficiency standards is to shift
economic activity from a less labor-intensive sector (i.e., the utility
sector) to more labor-intensive sectors (e.g., the retail and
manufacturing sectors). Thus, based on the BLS data alone, DOE believes
net national employment will increase due
[[Page 20175]]
to shifts in economic activity resulting from standards.
---------------------------------------------------------------------------
\21\ See U.S. Department of Commerce, Bureau of Economic
Analysis, ``Regional Multipliers: A User Handbook for the Regional
Input-Output Modeling System (RIMS II)'' (1992).
---------------------------------------------------------------------------
In developing the December 2009 NOPR, DOE estimated indirect
national employment impacts using an input/output model of the U.S.
economy called Impact of Sector Energy Technologies (ImSET).\22\ ImSET
is a special-purpose version of the ``U.S. Benchmark National Input-
Output'' (I-O) model designed to estimate the national employment and
income effects of energy-saving technologies. The ImSET software
includes a computer-based I-O model with structural coefficients to
characterize economic flows among 188 sectors most relevant to
industrial, commercial, and residential building energy use.
---------------------------------------------------------------------------
\22\ More information regarding ImSET is available online at:
http://www.pnl.gov/main/publications/external/technical_reports/PNNL-15273.pdf.
---------------------------------------------------------------------------
DOE did not receive any comments on its employment impacts
analysis, and DOE has made no change to its method for estimating
employment impacts for today's final rule. For further details, see
chapter 14 of the final rule TSD.
K. Utility Impact Analysis
The utility impact analysis estimates the change in the forecasted
power generation capacity for the Nation that would be expected to
result from adoption of new energy conservation standards. For the
December 2009 NOPR and today's final rule, DOE calculated this change
using the NEMS-BT computer model. NEMS-BT models certain policy
scenarios such as the effect of reduced energy consumption by fuel
type. The output of the analysis provides a forecast for the needed
generation capacities at each TSL. While DOE was able to use the
forecasts from the AEO 2010 Early Release for the national impacts
analysis, the NEMS-BT model corresponding to this case was not yet
available. Thus, for the utility impact analysis, the estimated net
benefit of the standards in today's final rule is the difference
between the forecasted generation capacities by NEMS-BT and the AEO
2009 April Release Reference Case. DOE expects that the results would
be only minimally different if it had been able to use the NEMS-BT
model corresponding to the AEO 2010 Early Release. DOE obtained the
energy savings inputs associated with efficiency improvements to
considered products from the NIA. These inputs reflect the effects of
both fuel (natural gas) and electricity consumption savings. Chapter 13
of the final rule TSD presents more information on the utility impact
analysis.
1. Effects of Standards on Energy Prices and Associated Benefits
To evaluate potentially important indirect effects of energy
conservation standards on energy users in general, in its December 2009
NOPR analysis, DOE analyzed the potential impact on natural gas prices
resulting from amended standards on water heaters and the associated
benefits for all natural gas users in all sectors of the economy. 74 FR
65852, 65914-15 (Dec. 11, 2009). (DOE did not include natural gas
savings from amended standards on DHE and pool heaters in its analysis
because they are not large enough to have a noticeable impact.) DOE
used NEMS-BT to model the impact of the natural gas savings associated
with possible standards on natural gas prices. Like other widely-used
energy-economic models, NEMS incorporates parameters to estimate the
changes in energy prices that would result from an increase or decrease
in energy demand. The response of price observed in the NEMS output
changes over the forecast period based on the model's dynamics of
natural gas supply and demand. For each year, DOE calculated the
nominal savings in total natural gas expenditures by multiplying the
estimated annual change in the average end-user natural gas price by
the annual total U.S. natural gas consumption, adjusted for the
estimated natural gas savings associated with each TSL. DOE then
calculated the NPV of the savings in natural gas expenditures for 2015
to 2045 using 3- and 7-percent discount rates for each scenario.
However, because there is uncertainty about the extent to which the
calculated impacts from reduced natural gas prices are a benefits
transfer, DOE tentatively concluded that it should not give a heavy
weight to this factor in its consideration of the economic
justification of standards on heating products.
NRDC stated that DOE should give full weight to the aggregate
benefit of reduced natural gas prices that result from the standards.
NRDC stated that this consumer benefit needs to be quantified and
included in the national impact analysis. NRDC disagreed with DOE that
this factor not be given heavy weight because lower natural gas prices
may be a benefits transfer from producers to consumers, and stated that
there is no logical or statutory basis for failing to give the
reduction in natural gas prices from efficiency standards their full
weight (NRDC, No. 85 at p. 4) In response, DOE notes that the benefits
to all consumers associated with reductions in energy prices resulting
from standards is not listed among the seven factors that EPCA directs
DOE to evaluate in determining whether an energy conservation standard
for covered products is economically justified. (42 U.S.C.
6295(o)(2)(B)(i)(I)-(VII)) Indeed, EPCA specifically directs DOE to
consider the economic impact of the standard on manufacturers and
consumers of the products subject to the standard. While it is true
that EPCA directs DOE to consider other factors the Secretary of Energy
considers relevant, in so doing, DOE takes under advisement the
guidance provided by OMB on the development of regulatory analysis.
Specifically, at page 38, Circular A-4 states, ``You should not include
transfers in the estimates of the benefits and costs of a regulation.''
As discussed in the December 2009 NOPR, when gas prices drop in
response to lower demand and a lower output of existing natural gas
production capacity, consumers benefit but producers suffer. In
economic terms, the situation represents a benefits transfer to
consumers (whose expenditures fall) from producers (whose revenue falls
equally). When prices decrease because extraction costs decline,
however, consumers and producers both benefit, and the change in
natural gas prices represents a net gain to society. Consumers benefit
from the lower prices, and producers, whose revenues and costs both
fall, are no worse off. DOE is continuing to investigate the extent to
which a change in natural gas prices projected to result from standards
represents a net gain to society. At this time, however, DOE retains
the position that it should not give a heavy weight to this factor in
its consideration of the economic justification of standards on heating
products.
In its December 2009 NOPR analysis, DOE also considered the
possibility of estimating the impact of specific standard levels on
electricity prices. Investigation conducted for the rulemaking for
general service fluorescent lamps and incandescent reflector lamps \23\
found that whereas natural gas markets exhibit a fairly simple chain of
agents from producers to consumers, the electric power industry is a
complex mix of fuel suppliers, producers, and distributors. While the
distribution of electricity is regulated everywhere, its institutional
structure varies, and upstream actors are
[[Page 20176]]
more diverse. For these and other reasons, DOE decided not to estimate
the value of potentially reduced electricity costs for all consumers
associated with amended standards for heating products.
---------------------------------------------------------------------------
\23\ See U.S. Department of Energy, Office of Energy Efficiency
and Renewable Energy, ``Energy Conservation Standards for General
Service Fluorescent Lamps and Incandescent Reflector Lamps; Proposed
Rule,'' 74 FR 16920, 16978-79 (April 13, 2009).
---------------------------------------------------------------------------
NPCC stated that DOE should estimate the economic benefits of the
reduced need for new electric power plants and infrastructure and
include such estimation in the utility impacts analysis. It stated that
since a primary goal of the Federal appliance standards program is to
avoid construction and operation of unnecessary generating facilities
and their associated environmental impacts, failure to quantify the
economic value of doing so appears to be a fundamental oversight.
(NPPC, No. 87 at p. 6) In a similar vein, NRDC criticized DOE for not
analyzing the benefits associated with reduced electricity prices
resulting from standards. NDRC stated that the use of NEMS-BT should be
explored as a way to quantify the benefit of avoided generation and the
corresponding rate impact, and that DOE should give full weight to the
aggregate benefit of reduced electricity prices that result from the
standards. (NRDC, No. 85 at p. 4-5)
In response to the above comments, DOE used NEMS-BT to assess the
impacts of the reduced need for new electric power plants and
infrastructure projected to result from standards. In NEMS-BT, changes
in power generation infrastructure affect utility revenue requirements,
which in turn affect electricity prices. As described in chapter 13 of
the TSD, DOE found that the impact on electricity prices from a change
in electricity demand is smaller than the impact seen for natural gas
prices. Although the aggregate benefits for all electricity users are
potentially large, DOE believes that there is uncertainty about the
extent to which the calculated impacts from reduced electricity prices
are a benefits transfer from the actors involved in electricity supply.
Because of the aforementioned complexity and diversity of the electric
power sector in the U.S., DOE has concluded that, at present, it should
not give a heavy weight to this factor in its consideration of the
economic justification of standards on heating products. DOE is
continuing to investigate the extent to which change in electricity
prices projected to result from standards represents a net gain to
society.
L. Environmental Assessment
Pursuant to the National Environmental Policy Act of 1969 (NEPA)
(42 U.S.C. 4321 et seq.) 42 U.S.C. 6295(o)(2)(B)(i)(VI), DOE prepared a
draft environmental assessment (EA) of the potential impacts of the
standards for heating products in today's final rule, which it has
included as chapter 16 of the TSD. DOE found that the environmental
effects associated with the standards for heating products were not
significant. Therefore, DOE is issuing a Finding of No Significant
Impact (FONSI), pursuant to NEPA, the regulations of the Council on
Environmental Quality (40 CFR parts 1500-1508), and DOE's regulations
for compliance with NEPA (10 CFR part 1021). The FONSI is available in
the docket for this rulemaking.
In the EA, DOE estimated the reduction in power sector emissions of
CO2, NOX, and Hg using the NEMS-BT computer
model. In the EA, NEMS-BT is run similarly to the AEO NEMS, except that
energy use of the heating products is reduced by the amount of energy
saved (by fuel type) due to the TSLs. The inputs of national energy
savings come from the NIA analysis; the output is the forecasted
physical emissions. The estimated net benefit of the standards in
today's final rule is the difference between the forecasted emissions
by NEMS-BT at each TSL and the AEO 2009 April Early Release Reference
Case. NEMS-BT tracks CO2 emissions using a detailed module
that provides results with broad coverage of all sectors and inclusion
of interactive effects. Because the on-site operation of non-electric
heating products requires use of fossil fuels and results in emissions
of CO2, NOX, and sulfur dioxide (SO2),
DOE also accounted for the reduction in these emissions due to
standards at the sites where these appliances are used.
DOE has determined that SO2 emissions from affected
Electric Generating Units (EGUs) are subject to nationwide and regional
emissions cap and trading programs that create uncertainty about the
impact of energy conservation standards on SO2 emissions.
Because of the cap, energy reductions due to energy conservation
standards result in no reduction in SO2 emissions, although
the costs of meeting such emission cap requirements are reflected in
the electricity prices and forecasts used in DOE's analysis of the
standards. Title IV of the Clean Air Act sets an annual emissions cap
on SO2 for all affected EGUs. SO2 emissions from
28 eastern States and the District of Columbia (D.C.) are also limited
under the Clean Air Interstate Rule (CAIR, published in the Federal
Register on May 12, 2005; 70 FR 25162 (May 12, 2005), which creates an
allowance-based trading program that will gradually replace the Title
IV program in those States and DC. (The recent legal history
surrounding CAIR is discussed below.) The attainment of the emissions
caps is flexible among EGUs and is enforced through the use of
emissions allowances and tradable permits. Under existing EPA
regulations, any excess SO2 emission allowances resulting
from the lower electricity demand caused by the imposition of an
efficiency standard could be used to permit offsetting increases in
SO2 emissions by any regulated EGU. However, if the standard
resulted in a permanent increase in the quantity of unused emission
allowances, there would be an overall reduction in SO2
emissions from the standards. While there remains some uncertainty
about the ultimate effects of efficiency standards on SO2
emissions covered by the existing cap-and-trade system, the NEMS-BT
modeling system that DOE uses to forecast emissions reductions
currently indicates that no physical reductions in power sector
emissions would occur for SO2.
Much like SO2 emissions, NOX emissions from
28 eastern States and D.C. are limited under the CAIR. Although CAIR
has been remanded to EPA by the U.S. Court of Appeals for the District
of Columbia Circuit (D.C. Circuit), it will remain in effect until it
is replaced by a rule consistent with the Court's July 11, 2008,
opinion in North Carolina v. EPA, 531 F.3d 896 (D.C. Cir. 2008); see
also North Carolina v. EPA, 550 F.3d 1176 (D.C. Cir. 2008). These court
positions were taken into account in the analysis conducted for the
December 2009 NOPR and in today's final rule. Because all States
covered by CAIR opted to reduce NOX emissions through
participation in cap-and-trade programs for electric generating units,
emissions from these sources are capped across the CAIR region.
In the 28 eastern States and D.C. where CAIR is in effect, DOE's
forecasts indicate that no NOX emissions reductions will
occur due to energy conservation standards because of the permanent
cap. Energy conservation standards have the potential to produce an
economic impact in the form of lower prices for NOX
emissions allowances, if their impact on electricity demand is large
enough. However, DOE has concluded that the standards in today's final
rule will not have such an effect because the estimated reduction in
electricity demand in States covered by the CAIR cap would be too small
to affect allowance prices for NOX under the CAIR.
New or amended energy conservation standards would reduce
NOX emissions
[[Page 20177]]
in those 22 States that are not affected by the CAIR. DOE used the
NEMS-BT to forecast emission reductions from the standards in today's
final rule.
Similar to emissions of SO2 and NOX, future
emissions of Hg would have been subject to emissions caps. The Clean
Air Mercury Rule (CAMR) would have permanently capped emissions of
mercury from new and existing coal-fired plants in all States beginning
in 2010 (70 FR 28606). However, the CAMR was vacated by the D.C.
Circuit in its decision in New Jersey v. Environmental Protection
Agency, 517 F 3d 574 (D.C. Cir. 2008). Thus, DOE was able to use the
NEMS-BT model, which reflects CAMR being vacated and does not
incorporate CAMR emission caps, to estimate the changes in Hg emissions
resulting from today's final rule. However, DOE continues to review the
impact of rules that reduce energy consumption on Hg emissions, and may
revise its assessment of Hg emission reductions in future rulemakings.
The operation of non-electric heating products requires use of
fossil fuels and results in emissions of CO2, NOX
and SO2 at the sites where these appliances are used. NEMS-
BT provides no means for estimating such emissions. DOE calculated the
effect of the standards in today's final rule on the above site
emissions based on emissions factors derived from the literature. See
Chapter 16 of the final rule TSD for additional details.
EEI stated that if DOE examines changes in power plant emissions,
then it should also examine changes in the emissions associated with
oil extraction (domestic and overseas), crude oil transportation (sea-
based and land-based), natural gas flaring, oil refining, refined oil
delivery, natural gas production, natural gas delivery, natural gas
delivery system methane leaks, propane production and delivery, and
emissions associated with the extraction and importation of liquefied
natural gas. (EEI, No. 95 at p. 5)
As noted in chapter 16 of the TSD, DOE developed only qualitative
estimates of effects on upstream fuel-cycle emissions because NEMS-BT
does a thorough accounting only of emissions at the power plant due to
downstream energy consumption. In other words, NEMS-BT does not account
for upstream emissions. Therefore, the environmental assessment for
today's final rule reports only power plant emissions.
EEI stated that DOE should consider the production process in the
EA, especially if higher efficiency standards result in more water
heaters being manufactured in other countries. (EEI, No. 95 at p. 5) In
response, DOE believes that the standards in today's final rule are
unlikely to result in significant change in the location of water
heater manufacturing. The dimensions and weight of water heaters, and
the resulting shipping expense, mitigate against overseas production of
the entire unit.
M. Monetizing Carbon Dioxide and Other Emissions Impacts
As part of the development of this final rule, DOE considered the
estimated monetary benefits likely to result from the reduced emissions
of CO2 and other pollutants that are expected to result from
each of the TSLs considered. This section summarizes the basis for the
estimated monetary values used for each of these emissions and presents
the benefits estimates considered.
For today's final rule, DOE is relying on a new set of values for
the social cost of carbon (SCC) that were recently developed by an
interagency process. A summary of the basis for these new values is
provided below, and a more detailed description of the methodologies
used is provided as an Annex to Chapter 16 of the TSD.
1. Social Cost of Carbon
Under Executive Order 12866, agencies are required, to the extent
permitted by law, ``to assess both the costs and the benefits of the
intended regulation and, recognizing that some costs and benefits are
difficult to quantify, propose or adopt a regulation only upon a
reasoned determination that the benefits of the intended regulation
justify its costs.'' The purpose of the SCC estimates presented here is
to allow agencies to incorporate the social benefits of reducing
CO2 emissions into cost-benefit analyses of regulatory
actions that have small, or ``marginal,'' impacts on cumulative global
emissions. The estimates are presented with an acknowledgement of the
many uncertainties involved and with a clear understanding that they
should be updated over time to reflect increasing knowledge of the
science and economics of climate impacts.
The SCC is an estimate of the monetized damages associated with an
incremental increase in carbon emissions in a given year. It is
intended to include (but is not limited to) changes in net agricultural
productivity, human health, property damages from increased flood risk,
and the value of ecosystem services due to climate change.
As part of the interagency process that developed these SCC
estimates, technical experts from numerous agencies met on a regular
basis to consider public comments, explore the technical literature in
relevant fields, and discuss key model inputs and assumptions. The main
objective of this process was to develop a range of SCC values using a
defensible set of input assumptions grounded in the existing scientific
and economic literatures. In this way, key uncertainties and model
differences transparently and consistently inform the range of SCC
estimates used in the rulemaking process.
The interagency group selected four SCC values for use in
regulatory analyses. Three values are based on the average SCC from
three integrated assessment models, at discount rates of 2.5, 3, and 5
percent. The fourth value, which represents the 95th percentile SCC
estimate across all three models at a 3-percent discount rate, is
included to represent higher-than-expected impacts from temperature
change further out in the tails of the SCC distribution.
Table IV.28--Social Cost of CO2, 2010-2050 (in 2007 dollars)
----------------------------------------------------------------------------------------------------------------
Discount year 5% Avg 3% Avg 2.5% Avg 3% 95th
----------------------------------------------------------------------------------------------------------------
2010................................ 4.7 21.4 35.1 64.9
2015................................ 5.7 23.8 38.4 72.8
2020................................ 6.8 26.3 41.7 80.7
2025................................ 8.2 29.6 45.9 90.4
2030................................ 9.7 32.8 50.0 100.0
2035................................ 11.2 36.0 54.2 109.7
2040................................ 12.7 39.2 58.4 119.3
2045................................ 14.2 42.1 61.7 127.8
2050................................ 15.7 44.9 65.0 136.2
----------------------------------------------------------------------------------------------------------------
[[Page 20178]]
a. Monetizing Carbon Dioxide Emissions
The ``social cost of carbon'' (SCC) is an estimate of the monetized
damages associated with an incremental increase in carbon emissions in
a given year. It is intended to include (but is not limited to) changes
in net agricultural productivity, human health, property damages from
increased flood risk, and the value of ecosystem services. Estimates of
the social cost of carbon are provided in dollars per metric ton of
carbon dioxide. \24\
---------------------------------------------------------------------------
\24\ In this document, DOE presents all values of the SCC as the
cost per metric ton of CO2 emissions. Alternatively, one
could report the SCC as the cost per metric ton of carbon emissions.
The multiplier for translating between mass of CO2 and
the mass of carbon is 3.67 (the molecular weight of CO2
divided by the molecular weight of carbon = 44/12 = 3.67).
---------------------------------------------------------------------------
When attempting to assess the incremental economic impacts of
carbon dioxide emissions, the analyst faces a number of serious
challenges. A recent report from the National Academies of Science
(Hidden Costs of Energy: Unpriced Consequences of Energy Production and
Use. National Academies Press. 2009) points out that any assessment
will suffer from uncertainty, speculation, and lack of information
about: (1) Future emissions of greenhouse gases, (2) the effects of
past and future emissions on the climate system, (3) the impact of
changes in climate on the physical and biological environment, and (4)
the translation of these environmental impacts into economic damages.
As a result, any effort to quantify and monetize the harms associated
with climate change will raise serious questions of science, economics,
and ethics and should be viewed as provisional.
Despite the serious limits of both quantification and monetization,
SCC estimates can be useful in estimating the social benefits of
reducing carbon dioxide emissions. Under Executive Order 12866,
agencies are required, to the extent permitted by law, ``to assess both
the costs and the benefits of the intended regulation and, recognizing
that some costs and benefits are difficult to quantify, propose or
adopt a regulation only upon a reasoned determination that the benefits
of the intended regulation justify its costs.'' The purpose of the SCC
estimates presented here is to make it possible for agencies to
incorporate the social benefits from reducing carbon dioxide emissions
into cost-benefit analyses of regulatory actions that have small, or
``marginal,'' impacts on cumulative global emissions. Most Federal
regulatory actions can be expected to have marginal impacts on global
emissions.
For such policies, the benefits from reduced (or costs from
increased) emissions in any future year can be estimated by multiplying
the change in emissions in that year by the SCC value appropriate for
that year. The net present value of the benefits can then be calculated
by multiplying each of these future benefits by an appropriate discount
factor and summing across all affected years. This approach assumes
that the marginal damages from increased emissions are constant for
small departures from the baseline emissions path, an approximation
that is reasonable for policies that have effects on emissions that are
small relative to cumulative global carbon dioxide emissions. For
policies that have a large (non-marginal) impact on global cumulative
emissions, there is a separate question of whether the SCC is an
appropriate tool for calculating the benefits of reduced emissions; we
do not attempt to answer that question here.
An interagency group convened on a regular basis to consider public
comments, explore the technical literature in relevant fields, and
discuss key inputs and assumptions in order to generate SCC estimates.
Agencies that actively participated in the interagency process include
the Environmental Protection Agency, and the Departments of
Agriculture, Commerce, Energy, Transportation, and Treasury. This
process was convened by the Council of Economic Advisers and the Office
of Management and Budget, with active participation and regular input
from the Council on Environmental Quality, National Economic Council,
Office of Energy and Climate Change, and Office of Science and
Technology Policy. The main objective of this process was to develop a
range of SCC values using a defensible set of input assumptions that
are grounded in the existing literature. In this way, key uncertainties
and model differences can more transparently and consistently inform
the range of SCC estimates used in the rulemaking process.
The interagency group selected four SCC estimates for use in
regulatory analyses. For 2010, these estimates are $4.7, $21.4, $35.1,
and $64.9 (in 2007 dollars). The first three estimates are based on the
average SCC across models and socio-economic and emissions scenarios at
the 5, 3, and 2.5-percent discount rates, respectively. The fourth
value is included to represent the higher-than-expected impacts from
temperature change further out in the tails of the SCC distribution.
For this purpose, we use the SCC value for the 95th percentile at a 3-
percent discount rate. The central value is the average SCC across
models at the 3-percent discount rate. For purposes of capturing the
uncertainties involved in regulatory impact analysis, we emphasize the
importance and value of considering the full range. These SCC estimates
also grow over time. For instance, the central value increases to $24
per ton of CO2 in 2015 and $26 per ton of CO2 in
2020. See Appendix A of the Annex to Chapter 16 of the TSD for the full
range of annual SCC estimates from 2010 to 2050.
It is important to emphasize that the interagency process is
committed to updating these estimates as the science and economic
understanding of climate change and its impacts on society improves
over time. Specifically, the interagency group set a preliminary goal
of revisiting the SCC values within two years or at such time as
substantially updated models become available, and to continue to
support research in this area. In the meantime, we will continue to
explore the issues raised by this analysis and consider public comments
as part of the ongoing interagency process.
b. Social Cost of Carbon Values Used in Past Regulatory Analyses
To date, economic analyses for Federal regulations have used a wide
range of values to estimate the benefits associated with reducing
carbon dioxide emissions. In the final model year 2011 CAFE rule, the
Department of Transportation (DOT) used both a ``domestic'' SCC value
of $2 per ton of CO2 and a ``global'' SCC value of $33 per
ton of CO2 for 2007 emission reductions (in 2007 dollars),
increasing both values at 2.4 percent per year. It also included a
sensitivity analysis at $80 per ton of CO2. A domestic SCC
value is meant to reflect the value of damages in the United States
resulting from a unit change in carbon dioxide emissions, while a
global SCC value is meant to reflect the value of damages worldwide.
A 2008 regulation proposed by DOT assumed a domestic SCC value of
$7 per ton CO2 (in 2006 dollars) for 2011 emission
reductions (with a range of $0-$14 for sensitivity analysis), also
increasing at 2.4 percent per year. A regulation finalized by DOE in
October of 2008 used a domestic SCC range of $0 to $20 per ton
CO2 for 2007 emission reductions (in 2007 dollars). In
addition, EPA's 2008 Advance Notice of Proposed Rulemaking for
Greenhouse Gases identified what it described as ``very preliminary''
SCC estimates subject to revision. EPA's global mean values were
[[Page 20179]]
$68 and $40 per ton CO2 for discount rates of approximately
2 percent and 3 percent, respectively (in 2006 dollars for 2007
emissions).
In 2009, an interagency process was initiated to offer a
preliminary assessment of how best to quantify the benefits from
reducing carbon dioxide emissions. To ensure consistency in how
benefits are evaluated across agencies, the Administration sought to
develop a transparent and defensible method, specifically designed for
the rulemaking process, to quantify avoided climate change damages from
reduced CO2 emissions. The interagency group did not
undertake any original analysis. Instead, it combined SCC estimates
from the existing literature to use as interim values until a more
comprehensive analysis could be conducted.
The outcome of the preliminary assessment by the interagency group
was a set of five interim values: Global SCC estimates for 2007 (in
2006 dollars) of $55, $33, $19, $10, and $5 per ton of CO2.
The $33 and $5 values represented model-weighted means of the published
estimates produced from the most recently available versions of three
integrated assessment models--DICE, PAGE, and FUND--at approximately 3
and 5 percent discount rates. The $55 and $10 values were derived by
adjusting the published estimates for uncertainty in the discount rate
(using factors developed by Newell and Pizer (2003)) at 3 and 5 percent
discount rates, respectively. The $19 value was chosen as a central
value between the $5 and $33 per ton estimates. All of these values
were assumed to increase at 3 percent annually to represent growth in
incremental damages over time as the magnitude of climate change
increases.
These interim values represent the first sustained interagency
effort within the U.S. Government to develop an SCC for use in
regulatory analysis. The results of this preliminary effort were
presented in several proposed and final rules and were offered for
public comment in connection with proposed rules, including the joint
EPA-DOT fuel economy and CO2 tailpipe emission proposed
rules.
c. Approach and Key Assumptions
Since the release of the interim values, interagency group
reconvened on a regular basis to generate improved SCC estimates
considered for this final rule. Specifically, the group considered
public comments and further explored the technical literature in
relevant fields.
It is important to recognize that a number of key uncertainties
remain, and that current SCC estimates should be treated as provisional
and revisable since they will evolve with improved scientific and
economic understanding. The interagency group also recognizes that the
existing models are imperfect and incomplete. The National Academy of
Science (2009) points out that there is tension between the goal of
producing quantified estimates of the economic damages from an
incremental ton of carbon and the limits of existing efforts to model
these effects. There are a number of concerns and problems that should
be addressed by the research community, including research programs
housed in many of the agencies participating in the interagency process
to estimate the SCC.
The U.S. Government will periodically review and reconsider
estimates of the SCC used for cost-benefit analyses to reflect
increasing knowledge of the science and economics of climate impacts,
as well as improvements in modeling. In this context, statements
recognizing the limitations of the analysis and calling for further
research take on exceptional significance. The interagency group offers
the new SCC values with all due humility about the uncertainties
embedded in them and with a sincere promise to continue work to improve
them.
In summary, in considering the potential global benefits resulting
from reduced CO2 emissions, DOE used the most recent values
identified by the interagency process, adjusted to 2009$ using the
standard GDP deflator values for 2008 and 2009. For each of the four
cases specified, the values for emissions in 2010 used were
approximately $5, $22, $36, and $67 per metric ton avoided (values
expressed in 2009$). To monetize the CO2 emissions
reductions expected to result from amended standards for residential
water heaters in 2015-2045 and for direct heating equipment and pool
heaters in 2013-2043, DOE used the values identified in Table A1 of the
``Social Cost of Carbon for Regulatory Impact Analysis Under Executive
Order 12866,'' which is reprinted as an Annex to Chapter 16 of the TSD,
appropriately escalated to 2009$. To calculate a present value of the
stream of monetary values, DOE discounted the values in each of the
four cases using the discount rates that had been used to obtain the
SCC values in each case.
NRDC stated that the economic impacts of avoided CO2
emissions should be aggregated into the NIA. (NRDC, No. 85 at p. 3) As
discussed in section IV.G.1, the NIA assesses the national energy
savings and the national net present value of total consumer costs and
savings expected to result from standards at specific efficiency
levels. The NPV is not intended as a measure of all national economic
benefits associated with standards. Although DOE does not aggregate the
estimated economic benefits of avoided CO2 emissions (and
other emissions) into the NIA, it does believe that the NPV of the
monetized benefits associated with emissions reductions can be viewed
as a complement to the NPV of the consumer savings calculated for each
TSL considered in this rulemaking. Therefore, in section VI of this
final rule, DOE presents the NPV values that would result if DOE were
to add the estimates of the potential economic benefits resulting from
reduced CO2 and NOX emissions in each of four
valuation scenarios to the NPV of consumer savings calculated for each
TSL considered in this rulemaking.
2. Monetary Values of Non-Carbon Emissions
As previously stated, DOE's analysis assumed the presence of
nationwide emission caps on SO2 and caps on NOX
emissions in the 28 States covered by CAIR. In the presence of these
caps, the NEMS-BT modeling system that DOE used to forecast emissions
reduction indicated that no physical reductions in power sector
emissions would occur (although there remains uncertainty about whether
physical reduction of SO2 will occur), but that the
standards could put slight downward pressure on the prices of emissions
allowances in cap-and-trade markets. Estimating this effect is very
difficult because of factors such as credit banking that can change the
trajectory of prices. From its modeling to date, DOE is unable to
estimate a benefit from energy conservation standards on the prices of
emissions allowances at this time. See the environmental assessment in
the final rule TSD for further details.
DOE also investigated the potential monetary benefit of reduced
NOX emissions from the TSLs it considered. As noted above,
new or amended energy conservation standards would reduce
NOX emissions in those 22 States that are not affected by
CAIR, in addition to the reduction in site NOX emissions
nationwide. DOE estimated the monetized value of NOX
emissions reductions resulting from each of the TSLs considered for
today's final rule based on environmental damage estimates from the
literature. Available estimates suggest a very wide range of monetary
values for NOX emissions, ranging from $370 per ton to
$3,800 per ton of NOX from stationary sources, measured in
2001$ (equivalent to a
[[Page 20180]]
range of $447 to $4,591 per ton in 2009$).\25\
---------------------------------------------------------------------------
\25\ Refer to the OMB, Office of Information and Regulatory
Affairs, ``2006 Report to Congress on the Costs and Benefits of
Federal Regulations and Unfunded Mandates on State, Local, and
Tribal Entities,'' Washington, DC, for additional information.
---------------------------------------------------------------------------
EEI stated that the costs of remediating emissions are included in
the electricity rates that consumers pay, and care should be taken not
to double count the benefits of reduced emissions. (EEI, No. 95 at p.
5) DOE understands the comment as referring to actions power plant
operators take to meet environmental regulations, the costs of which
are reflected in electricity rates. With regulations currently in
place, revised standards for heating products would result in a
reduction in CO2 and NOX emissions by avoiding
electricity generation. Because these emissions impose societal costs,
their reduction has an economic value that can be estimated.
DOE is not including monetization estimates of Hg in today's final
rule. DOE is aware of multiple agency efforts to determine the
appropriate range of values used in evaluating the potential economic
benefits of reduced Hg emissions. DOE has decided to await further
guidance regarding consistent valuation and reporting of Hg emissions
before further monetizing Hg in its rulemakings. As explained earlier,
DOE was able to use the NEMS-BT model to estimate the changes in Hg
emissions resulting from today's final rule, and it has considered
these physical emissions reductions as part of the standard-setting
process. DOE notes that the amounts of Hg under consideration in
today's final rule are not large, so the monetized results would be
unlikely to be significant as compared to the total costs and benefits
of the rule.
V. Discussion of Other Comments
A. Trial Standard Levels and Proposed Standards
Since DOE opened the docket for this rulemaking, it has received
more than one hundred unique written comments, with hundreds of
signatories, from a diverse set of parties, including manufacturers and
their representatives, State Attorneys General, members of Congress,
energy conservation advocates, consumer advocacy groups, electric and
gas utilities, and private citizens. DOE also received more than 17,000
form letter submissions recommending that DOE strengthen the proposed
energy conservation standards. All substantive comments on the
analytical methodologies DOE used are discussed above. DOE also
received many comments related to the relative merits of various TSLs.
Generally, these comments either stated that a certain TSL was
economically justified, technologically feasible, and maximized energy,
or they argued how DOE should weigh the various factors that go into
making that determination. See section VI.D for a discussion of DOE's
analytical results and how it weighed those factors in establishing
today's final rule.
For today's final rule, DOE has revised the NOPR TSLs for water
heaters and direct heating equipment and continued to analyze the same
TSLs for pool heaters. A detailed description of these TSL revisions
for water heaters and direct heating equipment is provided in section
VI.A. A brief summary is provided in the sections that follow.
1. Water Heaters
In the NOPR, DOE proposed TSL 4 for water heaters. 74 FR 65852,
65854 (Dec. 11, 2009). As discussed in that document, DOE strongly
considered NOPR TSL 5, which would provide additional energy and carbon
savings, while mitigating some of the issues associated with a national
heat pump water heater standard, but it identified a number of
potential issues for which DOE did not have adequate information to
address before the publication of the NOPR. (See 74 FR 65852, 65965-67
(Dec. 11, 2009)). DOE is adding a new TSL 5 for the final rule, which
is a slight modification of the NOPR TSL 5. The NOPR TSL 5 is now
referred to as TSL 6 for the final rule. DOE tentatively concluded that
at NOPR TSL 5 (now final rule TSL 6), the benefits would be outweighed
by several burdens, but it stated that it will revisit this decision
and strongly consider adoption of TSL 6 in the final rule in light of
any comments and data submitted by interested parties. Many of those
comments were discussed in section IV. Below DOE presents further
comments on NOPR TSL 5 (now final rule TSL 6), as well as on the
proposed NOPR TSL 4.
Support for setting a standard at NOPR TSL 5 (TSL 6 for this final
rule) was expressed by several interested parties. As noted above, DOE
received over 17,000 form letters from private citizens advocating
stronger standards for water heaters. (Private Citizens, No. 63 and 74)
The Joint Advocacy comment (submitted by ASAP) stated that its
signatories are very pleased with the DOE's proposed new efficiency
standards for most storage-type residential water heaters but urged DOE
to adopt stronger efficiency levels (NOPR TSL 5) for the largest units,
which would help assure a market for these new emerging products where
they are most cost-effective. It stated that NOPR TSL 5 offers a middle
ground that increases savings relative to NOPR TSL 4 while also
fostering the development of precisely the knowledge base and market
infrastructure needed for a longer term, market-wide transition to
high-efficiency technologies. It strongly urged DOE to choose NOPR TSL
5 (now TSL 6), for the final rule. (ASAP, No. 102 at p. 2) NRDC stated
that NOPR TSL 5 should be adopted for water heaters as it is
technically feasible, economically justified, and provides significant
additional energy, economic, and environmental savings. (NRDC, No. 85
at p. 2) A comment provided by eight utilities stated support for NOPR
TSL 5 because stronger standards for the biggest units would boost
total energy and economic savings by more than 40 percent compared to
the proposed rule, and DOE would be helping advanced technologies
become mainstream products, thereby speeding transition to next-
generation water heaters. (Eight utilities, No. 72 at p. 1) ASE stated
that at NOPR TSL 5 the advanced technology requirements are limited to
a modest share of total water heater shipments, which is a sensible
means of addressing the issue of manufacturers being able to scale up
the production of these products to meet the needs of the market. (ASE,
No. 77 at p. 2) Other parties expressing support for choosing NOPR TSL
5 included Alabama Consumer Advocate, Avista, Energy Consumers Alliance
of New England, KCP&L, Energy Trust of Oregon, Alliance to Save Energy,
and NEEA. (ACA, No. 60 at p. 1; Avista, No. 66 at pp.1-2; Energy
Consumers Alliance of New England, No. 59 at p. 1; KCP&L, No. 97 at p.
1; Energy Trust of Oregon, No. 69 at p. 1; Alliance to Save Energy, No.
56.4 at p.1; NEEA, No. 88 at p. 1)
Opposition to setting a standard at NOPR TSL 5 (now TSL 6 for the
final rule) was also expressed by several interested parties. AHRI
stated that NOPR TSL 5 would cause installation issues for large-
volume, advanced-technology models and that consumers may opt for less-
efficient alternative options. It stated that DOE's analysis has
undervalued these factors, and as a result, AHRI expects that the
actual energy savings will fall well short of the savings projected in
the TSD. (AHRI, No. 91 at p. 6) A.O. Smith stated that it does not
support NOPR TSL 5. It believes that the energy savings are overstated
because many consumers,
[[Page 20181]]
when faced with the increased cost of large-storage-capacity water
heaters that are required to use either condensing gas or electric heat
pump technology, would elect to install two smaller-storage-capacity
water heaters instead of one larger capacity unit. (A.O. Smith, No. 76
at p. 4) Rheem commented that the energy savings from TSL 6 are
significantly overstated, and it pointed to several options for
consumers to work around the standards on large-volume units. (Rheem,
No. 89 at pp. 6-7) BWC stated that the efficiency levels under
consideration for larger-capacity water heaters would be difficult and
expensive to obtain. (BWC, No. 61 at p. 1) Referring to NOPR TSL 5 and
NOPR TSL 6, APPA stated that they do not support a standard that
eliminates high efficiency electric resistance water heaters as a
consumer option. It believes that these TSLs would cause an adverse
economic impact for consumers and lessen the utility of the product.
(APPA, No. 92 at p. 2) Southern Company stated that it does not agree
with NOPR TSL 6 because performance of heat pump water heaters depends
on climate and installation location. (Southern, No. 90 at pp. 3-4)
Support for NOPR TSL 4 (unchanged in the final rule), was expressed
by APPA and A.O. Smith. (APPA, No. 92 at p. 2; A.O. Smith, No. 76 at p.
1) AHRI recommended that DOE should adopt minimum efficiency
requirements for gas-fired and electric storage water heaters that have
their basis in TSL 4 but have been modified to address issues related
to the needs of the replacement market and unique attributes of some
models. For electric storage water heaters 65 gallons and larger, AHRI
recommended that DOE select TSL 3 (also unchanged for the final rule),
as TSL 4 for this size presents a disproportionately large increase in
efficiency. For oil-fired storage water heaters it recommended that DOE
adopt TSL 3. For gas-fired instantaneous water heaters, AHRI
recommended that the standard be changed to a minimum EF of 0.80 for
models using an external electric supply and a minimum EF of 0.78 for
models that do not use an external electric supply. (AHRI, No. 91 at p.
1) Rheem also supported a 0.80 EF level for gas-fired instantaneous
water heaters and noted that the 0.82 EF level has a high payback
period. (Rheem, No. 89 at p. 13) Bock supported TSL 3 because all
storage water heater manufacturers are capable of meeting the standard,
and it would allow consumers to have abundant hot water at a reasonable
cost. (Bock, No. 101 at p. 3)
DOE acknowledges the positions expressed regarding adoption of
either the proposed standards (TSL 4) or NOPR TSL 5 for water heaters.
It addresses the arguments raised by the commenters, as well as other
factors, in its discussion of the merits of the various considered TSLs
in section VI.D.
2. Direct Heating Equipment
In the NOPR, DOE proposed TSL 3 for direct heating equipment. 74 FR
65852, 65854 (Dec. 11, 2009). The only modifications made to the TSLs
analyzed for the final rule compared to those analyzed for the NOPR
were to the efficiency levels in TSLs 3, 4, 5, and 6 for gas wall
gravity DHE. DOE revised the efficiency levels analyzed for gas wall
gravity DHE in the final rule to more accurately reflect the current
market for products within the representative rated capacity. A
detailed description of these changes is provided in section IV.C.2.b.
AHRI stated that no amended energy conservation standards should be
set for traditional DHE because of the significant impact on
manufacturers and the small energy savings. (AHRI, No. 91 at p. 10) AGA
stated that standards should not be set for DHE because the low and
declining shipments represent a minimal opportunity for energy savings,
and the increased installed cost of DHE may lead to greater use of
central heating, thereby increasing overall energy consumption (AGA,
No. 78 at p. 11) Williams recommended that DOE not adopt standards for
DHE because of the significant impact on manufacturers, the unique
utility of DHE to heat homes without ductwork, design constraints, and
safety concerns. Williams stated that manufacturers, as well as
consumers, would be negatively impacted by the proposed rule.
(Williams, No. 96 at pp. 1-2)
AHRI stated its belief that the proposed standards for traditional
DHE (NOPR TSL 3) are too high and that the impact on manufacturers
needs to be reconsidered. According to the commenter, the proposed
levels would have very significant and costly effects on manufacturers.
The DHE results show negative impact on the profitability of the
manufacturers, all of which are small manufacturers, and there is a
real concern about whether they could stay in business and make a
profit at these levels. (AHRI, Public Meeting Transcript, No. 57.4 at
pp. 28-29) AHRI reiterated DOE's estimates for the INPV decreasing
between 6 and 33.5 percent at the proposed level, industry cash flow
dropping from $1.4 million to -$0.9 million (a 162-percent decrease),
and the conversion costs reaching $2.31 million per manufacturer (about
350 percent of estimated earnings before interest and taxation). AHRI
also stated that the number of product lines per manufacturer would
drop from 5 to 3 and that all of AHRI's members indicated a loss of
employment would result. Finally, AHRI stated all these negative
impacts would be compounded by a decline in sales. Because of all these
negative impacts and insignificant energy savings, AHRI stated that DOE
should not consider TSL 3 for the final rule (AHRI, No. 91 at p. 13)
LTS stated that DOE estimated that the conversion costs for a
typical small DHE manufacturer at the proposed level would be $2.3
million or 347 percent of each company's earnings before interest and
taxes. LTS questioned having to spend three or four years' profit to
meet a standard they are certain will make them less profitable
overall. (LTS, No. 56.7 at pp. 2-3; Public Meeting Transcript, No. 57.4
at p. 23) LTS reiterated the NOPR's estimate that industry cash flow
could decrease up to 161.8 percent. Finally, LTS reiterated DOE's
statement that the large estimated impact on INPV suggests that
manufacturers would be substantially harmed if profitability were
impacted. (LTS, No. 56.7 at p. 2)
Congressman Costello and Congressman Shimkus urged DOE to consider
Empire's testimony and related concerns. Congressman Costello and
Congressman Shimkus stated that Empire strongly believes the technology
necessary to meet these proposed efficiency standards is not in place
and that the cost of retrofitting these product lines does not justify
the small energy savings for the small traditional DHE market.
(Costello, No. 62 at p. 1)
DOE acknowledges the positions expressed regarding adoption of the
proposed standards (TSL 3) for direct heating equipment. It addresses
the arguments raised by the commenters, as well as other factors, in
its discussion of the merits of the various considered TSLs in section
VI.D.
3. Pool Heaters
In the NOPR, DOE proposed NOPR TSL 3 for pool heaters. 74 FR 65852,
65854 (Dec. 11, 2009). The TSLs analyzed in the final rule are
identical to those analyzed in the NOPR. AHRI stated that the proposed
standard for pool heaters is not economically justified because its
payback period well exceeds product lifetime. It recommended the
proposed standard for pool heaters be lowered to 81 percent. (AHRI, No.
91 at p. 9) Raypak stated that the proposed standard for pool heaters
[[Page 20182]]
has a very high payback period which is outside the lifetime of the
appliance, so the commenter argued that such level should not be
considered economically justified. Raypak supported adoption of amended
energy conservation standards at TSL 1 for pool heaters because it
would raise the efficiency level by 3 percentage points, while
preventing the elimination of the millivolt design option. (Raypak, No.
67 at pp. 3-4) APSP stated that the proposed level could result in a
significantly negative impact on the pool heater industry in these
already turbulent economic times. (APSP, No. 64 at p. 1)
DOE acknowledges the positions expressed regarding adoption of the
proposed standards (TSL 3) for pool heaters. It addresses the arguments
raised by the commenters, as well as other factors, in its discussion
of the merits of the various considered TSLs in section VI.D.
B. Compliance Date of Amended Standards
As discussed in section IV.F.9, compliance with amended energy
conservation standards for direct heating equipment and pool heaters is
required three years after the final rule is published in the Federal
Register (i.e., in 2013); compliance with amended energy conservation
standards for water heaters is required five years after the final rule
is published (i.e., in 2015).
Raypak stated that the date of when the standard goes into effect
should be changed to five years for pool heaters. (Raypak, No. 67 at p.
3) In response, DOE notes that the language in 42 U.S.C. 6295(e)(4)
specifies compliance dates for amended standards (if any) for the
heating products that are the subject of this rulemaking. These
statutory dates were set such that they were to apply to products
manufactured on or after the 36-month period beginning on the date such
final rule was to be published for the first iteration of rulemaking
and on or after the 60-month period beginning on the date such final
rule was to be published for the second iteration of rulemaking. (42
U.S.C. 6295(e)(4)(A)-(B)) The language of 42 U.S.C. 6295(e)(4)(B)
anticipates that a standard will be in place for covered pool heaters
that are manufactured precisely three years after publication of the
final rule and prospectively thereafter. Although DOE did not meet the
rulemaking dates set by the statute, DOE continues to believe that the
time differential, as specified in EPCA, between the publication of the
final rule and the compliance deadline reflects Congress's judgment as
to what constitutes adequate lead time. Consequently, for the final
rule, DOE has maintained a compliance date corresponding to three years
after final rule publication in the Federal Register for direct heating
equipment and pool heaters, and five years after the date of
publication in the Federal Register for water heaters.
VI. Analytical Results and Conclusions
A. Trial Standard Levels
DOE analyzed the benefits and burdens of a number of TSLs for each
of the three types of heating products separately. For a given product
consisting of several product classes, DOE developed some of the TSLs
so that each TSL is comprised of energy efficiency levels from each
product class that exhibit similar characteristics. For example, in the
case of water heaters, one of the TSLs consists of the max-tech
efficiency levels from each product class being considered for this
rulemaking. DOE attempted to limit the number of TSLs considered for
the December 2009 NOPR by eliminating efficiency levels that do not
exhibit significantly different economic and/or engineering
characteristics from the efficiency levels already selected as a TSL.
For the December 2009 NOPR, DOE analyzed seven TSLs for water heaters,
six TSLs for direct heating equipment, and six TSLs for pool heaters.
74 FR 65852, 65929-32 (Dec. 11, 2009).
For today's final rule, DOE has revised the TSLs for water heaters
and direct heating equipment and continued to analyze the same TSLs for
pool heaters. A description of each TSL DOE analyzed for each of the
three types of heating products is provided below. While DOE only
presents the results for those efficiency levels used in TSL
combinations in today's final rule, DOE presents the results for all
efficiency levels analyzed in the final rule TSD.
1. Water Heaters
Table VI.1 shows the eight TSLs DOE analyzed for water heaters for
the final rule. Since amended water heater standards would apply to the
full range of storage volumes, DOE is presenting the TSLs for water
heaters in terms of the energy efficiency equations, rather than only
showing the required efficiency level at the representative capacities.
As further discussed in the December 2009 NOPR (74 FR 65852, 65929
(Dec. 11, 2009)), DOE is grouping the energy efficiency equations for
each of the four water heater product classes to show the benefits and
burdens of amended energy conservation standards.
For TSLs 1, 2, 3, and 4, DOE is using the rated storage volume
divisions developed in the engineering analysis and the energy
efficiency equations as shown in section IV.C.6, which specify a two-
slope approach. TSLs 1, 2, 3, and 4 are identical to those presented in
the December 2009 NOPR. TSL 1 consists of the efficiency levels for
each product class that are approximately equal to the current
shipment-weighted average efficiency. TSL 2 and TSL 3 consist of
efficiency levels with slightly higher efficiencies compared to TSL 1
for most of the product classes. TSL 4 represents the maximum electric
resistance water heater efficiency across the entire range of storage
volumes that DOE analyzed for electric storage water heaters, and the
maximum atmospherically-vented efficiency across the entire range of
storage volumes that DOE analyzed for gas-fired storage water heaters.
DOE is adding a new TSL 5 for the final rule, which is a slight
modification of the December 2009 NOPR TSL 5 (currently referred to as
TSL 6 for the final rule). For both TSL 5 and TSL 6, DOE considered a
pairing of efficiency levels that would promote the penetration of
advanced technologies into the electric and gas-fired storage water
heater markets and potentially save additional energy by using a two-
slope approach with different requirements for each category.
Consequently, DOE pairs an efficiency level effectively requiring heat
pump technology for large-volume electric storage water heaters with an
efficiency level achievable using electric resistance technology for
small-volume electric storage water heaters. In addition, DOE pairs an
efficiency level effectively requiring condensing technology for large-
volume gas storage water heaters with an efficiency level that can be
achieved in atmospherically-vented gas-fired storage water heaters with
increased insulation thickness for small storage volumes. The only
difference between TSL 5 and TSL 6 for the final rule is the
requirements for gas-fired storage water heaters. DOE reanalyzed these
levels due to potential safety concerns, which were discussed above and
are further discussed below. For gas-fired water heaters at TSL 5, DOE
analyzed energy efficiency level 1 for small volumes paired with
efficiency level 6 for large volumes. For gas-fired water heaters at
TSL 6, DOE analyzed energy efficiency level 2 for small volumes paired
with efficiency level 6 for large volumes.
Although it paired different technologies for small-volume and
large-volume products for TSL 5 and TSL 6, DOE maintained the same
[[Page 20183]]
division point between small-volume and large-volume gas-fired and
electric storage water heaters just as was done in the December 2009
NOPR. As further explained in the December 2009 NOPR, DOE is concerned
that increased standards for large-volume water heaters may drive
production and sales of water heaters at volumes just below the
division points. 74 FR 65852, 65929 (Dec. 11, 2009). As a result, in
analyzing TSL 5 and 6 for the final rule, DOE is using the same
division points as it used for the December 2009 NOPR TSL 5, which is
55 gallons for gas-fired and electric storage water heaters, to attempt
to mitigate the potential migration to small-volume units described
above. TSL 5 and 6 include efficiency levels that effectively require
heat pump technology for electric storage water heater with rated
storage volumes above 55 gallons, and efficiency levels that
effectively require condensing technology for gas-fired storage water
heaters with rated storage volumes above 55 gallons. Using DOE's
shipments model and market assessment, DOE estimated approximately 4
percent of gas-fired storage water heater shipments and 11 percent of
models would be subject to the large-volume water heater requirements
using the TSL 5 and TSL 6 division. Similarly, DOE estimated
approximately 9 percent of electric storage water heater shipments and
27 percent of models would be subject to the large-volume water heater
requirements using the TSL 5 and TSL 6 division.
TSL 7 uses the same divisions as TSLs 1, 2, 3, and 4 for gas-fired
water heaters (i.e., does not include the distinction at TSL 5 and TSL
6 for units above and below a 55-gallon storage capacity). TSL 7 is
identical to TSL 4 except DOE is considering what is effectively a heat
pump water heater level for electric storage water heaters across the
entire range of storage volumes that is compatible with ENERGY STAR
criteria for electric storage water heaters at the representative rated
storage volume.
TSL 8 consists of the max-tech efficiency levels for each of the
water heater product classes at the time the analysis was developed.
The max-tech efficiency levels were revised for the final rule as
described in the engineering analysis. TSL 7 and 8 both set efficiency
levels that effectively require use of heat pump technology for
electric storage water heaters. TSL 8, however, requires a higher
efficiency level than TSL 7, which corresponds to the max-tech
efficiency level for the representative rated storage capacity (i.e.,
2.35 EF at 50 gallons). TSL 8 also sets efficiency levels that
effectively require use of condensing technology for gas-fired storage
and instantaneous water heaters.
Table VI.1 presents the energy efficiency equations and associated
two-slope divisions for TSL 1 through TSL 8.
Table VI.1--Trial Standard Levels for Residential Water Heaters (Energy
Factor)
------------------------------------------------------------------------
------------------------------------------------------------------------
Trial standard level Energy efficiency equation
------------------------------------------------------------------------
TSL 1....................... For GSWHs with a For GSWHs with a
Rated Storage Rated Storage
Volume at or below Volume above 60
60 gallons: gallons:
EF = 0.675-(0.0015 x EF = 0.699-(0.0019 x
Rated Storage Rated Storage
Volume in gallons). Volume in gallons).
-------------------------------------------
For ESWHs with a For ESWHs with a
Rated Storage Rated Storage
Volume at or below Volume above 80
80 gallons: gallons:
EF = 0.967-(0.00095 EF = 1.013-(0.00153
x Rated Storage x Rated Storage
Volume in gallons). Volume in gallons).
-------------------------------------------
For OSWHs (over the Entire Rated Storage
Volume range):
EF = 0.64-(0.0019 x Rated Storage Volume
in gallons).
-------------------------------------------
For GIWHs (over the Entire Rated Storage
Volume range):
EF = 0.82-(0.0019 x Rated Storage Volume
in gallons).
-------------------------------------------
TSL 2....................... For GSWHs with a For GSWHs with a
Rated Storage Rated Storage
Volume at or below Volume above 60
60 gallons: gallons:
EF = 0.675-(0.0012 x EF = 0.717-(0.0019 x
Rated Storage Rated Storage
Volume in gallons). Volume in gallons).
-------------------------------------------
For ESWHs with a For ESWHs with a
Rated Storage Rated Storage
Volume at or below Volume above 80
80 gallons: gallons:
EF = 0.966-(0.0008 x EF = 1.026-(0.00155
Rated Storage x Rated Storage
Volume in gallons). Volume in gallons).
-------------------------------------------
For OSWHs (over the Entire Rated Storage
Volume range):
EF = 0.66-(0.0019 x Rated Storage Volume
in gallons).
-------------------------------------------
For GIWHs (over the Entire Rated Storage
Volume range):
EF = 0.82-(0.0019 x Rated Storage Volume
in gallons).
-------------------------------------------
TSL 3....................... For GSWHs with a For GSWHs with a
Rated Storage Rated Storage
Volume at or below Volume above 60
60 gallons: gallons:
EF = 0.675-(0.0012 x EF = 0.717-(0.0019 x
Rated Storage Rated Storage
Volume in gallons). Volume in gallons).
-------------------------------------------
For ESWHs with a For ESWHs with a
Rated Storage Rated Storage
Volume at or below Volume above 80
80 gallons: gallons:
EF = 0.965-(0.0006 x EF = 1.051-(0.00168
Rated Storage x Rated Storage
Volume in gallons). Volume in gallons).
-------------------------------------------
For OSWHs (over the Entire Rated Storage
Volume range):
[[Page 20184]]
EF = 0.68-(0.0019 x Rated Storage Volume
in gallons).
-------------------------------------------
For GIWHs (over the Entire Rated Storage
Volume range):
EF = 0.82-(0.0019 x Rated Storage Volume
in gallons).
-------------------------------------------
TSL 4....................... For GSWHs with a For GSWHs with a
Rated Storage Rated Storage
Volume at or below Volume above 60
60 gallons: gallons:
EF = 0.675-(0.0012 x EF = 0.717-(0.0019 x
Rated Storage Rated Storage
Volume in gallons). Volume in gallons).
-------------------------------------------
For ESWHs with a For ESWHs with a
Rated Storage Rated Storage
Volume at or below Volume above 80
80 gallons: gallons:
EF = 0.960-(0.0003 x EF = 1.088-(0.0019 x
Rated Storage Rated Storage
Volume in gallons). Volume in gallons).
-------------------------------------------
For OSWHs (over the Entire Rated Storage
Volume range):
EF = 0.68-(0.0019 x Rated Storage Volume
in gallons).
-------------------------------------------
For GIWHs (over the Entire Rated Storage
Volume range):
EF = 0.82-(0.0019 x Rated Storage Volume
in gallons).
-------------------------------------------
TSL 5....................... For GSWHs with a For GSWHs with a
Rated Storage Rated Storage
Volume at or below Volume above 55
55 gallons: gallons:
EF = 0.675-(0.0015 x EF = 0.8012-(0.00078
Rated Storage x Rated Storage
Volume in gallons). Volume in gallons).
-------------------------------------------
For ESWHs with a For ESWHs with a
Rated Storage Rated Storage
Volume at or below Volume above 55
55 gallons: gallons:
EF = 0.960-(0.0003 x EF = 2.057-(0.00113
Rated Storage x Rated Storage
Volume in gallons). Volume in gallons).
-------------------------------------------
For OSWHs (over the Entire Rated Storage
Volume range):
EF = 0.68-(0.0019 x Rated Storage Volume
in gallons).
-------------------------------------------
For GIWHs (over the Entire Rated Storage
Volume range):
EF = 0.82-(0.0019 x Rated Storage Volume
in gallons).
-------------------------------------------
TSL 6....................... For GSWHs with a For GSWHs with a
Rated Storage Rated Storage
Volume at or below Volume above 55
55 gallons: gallons:
EF = 0.675-(0.0012 x EF = 0.8012-(0.00078
Rated Storage x Rated Storage
Volume in gallons). Volume in gallons).
-------------------------------------------
For ESWHs with a For ESWHs with a
Rated Storage Rated Storage
Volume at or below Volume above 55
55 gallons: gallons:
EF = 0.960-(0.0003 x EF = 2.057-(0.00113
Rated Storage x Rated Storage
Volume in gallons). Volume in gallons).
-------------------------------------------
For OSWHs (over the Entire Rated Storage
Volume range):
EF = 0.68-(0.0019 x Rated Storage Volume
in gallons).
-------------------------------------------
For GIWHs (over the Entire Rated Storage
Volume range):
EF = 0.82-(0.0019 x Rated Storage Volume
in gallons).
-------------------------------------------
TSL 7....................... For GSWHs with a For GSWHs with a
Rated Storage Rated Storage
Volume at or below Volume above 60
60 gallons: gallons:
EF = 0.675-0.0012 x EF = 0.717-(0.0019 x
Rated Storage Rated Storage
Volume in gallons). Volume in gallons).
-------------------------------------------
For ESWHs (over the Entire Rated Storage
Volume range):
EF = 2.057-(0.00113 x Rated Storage Volume
in gallons).
-------------------------------------------
For OSWHs (over the Entire Rated Storage
Volume range):
EF = 0.68-(0.0019 x Rated Storage Volume
in gallons).
-------------------------------------------
For GIWHs (over the Entire Rated Storage
Volume range):
EF = 0.82-(0.0019 x Rated Storage Volume
in gallons).
-------------------------------------------
TSL 8....................... For GSWHs (over the Entire Rated Storage
Volume range):
EF = 0.8012-(0.00078 x Rated Storage
Volume in gallons).
-------------------------------------------
For ESWHs (over the Entire Rated Storage
Volume range):
EF = 2.406-(0.00113 x Rated Storage Volume
in gallons).
-------------------------------------------
For OSWHs (over the Entire Rated Storage
Volume range):
EF = 0.74-(0.0019 x Rated Storage Volume
in gallons).
-------------------------------------------
[[Page 20185]]
For GIWHs (over the Entire Rated Storage
Volume range):
EF = 0.95-(0.0019 x Rated Storage Volume
in gallons).
------------------------------------------------------------------------
2. Direct Heating Equipment
Table VI.2 presents the six TSLs DOE analyzed for DHE in the final
rule. The only modifications made to the TSLs analyzed for the final
rule compared to those analyzed for the December 2009 NOPR were to the
efficiency levels in TSLs 3, 4, 5, and 6 for gas wall gravity DHE.
These changes were made due to a review of the gas wall gravity units
currently offered for sale and the adjustment of the max-tech
efficiency level in response to commenters.
In general, TSL 1 consists of the efficiency levels that are close
to the current shipment-weighted average efficiency. TSL 2, TSL 3, and
TSL 4 consist of efficiency levels that have gradually higher
efficiency than TSL 1. TSL 5 consists of the efficiency levels that
include electronic ignition and fan assist (where applicable), and TSL
6 consists of the max-tech efficiency levels for all of the DHE product
classes.
Table VI.2--Trial Standard Levels for Direct Heating Equipment (AFUE)
----------------------------------------------------------------------------------------------------------------
Product class TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6
----------------------------------------------------------------------------------------------------------------
Gas Wall Fan (over 42,000 Btu/h).. 75% 76% 77% 80% 75% 80%
Gas Wall Gravity (over 27,000 and 66% 66% 69% 69% 70% 70%
up to 46,000 Btu/h)..............
Gas Floor (over 37,000 Btu/h)..... 58% 58% 58% 58% 58% 58%
Gas Room (over 27,000 and up to 66% 67% 68% 68% 83% 83%
46,000 Btu/h)....................
Gas Hearth (over 27,000 and up to 67% 67% 67% 72% 72% 93%
46,000 Btu/h)....................
----------------------------------------------------------------------------------------------------------------
3. Gas-Fired Pool Heaters
Table VI.3 shows the six TSLs DOE analyzed for pool heaters, which
are identical to the TSLs analyzed in the December 2009 NOPR. TSL 1
consists of the efficiency level that is close to the current shipment-
weighted average efficiency. TSL 2 and TSL 3 consist of efficiency
levels that have gradually higher efficiency than TSL 1. TSL 4 is the
highest efficiency level with positive NPV. TSL 5 is the highest
analyzed non-condensing efficiency level, and TSL 6 consists of the
max-tech efficiency level.
Table VI.3--Trial Standard Levels for Pool Heaters (Thermal Efficiency)
----------------------------------------------------------------------------------------------------------------
Product class TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6
----------------------------------------------------------------------------------------------------------------
Gas-fired................... 81% 82% 83% 84% 86% 95%
----------------------------------------------------------------------------------------------------------------
B. Significance of Energy Savings
To estimate the energy savings due to potential standards, from
2013 to 2043 for DHE and pool heaters and from 2015 to 2045 for water
heaters, DOE compared the energy consumption attributable to the three
types of heating products under the base case (no standards) to energy
consumption attributable to these products under each standards case
(each TSL that DOE has considered). Table VI.4, Table VI.5, and Table
VI.6 present DOE's national energy savings (NES) estimates
(undiscounted) for each of the three types of heating products, by
product class at each TSL. Chapter 10 of the TSD describes these
estimates in more detail.
Table VI.4--Water Heaters: Cumulative National Energy Savings in Quads
--------------------------------------------------------------------------------------------------------------------------------------------------------
Product class TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 TSL 7 TSL 8
--------------------------------------------------------------------------------------------------------------------------------------------------------
Gas-Fired Storage....................................... 0.69 1.17 1.17 1.17 0.81 1.29 1.17 4.91
Electric Storage........................................ 0.29 0.41 0.79 1.09 1.67 1.67 8.90 11.22
Oil-Fired Storage....................................... 0.00 0.01 0.01 0.01 0.01 0.01 0.01 0.02
Gas-Fired Instantaneous................................. 0.08 0.08 0.08 0.08 0.08 0.08 0.08 0.58
-----------------------------------------------------------------------------------------------
Total............................................... 1.07 1.66 2.05 2.35 2.58 3.06 10.16 16.73
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table VI.5--Direct Heating Equipment: Cumulative National Energy Savings in Quads
----------------------------------------------------------------------------------------------------------------
Product class TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6
----------------------------------------------------------------------------------------------------------------
Gas Wall Fan...................... 0.01 0.01 0.01 0.03 0.01 0.03
Gas Wall Gravity.................. 0.01 0.01 0.03 0.03 0.06 0.06
Gas Floor......................... 0.0001 0.0001 0.0001 0.0001 0.0001 0.0001
Gas Room.......................... 0.001 0.002 0.004 0.004 0.04 0.04
Gas Hearth........................ 0.19 0.19 0.19 0.37 0.37 1.13
-----------------------------------------------------------------------------
Total......................... 0.20 0.21 0.23 0.43 0.48 1.26
----------------------------------------------------------------------------------------------------------------
[[Page 20186]]
Table VI.6--Pool Heaters: Cumulative National Energy Savings in Quads
----------------------------------------------------------------------------------------------------------------
TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6
----------------------------------------------------------------------------------------------------------------
Gas-Fired......................... 0.01 0.02 0.04 0.06 0.09 0.22
----------------------------------------------------------------------------------------------------------------
C. Economic Justification
1. Economic Impact on Consumers
a. Life-Cycle Costs and Payback Period
Consumers affected by amended standards usually experience higher
product purchase prices and lower operating costs. Generally, these
impacts are captured by changes in life-cycle costs and by the payback
period. Therefore, DOE calculated the LCC and PBP for the standard
levels considered in this rulemaking.
DOE's LCC and PBP analyses provide seven key outputs for each TSL,
which are reported in Table VI.7 through Table VI.16 below. The first
two of these outputs is the average LCC and average LCC savings. (A
negative ``LCC savings'' for a standard level indicates that the life-
cycle cost of a standards-compliant product would be higher than the
life-cycle cost of a baseline product.) The next three outputs are the
proportion of purchases of the product that already comply with the TSL
and that would create a net life-cycle cost, no impact, or a net life-
cycle savings for the purchaser.
The sixth and seventh outputs are the median and average PBPs,
respectively, for the consumer purchasing a design that complies with
the TSL compared with purchasing a baseline product. The PBP is the
number of years it would take for the purchaser to recover, as a result
of energy savings, the increased cost of a higher-efficiency product
based on 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 analysis includes both the analysis
contemplated under the rebuttable presumption test, which is based on
energy use as determined under conditions prescribed by the DOE test
procedure, and analysis of the payback period based on conditions of
actual use of the product by purchasers. DOE derived the median and
average PBPs in Table VI.7 through Table VI.16 by using the latter
method. While DOE examined the rebuttable presumption criterion (see
chapter 8 of the TSD), it also evaluated the standard levels adopted in
today's rule through a more detailed analysis of the economic impacts
of these levels pursuant to section 325(o)(2)(B)(i) of EPCA. (42 U.S.C.
6295(o)(2)(B)(i))
TSD chapter 8 provides detailed information on the LCC and PBP
analyses.
Table VI.7--Gas-Fired Storage Water Heaters: LCC and PBP Results
--------------------------------------------------------------------------------------------------------------------------------------------------------
LCC Payback period
------------------------------------------------------------------------------------------
Energy Households with
TSL factor Average LCC Average LCC --------------------------------------- Median Average
2009$ savings Net benefit years years
2009$ Net cost % No impact % %
--------------------------------------------------------------------------------------------------------------------------------------------------------
1............................................... 0.62 $3,528 $16 25 36 39 2.0 17.0
2, 3, 4......................................... 0.63 3,537 7 32 22 45 4.5 18.6
5 *............................................. 0.62 3,528 18 27 33 40 2.3 16.9
6 *............................................. 0.63 3,537 9 34 21 46 4.7 18.3
7............................................... 0.67 3,793 -218 70 6 23 21.5 27.1
8............................................... 0.77 3,771 -195 70 1 28 15.6 16.8
--------------------------------------------------------------------------------------------------------------------------------------------------------
* For TSL 5 and 6, the EF and the results represent shipments-weighted averages of the EFs and results that apply to small- and large-volume water
heaters, respectively. For the other TSLs, the EF and the results refer to the representative rated volume (40 gal).
Table VI.8--Electric Storage Water Heaters: LCC and PBP Results
--------------------------------------------------------------------------------------------------------------------------------------------------------
LCC Payback period
------------------------------------------------------------------------------------------
Energy
TSL factor Average LCC Average LCC --------------------------------------- Median Average
2009$ savings Net benefit years years
2009$ Net cost % No impact % %
--------------------------------------------------------------------------------------------------------------------------------------------------------
1............................................... 0.92 $3,255 $5 11 44 45 4.0 10.2
2............................................... 0.93 3,245 11 12 39 48 4.0 10.0
3............................................... 0.94 3,236 18 21 17 62 5.0 9.3
4............................................... 0.95 3,236 18 32 10 59 6.7 9.9
5, 6............................................ * 1.04 3,188 64 33 9 58 6.8 10.2
7............................................... 2.00 3,136 112 50 5 45 9.4 26.2
8............................................... 2.35 3,076 171 50 1 49 9.0 20.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
* For TSL 5 and 6, the EF and the results represent shipments-weighted averages of the EFs and results that apply to small-and large-volume water
heaters, respectively. For the other TSLs, the EF and the results refer to the representative rated volume (50 gal).
[[Page 20187]]
Table VI.9--Oil-Fired Storage Water Heaters: LCC and PBP Results
--------------------------------------------------------------------------------------------------------------------------------------------------------
Average LCC 2009$ Payback period
-----------------------------------------------------------------------------
Energy Households with
TSL factor LCC Average LCC --------------------------------------- Median Average
savings Net benefit years years
2009$ Net cost % No impact % %
--------------------------------------------------------------------------------------------------------------------------------------------------------
1............................................... 0.58 $8,102 $101 0 76 24 0.9 0.9
2............................................... 0.60 7,885 203 0 54 46 0.3 0.2
3, 4, 5, 6, 7................................... 0.62 7,721 295 0 47 53 0.5 0.7
8............................................... 0.68 7,463 495 0 17 83 1.9 2.1
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table VI.10--Gas-Fired Instantaneous Water Heaters: LCC and PBP Results
--------------------------------------------------------------------------------------------------------------------------------------------------------
LCC Payback period
------------------------------------------------------------------------------------------
Energy Households with
TSL factor Average LCC Average LCC --------------------------------------- Median Average
2009$ savings Net benefit years years
2009$ Net cost % No impact % %
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 through 7..................................... 0.82 $5,505 $9 5 91 4 14.8 24.3
8............................................... 0.95 5,913 -259 77 12 11 38.7 55.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table VI.11--Gas Wall Fan DHE: LCC and PBP Results
--------------------------------------------------------------------------------------------------------------------------------------------------------
LCC Payback period
------------------------------------------------------------------------------------------
Households with
TSL AFUE % Average LCC Average LCC --------------------------------------- Median Average
2009$ savings Net benefit years years
2009$ Net cost % No impact % %
--------------------------------------------------------------------------------------------------------------------------------------------------------
1, 5............................................ 75 $7,170 $83 0 60 40 2.7 2.7
2............................................... 76 7,131 102 3 53 44 3.2 3.9
3............................................... 77 7,114 114 19 26 55 5.0 9.9
4, 6............................................ 80 7,189 43 53 7 40 12.2 33.7
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table VI.12--Gas Wall Gravity DHE: LCC and PBP Results
--------------------------------------------------------------------------------------------------------------------------------------------------------
LCC Payback period
------------------------------------------------------------------------------------------
Households with
TSL AFUE % Average LCC Average LCC --------------------------------------- Median Average
2009$ savings Net benefit years years
2009$ Net cost % No impact % %
--------------------------------------------------------------------------------------------------------------------------------------------------------
1, 2............................................ 66 $6,848 $21 10 75 15 7.5 13.8
3, 4............................................ 69 6,760 64 33 37 30 11.0 22.5
5, 6............................................ 70 6,880 -56 70 0 30 16.5 18.6
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table VI.13--Gas Floor DHE: LCC and PBP Results
--------------------------------------------------------------------------------------------------------------------------------------------------------
LCC Payback period
------------------------------------------------------------------------------------------
Households with
TSL AFUE % Average LCC Average LCC --------------------------------------- Median Average
2009$ savings Net benefit years years
2009$ Net cost % No impact % %
--------------------------------------------------------------------------------------------------------------------------------------------------------
1, 2, 3, 4, 5, 6................................ 58 $7,755 $13 23 58 19 10.7 16.5
--------------------------------------------------------------------------------------------------------------------------------------------------------
[[Page 20188]]
Table VI.14--Gas Room DHE: LCC and PBP Results
--------------------------------------------------------------------------------------------------------------------------------------------------------
LCC Payback period
------------------------------------------------------------------------------------------
Households with
TSL AFUE % Average LCC Average LCC --------------------------------------- Median Average
2009$ savings Net benefit years years
2009$ Net cost % No impact % %
--------------------------------------------------------------------------------------------------------------------------------------------------------
1............................................... 66 $7,349 $26 9 74 16 6.7 11.8
2............................................... 67 7,284 60 12 50 38 4.5 8.3
3, 4............................................ 68 7,226 104 19 25 57 4.8 8.2
5, 6............................................ 83 6,628 702 32 0 68 6.9 8.7
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table VI.15--Gas Hearth DHE: LCC and PBP Results
--------------------------------------------------------------------------------------------------------------------------------------------------------
LCC Payback period
------------------------------------------------------------------------------------------
Households with
TSL AFUE % Average LCC Average LCC --------------------------------------- Median Average
2009$ savings Net benefit years years
2009$ Net cost % No impact % %
--------------------------------------------------------------------------------------------------------------------------------------------------------
1, 2, 3......................................... 67 $5,146 $112 3 61 37 0.0 3.1
4, 5............................................ 72 5,324 -28 55 23 21 17.1 47
6............................................... 93 5,475 -179 77 1 22 26.8 60.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table VI.16--Gas-Fired Pool Heaters: LCC and PBP Results
--------------------------------------------------------------------------------------------------------------------------------------------------------
LCC Payback period
------------------------------------------------------------------------------------------
Thermal Households with
TSL efficiency Average LCC Average LCC --------------------------------------- Median Average
% 2009$ savings Net benefit years years
2009$ Net cost % No impact % %
--------------------------------------------------------------------------------------------------------------------------------------------------------
1............................................... 81 $8,212 $25 5 72 23 2.7 5.4
2............................................... 82 8,217 22 27 51 22 8.6 15.2
3............................................... 83 8,264 -6 60 23 17 18.2 32.3
4............................................... 84 8,322 -52 64 21 15 19.2 39.0
5............................................... 86 8,959 -632 88 9 3 38.1 85.8
6............................................... 95 9,698 -1,361 95 1 4 33.2 74.1
--------------------------------------------------------------------------------------------------------------------------------------------------------
b. Consumer Subgroup Analysis
For water heaters, DOE estimated consumer subgroup impacts for low-
income households and senior-only households by determining the LCC
impacts of the TSLs considered for gas-fired and electric storage water
heaters. In addition, DOE estimated consumer subgroup impacts on
households in multi-family housing and households in manufactured homes
for the TSLs considered for gas-fired and electric storage water
heaters. DOE also estimated the consumer subgroup impacts for low-
income households and senior-only households for gas wall fan and gas
wall gravity DHE.
For gas-fired storage water heaters, the impacts of the standard in
today's final rule are roughly the same for the senior-only subgroup
and the low-income subgroup as they are for the full household sample
for this product class (see Table VI.17 and Table VI.18). For the
multi-family subgroup, the results report an average LCC increase
(i.e., negative savings) of $13, and they also show a 36-percent share
of households with a net LCC benefit, and a 31-percent share of
households with a net LCC cost (see Table VI.19). For the manufactured
home subgroup, the results report an average LCC increase (i.e.,
negative savings) of $17, and they also show a 35-percent share of
households with a net LCC benefit, and a 36-percent share of households
with a net LCC cost (see Table VI.20).
Table VI.17--Gas-Fired Storage Water Heaters: LCC and PBP Results for Senior-Only Households
--------------------------------------------------------------------------------------------------------------------------------------------------------
LCC Payback period
------------------------------------------------------------------------------------------
Energy Households with
TSL factor Average LCC Average LCC --------------------------------------- Median Average
2009$ savings Net benefit years years
2009$ Net cost % No impact % %
--------------------------------------------------------------------------------------------------------------------------------------------------------
1............................................... 0.62 $3,072 $14 27 32 41 1.9 19.4
2, 3, 4......................................... 0.63 3,081 7 34 19 47 4.1 19.5
5 *............................................. 0.62 3,071 16 27 31 41 2.0 19.4
6 *............................................. 0.63 3,079 9 34 19 47 4.2 19.3
7............................................... 0.67 3,355 -235 71 6 22 22.5 27.8
[[Page 20189]]
8............................................... 0.77 3,377 -257 75 1 24 17.4 18.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
* For TSL 5 and TSL 6, the EF and the results represent shipments-weighted averages of the EFs and results that apply to small-and large-volume water
heaters, respectively. For the other TSLs, the EF and the results refer to the representative rated volume (40 gal).
Table VI.18--Gas-Fired Storage Water Heaters: LCC and PBP Results for Low-Income Households
--------------------------------------------------------------------------------------------------------------------------------------------------------
LCC Payback period
------------------------------------------------------------------------------------------
Energy Households with
TSL factor Average LCC Average LCC --------------------------------------- Median Average
2009$ savings Net benefit years years
2009$ Net cost % No impact % %
--------------------------------------------------------------------------------------------------------------------------------------------------------
1............................................... 0.62 $3,591 $9 29 31 40 2.1 18.7
2, 3, 4......................................... 0.63 3,610 -8 36 19 45 6.1 21.2
5 *............................................. 0.62 3,586 15 29 31 41 2.1 18.7
6 *............................................. 0.63 3,605 -2 36 19 45 6.2 21.2
7............................................... 0.67 3,877 -243 71 6 23 22.9 28.5
8............................................... 0.77 3,847 -213 70 2 28 16.4 17.6
--------------------------------------------------------------------------------------------------------------------------------------------------------
* For TSL 5 and TSL 6, the EF and the results represent shipments-weighted averages of the EFs and results that apply to small-and large-volume water
heaters, respectively. For the other TSLs, the EF and the results refer to the representative rated volume (40 gal).
Table VI.19--Gas-Fired Storage Water Heaters: LCC and PBP Results for Multi-Family Households
--------------------------------------------------------------------------------------------------------------------------------------------------------
LCC Payback period
------------------------------------------------------------------------------------------
Energy Households with
TSL factor Average LCC Average LCC --------------------------------------- Median Average
2009$ savings Net benefit years years
2009$ Net cost % No impact % %
--------------------------------------------------------------------------------------------------------------------------------------------------------
1............................................... 0.62 $2,825 -$11 31 33 36 2.4 26.5
2, 3, 4......................................... 0.63 2,868 -45 41 21 38 11.0 27.2
5 *............................................. 0.62 2,827 -13 31 32 36 2.5 26.5
6 *............................................. 0.63 2,870 -46 41 21 37 11.0 27.2
7............................................... 0.67 3,182 -324 74 6 19 27.2 35.2
8............................................... 0.77 3,239 -380 79 2 19 21.2 23.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
* For TSL 5 and TSL 6, the EF and the results represent shipments-weighted averages of the EFs and results that apply to small-and large-volume water
heaters, respectively. For the other TSLs, the EF and the results refer to the representative rated volume (40 gal).
Table VI.20--Gas-Fired Storage Water Heaters: LCC and PBP Results for Manufactured Home Households
--------------------------------------------------------------------------------------------------------------------------------------------------------
LCC Payback period
------------------------------------------------------------------------------------------
Energy Households with
TSL factor Average LCC Average LCC --------------------------------------- Median Average
2009$ savings Net benefit years years
2009$ Net cost % No impact % %
--------------------------------------------------------------------------------------------------------------------------------------------------------
1............................................... 0.62 $4,035 -$17 36 29 35 9.9 25.1
2, 3, 4......................................... 0.63 4,082 -59 48 17 34 13.1 26.7
5 *............................................. 0.62 4,035 -17 36 29 35 9.9 25.1
6 *............................................. 0.63 4,082 -59 48 17 34 13.1 26.7
7............................................... 0.67 4,275 -232 69 6 25 21.1 27.3
8............................................... 0.77 4,207 -164 64 2 34 14.7 17.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
* For TSL 5 and TSL 6, the EF and the results represent shipments-weighted averages of the EFs and results that apply to small-and large-volume water
heaters, respectively. For the other TSLs, the EF and the results refer to the representative rated volume (40 gal).
For electric storage water heaters, the impacts of the standard in
today's final rule are approximately the same for the senior-only
subgroup as they are for the full household sample for this product
class (see Table VI.21). For the low-income subgroup, the results show
an average LCC savings of $18, a 53-percent share of households with a
net LCC
[[Page 20190]]
benefit, and a 39-percent share of households with a net LCC cost (see
Table VI.22). For the multi-family subgroup, the results report an
average LCC increase (i.e., negative savings) of $8, and they also show
a 53-percent share of households with a net LCC benefit, and a 38-
percent share of households with a net LCC cost (see Table VI.23). For
the manufactured home subgroup, the results report an average LCC
increase (i.e., negative savings) of $20, and they also show a 38-
percent share of households with a net LCC benefit, and a 54-percent
share of households with a net LCC cost (see Table VI.24).
Table VI.21--Electric Storage Water Heaters: LCC and PBP Results for Senior-Only Households
--------------------------------------------------------------------------------------------------------------------------------------------------------
LCC Payback period
------------------------------------------------------------------------------------------
Energy Households with
TSL factor Average LCC Average LCC --------------------------------------- Median Average
2009$ savings Net benefit years years
2009$ Net cost % No impact % %
--------------------------------------------------------------------------------------------------------------------------------------------------------
1............................................... 0.92 $2,859 $6 11 42 47 3.8 10.1
2............................................... 0.93 2,849 11 12 38 50 3.8 9.9
3............................................... 0.94 2,839 19 21 16 63 5.0 9.2
4............................................... 0.95 2,837 20 30 10 60 6.3 9.6
5, 6............................................ * 1.04 2,826 31 32 9 59 6.6 10.1
7............................................... 2.00 2,937 -76 59 5 36 11.0 21.6
8............................................... 2.35 2,895 -34 58 1 41 10.5 17.5
--------------------------------------------------------------------------------------------------------------------------------------------------------
* For TSL 5 and TSL 6, the EF and the results represent shipments-weighted averages of the EFs and results that apply to small-and large-volume water
heaters, respectively. For the other TSLs, the EF and the results refer to the representative rated volume (50 gal).
Table VI.22--Electric Storage Water Heaters: LCC and PBP Results for Low-Income Households
--------------------------------------------------------------------------------------------------------------------------------------------------------
LCC Payback period
------------------------------------------------------------------------------------------
Energy Households with
TSL factor Average LCC Average LCC --------------------------------------- Median Average
2009$ savings Net benefit years years
2009$ Net cost % No impact % %
--------------------------------------------------------------------------------------------------------------------------------------------------------
1............................................... 0.92 $3,203 -$3 15 39 46 4.2 12.4
2............................................... 0.93 3,196 1 16 36 48 4.2 12.2
3............................................... 0.94 3,196 0 29 14 57 5.5 11.1
4............................................... 0.95 3,197 -1 38 9 53 7.1 11.3
5, 6............................................ * 1.04 3,178 18 39 9 53 7.3 11.5
7............................................... 2.00 3,132 61 54 5 41 10.1 28.4
8............................................... 2.35 3,078 114 54 1 45 9.9 23.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
* For TSL 5 and TSL 6, the EF and the results represent shipments-weighted averages of the EFs and results that apply to small- and large-volume water
heaters, respectively. For the other TSLs, the EF and the results refer to the representative rated volume (50 gal).
Table VI.23--Electric Storage Water Heaters: LCC and PBP Results for Multi-Family Households
--------------------------------------------------------------------------------------------------------------------------------------------------------
LCC Payback period
------------------------------------------------------------------------------------------
Energy Households with
TSL factor Average LCC Average LCC --------------------------------------- Median Average
2009$ savings Net benefit years years
2009$ Net cost % No impact % %
--------------------------------------------------------------------------------------------------------------------------------------------------------
1............................................... 0.92 $2,015 -$2 14 35 50 4.0 11.6
2............................................... 0.93 2,009 1 15 32 52 4.0 11.3
3............................................... 0.94 2,017 -6 31 13 56 5.6 11.7
4............................................... 0.95 2,018 -7 37 9 54 6.9 11.6
5, 6............................................ * 1.04 2,019 -8 38 9 53 7.0 11.9
7............................................... 2.00 2,468 -436 79 5 16 25.5 67.9
8............................................... 2.35 2,479 -447 81 1 18 24.4 50.8
--------------------------------------------------------------------------------------------------------------------------------------------------------
* For TSL 5 and TSL 6, the EF and the results represent shipments-weighted averages of the EFs and results that apply to small- and large-volume water
heaters, respectively. For the other TSLs, the EF and the results refer to the representative rated volume (50 gal).
Table VI.24--Electric Storage Water Heaters: LCC and PBP Results for Manufactured Home Households
--------------------------------------------------------------------------------------------------------------------------------------------------------
LCC Payback period
------------------------------------------------------------------------------------------
Energy Households with
TSL factor Average LCC Average LCC --------------------------------------- Median Average
2009$ savings Net benefit years years
2009$ Net cost % No impact % %
--------------------------------------------------------------------------------------------------------------------------------------------------------
1............................................... 0.92 $3,152 -$32 31 35 33 7.0 21.8
2............................................... 0.93 3,151 -31 33 33 35 7.7 21.4
[[Page 20191]]
3............................................... 0.94 3,153 -33 47 14 40 13.0 15.4
4............................................... 0.95 3,154 -35 54 9 38 12.9 14.8
5, 6............................................ * 1.04 3,140 -20 54 9 38 13.4 15.0
7............................................... 2.00 3,103 14 56 5 39 10.5 25.0
8............................................... 2.35 3,055 61 55 1 44 10.1 21.4
--------------------------------------------------------------------------------------------------------------------------------------------------------
* For TSL 5 and TSL 6, the EF and the results represent shipments-weighted averages of the EFs and results that apply to small-and large-volume water
heaters, respectively. For the other TSLs, the EF and the results refer to the representative rated volume (50 gal).
For gas wall fan and gas wall gravity DHE, DOE estimated that the
impacts of the standards in today's final rule are roughly the same for
the senior-only sample and the low-income sample as they are for the
full household sample for these product classes. For gas hearth DHE,
DOE performed the senior-only analysis but did not perform the low-
income analysis due to the extremely small sample size and relatively
high product cost. The results for the gas hearth DHE senior-only
sample were about the same as for the full household sample. (See
tables in chapter 11 of the TSD).
DOE did not estimate the impacts of consumer subgroups for oil-
fired storage water heaters, gas floor DHE, and gas room DHE due to low
product shipments, and for gas-fired instantaneous water heaters due to
insufficient data. For pool heaters, DOE did not perform consumer
subgroup analyses since this product is typically not owned by these
subgroups.
Chapter 11 of the TSD explains DOE's methodology for conducting the
consumer subgroup analysis and presents the detailed results of that
analysis for each considered efficiency level.
c. Rebuttable Presumption Payback
As discussed in section III.D.2, EPCA provides a rebuttable
presumption that an energy conservation standard is economically
justified if the increase in purchase cost for a product that meets the
standard is less than three times the value of the first-year energy
(and, as applicable, water) savings resulting from the standard. DOE's
LCC and PBP analyses generate values that calculate the payback period
for consumers of potential energy conservation standards, which
include, but are not limited to, the payback period contemplated under
the rebuttable presumption test discussed above. However, DOE routinely
conducts a full economic analysis that considers the full range of
impacts, including those to the consumer, manufacturer, Nation, and
environment, as required under 42 U.S.C. 6295(o)(2)(B)(i). The results
of this analysis serve as the basis for DOE to evaluate definitively
the economic justification for a potential standard level (thereby
supporting or rebutting the results of any preliminary determination of
economic justification).
As required by EPCA, DOE based the calculation of rebuttable
presumption payback period on the assumptions in the DOE test
procedures for each of the three types of heating products. For water
heaters and DHE, respectively, Table VI.24 and Table VI.25 show the
rebuttable presumption PBPs for those TSLs that have a rebuttable
presumption payback period of less than 3 years. For pool heaters, only
one of the considered efficiency levels has a rebuttable presumption
payback period of less than 3 years--81 percent thermal efficiency has
a rebuttable presumption payback period of 2.7 years.
Table VI.24--Water Heaters: Rebuttable Presumption Payback Periods
----------------------------------------------------------------------------------------------------------------
Payback period, years
---------------------------------------------------------------
TSL Gas-fired Electric Oil-fired Gas-fired
storage storage storage instantaneous
----------------------------------------------------------------------------------------------------------------
1............................................... >3 >3 0.8 >3
2............................................... >3 >3 0.4 >3
3............................................... >3 >3 0.6 >3
4............................................... >3 >3 0.6 >3
5............................................... >3 >3 0.6 >3
6............................................... >3 >3 0.6 >3
7............................................... >3 >3 0.6 >3
8............................................... >3 >3 0.9 >3
----------------------------------------------------------------------------------------------------------------
Table VI.25--Direct Heating Equipment: Rebuttable Presumption Payback Periods
----------------------------------------------------------------------------------------------------------------
Payback period, years
----------------------------------------------------------------
TSL Gas wall Gas wall Gas furnace Gas wall Gas hearth
fan DHE gravity DHE DHE room DHE DHE
----------------------------------------------------------------------------------------------------------------
1.............................................. >3 >3 >3 >3 2.5
2.............................................. >3 >3 >3 >3 2.5
[[Page 20192]]
3.............................................. >3 >3 >3 >3 2.5
4.............................................. >3 >3 >3 >3 >3
5.............................................. >3 >3 >3 >3 >3
6.............................................. >3 >3 >3 >3 >3
----------------------------------------------------------------------------------------------------------------
2. Economic Impact on Manufacturers
For the MIA in the December 2009 NOPR, DOE used the INPV to compare
the financial impacts of different TSLs on water heater, DHE, and pool
heater manufacturers. 74 FR 65852, 65935-47 (Dec. 11, 2009). DOE
presented the results by grouping product classes made by the same
manufacturers and uses the scenarios that show the likely changes in
industry value following amended energy conservation standards. DOE
used the GRIM to compare the INPV of the base case (no new energy
conservation standards) to that of each TSL for each covered product.
The INPV is the sum of all net cash flows discounted by the industry's
cost of capital (discount rate). The difference in INPV between the
base case and the standards case is an estimate of the economic impacts
that implementing that standard level would have on the entire
industry.
For today's final rule, DOE continues to use the methodology
presented in the December 2009 NOPR (74 FR 65852, 65915-22 (Dec. 11,
2009)) and in section IV.I. DOE modeled two different markup scenarios
to estimate the potential impacts of amended energy conservation
standards on manufacturers. To assess the lower end of the range of
potential impacts on manufacturers, DOE modeled the preservation of
return on invested capital scenario. In addition to the impact of the
main NIA shipment scenario and the required capital and product
conversion costs on INPV, this case models a situation in which
manufacturers would maintain the base-case return on invested capital
in the standards case. This scenario represents the lower (more
favorable) end of the range of potential impacts on manufacturers
because the industry generates a historical rate of operating profit on
the physical and financial investments required by energy conservation
standards. To assess the higher end of the range of potential impacts
on the manufacturers of the three types of heating products, DOE
modeled the preservation of operating profit markup scenario in which
higher energy conservation standards result in lower manufacturer
markups. This scenario models a scenario in which the higher production
costs of more-efficient technology and required investments are not
fully passed on to customers, consequently lowering operating profit
margins. This scenario represents the upper end of the range of
potential impacts on manufacturers only because no additional operating
profit is earned on the investments required to meet the amended energy
conservation standards.
In overview, DOE notes that for water heaters, the main NIA
scenario used the Reference Case gas-fired instantaneous water heater
market share scenario, the AEO Reference Case economic growth scenario,
and the moderate rate of efficiency growth scenarios. The main NIA
scenario for water heaters also accounts for fuel switching at a level
that effectively requires HPWHs for all rated storage volumes (final
rule TSL 7 and TSL 8) and capacity switching at a level that required
advanced technology for water heaters with rated storage volumes above
55 gallons (final rule TSL 5 and TSL 6). In all standards-case shipment
scenarios for all three types of heating products, DOE assumed that
shipments at efficiencies below the projected minimum standard levels
would roll up to the new standard levels in response to amended energy
conservation standards.
The sections below outline comments on the economic impacts on
manufacturers presented in the December 2009 NOPR and provide DOE's
response. The complete MIA results section can be found in the December
2009 NOPR (74 FR 65852, 65935-54 (Dec. 11, 2009)) and chapter 12 of the
TSD.
a. Cash-Flow Analysis Results for Water Heaters
i. Cash-Flow Analysis Results for Gas-Fired and Electric Storage Water
Heaters
Table VI.26--Manufacturer Impact Analysis for Gas-Fired and Electric Storage Water Heaters--Preservation of Return on Invested Capital Markup Scenario
--------------------------------------------------------------------------------------------------------------------------------------------------------
Trial standard level
Units Base case ---------------------------------------------------------------------------------------
1 2 3 4 5 6 7 8
--------------------------------------------------------------------------------------------------------------------------------------------------------
INPV............................ (2009$ millions)... $880.4 $875.5 $876.0 $875.1 $875.5 $854.4 $856.8 $869.9 $959.6
Change in INPV.................. (2009$ millions)... ......... -4.9 -4.3 -5.2 -4.8 -25.9 -23.6 -10.5 79.2
(%)................ ......... -0.56% -0.49% -0.59% -0.55% -2.94% -2.68% -1.19% 9.00%
-----------------------------------------------------------------------------------------------------------------------
Product Conversion Costs........ (2009$ millions)... ......... 12.1 14.5 14.5 14.5 31.8 31.8 61.1 79.7
Capital Conversion Costs........ (2009$ millions)... ......... 0.0 4.3 4.3 40.7 63.7 63.7 76.0 208.0
-----------------------------------------------------------------------------------------------------------------------
Total Conversion Costs...... (2009$ millions)... ......... 12.1 18.7 18.7 55.1 95.4 95.4 137.1 287.8
--------------------------------------------------------------------------------------------------------------------------------------------------------
[[Page 20193]]
Table VI.27--Manufacturer Impact Analysis for Gas-Fired and Electric Storage Water Heaters--Preservation of Operating Profit Markup Scenario
--------------------------------------------------------------------------------------------------------------------------------------------------------
Trial standard level
Units Base case ---------------------------------------------------------------------------------------
1 2 3 4 5 6 7 8
--------------------------------------------------------------------------------------------------------------------------------------------------------
INPV............................ (2009$ millions)... $880.4 $866.1 $849.0 $842.1 $790.9 $757.8 $745.7 $530.2 $233.4
Change in INPV.................. (2009$ millions)... ......... -14.2 -31.4 -38.3 -89.4 -122.6 -134.6 -350.2 -647.0
(%)................ ......... -1.62 -3.56 -4.35 -10.16 -13.93 -15.29 -39.78 -73.49
Product Conversion Costs........ (2009$ millions)... ......... 12.1 14.5 14.5 14.5 31.8 31.8 61.1 79.7
Capital Conversion Costs........ (2009$ millions)... ......... 0.0 4.3 4.3 40.7 63.7 63.7 76.0 208.0
Total Conversion Costs.......... (2009$ millions)... ......... 12.1 18.7 18.7 55.1 95.4 95.4 137.1 287.8
--------------------------------------------------------------------------------------------------------------------------------------------------------
The December 2009 NOPR discusses the estimated impact of amended
energy conservation standards on INPV for gas-fired and electric
storage water heater manufacturers in further detail. 74 FR 65852,
65936-39 (Dec. 11, 2009). DOE did not receive any comments on the gas-
fired and electric storage water heaters INPV results. Those comments
related to conversion costs and methodology are discussed in section
IV.I.1.
ii. Cash-Flow Analysis Results for Oil-Fired Storage Water Heaters
Table VI.28--Manufacturer Impact Analysis for Oil-Fired Storage Water Heaters--Preservation of Return on Invested Capital Markup Scenario
--------------------------------------------------------------------------------------------------------------------------------------------------------
Trial standard level
Units Base case ---------------------------------------------------------------------------------------
1 2 3 4 5 6 7 8
--------------------------------------------------------------------------------------------------------------------------------------------------------
INPV............................ (2009$ millions)... $9.1 $8.9 $8.9 $8.9 $8.9 $8.9 $8.9 $8.9 $7.7
Change in INPV.................. (2009$ millions)... ......... (0.2) (0.2) (0.2) (0.2) (0.2) (0.2) (0.2) (1.4)
(%)................ ......... -1.98 -1.85 -2.01 -2.01 -2.01 -2.01 -2.01 -15.37
Product Conversion Costs........ (2009$ millions)... ......... 0.3 0.3 0.3 0.3 0.3 0.3 0.3 1.1
Capital Conversion Costs........ (2009$ millions)... ......... 0.2 0.2 0.2 0.2 0.2 0.2 0.2 4.0
Total Conversion Costs.......... (2009$ millions)... ......... 0.5 0.5 0.5 0.5 0.5 0.5 0.5 5.1
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table VI.29--Manufacturer Impact Analysis for Oil-Fired Storage Water Heaters--Preservation of Operating Profit Markup Scenario
--------------------------------------------------------------------------------------------------------------------------------------------------------
Trial standard level
Units Base case ---------------------------------------------------------------------------------------
1 2 3 4 5 6 7 8
--------------------------------------------------------------------------------------------------------------------------------------------------------
INPV............................ (2009$ millions)... $9.1 $8.8 $8.8 $8.7 $8.7 $8.7 $8.7 $8.7 $5.3
Change in INPV.................. (2009$ millions)... ......... (0.4) (0.3) (0.4) (0.4) (0.4) (0.4) (0.4) (3.8)
(%)................ ......... -3.85 -3.56 -4.23 -4.23 -4.23 -4.23 -4.23 -41.44
Product Conversion Costs........ (2009$ millions)... ......... 0.3 0.3 0.3 0.3 0.3 0.3 0.3 1.1
Capital Conversion Costs........ (2009$ millions)... ......... 0.2 0.2 0.2 0.2 0.2 0.2 0.2 4.0
Total Conversion Costs.......... (2009$ millions)... ......... 0.5 0.5 0.5 0.5 0.5 0.5 0.5 5.1
--------------------------------------------------------------------------------------------------------------------------------------------------------
The December 2009 NOPR discusses the estimated impact of amended
energy conservation standards on INPV for oil-fired storage water
heater manufacturers in further detail. 74 FR 65852, 65939-40 (Dec. 11,
2009). DOE did not receive any comments on the oil-fired water heaters
INPV results. Those comments related to conversion costs and
methodology are discussed in section IV.I.1.
iii. Cash-Flow Analysis Results for Gas-Fired Instantaneous Water
Heaters
Table VI.30--Manufacturer Impact Analysis for Gas-Fired Instantaneous Water Heaters -Preservation of Return on Invested Capital Markup Scenario
--------------------------------------------------------------------------------------------------------------------------------------------------------
Trial standard level
Units Base case ---------------------------------------------------------------------------------------
1 2 3 4 5 6 7 8
--------------------------------------------------------------------------------------------------------------------------------------------------------
INPV............................ (2009$ millions)... $648.2 $650.6 $650.6 $650.6 $650.6 $650.6 $650.6 $650.6 $739.7
Change in INPV.................. (2009$ millions)... ......... 2.3 2.3 2.3 2.3 2.3 2.3 2.3 91.4
(%)................ ......... 0.36 0.36 0.36 0.36 0.36 0.36 0.36 14.10
Product Conversion Costs........ (2009$ millions)... ......... 0.0 0.0 0.0 0.0 0.0 0.0 0.0 8.8
Capital Conversion Costs........ (2009$ millions)... ......... 0.0 0.00 0.00 0.0 0.0 0.0 0.0 10.6
Total Conversion Costs.......... (2009$ millions)... ......... 0.0 0.0 0.0 0.0 0.0 0.0 0.0 19.4
--------------------------------------------------------------------------------------------------------------------------------------------------------
[[Page 20194]]
Table VI.31--Manufacturer Impact Analysis for Gas-Fired Instantaneous Storage Water Heaters--Preservation of Operating Profit Markup Scenario
--------------------------------------------------------------------------------------------------------------------------------------------------------
Trial standard level
Units Base case ---------------------------------------------------------------------------------------
1 2 3 4 5 6 7 8
--------------------------------------------------------------------------------------------------------------------------------------------------------
INPV............................ (2009$ millions)... $648.2 $647.0 $647.0 $647.0 $647.0 $647.0 $647.0 $647.0 $590.6
Change in INPV.................. (2009$ millions)... ......... (1.2) (1.2) (1.2) (1.2) (1.2) (1.2) (1.2) (57.6)
(%)................ ......... -0.19% -0.19% -0.19% -0.19% -0.19% -0.19% -0.19% -8.89%
Product Conversion Costs........ (2009$ millions)... ......... 0.0 0.0 0.0 0.0 0.0 0.0 0.0 8.8
Capital Conversion Costs........ (2009$ millions)... ......... 0.0 0.00 0.00 0.0 0.0 0.0 0.0 10.6
Total Conversion Costs.......... (2009$ millions)... ......... 0.0 0.0 0.0 0.0 0.0 0.0 0.0 19.4
--------------------------------------------------------------------------------------------------------------------------------------------------------
The December 2009 NOPR discusses the estimated impact of amended
energy conservation standards on INPV for gas-fired instantaneous water
heater manufacturers in further detail. 74 FR 65852, 65940-41 (Dec. 11,
2009). DOE did not receive any comments on the gas-fired instantaneous
water heater INPV results.
b. Cash-Flow Analysis Results for Direct Heating Equipment
i. Cash-Flow Analysis Results for Traditional Direct Heating Equipment
(Gas Wall Fan, Gas Wall Gravity, Gas Floor, and Gas Room Direct Heating
Equipment)
Table VI.32--Manufacturer Impact Analysis for Traditional Direct Heating Equipment--Preservation of Return on Invested Capital Markup Scenario
--------------------------------------------------------------------------------------------------------------------------------------------------------
Trial standard level
Units Base case -----------------------------------------------------------------------
1 2 3 4 5 6
--------------------------------------------------------------------------------------------------------------------------------------------------------
INPV.................................... (2009$ millions).......... $16.6 $15.7 $15.4 $14.7 $14.7 $12.8 $12.7
Change in INPV.......................... (2009$ millions).......... .......... (0.9) (1.2) (1.9) (1.9) (3.8) (3.9)
(%)....................... .......... -5.24% -7.17% -11.31% -11.62% -22.74% -23.65%
Product Conversion Costs................ (2009$ millions).......... .......... 0.95 1.38 2.41 2.95 5.02 5.91
Capital Conversion Costs................ (2009$ millions).......... .......... 1.96 3.24 5.60 6.95 6.75 9.11
Total Conversion Costs.................. (2009$ millions).......... .......... 2.91 4.62 8.00 9.90 11.77 15.02
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table VI.33--Manufacturer Impact Analysis for Traditional Direct Heating Equipment--Preservation of Operating Profit Markup Scenario
--------------------------------------------------------------------------------------------------------------------------------------------------------
Trial standard level
Units Base case -----------------------------------------------------------------------
1 2 3 4 5 6
--------------------------------------------------------------------------------------------------------------------------------------------------------
INPV.................................... (2009$ millions).......... $16.6 $14.1 $12.7 $9.6 $7.8 $6.2 $3.2
Change in INPV.......................... (2009$ millions).......... .......... (2.5) (3.9) (7.0) (8.8) (10.4) (13.4)
(%)....................... .......... -14.88% -23.61% -42.38% -53.12% -62.40% -80.85%
Product Conversion Costs................ (2009$ millions).......... .......... 0.95 1.38 2.41 2.95 5.02 5.91
Capital Conversion Costs................ (2009$ millions).......... .......... 1.96 3.24 5.60 6.95 6.75 9.11
Total Conversion Costs.................. (2009$ millions).......... .......... 2.91 4.62 8.00 9.90 11.77 15.02
--------------------------------------------------------------------------------------------------------------------------------------------------------
The December 2009 NOPR discusses the estimated impact of amended
energy conservation standards on INPV for traditional DHE manufacturers
in further detail. 74 FR 65852, 65942-44 (Dec. 11, 2009). DOE addresses
all the comments about the impacts on traditional DHE manufacturers in
sections IV.I.4 and VII.B of today's final rule.
ii. Cash-Flow Analysis Results for Gas Hearth Direct Heating Equipment
Table VI.34--Manufacturer Impact Analysis for Gas Hearth Direct Heating Equipment--Preservation of Return on Invested Capital Markup Scenario
--------------------------------------------------------------------------------------------------------------------------------------------------------
Trial standard level
Units Base case -----------------------------------------------------------------------
1 2 3 4 5 6
--------------------------------------------------------------------------------------------------------------------------------------------------------
INPV.................................... (2009$ millions).......... $77.1 $76.2 $76.2 $76.2 $78.7 $78.7 $85.7
Change in INPV.......................... (2009$ millions).......... .......... (0.9) (0.9) (0.9) 1.6 1.6 8.6
(%)....................... .......... -1.22% -1.22% -1.22% 2.04% 2.04% 11.09%
[[Page 20195]]
Product Conversion Costs................ (2009$ millions).......... .......... 0.56 0.56 0.56 1.46 1.46 8.42
Capital Conversion Costs................ (2009$ millions).......... .......... 0.21 0.21 0.21 0.55 0.55 4.20
Total Conversion Costs.................. (2009$ millions).......... .......... 0.77 0.77 0.77 2.01 2.01 12.62
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table VI.35--Manufacturer Impact Analysis for Gas Hearth Direct Heating Equipment--Preservation of Operating Profit Markup Scenario
--------------------------------------------------------------------------------------------------------------------------------------------------------
Trial standard level
Units Base case -----------------------------------------------------------------------
1 2 3 4 5 6
--------------------------------------------------------------------------------------------------------------------------------------------------------
INPV.................................... (2009$ millions).......... $77.1 $76.9 $76.9 $76.9 $63.9 $63.9 $23.5
Change in INPV.......................... (2009$ millions).......... .......... (0.2) (0.2) (0.2) (13.2) (13.2) (53.6)
(%)....................... .......... -0.30% -0.30% -0.30% -17.13% -17.13% -69.49%
Product Conversion Costs................ (2009$ millions).......... .......... 0.56 0.56 0.56 1.46 1.46 8.42
Capital Conversion Costs................ (2009$ millions).......... .......... 0.21 0.21 0.21 0.55 0.55 4.20
Total Conversion Costs.................. (2009$ millions).......... .......... 0.77 0.77 0.77 2.01 2.01 12.62
--------------------------------------------------------------------------------------------------------------------------------------------------------
The December 2009 NOPR discusses the estimated impact of amended
energy conservation standards on INPV for gas hearth DHE manufacturers
in further detail. 74 FR 65852, 65944-45 (Dec. 11, 2009). DOE did not
receive any comments on the gas hearth DHE INPV results.
c. Cash-Flow Analysis Results for Pool Heaters
Table VI.36--Manufacturer Impact Analysis for Gas-Fired Pool Heaters--Preservation of Return on Invested Capital Markup Scenario
--------------------------------------------------------------------------------------------------------------------------------------------------------
Trial standard level
Units Base case -----------------------------------------------------------------------
1 2 3 4 5 6
--------------------------------------------------------------------------------------------------------------------------------------------------------
INPV.................................... (2009$ millions).......... $49.0 $49.1 $49.3 $48.2 $48.7 $49.8 $56.4
Change in INPV.......................... (2009$ millions).......... .......... 0.0 0.3 (0.8) (0.3) 0.8 7.3
(%)....................... .......... 0.10% 0.54% -1.72% -0.63% 1.61% 14.93%
Product Conversion Costs................ (2009$ millions).......... .......... 0.0 0.0 2.7 2.7 4.8 5.7
Capital Conversion Costs................ (2009$ millions).......... .......... 0.0 0.3 1.3 1.5 4.6 7.4
Total Conversion Costs.................. (2009$ millions).......... .......... 0.0 0.3 4.0 4.2 9.4 13.1
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table VI.37--Manufacturer Impact Analysis for Gas-Fired Pool Heaters--Preservation of Operating Profit Markup Scenario
--------------------------------------------------------------------------------------------------------------------------------------------------------
Trial standard level
Units Base case -----------------------------------------------------------------------
1 2 3 4 5 6
--------------------------------------------------------------------------------------------------------------------------------------------------------
INPV.................................... (2009$ millions).......... $49.0 $48.9 $48.2 $44.0 $42.4 $31.9 $10.8
Change in INPV.......................... (2009$ millions).......... .......... (0.1) (0.8) (5.0) (6.6) (17.2) (38.3)
(%)....................... .......... -0.25% -1.72% -10.22% -13.48% -35.05% -78.00%
Product Conversion Costs................ (2009$ millions).......... .......... 0.0 0.0 2.7 2.7 4.8 5.7
Capital Conversion Costs................ (2009$ millions).......... .......... 0.0 0.3 1.3 1.5 4.6 7.4
Total Conversion Costs.................. (2009$ millions).......... .......... 0.0 0.3 4.0 4.2 9.4 13.1
--------------------------------------------------------------------------------------------------------------------------------------------------------
The December 2009 NOPR discusses the estimated impact of amended
energy conservation standards on INPV for gas-fired pool heaters in
further detail. 74 FR 65852, 65945-47 (Dec. 11, 2009). DOE did not
receive any comments on the pool heaters INPV results. Those comments
related to conversion costs
[[Page 20196]]
and methodology are discussed in section IV.I.3.
d. Impacts on Employment
As discussed in detail in the December 2009 NOPR and in today's
final rule, DOE quantitatively assessed the impacts of potential
amended energy conservation standards on gross employment for each of
the three types of heating products that are the subject of this
rulemaking. DOE presented a range of the potential production
employment levels that could result following the implementation of
amended energy conservation standards. The upper end of the results
represented the maximum potential increase in production workers after
amended energy conservation standards if manufacturers continue to
produce the same scope of covered products in the same production
facilities. The lower end of the range of employment results included
the estimate of the total number of U.S. production workers in the
industry that could lose their jobs if all existing production were to
no longer be made domestically. For example, DOE calculates that the
impacts on gas-fired and electric storage water heaters could range
from an increase of 439 employees to a decrease of 3,610. For oil-fired
water heaters, DOE expects an increase of one employee to a decrease of
37 employees. Similarly, at the upper end of modeled impacts, the
traditional DHE, gas hearth DHE, and pool heater industries could
experience an increase of six, six, and 19 employees, respectively. At
the low end, these three industries could sustain decreases in direct
employment of 275, 1280, and 512 employees, respectively. 74 FR 65852,
65947-51 (Dec. 11, 2009). Further details are also found in chapter 12
of the TSD. DOE discusses and responds to public comments received
regarding the impacts on the direct employment in section IV.I.4.
e. Impacts on Manufacturing Capacity
In the December 2009 NOPR, DOE provided a complete discussion of
the potential impacts on manufacturing capacity for the three types of
heating products as a result of amended energy conservation standards.
74 FR 65852, 65951-53 (Dec. 11, 2009).
In response to that discussion, Raypak stated that it does not
believe three years would allow sufficient time for the proper
development, testing, and tooling necessary to achieve reliable pool
heater products, because pool heaters are installed outdoors and face
harsher operating conditions than the other products covered by this
rulemaking. (Raypak, No. 67 at p. 3) The commenter agreed with DOE's
statement that setting an amended energy conservation standard for pool
heaters at or above TSL 5, which would require condensing or near-
condensing technology, could lead to short-term capacity problems if
manufacturers cannot make the substantially higher tooling, equipment,
and assembly changes required at these levels in time to meet the
standard. Moreover, Raypak argued that these same issues exist at TSL 3
and TSL 4, because at TSL 3 and above manufacturers would have
difficulty changing their production lines and tooling to a new
construction while still producing product to meet current market
demands. (Raypak, No. 67 at p. 2; Public Meeting Transcript, No. 57.4
at pp. 308-310)
In response, DOE agrees that the proposed standard in the December
2009 NOPR would require substantial changes for pool heater
manufacturers. At an 84-percent thermal efficiency level, manufacturers
would be required to make multiple improvements over the most common
atmospheric models on the market today. However, DOE did not receive
any comments that suggested the conversion costs for the industry
presented in the NOPR were not representative at any TSL. Also,
multiple manufacturers have products that meet and/or exceed the
proposed standard in the December 2009 NOPR. While manufacturers would
be required to spend resources to increase the production of those
products or to modify existing products, DOE believes that
manufacturers have the experience necessary to achieve the requisite
operating conditions at the level proposed in the December 2009 NOPR
(TSL 4) and, in general, to offer durable products by the compliance
date for the amended standards being adopted in this final rule.
f. Cumulative Regulatory Burden
While any one regulation may not impose a significant burden on
manufacturers, the combined effects of several impending regulations
may have serious consequences for some manufacturers, groups of
manufacturers, or an entire industry. Assessing the impact of a single
regulation may overlook this cumulative regulatory burden. In addition
to energy conservation standards, other regulations can significantly
affect manufacturers' financial operations. The cumulative regulatory
burden focuses on the impacts on manufacturers of other Federal
requirements with a compliance date three years prior to and three
years after the anticipated compliance dates of the amended energy
conservation standards of this rulemaking. The cumulative burden was
outlined in the December 2009 NOPR, which included a discussion of the
impact of low and ultra-low NOX regulations and other
environmental and safety regulations. 74 FR 65852, 65953 (Dec. 11,
2009). For further detail, see the cumulative regulatory burden
discussion in Chapter 12 of the TSD.
Regarding the cumulative regulatory burden discussed in the NOPR,
BWC stated that refrigerant regulations are constantly changing and
could force manufacturers to redesign heat pump water heaters that have
been recently commercialized. To this point, BWC noted that R-134a is
being phased out in Europe, but the prospect of a similar phase-out in
the U.S. was not considered in the NOPR analysis. (BWC, No. 61 at p. 2)
Rheem also stated that proposed legislation that phases out
hydrofluorocarbons (HFCs) would require double the amount of
refrigerant, because the alternative is not as efficient. Rheem also
added that a cap-and-trade program would have a significant effect on
the heat pump water heater business. (Rheem, Public Meeting Transcript
No. 57.4 at pp. 294-295)
DOE acknowledges that an HFC phase-out or alternative legislation
requiring a refrigerant change could necessitate substantial design
changes for heat pump water heaters. However, for this heating products
energy conservation standards rulemaking, DOE did not consider proposed
legislation that would require a reduction in consumption of HFCs
including refrigerants (i.e., phase-down) or a cap and trade program.
It would be highly speculative to try to predict the passage of such
legislation, much less the details of its provisions, all of which are
highly uncertain.
BWC stated that DOE should consider that additional Air Quality
Management Districts have enacted standards since the rulemaking began.
(BWC, No. 61 at pp. 3-4) In response, DOE has monitored the Air Quality
Management Districts' regulations. In the analysis, DOE assumed that
the Air Quality Managements Districts with ultra-low NOX
requirements would represent 50 percent of shipments to California, or
8.7 percent of shipments nationally, by the compliance date of today's
final rule in 2015. Thus, DOE's analysis of the ultra-low
NOX water heater shipments is up to date. DOE accounted for
the higher costs of these ultra-low NOX gas-fired water
heaters in both the LCC and the MIA.
AHRI stated lower NOX requirements will affect future
designs of gas-fired
[[Page 20197]]
instantaneous water heaters and may cause design changes that reduce
the efficiency of the product. (AHRI, No. 91 at p. 3)
DOE accounted for the added production costs for manufacturers of
gas-fired storage water heaters to comply with regional ultra-low
NOX requirements (see section IV.C.2). DOE agrees with AHRI
that the California Air Quality Management Districts will begin to
regulate the emissions of gas-fired instantaneous water heaters
beginning in 2012. However, DOE is not aware of any ultra-low
NOX instantaneous gas-fired water heaters currently on the
market and could not create a separate cost curve to account for the
additional cost of instantaneous water heaters.
Raypak stated that pool heaters are not exempt from ultra-low
NOX requirements, but have only been exempted from any
revisions to the existing requirements. Raypak stated that pool heaters
are required to meet a maximum of 55 ppm of NOX in the South
Coast Air Quality Management District. In addition, the Bay Area Air
Quality Management District has implemented new NOX
requirements for pool heaters starting on January 1, 2012. (Raypak, No.
67 at p. 2; Public Meeting Transcript, No. 57.4 at pp. 336-37)
DOE agrees with Raypak that it should have indicated that gas-fired
pool heaters were only exempted from revisions to existing low-
NOX requirements that would have required more-stringent
emission standards. Furthermore, DOE agrees with Raypak that gas-fired
pool heaters must meet the local low-NOX requirements in the
Air Quality Management Districts shown in Table 12.7.9 of the TSD. In
the engineering analysis, DOE examined several low-NOX pool
heaters and believes its analysis is representative of both types of
pool heaters. Chapter 12 of the TSD also addresses in greater detail
the issue of cumulative regulatory burden.
g. Impacts on Manufacturers That Are Small Businesses
As discussed in the December 2009 NOPR, DOE identified small
business manufacturers of all three types of heating products. 74 FR
65852, 65953-54 (Dec. 11, 2009). Due to the large number of comments
about the impacts on traditional DHE manufacturers, DOE has moved and
addressed all these comments in sections IV.I and VII.B. Section VII.B
also contains DOE's discussion about the impacts of amended energy
conservation standards on small business manufacturers.
3. National Net Present Value of Consumer Costs and Benefits and
National Employment Impacts
The NPV analysis estimates the cumulative benefits or costs to the
Nation of total heating product consumer costs and savings that would
result from particular standard levels. The NPV analysis estimates the
national economic impacts of each such level relative to the base case.
In accordance with the OMB Circular A-4, DOE calculated the NPV using
both a 7-percent and a 3-percent real discount rate. Table VI.38
through Table VI.40 show the consumer NPV results for each TSL DOE
considered for the three types of heating products. See chapter 10 of
the December 2009 NOPR TSD for more detailed NPV results.
Table VI.38--Cumulative Net Present Value of Consumer Benefits for Water Heaters
[Impacts for units sold from 2015 to 2045]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Product class TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 TSL 7 TSL 8
--------------------------------------------------------------------------------------------------------------------------------------------------------
billion 2009 dollars
--------------------------------------------------------------------------------------------------------------------------------------------------------
Discounted at 3%:
Gas-Fired Storage...................... 2.72.......................... 3.13 3.13 3.13 2.38 2.78 3.13 -7.47
Electric Storage....................... 1.35.......................... 2.10 3.46 3.96 5.84 5.84 19.80 32.24
Oil-Fired Storage...................... 0.08.......................... 0.15 0.22 0.22 0.22 0.22 0.22 0.38
Gas-Fired Instantaneous................ 0.24.......................... 0.24 0.24 0.24 0.24 0.24 0.24 -8.27
------------------------------------------------------------------------------------------------------------
Total.............................. 4.39.......................... 5.62 7.05 7.55 8.67 9.08 23.39 16.87
--------------------------------------------------------------------------------------------------------------------------------------------------------
Discounted at 7%:
Gas-Fired Storage...................... 0.59.......................... 0.22 0.22 0.22 0.27 -0.10 0.22 -9.95
Electric Storage....................... 0.35.......................... 0.61 0.85 0.73 1.03 1.03 -0.52 3.25
Oil-Fired Storage...................... 0.03.......................... 0.06 0.09 0.09 0.09 0.09 0.09 0.15
Gas-Fired Instantaneous................ -0.004........................ -0.004 -0.004 -0.004 -0.004 -0.004 -0.004 -5.02
------------------------------------------------------------------------------------------------------------
Total.............................. 0.96.......................... 0.88 1.55 1.03 1.39 1.01 -0.22 -11.57
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table VI.39--Cumulative Net Present Value of Consumer Benefits for Direct Heating Equipment
[Impacts for units sold from 2013 to 2043]
----------------------------------------------------------------------------------------------------------------
Product class TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6
----------------------------------------------------------------------------------------------------------------
billion 2009 dollars
----------------------------------------------------------------------------------------------------------------
Discounted at 3%:
Gas Wall Fan.................. 0.06................. 0.07 0.07 -0.01 0.06 -0.01
Gas Wall Gravity.............. 0.04................. 0.04 0.07 0.07 -0.12 -0.12
Gas Floor..................... 0.0002............... 0.0002 0.0002 0.0002 0.0002 0.0002
Gas Room...................... 0.01................. 0.02 0.03 0.03 0.20 0.20
Gas Hearth.................... 1.21................. 1.21 1.21 -1.35 -1.35 -5.04
-----------------------------------------------------------------------------
Total..................... 1.32................. 1.34 1.39 -1.26 -1.22 -4.97
----------------------------------------------------------------------------------------------------------------
Discounted at 7%:
Gas Wall Fan.................. 0.02................. 0.03 0.03 -0.03 0.02 -0.03
[[Page 20198]]
Gas Wall Gravity.............. 0.01................. 0.01 0.02 0.02 -0.14 -0.14
Gas Floor..................... 0.0001............... 0.0001 0.0001 0.0001 0.0001 0.0001
Gas Room...................... 0.003................ 0.01 0.01 0.01 0.07 0.07
Gas Hearth.................... 0.50................. 0.50 0.50 -1.19 -1.19 -4.28
Total..................... 0.54................. 0.55 0.56 -1.19 -1.24 -4.38
----------------------------------------------------------------------------------------------------------------
Table VI.40--Cumulative Net Present Value of Consumer Benefits for Pool Heaters
[Impacts for units sold from 2013 to 2043]
----------------------------------------------------------------------------------------------------------------
TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6
----------------------------------------------------------------------------------------------------------------
billion 2009 dollars
----------------------------------------------------------------------------------------------------------------
Discounted at 3%.................. 0.10 0.10 -0.01 -0.15 -2.33 -4.57
Discounted at 7%.................. 0.04 0.04 -0.06 -0.16 -1.39 -2.87
----------------------------------------------------------------------------------------------------------------
DOE also estimated for each TSL the indirect employment impact of
standards--the impact on the economy in general--in addition to
considering the direct employment impacts on manufacturers of products
covered in this rulemaking as discussed in section IV.I.4. DOE expects
that consumers will redirect the net monetary savings from standards to
other forms of economic activity, and that these shifts in spending and
economic activity will affect the demand for labor. As shown in Table
VI.41, DOE estimates that net indirect employment impacts from energy
conservation standards for water heaters would be positive, though very
small relative to total national employment. These increases would
likely be sufficient to offset fully any adverse impacts on employment
that might occur in the water heater industry. The estimated impacts
from the amended standards for DHE and pool heaters are much smaller.
For details on the employment impact analysis methods and results, see
TSD Chapter 14.
Table VI.41--Increase in National Indirect Employment Under Water Heater TSLs
----------------------------------------------------------------------------------------------------------------
Trial standard level 2015 thousands 2020 thousands 2030 thousands 2044 thousands
----------------------------------------------------------------------------------------------------------------
1............................................... -0.40 0.44 1.56 2.06
2............................................... -0.72 0.48 2.08 2.80
3............................................... -0.83 1.04 3.54 4.60
4............................................... -0.97 1.43 4.63 5.96
5............................................... -0.85 3.07 8.34 10.41
6............................................... -1.20 2.89 8.37 10.56
7............................................... -3.89 12.70 34.97 43.46
8............................................... -8.21 13.82 43.69 56.26
----------------------------------------------------------------------------------------------------------------
4. Impact on Utility or Performance of Products
As indicated in section III.D.1.d, DOE has concluded that the TSLs
it considered for the three types of heating products would not lessen
the utility or performance of those products. Manufacturers of these
products currently offer heating products that meet or exceed the
efficiency levels being considered and would not necessitate changes in
product design that would reduce the overall utility or performance of
the three types of heating products that are the subject of this
rulemaking. Therefore, DOE has concluded that none of the TSLs
presented in today's final rule would reduce the utility or performance
of the products under consideration.
5. Impact of Any Lessening of Competition
As discussed in the December 2009 NOPR (74 FR 65852, 65863, 65956
(Dec. 11, 2009)) and in section III.D.1.e of this preamble, DOE
considers any lessening of competition likely to result from standards;
the Attorney General determines, in writing, the impact, if any, of any
such lessening of competition. (42 U.S.C. 6295(o)(2)(B)(i)(V) and (ii))
The Attorney General's determination (DOJ determination) is summarized
below, along with DOE's response, and it is also reprinted in its
entirety at the end of this final rule.
After considering the NOPR, DOJ determined that DOE's proposed
standards for water heaters, pool heaters, and gas hearth DHE are not
likely to lead to a lessening of competition; however, DOJ expressed
concern that the proposed standards could adversely affect competition
in the traditional DHE product categories. DOJ noted that only three
manufacturers currently market products for each of the four
traditional DHE categories. DOJ stated that the proposed standards
could require manufacturers, even those currently producing models that
meet the proposed standards, to make a substantial capital investment
to convert or expand their production facilities. DOJ also stated that
it also appeared that each manufacturer would have to commit
significant resources for research and development. DOJ believed these
costs create a significant risk that
[[Page 20199]]
no more than one or two DHE manufacturers would choose to continue to
produce products in any one DHE category. DOJ asked DOE to consider the
possible impact on competition in determining its final energy
efficiency standards for DHE. (DOJ, No. 99 at p. 2)
DOE is also concerned about the impacts on competition in the
traditional DHE market. For any new or amended energy conservation
standard, DOE must consider the impacts on manufacturers and consumers
of the products in addition to the impacts of any lessening of
competition. (42 U.S.C. 6295(o)(2)(B)(i)) DOE notes that the potential
impacts on small business manufacturers factored heavily in DOE's
proposed standard. 74 FR 65852, 65972-73 (Dec. 11, 2009).
DOE has carefully considered the potential adverse impacts on
traditional DHE manufacturers in setting the amended energy
conservation standards (see section VI.D.3). In total, DOE estimates
that it will take approximately $4.6 million for the traditional DHE
industry to upgrade all of it products to meet the amended energy
conservation standards. Despite including the conversion costs for the
additional product lines that were released since the December 2009
NOPR analysis was completed, the total conversion costs estimated by
the industry to upgrade all products that do not meet the amended
energy conservation standards is down $1.8 million from the $6.4
million total estimated for the proposed standards in the December 2009
NOPR. The conversion costs have been revised downward for gas wall
gravity DHE due to the changes in the engineering analysis and a new
TSL structure for gas wall gravity DHE that resulted in AFUE
requirements that were 5 percentage points less stringent than the
level proposed in the December 2009 NOPR. Finally, for other product
categories, setting a lower TSL than proposed in the December 2009 NOPR
also resulted in fewer product lines across the industry that need to
be upgraded to meet the level established by today's final rule.
For the amended energy conservation standards for traditional DHE,
one major manufacturer has a total of 3 product lines (7 models) that
do not meet the amended energy conservation standards in the two
smallest categories (gas floor and gas room DHE) but has a majority of
product lines and models that meet the amended standards in the two
largest product categories (gas wall fan and gas wall gravity). The
other two major manufacturers have existing product lines that meet the
amended energy conservation standards in all 4 product categories.
Therefore, without incurring any conversion costs, at least two
manufacturers already have existing products in all four product
categories. In the most important gas wall gravity category, 57 percent
of the existing models and 71 percent of the existing product lines
identified by DOE already meet the amended energy conservation
standards. One manufacturer indicated in written comments that the
important gas wall gravity products that meet the amended energy
conservation standard represent a small portion of total sales.
However, DOE believes it has addressed the concerns of this
manufacturer by setting an amended energy conservation standard that
would require much less substantial changes than those proposed in the
December 2009 NOPR (a two percentage point improvement in AFUE versus
the six percentage point improvement in AFUE proposed in the December
2009 NOPR). While the $4.6 million in total conversion costs to upgrade
all product lines that do not meet the amended energy conservation
standards is substantial, DOE believes that a combination of products
that meet the amended energy conservation standards and selectively
upgrading popular product lines that fall below the standards will
allow all three traditional DHE manufacturers to maintain a viable
production volume. Because DOE has fully addressed the comments raised
about the impacts on traditional DHE manufacturers, has considered the
potential impacts on small business manufacturers of traditional DHE,
and has adopted a less stringent standard than originally proposed for
these products, DOE believes it has taken the potential impacts on
competition in the traditional DHE market into consideration for
today's final rule.
DOE also prepared a final regulatory flexibility analysis (FRFA)
for direct heating equipment pursuant to the Regulatory Flexibility Act
(5 U.S.C. 601 et seq.). In particular, the FRFA carefully considers the
impacts of the rule on the two manufacturers in the traditional DHE
market that are small businesses. DOE's FRFA is found in section VII.B
of today's final rule.
Several comments on the December 2009 NOPR raised issues related to
competitive impacts. These comments and DOE's response are discussed
below. In both its written submission and comments at the NOPR public
meeting, Empire expressed concern about the potential for amended
standards to create monopolies in certain DHE product categories.
(Empire, Public Meeting Transcript, No. 57.4 at p. 300; Empire, No. 100
at p. 1) In addition, Empire stated that in order to increase
efficiency, the industry would need to spend millions of dollars. With
the small number of shipments and the shrinking market for traditional
DHE, Empire opined that manufacturers would likely eliminate product
categories. For those few categories where only one manufacturer meets
the minimums (e.g., floor furnaces), a monopoly would be created.
(Empire, No. 100 at p. 2)
In response and as noted above, DOE is concerned about the impacts
on competition in the traditional DHE market and has considered these
impacts for today's final rule. In response to the concern that the
amended energy conservation standards could create a monopoly in the
floor furnace category, DOE notes that two of the major manufacturers
currently offer products in the AHRI certification database that meet
the required efficiencies, which implies that the creation of a
monopoly is unlikely to result due to amended energy conservation
standards. Additionally, DOE also recognizes that the traditional DHE
market is mostly a replacement market. Even if only one manufacturer
offered floor furnaces, for example, in response to the energy
conservation standards, all other DHE categories are also potential
substitutes. Finally, DOE has included the conversion costs for
manufacturers to convert all existing products that do not meet the
required efficiencies. While manufacturers currently in the industry
would likely upgrade their most popular products that did not meet the
standards, DOE notes that these conversion costs could also be made by
manufacturers that are not currently in the market (i.e., new entrants
to the market).
Rheem stated that the U.S. residential water heater market
currently has little or no presence of max-tech systems. Rheem
commented that as a current manufacturer of conventional storage water
heater products, it would be competitively disadvantaged by a standard
at TSL 5 or higher in the December 2009 NOPR, as compared to companies
that do not manufacture conventional technology. (Rheem, No. 89 at p.
9)
In response, DOE does not believe offering conventional technology
would place a manufacturer at a disadvantage if DOE selected a TSL that
used advanced technology. While TSL 5 or higher would drive a market
for the advanced technology, full-line manufacturers that offer
commercial condensing products, for example, could actually be in a
better position because of their experience with the
[[Page 20200]]
condensing technology. Most water heaters sales are made on a
replacement basis. The large installed base of existing manufacturers
could make it more difficult for new entrants to gain market share if
customers look for a similar replacement. Also, the major manufacturers
have very established brands. In short, there are too many factors to
conclude that manufacturers who produce conventional storage water
heaters would be placed at a competitive disadvantage.
Bock claimed that the proposed amended energy conservation
standards for oil-fired water heaters would lessen competition. Bock
stated that many manufacturers have exited the market since the last
water heater rulemaking in the 1990s (Bock, No. 101 at p. 3)
In response, DOE notes that whether a given manufacturer chooses to
exit the residential oil-fired water heater market will depend on a
variety of internal and external factors, and DOE also believes that
the decision of any manufacturer to exit the market would not
necessarily result in a lessening of competition. Consumers today have
a number of fuel sources that could be substituted for oil-fired
products if any decrease in competition resulted in higher prices for
consumers. Furthermore, any increase in prices could also attract new
entrants to the market. While there are only two manufacturers that
have a significant market share in the residential oil-fired water
heater market, there are a number of manufacturers that offer lower
volumes of residential oil-fired water heaters, commercial oil-fired
water heaters, and oil-fired boilers. Any of these manufacturers could
find it attractive to enter this market or expand production, if other
manufacturers exited the residential oil-fired water heater market.
Finally, as noted above, DOJ did not express concern about the
potential lessening of competition in the oil-fired water heater market
at the proposed standard level. (DOJ, No. 99 at pp. 1-2)
6. Need of the Nation To Conserve Energy
Improving the energy efficiency of heating products, where
economically justified, would likely improve the security of the
Nation's energy system by reducing overall demand for energy, thereby
reducing the Nation's reliance on foreign sources of energy. Reduced
electricity demand may also improve the reliability of the electricity
system, particularly during peak-load periods. As a measure of this
reduced demand, DOE expects the energy savings from today's standards
for the three types of heating products to eliminate the need for
approximately 0.857 gigawatts (GW) of generating capacity by 2045.
As discussed in section IV.K.1, DOE analyzed the potential impact
on natural gas prices resulting from amended standards on water heaters
and the associated benefits for all natural gas users in all sectors of
the economy. DOE also analyzed the potential impact on electricity
prices resulting from amended standards on water heaters and the
associated benefits for all electricity users in all sectors of the
economy. The estimated present value of the benefits to consumers are
presented in chapter 13 of the TSD.
As discussed in section IV.K.1, DOE believes that there is
uncertainty about the extent to which the calculated impacts from
reduced energy prices are a benefits transfer from energy producers to
energy consumers. Therefore, DOE has concluded that, at present, it
should not give a heavy weight to this factor in its consideration of
the economic justification of standards on heating products. DOE is
continuing to investigate the extent to which benefits associated with
change in energy prices projected to result from standards represents a
net gain to society.
Enhanced energy efficiency also produces environmental benefits in
the form of reduced emissions of air pollutants and greenhouse gases
associated with energy production. Table VI.42 and Table VI.43 provide
DOE's estimate of cumulative CO2, NOX, and Hg
emissions reductions expected to result from the TSLs considered in
this rulemaking. The estimated cumulative CO2,
NOX, and Hg emissions reductions for the standards in
today's rule are 164 Mt for CO2, 125 kt for NOX,
and 0.54 tons for Hg. The expected energy savings from these standards
may also reduce the cost of maintaining nationwide emissions standards
and constraints. In the environmental assessment (chapter 16 of the
TSD), DOE reports estimated annual changes in CO2,
NOX, and Hg emissions attributable to each TSL.
Table VI.42--Summary of Emissions Reductions Under Water Heater TSLs
[Cumulative for products sold from 2015 to 2045]
--------------------------------------------------------------------------------------------------------------------------------------------------------
TSL
Emission type ---------------------------------------------------------------------------------------
1 2 3 4 5 6 7 8
--------------------------------------------------------------------------------------------------------------------------------------------------------
CO2 (Mt)........................................................ 74.3 122 131 137 154 209 609 1,001
NOX (kt)........................................................ 57.5 94.3 101 106 116 159 456 755
Hg (t).......................................................... 0.056 0.090 0.103 0.113 0.553 0.704 2.32 3.59
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table VI.43--Summary of Emissions Reductions Under Direct Heating Equipment and Pool Heater TSLs
[Cumulative for products sold from 2013 to 2043]
----------------------------------------------------------------------------------------------------------------
TSL
Emission type -----------------------------------------------------------------------------
1 2 3 4 5 6
----------------------------------------------------------------------------------------------------------------
Direct Heating Equipment
----------------------------------------------------------------------------------------------------------------
CO2 (Mt).......................... 8.3 8.8 9.3 17.9 20.2 49.9
NOX (kt).......................... 7.5 8.1 8.5 16.4 18.6 46.0
Hg (t)............................ (0.01) (0.01) (0.01) 0.03 0.03 0.08
----------------------------------------------------------------------------------------------------------------
Pool Heaters
----------------------------------------------------------------------------------------------------------------
CO2 (Mt).......................... 0.41 0.75 1.72 2.38 3.61 8.89
[[Page 20201]]
NOX (kt).......................... 0.37 0.67 1.53 2.10 3.18 7.84
Hg (t)............................ 0.00 0.00 0.00 0.00 0.00 0.00
----------------------------------------------------------------------------------------------------------------
As noted in section IV.L of this final rule, DOE does not report
SO2 emissions reductions from power plants because DOE is
uncertain that an energy conservation standard would affect the overall
level of U.S. SO2 emissions due to emissions caps. DOE also
did not include NOX emissions reduction from power plants in
States subject to CAIR because an energy conservation standard would
likely not affect the overall level of NOX emissions in
those States due to the emissions caps mandated by CAIR.
It should be noted that, for DHE, DOE estimates a very small
increase in Hg emissions under the adopted standard. The reason for
this result is that the more-efficient products save natural gas, but
they also use more electricity due to electronic ignition and, for some
DHE TSLs, use of a fan. This results in higher electricity generation
than in the AEO Reference Case, which leads to higher emissions. For
CO2 and NOX, the higher emissions from the power
sector are more than canceled out by lower household emissions from gas
combustion, such that total emissions decrease under the considered
TSLs. For Hg, this is not the case because there are no offsetting
household emissions.
In the December 2009 NOPR, DOE investigated and considered the
potential monetary benefit of reduced CO2 emissions that
could result from the TSLs it considered. 74 FR 65852, 65924-28 (Dec.
11, 2009). DOE valued the potential global benefits resulting from such
reductions at the interim values of $5, $10, $20, $34, and $57 per
metric ton in 2007 (in 2008$), and also valued the domestic benefits at
approximately $1 per metric ton. For today's final rule, DOE has
updated its analysis to reflect the outcome of the most recent
interagency process regarding the social cost of carbon dioxide
emissions (SCC). See section IV.M for a full discussion. The four
values of CO2 emissions reductions resulting from that
process (expressed in 2007$) are $4.70/ton (the average value from a
distribution that uses a 5-percent discount rate), $21.40/ton (the
average value from a distribution that uses a 3-percent discount rate),
$35.10/ton (the average value from a distribution that uses a 2.5-
percent discount rate), and $64.90/ton (the 95th-percentile value from
a distribution that uses a 3-percent discount rate). These values
correspond to the value of emission reductions in 2010; the values for
later years are higher due to increasing damages as the magnitude of
climate change increases. Table VI.44, Table VI.45, and Table VI.46
present the global values of emissions reductions at each TSL. For each
of the four cases, DOE calculated a present value of the stream of
annual values using the same discount rate as was used in the studies
upon which the dollar-per-ton values are based. DOE calculated domestic
values as a range from 7 percent to 23 percent of the global values,
and these results are presented in Table VI.47, Table VI.48, and Table
VI.49.
Table VI.44--Estimates of Global Present Value of CO2 Emissions Reductions for the Period 2015-2045 Under Water
Heater Trial Standard Levels
----------------------------------------------------------------------------------------------------------------
Global Value of CO2 Emission Reductions, Million 2009$
Cumulative CO2 ---------------------------------------------------------------
TSL emission 3% discount
reductions, Mt 5% discount 3% discount 2.5% discount rate, 95th
rate, average* rate, average* rate, average* percentile*
----------------------------------------------------------------------------------------------------------------
1............................. 74.3 266 1,351 2,285 4,122
2............................. 122 436 2,213 3,742 6,750
3............................. 131 468 2,374 4,014 7,242
4............................. 137 492 2,496 4,220 7,614
5............................. 154 524 2,682 4,545 8,179
6............................. 209 714 3,653 6,190 11,142
7............................. 609 2,060 10,560 17,898 32,204
8............................. 1,001 3,399 17,411 29,505 53,098
----------------------------------------------------------------------------------------------------------------
* Columns are labeled by the discount rate used to calculate the SCC and whether it is an average value or drawn
from a different part of the distribution. Values presented in the table are based on escalating 2007$ to
2009$ for consistency with other values presented in this notice, and incorporate the escalation of the SCC
with each year.
[[Page 20202]]
Table VI.45--Estimates of Global Present Value of CO2 Emissions Reductions for the Period 2013-2043 Under Direct
Heating Equipment Trial Standard Levels
----------------------------------------------------------------------------------------------------------------
Global value of CO2 emission reductions, million 2009$
Cumulative CO2 ---------------------------------------------------------------
TSL emission 3% discount
reductions, Mt 5% discount 3% discount 2.5% discount rate, 95th
rate, average* rate, average* rate, average* percentile*
----------------------------------------------------------------------------------------------------------------
1............................... 8.2 31 154 259 470
2............................... 8.8 33 165 278 503
3............................... 9.3 35 174 293 530
4............................... 17.9 67 335 565 1,023
5............................... 20.2 76 378 637 1,154
6............................... 49.9 187 933 1,572 2,849
----------------------------------------------------------------------------------------------------------------
* Columns are labeled by the discount rate used to calculate the SCC and whether it is an average value or drawn
from a different part of the distribution. Values presented in the table are based on escalating 2007$ to
2009$ for consistency with other values presented in this notice, and incorporate the escalation of the SCC
with each year.
Table VI.46--Estimates of Global Present Value of CO2 Emissions Reductions for the Period 2013-2043 Under Pool
Heater Trial Standard Levels
----------------------------------------------------------------------------------------------------------------
Global value of CO2 emission reductions, million 2009$
Cumulative CO2 ---------------------------------------------------------------
TSL emission 3% discount
reductions, Mt 5% discount 3% discount 2.5% discount rate, 95th
rate, average* rate, average* rate, average* percentile*
----------------------------------------------------------------------------------------------------------------
1............................... 0.4 2 8 13 24
2............................... 0.8 3 14 24 43
3............................... 1.7 6 32 54 99
4............................... 2.4 9 45 75 136
5............................... 3.6 14 68 114 206
6............................... 8.9 33 167 281 509
----------------------------------------------------------------------------------------------------------------
* Columns are labeled by the discount rate used to calculate the SCC and whether it is an average value or drawn
from a different part of the distribution. Values presented in the table are based on escalating 2007$ to
2009$ for consistency with other values presented in this notice, and incorporate the escalation of the SCC
with each year.
Table VI.47--Estimates of Domestic Present Value of CO2 Emissions Reductions for the Period 2015-2045 Under Water Heater Trial Standard Levels
--------------------------------------------------------------------------------------------------------------------------------------------------------
Domestic value of CO2 emission reductions, million 2009$ *
--------------------------------------------------------------------------------------------------------------------
TSL 2.5% discount rate, 3% discount rate, 95th
5% discount rate, average** 3% discount rate, average** average** percentile**
--------------------------------------------------------------------------------------------------------------------------------------------------------
1.................................. 18.6 to 61.3................ 94.6 to 311................ 160 to 526................. 289 to 948.
2.................................. 30.5 to 100................. 155 to 509................. 262 to 861................. 473 to 1,553.
3.................................. 32.8 to 108................. 166 to 546................. 281 to 923................. 507 to 1,666.
4.................................. 34.4 to 113................. 175 to 574................. 295 to 971................. 533 to 1,751.
5.................................. 36.7 to 120................. 188 to 617................. 318 to 1,045............... 573 to 1,881.
6.................................. 50.0 to 164................. 256 to 840................. 433 to 1,424............... 780 to 2,563.
7.................................. 144 to 474.................. 739 to 2,429............... 1,253 to 4,117............. 2,254 to 7,407.
8.................................. 248 to 782.................. 1,219 to 4,005............. 2,065 to 6,786............. 3,717 to 12,212.
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Domestic values are presented as a range between 7% and 23% of the global values.
** Columns are labeled by the discount rate used to calculate the SCC and whether it is an average value or drawn from a different part of the
distribution. Values presented in the table are based on escalating 2007$ to 2009$ for consistency with other values presented in this notice, and
incorporate the escalation of the SCC with each year.
Table VI.48--Estimates of Domestic Present Value of CO2 Emissions Reductions for the Period 2013-2043 Under Direct Heating Equipment Trial Standard
Levels
--------------------------------------------------------------------------------------------------------------------------------------------------------
Domestic value of CO2 emission reductions, million 2009$ *
--------------------------------------------------------------------------------------------------------------------
TSL 2.5% discount rate, 3% discount rate, 95th
5% discount rate, average** 3% discount rate, average** average** percentile**
--------------------------------------------------------------------------------------------------------------------------------------------------------
1.................................. 2.2 to 7.1.................. 10.8 to 35.4............... 18.2 to 59.6............... 32.9 to 108.0.
2.................................. 2.3 to 7.6.................. 11.5 to 37.9............... 19.5 to 63.9............... 35.2 to 115.8.
3.................................. 2.4 to 8.0.................. 12.2 to 39.9............... 20.5 to 67.3............... 37.1 to 121.9.
4.................................. 4.7 to 15.4................. 23.5 to 77.1............... 39.5 to 129.9.............. 71.6 to 235.4.
5.................................. 5.3 to 17.4................. 26.5 to 87.0............... 44.6 to 146.6.............. 80.8 to 265.5.
6.................................. 13.1 to 43.0................ 65.3 to 214.7.............. 110.1 to 361.7............. 199.4 to 655.2.
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Domestic values are presented as a range between 7% and 23% of the global values.
[[Page 20203]]
** Columns are labeled by the discount rate used to calculate SCC and whether it is an average value or drawn from a different part of the distribution.
Values presented in the table are based on escalating 2007$ to 2009$ for consistency with other values presented in this notice, and incorporate the
escalation of the SCC with each year.
Table VI.49--Estimates of Domestic Present Value of CO2 Emissions Reductions for the Period 2013-2043 Under Pool Heaters Trial Standard Levels
--------------------------------------------------------------------------------------------------------------------------------------------------------
Domestic value of CO2 emission reductions, million 2009$ *
--------------------------------------------------------------------------------------------------------------------
TSL 2.5% discount rate, 3% discount rate, 95th
5% discount rate, average** 3% discount rate, average** average** percentile**
--------------------------------------------------------------------------------------------------------------------------------------------------------
1.................................. 0.1 to 0.4.................. 0.5 to 1.8................. 0.9 to 3.0................. 1.7 to 5.5.
2.................................. 0.2 to 0.7.................. 1.0 to 3.2................. 1.7 to 5.4................. 3.0 to 9.9.
3.................................. 0.5 to 1.5.................. 2.3 to 7.4................. 3.8 to 12.5................ 6.9 to 22.7.
4.................................. 0.6 to 2.1.................. 3.1 to 10.3................ 5.3 to 17.3................ 9.5 to 31.4.
5.................................. 1.0 to 3.1.................. 4.7 to 15.5................ 8.0 to 26.2................ 14.4 to 47.5.
6.................................. 2.3 to 7.7.................. 11.7 to 38.3............... 19.6 to 64.6............... 35.6 to 117.0.
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Domestic values are presented as a range between 7% and 23% of the global values.
** Columns are labeled by the discount rate used to calculate the SCC and whether it is an average value or drawn from a different part of the
distribution. Values presented in the table are based on escalating 2007$ to 2009$ for consistency with other values presented in this notice, and
incorporate the escalation of the SCC with each year.
DOE is well aware that scientific and economic knowledge about the
contribution of CO2 and other GHG emissions to changes in
the future global climate and the potential resulting damages to the
world economy continues to evolve rapidly. Thus, any value placed in
this rulemaking on reducing CO2 emissions is subject to
change. DOE, together with other Federal agencies, will continue to
review various methodologies for estimating the monetary value of
reductions in CO2 and other GHG emissions. This ongoing
review will consider the comments on this subject that are part of the
public record for this and other rulemakings, as well as other
methodological assumptions and issues. However, consistent with DOE's
legal obligations, and taking into account the uncertainty involved
with this particular issue, DOE has included in this rule the most
recent values and analyses resulting from the ongoing interagency
review process.
DOE also estimated a range for the cumulative monetary value of the
economic benefits associated with NOX emissions reductions
anticipated to result from amended standards for heating products. The
dollar-per-ton values that DOE used are discussed in section IV.M of
this final rule. Table VI.50 through Table VI.55 present the estimates
calculated using seven-percent and three-percent discount rates,
respectively.
Table VI.50--Estimates of Value of Reductions of NOX Emissions Under
Water Heater Trial Standard Levels at a Seven-Percent Discount Rate
------------------------------------------------------------------------
Cumulative NOX Value of NOX emission
TSL emission reductions, million
reductions, kt 2009$
------------------------------------------------------------------------
1............................ 57.5 6.6 to 67.8.
2............................ 94.3 10.8 to 111.
3............................ 101 11.6 to 119.
4............................ 106 12.1 to 125.
5............................ 116 11.0 to 113.
6............................ 159 15.2 to 157.
7............................ 456 42.6 to 438.
8............................ 755 71.4 to 734.
------------------------------------------------------------------------
Table VI.51--Estimates of Value of Reductions of NOX Emissions Under
Water Heater Trial Standard Levels at a Three-Percent Discount Rate
------------------------------------------------------------------------
Cumulative NOX Value of NOX emission
TSL emission reductions, million
reductions, kt 2009$
------------------------------------------------------------------------
1............................ 57.5 13.7 to 141.
2............................ 94.3 22.5 to 231.
3............................ 101 24.0 to 247.
4............................ 106 25.2 to 259.
5............................ 116 25.4 to 261.
6............................ 159 34.9 to 358.
7............................ 456 99.1 to 1,018.
8............................ 755 165 to 1,694.
------------------------------------------------------------------------
[[Page 20204]]
Table VI.52--Estimates of Value of Reductions of NOX Emissions Under
Direct Heating Equipment Trial Standard Levels at a Seven-Percent
Discount Rate
------------------------------------------------------------------------
Cumulative NOX Value of NOX emission
TSL emission reductions, million
reductions, kt 2009$
------------------------------------------------------------------------
1............................. 7.5 1.0 to 10.2.
2............................. 8.1 1.1 to 10.9.
3............................. 8.5 1.1 to 11.4.
4............................. 16.4 2.2 to 22.3.
5............................. 18.6 2.5 to 25.3.
6............................. 46.0 6.1 to 62.5.
------------------------------------------------------------------------
Table VI.53--Estimates of Value of Reductions of NOX Emissions Under
Direct Heating Equipment Trial Standard Levels at a Three-Percent
Discount Rate
------------------------------------------------------------------------
Cumulative NOX Value of NOX emission
TSL emission reductions, million
reductions, kt 2009$
------------------------------------------------------------------------
1............................. 7.5 1.9 to 19.6.
2............................. 8.1 2.0 to 21.0.
3............................. 8.5 2.1 to 22.1.
4............................. 16.4 4.2 to 42.9.
5............................. 18.6 4.7 to 48.7.
6............................. 46.0 11.7 to 120.2.
------------------------------------------------------------------------
Table VI.54--Estimates of Value of Reductions of NOX Emissions Under
Pool Heater Trial Standard Levels at a Seven-Percent Discount Rate
------------------------------------------------------------------------
Cumulative NOX Value of NOX emission
TSL emission reductions, million
reductions, kt 2009$
------------------------------------------------------------------------
1............................. 0.4 0.1 to 0.5.
2............................. 0.7 0.1 to 0.9.
3............................. 1.5 0.2 to 2.2.
4............................. 2.1 0.3 to 2.9.
5............................. 3.2 0.4 to 4.5.
6............................. 7.8 1.1 to 11.0.
------------------------------------------------------------------------
Table VI.55--Estimates of Value of Reductions of NOX Emissions Under
Pool Heater Trial Standard Levels at a Three-Percent Discount Rate
------------------------------------------------------------------------
Cumulative NOX Value of NOX emission
TSL emission reductions, million
reductions, kt 2009$
------------------------------------------------------------------------
1............................. 0.4 0.1 to 1.0.
2............................. 0.7 0.2 to 1.8.
3............................. 1.5 0.4 to 4.1.
4............................. 2.1 0.5 to 5.6.
5............................. 3.2 0.8 to 8.4.
6............................. 7.8 2.0 to 20.8.
------------------------------------------------------------------------
The NPV of the monetized benefits associated with emissions
reductions can be viewed as a complement to the NPV of the consumer
savings calculated for each TSL considered in this rulemaking. Table
VI.57 through Table VI.62 present the NPV values for heating products
that would result if DOE were to add the estimates of the potential
economic benefits resulting from reduced CO2 and
NOX emissions in each of four valuation scenarios to the NPV
of consumer savings calculated for each TSL considered in this
rulemaking, at both a seven-percent and three-percent discount rate.
The CO2 values used in the columns of each table correspond
to the four scenarios for the valuation of CO2 emission
reductions presented in section IV.M. Table VI.56 shows an example of
the calculation of the NPV including benefits from emissions reductions
for the case of TSL 5 for water heaters.
Although adding the value of consumer savings to the values of
emission reductions provides a valuable perspective, the following
should be considered: (1) The national consumer savings are domestic
U.S. consumer
[[Page 20205]]
monetary savings found in market transactions, while the values of
emissions reductions are based on estimates of marginal social costs,
which, in the case of CO2, are based on a global value; (2)
The assessments of consumer savings and emission-related benefits are
performed with different computer models, leading to different
timeframes for analysis. For heating products, the present value of
national consumer savings is measured for the period in which units
shipped (2015 to 2045 for water heaters, and 2013 to 2043 for DHE and
pool heaters) continue to operate. However, the time frames of the
benefits associated with the emission reductions differ. For example,
the value of CO2 emissions reductions reflects the present
value of all future climate-related impacts due to emitting a ton of
carbon dioxide in that year, out to 2300.
Table VI.56--Estimate of Adding Net Present Value of Consumer Savings to
Present Value of Monetized Benefits From CO2 and NOX Emissions
Reductions at TSL 5 for Water Heaters
------------------------------------------------------------------------
Present value Discount rate
Category billion 2009$ (percent)
------------------------------------------------------------------------
Benefits
------------------------------------------------------------------------
Operating Cost Savings............ 12.4 7
29.2 3
CO2 Monetized Value............... 0.5 5
(at $4.7/Metric Ton)*.............
CO2 Monetized Value............... 2.7 3
(at $21.4/Metric Ton)*............
CO2 Monetized Value............... 4.5 2.5
(at $35.1/Metric Ton)*............
CO2 Monetized Value............... 8.2 3
(at $64.9/Metric Ton)*............
NOX Monetized Value............... 0.1 7
(at $2,437/Metric Ton)............
0.1 3
Total Monetary Benefits **........ 15.2 7
32.1 3
------------------------------------------------------------------------
Costs
------------------------------------------------------------------------
Total Monetary Costs.............. -11.1 7
-20.6 3
------------------------------------------------------------------------
Net Benefits/Costs
------------------------------------------------------------------------
Including CO2 and NOX**........... 4.1 7
11.5 3
------------------------------------------------------------------------
* These values represent global values (in 2007$) of the social cost of
CO2 emissions in 2010 under several scenarios. The values of $4.7,
$21.4, and $35.1 per ton are the averages of SCC distributions
calculated using 5%, 3%, and 2.5% discount rates, respectively. The
value of $64.9 per ton represents the 95th percentile of the SCC
distribution calculated using a 3% discount rate. See section IV.M for
details.
** Total Monetary Benefits for both the 3% and 7% cases utilize the
central estimate of social cost of CO2 emissions calculated at a 3%
discount rate (averaged across three IAMs), which is equal to $21.4/
ton in 2010 (in 2007$).
Table VI.57--Estimates of Adding Net Present Value of Consumer Savings (at 7% Discount Rate) to Net Present
Value of Low, Central, and High-End Monetized Benefits From CO2 and NOX Emissions Reductions at Trial Standard
Levels for Water Heaters
----------------------------------------------------------------------------------------------------------------
Consumer NPV at 7% discount rate added with:
---------------------------------------------------------------------------
CO2 value of $4.7/ CO2 value of CO2 Value of CO2 value of
TSL metric ton CO2* $21.4/metric ton $35.1/metric ton $64.9/metric ton
and Low value for CO2* and Medium CO2* and Medium CO2* and high
NOX** billion value for NOX*** value for NOX*** value for NOX****
2009$ billion 2009$ billion 2009$ billion 2009$
----------------------------------------------------------------------------------------------------------------
1................................... 1.24 2.35 3.29 5.15
2................................... 1.33 3.16 4.69 7.74
3................................... 1.63 3.59 5.23 8.52
4................................... 1.54 3.60 5.32 8.77
5................................... 1.92 4.13 5.99 9.68
6................................... 1.74 4.75 7.29 12.31
7................................... 1.89 10.59 17.92 32.43
8................................... (8.10) 6.24 18.34 42.26
----------------------------------------------------------------------------------------------------------------
* These label values per ton represent the global SCC of CO2 in 2010, in 2007$. Their present values have been
calculated with scenario-consistent discount rates. See section IV.M for a full discussion of the derivation
of these values.
** Low values correspond to $447 per ton of NOX emissions.
*** Medium values correspond to $2,519 per ton of NOX emissions.
**** High values correspond to $4,591 per ton of NOX emissions.
[[Page 20206]]
Table VI.58--Estimates of Adding Net Present Value of Consumer Savings (at 3% Discount Rate) to Net Present
Value of Low, Central, and High-End Monetized Benefits From CO2 and NOX Emissions Reductions at Trial Standard
Levels for Water Heaters
----------------------------------------------------------------------------------------------------------------
Consumer NPV at 3% Discount Rate added with:
---------------------------------------------------------------------------
CO2 value of $4.7/ CO2 value of CO2 value of CO2 value of
TSL metric ton CO2* $21.4/metric ton $35.1/metric ton $64.9/metric ton
and Low value for CO2* and Medium CO2* and Medium CO2* and High
NOX** billion value for NOX*** value for NOX*** value for NOX****
2009$ billion 2009$ billion 2009$ billion 2009$
----------------------------------------------------------------------------------------------------------------
1................................... 4.67 5.82 6.75 8.65
2................................... 6.08 7.96 9.49 12.60
3................................... 7.54 9.56 11.20 14.54
4................................... 8.07 10.19 11.91 15.42
5................................... 9.22 11.50 13.36 17.11
6................................... 9.83 12.93 15.47 20.58
7................................... 25.55 34.51 41.84 56.61
8................................... 20.44 35.21 47.31 71.67
----------------------------------------------------------------------------------------------------------------
* These label values per ton represent the global SCC of CO2 in 2010, in 2007$. Their present values have been
calculated with scenario-consistent discount rates. See section IV.M for a full discussion of the derivation
of these values.
** Low value corresponds to $447 per ton of NOX emissions.
*** Medium value corresponds to $2,519 per ton of NOX emissions.
**** High value corresponds to $4,591 per ton of NOX emissions.
Table VI.59--Estimates of Adding Net Present Value of Consumer Savings (at 7% Discount Rate) to Net Present
Value of Low, Central, and High-End Monetized Benefits From CO2 and NOX Emissions Reductions at Trial Standard
Levels for Direct Heating Equipment
----------------------------------------------------------------------------------------------------------------
Consumer NPV at 7% discount rate added with:
---------------------------------------------------------------------------
CO2 value of $4.7/ CO2 value of CO2 value of CO2 value of
TSL metric ton CO2* $21.4/metric ton $35.1/metric ton $64.9/metric ton
and low value for CO2* and medium CO2* and medium CO2* and high
NOX** billion value for NOX*** value for NOX*** value for NOX****
2009$ billion 2009$ billion 2009$ billion 2009$
----------------------------------------------------------------------------------------------------------------
1................................... 0.58 0.70 0.81 1.02
2................................... 0.61 0.74 0.86 1.09
3................................... 0.60 0.74 0.86 1.10
4................................... (1.12) (0.84) (0.61) (0.14)
5................................... (1.16) (0.85) (0.59) (0.06)
6................................... (4.18) (3.41) (2.77) (1.47)
----------------------------------------------------------------------------------------------------------------
* These label values per ton represent the global SCC of CO2 in 2010, in 2007$. Their present values have been
calculated with scenario-consistent discount rates. See section IV.M for a full discussion of the derivation
of these values.
** Low value corresponds to $447 per ton of NOX emissions.
*** Medium value corresponds to $2,519 per ton of NOX emissions.
**** High value corresponds to $4,591 per ton of NOX emissions.
Parentheses indicate negative (-) values.
Table VI.60--Estimates of Adding Net Present Value of Consumer Savings (at 3% Discount Rate) to Net Present
Value of Low, Central, and High-End Monetized Benefits From CO2 and NOX Emissions Reductions at Trial Standard
Levels for Direct Heating Equipment
----------------------------------------------------------------------------------------------------------------
Consumer NPV at 3% discount rate added with:
---------------------------------------------------------------------------
CO2 value of $4.7/ CO2 value of CO2 value of CO2 value of
TSL metric ton CO2* $21.4/metric ton $35.1/metric ton $64.9/metric ton
and low value for CO2* and medium CO2* and medium CO2* and high
NOX** billion value for NOX*** value for NOX*** value for NOX****
2009$ billion 2009$ billion 2009$ billion 2009$
----------------------------------------------------------------------------------------------------------------
1................................... 1.35 1.48 1.59 1.80
2................................... 1.42 1.56 1.68 1.91
3................................... 1.43 1.58 1.70 1.94
4................................... (1.18) (0.90) (0.67) (0.19)
5................................... (1.14) (0.81) (0.55) (0.02)
6................................... (4.77) (3.97) (3.33) (2.00)
----------------------------------------------------------------------------------------------------------------
* These label values per ton represent the global SCC of CO2 in 2010, in 2007$. Their present values have been
calculated with scenario-consistent discount rates. See section IV.M for a full discussion of the derivation
of these values.
** Low value corresponds to $447 per ton of NOX emissions.
*** Medium value corresponds to $2,519 per ton of NOX emissions.
**** High value corresponds to $4,591 per ton of NOX emissions.
Parentheses indicate negative (-) values.
[[Page 20207]]
Table VI.61--Estimates of Adding Net Present Value of Consumer Savings (at 7% Discount Rate) to Net Present
Value of Low, Central, and High-End Monetized Benefits From CO2 and NOX Emissions Reductions at Trial Standard
Levels for Pool Heaters
----------------------------------------------------------------------------------------------------------------
Consumer NPV at 7% discount rate added with:
---------------------------------------------------------------------------
CO2 value of $4.7/ CO2 value of CO2 value of CO2 value of
TSL metric ton CO2* $21.4/metric ton $35.1/metric ton $64.9/metric ton
and low value for CO2* and medium CO2* and medium CO2* and high
NOX** billion value for NOX*** value for NOX*** value for NOX****
2009$ billion 2009$ billion 2009$ billion 2009$
----------------------------------------------------------------------------------------------------------------
1................................... 0.05 0.05 0.06 0.07
2................................... 0.04 0.05 0.06 0.08
3................................... (0.05) (0.03) (0.00) 0.04
4................................... (0.15) (0.11) (0.08) (0.02)
5................................... (1.38) (1.32) (1.28) (1.18)
6................................... (2.84) (2.70) (2.59) (2.35)
----------------------------------------------------------------------------------------------------------------
* These label values per ton represent the global SCC of CO2 in 2010, in 2007$. Their present values have been
calculated with scenario-consistent discount rates. See section IV.M for a full discussion of the derivation
of these values.
** Low value corresponds to $447 per ton of NOX emissions.
*** Medium value corresponds to $2,519 per ton of NOX emissions.
**** High value corresponds to $4,591 per ton of NOX emissions.
Parentheses indicate negative (-) values.
Table VI.62--Estimates of Adding Net Present Value of Consumer Savings (at 3% Discount Rate) to Net Present
Value of Low, Central, and High-End Monetized Benefits From CO2 and NOX Emissions Reductions at Trial Standard
Levels for Pool Heaters
----------------------------------------------------------------------------------------------------------------
Consumer NPV at 3% discount rate added with:
---------------------------------------------------------------------------
CO2 value of $4.7/ CO2 value of CO2 value of CO2 value of
TSL metric ton CO2* $21.4/metric ton $35.1/metric ton $64.9/metric ton
and low value for CO2* and medium CO2* and medium CO2* and high
NOX** billion value for NOX*** value for NOX*** value for NOX****
2009$ billion 2009$ billion 2009$ billion 2009$
----------------------------------------------------------------------------------------------------------------
1................................... 0.10 0.11 0.11 0.12
2................................... 0.11 0.12 0.13 0.15
3................................... (0.01) 0.02 0.04 0.09
4................................... (0.14) (0.10) (0.07) (0.01)
5................................... (2.31) (2.26) (2.21) (2.11)
6................................... (4.53) (4.39) (4.28) (4.04)
----------------------------------------------------------------------------------------------------------------
* These label values per ton represent the SCC of CO2 in 2010, in 2007$. Their present values have been
calculated with scenario-consistent discount rates. See section IV.M for a full discussion of the derivation
of these values.
** Low value corresponds to $447 per ton of NOX emissions.
*** Medium value corresponds to $2,519 per ton of NOX emissions.
**** High value corresponds to $4,591 per ton of NOX emissions.
Parentheses indicate negative (-) values.
7. Other Factors
In determining whether a standard is economically justified, the
Secretary of Energy may consider any other factors that the Secretary
deems to be relevant. (42 U.S.C. 6295(o)(2)(B)(i)(VII)) The Secretary
has decided that the LCC impacts on identifiable groups of consumers,
such as senior citizens and residents of multi-family housing who may
be disproportionately affected by any national energy conservation
standard level, is a relevant factor. The impacts on the identified
consumer subgroups are described in section VI.C.1.b above. DOE also
believes that uncertainties associated with the heat pump water heater
market (e.g., product availability, servicing, and manufacturability)
are relevant to consider as described in section VI.D.2 below. Lastly,
DOE believes that another relevant consideration is the potential
safety concerns surrounding gas-fired storage water heaters that are
atmospherically vented with high recovery efficiencies that potentially
may be installed with improper venting in certain installations, which
are also discussed in section VI.D.2 below.
D. Conclusion
1. Overview
As discussed above, EPCA contains a number of criteria and other
provisions which must be followed when prescribing new or amended
energy conservation standards. Specifically, the statute provides 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)) In determining whether a standard
is economically justified, the Secretary must determine whether the
benefits of the standard exceed its burdens. (42 U.S.C.
6295(o)(2)(B)(i)) DOE must do so after receiving public comments on the
proposed standard and by considering, to the greatest extent
practicable, the following seven factors:
1. The economic impact of the standard on the manufacturers and
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, initial charges for, or maintenance expenses
of the covered
[[Page 20208]]
products likely to result from imposition of the standard;
3. The total projected amount of energy (or, as applicable, water)
savings likely to result directly from imposition of the standard;
4. Any lessening of the utility or performance of the covered
products likely to result from imposition of the standard;
5. The impact of any lessening of competition, as determined in
writing by the Attorney General, likely to result from 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)(I)-(VII))
A determination of whether a standard level is economically
justified is not based on any one factor in isolation. The Secretary
must weigh each of these seven factors in total. In addition, the
Secretary may not establish any 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)) Furthermore, EPCA's ``anti-backsliding'' provision
prohibits the Secretary from prescribing any amended standard that
either increases the maximum allowable energy use or decreases the
minimum required energy efficiency of a covered product. (42 U.S.C.
6295(o)(1))
In selecting today's energy conservation standards for the three
heating products, DOE started by examining whether the maximum
technologically feasible levels were economically justified. Upon
finding that the maximum technologically feasible levels were not
economically justified, DOE analyzed the next lower TSL to determine
whether that level was economically justified. DOE follows this
procedure until it: (1) Identifies a TSL that is both technologically
feasible and economically justified, and saves a significant amount of
energy; or (2) determines that no TSL is economically justified.
Tables in each section below for each of the three types of heating
products summarize DOE's quantitative analytical results for each TSL
it considered for this final rule. These tables will aid the reader in
understanding the costs and benefits of each TSL that DOE considered in
adopting standards in this final rule.
2. Water Heaters
Table VI.63 summarizes the results of DOE's quantitative analysis
for each TSL it considered for this final rule for water heaters.
Table VI.63--Summary of Analytical Results for Water Heaters
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Category TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 TSL 7 TSL 8
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
National Energy Savings (quads)............................. 1.07 1.66 2.05 2.35 2.58 3.06 10.16 16.73
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
NPV of Consumer Benefits (2009$ billion)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
3% discount rate............................................ 4.39 5.62 7.05 7.55 8.67 9.08 23.39 16.87
7% discount rate............................................ 0.96 0.88 1.15 1.03 1.39 1.01 (0.22) (11.57)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Industry Impacts
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Gas-Fired and Electric Storage:
Industry NPV (2009$ million)............................ (4.9)-(14.2) (4.3)-(31.4) (5.2)-(38.3) (4.8)-(89.4) (25.9)-(122.6) (23.6)-(134.6) (10.5)-(350.2) 79.2-(647.0)
Industry NPV (% change)................................. (0.6)-(1.6) (0.5)-(3.6) (0.6)-(4.3) (0.5)-(10.2) (2.9)-(13.9) (2.7)-(15.3) (1.2)-(39.8) 9.0-(73.5)
Oil-Fired Storage:
Industry NPV (2009$ million)............................ (0.2)-(0.4) (0.2)-(0.3) (0.2)-(0.4) (0.2)-(0.4) (0.2)-(0.4) (0.2)-(0.4) (0.2)-(0.4) (1.4)-(3.8)
Industry NPV (% change)................................. (2.0)-(3.9) (1.8)-(3.6) (2.0)-(4.2) (2.0)-(4.2) (2.0)-(4.2) (2.0)-(4.2) (2.0)-(4.2) (15.4)-(41.4)
Gas-Fired Instantaneous:
Industry NPV (2009$ million)............................ 2.3-(1.2) 2.3-(1.2) 2.3-(1.2) 2.3-(1.2) 2.3-(1.2) 2.3-(1.2) 2.3-(1.2) 91.4-(57.6)
Industry NPV (% change)................................. 0.4-(0.2) 0.4-(0.2) 0.4-(0.2) 0.4-(0.2) 0.4-(0.2) 0.4-(0.2) 0.4-(0.2) 14.1-(8.9)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Cumulative Emissions Reduction
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
CO2 (Mt).................................................... 74.3 122 131 137 154 209 609 1,001
NOX (kt)................................................ 57.5 94.3 101 106 116 159 456 755
Hg (t).................................................. 0.056 0.090 0.103 0.113 0.553 0.704 2.32 3.59
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Value of Cumulative Emissions Reduction (2009$ million) [dagger][dagger]
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
CO2......................................................... 266 to 4,122 436 to 6,750 468 to 7,242 492 to 7,614 524 to 8,179 714 to 11,142 2,060 to 32,204 3,399 to 53,098
NOX--3% discount rate....................................... 13.7 to 141 22.5 to 231 24 to 247 25 to 259 25 to 261 35 to 358 99 to 1,019 165 to 1,694
NOX--7% discount rate....................................... 6.6 to 67.9 10.8 to 111 11.6 to 119 12.2 to 125 11.0 to 113 15.2 to 157 42.6 to 438 71.5 to 734
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Mean LCC Savings * (2009$)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Gas-Fired Storage........................................... 16 7 7 7 18 9 (218) (195)
Electric Storage............................................ 5 11 18 18 64 64 112 171
Oil-Fired Storage........................................... 101 203 295 295 295 295 295 495
Gas-Fired Instantaneous..................................... 9 9 9 9 9 9 9 (259)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
[[Page 20209]]
Median PBP (years)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Gas-Fired Storage........................................... 2.0 4.5 4.5 4.5 2.3 4.7 21.5 15.6
Electric Storage............................................ 4.0 4.0 5.0 6.7 6.8 6.8 9.4 9.0
Oil-Fired Storage........................................... 0.9 0.3 0.5 0.5 0.5 0.5 0.5 1.9
Gas-Fired Instantaneous..................................... 14.8 14.8 14.8 14.8 14.8 14.8 14.8 38.7
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Distribution of Consumer LCC Impacts
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Gas-Fired Storage:
Net Cost (%)............................................ 25 32 32 32 27 34 70 70
No Impact (%)........................................... 36 22 22 22 33 21 6 1
Net Benefit (%)......................................... 39 45 45 45 40 46 23 28
Electric Storage:
Net Cost (%)............................................ 11 12 21 32 33 33 50 50
No Impact (%)........................................... 44 39 17 10 9 9 5 1
Net Benefit (%)......................................... 45 48 62 59 58 58 45 49
Oil-Fired Storage:
Net Cost (%)............................................ 0 0 0 0 0 0 0 0
No Impact (%)........................................... 76 54 47 47 47 47 47 17
Net Benefit (%)......................................... 24 46 53 53 53 53 53 83
Gas-Fired Instantaneous:
Net Cost (%)............................................ 5 5 5 5 5 5 5 77
No Impact (%)........................................... 91 91 91 91 91 91 91 12
Net Benefit (%)......................................... 4 4 4 4 4 4 4 11
Generation Capacity Change (GW in 2045)................. (0.168) (0.270) (0.309) (0.339) (0.829) (1.05) (3.49) (5.39)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Employment Impacts
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total Potential Changes in Domestic Production Workers in
2015:
Gas-Fired and Electric Storage.......................... (3,610)-55 (3,610)-128 (3,610)-168 (3,610)-256 (3,610)-439 (3,610)-500 (3,610)-3,253 (3,610)-6,313
Oil-Fired storage....................................... (37)-0 (37)-0 (37)-1 (37)-1 (37)-1 (37)-1 (37)-1 (37)-18
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Gas-Fired Instantaneous................................. Not Applicable [dagger][dagger][dagger]
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Net Change in National Indirect Employment in 2044 2.1 2.8 4.6 6.0 10.4 10.6 43.5 56.3
thousands) [dagger][dagger][dagger][dagger]............
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Parentheses indicate negative (-) values.
* For LCCs, a negative value means an increase in LCC by the amount indicated.
[dagger][dagger] Range of the economic value of CO2 reductions is based on estimates of the global benefit of reduced CO2 emissions.
[dagger][dagger][dagger] The industry for gas-fired instantaneous water heaters is international.
[dagger][dagger][dagger][dagger] National Indirect Employment Impacts exclude direct impacts.
DOE first considered TSL 8, which represents the max-tech
efficiency levels for all four product classes. TSL 8 includes a
national standard effectively requiring the use of condensing
technology for gas-fired storage and instantaneous water heaters, a
national standard effectively requiring the use of heat pump water
heater technology for electric storage water heaters, and a national
standard effectively requiring the use of a multi-flue design for oil-
fired water heaters. TSL 8 would save 16.7 quads of energy, an amount
DOE considers significant. TSL 8 would result in a NPV of consumer cost
of $11.6 billion, using a discount rate of 7 percent, and consumer
benefit of $16.9 billion, using a discount rate of 3 percent.
The cumulative emissions reductions at TSL 8 are 1,001 Mt of
CO2, 755 kt of NOX, and 3.6 t of Hg. The
estimated monetary value of the cumulative CO2 emissions
reductions at TSL 8 is $3,399 million to $53,098 million. Total
electricity generating capacity in 2045 is estimated to decrease by
5.39 gigawatts (GW) under TSL 8.
At TSL 8, DOE projects that the average LCC impact for consumers is
a loss of $195 for gas-fired storage water heaters, a gain of $171 for
electric storage water heaters, a gain of $495 for oil-fired storage
water heaters, and a loss of $259 for gas-fired instantaneous water
heaters. The median payback period is 15.6 years for gas-fired storage
water heaters, 9.0 years for electric storage water heaters, 1.9 years
for oil-fired storage water heaters, and 38.7 years for gas-fired
instantaneous water heaters (which is substantially longer than the
mean lifetime of the product). At TSL 8, the fraction of consumers
experiencing an LCC benefit is 28 percent for gas-fired storage water
heaters, 49 percent for electric storage water heaters, 83 percent for
oil-fired storage water heaters, and 11percent for gas-fired
instantaneous water heaters. The fraction of consumers experiencing an
LCC cost is 70 percent for gas-fired storage water heaters, 50 percent
for electric storage water heaters, 0 percent for oil-fired storage
water heaters, and
[[Page 20210]]
77 percent for gas-fired instantaneous water heaters.
At TSL 8, the average LCC savings are negative for all of the
considered consumer subgroups for gas-fired storage water heaters, and
a majority of the households in each subgroup experience a net cost. In
the case of electric storage water heaters, the average LCC savings are
negative for senior-only and multi-family households, but positive for
low-income and manufactured home households. In all cases, however, a
majority of the households in each subgroup experience a net cost.
At TSL 8, the projected change in the INPV is estimated to decrease
up to $647 million for gas-fired and electric storage water heaters, a
decrease of up to $3.8 million for residential oil-fired storage water
heaters, and a decrease of up to $58 million for gas-fired
instantaneous water waters, in 2009$. For gas-fired and electric
storage water heaters, the impacts are driven primarily by the
assumptions regarding the ability for manufacturers to produce products
at these efficiency levels in the volumes necessary to serve the entire
market. Manufacturers would need to redesign almost all of their
products at TSL 8, which would force manufacturers to incur significant
product and capital conversion costs. Some loss in product utility may
also occur for units that are presently installed in space-constrained
applications because condensing and heat pump technologies would
typically cause water heaters to have a larger footprint. At TSL 8, DOE
recognizes the risk of very large negative impacts if manufacturers'
expectations about reduced profit margins are realized. In particular,
if the high end of the range of impacts is reached as DOE expects, TSL
8 could result in a net loss of 73.5 percent in INPV for gas-fired and
electric storage water heaters, a net loss of 41.4 percent in INPV for
oil-fired storage water heaters, and a net loss of 8.9 percent in INPV
for gas-fired instantaneous water heaters.
For gas-fired storage and instantaneous water heaters at TSL 8,
condensing operation would be required. As further described in the
December 2009 NOPR, DOE outlined several concerns related to the
condensing gas-fired storage water heater market. 74 FR 65852, 65963-64
(Dec. 11, 2009). The main concerns included the ability for the
industry to produce condensing gas-fired storage water heaters and
provide installation and servicing on a scale necessary to serve the
entire volume of the market (i.e., approximately, 4.6 million units
annually). TSL 8 also includes an efficiency level for electric storage
water heaters that would require the use of heat pump technology. The
substantial average savings for customers estimated by DOE's analysis
for TSL 8 are primarily driven by the results for heat pump water
heaters. However, DOE outlined a handful of concerns in the December
2009 NOPR with the current heat pump water heater market that may
prevent heat pump technology from being ready for full-scale
implementation for all consumers. 74 FR 65852, 65965 (Dec. 11, 2009).
These included manufacturability, serviceability, the ability to
retrofit existing installations, and potential impacts on the space
conditioning loads in the house. All four major storage water heater
manufacturers within the industry echoed these concerns regarding the
max-tech efficiency level products.
Therefore, the Secretary has concluded that at TSL 8, the benefits
of energy savings, positive NPV of consumer benefits (at 3-percent
discount rate), generating capacity reductions, and emission reductions
are outweighed by the economic burden on a significant fraction of
consumers due to the large increases in first costs associated with
electric heat pump water heaters and gas-fired condensing water
heaters, the disproportionate impacts to consumers in multi-family
housing, the large capital conversion costs that could result in a
large reduction in INPV for the manufacturers, as well as the
uncertainty associated with providing products at the max-tech level on
a scale necessary to serve the entire market. Consequently, the
Secretary has concluded that TSL 8 is not economically justified.
Next, DOE considered TSL 7. The efficiency levels in TSL 7 include
the ENERGY STAR program level for electric storage water heaters, which
effectively requires the use of heat pump water heating technologies.
However, TSL 7 allows the use of atmospherically-vented gas-fired
storage water heaters. TSL 7 would save 10.16 quads of energy, an
amount DOE considers significant. TSL 7 would result in a negative
consumer NPV of $0.22 billion, using a discount rate of 7 percent, and
a consumer NPV benefit of $23.4 billion, using a discount rate of 3
percent.
The cumulative emissions reductions at TSL 7 are 609 Mt of
CO2, 456 kt of NOX, and 2.32 t of Hg. The
estimated monetary value of the cumulative CO2 emissions
reductions at TSL 7 is $2,060 million to $32,204 million. Total
generating capacity in 2045 is estimated to decrease by 3.49 GW under
TSL 7.
At TSL 7, DOE projects that the average LCC impact is a loss of
$218 for gas-fired storage water heaters, a gain of $112 for electric
storage water heaters, a gain of $295 for oil-fired storage water
heaters, and a gain of $9 for gas-fired instantaneous water heaters.
The median payback period is 21.5 years for gas-fired storage water
heaters, 9.4 years for electric storage water heaters, 0.5 years for
oil-fired storage water heaters, and 14.8 years for gas-fired
instantaneous water heaters. At TSL 7, the fraction of consumers
experiencing an LCC benefit is 23 percent for gas-fired storage water
heaters, 45 percent for electric storage water heaters, 53 percent for
oil-fired storage water heaters, and 4 percent for gas-fired
instantaneous water heaters. The fraction of consumers experiencing an
LCC cost is 70 percent for gas-fired storage water heaters, 50 percent
for electric storage water heaters, 0 percent for oil-fired storage
water heaters, and 5 percent for gas-fired instantaneous water heaters.
At TSL 7, the estimated average LCC savings are negative for all of
the considered consumer subgroups for gas-fired storage water heaters,
and a majority of the households in each subgroup experience a net
cost. In the case of electric storage water heaters, the average LCC
savings are negative for senior-only and multi-family households, but
positive for low-income and manufactured home households. In all cases,
however, a majority of the households in each subgroup experience a net
cost.
At TSL 7, the projected change in INPV ranges from a decrease of up
to $350.2 million for gas-fired and electric storage water heaters, a
decrease of up to $0.4 million for oil-fired storage water heaters, and
a decrease of up to $1.2 million for gas-fired instantaneous water
heaters, in 2009$. The negative impacts on INPV are driven largely by
the required efficiencies for electric storage water heaters which
effectively require heat pump technology. The oil-fired storage water
heater and gas-fired instantaneous water heater efficiencies do not
require substantial changes to the existing operations for some
manufacturers. The significant changes for electric storage water
heaters help to drive the INPVs negative, especially if profitability
is impacted after the compliance date of the amended energy
conservation standard. In particular, if the high end of the range of
impacts is reached as DOE expects, TSL 7 could result in a net loss of
39.8 percent in INPV for gas-fired and electric storage
[[Page 20211]]
water heaters, a net loss of 4.2 percent in INPV for oil-fired storage
water heaters, and a net loss of 0.2 percent in INPV for gas-fired
instantaneous water heaters.
TSL 7 includes efficiency levels for the entire market of electric
storage water heaters that are currently only achievable through the
use of advanced heat pump technologies. DOE's analysis indicates that
dramatic reductions in energy use and substantial economic savings are
possible for electric water heaters with the use of these technologies.
As with TSL 8, the average savings for electric water heater customers
estimated by DOE's analysis for TSL 7 are primarily driven by the
results for heat pump water heaters. While DOE finds the potential
energy savings resulting from a national heat pump water heater
standard very favorable, DOE outlined a number of concerns regarding
the manufacturability and the market for heat pump water heaters in the
December 2009 NOPR. 74 FR 65852, 65965 (Dec. 11, 2009). These included
manufacturability, serviceability, the ability to retrofit existing
installations, and potential impacts on the space conditioning loads in
the house.
DOE further researched the heat pump water heater market for the
final rule. Since the analysis was conducted for the December 2009
NOPR, several heat pump water heater models have been introduced into
the market by major manufacturers. DOE's engineering analysis for the
final rule confirmed that the use of heat pump water heaters adds
dramatically to the MSP estimates, increasing the MSP more than $588
over the baseline electric storage water heater. In part due to this
change, the total installed cost to the consumer increases by an
average of $915 for heat pump water heaters compared to traditional
electric storage water heaters that use electric resistance heating
elements.
In the December 2009 NOPR, DOE posed a series of questions for
interested parties regarding the manufacturability of heat pump water
heaters to meet the demands of the entire market (i.e., approximately
5.8 million units). Even though DOE acknowledged in the December 2009
NOPR that most manufacturers are in the process of developing a heat
pump water heater to offer to consumers in response to the ENERGY STAR
program or have recently begun to offer a heat pump water heater model
for sale, DOE questioned whether it was possible for manufacturers to
convert all of their existing product lines over to produce heat pump
water heaters within 5 years. 74 FR 65852, 65965 (Dec. 11, 2009). In
response to DOE's question in the December 2009 NOPR, A.O. Smith,
Rheem, and Bradford White all agreed that producing heat pump water
heaters in the volumes necessary to service the market would be quite a
transformation and investment for manufacturers. DOE estimates that it
would take a total of $76 million in capital conversion costs and an
additional $55 million in product conversion costs for the industry to
offer exclusively HPWHs. In addition, the significantly higher
production costs would require an additional $273 million in working
capital to purchase more expensive components, carry more-costly
inventory, and handle higher accounts receivable. DOE estimates that
the working capital requirement and conversion costs would cause
electric storage water heater manufacturers to incur a total one-time
investment of at least $404 million in an electric storage market
valued at approximately $301 million. Furthermore, manufacturers would
find it extremely difficult to create a service structure for over five
million electric storage water heaters that use a relatively new
technology by the compliance date of the final rule. Finally, DOE
believes it is unlikely that manufacturers could earn the same return
on these extremely large investments, so profitability would be
expected to decrease after the compliance date of the amended energy
conservation standards. Even with the ENERGY STAR incentive program,
DOE's only projects the market penetration of heat pump water heaters
will be 5 percent in 2015.
In the December 2009 NOPR, DOE questioned whether the service
industry would be capable of providing the same level of service for
heat pump water heaters that consumers are accustomed to receiving from
a typical installer or repair person. 74 FR 65852, 65965 (Dec. 11,
2009). DOE sought input from commenters about whether reliable
installation and servicing could be achieved on the scale needed by the
compliance date of the amended standard. Id. As further detailed in
section IV.B.2.b, DOE received comments supporting both sides of the
arguments. Some manufacturers believe the training of service
technicians and infrastructure needed to provide service to the heat
pump water heating industry is not adequate and would not be available
by the compliance date of the standard to serve the needs of the entire
market. Others, including a manufacturer of heat pump water heaters,
asserted that a nationwide network for heat pump water heater product
service currently exists to service the limited heat pump water heater
market today. Also, this manufacturer is currently developing a
nationwide installation base to ensure that its consumers can readily
purchase, install, and repair their heat pump water heaters. Other
commenters pointed out that the skills needed to service heat pump
water heaters are similar to the skill set of technicians in the
residential refrigerator industry, which has an extensive servicing
base.
While DOE believes that heat pump water heaters could require
different servicing needs compared to traditional electric resistance
storage water heaters, DOE also believes that the service industry will
adapt to provide reliable installation, repair, and maintenance for
heat pump water heaters by the compliance date of amended energy
conservation standards for a subset of the entire market. Heat pump
water heaters will require additional servicing needs for the sealed
system portion of the unit. This includes handling a working
refrigerant in addition to the typical plumbing type issues associated
with residential water heaters. Even though DOE believes this
additional servicing requirement can be adequately handled by a
national servicing network of appliance technicians, DOE questions
whether this can be done in the near-term at a level necessary to
service the entire market.
In the December 2009 NOPR, DOE also questioned whether heat pump
water heaters were capable of being installed in all types of
installations currently serviced by the residential electric storage
water heating market. 74 FR 65852, 65965 (Dec. 11, 2009). DOE found
that in certain situations (especially indoor locations), installations
could be very costly for consumers, requiring them to alter their
existing space to accommodate a heat pump water heater. In some indoor
installations, the consumer needs to address space constraints issues,
a requirement for sufficient air volume to maintain adequate operation
of the water heater, and the impact of the water heater cooling off the
space during the heating season. Id. DOE stated in the December 2009
NOPR that according to DOE's estimates, 12 percent of electric storage
water heater consumers would experience an increase of more than $500
in their LCC compared to the base case. 74 FR 65852, 65965 (Dec. 11,
2009).
DOE strongly considered TSL 7 as the standard level for residential
water heaters. Even though the commenters provided useful insight
regarding the
[[Page 20212]]
potential manufacturability, serviceability, and capabilities of these
units to be installed in similar types of installations where current
electric storage water heaters are located, DOE is still concerned
about some of the issues identified in the December 2009 NOPR and
outlined above regarding a national heat pump water heater standard.
Specifically, DOE is still concerned about the ability for
manufacturers to ramp up production in time to meet the demand by the
compliance date of amended standards, the potentially large increases
in total installed cost to certain consumers, the potential impacts on
multi-family households, and the potential impacts on the heating and
cooling load of the residence. Consequently, for today's final rule,
the Secretary has concluded that at TSL 7, the benefits of energy
savings, positive consumer NPV (at 3-percent discount rate), generating
capacity reductions, and emission reductions would be outweighed by the
negative economic impacts on those consumers that would have to make
structural changes to accommodate the larger footprint of the heat pump
water heaters, the economic burden on a significant fraction of
consumers due to the large increases in total installed costs
associated with heat pump water heaters, the disproportionate impacts
to consumers in multi-family housing and others with comparatively low
usage rates, the large capital conversion costs that could result in a
large reduction in INPV for the manufacturers, and the uncertainties
associated with the heat pump water heater market.
Next, DOE considered TSL 6, in which DOE paired efficiency levels
that would effectively require different technologies for large-volume
and small-volume gas-fired and electric storage water heaters in an
effort to promote advance technology penetration into the market and to
potentially save additional energy. Specifically, TSL 6 would
effectively require heat pump technology for electric storage water
heaters with a rated storage volume greater than 55 gallons and
condensing technology for gas-fired storage water heaters with a rated
storage volume greater than 55 gallons. For electric storage water
heaters at TSL 6, DOE considered efficiency level 6 (i.e., the lowest
efficiency level DOE analyzed effectively requiring heat pump
technology), instead of the max-tech efficiency level 7 for large water
heaters, because at the time of the analysis, only one manufacturer had
demonstrated the capability of reaching the efficiencies required by
the max-tech energy efficiency equation for electric storage water
heaters. Under this slightly lower efficiency level, manufacturers can
better maintain design flexibility, and it encourages competition in
the heat pump water heater market. DOE believes this level represents
an efficiency level that is likely to result in efficient heat pump
technologies, yet also maintains maximum flexibility regarding specific
heat pump water heater designs. For electric storage water heaters with
a rated storage volume of 55 gallons or less, TSL 6 also includes
requirements which continue to allow the use of electric resistance
elements. TSL 6 also includes requirements allowing atmospherically-
vented gas-fired storage water heaters with a rated storage volume at
or below 55 gallons. As an example, a gas-fired water heater with a
rated storage volume of 40 gallons would be required to meet a 0.63 EF
under TSL 6. As described above and further detailed below, this
efficiency level, which is pushing the limits of atmospherically-vented
gas-fired storage water heaters is where DOE has concerns over consumer
safety for units with high recovery efficiencies in certain
installations. These concerns are further described below.
TSL 6 would save 3.06 quads of energy, an amount DOE considers
significant. Under TSL 6, the NPV of consumer benefit would be $1.01
billion, using a discount rate of 7 percent, and $9.08 billion, using a
discount rate of 3 percent.
The cumulative emissions reductions at TSL 6 are 209 Mt of
CO2, 159 kt of NOX, and 0.704 t of Hg. The
estimated monetary value of the cumulative CO2 emissions
reductions at TSL 6 is $714 million to $11,142 million. Total
generating capacity in 2045 is estimated to decrease by 1.05 GW under
TSL 6.
At TSL 6, DOE projects that the average LCC impact is a gain
(consumer cost savings) of $9 for gas-fired storage water heaters, a
gain of $64 for electric storage water heaters, a gain of $295 for oil-
fired storage water heaters, and a gain of $9 for gas-fired
instantaneous water heaters. The median payback period is 4.7 years for
gas-fired storage water heaters, 6.8 years for electric storage water
heaters, 0.5 years for oil-fired storage water heaters, and 14.8 years
for gas-fired instantaneous water heaters. At TSL 6, the fraction of
consumers experiencing an LCC benefit is 46 percent for gas-fired
storage water heaters, 58 percent for electric storage water heaters,
53 percent for oil-fired storage water heaters, and 4 percent for gas-
fired instantaneous water heaters. The fraction of consumers
experiencing an LCC cost is 34 percent for gas-fired storage water
heaters, 33 percent for electric storage water heaters, 0 percent for
oil-fired storage water heaters, and 5 percent for gas-fired
instantaneous water heaters.
At TSL 6, the estimated average LCC savings for gas-fired storage
water heaters are negative for multi-family households and manufactured
home households, slightly negative for low-income households, and
slightly positive for senior-only households. In the case of electric
storage water heaters, the average LCC savings are positive for senior-
only and low-income households, slightly negative for multi-family
households, and negative for manufactured home households. In all cases
except manufactured home households, a majority of the households in
each subgroup experience a net benefit.
At TSL 6, the projected change in INPV ranges from a decrease of up
to $134.6 million for gas-fired and electric storage water heaters, a
decrease of up to $0.4 million for oil-fired storage water heaters, and
a decrease of up to $1.2 million for gas-fired instantaneous water
heaters, in 2009$. The negative impacts on INPV are driven largely by
the required efficiencies for gas-fired and electric storage water
heaters with rated storage volumes above 55 gallons. TSL 6 would
effectively require heat pump technology and condensing technology for
the electric and gas-fired storage water heaters at these volume sizes.
The efficiency requirements at TSL 6 for electric storage water heater
with a rated volume less than 55 also result in negative impacts
because such large increases in insulation also require manufacturers
to implement changes to their existing equipment. The oil-fired storage
water heater and gas-fired instantaneous water heater efficiencies at
TSL 6 do not require substantial changes to the existing operations for
some manufacturers. The significant changes to gas-fired and electric
storage water heaters with rated storage volumes greater than 55
gallons help to drive the INPVs negative, especially if profitability
is impacted after the compliance date of the amended energy
conservation standard. In particular, if the high end of the range of
impacts is reached as DOE expects, TSL 6 could result in a net loss of
15.3 percent in INPV for gas-fired and electric storage water heaters,
a net loss of 4.2 percent in INPV for oil-fired storage water heaters,
and a net loss of 0.2 percent in INPV for gas-fired instantaneous water
heaters.
DOE believes TSL 6 would provide an effective mechanism for
increasing the
[[Page 20213]]
market penetration for advanced-technology water heaters. Given DOE's
concerns with TSL 7 (which includes a national heat pump water heater
standard for electric storage water heaters across the entire range of
rated storage volumes) as described above, DOE also strongly considered
adopting TSL 6. TSL 6 results in positive NPV of consumer benefit for
both electric and gas-fired storage water heaters, while also providing
considerable energy and carbon savings.
Using DOE's shipments model and market assessment, DOE estimated
approximately 4 percent of gas-fired storage water heater shipments and
11 percent of models would fall into the large-volume water heater
category using the TSL 6 division (i.e., large water heaters with
storage volumes above 55 gallons). Similarly, DOE estimated
approximately 9 percent of electric storage water heater shipments and
27 percent of models would fall into the large-volume water heater
category using the TSL 6 division. Compared to TSL 7, TSL 6 effectively
requires heat pump technology for a relatively small fraction of the
electric storage water heater market, reduces the number of
installations that would necessitate significant structural
modifications due to the size of heat pump water heaters, reduces the
number of installations that have space conditioning impacts from cool
air produced by the heat pump water heater operation, results in higher
average LCC savings and shorter median payback periods, and reduces the
negative impacts on consumer subgroups. For gas-fired storage water
heaters, compared to a national condensing standard level (TSL 8), TSL
6 requires condensing technology for a relatively small fraction of the
gas-fired storage water heater market, reduces the number of
installations that require significant building modifications due to
the size of condensing gas-fired water heaters, and results in higher
average LCC savings and shorter median payback period.
Although DOE has identified a number of benefits associated with
TSL 6, DOE is aware that there are multiple issues associated with
promulgating an amended energy conservation standard at this level.
Potential issues with TSL 6 affecting both heat pump water heaters and
condensing gas-fired water heaters include: (1) Consumer acceptance;
(2) training; (3) product substitution; (4) engineering resource
constraints; (5) product discontinuation; and (6) manufacturing issues.
DOE fully discusses each of these in great detail in the December 2009
NOPR. 74 FR 65852, 65966-67 (Dec. 11, 2009). The lack of clarity on
many of these issues contributed to DOE's tentative conclusion at the
NOPR stage that a determination could not be made that NOPR TSL 5
(which contained different standards based upon the 55-gallon capacity
division) is economically justified. However, comments and other
information on these issues in response to the NOPR allowed DOE to make
a more informed decision for the final rule.
As far as consumer acceptance, DOE questioned whether consumers may
elect not to buy the larger-volume water heaters for a number of
reasons (e.g., including increases in first costs, unfamiliarity with
the product, or space-constraint issues) and instead buy multiple water
heaters that are under the capacity limit in the December 2009 NOPR. 74
FR 65852, 65967 (Dec. 11, 2009). In the final rule, DOE has now
accounted for the equipment switching to lower rated storage volume
water heaters in its analysis. DOE believes it has captured any
potential impacts from that fraction of consumers who might elect to
install one or two smaller water heaters. DOE derived the fraction of
households which could switch from a large water heater to two smaller
water heaters by comparing the total installed costs. DOE also
considered the feasibility of switching a large water heater to a
smaller water heater based on hot water needs of the household. DOE
also took into consideration other factors such as whether some
households would account for the operating cost advantages, need for
emergency replacement, and avoiding costly venting system modifications
when also installing a condensing gas furnace. See section IV.G.2.d for
additional details.
As far as the reliable installation, servicing, and repair network
that would be needed to service the market, DOE believes TSL 6
mitigates these problems for the reasons that follow. Because TSL 6
only impacts at most 9 percent of the electric storage water heater
market, DOE believes the service industry will be able to provide
adequate service to this subset of consumers. In addition, DOE believes
that with the ENERGY STAR program and major water heater manufacturers
continuing to introduce products into the market, the service industry
will also continue to evolve. Given that this standard level does not
impact the entire market and with the 5-year lead time, DOE believes
the service industry will be able to properly train technicians and
provide a nationwide network, which includes plumbers and refrigeration
technicians to properly service heat pump water heaters by 2015.
As far as manufacturability, DOE estimates that it would take a
total of $14.2 million and $26.1 million in capital conversion costs
and product conversion costs for the industry to offer condensing
products and heat pump water heaters for units with rated storage
volumes above 55-gallons, respectively. While the total required
investments (including working capital) to manufacture exclusively
HPWHs greatly exceed the total industry value, the total conversion
costs for converting only products with rated storage volumes above 55-
gallons represent just 2.4 percent and 8.7 percent of the total value
of the gas-fired and electric storage markets, respectively.
Additionally, TSL 6 requires far less investment in working capital
than TSL 7. Specifically, as compared to the $273 million required by
TSL 7 for electric storage water heaters, TSL 6 would necessitate an
investment of $45 million. Similarly, for gas-fired storage water
heaters, TSL 8 requires an increase of $177 million in working capital
needs, while TSL 6 requires an increase of $20 million. These much
higher investments at TSL 7 and TSL 8, relative to TSL 6, are reflected
in the mitigated INPV impacts shown in the MIA results.
DOE also believes that manufacturers would be better able to make
the technological changes required at TSL 6 than TSL 7 before the
compliance date, due, in part, to the experience of all three major
manufacturers in producing large-volume condensing products for the
commercial sector. DOE believes manufacturers can rely on this
experience to adapt to TSL 6 to an extent they could not at TSL 8, at
which smaller-volume products would also have to be converted.
Furthermore, two of the three major manufacturers have some experience
in manufacturing heat pump water heaters for the residential sector.
The efficiency requirements for products only above 55-gallons rated
storage volume would not require manufacturers to greatly alter most of
their existing production lines. DOE believes that manufactures would
create separate production lines for these products, which would be
less disruptive to current facilities. In addition, five years should
offer enough lead time for the product development and capital changes
for these larger-rated-volume products. Lastly, DOE believes that
manufacturers would be more likely to maintain an historic level of
return on investment on large-volume products, relative to small-volume
[[Page 20214]]
products, because that market contains a greater mix of high-end
consumers.
DOE strongly considered TSL 6 and believes it would provide
additional energy and carbon savings, while mitigating some of the
issues associated with a national heat pump water heater standard.
However, TSL 6 also includes a level for gas-fired storage water
heaters with rated storage volumes at or below 55 gallons that has
caused DOE some reservations related to consumer safety. These concerns
came to light during the course of DOE's consideration of public
comments on the NOPR. Specifically, TSL 6 for smaller-volume gas-fired
storage water heaters effectively continues to allow the use of
atmospherically-vented technology. DOE reviewed the current market at
40 gallons rated storage volume and two current designs offered at a
0.63 EF: (1) An atmospherically-vented unit and (2) a fan-assisted
unit. Over 50 percent of these models have corresponding recovery
efficiencies at or above 78 percent.
The efficiency of a gas-fired water heater is characterized by a
number of factors, including the energy factor, the first hour rating,
and the recovery efficiency. For atmospherically-vented gas-fired
storage water heaters, manufacturers primarily modify either the
insulation thickness to increase the energy factor or the baffling to
increase the recovery efficiency. The recovery efficiency characterizes
how efficiently the heat from the energy source is transferred to the
water. For each design and energy factor analyzed by DOE, manufacturers
offer units in a range of recovery efficiencies. As the recovery
efficiency increases, the risk for condensation to occur in the vent
increases. Recovery efficiencies at or above 78 percent present a
potential safety risk if condensation occurs in certain installations
and the proper venting has not been installed in the residence, thereby
potentially allowing carbon monoxide to enter and build up in the
living space.
As explained in section IV.F.2.a above, DOE's analysis assumed that
installations with water heaters with recovery efficiency of 78 percent
or higher (which accounted for 57 percent of installations at TSL 6)
would use stainless steel vent connectors. Without such vent
connectors, there is a potential for corrosion of the vent due to
condensation of flue gases. At present, however, the National Fuel Gas
Code venting tables that are used as guidelines for installation are
based on assumed recovery efficiencies of 76 percent, and they do not
mention use of stainless steel vent connectors. Therefore, there is a
possibility that some installations could occur without use of
stainless steel vent connectors.
DOE found that there are several 40-gallon gas-fired water heater
models corresponding to TSL 6 efficiency levels that are currently
available to consumers and that do not utilize power venting. These
models do not have any venting or installation instructions directing
installers to use special venting (other than what is already required
by the National Fuel Gas Code and/or local codes) for these products,
and it is unclear why the concerns raised have not been an issue for
these products currently available on the market.
However, in considering the adoption of a minimum standard for gas-
fired water heaters at TSL 6 with rated storage volumes at or below 55
gallons, DOE believes there may be an increased risk of potential
safety concerns due to improper installation of units with high
recovery efficiencies. While DOE realizes there are units with recovery
efficiencies offered in a range of energy factors, DOE also believes
this risks increases as the limits of atmospherically-vented technology
are reached.
Ideally, DOE believes the National Fuel Gas Code venting tables
should be modified to properly address condensation-related issues for
the units on the market with recovery efficiencies at or above 76
percent. This would include a recommendation to use stainless steel
vent connectors at these recovery efficiencies regardless of energy
factor and in order to mitigate most of the safety concerns for
atmospherically-vented units. However, DOE cannot be certain whether
such changes would occur before the compliance date of amended energy
conservation standards for water heaters. Thus, in practice, there
remains the possibility that some installations of TSL 6 gas-fired
water heaters with recovery efficiencies at or above 78 percent would
not use stainless steel vent connectors, which could result in safety
problems in a likely small, but uncertain, number of cases.
Therefore, for today's final rule, the Secretary tentatively
concludes that at TSL 6, the benefits of energy savings, positive
consumer NPV, generating capacity reductions, economic savings for most
consumers, and emission reductions would be outweighed the large
capital conversion costs that could result in a large reduction in INPV
for the manufacturers, the negative impacts on some consumer groups,
and the safety concerns due to the corrosive condensate forming in the
venting system of specific installations.
Next, DOE considered TSL 5, which is very similar to TSL 6 except
that it considers a lower efficiency level for gas-fired storage water
heaters with rated storage volumes less than or equal to 55 gallons.
TSL 5 still pairs efficiency levels that would effectively require
different technologies for large-volume and small-volume gas-fired and
electric storage water heaters in an effort to promote advance
technology penetration into the market and to potentially save
additional energy. Specifically, TSL 5 would effectively require heat
pump technology for electric storage water heaters with rated storage
volumes greater than 55 gallons and condensing technology for gas-fired
storage water heaters with rated storage volumes greater than 55
gallons. For gas-fired water heaters at TSL 5, DOE analyzed energy
efficiency level 1 for small-volume units due to the potential safety
concerns with corrosive condensate formation.
TSL 5 would save 2.58 quads of energy, an amount DOE considers
significant. Under TSL 5, the NPV of consumer benefit would be $1.39
billion, using a discount rate of 7 percent, and $8.67 billion, using a
discount rate of 3 percent.
The cumulative emissions reductions at TSL 5 are 154 Mt of
CO2, 116 kt of NOX, and 0.553 t of Hg. The
estimated monetary value of the cumulative CO2 emissions
reductions at TSL 5 is $524 million to $8,179 million. Total generating
capacity in 2045 is estimated to decrease by 0.83 GW under TSL 5.
At TSL 5, DOE projects that the average LCC impact is a gain
(consumer cost savings) of $18 for gas-fired storage water heaters, a
gain of $64 for electric storage water heaters, a gain of $295 for oil-
fired storage water heaters, and a gain of $9 for gas-fired
instantaneous water heaters. The median payback period is 2.3 years for
gas-fired storage water heaters, 6.8 years for electric storage water
heaters, 0.5 years for oil-fired storage water heaters, and 14.8 years
for gas-fired instantaneous water heaters. At TSL 5, the fraction of
consumers experiencing an LCC benefit is 40 percent for gas-fired
storage water heaters, 58 percent for electric storage water heaters,
53 percent for oil-fired storage water heaters, and 4 percent for gas-
fired instantaneous water heaters. The fraction of consumers
experiencing an LCC cost is 27 percent for gas-fired storage water
heaters, 33 percent for electric storage water heaters, 0 percent for
oil-fired storage water heaters, and 5 percent for gas-fired
instantaneous water heaters.
[[Page 20215]]
At TSL 5, the estimated average LCC savings for gas-fired storage
water heaters are slightly negative for multi-family households and
manufactured home households, and slightly positive for senior-only
households and low-income households. For all of the subgroups, a
higher share of households have a net benefit than have a net cost. In
the case of electric storage water heaters, the average LCC savings are
positive for senior-only and low-income households, slightly negative
for multi-family households, and negative for manufactured home
households. In all cases except manufactured home households, a
majority of the households in each subgroup experience a net benefit.
At TSL 5, the projected change in INPV ranges from a decrease of up
to $122.6 million for gas-fired and electric storage water heaters, a
decrease of up to $0.4 million for oil-fired storage water heaters, and
a decrease of up to $1.2 million for gas-fired instantaneous water
heaters, in 2009$. The negative impacts on INPV are driven largely by
the required efficiencies for gas-fired and electric storage water
heaters with rated storage volumes above 55 gallons. TSL 5 would
effectively require heat pump technology and condensing technology for
the electric and gas-fired storage water heaters at these volume sizes.
The efficiency requirements at TSL 5 for electric storage water heater
with a rated volume less than 55 gallons also result in negative
impacts because such large increases in insulation also require
manufacturers to implement changes to their existing equipment. The
oil-fired storage water heater and gas-fired instantaneous water heater
efficiencies at TSL 5 do not require substantial changes to the
existing operations for some manufacturers. The significant changes to
gas-fired and electric storage water heaters with rated storage volumes
greater than 55 gallons help to drive the INPVs negative, especially if
profitability is impacted after the compliance date of the amended
energy conservation standard. In particular, if the high end of the
range of impacts is reached as DOE expects, TSL 5 could result in a net
loss of 13.9 percent in INPV for gas-fired and electric storage water
heaters, a net loss of 4.2 percent in INPV for oil-fired storage water
heaters, and a net loss of 0.2 percent in INPV for gas-fired
instantaneous water heaters.
DOE believes TSL 5 would provide an effective mechanism for
increasing the market penetration for advanced-technology water
heaters. Given DOE's concerns with TSL 7 (which includes a national
heat pump water heater standard for electric storage water heaters
across the entire range of rated storage volumes) as described above,
DOE also strongly considered adopting TSL 5. TSL 5 results in positive
NPV of consumer benefit for both electric and gas-fired storage water
heaters, and provides substantial energy and carbon savings, while
mitigating some of the issues associated with a national heat pump
water heater standard (TSL 7). Moreover, TSL 5 also reduces the risk of
safety concerns for small-volume gas-fired storage water heaters by
providing manufacturers with additional flexibility in reaching TSL 5
efficiency levels.
Therefore, for today's final rule, the Secretary has concluded that
at TSL 5, the benefits of energy savings, positive consumer NPV,
generating capacity reductions, economic savings for most consumers,
and emission reductions (both in physical quantities and the monetized
value of those emissions) outweigh the large capital conversion costs
that could result in a large reduction in INPV for the manufacturers
and the negative impacts on some consumer subgroups. Further, global
benefits from carbon dioxide reductions (at a central value of $21.4
per ton for emissions in 2010) would have a present value of $2.7
billion. These benefits from carbon dioxide emission reductions, when
considered in conjunction with the consumer savings NPV and other
factors described above, support DOE's conclusion that TSL 5 is
economically justified. Consequently, DOE is adopting TSL 5 for
residential water heaters. Table VI.64 shows the standard levels DOE is
adopting today for residential water heaters.
Table VI.64--Amended Energy Conservation Standards for Residential Water
Heaters
------------------------------------------------------------------------
------------------------------------------------------------------------
Residential Water Heaters
------------------------------------------------------------------------
Product Class Standard Level
------------------------------------------------------------------------
Gas-fired Storage........... For tanks with a For tanks with a
Rated Storage Rated Storage
Volume at or below Volume above 55
55 gallons: EF = gallons: EF =
0.675-(0.0015 x 0.8012-(0.00078 x
Rated Storage Rated Storage
Volume in gallons). Volume in gallons)
Electric Storage............ For tanks with a For tanks with a
Rated Storage Rated Storage
Volume at or below Volume above 55
55 gallons: EF = gallons: EF = 2.057-
0.960-(0.0003 x (0.00113 x Rated
Rated Storage Storage Volume in
Volume in gallons). gallons)
------------------------------------------------------------------------
Oil-fired Storage........... EF = 0.68-(0.0019 x Rated Storage Volume
in gallons)
Gas-fired Instantaneous..... EF = 0.82-(0.0019 x Rated Storage Volume
in gallons)
------------------------------------------------------------------------
3. Direct Heating Equipment
Table VI.65 summarizes the results of DOE's quantitative analysis
for each TSL it considered for this final rule for direct heating
equipment.
Table VI.65--Summary of Analytical Results for Direct Heating Equipment
----------------------------------------------------------------------------------------------------------------
Category TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6
----------------------------------------------------------------------------------------------------------------
National Energy Savings (quads)... 0.20 0.21 0.23 0.43 0.48 1.26
----------------------------------------------------------------------------------------------------------------
NPV of Consumer Benefits (2009$ billion)
----------------------------------------------------------------------------------------------------------------
3% discount rate.................. 1.32 1.34 1.39 (1.26) (1.22) (4.97)
[[Page 20216]]
7% discount rate.................. 0.54 0.55 0.56 (1.19) (1.24) (4.38)
----------------------------------------------------------------------------------------------------------------
Industry Impacts:
----------------------------------------------------------------------------------------------------------------
Traditional Direct Heating
Equipment:.......................
Industry NPV (2009$ million).. (0.9)-(2.5) (1.2)-(3.9) (1.9)-(7.0) (1.9)-(8.8) (3.8)-(10.4 (3.9)-(13.4
) )
Industry NPV (% change)....... (5.2)-(14.9 (7.2)-(23.6 (11.3)-(42. (11.6)-(53. (22.7)-(64. (23.6)-(80.
) ) 4) 1) 2) 8)
Gas Hearth Direct Heating
Equipment:.......................
Industry NPV (2009$ million).. (0.2)-(0.9) (0.2)-(0.9) (0.2)-(0.9) 1.6-(13.2) 1.6-(13.2) 8.6-(53.6)
Industry NPV (% change)....... (0.3)-(1.2) (0.3)-(1.2) (0.3)-(1.2) 2.0-(17.1) 2.0-(17.1) 11.1-(69.5)
----------------------------------------------------------------------------------------------------------------
Cumulative Emissions Reduction*:
----------------------------------------------------------------------------------------------------------------
CO2 (Mt)...................... 8.2 8.8 9.3 17.9 20.2 49.9
NOX (kt)...................... 7.5 8.1 8.5 16.4 18.6 46.0
----------------------------------------------------------------------------------------------------------------
Value of Cumulative Emissions Reduction (2009$ million) [dagger][dagger]:
----------------------------------------------------------------------------------------------------------------
CO2........................... 31-470 33-503 35-530 67-1,023 76-1,154 187-2,849
NOX-3% discount rate.......... 1.9-19.6 2.0-21.0 2.1-22.1 4.2-42.9 4.7-48.7 11.7-120
NOX-7% discount rate.......... 0.99-10.2 1.06-10.9 1.1-11.4 2.2-22.3 2.5-25.3 6.1-62.5
----------------------------------------------------------------------------------------------------------------
Mean LCC Savings ** (2009$):
----------------------------------------------------------------------------------------------------------------
Gas Wall Fan.................. 83 102 114 43 83 43
Gas Wall Gravity.............. 21 21 64 64 (56) (56)
Gas Floor..................... 13 13 13 13 13 13
Gas Room...................... 42 96 143 143 646 646
Gas Hearth.................... 96 96 96 (70) (70) (253)
----------------------------------------------------------------------------------------------------------------
Median PBP (years):
----------------------------------------------------------------------------------------------------------------
Gas Wall Fan.................. 2.7 3.2 5.0 12.2 2.7 12.2
Gas Wall Gravity.............. 7.5 7.5 11.0 11.0 16.5 16.5
Gas Floor..................... 10.7 10.7 10.7 10.7 10.7 10.7
Gas Room...................... 6.7 4.5 4.8 4.8 6.9 6.9
Gas Hearth.................... 0 0 0 17.1 17.1 26.8
----------------------------------------------------------------------------------------------------------------
Distribution of Consumer LCC Impacts:
----------------------------------------------------------------------------------------------------------------
Gas Wall Fan:.....................
Net Cost (%).................. 0 3 19 53 0 53
No Impact (%)................. 60 53 26 7 60 7
Net Benefit (%)............... 40 44 55 40 40 40
Gas Wall Gravity:
Net Cost (%).................. 10 10 33 33 70 70
No Impact (%)................. 75 75 37 37 0 0
Net Benefit (%)............... 15 15 30 30 30 30
Gas Floor:
Net Cost (%).................. 25 25 25 25 25 25
No Impact (%)................. 18 18 18 18 18 18
Net Benefit (%)............... 57 57 57 57 57 57
Gas Room:
Net Cost (%).................. 19 19 20 20 26 26
No Impact (%)................. 31 56 55 55 49 49
Net Benefit (%)............... 50 25 25 25 25 25
Gas Hearth:
Net Cost (%).................. 9 9 9 69 69 81
No Impact (%)................. 40 40 40 17 17 19
Net Benefit (%)............... 51 51 51 13 13 0
Generation Capacity Change (GW in 0.024 0.026 0.028 0.036 0.041 0.103
2042)............................
----------------------------------------------------------------------------------------------------------------
Employment Impacts:
----------------------------------------------------------------------------------------------------------------
Total Potential Changes in
Domestic Production Workers in
2013:............................
Traditional Direct Heating (275)-4 (275)-6 (275)-33 (275)-37 (275)-35 (275)-44
Equipment....................
Gas Hearth Direct Heating (1,280)-6 (1,280)-6 (1,280)-6 (1,280)-448 (1,280)-448 (1,280)-770
Equipment....................
Net Change in National Indirect 0.21 0.22 0.23 0.16 0.19 0.51
Employment in 2042 (thousands)
[dagger][dagger][dagger].........
----------------------------------------------------------------------------------------------------------------
Parentheses indicate negative (-) values.
[[Page 20217]]
* The impacts for Hg emissions are negligible (less than 0.01 ton).
** For LCCs, a negative value means an increase in LCC by the amount indicated.
[dagger][dagger] Range of the economic value of CO2 reductions is based on estimates of the global benefit of
reduced CO2 emissions.
[dagger][dagger][dagger] National Indirect Employment Impacts exclude direct impacts.
DOE first considered TSL 6, the max-tech level. TSL 6 would save
1.26 quads of energy, an amount DOE considers significant. TSL 6 would
decrease consumer NPV by $4.38 billion, using a discount rate of 7
percent, and by $4.97 billion, using a discount rate of 3 percent.
The emissions reductions at TSL 6 are 49.9 Mt of CO2 and
46.0 kt of NOX. The estimated monetary value of the
cumulative CO2 emissions reductions at TSL 6 is $187 million
to $2,849 million. Total generating capacity in 2042 is estimated to
increase slightly under TSL 6.
At TSL 6, DOE projects that the average LCC impact for consumers is
a gain of $43 for gas wall fan DHE, a loss of $56 for gas wall gravity
DHE, a gain of $13 for gas floor DHE, a gain of $646 for gas room DHE,
and a loss of $253 for gas hearth DHE. The median payback period is
12.2 years for gas wall fan DHE, 16.5 years for gas wall gravity DHE,
10.7 years for gas floor DHE, 6.9 years for gas room DHE, and 26.8
years for gas hearth DHE (which is significantly longer than the mean
lifetime of the product). At TSL 6, the fraction of consumers
experiencing an LCC benefit is 40 percent for gas wall fan DHE, 30
percent for gas wall gravity DHE, 57 percent for gas floor DHE, 25
percent for gas room DHE, and 0 percent for gas hearth DHE. The
fraction of consumers experiencing an LCC cost is 53 percent for gas
wall fan DHE, 70 percent for gas wall gravity DHE, 25 percent for gas
floor DHE, 26 percent for gas room DHE, and 81 percent for gas hearth
DHE.
With respect to consumer subgroups, DOE estimated that the impacts
of TSL 6 would be approximately the same for the senior-only and low-
income subgroups as they are for the full household sample.
At TSL 6, the projected change in INPV ranges from a decrease of up
to $13.4 million for traditional DHE and a decrease of up to $53.6
million for gas hearth DHE, in 2009$. Very few manufacturers offer
products at the max-tech level for both traditional and gas hearth DHE.
At TSL 6, almost every manufacturer would face substantial product and
capital conversion costs to completely redesign most of their current
products and existing production facilities. In addition, higher
component costs could significantly harm profitability. If the high end
of the range of impacts is reached as DOE expects, TSL 6 could result
in a net loss of 80.8 percent in INPV for traditional DHE and a net
loss of 69.5 percent in INPV for gas hearth DHE. In addition to the
large, negative impacts on INPV at TSL 6, the required capital and
product conversion costs could cause material harm to a significant
number of small business manufacturers in both the traditional and gas
hearth DHE market. The conversion costs could cause many of these small
business manufacturers to exit the market.
Therefore, the Secretary concludes that at TSL 6, the benefits of
energy savings and emission reductions would be outweighed by the
negative impacts on consumer NPV, the economic burden on some
consumers, the large capital conversion costs that could result in a
large reduction in INPV for the manufacturers, and the potential
impacts on a significant number of small business manufacturers.
Consequently, the Secretary has concluded that TSL 6 is not
economically justified.
Next, DOE considered TSL 5. TSL 5 would save 0.48 quads of energy,
an amount DOE considers significant. TSL 5 would decrease consumer NPV
by $1.24 billion, using a discount rate of 7 percent, and by $1.22
billion, using a discount rate of 3 percent.
The emissions reductions at TSL 5 are 20.2 Mt of CO2 and
18.6 kt of NOX. The estimated monetary value of the
cumulative CO2 emissions reductions at TSL 5 is $76 million
to $1,154 million. Total generating capacity in 2042 is estimated to
increase slightly under TSL 5.
At TSL 5, DOE projects that the average LCC impact for consumers is
a gain of $83 for gas wall fan DHE, a loss of $56 for gas wall gravity
DHE, a gain of $13 for gas floor DHE, a gain of $646 for gas room DHE,
and a loss of $70 for gas hearth DHE. The median payback period is 2.7
years for gas wall fan DHE, 16.5 years for gas wall gravity DHE, 10.7
years for gas floor DHE, 6.9 years for gas room DHE, and 17.1 years for
gas hearth DHE. At TSL 5, the fraction of consumers experiencing an LCC
benefit is 40 percent for gas wall fan DHE, 30 percent for gas wall
gravity DHE, 57 percent for gas floor DHE, 25 percent for gas room DHE,
and 13 percent for gas hearth DHE. The fraction of consumers
experiencing an LCC cost is 0 percent for gas wall fan DHE, 70 percent
for gas wall gravity DHE, 25 percent for gas floor DHE, 26 percent for
gas room DHE, and 69 percent for gas hearth DHE.
With respect to consumer subgroups, DOE estimated that the impacts
of TSL 5 would be approximately the same for the senior-only and low-
income subgroups as they are for the full household sample.
At TSL 5, the projected change in INPV ranges from a decrease of up
to $10.4 million for traditional DHE and a decrease of up to $13.2
million for gas hearth DHE, in 2009$. While some manufacturers offer a
limited number of products at TSL 5, most of the current products would
have to be redesigned to meet the required efficiencies at TSL 5. In
addition, higher component costs for both traditional and gas hearth
DHE could significantly harm profitability. If the high end of the
range of impacts is reached as DOE expects, TSL 5 could result in a net
loss of 62.4 percent in INPV for traditional DHE and a net loss of 17.1
percent in INPV for gas hearth DHE. In addition to the large, negative
impacts on INPV at TSL 5, the required capital and product conversion
costs could cause material harm to a significant number of small
business manufacturers in both the traditional and gas hearth DHE
market. These manufacturers could be forced to discontinue many of
their existing product lines and, possibly, exit the market altogether.
Therefore, the Secretary concludes that at trial standard level 5,
the benefits of energy savings and emission reductions would be
outweighed by the negative impacts on consumer NPV, the economic burden
on some consumers, the large capital conversion costs that could result
in a large reduction in INPV for the manufacturers, and the potential
for small business manufacturers to have to reduce or discontinue a
significant number of their product lines. Consequently, the Secretary
has concluded that trial standard level 5 is not economically
justified.
Next, DOE considered TSL 4. TSL 4 would save 0.43 quads of energy,
an amount DOE considers significant. TSL 4 would decrease consumer NPV
by $1.19 billion, using a discount rate of 7 percent, and $1.26
billion, using a discount rate of 3 percent.
The emissions reductions at TSL 4 are 17.9 Mt of CO2 and
16.4 kt of NOX. The estimated monetary value of the
cumulative CO2 emissions reductions at TSL 4 is $67 million
to $1,023 million. Total generating capacity in 2042 is
[[Page 20218]]
estimated to increase slightly under TSL 4.
At TSL 4, DOE projects that the average LCC impact for consumers is
a gain of $43 for gas wall fan DHE, a gain of $64 for gas wall gravity
DHE, a gain of $13 for gas floor DHE, a gain of $143 for gas room DHE,
and a loss of $70 for gas hearth DHE. The median payback period is 12.2
years for gas wall fan DHE, 11.0 years for gas wall gravity DHE, 10.7
years for gas floor DHE, 4.8 years for gas room DHE, and 17.1 years for
gas hearth DHE. At TSL 4, the fraction of consumers experiencing an LCC
benefit is 40 percent for gas wall fan DHE, 30 percent for gas wall
gravity DHE, 57 percent for gas floor DHE, 57 percent for gas room DHE,
and 13 percent for gas hearth DHE. The fraction of consumers
experiencing an LCC cost is 53 percent for gas wall fan DHE, 33 percent
for gas wall gravity DHE, 25 percent for gas floor DHE, 20 percent for
gas room DHE, and 69 percent for gas hearth DHE.
With respect to consumer subgroups, DOE estimated that the impacts
of TSL 4 would be approximately the same for the senior-only and low-
income subgroups as they are for the full household sample.
At TSL 4, the projected change in INPV ranges from a decrease of up
to $8.8 million for traditional DHE and decrease of up to $13.2 million
for gas hearth DHE. While some manufacturers offer a limited number of
products at TSL 4, most of the current products would have to be
redesigned to meet the required efficiencies at TSL 4. In addition,
higher component costs for both traditional and gas hearth DHE could
significantly harm profitability. If the high end of the range of
impacts is reached as DOE expects, TSL 4 could result in a net loss of
53.1 percent in INPV for traditional DHE and a net loss of 17.1 percent
in INPV for gas hearth DHE. In addition to the large, negative impacts
on INPV at TSL 4, the required capital and product conversion costs
could cause material harm to a significant number of small business
manufacturers in both the traditional and gas hearth DHE market. These
manufacturers could be forced to reduce their product offerings to
remain competitive.
Therefore, the Secretary concludes that at trial standard level 4,
the benefits of energy savings and emission reductions would be
outweighed by the negative impacts on consumer NPV, the economic burden
on some consumers, the large capital conversion costs that could result
in a large reduction in INPV for the manufacturers, and the potential
for small business manufacturers of DHE to have to reduce their product
offerings. Consequently, the Secretary has concluded that trial
standard level 4 is not economically justified.
Next, DOE considered TSL 3. TSL 3 would save 0.23 quads of energy,
an amount DOE considers significant. TSL 3 would provide an NPV of
consumer benefit of $0.56 billion, using a discount rate of 7 percent,
and $1.39 billion, using a discount rate of 3 percent.
The emissions reductions at TSL 3 are 9.3 Mt of CO2 and
8.5 kt of NOX. The estimated monetary value of the
cumulative CO2 emissions reductions at TSL 3 is $35 million
to $530 million. Total electric generating capacity in 2042 is
estimated to increase slightly under TSL 3.
At TSL 3, DOE projects that the average LCC impact for consumers is
a gain of $114 for gas wall fan DHE, a gain of $64 for gas wall gravity
DHE, a gain of $13 for gas floor DHE, a gain of $143 for gas room DHE,
and a gain of $96 for gas hearth DHE. The median payback period is 5.0
years for gas wall fan DHE, 11.0 years for gas wall gravity DHE, 10.7
years for gas floor DHE, 4.8 years for gas room DHE, and 0.0 years for
gas hearth DHE. At TSL 3, the fraction of consumers experiencing an LCC
benefit is 55 percent for gas wall fan DHE, 30 percent for gas wall
gravity DHE, 57 percent for gas floor DHE, 25 percent for gas room DHE,
and 51 percent for gas hearth DHE. The fraction of consumers
experiencing an LCC cost is 19 percent for gas wall fan DHE, 33 percent
for gas wall gravity DHE, 25 percent for gas floor DHE, 20 percent for
gas room DHE, and 9 percent for gas hearth DHE.
With respect to consumer subgroups, DOE estimated that the impacts
of TSL 3 would be approximately the same for the senior-only and low-
income subgroups as they are for the full household sample.
At TSL 3, the projected change in INPV ranges from a decrease of up
to $7 million for traditional DHE and decrease of up to $0.9 million
for gas hearth DHE. If the high end of the range of impacts is reached,
TSL 3 could result in a net loss of 42.4 percent in INPV for
traditional DHE and a net loss of 1.2 percent in INPV for gas hearth
DHE. The impacts on gas hearth DHE manufacturers are less significant
at TSL 3 because manufacturers offer a wide range of product lines that
meet the required efficiencies at TSL 3 and most products that do not
meet TSL 3 could be upgraded with inexpensive purchased parts and
fairly small conversion costs.
For traditional direct heating equipment, however, not all
manufacturers have a substantial number of existing products that meet
the efficiencies required at TSL 3. The industry has consolidated
significantly over the last decade due to a steady decline in
shipments. The three competitors that account for nearly 100 percent of
the market have survived by consolidating a variety of legacy brands
and products and providing them in replacement situations. Thus, each
of the three competitors, two of which are small business
manufacturers, would face the prospect of significantly upgrading
several low-volume product lines. For the most part, manufacturers do
not have significant volume over which to spread the capital conversion
costs required by TSL 3, meaning that margins will likely be pressured
unless consumers accept large increases in product price. As a whole,
DOE expects the industry would be required to invest $8.0 million to
convert its product lines to meet TSL 3, or roughly half of the
industry value. Because shipments are expected to remain flat or
continue to decline, there may be limited opportunity for all
manufacturers to recoup the investment necessary at TSL 3 to upgrade
their product lines.
At TSL 3, the impacts on small business manufacturers are even more
harmful than to the industry as a whole. For example, the typical small
business manufacturer in the industry would require investment equal to
426 percent of its annual earnings before interest and taxes. With
these prospects, it is likely manufacturers would drop a number of
product lines or exit the market entirely. The small business
manufacturers would likely be disproportionately affected by TSL 3
because they would need to spread the product development costs,
including R&D, over lower volumes. Finally, in the important gas wall
gravity category, small business manufacturers have a limited number of
products that meet the required efficiencies. The two small business
manufacturers with significant market shares have a total of 6 models
that meet the required efficiencies out of a total of 29 models for gas
wall gravity DHE. Based on the public comments of these small
manufacturers, these products also represent a small percentage of
total sales. To offer a full range of the most popular replacements, a
typical small manufacturer would have to convert over 70 percent of its
gas wall gravity product lines, including multiple modifications to
their most popular products.
Therefore, the Secretary concludes that at TSL 3, the benefits of
energy savings, emission reductions, and consumer NPV benefits would be
outweighed by the economic burden on
[[Page 20219]]
some consumers, the large capital conversion costs that could result in
a large reduction in INPV for the manufacturers of traditional DHE, and
the potential for small business manufacturers of DHE to reduce their
product offerings or to be forced to exit the market completely,
thereby reducing competition in the traditional DHE market.
Consequently, the Secretary has concluded that TSL 3 is not
economically justified.
Next, DOE considered TSL 2. TSL 2 would save 0.21 quads of energy,
an amount DOE considers significant. TSL 2 would provide a NPV of
consumer benefit of $0.55 billion, using a discount rate of 7 percent,
and $1.34 billion, using a discount rate of 3 percent.
The emissions reductions at TSL 2 are 8.8 Mt of CO2 and
8.1 kt of NOX. The estimated monetary value of the
cumulative CO2 emissions reductions at TSL 2 is $33 million
to $503 million. Total electric generating capacity in 2042 is
estimated to increase slightly under TSL 2.
At TSL 2, DOE projects that the average LCC impact for consumers is
a gain of $102 for gas wall fan DHE, a gain of $21 for gas wall gravity
DHE, a gain of $13 for gas floor DHE, a gain of $96 for gas room DHE,
and a gain of $96 for gas hearth DHE. The median payback period is 3.2
years for gas wall fan DHE, 7.5 years for gas wall gravity DHE, 10.7
years for gas floor DHE, 4.5 years for gas room DHE, and 0.0 years for
gas hearth DHE. At TSL 2, the fraction of consumers experiencing an LCC
benefit is 44 percent for gas wall fan DHE, 15 percent for gas wall
gravity DHE, 57 percent for gas floor DHE, 25 percent for gas room DHE,
and 51 percent for gas hearth DHE. The fraction of consumers
experiencing an LCC cost is 3 percent for gas wall fan DHE, 10 percent
for gas wall gravity DHE, 25 percent for gas floor DHE, 19 percent for
gas room DHE, and 9 percent for gas hearth DHE.
With respect to consumer subgroups, DOE estimated that the impacts
of TSL 2 would be approximately the same for the senior-only and low-
income subgroups as they are for the full household sample.
At TSL 2, the projected change in INPV ranges from a decrease of up
to $3.9 million for traditional DHE and decrease of up to $0.9 million
for gas hearth DHE. The impacts on gas hearth DHE manufacturers are
less significant at TSL 2 because manufacturers offer a wide range of
product lines that meet the required efficiencies at TSL 2, and most
products that do not meet TSL 2 could be upgraded with inexpensive
purchased parts at fairly small conversion costs. If the high end of
the range of impacts is reached, TSL 2 could result in a net loss of
23.6 percent in INPV for traditional DHE and a net loss of 1.2 percent
in INPV for gas hearth DHE. In addition, the required capital and
product conversion costs faced by small business manufacturers at this
level decrease substantially, thereby mitigating the potential harm to
a significant number of small business manufacturers.
In total, DOE estimates that it will take approximately $4.6
million for the industry to upgrade all of it products to meet the
amended energy conservation standards. Despite including the conversion
costs for the additional product lines that were released since the
NOPR analysis was completed, the total conversion costs estimated by
the industry to upgrade all products that do not meet the amended
energy conservation standards is down $1.8 million from the $6.4
million total estimated for the proposed standards in the December 2009
NOPR, given the change in the standard level DOE has ultimately decided
to adopt. For the amended energy conservation standards, one major
manufacturer has a total of 3 product lines (7 models) that do not meet
the amended energy conservation standards in the two smallest
categories (gas floor and gas room DHE) but has a majority of product
lines and models that meet the amended standards in the two largest
product categories (gas wall fan and gas wall gravity). The other two
major manufacturers have existing product lines that meet the amended
energy conservation standards in all 4 product categories. Therefore,
without spending any conversion costs, at least two manufacturers
already have existing products in all four product categories. In the
most important gas wall gravity category, 57 percent of the existing
models and 71 percent of the existing product lines identified by DOE
meet the amended energy conservation standards. One manufacturer
indicated in written comments that the important gas wall gravity
products that meet the amended energy conversation standard represent a
small portion of total sales. However, DOE believes it has addressed
the concerns of this manufacturer by setting an amended energy
conservation standard that would require much less substantial changes
than those proposed in the NOPR (a two percentage point improvement in
AFUE versus the six percentage point improvement proposed in the NOPR).
While the $4.6 million in total conversion costs to upgrade all product
lines that do not meet the amended energy conservation standards is
substantial, DOE believes that a combination of products that meet the
amended energy conservation standards and selectively upgrading popular
product lines that fall below the standards will allow all three
traditional DHE manufacturers to maintain a viable production volume.
After considering the analysis, comments on the December 2009 NOPR,
and the benefits and burdens of TSL 2, the Secretary concludes that
this trial standard level will offer the maximum improvement in
efficiency that is technologically feasible and economically justified,
and will result in significant conservation of energy. Further, global
benefits from carbon dioxide reductions (at a central value of $21.4
for emissions in 2010) would have a present value of $165 million.
These benefits from carbon dioxide emission reductions (both in
physical reductions and the monetized value of those reductions), when
considered in conjunction with the consumer savings NPV and other
factors described above, outweigh the potential reduction in INPV for
manufacturers and support DOE's conclusion that trial standard level 2
is economically justified. Therefore, the Department today adopts the
energy conservation standards for direct heating equipment at TSL 2, as
shown in Table VI.66.
Table VI.66--Amended Energy Conservation Standards for Direct Heating
Equipment
------------------------------------------------------------------------
Direct heating equipment
-------------------------------------------------------------------------
Product class Standard level
------------------------------------------------------------------------
Gas wall fan type up to 42,000 Btu/h....... AFUE = 75%.
Gas wall fan type over 42,000 Btu/h........ AFUE = 76%.
Gas wall gravity type up to 27,000 Btu/h... AFUE = 65%.
Gas wall gravity type over 27,000 Btu/h up AFUE = 66%.
to 46,000 Btu/h.
Gas wall gravity type over 46,000 Btu/h.... AFUE = 67%.
[[Page 20220]]
Gas floor up to 37,000 Btu/h............... AFUE = 57%.
Gas floor over 37,000 Btu/h................ AFUE = 58%.
Gas room up to 20,000 Btu/h................ AFUE = 61%.
Gas room over 20,000 Btu/h up to 27,000 Btu/ AFUE = 66%.
h.
Gas room over 27,000 Btu/h up to 46,000 Btu/ AFUE = 67%.
h.
Gas room over 46,000 Btu/h................. AFUE = 68%.
Gas hearth up to 20,000 Btu/h.............. AFUE = 61%.
Gas hearth over 20,000 Btu/h and up to AFUE = 66%.
27,000 Btu/h.
Gas hearth over 27,000 Btu/h and up to AFUE = 67%.
46,000 Btu/h.
Gas hearth over 46,000 Btu/h............... AFUE = 68%.
------------------------------------------------------------------------
4. Pool Heaters
Table VI.67 summarizes the results of DOE's quantitative analysis
for each TSL it considered for this final rule for pool heaters.
Table VI.67--Summary of Analytical Results for Pool Heaters
--------------------------------------------------------------------------------------------------------------------------------------------------------
Category TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6
--------------------------------------------------------------------------------------------------------------------------------------------------------
National Energy Savings (quads). 0.01.............. 0.02.............. 0.04.............. 0.06.............. 0.09.............. 0.22
--------------------------------------------------------------------------------------------------------------------------------------------------------
NPV of Consumer Benefits (2009$ billion)
--------------------------------------------------------------------------------------------------------------------------------------------------------
3% discount rate............ 0.10.............. 0.10.............. (0.01)............ (0.15)............ (2.32)............ (4.56)
7% discount rate............ 0.04.............. 0.04.............. (0.06)............ (0.16)............ (1.39)............ (2.87)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Industry Impacts
--------------------------------------------------------------------------------------------------------------------------------------------------------
Industry NPV (2009$ million) 0.0-(0.1)......... 0.3-(0.8)......... (0.8)-(5.0)....... (0.3)-(6.6)....... 0.8-(17.2)........ 7.3-(38.3)
Industry NPV (% change)..... 0.1-(0.2)......... 0.5-(1.7)......... (1.7)-(10.2)...... (0.6)-(13.5)...... 1.6-(35.0)........ 14.9-(78.0)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Cumulative Emissions Reduction *
--------------------------------------------------------------------------------------------------------------------------------------------------------
CO2 (Mt).................... 0.41.............. 0.75.............. 1.72.............. 2.38.............. 3.61.............. 8.89
NOX (kt).................... 0.37.............. 0.67.............. 1.53.............. 2.10.............. 3.18.............. 7.84
--------------------------------------------------------------------------------------------------------------------------------------------------------
Value of Cumulative Emissions Reduction (2009$ million) [dagger][dagger]
--------------------------------------------------------------------------------------------------------------------------------------------------------
CO2......................... 2 to 24........... 3 to 43........... 6 to 99........... 9 to 136.......... 14 to 206......... 33 to 509
NOX--3% discount rate....... 0.1 to 1.0........ 0. 2 to 1.8....... 0.4 to 4.1........ 0.5 to 5.6........ 0.8 to 8.4........ 2.0 to 20.77
NOX--7% discount rate....... 0.1 to 0.5........ 0.1 to 0.9........ 0.2 to 2.2........ 0.29 to 2.9....... 0.4 to 4.5........ 1.1 to 11.0
Mean LCC Savings ** (2009$). 25................ 22................ (6)............... (52).............. (632)............. (1,361)
Median PBP (years).......... 2.7............... 8.6............... 18.2.............. 19.2.............. 38.1.............. 33.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
Distribution of Consumer LCC Impacts
--------------------------------------------------------------------------------------------------------------------------------------------------------
Net Cost (%)................ 5................. 27................ 60................ 64................ 88................ 95
No Impact (%)............... 72................ 51................ 23................ 21................ 9................. 1
Net Benefit (%)............. 23................ 22................ 17................ 15................ 3................. 4
Generation Capacity Change (GW 0.00.............. 0.00.............. 0.00.............. +0.01............. +0.01............. +0.03
in 2042).
--------------------------------------------------------------------------------------------------------------------------------------------------------
Employment Impacts
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total Potential Changes in (512)-7........... (512)-19.......... (512)-58.......... (512)-81.......... (512)-135......... (512)-268
Domestic Production Workers
in 2013.
Net Change in National Indirect 0.01.............. 0.02.............. 0.02.............. 0.02.............. 0.04.............. (0.07)
Employment in 2042 (thousands)
[dagger][dagger][dagger].
--------------------------------------------------------------------------------------------------------------------------------------------------------
Parentheses indicate negative (-) values.
* The impacts for Hg emissions are negligible.
** For LCCs, a negative value means an increase in LCC by the amount indicated.
[dagger][dagger] Range of the economic value of CO2 reductions is based on estimates of the global benefit of reduced CO2 emissions.
[dagger][dagger][dagger] National Indirect Employment Impacts exclude direct impacts.
[[Page 20221]]
DOE first considered TSL 6, the max-tech level. TSL 6 would save
0.22 quads of energy, an amount DOE considers significant. TSL 6 would
decrease consumer NPV by $2.87 billion, using a discount rate of 7
percent, and by $4.56 billion, using a discount rate of 3 percent.
The emissions reductions at TSL 6 are 8.89 Mt of CO2 and
7.84 kt of NOX. The estimated monetary value of the
cumulative CO2 emissions reductions at TSL 6 is $33 million
to $509 million, using a discount rate of 7 percent. Total generating
capacity in 2042 is estimated to increase slightly under TSL 6.
At TSL 6, DOE projects that the average LCC impact for consumers is
a loss of $1,361. The median payback period is 33.2 years (which is
substantially longer than the mean lifetime of the product). At TSL 6,
the fraction of consumers experiencing an LCC benefit is 4 percent. The
fraction of consumers experiencing an LCC cost is 95 percent.
At TSL 6, the INPV is projected to decrease by up to $38.3 million
for gas-fired pool heaters. Currently, gas-fired pool heaters that meet
the efficiencies required by TSL 6 are manufactured in extremely low
volumes by a limited number of manufacturers. The significant impacts
on manufacturers arise from the large costs to develop or increase the
production of fully condensing products. In addition, manufacturers are
significantly harmed if profitability is negatively impacted to keep
consumers in the market for a luxury item that is significantly more
expensive than most products currently sold. If the high end of the
range of impacts is reached as DOE expects, TSL 6 could result in a net
loss of 78 percent in INPV for gas-fired pool heaters.
Therefore, the Secretary has concluded that at TSL 6, the benefits
of energy savings and emission reductions would be outweighed by the
negative impacts on consumer NPV, the economic burden on some consumers
(as indicated by the large increase in total installed cost), and the
large capital conversion costs that could result in a large reduction
in INPV for the manufacturers. Consequently, the Secretary has
concluded that TSL 6 is not economically justified.
Next, DOE considered TSL 5. TSL 5 would save 0.09 quads of energy,
an amount DOE considers significant. TSL 5 would decrease consumer NPV
by $1.39 billion, using a discount rate of 7 percent, and by $2.32
billion, using a discount rate of 3 percent.
The emissions reductions at TSL 5 are 3.6 Mt of CO2 and
3.2 kt of NOX. The estimated monetary value of the
cumulative CO2 emissions reductions at TSL 5 is $14 million
to $206 million. Total generating capacity in 2042 is estimated to
increase slightly under TSL 5.
At TSL 5, DOE projects that the average LCC impact for consumers is
a loss of $632. The median payback period is 38.1 years (which is
substantially longer than the mean lifetime of the product). At TSL 5,
the fraction of consumers experiencing an LCC benefit is 3 percent. The
fraction of consumers experiencing an LCC cost is 88 percent.
At TSL 5, the projected change in INPV is a decrease of up to $17.2
million for gas-fired pool heaters. Currently, gas-fired pool heaters
that meet the efficiencies required by TSL 5 are manufactured in
extremely low volumes by a limited number of manufacturers, as with TSL
6. The significant adverse impacts on manufacturers arise from the
large costs to develop or increase the production of products with
multiple efficiency improvements. In addition, the potential for
manufacturers to be significantly harmed increases if consumers'
purchasing decisions are impacted and shipments decline due to the
large increases in first cost for a luxury item. If the high end of the
range of impacts is reached as DOE expects, TSL 5 could result in a net
loss of 35 percent in INPV for gas-fired pool heaters.
Therefore, the Secretary has concluded that at TSL 5, the benefits
of energy savings and emission reductions would be outweighed by the
negative impacts on consumer NPV, the economic burden on some
consumers, and the large capital conversion costs that could result in
a large reduction in INPV for the manufacturers. Consequently, the
Secretary has concluded that TSL 5 is not economically justified.
Next, DOE considered TSL 4. TSL 4 would save 0.06 quads of energy,
an amount DOE considers significant. TSL 4 would decrease consumer NPV
by $0.16 billion, using a discount rate of 7 percent, and by $0.15
billion, using a discount rate of 3 percent.
The cumulative emissions reductions at TSL 4 are 2.38 Mt of
CO2 and 2.10 kt of NOX. The estimated monetary
value of the cumulative CO2 emissions reductions at TSL 4 is
$9 million to $136 million. Total generating capacity in 2042 is
estimated to increase slightly under TSL 4.
At TSL 4, DOE projects that the average LCC impact for consumers is
a loss of $52. The median payback period is 19.2 years (which is
substantially longer than the mean lifetime of the product). At TSL 4,
the fraction of consumers experiencing an LCC benefit is 15 percent.
The fraction of consumers experiencing an LCC cost is 64 percent.
At TSL 4, DOE projects that INPV decreases by up to $6.6 million
for gas-fired pool heaters. At TSL 4, manufacturers believe that
profitability could be harmed in order to keep consumers in the market
for a luxury item that is more expensive than the most common products
currently sold. If the high end of the range of impacts is reached as
DOE expects, TSL 4 could result in a net loss of 13.5 percent in INPV
for gas-fired pool heaters.
Therefore, the Secretary has concluded that at TSL 4, the benefits
of energy savings and emission reductions would be outweighed by the
negative impacts on consumer NPV, the economic burden on some
consumers, and the large capital conversion costs that could result in
a large reduction in INPV for the manufacturers. Consequently, the
Secretary has concluded that TSL 4 is not economically justified.
Next, DOE considered TSL 3. TSL 3 would save 0.04 quads of energy,
an amount DOE considers significant. TSL 3 would decrease consumer NPV
by $0.06 billion, using a discount rate of 7 percent, and by $0.01
billion, using a discount rate of 3 percent.
The cumulative emissions reductions at TSL 3 are 1.72 Mt of
CO2 and 1.53 kt of NOX. The estimated monetary
value of the cumulative CO2 emissions reductions at TSL 3 is
$6 million to $99 million. Total generating capacity in 2042 is
estimated to stay the same under TSL 3.
At TSL 3, DOE projects that the average LCC impact for consumers is
a loss of $6. The median payback period is 18.2 years (which is
substantially longer than the mean lifetime of the product). At TSL 3,
the fraction of consumers experiencing an LCC benefit is 17 percent.
The fraction of consumers experiencing an LCC cost is 60 percent.
At TSL 3, DOE projects that INPV decreases by up to $5 million for
gas-fired pool heaters. At TSL 3, manufacturers believe that
profitability could be harmed in order to keep consumers in the market
for a luxury item that is more expensive than the most common products
currently sold, as with TSL 4. If the high end of the range of impacts
is reached as DOE expects, TSL 3 could result in a net loss of 10
percent in INPV for gas-fired pool heaters.
Therefore, the Secretary has concluded that at TSL 3, the benefits
of energy savings and emission reductions would be outweighed by the
negative
[[Page 20222]]
impacts on consumer NPV, the economic burden on some consumers, and the
large capital conversion costs that could result in a large reduction
in INPV for the manufacturers. Consequently, the Secretary has
concluded that TSL 3 is not economically justified.
Next, DOE considered TSL 2. TSL 2 would save 0.02 quads of energy,
an amount DOE considers significant. TSL 2 would increase consumer NPV
by $0.04 billion, using a discount rate of 7 percent, and by $0.10
billion, using a discount rate of 3 percent.
The cumulative emissions reductions at TSL 2 are 0.75 Mt of
CO2 and 0.67 kt of NOX. The estimated monetary
value of the cumulative CO2 emissions reductions at TSL 2 is
$3 million to $43 million. Total generating capacity in 2042 is
estimated to stay the same under TSL 2.
At TSL 2, DOE projects that the average LCC impact for consumers is
a savings of $22. The median payback period is 8.6 years. At TSL 2, the
fraction of consumers experiencing an LCC benefit is 22 percent. The
fraction of consumers experiencing an LCC cost is 27 percent.
At TSL 2, DOE projects that INPV decreases by up to $0.8 million
for gas-fired pool heaters. At TSL 2, manufacturers believe that
profitability could be harmed in order to keep consumers in the market
for a luxury item that is more expensive than the most common products
currently sold, as with TSL 3 and 4. If the high end of the range of
impacts is reached as DOE expects, TSL 2 could result in a net loss of
2 percent in INPV for gas-fired pool heaters.
After considering the analysis and the benefits and burdens of TSL
2, the Secretary has concluded that this trial standard level will
offer the maximum improvement in efficiency that is technologically
feasible and economically justified, and will result in significant
conservation of energy. Further, global benefits from carbon dioxide
reductions (at a central value of $21.4 for emissions in 2010) have a
present value of $14 million. These benefits from carbon dioxide
emission reductions (in both physical reductions and the monetized
value of those reductions), when considered in conjunction with the
consumer savings NPV and other factors described above, outweigh the
potential reduction in INPV for manufacturers and support DOE's
conclusion that trial standard level 2 is economically justified.
Therefore, the Department today adopts the energy conservation
standards for pool heaters at TSL 2, which requires a thermal
efficiency of 82 percent for gas-fired pool heaters as shown in Table
VI.68.
Table VI.68--Amended Energy Conservation Standard for Pool Heaters
------------------------------------------------------------------------
Minimum
Product class thermal
efficiency %
------------------------------------------------------------------------
Gas-fired Pool Heaters.................................. 82
------------------------------------------------------------------------
VII. Procedural Issues and Regulatory Review
A. Review Under Executive Order 12866
Section 1(b)(1) of Executive Order 12866, ``Regulatory Planning and
Review,'' 58 FR 51735 (Oct. 4, 1993), requires each agency to identify
in writing the market failure or other problem that it intends to
address, and that warrants agency action (including where applicable,
the failure of private markets or public institutions), as well as
assess the significance of that problem, to enable assessment of
whether any new regulation is warranted. The problems that today's
standards address are as follows:
(1) There is a lack of consumer information and/or information
processing capability about energy efficiency opportunities in the home
appliance market.
(2) There is asymmetric information (one party to a transaction has
more and better information than the other) and/or high transactions
costs (costs of gathering information and effecting exchanges of goods
and services).
(3) There are external benefits resulting from improved energy
efficiency of heating products that are not captured by the users of
such equipment. These benefits include externalities related to
environmental protection and energy security that are not reflected in
energy prices, such as reduced emissions of greenhouse gases.
In addition, DOE has determined that today's regulatory action is a
``significant regulatory action'' under section 3(f)(1) of Executive
Order 12866. Accordingly, section 6(a)(3) of the Executive Order
requires that DOE prepare a regulatory impact analysis (RIA) on today's
rule and that the Office of Information and Regulatory Affairs (OIRA)
in the Office of Management and Budget (OMB) review this rule. DOE
presented to OIRA for review the draft rule and other documents
prepared for this rulemaking, including the RIA, and has included these
documents in the rulemaking record. They are available for public
review in the Resource Room of DOE's Building Technologies Program, 950
L'Enfant Plaza, SW., Suite 600, Washington, DC 20024, (202) 586-2945,
between 9 a.m. and 4 p.m., Monday through Friday, except Federal
holidays.
The RIA is contained in the TSD prepared for the rulemaking. 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) specific national impacts of the standards.
The RIA calculates the effects of feasible policy alternatives to
mandatory standards for heating products, 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 standards in today's rule. DOE analyzed these alternatives using a
series of regulatory scenarios for the three types of heating products.
It modified the heating product NIA models to allow inputs for these
policy alternatives. Of the four product classes of residential water
heaters subject to standards, this RIA concerns only gas-fired storage
and electric storage water heaters, which together represent the
majority of shipments. Of the five product classes of DHE, this RIA
concerns only gas wall fan DHE and gas hearth DHE, which together
represent the majority of DHE shipments.
DOE identified the following major policy alternatives for
achieving increased energy efficiency in the three types of heating
products:
No new regulatory action;
Consumer rebates;
Consumer tax credits;
Manufacturer tax credits;
Voluntary energy efficiency targets;
Bulk government purchases;
Early replacement programs; and
The regulatory action (energy conservation standards).
DOE evaluated each alternative in terms of its ability to achieve
significant energy savings at reasonable costs and compared it to the
effectiveness of today's rule. Table VII.1 through Table VII.5 show the
results for energy savings and consumer NPV.
[[Page 20223]]
Table VII.1--Impacts of Non-Regulatory Alternatives for Gas-Fired Storage Water Heaters That Meet the Standard
(TSL 5)
----------------------------------------------------------------------------------------------------------------
Net present value* billion 2009$
Policy alternative Primary energy -----------------------------------
savings quads 7% discount rate 3% discount rate
----------------------------------------------------------------------------------------------------------------
No New Regulatory Action.................................. 0.00 0.00 0.00
Consumer Rebates.......................................... 0.21 0.05 0.55
Consumer Tax Credits...................................... 0.12 0.03 0.33
Manufacturer Tax Credits.................................. 0.06 0.01 0.17
Voluntary Energy Efficiency Targets....................... 0.12 0.05 0.38
Early Replacement......................................... 0.001 -0.03 -0.05
Bulk Government Purchases................................. 0.003 0.004 0.01
Energy Conservation Standard.............................. 0.81 0.27 2.37
----------------------------------------------------------------------------------------------------------------
* DOE determined the NPV of consumer benefit for product shipments from 2015 to 2045.
Table VII.2--Impacts of Non-Regulatory Alternatives for Electric Storage Water Heaters That Meet the Standard
(TSL 5)
----------------------------------------------------------------------------------------------------------------
Net present value* billion 2009$
Policy alternative Primary energy -----------------------------------
savings quads 7% discount rate 3% discount rate
----------------------------------------------------------------------------------------------------------------
No New Regulatory Action.................................. 0.00 0.00 0.00
Consumer Rebates.......................................... 0.53 0.19 1.50
Consumer Tax Credits...................................... 0.32 0.12 0.90
Manufacturer Tax Credits.................................. 0.16 0.06 0.45
Voluntary Energy Efficiency Targets....................... 0.17 0.29 0.99
Early Replacement......................................... 0.003 -0.05 -0.08
Bulk Government Purchases................................. 0.003 0.004 0.01
Energy Conservation Standard.............................. 1.67 1.03 5.84
----------------------------------------------------------------------------------------------------------------
* DOE determined the NPV of consumer benefit for product shipments from 2015 to 2045.
Table VII.3--Impacts of Non-Regulatory Alternatives for Gas Wall Fan DHE That Meet the Standard (TSL 2)
----------------------------------------------------------------------------------------------------------------
Net present value* billion 2009$
Policy alternative Primary energy -----------------------------------
savings quads 7% discount rate 3% discount rate
----------------------------------------------------------------------------------------------------------------
No New Regulatory Action.................................. 0.00 0.00 0.00
Consumer Rebates.......................................... 0.004 0.007 0.018
Consumer Tax Credits...................................... 0.002 0.004 0.011
Manufacturer Tax Credits.................................. 0.001 0.002 0.005
Voluntary Energy Efficiency Targets....................... 0.001 0.003 0.007
Early Replacement......................................... <0.0001 0.000 0.000
Bulk Government Purchases [dagger]........................ NA NA NA
Energy Conservation Standard.............................. 0.01 0.03 0.07
----------------------------------------------------------------------------------------------------------------
* DOE determined the NPV of consumer benefit for product shipments from 2013 to 2043.
[dagger] DOE did not evaluate the bulk government purchase alternative for gas wall fan DHE because the market
share associated with publicly-owned housing is minimal.
Table VII.4--Impacts of Non-Regulatory Alternatives for Gas Hearth DHE That Meet the Standard (TSL 2)
----------------------------------------------------------------------------------------------------------------
Net present value* billion 2009$
Policy alternative Primary energy -----------------------------------
savings quads 7% discount rate 3% discount rate
----------------------------------------------------------------------------------------------------------------
No New Regulatory Action.................................. 0.00 0.00 0.00
Consumer Rebates.......................................... 0.04 0.10 0.23
Consumer Tax Credits...................................... 0.02 0.06 0.14
Manufacturer Tax Credits.................................. 0.01 0.03 0.07
Voluntary Energy Efficiency Targets....................... 0.02 0.05 0.14
Early Replacement......................................... <0.001 0.000 0.000
Bulk Government Purchases[dagger]......................... NA NA NA
Energy Conservation Standard.............................. 0.19 0.50 1.21
----------------------------------------------------------------------------------------------------------------
* DOE determined the NPV of consumer benefit for product shipments from 2013 to 2043.
[dagger] DOE did not evaluate the bulk government purchase alternative for gas hearth DHE because the market
share associated with publicly-owned housing is minimal.
[[Page 20224]]
Table VII.5--Impacts of Non-Regulatory Alternatives for Pool Heaters That Meet the Standard (TSL 2)
----------------------------------------------------------------------------------------------------------------
Net present value* billion 2009$
Policy alternative Primary energy -----------------------------------
savings quads 7% discount rate 3% discount rate
----------------------------------------------------------------------------------------------------------------
No New Regulatory Action.................................. 0.00 0.00 0.00
Consumer Rebates.......................................... 0.006 0.01 0.03
Consumer Tax Credits...................................... 0.003 0.006 0.02
Manufacturer Tax Credits.................................. 0.002 0.003 0.01
Voluntary Energy Efficiency Targets....................... 0.002 0.004 0.01
Early Replacement......................................... <0.001 0.000 0.000
Bulk Government Purchases [dagger]........................ NA NA NA
Energy Conservation Standard.............................. 0.02 0.04 0.11
----------------------------------------------------------------------------------------------------------------
* DOE determined the NPV of consumer benefit for product shipments from 2013 to 2043.
[dagger] DOE did not evaluate the bulk government purchase alternative for pool heaters because there is no
market share associated with publicly-owned housing.
The NPV amounts shown in Table VII.1 through Table VII.5 refer to
the NPV of consumer benefits. The costs to the government of each
policy (such as rebates or tax credits) are not included in the costs
for the NPV since, on balance, consumers in the aggregate both pay for
rebates and tax credits through taxes and receive their benefits. The
following paragraphs discuss the cumulative effect of each policy
alternative listed in Table VII.1 through Table VII.5. (See the
regulatory impact analysis in the final rule TSD for details.) For
comparison with the results reported below for the non-regulatory
policies, the combined impacts of the standards for all product classes
considered in this rulemaking are projected to result in 2.81 quads of
national energy savings and an NPV of consumer benefit of $1.98 billion
(at a 7-percent discount rate).
No new regulatory action. The case in which no regulatory action is
taken constitutes the ``base case'' (or ``no action'') scenario. Since
this is the base case, energy savings and NPV are zero by definition.
Consumer Rebates. If consumers were offered a rebate that covered a
portion of the incremental price difference between products meeting
baseline efficiency levels and those meeting the energy efficiency
levels in the standards, the number of consumers buying a more-
efficient water heater, pool heater, or DHE would increase relative to
the base case. For example, as a result of the consumer rebates, DOE's
analysis suggests that the market share of water heaters meeting the
standard level would increase from 35 percent (in the base case) to 62
percent for gas-fired storage products, and from 9 percent (in the base
case) to 48 percent for electric storage products. DOE assumed this
policy would permanently transform the market so that the increased
percentage of consumers purchasing more-efficient products seen in the
first year of the program would be maintained throughout the forecast
period. At the estimated participation rates, the rebates would provide
0.79 quads of national energy savings and an NPV of consumer benefit of
$0.36 billion (at a 7-percent discount rate) for the five considered
product classes. Although DOE estimated that rebates would provide
national benefits, they would be much smaller than the benefits
resulting from the national standards.
Consumer Tax Credits. If consumers were offered a tax credit that
covered a portion of the incremental price difference between products
meeting baseline efficiency levels and those meeting the energy
efficiency levels in the standards, DOE's analysis suggests that the
number of consumers buying a water heater, pool heater, or DHE that
would take advantage of the tax credit would be approximately 60
percent of the number that would take advantage of rebates. For
example, as a result of the consumer tax credit, the market share of
water heaters meeting the standard level would increase from 35 percent
(in the base case) to 51 percent for gas-fired storage products and
from 9 percent (in the base case) to 31 percent for electric storage
products. DOE assumed this policy would permanently transform the
market so that the increased percentage of consumers purchasing more-
efficient products seen in the first year of the program would be
maintained throughout the forecast period. At the estimated
participation rates, consumer tax credits would provide 0.47 quads of
national energy savings and an NPV of consumer benefit of $0.22 billion
(at a seven-percent discount rate) for the five considered products.
Hence, DOE estimated that consumer tax credits would yield a fraction
of the benefits that consumer rebates would provide.
Manufacturer Tax Credits. DOE estimates that even smaller benefits
would result from a manufacturer tax credit program that would
effectively result in a lower price to the consumer by an amount that
covers part of the incremental price difference between products
meeting baseline efficiency levels and those meeting the standards.
Because these tax credits would go to manufacturers instead of
consumers, DOE assumed that fewer consumers would be aware of this
program than would be aware of a consumer tax credit program. DOE
assumes that 50 percent of the consumers who would take advantage of
consumer tax credits would buy more-efficient products offered through
a manufacturer tax credit program. For example, as a result of the
manufacturer tax credit, the market share of water heaters meeting the
standard would increase from 35 percent (in the base case) to 43
percent for gas-fired storage products and from 9 percent (in the base
case) to 20 percent for electric storage products. DOE assumed this
policy would permanently transform the market so that the increased
percentage of consumers purchasing more-efficient products seen in the
first year of the program would be maintained throughout the forecast
period. At the estimated participation rates, the rebates would provide
0.23 quads of national energy savings and an NPV of consumer benefit of
$0.1 billion (at a seven-percent discount rate) for the five considered
products. Thus, DOE estimated that manufacturer tax credits would yield
a fraction of the benefits that consumer tax credits and rebates would
provide.
Voluntary Energy Efficiency Targets. The Federal government's
ENERGY STAR program has voluntary energy efficiency targets for gas-
fired and electric storage water heaters. Some equipment purchases that
result from the ENERGY STAR program already are reflected in DOE's
base-case scenario for gas-fired and electric storage water heaters.
DOE evaluated the potential
[[Page 20225]]
impacts of increased marketing efforts by ENERGY STAR that would
encourage the purchase of water heaters meeting the standard. For
direct heating equipment and pool heaters, DOE evaluated a hypothetical
ENERGY STAR program for these products with market impacts comparable
to the impacts of existing ENERGY STAR programs for similar products.
DOE modeled the voluntary efficiency program based on these scenarios.
DOE estimated that the enhanced effectiveness of voluntary energy
efficiency targets would provide 0.31 quads of national energy savings
and an NPV of consumer benefit of $0.40 billion (at a 7-percent
discount rate) for the five considered products. Although this would
provide national benefits, they would be much smaller than the benefits
resulting from the national standards.
Early Replacement Incentives. This policy alternative envisions a
program to replace old, inefficient water heaters, DHE, and pool
heaters with models meeting the efficiency levels in the standards. DOE
projected a 4-percent increase in the annual retirement rate of the
existing stock in the first year of the program. It assumed the program
would last as long as it took to completely replace all of the eligible
existing stock in the year that the program begins (2013 or 2015). DOE
estimated that for such an early replacement program, the national
energy savings benefits would be negligible in comparison with the
benefits resulting from the national standards, and the NPV would
actually be negative.
Bulk Government Purchases. Under this policy alternative, the
government would be encouraged to purchase increased amounts of
equipment that meet the efficiency levels in the standards. Federal,
State, and local government agencies could administer such a program.
At the Federal level, this would be an enhancement to the existing
Federal Energy Management Program (FEMP). DOE modeled this program by
assuming an increase in installation of water heaters meeting the
efficiency levels of the standards among those households for whom
government agencies purchase or influence the purchase of water
heaters. (Because the market share of DHE units in publicly-owned
housing is minimal and the market share of pool heaters in publicly-
owned housing is zero, the Department did not consider bulk government
purchases for those products.) DOE estimated that bulk government
purchases would provide negligible national energy savings and NPV for
the considered products, benefits that would be much smaller than those
estimated for the national standards.
Energy Conservation Standards. DOE is adopting the energy
conservation standards listed in section VI.D. As indicated in the
paragraphs above, none of the alternatives DOE examined would save as
much energy as today's standards. Also, several of the alternatives
would require new enabling legislation because authority to carry out
those alternatives may not exist.
Additional Policy Evaluation. In addition to the above non-
regulatory policy alternatives, DOE evaluated the potential impacts of
a policy that would allow States to require that some water heaters
installed in new homes have an efficiency level higher than the Federal
standard. At present, States are prohibited from requiring efficiency
levels higher than the Federal standard; the considered policy would
remove this prohibition in the case of residential water heaters. DOE
notes that removing the prohibition would require either legislative
authority or DOE approval, after a case-by-case basis consideration on
the merits, of waivers submitted by States. For the present rulemaking,
DOE evaluated the impacts that such a policy would have for electric
storage water heaters.
Specifically, DOE estimated the impacts for a policy case in which
several States adopted provisions in their building codes that would
require electric storage water heaters to meet efficiency level 6 (2.0
EF, heat pump with two-inch insulation). DOE assumed that such codes
would affect 25 percent of water heaters in all new homes built in the
United States in 2015 and that the percentage would increase linearly
to 75 percent by 2045. (DOE did not attempt to define the specific
geographic areas that would be affected.) In this policy case, all
other water heaters (those bought for replacement in existing homes)
would meet the proposed standard level of 0.95 (efficiency level 5).
DOE's analysis accounts for the estimate that some new homes would have
a water heater with EF greater than or equal to 2.0 (e.g., heat pump
technology) in the absence of any amended standards (the base case).
DOE estimated that a policy that would allow States to require that
some electric storage water heaters installed in new homes have an
efficiency level higher than the Federal standard would provide 2.18
quads of national energy savings and an NPV of consumer benefit of
$1.23 billion (at a 7-percent discount rate). The energy savings from
this State building code requirement for new homes would be greater
than the savings from today's energy conservation standard for electric
storage water heaters. This contrasts with the non-regulatory policy
alternatives discussed above, whose savings are lower than those of the
considered standards.
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. As required by Executive Order
13272, ``Proper Consideration of Small Entities in Agency Rulemaking''
67 FR 53461 (August 16, 2002), DOE published procedures and policies on
February 19, 2003, to ensure that the potential impacts of its rules on
small entities are properly considered during the rulemaking process.
68 FR 7990. DOE has made its procedures and policies available on the
Office of the General Counsel's Web site (http://www.gc.energy.gov/).
DOE reviewed the December 2009 NOPR and today's final rule under the
provisions of the Regulatory Flexibility Act and the procedure and
policies published on February 19, 2003.
For the manufacturers of the three types of heating products, the
Small Business Administration (SBA) has set a size threshold, which
defines those entities classified as ``small businesses'' for the
purposes of the statute. DOE used the SBA's small business size
standards to determine whether any small entities would be subject to
the requirements of the rule. 65 FR 30836, 30850 (May 15, 2000), as
amended at 65 FR 53533, 53545 (Sept. 5, 2000) and codified at 13 CFR
part 121.The size standards are listed by North American Industry
Classification System (NAICS) code and industry description and are
available at http://www.sba.gov/idc/groups/public/documents/sba_homepage/serv_sstd_tablepdf.pdf. Residential water heater
manufacturing is classified under NAICS 335228--``Other Major Household
Appliance Manufacturing.'' DHE and pool heater manufacturing are
classified under NAICS 333414--``Heating Equipment (Except Warm Air
Furnaces) Manufacturing.'' The SBA sets a threshold of 500 employees or
less for an entity to be considered as a small business for both of
these categories as shown in Table VII.6.
[[Page 20226]]
Table VII.6--SBA and NAICS Classification of Small Business Manufacturers Potentially Affected by This Rule \26\
----------------------------------------------------------------------------------------------------------------
Industry description Revenue limit Employee limit NAICS
----------------------------------------------------------------------------------------------------------------
Residential Water Heater Manufacturing................. N/A 500 335228
Direct Heating Manufacturing........................... N/A 500 333414
Pool Heater Manufacturing.............................. N/A 500 333414
----------------------------------------------------------------------------------------------------------------
In the December 2009 NOPR, DOE looked at each type of heating
product (water heaters, pool heaters, and direct heating) separately
for purposes of determining whether certification was appropriate or an
initial regulatory flexibility analysis was needed. DOE identified five
small residential water heater manufacturers, 12 small DHE
manufacturers, and one small pool heater manufacturer that produce
covered products and can be considered small businesses manufacturers.
74 FR 65852, 65984-86 (Dec. 11, 2009). DOE concluded that the proposed
standards for residential water heaters and gas-fired pool heaters set
forth in the proposed rule, if promulgated, would not have a
significant economic impact on a substantial number of small entities.
DOE also sought comment on the impacts of the proposed amended energy
conservation standards on small business manufacturers of residential
water heaters and the impacts of the proposed amended energy
conservation standards on small business manufacturers of gas-fired
residential pool heaters. DOE received no comments on the certification
or its additional requests for comment on small business impacts in
response to the December 2009 NOPR for residential water heaters and
gas-fired pool heaters. Comments related to the economic impacts of the
proposed rule generally are discussed elsewhere in the preamble, and no
changes were made to the certification as a result of these comments.
Thus, DOE reaffirms the certification and has not prepared a FRFA for
this final rule for those products.
---------------------------------------------------------------------------
\26\ In the December 2009 NOPR, DOE mistakenly listed gas-fired
pool heater manufacturing under NAICS code 335228. 74 FR 65852,
65984 (Dec. 11, 2009). The correct classification for pool heater
manufacturing is 333414. Both NAICS categories have the same 500
employee limit.
---------------------------------------------------------------------------
DOE determined, however, that it could not certify that the
proposed standards, if promulgated, would not have significant impact
on a substantial number of small entities in the direct heating
equipment industry. DOE made the determination that small business
manufacturers of both traditional and gas hearth DHE could be
negatively impacted by the standards proposed in the December 2009
NOPR. 74 FR 65852, 65985-86 (Dec. 11, 2009). Because of the potential
impacts on small DHE manufacturers, DOE prepared an IRFA for DHE during
the NOPR stage of this rulemaking. DOE provided the IRFA in its
entirety in the December 2009 NOPR. 74 FR 65852, 65984-92 (Dec. 11,
2009). Chapter 12 of the TSD contains more information about the impact
of this rulemaking on manufacturers. DOE presents the FRFA conducted
for this rulemaking in the following discussion. Comments received in
response to the IRFA are also presented below.
DOE's determination that the rule may have a significant economic
impact on a substantial number of small entities results from the large
number of small DHE manufacturers and the expected impact of the
standards on these small businesses. As presented and discussed below,
the FRFA describes potential impacts on small business DHE
manufacturers associated with the required capital and product
conversion costs at each TSL and discusses alternatives that could
minimize these impacts.
Succinct Statement of the Need for, and Objectives of, the Rule
The statement of the need for and objectives of the rule is set
forth elsewhere in the preamble and is not repeated here.
Description and Estimated Number of Small Entities Regulated
After examining structure of the DHE industry, DOE determined it
was necessary to divide potential impacts on small DHE manufacturers
into two broad categories: (1) Impacts on small manufacturers of
traditional DHE (i.e., manufacturers of gas wall fan, gas wall gravity,
gas floor, and gas room DHE); and (2) impacts on small manufacturers of
gas hearth products. The FRFA presents the results for traditional DHE
and gas hearth DHE separately to be consistent with the MIA results in
section VI.C.2 which also separate DHE in this manner. Traditional DHE
and gas hearth DHE are made by different manufacturers (i.e., all
manufacturers of gas hearth products do not manufacture traditional
DHE, and vice versa, with one exception).
Traditional Direct Heating Equipment
Three major manufacturers control almost 100 percent of the
traditional DHE market. Two of the three major manufacturers of
traditional DHE are small business manufacturers. One of the small
business manufacturers produces only traditional DHE and has products
in all four traditional DHE product classes (i.e., gas wall fan, gas
wall gravity, gas floor, and gas room DHE). The second small business
manufacturer produces all five products classes of DHE, including gas
hearth DHE. DOE identified a third small business manufacturer with
less than a one-percent share of the traditional DHE market. This
company offers two gas wall gravity models, but is mainly focused on
specialty hearth products not covered by this rulemaking.
Gas Hearth Direct Heating Equipment
DOE identified 10 small business manufacturers of gas hearth DHE.
Both small business manufacturers and large manufacturers indicated
that the number of competitors in the market has been declining in
recent years due to industry consolidation and smaller companies
exiting the market. Three major domestic manufacturers now supply a
majority of the marketplace. None of the three major manufacturers is
considered a small business. The remainder of the market is either
imported (mostly by Canadian companies) or produced by one of 12
domestic manufacturers that hold varying market shares.
Significant Issues Raised by Public Comments
A number of interested parties commented on the appropriateness of
the proposed standard level for traditional DHE, given the impacts DOE
calculated in the MIA, and urged DOE to reconsider the traditional DHE
standards for the final rule. See section V.A.2 for a summary of these
comments, and see section VI.D.3 for a discussion of DOE's conclusion
about the final amended energy conservation standard for traditional
DHE in light of these and other comments.
DOE also received a number of comments from industry groups and
[[Page 20227]]
manufacturers, including two small business manufacturers, about the
potential of the proposed standards to have a tremendous impact on
direct employment in the traditional DHE market. See section IV.I.4 for
a discussion of these comments. Interested parties also commented on
the MIA scenarios and profitability in the traditional DHE market after
the compliance date of the amended energy conservation standards
(section IV.I.2). Another issue raised by interested parties that could
impact small business manufacturers and the industry in general is
securing the funding for the conversion costs estimated by DOE (see
section IV.I.5).
Several comments argued that TSL 3, as presented in the December
2009 NOPR, presented a very negative business case for traditional DHE
manufacturers, especially small business manufacturers. In general,
AHRI and the small business manufacturers argued that the market for
traditional DHE would not support the sales volume necessary to recoup
the investments in R&D and capital equipment required by TSL 3.
Essentially, two factors drive this argument: (1) The costs required by
amended standards; and (2) revenues that follow the standards. On the
cost side, AHRI stated that manufacturers cannot afford the necessary
investment for product development and redesign for nearly all of their
models; the retooling and changing of their production lines; and the
testing of those redesigned models to certify compliance with the
applicable safety standards. On the revenue side, AHRI and
manufacturers attributed the lack of volume necessary to recoup these
costs to three factors: (1) The market has already been in steady
decline in the base case; (2) there would be fewer retrofits--the
products' primary market--because of space constraints and the
increased size associated with higher-efficiency products; and (3)
higher first costs, including higher installation costs, would further
reduce demand. (Williams, No. 96 at p. 1; Empire, Public Meeting
Transcript, No. 57.4 at pp. 298-300; AHRI, No. 91 at p. 10) AHRI and
the manufacturers argued that the prospect of declining sales and the
aforementioned costs would force those manufacturers to either drop
product lines or exit the market entirely. (AHRI, No. 91 at p. 10; LTS,
Public Meeting Transcript, No. 57.4 at p. 25) As a result, some
segments of the traditional DHE market may shrink to only one or two
manufacturers. (AHRI, No. 91 at p. 10) As mentioned in section VI.C.5,
DOJ expressed concern that the proposed standards could adversely
affect competition in the traditional DHE product categories. (DOJ, No.
99 at p. 2)
DOE also received comments specific to the small business analysis
presented in the IRFA section of the December 2009 NOPR. LTS agreed
that most manufacturers have existing products that meet the required
efficiencies in three out of the four product types of traditional DHE,
but said that that statement is misleading because only 15 percent of
LTS' total sales come from products that meet the proposed standards.
LTS stated its belief that its competitors similarly derive only a
small portion of total revenue from products that would meet the
proposed standards. (LTS, No. 56.7 at p. 2; Public Meeting Transcript,
No. 57.4 at p. 22) LTS also disagreed with DOE's statement in the
December 2009 NOPR that small business manufacturers would be left with
a viable number of product lines that meet the new standards,
particularly for the gravity wall category which represents 60 percent
of their business. Because only one manufacturer has two gas wall
gravity models that would meet the proposed standard (which represent 5
percent of sales and only have lower input ratings less than 25,000
BTU), LTS stated that these few products do not lead to maintaining a
viable number of product offerings. (LTS, No. 56.7 at p. 3; LTS, Public
Meeting Transcript, No. 57.4 at pp. 23-24; 286-287) Therefore, LTS did
not agree with DOE's conclusion that manufacturers would have a viable
number of product lines at TSL 3 to maintain a sufficient production
volume and remain in the market. (LTS, No. 56.7 at p. 2)
DOE acknowledges that, according to the AHRI database, LTS produces
only a few gas wall gravity DHE models that would meet the standards
being adopted in this final rule. According to the AHRI directory, LTS
has certified four models that meet the proposed gas wall gravity
standard in the 2009 NOPR. These four models are two basic products
that are listed twice in the directory (once for using natural gas as a
fuel source and once for using propane gas as a fuel source). DOE also
understands that these products currently reflect a small share of the
market and that few of LTS's current products in other categories would
meet the standards proposed in the December 2009 NOPR. To clarify, in
the December 2009 NOPR, DOE concluded that a combination of existing
product lines that currently meet the standard and other select product
lines--which would have to be upgraded--would allow manufacturers to
offer a viable number of product lines after the compliance date of the
amended energy conservation standard. DOE did and does not assume that
only products that meet the current standard will be sufficient to
support manufacturers after compliance with the amended standards is
required.
For these reasons, in the IRFA, DOE accounted for the costs the
industry would incur to upgrade all of its other gas wall gravity
product lines at the proposed standard. For the final rule, DOE used
the AHRI database to update the number of product lines manufacturers
currently have, and continued to use this methodology to estimate its
capital conversion costs. DOE recognizes that its conversion costs may,
therefore, be conservative because manufacturers may choose not to
upgrade all of their current product lines. However, DOE assumed
manufacturers would have to invest to maintain the shipment volumes
forecasted in the NIA. See chapter 12 of the TSD for more details on
DOE's product line analysis.
AHRI stated that because manufacturers in the traditional DHE
market provide products of every type, the total shipments of
traditional DHE must be considered since that is the true base of
manufacturers' business. According to the commenter, DOE must
reconsider its analysis for traditional DHE, both relative to the
impacts on manufacturers and on national energy savings, given that
total future shipments are expected to continue to decrease. (AHRI, No.
91 at p. 11) AHRI stated that, to date, the traditional DHE
manufacturers have survived by offering replacements. Dropping product
lines or dropping categories would hurt manufacturers because they
would no longer be able to offer all replacements for all products,
which could cause a complete exit from the market rather than upgrading
some product lines. (AHRI, Public Meeting Transcript, No. 57.4 at pp.
297-298) Williams stated that offering a range of products is critical
to traditional DHE manufacturers, arguing that in a small, niche
category, part of viability is being able to offer a breadth of
products. Williams commented that it needs to be able to be able to
offer like replacements, including units without electricity.
(Williams, Public Meeting Transcript, No. 57.4 at pp. 301-302)
DOE agrees with AHRI and Williams that total sales and offering a
broad range of products are critical to traditional DHE manufacturers.
In the December 2009 NOPR, DOE noted that the wide range of product
offerings by
[[Page 20228]]
manufacturers is a legacy of a once higher-volume market that now
typically supplies replacement units. The remaining manufacturers have
stayed in business by consolidating brands and the legacy products of
companies that are no longer in business to take increasing shares of a
smaller total market. Because maintaining a sufficiently broad product
line is so critical to traditional DHE manufacturers, DOE conducted its
small business impact analysis by examining how the conversion costs to
convert all product lines would impact small business manufacturers.
Because each product line is manufactured in relatively low volumes,
the discrepancy between unit shipments and the number of product lines
requiring significant product and capital conversion costs results in
negative impacts for all manufacturers. 74 FR 65852, 65986 (Dec. 11,
2009).
DOE notes that the comments it received on the IRFA pertain to the
conclusion DOE drew from the results, rather than the methodology or
results themselves. As such, DOE has maintained its methodology from
the December 2009 NOPR (discussed in more detail in section IV.I) and
believes it has appropriately captured the costs to traditional DHE
manufacturers of upgrading all of their product lines to the TSLs. The
cash flow impacts presented in section VI.C.2.b are reflective of this
assumption. However, DOE recognizes the significant costs small
business manufacturers could face in converting product lines. In light
of these costs and the need to maintain a viable number of products to
offer in the marketplace, DOE is adopting a different TSL for
traditional DHE in today's final rule. Particularly in light of this
change, DOE continues to believe that manufacturers, including the
small business manufacturers, will be able to maintain a viable number
of products after the compliance date of the amended energy
conservation standards.
DOE did not receive any specific comments on the MIA for gas hearth
DHE manufacturers. DOE also did not receive any comments on its request
for comment on the characterization of a typical large and small
business manufacturer of gas hearth DHE nor its request for comment on
the potential impacts on small business manufacturers of gas hearth
DHE.
Description and Estimate of Compliance Requirements
Traditional DHE
While DOE explicitly analyzed one representative input capacity
range for the gas wall gravity, gas wall fan, gas floor, and gas room
types of DHE, manufacturers offer product lines that typically span
multiple BTU ranges with many different features. This can result in
many individual models offered by each manufacturer per product line.
Again, the wide range of product offerings by manufacturers is a legacy
of a once higher-volume market that now typically supplies replacement
units. The remaining manufacturers have stayed in business by
consolidating brands and the legacy products of companies that are no
longer in business to take increasing shares of a smaller total market.
Because each product line is manufactured in low volumes, the
discrepancy between unit shipments and the number of product lines
requiring significant product and capital conversion costs results in
negative impacts for all manufacturers. Many product development costs
(e.g., testing, certification, and marketing) are somewhat fixed, so
achieving manufacturing scale is an important consideration in
determining whether the product conversion costs are economically
justified. Similarly, even though any capital conversion costs can be
capitalized over a number of years, these costs must be paid up front,
and there must be a large enough volume to justify an added per-unit
cost.
DOE calculated capital and product conversion costs for traditional
DHE by estimating a per-product-line cost and assuming that every
manufacturer would face the same per-product-line cost within each
product class. DOE also assumed that any product line that does not
meet the efficiency level being analyzed would be upgraded, thereby
requiring product conversion and capital conversion costs. DOE used
public data to calculate the number of product lines that would need to
be upgraded at each TSL for each product class. To show how the small
business manufacturers could be differentially harmed, DOE compared the
conversion costs for a typical large manufacturer and a typical small
business manufacturer within the industry. To calculate the conversion
costs for a typical small business manufacturer and a typical large
manufacturer, DOE used publicly-available information to determine the
average number of product lines that meet each efficiency level in each
product category for a typical small business manufacturer and a
typical large manufacturer of traditional DHE. DOE updated this
information for the final rule, adding products that had been released
since the December 2009 NOPR analysis. For both small business and
large manufacturers, DOE multiplied the number of product lines that
fell below the required efficiency level by its estimate of the per-
line capital and product conversion cost. Table VII.7 and Table VII.8
show DOE's estimates of the average number of product lines requiring
conversion at each TSL for a typical small business manufacturer and a
typical large manufacturer of traditional DHE, respectively.
Table VII.7--Number of Product Lines Requiring Conversion for a Typical Small Business Manufacturer of
Traditional Direct Heating Equipment*
----------------------------------------------------------------------------------------------------------------
Number of
Number of gas wall Number of Number of Total number Total
gas wall fan gravity gas floor gas room of product product
product product product product lines lines that
lines lines lines lines requiring meet each or
requiring requiring requiring requiring conversion exceed each
conversion conversion conversion conversion TSL
----------------------------------------------------------------------------------------------------------------
Baseline.................... 0 0 0 0 0 13
TSL 1....................... 2 2.5 0.5 1 6 7
TSL 2....................... 2 2.5 0.5 1.5 6.5 6.5
TSL 3....................... 3 4 0.5 2 9.5 3.5
TSL 4....................... 3.5 4 0.5 2 10 3
TSL 5....................... 2 4 0.5 2 8.5 4.5
TSL 6....................... 3.5 4 0.5 2 10 3
----------------------------------------------------------------------------------------------------------------
* Fractions of product lines result from taking the average number of product lines from publicly-available
information.
[[Page 20229]]
Table VII.8--Number of Product Lines Requiring Conversion for a Typical Large Manufacturer of Traditional Direct
Heating Equipment
----------------------------------------------------------------------------------------------------------------
Number of
Number of gas wall Number of Number of Total Total
gas wall gravity gas floor gas room number of product
fan product product product product product lines that
lines lines lines lines lines meet each
requiring requiring requiring requiring requiring or exceed
conversion conversion conversion conversion conversion each TSL
----------------------------------------------------------------------------------------------------------------
Baseline.......................... 0 0 0 0 0 18
TSL 1............................. 1 0 1 1 3 15
TSL 2............................. 2 0 1 1 4 14
TSL 3............................. 4 3 1 2 10 8
TSL 4............................. 7 3 1 2 13 5
TSL 5............................. 1 6 1 3 11 7
TSL 6............................. 7 6 1 3 17 1
----------------------------------------------------------------------------------------------------------------
Amended energy conservation standards have the potential to
differentially affect the small business manufacturers, because they
generally lack the large-scale resources to alter their existing
products and production facilities for those TSLs requiring major
redesigns. While all manufacturers would be expected to be negatively
impacted by amended energy conservation standards to varying degrees,
the small business manufacturers would face higher product conversion
costs at lower TSLs than their large competitor. Both large and small
business manufacturers have several product offerings in each product
class, sometimes at varying efficiency levels, but the larger
manufacturer produces products with higher efficiencies in larger
volumes. As a result, to produce a sufficiently large volume, the small
business manufacturers would have to upgrade more product lines at
lower TSLs than the large manufacturer at lower TSLs. As shown in Table
VII.9 and Table VII.10, modifying facilities and developing new, more-
efficient products would cause a typical small business manufacturer to
incur higher conversion costs than a typical larger manufacturer for
TSL 1 through TSL 3.
Table VII.9--Total Conversion Costs for a Typical Small Business Manufacturer of Traditional Direct Heating
Equipment
----------------------------------------------------------------------------------------------------------------
Capital Product Total
conversion conversion conversion
costs for a costs for a costs for a
typical small typical small typical small
business business business
manufacturer manufacturer manufacturer
(2009$ (2009$ (2009$
millions) millions) millions)
----------------------------------------------------------------------------------------------------------------
Baseline..................................................... ............... ............... ...............
TSL 1........................................................ 0.86 0.41 1.27
TSL 2........................................................ 1.35 0.57 1.92
TSL 3........................................................ 1.89 0.81 2.70
TSL 4........................................................ 2.18 0.92 3.10
TSL 5........................................................ 1.93 1.44 3.37
TSL 6........................................................ 2.52 1.65 4.17
----------------------------------------------------------------------------------------------------------------
Table VII.10--Total Conversion Costs for a Typical Large Manufacturer of Traditional Direct Heating Equipment
----------------------------------------------------------------------------------------------------------------
Capital Product
conversion costs conversion costs Total conversion
for a typical for a typical costs for a
large large typical large
manufacturer manufacturer manufacturer
(2009$ millions) (2009$ millions) (2009$ millions)
----------------------------------------------------------------------------------------------------------------
Baseline.................................................. ................ ................ ................
TSL 1..................................................... 0.23 0.14 0.38
TSL 2..................................................... 0.54 0.25 0.79
TSL 3..................................................... 1.81 0.79 2.60
TSL 4..................................................... 2.59 1.11 3.70
TSL 5..................................................... 2.90 2.13 5.03
TSL 6..................................................... 4.08 2.61 6.69
----------------------------------------------------------------------------------------------------------------
Because the larger manufacturer offers more products at higher
efficiencies, a typical small business manufacturer faces
disproportionate costs at the lower TSLs in absolute terms at TSL 1
through TSL 3. Despite being similar in absolute terms, at these TSLs,
the small business manufacturers would be more likely to be
disproportionately harmed at any TSL because they have a much lower
volume across which to spread similar costs. To show how a smaller
scale would harm a typical small business manufacturer, DOE used
estimates of the market shares within the industry
[[Page 20230]]
for each product class to estimate the typical annual revenue,
operating profit, research and development expense, and capital
expenditures for a typical large manufacturer and a typical small
business manufacturer using the financial parameters in the DHE GRIM.
Comparing the conversion costs of a typical small business manufacturer
to a typical large manufacturer with operating profit provides a rough
estimate of how quickly the investments could be recouped. Table VII.11
and Table VII.12 show these comparisons.
Table VII.11--Comparison of a Typical Small Business Manufacturer's Conversion Costs to Annual Expenses,
Revenue, and Operating Profit
----------------------------------------------------------------------------------------------------------------
Capital
conversion cost Product Total conversion Total conversion
as a percentage conversion cost cost as a cost as a
of annual as a percentage percentage of percentage of
capital of annual R&D annual revenue annual EBIT
expenditures expense
----------------------------------------------------------------------------------------------------------------
Baseline................................ ................ ................ ................ ................
TSL 1................................... 267 190 9 252
TSL 2................................... 332 210 11 302
TSL 3................................... 466 299 15 426
TSL 4................................... 537 341 17 489
TSL 5................................... 474 535 19 531
TSL 6................................... 619 612 23 657
----------------------------------------------------------------------------------------------------------------
Table VII.12--Comparison of a Typical Large Manufacturer's Conversion Costs to Annual Expenses, Revenue, and
Operating Profit
----------------------------------------------------------------------------------------------------------------
Capital
conversion cost Product Total conversion Total conversion
as a percentage conversion cost cost as a cost as a
of annual as a percentage percentage of percentage of
capital of annual R&D annual revenue annual EBIT
expenditures expense
----------------------------------------------------------------------------------------------------------------
Baseline................................ ................ ................ ................ ................
TSL 1................................... 33 30 1 34
TSL 2................................... 77 53 3 72
TSL 3................................... 257 169 8 237
TSL 4................................... 368 237 12 337
TSL 5................................... 412 456 16 458
TSL 6................................... 580 559 22 610
----------------------------------------------------------------------------------------------------------------
Table VII.11 and Table VII.12 illustrate that, although the
investments required at each TSL can be considered substantial for all
companies, the impacts could be relatively greater for a typical small
business manufacturer, because of much lower production volumes and a
comparable number of product offerings. At higher TSLs, it is more
likely that manufacturers of traditional DHE would reduce the number of
product lines they offer to keep their conversion costs at manageable
levels. At higher TSLs, small business manufacturers would face
increasingly difficult decisions on whether to: (1) Invest the capital
required to be able to continue offering a full range of products; (2)
cut product lines; (3) consolidate to maintain a large enough combined
scale to spread the required conversion costs and operating expenses;
or (4) exit the market altogether. Because of the high conversion costs
at higher TSLs, manufacturers would likely eliminate their lower-volume
product lines. Small business manufacturers might only be able to
afford to selectively upgrade their most popular products and be forced
to discontinue lower-volume products, because the product development
costs that would be required to upgrade all of their existing product
lines would be too high.
DOE's product line analysis revealed the potential for small
businesses manufacturers to be disproportionately harmed by the
proposed standard levels and higher TSLs. Additionally, DOE agrees with
comments that small business traditional DHE manufacturers have less
access to capital than their larger competitor. Larger manufacturers
profit from offering a variety of products and have the ability to fund
required capital and product conversion costs using cash generated from
all products. Unlike large manufacturers, the small business
manufacturers cannot leverage resources from other departments. With
these considerations, it is more likely that the small businesses would
have to spend an even greater proportion of their annual R&D and
capital expenditures than shown in the industry-wide figures.
In addition, small business manufacturers have less buying power
than their larger competitor. Traditional DHE is a low-volume industry,
which can make it difficult for any manufacturer to take advantage of
bulk purchasing power or economies of scale. The two small business
manufacturers have approximately half the market share of their large
competitor, which puts them at a disadvantage when purchasing
components and raw materials. In addition, the large manufacturer has a
parent company that manufactures products and equipment other than
traditional DHE. This manufacturer's larger scale and additional
manufacturing capacity (required for products and equipment other than
DHE) also give the company more leverage with its suppliers as it
purchases greater volumes of components and raw materials. During the
manufacturer interviews, the small businesses manufacturers commented
that to comply with amended energy conservation standards, they would
likely need to buy more purchased parts instead of producing most of
the final product in-house. Because the large manufacturer has an
advantage in purchasing power that would likely allow it to buy
purchased parts at lower
[[Page 20231]]
costs, an amended energy conservation standard that requires more
purchased parts may differentially harm the profitability of the small
business manufacturers.
Even though there is a potential for the small business
manufacturers to be negatively impacted by today's final rule, DOE
believes that manufacturers, including the small businesses, would be
able to maintain a viable number of product offerings at TSL 2, the
adopted standard level. A typical small business manufacturer of
traditional DHE offers product families in the four product types that
would meet or exceed the standard levels adopted in today's final rule.
For example, over two-thirds of the product lines identified by DOE as
currently on the market meet the standard established by today's final
rule for gas wall gravity DHE, which comprise over 60 percent of the
traditional DHE market. While recognizing that the product lines that
currently meet the standard represent a minority of current revenue,
the standard levels do not require manufacturers, including those that
are small businesses, to completely redesign all their product lines.
For those product lines that would need to be redesigned, DOE believes
that small business manufacturers would offer fewer product lines in
response to the amended energy conservation standards. However, DOE
believes that the standards adopted in today's final rule will allow
the small business manufacturers to selectively upgrade their existing
product lines and maintain viable production volumes after the
compliance date of the amended energy conservation standards.
Gas Hearth DHE
For gas hearth DHE in the IRFA, DOE used publicly-available
information to estimate the conversion costs for a typical large and a
typical small business manufacturer of gas hearth DHE as shown in the
December 2009 NOPR. 74 FR 65852, 65984-92 (Dec. 11, 2009). DOE
tentatively concluded that a typical small business manufacturer could
be differentially impacted by amended energy conservation standards
because of their smaller scale. However, DOE believed that a typical
small business manufacturer would not face prohibitively large
conversion costs and that the required changes would not require
significant investments in product development. DOE tentatively
concluded that because a typical manufacturer of gas hearth DHE already
offers multiple product lines that meet and exceed the required
efficiencies and because most product lines that did not meet the
proposed standard could be upgraded with relatively minor changes,
manufacturers, including the small business manufacturers, would be
able to maintain a viable number of product offerings. 74 FR 65852,
65991 (Dec. 11, 2009). In this final rule, while DOE is adopting a
different TSL for direct heating equipment (i.e., TSL 2), the
efficiency requirements are identical to the proposed amended energy
conservation standard for gas hearth DHE. Additionally, because DOE did
not receive any comments on the IRFA or the potential impacts on small
business manufacturers of gas hearth DHE, DOE continues to believe that
the analysis developed for the IRFA and presented in the December 2009
NOPR accurately presents the potential impacts on small business
manufacturers of gas hearth DHE. (See 74 FR 65852, 65989-91 (Dec. 11,
2009) for additional details.) Therefore, for the FRFA detailed in
today's final rule, DOE continues to believe that gas hearth DHE
manufacturers, including the small business manufacturers, will be able
to maintain a viable number of product offerings following the
compliance date of the amended energy conservation standard.
Description of the Steps DOE Has Taken To Minimize the Significant
Economic Impact on Small Entities Consistent With the Stated Objectives
of Applicable Statutes
DOE acknowledges all the potential impacts highlighted by
manufacturers and industry and updated its small business analysis for
the impacts on traditional DHE manufacturers in light of these comments
and additional information and analysis. The impacts on small business
manufacturers of traditional DHE, as illustrated in public comments,
contributed to DOE's ultimate determination that the TSL proposed in
the December 2009 NOPR for traditional DHE (TSL 3) was not economically
justified.
DOE discusses how it has considered the new information about the
impacts on traditional DHE in section VI.D.3. Even though there is a
potential for the small business manufacturers to be negatively
impacted by today's final rule, DOE believes that manufacturers,
including the small businesses, would be able to maintain a viable
number of product offerings at TSL 2, the adopted standard level. For
today's final rule, the small business manufacturers of traditional DHE
have an average of 6.5 product lines out of 13 that already meet the
required efficiencies. In total, 61 percent of the models offered by a
typical small business manufacturer meet the amended energy
conservation standards. DOE also reviewed the conversion costs required
for each of the small business manufacturers to upgrade an average of
approximately seven product lines for a capital cost totaling $1.35
million to offer replacements for all models that do not meet the
standard. At the proposed standards in the December 2009 NOPR, DOE
estimated small business manufacturers would be required to spend
approximately 3.5 years worth of operating profit to convert every
product line. For todays final rule, that estimate has fallen to 3.0
years despite changes to the analysis that lowered annual shipments and
updates to the product line analysis to include new product lines.
While DOE believes that this would still be a substantial undertaking,
DOE has carefully reviewed the impact of the conversion costs on small
business manufacturers and has carefully considered what would be
required for these manufacturers to continue to offer a viable number
of replacement models that are critical to their ability to remain in
the market. In sum, DOE has concluded that adoption of a standard level
at TSL 2 in this final rule (as compared to TSL 3 proposed in the NOPR)
minimizes the impact on small business manufacturers to the extent
possible, given EPCA's requirements for setting energy conservation
standards.
Although the TSL lower than the adopted TSL would be expected to
further reduce the impacts on small entities, DOE is required by EPCA
to establish standards that achieve the maximum improvement in energy
efficiency that are technically feasible and economically justified,
and result in a significant conservation of energy, after considering a
variety of factors. As explained earlier in the preamble, DOE rejected
the lower TSL based on its analysis conducted pursuant to these EPCA
requirements.
In addition to the other TSLs being considered, the December 2009
NOPR TSD included a regulatory impact analysis. For DHE, this report
discusses the following policy alternatives: (1) No new regulatory
action; (2) consumer rebates; (3) consumer tax credits; (4)
manufacturer tax credits; (5) voluntary energy efficiency targets; (6)
early replacement incentives; and (7) bulk government purchases. While
these alternatives may mitigate the economic impacts on small entities
compared to the adopted standards, the energy savings of these
regulatory alternatives are significantly smaller than those expected
to result from the adopted
[[Page 20232]]
standard levels. Thus, DOE rejected these alternatives and is adopting
the standards set forth in this rulemaking.
C. Review Under the Paperwork Reduction Act of 1995
This rule contains a collection-of-information requirement subject
to the Paperwork Reduction Act of 1995 (PRA) which has been approved by
OMB under control number 1910-1400. As described in the December 2009
NOPR, public reporting burden for compliance reporting for energy and
water conservation standards is estimated to average 30 hours per
response, including the time for reviewing instructions, searching
existing data sources, gathering and maintaining the data needed, and
completing and reviewing the collection of information. 74 FR 65852,
65992 (Dec. 11, 2009). DOE did not receive any comments regarding this
burden estimate, or any other aspect of this data collection in
response to its proposals. DOE believes that the collection of
information required by this final rule is the least burdensome method
of meeting the statutory requirements.
Notwithstanding any other provision of the law, no person is
required to respond to, nor shall any person be subject to a penalty
for failure to comply with, a collection of information subject to the
requirements of the PRA, unless that collection of information displays
a currently valid OMB Control Number.
D. Review Under the National Environmental Policy Act of 1969
DOE prepared an environmental assessment (EA) of the impacts of
today's final rule, pursuant to the National Environmental Policy Act
of 1969 (NEPA) (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 NEPA (10 CFR part 1021). This
assessment includes an examination of the potential effects of emission
reductions likely to result from the rule in the context of global
climate change, as well as other types of environmental impacts. The
final EA has been incorporated into the final rule TSD at chapter 16.
DOE found the environmental effects associated with today's standard
levels for water heaters, direct heating equipment, and pool heaters to
be insignificant. Therefore, DOE is issuing a finding of no significant
impact (FONSI) as part of the final EA. 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. The Executive Order requires agencies to examine the
constitutional and statutory authority supporting any action that would
limit the policymaking discretion of the States and to carefully assess
the necessity for such actions. The Executive Order also requires
agencies to have an accountable process to ensure meaningful and timely
input by State and local officials in the development of regulatory
policies that have Federalism implications. On March 14, 2000, DOE
published a statement of policy describing the intergovernmental
consultation process it will follow in the development of such
regulations. 65 FR 13735. DOE has examined today's final rule and has
determined that it would not have a substantial direct effect on the
States, on the relationship between the national government and the
States, or on the distribution of power and responsibilities among the
various levels of government. EPCA governs and prescribes Federal
preemption of State regulations as to energy conservation for the
products that are the subject of today's final rule. States can
petition DOE for exemption from such preemption to the extent, and
based on criteria, set forth in EPCA. (42 U.S.C. 6297(d)) Therefore, no
further action is required by Executive Order 13132.
F. Review Under Executive Order 12988
With respect to the review of existing regulations and the
promulgation of new regulations, section 3(a) of Executive Order 12988,
``Civil Justice Reform'' (61 FR 4729 (Feb. 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, this final rule meets the relevant standards of
Executive Order 12988.
G. Review Under the Unfunded Mandates Reform Act of 1995
As indicated in the December 2009 NOPR, DOE reviewed the proposed
rule under Title II of the Unfunded Mandates Reform Act of 1995 (Pub.
L. 104-4) (UMRA), which requires each Federal agency to assess the
effects of their Federal regulatory actions on State, local, and Tribal
governments and the private sector. See 74 FR 65852, 65992-93 (Dec. 11,
2009). For a proposed regulatory action likely to result in a rule that
may cause the expenditure by State, local, and Tribal governments, in
the aggregate, or by the private sector of $100 million or more in any
one year (adjusted annually for inflation), section 202 of UMRA
requires a Federal agency to publish a written statement that estimates
the resulting costs, benefits, and other effects of the rule on the
national economy. (2 U.S.C. 1532(a), (b)) The UMRA also requires a
Federal agency to develop an effective process to permit timely input
by elected State, local, and Tribal governments on a proposed
``significant intergovernmental mandate,'' and requires an agency plan
for giving notice and opportunity for timely input to potentially
affected small governments before establishing any requirements that
might significantly or uniquely affect small governments. On March 18,
1997, DOE published a statement of policy on its process for
intergovernmental consultation under UMRA (62 FR 12820) (also available
at http://www.gc.doe.gov). Although today's final rule does not contain
a Federal intergovernmental mandate, it may impose expenditures of $100
million or more on the private sector.
DOE has concluded that this final rule would likely result in a
final rule that could impose expenditures of $100 million or more
between 2013 and 2045 in the private sector. For the final rule, DOE
estimated annualized impacts for the final standards using the results
of
[[Page 20233]]
the national impacts analysis. The national impact analysis results,
expressed as annualized values, range from $1.55-$2.03 billion (at a 7-
percent discount rate) and $1.90-$2.38 billion (at a 3-percent discount
rate) in total annualized benefits from the final rule. The NIA also
reports $1.28 billion (at a 7-percent discount rate) and $1.25 billion
(at a 3-percent discount rate) in annualized costs, and $0.27-$0.75
billion (at a 7-percent discount rate) and $0.65-$1.13 billion (at a 3-
percent discount rate) in annualized net benefits. Details are provided
in chapter 10 of the TSD. Therefore, DOE must publish a written
statement assessing the costs, benefits, and other effects of the rule
on the national economy.
Section 205 of UMRA also requires DOE to identify and consider a
reasonable number of regulatory alternatives before promulgating a rule
for which UMRA requires such a written statement. DOE must select from
those alternatives the most cost-effective and least burdensome
alternative that achieves the objectives of the rule, unless DOE
publishes an explanation for doing otherwise or the selection of such
an alternative is inconsistent with law.
As required by EPCA (42 U.S.C. 6295(o)), today's energy
conservation standards for residential water heaters, direct heating
equipment, and pool heaters would achieve the maximum improvement in
energy efficiency that DOE has determined to be both technologically
feasible and economically justified. DOE may not select a regulatory
alternative that does not meet this statutory standard. A discussion of
the alternatives considered by DOE is presented in the ``Regulatory
Impact Analysis'' section of the TSD for this final rule. Also, section
202(c) of UMRA authorizes an agency to prepare the written statement
required by UMRA in conjunction with or as part of any other statement
or analysis that accompanies the proposed rule. (2 U.S.C. 1532(c)) The
TSD, preamble, and regulatory impact analysis for today's final rule
contain a full discussion of the rule's costs, benefits, and other
effects on the national economy, and, therefore, satisfy UMRA's written
statement requirement.
H. Review Under the Treasury and General Government Appropriations Act,
1999
Section 654 of the Treasury and General Government Appropriations
Act, 1999 (Pub. L. 105-277) requires Federal agencies to issue a Family
Policymaking Assessment for any rule that may affect family well-being.
In the December 2009 NOPR, DOE tentatively determined that this
rulemaking would not have any impact on the autonomy or integrity of
the family as an institution, and, accordingly, that it is not
necessary to prepare a Family Policymaking Assessment. See 74 FR 65852,
65993 (Dec. 11, 2009). DOE received no comments concerning Section 654
in response to the December 2009 NOPR, and, therefore, has concluded
that no further action is necessary in today's final rule with respect
to this provision.
I. Review Under Executive Order 12630
DOE tentatively determined under Executive Order 12630,
``Governmental Actions and Interference with Constitutionally Protected
Property Rights,'' 53 FR 8859 (March 18, 1988), that this rule would
not result in any takings that might require compensation under the
Fifth Amendment to the U.S. Constitution. 74 FR 65852, 65993 (Dec. 11,
2009). DOE received no comments concerning Executive Order 12630 in
response to the December 2009 NOPR, and, therefore, has concluded that
no further action is necessary 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. OMB's guidelines were published at 67 FR 8452 (Feb. 22, 2002), and
DOE's guidelines were published at 67 FR 62446 (Oct. 7, 2002). DOE has
reviewed 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 (OIRA) at OMB, a Statement
of Energy Effects for any proposed significant energy action. A
``significant energy action'' is defined as any action by an agency
that promulgates or is expected to lead to promulgation of a final
rule, and that: (1) Is a significant regulatory action under Executive
Order 12866, or any successor order; and (2) is likely to have a
significant adverse effect on the supply, distribution, or use of
energy; or (3) is designated by the Administrator of OIRA as a
significant energy action. For any proposed significant energy action,
the agency must give a detailed statement of any adverse effects on
energy supply, distribution, or use should the proposal be implemented,
and of reasonable alternatives to the action and their expected
benefits on energy supply, distribution, and use.
DOE has determined that today's rule, which sets energy
conservation standards for residential water heaters, direct heating
equipment, and pool heaters, is not a ``significant energy action''
within the meaning of Executive Order 13211, because the standards are
not likely to have a significant adverse effect on the supply,
distribution, or use of energy, nor has it been designated as such by
the Administrator of OIRA. Accordingly, DOE has not prepared a
Statement of Energy Effects.
L. Review Under the Information Quality Bulletin for Peer Review
In consultation with the Office of Science and Technology Policy
(OSTP), OMB issued on December 16, 2004, its ``Final Information
Quality Bulletin for Peer Review'' (the Bulletin). 70 FR 2664 (Jan. 14,
2005). The Bulletin establishes that certain scientific information
shall be peer reviewed by qualified specialists before it is
disseminated by the Federal government, including influential
scientific information related to agency regulatory actions. The
purpose of the Bulletin is to enhance the quality and credibility of
the government's scientific information. Under the Bulletin, the energy
conservation standards rulemaking analyses are ``influential scientific
information,'' which the Bulletin defines as ``scientific information
that agency reasonably can determine will have or does have a clear and
substantial impact on important public policies or private sector
decisions.'' 70 FR 2664, 2667 (Jan. 14, 2005).
In response to OMB's Bulletin, DOE conducted formal in-progress
peer reviews of the energy conservation standards development process
and analyses, and has prepared a Peer Review Report on the energy
conservation standards rulemaking analyses. Generation of this report
involved a rigorous, formal, and documented evaluation using objective
criteria and qualified and independent reviewers to make a judgment as
to the technical/scientific/business merit, the actual or anticipated
results, and the productivity and management
[[Page 20234]]
effectiveness of programs and/or projects. The ``Energy Conservation
Standards Rulemaking Peer Review Report'' dated February 2007 has been
disseminated and is available at the following Web site: http://www1.eere.energy.gov/buildings/appliance_standards/peer_review.htm.
M. 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 today's final
rule.
List of Subjects in 10 CFR Part 430
Administrative practice and procedure, Confidential business
information, Energy conservation, Household appliances, Imports,
Intergovernmental relations, Reporting and recordkeeping requirements,
and Small businesses.
Issued in Washington, DC, on March 22, 2010.
Cathy Zoi,
Assistant Secretary, Energy Efficiency and Renewable Energy.
0
For the reasons set forth in the preamble, DOE amends part 430 of
chapter II, subchapter D, of title 10 of the Code of Federal
Regulations, 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. In Sec. 430.2, add the definitions ``Direct heating equipment'' and
``Vented hearth heater,'' in alphabetical order and revise the
definition ``Vented home heating equipment,'' to read as follows:
Sec. 430.2 Definitions.
* * * * *
Direct heating equipment means vented home heating equipment and
unvented home heating equipment.
* * * * *
Vented hearth heater means a vented appliance which simulates a
solid fuel fireplace and is designed to furnish warm air, with or
without duct connections, to the space in which it is installed. The
circulation of heated room air may be by gravity or mechanical means. A
vented hearth heater may be freestanding, recessed, zero clearance, or
a gas fireplace insert or stove. Those heaters with a maximum input
capacity less than or equal to 9,000 British thermal units per hour
(Btu/h), as measured using DOE's test procedure for vented home heating
equipment (10 CFR part 430, subpart B, appendix O), are considered
purely decorative and are excluded from DOE's regulations.
Vented home heating equipment or vented heater means a class of
home heating equipment, not including furnaces, designed to furnish
warmed air to the living space of a residence, directly from the
device, without duct connections (except that boots not to exceed 10
inches beyond the casing may be permitted and except for vented hearth
heaters, which may be with or without duct connections) and includes:
vented wall furnace, vented floor furnace, vented room heater, and
vented hearth heater.
* * * * *
0
3. In Sec. 430.32, revise paragraphs (d), (i), (k) to read as follows:
Sec. 430.32 Energy and water conservation standards and their
effective dates.
* * * * *
(d) Water heaters. The energy factor of water heaters shall not be
less than the following for products manufactured on or after the
indicated dates.
------------------------------------------------------------------------
Energy factor as
Product class of January 20, Energy factor as of
2004 April 16, 2015
------------------------------------------------------------------------
Gas-fired Water Heater........ 0.67-(0.0019 x For tanks with a
Rated Storage Rated Storage Volume
Volume in at or below 55
gallons). gallons: EF = 0.675-
(0.0015 x Rated
Storage Volume in
gallons).
For tanks with a
Rated Storage Volume
above 55 gallons:
EF = 0.8012-(0.00078
x Rated Storage
Volume in gallons).
Oil-fired Water Heater........ 0.59-(0.0019 x EF = 0.68-(0.0019 x
Rated Storage Rated Storage Volume
Volume in in gallons).
gallons).
Electric Water Heater......... 0.97-(0.00132 x For tanks with a
Rated Storage Rated Storage Volume
Volume in at or below 55
gallons). gallons: EF = 0.960-
(0.0003 x Rated
Storage Volume in
gallons).
For tanks with a
Rated Storage Volume
above 55 gallons:
EF = 2.057-(0.00113 x
Rated Storage Volume
in gallons).
Tabletop Water Heater......... 0.93-(0.00132 x EF = 0.93-(0.00132 x
Rated Storage Rated Storage Volume
Volume in in gallons).
gallons).
Instantaneous Gas-fired Water 0.62-(0.0019 x EF = 0.82-(0.0019 x
Heater. Rated Storage Rated Storage Volume
Volume in in gallons).
gallons).
Instantaneous Electric Water 0.93-(0.00132 x EF = 0.93-(0.00132 x
Heater. Rated Storage Rated Storage Volume
Volume in in gallons).
gallons).
------------------------------------------------------------------------
Note: The Rated Storage Volume equals the water storage capacity of a
water heater, in gallons, as specified by the manufacturer.
* * * * *
(i) Direct heating equipment. (1) Vented home heating equipment
manufactured on or after January 1, 1990 and before April 16, 2013,
shall have an annual fuel utilization efficiency no less than:
------------------------------------------------------------------------
Annual fuel utilization
Product class efficiency, Jan. 1,
1990 (percent)
------------------------------------------------------------------------
1. Gas wall fan type up to 42,000 Btu/h........ 73
2. Gas wall fan type over 42,000 Btu/h......... 74
[[Page 20235]]
3. Gas wall gravity type up to 10,000 Btu/h.... 59
4. Gas wall gravity type over 10,000 Btu/h up 60
to 12, 000 Btu/h..............................
5. Gas wall gravity type over 12,000 Btu/h up 61
to 15,000 Btu/h...............................
6. Gas wall gravity type over 15,000 Btu/h up 62
to 19,000 Btu/h...............................
7. Gas wall gravity type over 19,000 Btu/h and 63
up to 27,000 Btu/h............................
8. Gas wall gravity type over 27,000 Btu/h and 64
up to 46,000 Btu/h............................
9. Gas wall gravity type over 46,000 Btu/h..... 65
10. Gas floor up to 37,000 Btu/h............... 56
11. Gas floor over 37,000 Btu/h................ 57
12. Gas room up to 18,000 Btu/h................ 57
13. Gas room over 18,000 Btu/h up to 20,000 Btu/ 58
h.............................................
14. Gas room over 20,000 Btu/h up to 27,000 Btu/ 63
h.............................................
15. Gas room over 27,000 Btu/h up to 46,000 Btu/ 64
h.............................................
16. Gas room over 46,000 Btu/h................. 65
------------------------------------------------------------------------
(2) Vented home heating equipment manufactured on or after April
16, 2013, shall have an annual fuel utilization efficiency no less
than:
------------------------------------------------------------------------
Annual fuel utilization
Product class efficiency, April 16,
2013 (percent)
------------------------------------------------------------------------
1. Gas wall fan type up to 42,000 Btu/h........ 75
2. Gas wall fan type over 42,000 Btu/h......... 76
3. Gas wall gravity type up to 27,000 Btu/h.... 65
4. Gas wall gravity type over 27,000 Btu/h up 66
to 46,000 Btu/h...............................
5. Gas wall gravity type over 46,000 Btu/h..... 67
6. Gas floor up to 37,000 Btu/h................ 57
7. Gas floor over 37,000 Btu/h................. 58
8. Gas room up to 20,000 Btu/h................. 61
9. Gas room over 20,000 Btu/h up to 27,000 Btu/ 66
h.............................................
10. Gas room over 27,000 Btu/h up to 46,000 Btu/ 67
h.............................................
11. Gas room over 46,000 Btu/h................. 68
12. Gas hearth up to 20,000 Btu/h.............. 61
13. Gas hearth over 20,000 Btu/h and up to 66
27,000 Btu/h..................................
14. Gas hearth over 27,000 Btu/h and up to 67
46,000 Btu/h..................................
15. Gas hearth over 46,000 Btu/h............... 68
------------------------------------------------------------------------
* * * * *
(k) Pool heaters. (1) Gas-fired pool heaters manufactured on or
after January 1, 1990 and before April 16, 2013, shall have a thermal
efficiency not less than 78%.
(2) Gas-fired pool heaters manufactured on or after April 16, 2013,
shall have a thermal efficiency not less than 82%.
* * * * *
Appendix
[The following letter from the Department of Justice will not
appear in the Code of Federal Regulations.]
DEPARTMENT OF JUSTICE, Antitrust Division
CHRISTINE A. VARNEY, Assistant Attorney General, Main Justice
Building, 950 Pennsylvania Avenue, N.W., Washington, D.C 20530-0001,
(202) 514-2401/(202) 616-2645 (Fax) E-mail: [email protected],
Web site: http://www.usdoj.gov/atr
February 12, 2010
Robert H. Edwards, Jr., Deputy General Counsel for Energy Policy,
Department of Energy, Washington, DC 20585
Dear Deputy General Counsel Edwards:
I am responding to your letter seeking the views of the Attorney
General about the potential impact on competition of proposed energy
conservation standards for residential water heaters, direct heating
equipment and pool heaters (collectively, residential heating
products). Your request was submitted pursuant to Section
325(0)(2)(B)(i)(V) of the Energy Policy and Conservation Act, as
amended, (``EPCA''), 42 U.S.C. Sec. 6295(0)(B)(i)(V), which
requires the Attorney General to make a determination of the impact
of any lessening of competition that is likely to result from the
imposition of proposed energy conservation standards. 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 Sec. 0.40(g).
In conducting its analysis, the Antitrust Division examines
whether a proposed standard may lessen competition, for example, by
substantially limiting consumer choice, leaving consumers with fewer
competitive alternatives, 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.
We have reviewed the proposed standards contained in the Notice
of Proposed Rulemaking (``NOPR'') (74 Fed. Reg. 65852, December 11,
2009) and the supplementary information submitted to the Attorney
General, and attended the January 7, 2010 public hearing on the
proposed standards.
Based on this review, the Department of Justice does not believe
that the proposed standard for residential hot water heaters or pool
heaters would likely lead to a lessening of competition. Our review
has focused upon the standards DOE has proposed adopting; we have
not determined the impact on competition of more stringent standards
than those proposed in the NOPR.
With respect to direct heating equipment (DHE), the Department
does not see any competitive issue with gas hearth-heaters. The
Department, however, is concerned that the proposed efficiency
standards could adversely affect competition in the traditional DHE
product categories: (1) gravity wall furnaces; (2) fan-forced wall
furnaces; (3) floor furnaces; and (4) room heaters.
[[Page 20236]]
The Department notes that essentially only three manufacturers
currently market products for each of these four traditional DHE
categories. It appears from the record that meeting the proposed
standards may require the manufacturers, even those currently
producing models that meet the proposed standards, to make a
substantial capital investment to convert or expand their production
facilities. It also appears that each manufacturer will have to
commit significant resources for research and development.
Based on our review, the proposed efficiency standards could
affect competition by limiting the number of competitors in each
category. Given the capital investments and research and development
costs required to produce products meeting the standards, there is a
significant risk that no more than one or two DHE manufacturers will
choose to continue to produce products in anyone DHE category.
Although the Department of Justice is not in a position to judge
whether manufacturers will be able to meet--or choose to make the
capital expenditures to meet--the proposed standards, we ask the
Department of Energy to take into account the possible impact on
competition in determining its final energy efficiency standards for
DHE.
Sincerely,
Christine A. Varney
[FR Doc. 2010-7611 Filed 4-15-10; 8:45 am]
BILLING CODE 6450-01-P